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our smart energy initiative is designed to add layers of intelligent control to homes , buildings and grids—all personalized through easy-to-use customer interfaces . of all the solar cells commercially available to the mass market , we believe our solar cells have the highest conversion efficiency , a measurement of the amount of sunlight converted by the solar cell into electricity . for more information about our business , please refer to the section titled `` part i. item 1. business `` in this annual report on form 10-k. segments overview we operate in three end-customer segments : ( i ) residential segment , ( ii ) commercial segment and ( iii ) power plant segment . our president and chief executive officer , as the chief operating decision maker , reviews our business and manages resource allocations and measures performance of our activities among these three end-customer segments . the residential and commercial segments combined are referred to as distributed generation . for more information about our business segments , see the section titled `` part i. item 1. business `` in this annual report on form 10-k. for more segment information , see `` item 8. financial statements and supplementary data—note 17 . segment information '' in this annual report . unit of power when referring to our solar power systems , our facilities ' manufacturing capacity , and total sales , the unit of electricity in watts for kilowatts ( `` kw '' ) , megawatts ( `` mw '' ) , and gigawatts ( `` gw '' ) is direct current ( `` dc '' ) , unless otherwise noted as alternating current ( `` ac '' ) . seasonal trends our business is subject to industry-specific seasonal fluctuations including changes in weather patterns and economic incentives , among others . sales have historically reflected these seasonal trends with the largest percentage of total revenues realized during the last two quarters of a fiscal year . the construction of solar power systems or installation of solar power components and related revenue may decline during cold winter months . in the united states , many customers make purchasing decisions towards the end of the year in order to take advantage of tax credits or for other budgetary reasons . in addition , revenues may fluctuate due to the timing of project sales , construction schedules , and revenue recognition of certain projects , such as those involving the sale of real estate , which may significantly impact the quarterly profile of our results of operations . we may also retain certain development projects on our balance sheet for longer periods of time than in preceding periods in order to optimize the economic value we receive at the time of sale in light of market conditions , which can fluctuate after we have committed to projects . delays in disposing of projects , or changes in amounts realized on disposition , may lead to significant fluctuations to the period-over-period profile of our results of operations and our cash available for working capital needs . fiscal years we have a 52-to-53-week fiscal year that ends on the sunday closest to december 31. accordingly , every fifth or sixth year will be a 53-week fiscal year . the current fiscal year , fiscal 2016 , is a 52-week fiscal year , fiscal year 2015 was a 53-week fiscal year and had a 14-week fourth fiscal quarter , while fiscal year 2014 was a 52-week fiscal year . fiscal 2016 ended on january 1 , 2017 , fiscal 2015 ended on january 3 , 2016 , and fiscal 2014 ended on december 28 , 2014 . outlook demand in fiscal 2016 we faced market challenges , primarily in our power plant segment , which impacted our margins and prompted us to implement changes to our business in order to realign our downstream investments , optimize our supply chain , and reduce operating expenses . our actions included the consolidation of our manufacturing operations in order to accelerate operating cost reductions and improve overall operating efficiency . factors that impacted our margins included write-downs totaling $ 46.2 million on certain solar power development projects during 2016 because of adjustments to pricing assumptions , 55 as well as charges totaling $ 58.2 million that were recorded in fiscal 2016 in connection with the contracted sale of raw material inventory to third parties as we sought to improve our working capital . in fiscal 2017 , we plan to focus on projects that we expect will be profitable ; however , market conditions can deteriorate after we have committed to projects . for example , shifts in the timing of demand and changes in the internal rate of return ( `` irr '' ) that our customers expect can significantly affect project sale prices . a pronounced increase in expected customer and investor irr rates in light of market conditions may continue to drive lower overall project sale prices in fiscal 2017. for more information see `` part i. item 1a . risk factors—risks related to our sales channels—our operating results are subject to significant fluctuations and are inherently unpredictable '' in this annual report on form 10-k. in the face of these near-term challenges , we remain focused on each of our three business segments as well as on continued investment in next-generation technology . we plan to expand the footprint of our sunpower equinox tm and helix tm complete solutions in our residential and commercial businesses . we plan to focus our power plant business development resources on a limited number of core markets , primarily in the americas , where we believe we have a sustainable competitive advantage . outside of these core markets , we will focus our power plant business on the sale of our new oasis® complete solution , incorporating performance series panel technology , to developers and epc companies in global markets . story_separator_special_tag we also continue to work on making combined solar and distributed energy storage solutions broadly commercially available to certain customers in the united states through our agreement to offer sunverge sis energy solutions comprising batteries , power electronics , and multiple energy inputs controlled by software in the cloud . we continue to improve our unique , differentiated solar cell and panel technology . we emphasize improvement of our solar cell efficiency and lcoe and ccoe performance through enhancement of our existing products , development of new products and reduction of manufacturing cost and complexity in conjunction with our overall cost-control strategies . we are now producing our solar cells with over 25 % efficiency in the lab , have reached production panel efficiencies over 24 % , and have started up our high-volume performance series production lines in mexico . we plan to reduce our overall solar cell manufacturing output to match profitable demand levels , with increasing bias toward our highest efficiency x-series product platform , which utilizes our latest solar cell technology , and our performance series product , which utilizes conventional cell technology that we purchase from third parties in low-cost supply chain ecosystems such as china . we recently closed our fab 2 cell manufacturing facility and our panel assembly facility in the philippines and are focusing on our latest generation , lower cost panel assembly facilities in mexico . as part of this realignment , we expect to reduce our back-contact panel assembly capacity while ramping production of our new performance series technology . we are focused on reducing the cost of our solar panels and systems and are working with our suppliers and partners along all steps of the value chain to reduce costs by improving manufacturing technologies and expanding economies of scale . we also continually focus on reducing manufacturing cost and complexity in conjunction with our overall cost-control strategies . we believe that the global demand for solar systems is highly elastic and that our aggressive , but achievable , cost reduction roadmap will reduce installed costs for our customers across all business segments and drive increased demand for our solar solutions . we also work with our suppliers and partners to ensure the reliability of our supply chain . we have contracted with some of our suppliers for multi-year supply agreements , under which we have annual minimum purchase obligations . for more information about our purchase commitments and obligations , please see `` item 7. management 's discussion and analysis of financial condition and results of operations—liquidity and capital resources—contractual obligations '' and `` item 8. financial statements and supplementary data— '' note 9 . commitments and contingencies '' in the notes to the consolidated financial statements in this annual report on form 10-k . we currently believe our supplier relationships and various short- and long-term contracts will afford us the volume of material and services required to meet our planned output ; however , we face the risk that the pricing of our long-term contracts may exceed market value . we purchase our polysilicon under fixed-price long-term supply agreements ; purchases in fiscal 2016 under these agreements significantly exceeded market value and the volume contracted to be purchased in fiscal 2017 exceeds our planned utilization , which may result in higher inventory balances until we are able to fully utilize the polysilicon inventory in future periods . we have also elected to sell polysilicon inventory in excess of short-term needs to third parties at a loss , and may enter into further similar transactions in future periods . for more information about these risks , please see `` —our long-term , firm commitment supply agreements could result in excess or insufficient inventory , place us at a competitive disadvantage on pricing , or lead to disputes , each of which could impair our ability to meet our cost reduction roadmap '' and `` —we will continue to be dependent on a limited number of third-party suppliers for certain raw materials and components for our products , which could prevent us from delivering our products to our customers within required timeframes and could in turn result in sales and installation delays , cancellations , penalty payments and loss of market share '' under `` part 1. item 1a . risk factors—risks related to our supply chain '' in this annual report on form 10-k. projects under contract 57 the table below presents significant construction and development projects under contract as of january 1 , 2017 : project location size ( mw ) third-party owner / purchaser ( s ) power purchase agreement ( s ) expected substantial completion of project 1 iberdrola gala solar project oregon , usa 71 avangrid renewables , llc customer a 2017 boulder solar project ii nevada , usa 62 aep renewables , llc sierra pacific power company 2017 1 expected completion of revenue recognition assumes completion of construction in the stated fiscal year . as of january 1 , 2017 , an aggregate of approximately $ 222.6 million of remaining revenue is expected to be recognized on projects reflected in the table above through the expected completion dates noted . projects will be removed from the table above in the period in which substantially all of the revenue for such project has been recognized . projects with executed power purchase agreements - not sold / not under contract the table below presents significant construction and development projects with executed ppas , but not sold or under contract as of january 1 , 2017 : project location size ( mw ) power purchase agreement ( s ) expected substantial completion of project 1 ticul solar projects mexico 399 comision federal electricidad 2018 guajiro solar project mexico 117 comision federal electricidad 2018 el pelicano solar project chile 111 empresa de transporte de pasajeros metro s.a. 2017 1 expected completion of revenue recognition assumes completion of construction and sale of the project in the stated fiscal year . our project pipeline extends beyond the projects represented in the tables above .
| results of operations revenue replace_table_token_4_th total revenue : our total revenue increased by 62 % during fiscal 2016 as compared to fiscal 2015 , primarily due to increased sales of solar power systems across all segments and particularly due to revenue recognized on the sale of several 60 utility-scale solar power projects in the power plant segment during the second half of fiscal 2016 , such as the 128 mw henrietta project and the 125 mw boulder solar i project . our total revenue decreased 48 % during fiscal 2015 as compared to fiscal 2014 primarily because during fiscal 2015 we deferred the recognition of any revenue or profit on the sale of projects involving real estate to 8point3 energy partners under the accounting treatment described in `` item 8. financial statements and supplementary data—note 3 . 8point3 energy partners lp '' in our annual report on form 10-k for the fiscal year ended january 3 , 2016. the decrease in revenue in fiscal 2015 was also due to substantial completion of revenue recognition at the end of fiscal 2014 on certain large-scale solar power systems . a decline in sales of solar power systems and components to residential and commercial customers also contributed to the period-over-period decrease in total revenue .
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if the licensee incurs a substantive termination penalty upon termination , the contract term for revenue recognition purposes is generally equal to the stated term of the license , which is the life of the underlying licensed patents story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations in conjunction with the audited financial statements and the notes thereto included elsewhere in this annual report on form 10-k. in addition , you should read the “ risk factors ” and “ information regarding forward-looking statements ” sections of this annual report on form 10-k for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . for a full discussion and analysis of financial condition and results of operations for the year ended december 31 , 2019 , including a year-over-year comparison to the year ended december 31 , 2018 , please read the “ management 's discussion and analysis of financial condition and results of operations ” section of our annual report on form 10-k for the year ended december 31 , 2019 , which we filed with the sec on february 26 , 2020. overview we are a leading clinical-stage biotechnology company seeking to improve lives through the curative potential of gene therapy . our gene therapy product candidates are designed to deliver genes to cells to address genetic defects or to enable cells in the body to produce therapeutic proteins that are intended to impact disease . through a single administration , our gene therapy product candidates are designed to provide long-lasting effects , potentially significantly altering the course of disease and delivering improved patient outcomes . overview of product candidates we have developed a broad pipeline of gene therapy programs using our proprietary adeno-associated virus ( aav ) gene therapy delivery platform ( nav technology platform ) to address genetic diseases through two modalities : aav-mediated antibody delivery and monogenic gene replacement . the aav-mediated antibody delivery modality is designed to treat serious and chronic diseases by delivering the genes necessary for the sustained production of therapeutic antibodies in vivo . our monogenic gene replacement approach builds upon the well-understood mechanism of replacing a dysfunctional or missing gene with a functional copy of the gene in order to enable sustained production of necessary proteins . gene therapy using nav vectors for aav-mediated antibody delivery rgx-314 : we are developing rgx-314 as a novel , single-administration gene therapy for the treatment of wet age-related macular degeneration ( wet amd ) , diabetic retinopathy ( dr ) , and other additional chronic retinal conditions which cause total or partial vision loss . we are advancing two separate routes of administration of rgx-314 to the eye , through a standardized subretinal delivery procedure as well as by delivery to the suprachoroidal space using the scs microinjector licensed from clearside biomedical , inc. in january 2021 , we announced that we completed an end of phase 2 meeting with the u.s. food and drug administration ( fda ) to discuss the details of a pivotal program to support a biologics license application ( bla ) . the pivotal program is expected to support a biologics license application ( bla ) filing in 2024. we plan to conduct two randomized , well-controlled clinical trials to evaluate the efficacy and safety of rgx-314 in patients with wet amd , enrolling approximately 700 patients total . the first pivotal trial ( atmosphere tm ) is active and enrolling patients . we plan to initiate the second pivotal trial in the second half of 2021. in february 2021 , we announced additional positive data from the patients enrolled in the ongoing phase i/ii trial of rgx-314 for the treatment of wet amd and its long-term follow-up study . as of january 22 , 2021 , rgx-314 continued to be generally well-tolerated across all dose cohorts . durable treatment effect was observed in patients in cohorts 4 and 5 at 1.5 years after administration of rgx-314 , including stable visual acuity , decreased retinal thickness , and reductions in anti-vegf injection burden . long-term , durable treatment effect was demonstrated in cohort 3 over three years , including mean improvement in vision and stable retinal thickness , and reductions in anti-vegf treatment burden . in september 2020 , we announced that the first patient had been dosed in aaviate tm , a phase ii trial of the suprachoroidal delivery of rgx-314 using the scs microinjector for the treatment of wet amd . in january 2021 , we announced completion of enrollment in cohort 1 of this trial , and we expect to report interim data from cohort 1 in the third quarter of 2021. enrollment of patients in cohort 2 has begun and is expected to be complete in the second quarter of 2021. in addition , we announced in december 2020 that the first patient had been dosed in altitude tm , a phase ii trial of the suprachoroidal delivery of rgx-314 for the treatment of dr. patient enrollment continues and we expect to complete enrollment of patients in cohort 1 in mid-2021 . we plan to report initial data from this trial in 2021 . 71 aav-mediated antibody expression for the treatment of hereditary angioedema ( hae ) : we are developing a novel , one-time treatment utilizing a nav vector to deliver a gene encoding for a therapeutic antibody that targets and binds to plasma kallikrein , a key protein left unregulated in patients with hae . hae is a chronic and severe disease characterized by recurring severe swelling ( angioedema ) , most commonly in the face , airway , intestines and limbs . we expect to provide a program update in 2021 . story_separator_special_tag in addition , if the business and operations of our licensees are adversely affected by the covid-19 pandemic , our revenues could in turn be adversely affected . we are proactively taking measures to mitigate or reduce any adverse impact of the covid-19 pandemic on the progress of our clinical trials and other business initiatives . our results of operations for the year ended december 31 , 2020 were not significantly impacted by the covid-19 pandemic . however , the full extent to which the covid-19 pandemic will directly or indirectly impact our business , results of operations and financial condition in the future is unknown at this time and will depend on future developments that are highly unpredictable . please refer to the “ risk factors ” section of this annual report on form 10-k for further discussion of the risks we face as a result of the covid-19 pandemic . financial overview revenues our revenues to date primarily consist of license and royalty revenue resulting from the licensing of our nav technology platform . we have not generated any revenues from commercial sales of our own products . if we fail to complete the development of our product candidates in a timely manner or obtain regulatory approval and adequate labeling , our ability to generate future revenues will be materially compromised . we license our nav technology platform to other biotechnology and pharmaceutical companies . the terms of the licenses vary , and licenses may be exclusive or non-exclusive and may be sublicensable by the licensee . licenses may grant intellectual property rights for purposes of internal and preclinical research and development only , or may include the rights , or options to obtain future rights , to commercialize drug therapies for specific diseases using the nav technology platform . license agreements generally have a term at least equal to the life of the underlying patents , but are terminable at the option of the licensee . consideration from licensees under our license agreements may include : ( i ) up-front and annual fees , ( ii ) option fees to acquire additional licenses , ( iii ) milestone payments based on the achievement of certain development and sales-based milestones by licensees , ( iv ) sublicense fees and ( v ) royalties on sales of licensed products . royalty revenue to date consists primarily of royalties on net sales of zolgensma , which is marketed by novartis gene therapies , inc. ( formerly avexis , inc. ) ( novartis gene therapies ) , a wholly owned subsidiary of novartis ag ( novartis ) , for the treatment of spinal muscular atrophy ( sma ) . zolgensma is a licensed product under our license agreement with novartis gene therapies for the development and commercialization of treatments for sma . 73 future license and royalty revenues are dependent on the successful development and commercialization of licensed products by our licensees , which is uncertain , and revenues may fluctuate significantly from period to period . additionally , we may never receive consideration in our license agreements that is contemplated on option fees , development and sales-based milestone payments , royalties on sales of licensed products or sublicense fees , given the contingent nature of these payments . our revenues are concentrated among a low number of licensees and licenses are terminable at the option of the licensee . the termination of our licenses by licensees may materially impact the amount of revenue we recognize in future periods . please refer to note 2 to our audited consolidated financial statements appearing elsewhere in this annual report on form 10-k for a description of segment and geographical information regarding our revenues . operating expenses our operating expenses consist primarily of cost of revenues , research and development expenses and general and administrative expenses . personnel costs including salaries , benefits , bonuses and stock-based compensation expense , comprise a significant component of research and development and general and administrative expenses . we allocate indirect expenses associated with our facilities , information technology costs , depreciation and other overhead costs between research and development and general and administrative categories based on employee headcount and the nature of work performed by each employee . cost of revenues our cost of revenues consists primarily of upstream fees due to our licensors as a result of revenue generated from the licensing of our nav technology platform , including sublicense fees , milestone payments and royalties on net sales of licensed products . sublicense fees are based on a percentage of license fees received by us from nav technology licensees and are recognized in the period that the underlying license revenue is recognized . milestone payments are payable to licensors upon the achievement of specified milestones by nav technology licensees and are recognized in the period the milestone is achieved or deemed probable of achievement . royalties are based on a percentage of net sales of licensed products by nav technology licensees and are recognized in the period that the underlying sales occur . future costs of revenues are uncertain due to the nature of our license agreements and significant fluctuations in cost of revenues may occur from period to period . research and development expense our research and development expense primarily consists of : salaries and personnel-related costs , including benefits , stock-based compensation and travel , for our scientific personnel performing research and development activities ; costs related to executing preclinical studies and clinical trials ; costs related to acquiring , developing and manufacturing materials for preclinical studies and clinical trials ; fees paid to consultants and other third-parties who support our product candidate development ; other costs in seeking regulatory approval of our product candidates ; and allocated facility-related costs , depreciation expense and other overhead . up-front fees incurred in obtaining technology licenses for research and development activities , as well as associated milestone payments , are expensed as incurred if the technology licensed has no alternative future use .
| results of operations our consolidated results of operations were as follows : replace_table_token_4_th 81 comparison of the years ended december 31 , 2020 and 2019 license and royalty revenue . license and royalty revenue increased by $ 119.3 million , from $ 35.2 million for the year ended december 31 , 2019 to $ 154.6 million for the year ended december 31 , 2020. the increase was primarily attributable to the following : an increase of $ 40.8 million in zolgensma royalty revenue , from $ 20.8 million in 2019 to $ 61.6 million in 2020 , as commercial sales of zolgensma did not commence until the second quarter of 2019 ; and an $ 80.0 million milestone payment recognized as revenue upon the achievement of $ 1.0 billion in cumulative net sales of zolgensma in the third quarter of 2020. upon the achievement of this milestone , there are no further development or sales-based milestones remaining under the associated license agreement with novartis gene therapies for the development and commercialization of treatments for sma . the decrease in license and royalty revenue from 2018 to 2019 was primarily attributable to non-recurring license revenue recognized in 2018 of $ 176.1 million under our license agreement with novartis gene therapies for the development and commercialization of treatments for sma , and $ 35.6 million under our november 2018 license agreement with abeona therapeutics inc. ( abeona ) . the decrease was partially offset by $ 20.8 million of zolgensma royalty revenue recognized in 2019 , as commercial sales of zolgensma did not commence until the second quarter of 2019. research and development expense . research and development expenses increased by $ 42.1 million , from $ 124.2 million for the year ended december 31 , 2019 to $ 166.3 million for the year ended december 31 , 2020. the increase was primarily attributable to the following : an increase of $ 13.2
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the upfront payment of $ 40 million was recognized over the story_separator_special_tag you should read the following discussion and analysis together with our financial statements and the notes to those statements included elsewhere in this annual report on form 10-k. this discussion contains forward-looking statements that involve risks and uncertainties . we use words such as may , will , expect , anticipate , estimate , intend , plan , predict , potential , believe , should and similar expressions to identify forward-looking statements , including statements related to the scope , progress , expansion , and costs of developing and commercializing our product candidates , our anticipated financial results and condition , our expected future contract revenue from sanofi and our anticipated expenses related to development activities , our clinical trials and the development and potential commercialization of our product candidates . these statements appearing throughout this annual report on form 10-k are statements regarding our intent , belief , or current expectations , primarily regarding our operations . you should not place undue reliance on these forward-looking statements , which apply only as of the date of this annual report on form 10-k. as a result of many factors , such as those set forth under risk factors and elsewhere in this annual report on form 10-k , our actual results may differ materially from those anticipated in these forward-looking statements . except as required by law , we undertake no obligation to update or revise publicly any forward-looking statements , whether as a result of new information , future events or otherwise after the date of this annual report on form 10-k. overview we are a biopharmaceutical company focused on monoclonal antibody therapeutics for diseases that are a significant burden to society and patients and their families . we have a portfolio of patient-targeted , first-in-class antibodies using our humaneered ® antibody technology to treat serious medical conditions with a primary clinical focus on respiratory diseases and cancer . our principal pharmaceutical product candidates at the clinical development stage are : kb001-a , a humaneered ® , pegylated , anti-pcrv fab ' antibody that is being developed for the prevention and treatment of pa infections in mechanically ventilated patients and cf patients with chronic pa infections ; kb003 , a humaneered ® anti-gm-csf monoclonal antibody that is being developed for the treatment of severe asthma inadequately controlled by corticosteroids ; and kb004 , a humaneered ® monoclonal antibody directed against epha3 which has the potential to offer a novel approach to treating both hematologic malignancies and solid cancer tumors . in january 2010 , we entered into an agreement with sanofi pursuant to which we granted to sanofi an exclusive worldwide license to develop , manufacture , and commercialize antibodies directed against the pcrv protein of pa ( including kb001-a ) for all indications , and sanofi is solely responsible for research , development , manufacturing , and commercialization . as part of this agreement , we retain the right to develop and promote kb001-a for pa in cf or bronchiectasis patients . sanofi is focusing its clinical development on prevention of pa vap . pursuant to the agreement , we received an initial upfront payment of $ 35 million and an additional $ 5 million payment in august 2011 that were recognized as revenue through june 30 , 2012. we have the potential to receive additional contingent payments aggregating up to $ 250 million upon achievement by sanofi of certain clinical , regulatory and commercial events , together with tiered royalties based upon global net sales of licensed products . however , there can be no assurances that sanofi will continue to further develop kb001-a or achieve the events that will trigger the contingent payments . as a result , we may not recognize any additional revenue from this arrangement . we are conducting a phase 2 clinical trial in cf patients infected with pa . as part of sanofi 's clinical development plan for pa vap , sanofi is conducting a phase 1 clinical study in healthy volunteers to evaluate higher doses than those that we previously tested . we understand that the phase 1 study will be followed , after completion of manufacturing process development and scale-up , by a phase 2b intravenous study in late 2014 to determine the safety and efficacy of kb001-a in preventing pa vap and then sanofi plans a subsequent phase 3 study . we also 67 understand that the phase 2b and phase 3 trials are being designed as pivotal studies and are intended to serve as a basis for registration of kb001-a for the prevention of pa vap . we initiated a 180 patient randomized , double-blind , placebo-controlled phase 2 clinical trial for kb001-a in cf patients with chronic pa infections in january 2013. in august 2012 , we initiated a 150 patient , randomized , double-blind , placebo-controlled , monthly-dose , intravenous phase 2 clinical trial for kb003 in patients with severe asthma inadequately controlled by corticosteroids . kb004 is in phase 1 clinical testing for hematological malignancies . we believe the net proceeds from our initial public offering , together with our cash , cash equivalents , and marketable securities , and our borrowing capacity pursuant to the loan and security agreement we entered into with midcap financial in september 2012 , will be sufficient to complete our kb001-a and kb003 phase 2 clinical trials as currently projected . if the kb001-a and kb003 phase 2 clinical trials are successful , we will need to raise additional capital in order to further advance our product candidates towards regulatory approval . we licensed our proprietary humaneered ® antibody technology to novartis in 2007 on a non-exclusive basis and received a license fee of $ 30 million . we are not currently actively pursuing the license of our humaneered ® technology to third parties and we are not expecting to receive future revenue from additional licenses to this technology . story_separator_special_tag upfront payments for licensing our intellectual property to date have not been separable from the activity of providing research and development services because the license has not been assessed to have stand-alone value separate from the research and development services provided . such upfront payments are recorded as deferred revenue in the balance sheet and are recognized as contract revenue over the contractual or estimated substantive performance period , which is consistent with the term of the research and development obligations contained in the research and development collaboration agreement . payments resulting from our research and development efforts under license agreements are recognized as the activities are performed and are presented on a gross basis . revenue is recorded gross because we act as a principal , with discretion to choose suppliers , bear credit risk , and perform part of the services . substantive , at-risk milestone payments are recognized as revenue when the milestone is achieved and collectability is reasonably assured . when contingent payments are not for substantive and at-risk milestones , revenue is recognized over the estimated remaining term of the related service period or , if there are no continuing performance obligations under the arrangement , upon receipt provided that collection is reasonably assured and other revenue recognition criteria have been satisfied . 69 research and development expenses as part of the process of preparing our consolidated financial statements , we are required to estimate our accrued research and development expenses . this process involves reviewing contracts and purchase orders , reviewing the terms of our license agreements , communicating with our applicable personnel to identify services that have been performed on our behalf , and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual cost . the majority of our service providers invoice us monthly in arrears for services performed . we make estimates of our accrued expenses as of each balance sheet date based on facts and circumstances known to us at that time . we periodically confirm the accuracy of our estimates with the service providers and make adjustments if necessary . examples of estimated accrued research and development expenses include fees to : contract research organizations and other service providers in connection with clinical studies ; contract manufacturers in connection with the production of clinical trial materials ; and vendors in connection with preclinical development activities . we base our expenses related to clinical studies on our estimates of the services received and efforts expended pursuant to contracts with multiple research institutions and contract research organizations that conduct and manage clinical studies on our behalf . the financial terms of these agreements are subject to negotiation , vary from contract to contract , and may result in uneven payment flows and expense recognition . payments under some of these contracts depend on factors such as the successful enrollment of patients and the completion of clinical trial milestones . in accruing service fees , we estimate the time period over which services will be performed and the level of effort to be expended in each period . if the actual timing of the performance of services or the level of effort varies from our estimate , we adjust the accrual accordingly . our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in our reporting changes in estimates in any particular period . adjustments to prior period estimates have not been material for each of the years ended december 31 , 2011 and 2010. in the fourth quarter of 2012 , adjustments to increase clinical trial expenses by $ 657,000 were recorded due to the material weakness in our internal control over financial reporting discussed in part ii , item 9a , controls and procedures , material weakness in internal control over financial reporting of this annual report on form 10-k. stock-based compensation stock-based compensation cost is measured at the grant date , based on the fair value of the award , and is recognized as an expense over the employee 's requisite service period on a straight line basis . we recorded non-cash stock-based compensation expense of $ 0.8 million , $ 0.2 million , and $ 0.3 million , the years ended december 31 , 2012 , 2011 , and 2010 , respectively . as of december 31 , 2012 , we had approximately $ 2.8 million of total unrecognized compensation expense , net of related forfeiture estimates , which we expect to recognize over a weighted-average period of approximately 3.3 years . we expect to continue to grant stock options in the future , and to the extent that we do , our actual stock-based compensation expense recognized in future periods will likely increase . prior to our ipo , our board of directors , with the assistance of management and independent consultants , performed fair value analyses to determine the valuation of our common stock . for grants made on dates for which there was no contemporaneous valuation to utilize in setting the exercise price of our common stock , and given the absence of an active market for our common stock prior to our ipo in january 2013 , our board of directors determined the fair value of our common stock on the date of grant based on several factors , including : important developments in our operations , most significantly related to the clinical development of our lead drug candidates , kb001-a , kb003 , and kb004 ; equity market conditions affecting comparable public companies ; 70 the likelihood of achieving a liquidity event for the shares of common stock , such as an initial public offering or an acquisition of us , given prevailing market conditions ; and that the grants involved illiquid securities in a private company .
| results of operations general we have not generated net income from operations , except for the year ended december 31 , 2007 during which we recognized a one-time license payment from novartis , and , at december 31 , 2012 , we had an accumulated deficit of $ 98.3 million primarily as a result of research and development and general and administrative expenses . while we may in the future generate revenue from a variety of sources , including license fees , milestone payments , and research and development payments in connection with strategic partnerships , our product candidates are at an early stage of development and may never be successfully developed or commercialized . accordingly , we expect to continue to incur substantial losses from operations for the foreseeable future , and there can be no assurance that we will ever generate significant revenue or profits . contract revenue our recent revenue is comprised primarily of collaboration agreement-related revenue . collaboration agreement-related revenue includes license fees , payments for research and development services , and milestone and other contingent payments . research and development expenses conducting research and development is central to our business model . for the years ended december 31 , 2012 , 2011 , and 2010 , research and development expenses were $ 24.5 million , $ 18.5 million , $ 18.9 million , respectively . we expense both internal and external research and development costs as incurred . we currently track the external research and development costs incurred for each of our kb001-a , kb003 , and kb004 projects . we have not tracked our external costs by project since inception .
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3. license and collaboration agreements alimera under a collaboration agreement with alimera , as amended in march 2008 ( the prior alimera agreement ) , the company licensed to alimera the rights to develop , market and story_separator_special_tag the following discussion and analysis of financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and related notes beginning on page f-1 of this annual report on form 10-k. this discussion contains forward-looking statements , based on current expectations and related to future events and our future financial performance , that involve risks and uncertainties . our actual results may differ significantly from those anticipated or implied in these forward-looking statements as a result of many important factors , including , but not limited to , those set forth under item 1a , risk factors , and elsewhere in this report . overview we develop sustained-release drug delivery products that deliver drugs at a controlled and steady rate for months or years . we have developed three of the four sustained-release ophthalmic products currently approved by the u.s. fda for treatment of back-of-the-eye diseases . our product development programs are focused primarily on utilizing our core durasert technology platform to deliver drugs to treat chronic diseases . durasert three-year uveitis is our most advanced development-stage product , and is designed to treat chronic non-infectious uveitis affecting the posterior segment of the eye ( posterior segment uveitis ) for a period of three years . durasert three-year uveitis met its primary efficacy endpoint of prevention of recurrence of uveitis through six months with a p value of < 0.001 in two ongoing pivotal phase 3 clinical trials . we anticipate filing an nda with the fda in late december 2017 or early january 2018. in july 2017 , we amended our collaboration agreement ( the prior alimera agreement ) with alimera to , among other things , license distribution , regulatory and reimbursement matters for durasert three-year uveitis ( under the iluvien trademark ) for the emea to alimera . pursuant to the prior alimera agreement , our lead licensed product , iluvien ® for dme , is sold by alimera in the u.s. and multiple eu countries . our strategy includes developing non-proprietary drugs independently in combination with our durasert technology platform , while continuing to leverage our technology platform through collaborations and license agreements as appropriate . injected into the eye in an office visit , durasert three-year uveitis is a micro-insert that delivers a micro-dose of a corticosteroid to the back of the eye on a sustained basis for approximately three years after a single administration . in europe , we filed a marketing authorization application ( maa ) in june 2017 and subsequently withdrew the application after out-licensing the european rights for durasert to alimera . alimera plans to submit the durasert three-year uveitis data under its existing iluvien maa and , if approved , to commercialize the uveitis indication under the iluvien trademark . we are developing durasert three-year uveitis independently and we plan to file an nda with the fda by the end of calendar year 2017. both of our durasert three-year uveitis phase 3 clinical trials met their primary efficacy endpoint of prevention of recurrence of uveitis through six months with statistical significance ( p < 0.001 ; intent to treat analysis ) and yielded safety profiles consistent with the known effects of ocular corticosteroid use . similar efficacy and safety results have been observed through 12 months of follow-up in the first pivotal trial and twelve month data from the second pivotal trial is expected in early calendar year 2018. pending nda submission and approval by the fda , we plan to independently commercialize durasert three-year uveitis in the u.s. given the relatively modest market size and correspondingly limited commercial footprint required to launch on our own . iluvien , an injectable , sustained-release micro-insert delivering 0.19mg of fa to the back of the eye for the treatment of dme , was licensed to and developed with alimera under the prior alimera agreement . in july 2017 , we entered into an amended and restated collaboration agreement with alimera ( the amended alimera agreement ) pursuant to which we ( i ) licensed the rights to our three-year uveitis indication to alimera for the emea and ( ii ) converted our license consideration from a share of alimera 's net profits for iluvien to a royalty based on alimera 's net sales for iluvien for dme and , upon an maa approval , for net sales of iluvien for posterior segment uveitis . sales-based royalties start at the rate of 2 % effective as of july 1 , 2017. commencing january 1 , 2019 ( or earlier under certain circumstances ) , the sales-based royalty 70 will increase to 6 % ( 8 % on total iluvien net sales in excess of $ 75 million on a calendar year basis ) . alimera 's share of contingently recoverable accumulated iluvien commercialization losses under the original net profit share arrangement ( as set forth in the prior alimera agreement ) , was capped at $ 25 million . under the amended alimera agreement those recoverable losses will be reduced as follows : ( i ) $ 10.0 million was cancelled in lieu of an upfront license fee on the effective date of the amended alimera agreement ; ( ii ) for calendar years 2019 and 2020 , 50 % of earned sales-based royalties in excess of 2 % of net sales will be offset against the quarterly royalty payments otherwise due from alimera ; ( iii ) on january 1 , 2020 ( or earlier under certain circumstances ) , another $ 5 million will be cancelled , provided , however , that such date of cancellation may be extended under certain circumstances related to alimera 's regulatory approval process for iluvien for posterior segment uveitis , with such extension , if any , subject to mutual agreement by the parties ; and ( iv ) commencing in story_separator_special_tag recognition of expense in outsourced clinical trial agreements we recognize research and development expense with respect to outsourced agreements for clinical trials with contract research organizations ( cros ) as the services are provided , based on our assessment of the services performed . we make our assessments of the services performed based on various factors , including evaluation by the third-party cros and our own internal review of the work performed during the period , measurements of progress by us or by the third-party cros , data analysis with respect to work completed and our management 's judgment . we have agreements with two cros to conduct the phase 3 clinical trial program for durasert three-year uveitis . our financial obligations under the agreements are determined by the services that we request from time to time under the agreements . the actual amounts owed under the agreements and the timing of those obligations will depend on various factors , including changes to the protocols and or services requested , the number of patients to be enrolled and the rate of patient enrollment , achievement of pre-defined direct cost milestone events and other factors relating to the clinical trials . as of june 30 , 2017 , our cro agreements provided for two phase 3 clinical trials and a utilization and safety study of two different inserters at an aggregate remaining cost of approximately $ 8.9 million , which includes several pending contract change orders . we can terminate the agreements at any time without penalty , and if terminated , we would be liable only for services through the termination date plus non-cancellable cro obligations to third parties . during fiscal 2017 , we recognized approximately $ 6.2 million of research and development expense attributable to our durasert three-year uveitis phase 3 clinical trial program . changes in our estimates or differences between the actual level of services performed and our estimates may result in changes to our research and development expenses in future periods . 72 story_separator_special_tag attributable primarily to a $ 1.4 million increase in cro and other costs for durasert three-year uveitis phase 3 clinical development and regulatory submissions , $ 475,000 of personnel-related costs , including incentive compensation and contractual severance obligations , and $ 320,000 of pre-clinical studies and other third-party research costs . general and administrative general and administrative expenses totaled $ 9.0 million in fiscal 2016 , an increase of $ 957,000 , or 12 % , compared to $ 8.1 million in fiscal 2015. this increase was attributable primarily to a $ 564,000 increase in personnel costs , higher incentive compensation accruals and stock-based compensation , and a $ 302,000 increase in professional fees . 75 interest and other income interest and other income totaled $ 72,000 in fiscal 2016 , an increase of $ 50,000 , or 69 % , compared to $ 22,000 in fiscal 2015 , due primarily to a combination of higher average balances of marketable security investments and improved yields to maturity and higher money market interest rates . income tax benefit ( expense ) income tax benefit was $ 155,000 in fiscal 2016 compared to income tax expense of $ 96,000 in fiscal 2015. we incurred $ 4,000 in fiscal 2016 and $ 263,000 in fiscal 2015 of federal alternative minimum tax expense based on u.s. taxable income for calendar year 2014 primarily attributable to the $ 25.0 million iluvien fda-approval milestone . refundable foreign research and development tax credits totaled $ 159,000 in fiscal 2016 compared to $ 167,000 in fiscal 2015. inflation and seasonality our management believes inflation has not had a material impact on our operations or financial condition and that our operations are not currently subject to seasonal influences . recently adopted and recently issued accounting pronouncements new accounting pronouncements are issued periodically by the financial accounting standards board ( fasb ) and are adopted by us as of the specified effective dates . unless otherwise disclosed below , we believe that the impact of recently issued and adopted pronouncements will not have a material impact on our financial position , results of operations and cash flows or do not apply to our operations . in may 2014 , the fasb issued accounting standards update no . 2014-09 , revenue from contracts with customers ( topic 606 ) ( asu 2014-09 ) , which requires an entity to recognize revenue in an amount that reflects the consideration to which the entity expects to be entitled in exchange for the transfer of promised goods or services to customers . the standard will replace most existing revenue recognition guidance in u.s. gaap . in august 2015 , the fasb issued asu 2015-14 , which officially deferred the effective date of asu 2014-09 by one year , while also permitting early adoption . as a result , asu 2014-09 will become effective on july 1 , 2018 , with early adoption permitted on july 1 , 2017. the standard permits the use of either the retrospective or cumulative effect transition method . we are evaluating the impact this standard will have on our consolidated financial statements . in february 2016 , the fasb issued asu no . 2016-02 , leases . the new standard establishes a right-of-use ( rou ) model that requires a lessee to record a rou asset and a lease liability on the balance sheet for all leases with terms longer than 12 months . leases will be classified as either finance or operating , with classification affecting the pattern of expense recognition in the income statement . the new standard is effective for fiscal years beginning after december 15 , 2018 , including interim periods within those fiscal years . as a result , asu 2016-02 will become effective on july 1 , 2019. a modified retrospective transition approach is required for lessees for capital and operating leases existing at , or entered into after , the beginning of the earliest comparative period presented in the financial statements , with certain practical expedients available .
| results of operations years ended june 30 , 2017 and 2016 replace_table_token_6_th revenues collaborative research and development revenue totaled $ 6.6 million in fiscal 2017 , an increase of $ 6.2 million , or 1,551 % , compared to $ 398,000 in fiscal 2016. this increase was attributable primarily to $ 5.6 million of revenue recognized upon the termination of the restated pfizer agreement in december 2016. in addition , revenues derived from our collaboration agreement with alimera increased by $ 426,000 , which included $ 136,000 of revenue recognized from a may 2017 arbitration settlement of alimera 's calendar year 2014 reporting of iluvien net profits . in july 2017 , we restructured the alimera collaboration agreement to ( a ) license durasert three-year uveitis in the emea to alimera and ( b ) to convert the net profit share arrangement to a sales-based royalty for all iluvien licensed indications . we expect this conversion to result in increased revenues from alimera over time , as well as better predictability and consistency of revenues to be recognized from alimera . based on 60-day payment terms from alimera following the end of each calendar quarter , we expect that sales-based royalties earned from alimera will be recognized as revenues one quarter in arrears . see notes 3 and 14 of notes to consolidated financial statements for more information related to the alimera collaboration agreement and to the settlement of a dispute relating to the computation of iluvien net profits for calendar year 2014 , respectively . retisert royalty income decreased by $ 252,000 , or 21 % , to $ 970,000 in fiscal 2017 compared to $ 1.22 million in fiscal 2016. we expect retisert royalty income to remain flat or decline somewhat in the next fiscal year .
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62 | 2019 form 10-k allergan-related financing in connection with the proposed acquisition of allergan , in november 2019 , the company issued $ 30.0 billion aggregate principal amount of unsecured senior notes , consisting of $ 750 million aggregate principal amount of floating rate senior notes due may 2021 , $ 750 million aggregate principal amount of floating rate senior notes due november 2021 , $ 750 million aggregate principal amount of floating rate senior notes due 2022 , $ 1.75 billion aggregate principal amount of 2.15 % senior notes due 2021 , $ 3.0 billion aggregate principal amount of 2.30 % senior notes due 2022 , $ 3.75 billion aggregate principal amount of 2.60 % senior notes due 2024 , $ 4.0 billion aggregate principal amount of 2.95 % senior notes due 2026 , $ 5.5 billion aggregate principal amount of 3.20 % senior notes due 2029 , $ 4.0 billion aggregate principal amount of 4.05 % senior notes due 2039 and $ 5.75 billion aggregate principal amount of 4.25 % senior notes due 2049. these senior notes rank equally with story_separator_special_tag the following is a discussion and analysis of the financial condition of abbvie inc. ( abbvie or the company ) as of december 31 , 2019 and 2018 and results of operations for each of the three years in the period ended december 31 , 2019 . this commentary should be read in conjunction with the consolidated financial statements and accompanying notes appearing in item 8 , `` financial statements and supplementary data . '' executive overview company overview abbvie is a global , research-based biopharmaceutical company formed in 2013 following separation from abbott laboratories ( abbott ) . abbvie uses its expertise , dedicated people and unique approach to innovation to develop and market advanced therapies that address some of the world 's most complex and serious diseases . abbvie 's products are focused on treating conditions such as chronic autoimmune diseases in rheumatology , gastroenterology and dermatology ; oncology , including blood cancers ; virology , including hepatitis c virus ( hcv ) and human immunodeficiency virus ( hiv ) ; neurological disorders , such as parkinson 's disease ; metabolic diseases , including thyroid disease and complications associated with cystic fibrosis ; pain associated with endometriosis ; as well as other serious health conditions . abbvie also has a pipeline of promising new medicines in clinical development across such important medical specialties as immunology , oncology and neuroscience , with additional targeted investment in cystic fibrosis and women 's health . abbvie 's products are generally sold worldwide directly to wholesalers , distributors , government agencies , health care facilities , specialty pharmacies and independent retailers from abbvie-owned distribution centers and public warehouses . in the united states , abbvie distributes pharmaceutical products principally through independent wholesale distributors , with some sales directly to pharmacies and patients . outside the united states , abbvie sells products primarily to customers or through distributors , depending on the market served . certain products are co-marketed or co-promoted with other companies . abbvie has approximately 30,000 employees . abbvie operates in one business segment—pharmaceutical products . on june 25 , 2019 , abbvie announced that it entered into a definitive transaction agreement under which abbvie will acquire allergan plc ( allergan ) . see note 5 to the consolidated financial statements for additional information regarding the proposed acquisition . 2019 story_separator_special_tag style= '' font-family : calibri , sans-serif ; font-size:10pt ; font-style : italic ; '' > 27 in august 2019 , the fda approved rinvoq ( upadacitinib ) for the treatment of adults with moderately to severely active ra who have had an inadequate response or intolerance to methotrexate . in october 2019 , abbvie announced top-line results from its first phase 3 clinical trial of rinvoq in adult patients with active psoriatic arthritis ( psa ) . results from the select-psa 2 study , which evaluated rinvoq versus placebo in patients who did not adequately respond to treatment with one or more biologic dmards , showed that both doses of rinvoq ( 15 mg and 30 mg ) met the primary and key secondary endpoints at week 12. the safety profile was consistent with that of previous studies across indications , with no new safety risks detected . in november 2019 , abbvie announced data from the phase 2/3 select-axis 1 trial in which twice as many adult patients with ankylosing spondylitis treated with rinvoq achieved the primary endpoint at week 14 versus placebo . the safety profile was consistent with that of previous studies across indications , with no new safety risks detected . in november 2019 , abbvie initiated a phase 3 clinical trial to evaluate the efficacy and safety of rinvoq in adult patients with axial spondyloarthritis . in december 2019 , the european commission ( ec ) granted marketing authorization for rinvoq for the treatment of adult patients with moderate to severe active rheumatoid arthritis who have had an inadequate response or intolerance to one or more dmards . in february 2020 , abbvie announced top-line results from its second phase 3 clinical trial of rinvoq in adult patients with active psa . results from the select-psa 1 study , which evaluated rinvoq versus placebo in patients who did not adequately respond to treatment with one or more non-biologic dmards , showed that both doses of rinvoq ( 15 mg and 30 mg ) met the primary and key secondary endpoints . the safety profile was consistent with that of previous studies across indications , with no new safety risks detected . skyrizi in march 2019 , abbvie initiated two phase 3 clinical trials to evaluate the efficacy and safety of risankizumab , an investigational interleukin-23 ( il-23 ) inhibitor , in subjects with psoriatic arthritis . in april 2019 , the fda approved skyrizi ( risankizumab ) for the treatment of moderate to severe plaque psoriasis in adults who are candidates for systemic therapy or phototherapy . story_separator_special_tag results of operations net revenues the comparisons presented at constant currency rates reflect comparative local currency net revenues at the prior year 's foreign exchange rates . this measure provides information on the change in net revenues assuming that foreign currency exchange rates had not changed between the prior and the current periods . abbvie believes that the non-gaap measure of change in net revenues at constant currency rates , when used in conjunction with the gaap measure of change in net revenues at actual currency rates , may provide a more complete understanding of the company 's operations and can facilitate analysis of the company 's results of operations , particularly in evaluating performance from one period to another . replace_table_token_2_th 30 | 2019 form 10-k the following table details abbvie 's worldwide net revenues : replace_table_token_3_th n/m – not meaningful 2019 form 10-k | 31 the following discussion and analysis of abbvie 's net revenues by product is presented on a constant currency basis . global humira sales decreased 3 % in 2019 and increased 7 % in 2018 . the sales decrease in 2019 was primarily driven by direct biosimilar competition in certain international markets , partially offset by market growth across therapeutic categories . the sales increase in 2018 was primarily driven by market growth across therapeutic categories and geographies as well as favorable pricing in certain geographies . in the united states , humira sales increased 9 % in 2019 and 11 % in 2018 . the sales increases in 2019 and 2018 were primarily driven by market growth across all indications and favorable pricing . internationally , humira revenues decreased 28 % in 2019 and increased 1 % in 2018 . the sales decrease in 2019 was primarily driven by direct biosimilar competition in europe following the expiration of the european union composition of matter patent for adalimumab in october 2018. the sales increase in 2018 was primarily driven by market growth across indications partially offset by direct biosimilar competition . biosimilar competition for humira is not expected in the united states until 2023. abbvie continues to pursue strategies intended to further differentiate humira from competing products and add to the sustainability of humira . net revenues for skyrizi were $ 355 million in 2019 following the april 2019 regulatory approvals for the treatment of moderate to severe plaque psoriasis . net revenues for rinvoq were $ 47 million in 2019 following the august 2019 fda approval for the treatment of moderate to severe rheumatoid arthritis . net revenues for imbruvica represent product revenues in the united states and collaboration revenues outside of the united states related to abbvie 's 50 % share of imbruvica profit . abbvie 's global imbruvica revenues increased 30 % in 2019 and 39 % in 2018 as a result of continued penetration of imbruvica for patients with cll as well as favorable pricing . net revenues for venclexta increased by more than 100 % in 2019 and 2018 primarily due to market share gains following additional regulatory approvals of venclexta for the treatment of patients with relapsed/refractory cll and first-line aml in 2018 and first-line cll in 2019. global mavyret sales decreased by 15 % in 2019 primarily driven by lower patient volumes in certain international markets and competitive dynamics in the u.s. global mavyret sales increased more than 100 % in 2018 as a result of market share gains following the fda and ema approvals of mavyret in the second half of 2017 as well as further geographic expansion . global viekira sales decreased by 78 % in 2019 and 76 % in 2018 primarily due to lower market share following the launch of mavyret . net revenues for creon increased 12 % in 2019 and 12 % in 2018 , primarily driven by continued market growth and favorable pricing . creon maintains market leadership in the pancreatic enzyme market . net revenues for duodopa increased 12 % in 2019 and 18 % in 2018 , primarily driven by increased market penetration . gross margin replace_table_token_4_th gross margin as a percentage of net revenues in 2019 increased from 2018 primarily due to the full year effect of the expiration of humira royalties , partially offset by the imbruvica profit sharing arrangement and unfavorable impact from higher intangible asset amortization . gross margin as a percentage of net revenues in 2018 increased from 2017 primarily due to the expiration of humira royalties and a 2017 intangible asset impairment charge of $ 354 million partially offset by the imbruvica profit sharing arrangement . 32 | 2019 form 10-k selling , general and administrative replace_table_token_5_th selling , general and administrative ( sg & a ) expenses as a percentage of net revenues in 2019 decreased from 2018 primarily due to the favorable impacts of international humira expense reductions and lower litigation reserve charges that decreased by $ 326 million . this favorability was partially offset by new product launch expenses , higher restructuring charges and $ 103 million of transaction expenses associated with the proposed allergan transaction . additionally , sg & a expenses in 2018 included non-recurring philanthropic contributions of $ 350 million to certain u.s. not-for-profit organizations . sg & a expenses as a percentage of net revenues in 2018 increased from 2017 primarily due to new product launch expenses and non-recurring philanthropic contributions to certain u.s. not-for-profit organizations partially offset by continued leverage from revenue growth . research and development and acquired in-process research and development replace_table_token_6_th research and development ( r & d ) expenses decreased in 2019 and increased in 2018 principally due to impairment charges related to ipr & d acquired as part of the 2016 stemcentrx acquisition . in 2019 , the company recorded a $ 1.0 billion intangible asset impairment charge which represented the remaining value of the ipr & d acquired following the decision to terminate the rova-t r & d program .
| financial results abbvie 's strategy has focused on delivering strong financial results , advancing and investing in its pipeline and returning value to shareholders while ensuring a strong , sustainable growth business over the long term . the company 's financial performance in 2019 included delivering worldwide net revenues of $ 33.3 billion , operating earnings of $ 13.0 billion , diluted earnings per share of $ 5.28 and cash flows from operations of $ 13.3 billion . worldwide net revenues grew by 3 % on a constant currency basis , primarily driven by revenue growth related to imbruvica and venclexta as well as the continued strength of humira in the u.s. and newly launched immunology assets skyrizi and rinvoq , offset by international humira biosimilar competition . diluted earnings per share in 2019 was $ 5.28 and included the following after-tax costs : ( i ) $ 3.2 billion for the change in fair value of contingent consideration liabilities ; ( ii ) $ 1.3 billion related to the amortization of intangible assets ; ( iii ) a stemcentrx-related impairment charge of $ 823 million net of the related fair value adjustment to contingent consideration liabilities ; ( iv ) $ 364 million for acquired in-process research and development ( ipr & d ) ; and ( v ) $ 338 million of expenses related to the proposed allergan acquisition . these costs were partially offset by the following after-tax benefits : ( i ) $ 414 million from litigation matters primarily due to the settlement of an intellectual property dispute with a third party ; ( ii ) $ 400 million due to the favorable resolution of various tax positions ; and ( iii ) $ 297 million from an amended and restated license agreement between abbvie and reata pharmaceuticals , inc. ( reata ) . additionally , financial results reflected continued funding to support all stages of abbvie 's emerging pipeline assets and continued investment in abbvie 's on-market brands .
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the net cumulative effect due to the adoption of the new standard was a $ 3.8 million reduction to retained earnings as of january 1 , 2020 , which represented a $ 5.1 million increase to allowance for credit losses , net of $ 1.2 million in deferred income taxes . the adjustment was based on an estimate of expected lifetime credit losses for financial instruments , primarily accounts receivable and contract assets . although the adoption of the new standard did not have a material impact on quanta 's consolidated financial statements at the date of adoption , expected credit losses could change as a result of changes in credit loss experience , changes to specific risk characteristics of quanta 's portfolio of financial assets or changes to management 's expectations of future economic conditions that affect the collectability of quanta 's financial assets . at the end of each quarter , management story_separator_special_tag of our annual report on form 10-k for the year ended december 31 , 2019 , which was filed with the sec on february 28 , 2020. the following table sets forth selected statements of operations data , such data as a percentage of revenues for the years indicated as well as the dollar and percentage change from the prior year ( dollars in thousands ) : consolidated results replace_table_token_3_th * the percentage change is not meaningful . 43 revenues . revenues decreased primarily due to a reduction in services related to larger pipeline transmission projects and the challenged energy market conditions , exacerbated by the impact of the covid-19 pandemic , which resulted in a $ 1.56 billion decrease in revenues from our underground utility and infrastructure solutions segment . this decrease was partially offset by a $ 651.5 million increase in revenues from our electric power infrastructure solutions segment due to strong demand for our electric power services , including an increase in emergency restoration services revenues . see segment results below for additional information and discussion related to segment revenues . gross profit . the increase in gross profit was primarily due to increased earnings from electric power infrastructure solutions , partially offset by lower earnings from underground utility and infrastructure solutions primarily due to the decrease in revenues . see story_separator_special_tag style= '' margin-top:7pt ; text-align : justify ; text-indent:22.5pt '' > other comprehensive income ( loss ) , net of taxes . other comprehensive income ( loss ) results from translation of the balance sheets of our foreign operating units , which are primarily located in canada and australia and have functional currencies other than the u.s. dollar , and therefore are affected by the strengthening or weakening of the u.s. dollar against such currencies . the gain in the year ended december 31 , 2020 was impacted primarily by the weakening of the u.s. dollar against both the australian and canadian dollars as of december 31 , 2020 when compared to december 31 , 2019. the gain in the year ended december 31 , 2019 was impacted primarily by the weakening of the u.s. dollar against the canadian dollar as of december 31 , 2019 when compared to 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 . 45 the following table sets forth segment revenues , segment operating income ( loss ) and operating margins for the periods indicated , as well as the dollar and percentage change from the prior period . operating margins are calculated by dividing operating income by revenues . management utilizes operating margins as a measure of profitability , which can be helpful for monitoring how effectively we are performing under our contracts . management also believes operating margins are a useful metric for investors to utilize in evaluating our performance . the following table shows dollars in thousands . replace_table_token_4_th * the percentage change is not meaningful . electric power infrastructure solutions segment results overall , revenues increased as a result of continued favorable dynamics across our core utility market and increased demand for our electric power services , including a $ 220 million increase in emergency restoration services revenues and a $ 125 million increase in revenues from our north american communication operations . we also recognized approximately $ 175 million of incremental revenues attributable to acquired businesses and increased revenues on larger transmission projects in canada . these increases were partially offset by decreased revenues associated fire hardening programs in the western united states as compared to the year ended december 31 , 2019. we have substantially completed the exit of our latin american operations as of december 31 , 2020. these operations have been adversely impacted by the covid-19 pandemic due to shelter-in-place restrictions and other work disruptions that resulted in our acceleration of various contract terminations and other activities during 2020 in order to expedite cessation of operations in the region . story_separator_special_tag with respect to contingent consideration liabilities , a $ 0.7 million increase in the fair value recognized during the year ended december 31 , 2020 as compared to a $ 13.4 million increase in the fair value recognized during the year ended december 31 , 2019. non-gaap reconciliations ebitda and adjusted ebitda ebitda and adjusted ebitda , measures not recognized under generally accepted accounting principles in the united states ( gaap ) , when used in connection with net income attributable to common stock , are intended to provide useful information to investors and analysts as they evaluate our performance . ebitda is defined as earnings before interest , taxes , depreciation , amortization , equity in ( earnings ) losses of non-integral unconsolidated affiliates and interest , taxes depreciation and amortization of integral unconsolidated affiliates , and adjusted ebitda is defined as ebitda adjusted for certain other items as described below . these measures should not be considered as an alternative to net income attributable to common stock or other measures of performance that are derived in accordance with gaap . management believes that the exclusion of 47 these items from net income attributable to common stock enables it to more effectively evaluate our operations period over period and to identify operating trends that might not be apparent when including the excluded items . as to certain of the items below , ( i ) equity in ( earnings ) losses of non-integral unconsolidated affiliates varies from period to period depending on the activity and financial performance of non-integral unconsolidated affiliates , including deferral and subsequent recognition upon completion of construction of earnings on contracts performed for entities in which quanta has an equity interest and gain or loss on sales of investments accounted for using the equity method of accounting ; ( ii ) non-cash stock-based compensation expense varies from period to period due to acquisition activity , changes in the estimated fair value of performance-based awards , forfeiture rates , accelerated vesting and amounts granted ; ( iii ) acquisition and integration costs vary from period to period depending on the level of our acquisition activity ; ( iv ) asset impairment charges can vary from period to period depending on economic and other factors ; ( v ) restructuring and severance charges vary from period to period depending on restructuring activities ; ( vi ) bargain purchase gains can vary from period to period depending on our acquisition activity and the valuation of acquired businesses ; ( vii ) change in fair value of contingent consideration liabilities varies from period to period depending on the performance in post-acquisition periods of certain acquired businesses ; and ( viii ) tax settlements and adjustments to related indemnification assets can vary from period to period depending on the status and resolution of pending matters . because ebitda and adjusted ebitda , as defined , exclude some , but not all , items that affect net income attributable to common stock , such measures may not be comparable to similarly titled measures of other companies . the most comparable gaap financial measure , net income attributable to common stock , and information reconciling the gaap and non-gaap financial measures , are included below . the following table shows dollars in thousands . replace_table_token_5_th ( a ) the amount for the year ended december 31 , 2020 includes a $ 14.0 million correction of prior period amounts related to the valuation of and accounting for certain performance-based equity awards that were awarded during the years 2017 to 2019. included in the correction was $ 7.2 million of non-cash stock-based compensation related to 2019 . ( b ) the amount for the year ended december 31 , 2020 reflects asset impairment charges related to the exit of the latin american operations and the planned sale of certain equipment . the amount for the year ended december 31 , 2019 reflects asset impairment charges related to the winding down and exit of certain oil-influenced operations and assets , the replacement of an internally developed software application and the planned sale of certain foreign operations and assets . ( c ) the amount for the three and twelve months ended december 31 , 2020 relates to severance and restructuring charges related to the exit of certain ancillary pipeline operations and our latin american operations . ( d ) the amount for the year ended december 31 , 2019 reflects a bargain purchase gain related to the acquisition of an electrical infrastructure solutions business . ( e ) the amount for the year ended december 31 , 2019 reflects an expense associated with the reduction of an indemnification asset related to the favorable settlement of certain non-u.s. income tax obligations associated with an acquired business . 48 remaining performance obligations and backlog a performance obligation is a promise in a contract with a customer to transfer a distinct good or service . our remaining performance obligations represent management 's estimate of consolidated revenues that are expected to be realized from the remaining portion of firm orders under fixed price contracts not yet completed or for which work has not yet begun , which includes estimated revenues attributable to consolidated joint ventures and variable interest entities ( vies ) , revenues from funded and unfunded portions of government contracts to the extent they are reasonably expected to be realized , and revenues from change orders and claims to the extent management believes they will be earned and are probable of collection . we have also historically disclosed our backlog , a measure commonly used in our industry but not recognized under gaap . we believe this measure enables management to more effectively forecast our future capital needs and results and better identify future operating trends that may not otherwise be apparent . we believe this measure is also useful for investors in forecasting our future results and comparing us to our competitors .
| segment results below for additional information and discussion related to segment results . equity in earnings of integral unconsolidated affiliates . the amount for the year ended december 31 , 2020 primarily relates to the commencement of transition services under the agreement awarded to luma in june 2020 for the operation and maintenance of the electric transmission and distribution system in puerto rico . selling , general and administrative expenses . contributing to the increase was a $ 30.9 million increase in expenses associated with acquired businesses and a $ 39.3 million increase in compensation expenses . the increase in compensation expense was largely associated with increased non-cash stock-based compensation expense , including a $ 14.0 million correction of prior period amounts related to the valuation of and accounting for certain performance-based equity awards that were awarded during the years 2017 to 2019. included in the correction was $ 7.2 million of non-cash stock-based compensation related to 2019. also contributing to the increase in non-cash stock-based compensation in 2020 was higher achievement under performance-based awards , as well as an increase in the amount of equity-based awards due to acquisitions and business growth . partially offsetting these increases were decreases in certain expenses related to our cost containment measures in the current operating environment , including a $ 22.1 million decrease in travel and related expenses . also partially offsetting the increases were a $ 17.2 million decrease in costs associated with legal and other contracted services and a $ 7.6 million decrease in provision for credit losses . selling , general and administrative expenses as a percentage of revenues increased to 8.7 % for the year ended december 31 , 2020 from 7.9 % for the year ended december 31 , 2019 , primarily due to the decrease in revenues described above . amortization of intangible assets .
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in some cases , `` forward-looking statements '' can be identified by terminology such as `` may , '' `` will , '' `` should , '' `` expects , '' `` plans , '' `` anticipates , '' `` contemplates , '' `` proposes , '' `` believes , '' `` estimates , '' `` predicts , '' `` potential '' or `` continue '' or the negative of such terms and other comparable terminology . forward-looking statements are subject to risks , uncertainties and other factors that could cause actual results to differ materially from those expressed or implied by such statements . such risks , uncertainties and factors include , but are not limited to , general economic conditions domestically and internationally ; insufficient cash flows from operating activities ; difficulties in obtaining financing ; outstanding debt and other financial and legal obligations ; lawsuits ; competition ; industry cycles ; feedstock , product and mineral prices ; feedstock availability ; technological developments ; regulatory changes ; environmental matters ; foreign government instability ; foreign legal and political concepts ; and 23 foreign currency fluctuations , as well as other risks detailed in the company 's filings with the u.s. securities and exchange commission , including this annual report on form 10-k , all of which are difficult to predict and many of which are beyond the company 's control . overview the following discussion and analysis of our financial results , as well as the accompanying consolidated financial statements and related notes to consolidated financial statements to which they refer , are the responsibility of the management of the company . our accounting and financial reporting fairly reflect our business model involving the manufacturing and marketing of petrochemical products and specialty waxes . our business model involves the manufacture and sale of tangible products and providing custom processing services . our consistent approach to providing high purity products and quality services to our customers has helped to sustain our current position as a preferred supplier of various petrochemical products . business environment and risk assessment we believe we are well-positioned to participate in new investments to grow the company . while petrochemical prices are volatile on a short-term basis and depend on the demand of our customers ' products , our investment decisions are based on our long-term business outlook using a disciplined approach in selecting and pursuing the most attractive investment opportunities . petrochemical operations shr 's worldwide petrochemical demand increased during 2017 compared to 2016. petrochemical product sales revenue increased 17.5 % driven primarily by petrochemical volume growth of 9.1 % . we continued to emphasize operational excellence and our competitive advantages achieved through our high quality products and outstanding customer service and responsiveness . during 2017 feedstock prices were about 15 % higher than 2016 reflecting higher crude oil prices . during 2017 , average feedstock price rose by $ 0.17 per gallon from 2016. fourth quarter 2017 feedstock prices were 7.2 % or $ 0.09 per gallon higher compared to the fourth quarter of 2016. about 60 % of our prime products are sold under formula pricing whereby feedstock costs are passed along to the customer typically with a one month lag . thus , when feedstock prices start rising , we experience lower margins as formula pricing lags feedstock costs . during 2017 margins declined as a result of greater competitive pricing pressure on prime products sales that are based on spot pricing not formula-based pricing . specialty wax operations most wax markets are mature . key applications for our polyethylene waxes are in hot melt adhesives ( `` hma '' ) , plastic processing , pvc lubricants and inks , paints and coatings , where they act as surface or rheology modifiers . the hma market is expected to grow at a higher rate than gdp growth due to growth in the developing markets and increases in packaging requirements due to changes in consumer purchasing ( shift to home deliveries via the internet ) in developed economies . road marking paints are also expected to grow at rates exceeding gdp growth based upon an expectation that there will be infrastructure investment in the u. s. the pvc market is expected to grow at gdp rates ; however , we expect to get more traction of our products within this market with acceptance of our new pvc grade waxes . the global wax market is being impacted by the reduction of paraffin wax availability from large refiners as they move toward more hydrocracking and hydroisomerization to produce group iii lube oils and distillate . our wax sales volume increased 4 % in 2017 from 2016 while revenues increased 17 % . 24 liquidity and capital resources working capital our approximate working capital days are summarized as follows : replace_table_token_10_th our days sales outstanding in accounts receivable remained steady from 2016 to 2017 but increased from 2015 to 2016 due to longer payment terms for some foreign customers because of increased shipping times . our days sales outstanding in inventory decreased from 2016 to 2017 due to an on-purpose reduction in inventory at tc . our days sales outstanding in accounts payable increased due to an increase in payables because of the ongoing capital construction project at shr . sources and uses of cash cash and cash equivalents decreased by $ 5.4 million during the year ended december 31 , 2017. the change in cash and cash equivalents is summarized as follows : replace_table_token_11_th operating activities operating activities generated cash of $ 30.8 million during fiscal 2017 as compared with $ 28.5 million of cash provided during fiscal 2016. net income decreased by $ 1.4 million from 2016 to 2017 ; however , cash provided by operations increased by $ 2.3 million due primarily to the following factors : · net income for 2017 included a non-cash equity in loss from amak of $ 4.3 million as compared to a non-cash equity in loss from amak of $ 1.5 million and a $ 3.2 million gain from additional equity issuance by amak in 2016 ; · net income for story_separator_special_tag cash used by investing activities during fiscal 2016 was approximately $ 40.5 million , representing an increase of approximately $ 9.2 million over the corresponding period of 2015. the majority of the increase was due to the construction projects for the hydrogenation/distillation unit and the advanced reformer unit . during 2016 we expended $ 15.5 million on the hydrogenation/distillation project , $ 3.9 million to purchase and upgrade b plant , $ 11.6 million to construct the advanced reformer unit , $ 1.9 million for tank farm improvements , $ 1.2 million for high purity hexane productions , $ 0.8 million for cooling tower construction , $ 0.6 million for transport trucks , $ 0.5 million for loading rack expansion capabilities , and $ 4.5 million on various plant improvements and equipment . financing activities cash provided by financing activities during fiscal 2017 was approximately $ 15.5 million versus cash provided of $ 1.8 million during the corresponding period of 2016. during 2017 we made principal payments of $ 8.7 million on our acquisition loan and $ 1.7 million on our term debt . we drew $ 26.0 million on our line of credit to help fund our expansion projects . cash provided by financing activities during fiscal 2016 was approximately $ 1.8 million versus cash provided of $ 1.8 million during the corresponding period of 2015. during 2016 we made principal payments of $ 5.3 million on our acquisition loan and $ 1.0 million on our term debt . we drew $ 8.0 million on our line of credit to help fund our expansion projects . credit agreement on october 1 , 2014 , tocco , shr , gspl , and tc ( shr , gspl and tc collectively the `` guarantors '' ) entered into an amended and restated credit agreement ( `` arc agreement '' ) with the lenders which from time to time are parties to the arc agreement ( collectively , the `` lenders '' ) and bank of america , n.a. , a national banking association , as administrative agent for the lenders , and merrill lynch , pierce , fenner & smith incorporated as lead arranger . on march 28 , 2017 , we entered into a second amendment to the arc with terms which increased the maximum consolidated leverage ratio financial covenant of 3.25x to 4.00x at march 31 , 2017 , and 4.25x at june 30 , 2017 , before stepping down to 3.75x at september 30 , 2017 , 3.50x at december 31 , 2017 , and reverting to the original financial covenant of 3.25x at march 31 , 2018. for fiscal quarter ending maximum consolidated leverage ratio march 31 , 2017 4.00 to 1.00 june 30 , 2017 4.25 to 1.00 september 30 , 2017 3.75 to 1.00 december 31 , 2017 3.50 to 1.00 march 31 , 2018 and each fiscal quarter thereafter 3.25 to 1.00 the second amendment also reduced the minimum consolidated fixed charge coverage ratio of 1.25x to 1.10x at march 31 , 2017 , 1.05x at june 30 , 2017 and september 30 , 2017 , 1.10x at december 31 , 2017 , before reverting to the original financial covenant of 1.25x at march 31 , 2018 . 27 for fiscal quarter ending minimum consolidated fixed charge coverage ratio march 31 , 2017 1.10 to 1.00 june 30 , 2017 1.05 to 1.00 september 30 , 2017 1.05 to 1.00 december 31 , 2017 1.10 to 1.00 march 31 , 2018 and each fiscal quarter thereafter 1.25 to 1.00 also , under the terms of the second amendment , two additional levels of pricing were added – levels 4 and 5. replace_table_token_12_th we were in compliance with all covenants at december 31 , 2017. on july 25 , 2017 , texas oil & chemical co. ii , inc. ( `` tocco '' ) , south hampton resources , inc. ( `` shr '' ) , gulf state pipe line company , inc. ( `` gspl '' ) , and trecora chemical , inc. ( `` tc '' ) ( shr , gspl and tc collectively the `` guarantors '' ) entered into a third amendment to amended and restated credit agreement ( `` 3rd amendment '' ) with the lenders which from time to time are parties to the amended and restated credit agreement ( collectively , the `` lenders '' ) and bank of america , n.a. , a national banking association , as administrative agent for the lenders . the 3rd amendment increased the revolving facility from $ 40,000,000 to $ 60,000,000. there were no other changes to the revolving facility . under the arc as amended , we have a $ 60.0 million revolving line of credit which matures on october 1 , 2019. the interest rate on the loan varies according to several options . interest on the loan is paid monthly and a commitment fee of between 0.25 % and 0.375 % is due quarterly on the unused portion of the loan . at december 31 , 2017 , approximately $ 25.0 million was available to be drawn . subject to the terms and conditions of the arc agreement as amended , tocco may ( a ) borrow , repay and re-borrow revolving loans ( collectively , the `` revolving loans '' ) from time to time during the period ending september 30 , 2019 , up to but not exceeding at any one time outstanding $ 60.0 million ( the `` revolving loan commitment '' ) and ( b ) request up to $ 5.0 million of letters of credit and $ 5.0 million of swingline loans . each of the issuance of letters of credit and the advance of swingline loans shall be considered usage of the revolving loan commitment . all outstanding loans under the revolving loans must be repaid on october 1 , 2019. as of december 31 , 2017 , and 2016 , tocco had long-term outstanding borrowings of $ 35.0 million and $ 9.0 million , respectively under the revolving loans .
| results of operations comparison of years 2017 , 2016 , 2015 the tables containing financial and operating information set forth below are presented to facilitate the discussion of the results of operations , and should not be considered a substitute for , and should be read in conjunction with , the audited consolidated financial statements . 29 specialty petrochemical segment replace_table_token_13_th * included in cost of sales * * includes $ 5,586 and $ 5,187 for 2017 and 2016 which is included in cost of sales and operating expenses replace_table_token_14_th * included in cost of sales * * includes $ 5,187 and $ 3,872 for 2016 and 2015 which is included in cost of sales and operating expenses gross revenue 2016-2017 revenues increased from 2016 to 2017 by approximately 15.6 % due to an increase in sales volume of 9.1 % and an increase in average selling price of 7.7 % partially offset by a decrease in processing fees of 21.7 % . 2015-2016 revenues decreased from 2015 to 2016 by approximately 16.6 % due to a decrease in sales volume of 12.1 % and a decrease in average selling price of 7.2 % partially offset by an increase in processing fees of 51.1 % . 30 petrochemical product sales 2016-2017 petrochemical product sales increased 17.5 % from 2016 to 2017 due to an increase in total sales volume of 9.1 % and an increase in average selling price of 7.7 % . our average selling price increased partly because a large portion of our sales are contracted with pricing formulas which are tied to prior month natural gas liquid ( ngl ) prices which is our primary feedstock . average delivered feedstock price for 2017 was 17.8 % higher than 2016. additionally , prices for byproducts were about 17 % higher than in 2016 which also contributed to higher overall selling prices .
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f- 18 the following table is a summary of the company 's stock option activity for the three years ended december 31 : replace_table_token_38_th other information pertaining to the company 's stock option activity for the three years ended december 31 : replace_table_token_39_th as of december 31 , 2014 , the total compensation cost related to non-vested awards not yet recognized was approximately $ 2.6 million , which will be recognized in 2014 through 2017. for story_separator_special_tag the following is a discussion of our consolidated financial condition , results of operations , liquidity and capital resources . this discussion excludes the operations of blue eagle , except our equity share of blue eagle 's income ( loss ) . the blue eagle joint venture was dissolved effective august 31 , 2012. this discussion should be read in conjunction with our consolidated financial statements and the notes thereto . see “ financial statements and supplementary data ” in item 8. also excluded from this discussion are the results of our canadian subsidiary which was sold october 31 , 2014. the results of these foreign operations are included as discontinued operations in the accompanying consolidated financial statements and notes thereto . general we are an independent energy company primarily engaged in the acquisition , exploration , exploitation , development and production of oil and gas in the united states . historically , we have grown through the acquisition and subsequent development and exploitation of producing properties , principally through the redevelopment of old fields utilizing new technologies such as modern log analysis and reservoir modeling techniques as well as 3-d seismic surveys and horizontal drilling . as a result of these activities , we believe that we have a number of development opportunities on our properties . in addition , we intend to expand upon our development activities with complementary acreage acquisitions in our core areas of operation . success in our development and exploration activities is critical in the maintenance and growth of our current production levels and associated reserves . while we have attained positive net income in four of the last five years , there can be no assurance that operating income and net earnings will be achieved in future periods . our financial results depend upon many factors which significantly affect our results of operations including the following : commodity prices and the effectiveness of our hedging arrangements ; the level of total sales volumes of oil and gas ; the availability of and our ability to raise additional capital resources and provide liquidity to meet cash flow needs ; 39 the level of and interest rates on borrowings ; and the level and success of exploration and development activity . commodity prices and hedging arrangements . the results of our operations are highly dependent upon the prices received for our oil and gas production . the prices we receive for our production are dependent upon spot market prices , differentials and the effectiveness of our derivative contracts , which we sometimes refer to as hedging arrangements . substantially all of our sales of oil and gas are made in the spot market , or pursuant to contracts based on spot market prices , and not pursuant to long-term , fixed-price contracts . accordingly , the prices received for our oil and gas production are dependent upon numerous factors beyond our control . significant declines in prices for oil and gas could have a material adverse effect on our financial condition , results of operations , cash flows and quantities of reserves recoverable on an economic basis . oil and gas prices have been volatile , and this volatility is expected to continue . as a result of the many uncertainties associated with the world political environment , worldwide supplies of oil , ngl and gas , the availability of other worldwide energy supplies and the relative competitive relationships of the various energy sources in the view of consumers , we are unable to predict what changes may occur in oil , ngl , and gas prices in the future . the market price of oil and condensate , ngl and gas in 2015 will impact the amount of cash generated from operating activities , which will in turn impact our financial position . as of march 10 , 2015 , the nymex oil and gas price was $ 48.29 per bbl of oil and $ 2.73 , per mcf of gas , respectively , representing declines of 48 % and 36 % , respectively , from the average nymex prices in 2014. during 2014 , the nymex future price for oil averaged $ 92.91 per barrel as compared to $ 98.06 per barrel in 2013. during 2014 the nymex future spot price for gas averaged $ 4.26 per mmbtu compared to $ 3.73 per mmbtu in 2013. prices closed on december 31 , 2014 at $ 53.27 per bbl of oil and $ 2.89 per mmbtu of gas . if commodity prices remain at these levels or continue to decline , our revenue and cash flow from operations will also likely decline . in addition , lower commodity prices could also reduce the amount of oil and gas that we can produce economically . if oil and gas prices remain depressed or continue to decline , our revenues , profitability and cash flow from operations will also likely decrease which could cause us to alter our business plans , including reducing our drilling activities . such declines could also require us to write down the carrying value of our oil and gas assets which would also cause a reduction in net income . the realized prices that we receive for our production differ from nymex futures and spot market prices , principally due to : basis differentials which are dependent on actual delivery location ; adjustments for btu content ; quality of the hydrocarbons ; and gathering , processing and transportation costs . story_separator_special_tag the rate of production from our oil and gas properties and our proved reserves will decline as our reserves are produced unless we acquire additional properties containing proved reserves , conduct successful 41 development and exploration activities or , through engineering studies , identify additional behind-pipe zones or secondary recovery reserves . we can not assure you that our exploration and development activities will result in increases in our proved reserves . if our proved reserves decline in the future , our production may also decline and , consequently , our cash flow from operations and the amount that we are able to borrow under our credit facility may also decline . in addition , approximately 58 % of our estimated proved reserves at december 31 , 2014 were undeveloped . by their nature , estimates of undeveloped reserves are less certain . recovery of such reserves will require significant capital expenditures and successful drilling operations . we may be unable to acquire or develop additional reserves , in which case our results of operations and financial condition could be adversely affected . 42 story_separator_special_tag style= '' line-height:120 % ; text-align : justify ; text-indent:24px ; font-size:10pt ; '' > depreciation , depletion , and amortization ( “ dd & a ” ) expenses . dd & a expense increased to $ 43.1 million for the year ended december 31 , 2014 from $ 25.6 million in 2013. dd & a increased primarily due to higher production volumes and increased future development costs included in the 2014 year end reserve report . dd & a per boe for 2014 was $ 20.66 compared to $ 16.69 in 2013. the increase in dd & a per boe was due to higher future development cost offset by higher sales volumes in 2014 as compared to 2013. interest expense . interest expense decreased to $ 2.6 million in 2014 from $ 4.6 million for 2013. the decrease was primarily due to lower levels of debt during 2014 as compared to 2013. income taxes . an income tax expense of $ 0.7 million was recognized in 2013 , which resulted in an overpayment of 2013 federal taxes . a credit of $ 0.3 million was recognized in 2014 as a result of this overpayment . in 2013 approximately $ 81,000 was recognized as a result of an audit of our 2009 federal income tax return . we incurred federal income tax of $ 0.5 million and various state income taxes of approximately $ 68,000 for the year ended december 31 , 2013 , primarily as a result of the gains realized on property sales during the year . loss ( gain ) on derivative contracts . realized derivative gains or losses are determined by actual derivative settlements during the period . unrealized gains and losses are based on the periodic mark to market valuation of derivative contracts in place . we have elected not to apply hedge accounting to our derivative contracts as prescribed by asc 815 ; therefore , fluctuations in the market value of the derivative contracts are recognized in earnings during the current period . our derivative contracts consist of commodity swaps and interest rate swaps . the net estimated value of our commodity derivative contracts was an asset of approximately $ 23.2 million as of december 31 , 2014. when our derivative contract prices are higher than prevailing market prices , we incur realized and unrealized gains and conversely , when our derivative contract prices are lower than prevailing market prices , we incur realized and unrealized losses . for the year ended december 31 , 2014 , we realized a gain on our derivative contracts of approximately $ 0.4 million and had an unrealized gain of $ 24.9 million . for the year-ended december 31 , 2013 , we incurred a realized loss of $ 5.0 million and an unrealized gain of $ 2.6 million on our commodity swaps . ceiling limitation write-down . we record the carrying value of our oil and gas properties using the full cost method of accounting for oil and gas properties . under this method , we capitalize the cost to acquire , explore for and develop oil and gas properties . under the full cost accounting rules , the net capitalized cost of oil and gas properties less related deferred taxes , are limited by country , to the lower of the unamortized cost or the cost ceiling , defined as the sum of the present value of estimated unescalated future net revenues from proved reserves , discounted at 10 % , plus the cost of properties not being amortized , if any , plus the lower of cost or estimated fair value of unproved properties included in the costs being amortized , if any , less related income taxes . if the net capitalized cost of oil and gas properties exceeds the ceiling limit , we are subject to a ceiling limitation write-down to the extent of such excess . a ceiling limitation write-down is a charge to earnings which does not impact cash flow from operating activities . however , such write-downs do impact the amount of our stockholders ' equity and reported earnings . as of december 31 , 2014 and 2013 , the net capitalized cost of our oil and gas properties did not exceed the present value of our estimated proved reserves . the year-end amount was calculated in accordance with sec rules utilizing the twelve month first-day-of-the-month average oil and gas prices for the year ended 2014 which were $ 95.28 per bbl for oil and $ 4.35 per mcf for gas as adjusted to reflect the expected realized prices for our oil and gas reserves . the risk that we will be required to write-down the carrying value of our oil and gas assets increases when oil and gas prices are depressed or volatile . in addition , write-downs may occur if we have substantial downward revisions in our estimated proved reserves .
| results of operations selected operating data . the following table sets forth operating data from continuing operations for the periods presented . replace_table_token_19_th _ ( 1 ) revenue and average sales prices are before the impact of hedging activities . comparison of year ended december 31 , 2014 to year ended december 31 , 2013 operating revenue . during the year ended december 31 , 2014 , operating revenue increased to $ 133.7 million from $ 92.3 million in 2013. the increase in revenue was primarily due to a 68 % increase in oil sales volumes in 2014 as compared to 2013 , offset by lower realized prices for oil and ngl prices . gas sales volumes were down by approximately 13 % ; however the decrease in gas volumes was offset by higher realized gas prices . we also had a significant increase in ngl sales volumes in 2014 as compared to 2013 , which was partially offset by lower realized ngl prices . increased sales volumes of oil and ngl contributed $ 54.0 million to operating revenue . lower gas sales volumes had a negative impact on operating revenue of $ 1.4 million . higher realized prices for gas contributed $ 2.6 million to operating revenue , while lower oil and ngl prices had a negative impact on revenue of $ 13.9 million in 2014. oil sales volumes increased to 1,394 mbbls for the year ended december 31 , 2014 from 829 mbbls for the same period of 2013. the increase in oil sales volumes was due to new production brought on line in 2014. new wells brought onto production in 2014 contributed 722 mbbls to production for the year ended december 31 , 2014 , offset by natural field declines and property sales .
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revenue recognition : we recognize sales upon shipment of products net of applicable provisions for any discounts or allowances . the shipping date from our warehouse is the appropriate point of revenue recognition since upon shipment we have substantially completed our obligations which entitle us to receive the benefits represented by the revenues , and the shipping date provides a consistent point within our control to measure revenue . customers may not return , exchange or refuse acceptance of goods without our approval . however , the company has entered into an agreement with a customer to grant pre-approved rights of return of up to fifty percent of products sold on certain invoices to provide for and gain acceptance within certain markets . when a pre-approved right of return is granted , revenue recognition is deferred until the right of return expires . we have established allowances to cover anticipated doubtful accounts based upon historical experience . the company reflects the factored accounts receivable as amount due from factor with the corresponding advance from the factor reflected separately as line of credit – factor . the company assigns trade receivables on a pre-approved non-recourse basis to the factor under the factoring agreement on an ongoing basis . inventories : inventories are valued at the lower of cost or market . cost is determined on the first in/first out method . we evaluate inventories on a quarterly basis and write down inventory that is deemed obsolete or unmarketable in an amount equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions . off-balance sheet arrangements . we have not created , and are not party to , any special-purpose or off balance sheet entities for the purpose of raising capital , incurring debt or operating parts of our business that are not consolidated into our financial statements and do not have any arrangements or relationships with entities that are not consolidated into our financial statements that are reasonably likely to materially affect our liquidity or the availability of our capital resources . recently issued accounting pronouncements changes to accounting principles generally accepted in the united states of america ( u.s. gaap ) are established by the financial accounting standards board ( fasb ) in the form of accounting standards updates ( asu 's ) to the fasb 's accounting standards codification . the company considers the applicability and impact of all asu 's . - 11 - in june 2014 , the fasb issued asu no . 2014-09 , revenue from contracts with customers : topic 606. asu 2014-09 affects any entity using u.s. gaap that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards ( e.g. , insurance contracts or lease contracts ) . this asu will supersede the revenue recognition requirements in topic 605 , revenue recognition , and most industry-specific guidance . this asu also supersedes some cost guidance included in subtopic 605-35 , revenue recognition—construction-type and production-type contracts . in addition , the existing requirements for the recognition of a gain or loss on the transfer of nonfinancial assets that are not in a contract with a customer ( e.g. , assets within the scope of topic 360 , property , plant , and equipment , and intangible assets within the scope of topic 350 , intangibles—goodwill and other ) are amended to be consistent with the guidance on recognition and measurement ( including the constraint on revenue ) in this asu . the core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services . to achieve that core principle , an entity should apply the following steps : step 1 : identify the contract ( s ) with a customer . step 2 : identify the performance obligations in the contract . step 3 : determine the transaction price . step 4 : allocate the transaction price to the performance obligations in the contract . step 5 : recognize revenue when ( or as ) the entity satisfies a performance obligation . this guidance is effective for annual periods beginning on or after december 15 , 2017 , including interim reporting periods within that reporting period and should be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying the asu recognized at the date of initial application . the company is currently assessing the impact that adopting this new accounting standard will have on the consolidated financial statements and footnote disclosures . in december 2016 the fasb issued accounting standards update no . 2016-20 , technical corrections and improvements to topic 606 , revenue from contracts with customers , or asu 2016-20. the amendments in asu 2016-20 update and affect narrow aspects of the guidance issued in asu 2014-09. in may 2016 , the fasb issued asu 2016-12 , narrow scope improvements and practical expedients , which provided revised guidance on certain issues relating to revenue from contracts with customers , including clarification of the objective of the collectability criterion . in march 2016 , the fasb issued a final amendment to clarify the implementation guidance for principal versus agent considerations and in april 2016 issued a final amendment to clarify the guidance related to identifying performance obligations and the accounting for intellectual property licenses . we are currently evaluating the impact these updates may have on our consolidated financial statements and disclosures . in august 2016 , the fasb issued asu no . 2016-15 , “ classification of certain cash receipts and cash payments , ” which clarifies and provides guidance on eight cash flow classification issues story_separator_special_tag revenue recognition : we recognize sales upon shipment of products net of applicable provisions for any discounts or allowances . the shipping date from our warehouse is the appropriate point of revenue recognition since upon shipment we have substantially completed our obligations which entitle us to receive the benefits represented by the revenues , and the shipping date provides a consistent point within our control to measure revenue . customers may not return , exchange or refuse acceptance of goods without our approval . however , the company has entered into an agreement with a customer to grant pre-approved rights of return of up to fifty percent of products sold on certain invoices to provide for and gain acceptance within certain markets . when a pre-approved right of return is granted , revenue recognition is deferred until the right of return expires . we have established allowances to cover anticipated doubtful accounts based upon historical experience . the company reflects the factored accounts receivable as amount due from factor with the corresponding advance from the factor reflected separately as line of credit – factor . the company assigns trade receivables on a pre-approved non-recourse basis to the factor under the factoring agreement on an ongoing basis . inventories : inventories are valued at the lower of cost or market . cost is determined on the first in/first out method . we evaluate inventories on a quarterly basis and write down inventory that is deemed obsolete or unmarketable in an amount equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions . off-balance sheet arrangements . we have not created , and are not party to , any special-purpose or off balance sheet entities for the purpose of raising capital , incurring debt or operating parts of our business that are not consolidated into our financial statements and do not have any arrangements or relationships with entities that are not consolidated into our financial statements that are reasonably likely to materially affect our liquidity or the availability of our capital resources . recently issued accounting pronouncements changes to accounting principles generally accepted in the united states of america ( u.s. gaap ) are established by the financial accounting standards board ( fasb ) in the form of accounting standards updates ( asu 's ) to the fasb 's accounting standards codification . the company considers the applicability and impact of all asu 's . - 11 - in june 2014 , the fasb issued asu no . 2014-09 , revenue from contracts with customers : topic 606. asu 2014-09 affects any entity using u.s. gaap that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards ( e.g. , insurance contracts or lease contracts ) . this asu will supersede the revenue recognition requirements in topic 605 , revenue recognition , and most industry-specific guidance . this asu also supersedes some cost guidance included in subtopic 605-35 , revenue recognition—construction-type and production-type contracts . in addition , the existing requirements for the recognition of a gain or loss on the transfer of nonfinancial assets that are not in a contract with a customer ( e.g. , assets within the scope of topic 360 , property , plant , and equipment , and intangible assets within the scope of topic 350 , intangibles—goodwill and other ) are amended to be consistent with the guidance on recognition and measurement ( including the constraint on revenue ) in this asu . the core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services . to achieve that core principle , an entity should apply the following steps : step 1 : identify the contract ( s ) with a customer . step 2 : identify the performance obligations in the contract . step 3 : determine the transaction price . step 4 : allocate the transaction price to the performance obligations in the contract . step 5 : recognize revenue when ( or as ) the entity satisfies a performance obligation . this guidance is effective for annual periods beginning on or after december 15 , 2017 , including interim reporting periods within that reporting period and should be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying the asu recognized at the date of initial application . the company is currently assessing the impact that adopting this new accounting standard will have on the consolidated financial statements and footnote disclosures . in december 2016 the fasb issued accounting standards update no . 2016-20 , technical corrections and improvements to topic 606 , revenue from contracts with customers , or asu 2016-20. the amendments in asu 2016-20 update and affect narrow aspects of the guidance issued in asu 2014-09. in may 2016 , the fasb issued asu 2016-12 , narrow scope improvements and practical expedients , which provided revised guidance on certain issues relating to revenue from contracts with customers , including clarification of the objective of the collectability criterion . in march 2016 , the fasb issued a final amendment to clarify the implementation guidance for principal versus agent considerations and in april 2016 issued a final amendment to clarify the guidance related to identifying performance obligations and the accounting for intellectual property licenses . we are currently evaluating the impact these updates may have on our consolidated financial statements and disclosures . in august 2016 , the fasb issued asu no . 2016-15 , “ classification of certain cash receipts and cash payments , ” which clarifies and provides guidance on eight cash flow classification issues
| general we are in the business of marketing and distributing safety and security products which are primarily manufactured through our 50 % owned hong kong joint venture . our consolidated financial statements detail our sales and other operational results , and report the financial results of the hong kong joint venture that is accounted for using the equity method of accounting . accordingly , the following discussion and analysis of the fiscal years ended march 31 , 2017 and 2016 relate to the operational results of the company and its consolidated subsidiary only and includes the company 's equity share of earnings in the hong kong joint venture . a discussion and analysis of the hong kong joint venture 's operational results for these periods is presented below under the heading “ hong kong joint venture. ” while we believe that our overall sales are likely affected by the current global economic situation , we believe that we are specifically negatively impacted by the severe downturn in the u.s. housing market that occurred in 2008. although there has since been improvement in the industry , it has not returned to pre-2008 performance . as stated elsewhere in this report , our usi electric subsidiary markets our products to the electrical distribution trade ( primarily electrical and lighting distributors and manufactured housing companies ) ; every downturn in new home construction and new home sales negatively impacts sales by our usi electric subsidiary . our operating results for the current fiscal years ended march 31 , 2017 and 2016 continue to be significantly impacted by the economic conditions of the u.s. housing market . we further believe that our fiscal 2017 and 2016 retail sales were impacted by the movement of the smoke and carbon monoxide alarm retail markets toward ten-year sealed alarms to comply with new laws passed in several states , including california and new york .
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fiscal years 2011 and 2010 each consisted of 52 weeks of operation . overview ruth 's hospitality group , inc. is a leading restaurant company focused on the upscale dining segment . ruth 's hospitality group , inc. and its subsidiaries ( the company ) operate ruth 's chris steak house , mitchell 's fish market , and cameron 's steakhouse restaurants and sell franchise rights to ruth 's chris steak house franchisees giving the franchisees the exclusive right to operate similar restaurants in a particular location designated in the franchise agreement . as december 30 , 2012 , there were 159 restaurants operating , including 86 company owned restaurants , 72 franchisee owned restaurants and one restaurant operating under a management agreement . the ruth 's chris menu features a broad selection of high-quality usda prime and choice grade steaks and other premium offerings served in ruth 's chris ' signature fashionsizzling and topped with buttercomplemented by other traditional menu items inspired by our new orleans heritage . the ruth 's chris restaurants reflect the more than 47-year commitment to the core values instilled by our founder , ruth fertel , of caring for our guests by delivering the highest quality food , beverages and service in a warm and inviting atmosphere . we believe that ruth 's chris is one of the strongest brands in the upscale steakhouse category . our ruth 's chris restaurants cater to special occasion and family diners , in addition to the business clientele traditionally served by upscale steakhouses , by providing a dining experience designed to appeal to a wide range of guests . we believe our focus on creating this broad appeal provides us with opportunities to expand into a wide range of markets , including many markets not traditionally served by upscale steakhouses . we offer usda prime and choice grade steaks that are aged and prepared to exact company standards and cooked in 1,800-degree broilers . we also offer veal , lamb , poultry and seafood dishes , and a broad selection of appetizers . we complement our distinctive food offerings with an award-winning wine list . during the fiscal year ended december 30 , 2012 , the average check was $ 73 per person . as of december 30 , 2012 , there were 137 ruth 's chris steak house restaurants , of which 64 were company-owned , 72 were franchisee-owned , and one restaurant was operating under a management agreement . the franchisee-owned restaurants include eighteen international franchisee-owned restaurants in aruba , canada , hong kong , el salvador , japan , mexico , singapore , taiwan , and the united arab emirates . a new company-owned ruth 's chris steak house opened in cincinnati , oh in october 2012. four new ruth 's chris steak house franchise restaurants opened during fiscal year 2012 , including a second franchise restaurant located in 20 dubai and franchise restaurants located in singapore , el salvador and niagara falls , ontario . a new ruth 's chris steak house located at harrah 's casino in cherokee , nc opened in may 2012 under a management agreement between the company and the eastern band of cherokee indians . we expect to grow the number of company-owned and franchisee owned restaurants in 2013. currently , the company 's plans for 2013 include opening a new company-owned restaurant in denver , co , relocating its houston , tx restaurant , and opening three to five franchise restaurants . in january 2013 , a new restaurant at harrah 's casino in las vegas opened under a recently executed licensing agreement under which we will receive a fee as a percentage of sales . the lease for one company-owned restaurant expires in 2013. we will close this restaurant and serve our customers from another existing company-owned restaurant in the same metropolitan area . on february 19 , 2008 , we completed the acquisition of the operating assets and intellectual property of mitchell 's fish market , operating under the names mitchell 's fish market and columbus fish market , and cameron 's steakhouse , operating under the names cameron 's steakhouse and mitchell 's steakhouse from cameron mitchell restaurants , llc ( cmr ) . there are currently 19 mitchell 's fish markets and three cameron 's steakhouse 's with restaurants in the midwest , northeast , and florida . mitchell 's fish market is an award-winning , upscale , yet comfortable , seafood restaurant and bar recognized for its high-quality food , contemporary dining atmosphere , and excellent service . we believe that mitchells ' focus on upscale casual dining complements the ruth 's chris brand . mitchell 's fish market is committed to serving the freshest seafood . although the menu changes frequently based on availability and season , it includes more than 60 seafood dishes , including fish from all over the world . during the fiscal year ended december 30 , 2012 , the average check was $ 36 per person . fiscal year 2012 operating results fiscal year 2012 operating income increased from fiscal year 2011 by $ 2.2 million to $ 26.2 million . fiscal year 2012 operating income was positively impacted by a $ 27.4 million increase in restaurant sales which was somewhat offset by higher food and restaurant operating expenses . higher restaurant sales were attributable both to an increase in the number of customers as measured by an increase in entrées , and an increase in average check . we recognized a net loss on the impairment and disposal of long-lived assets of $ 5.0 million in fiscal year 2012 compared to a net loss of $ 3.5 million in fiscal year 2011. due in large part to an increase in income tax expense , net income fiscal year 2012 decreased by $ 3.2 million to $ 16.4 million as compared fiscal year 2011. income tax expense for fiscal year 2011 was abnormally low due to a $ 4.0 million benefit for the reduction of a deferred tax asset valuation allowance . story_separator_special_tag 22 story_separator_special_tag size= '' 3 '' style= '' color : # 999999 '' width= '' 100 % '' / > fiscal year 2011 compared to fiscal year 2010 restaurant sales . restaurant sales increased $ 15.9 million , or 4.7 % , to $ 353.6 million in fiscal year 2011. ruth 's chris comparable restaurants experienced a sales increase of 5.4 % consisting of an entrée increase of 3.7 % and an increase in average check of 1.6 % . mitchell 's fish market comparable restaurants experienced a sales decrease of 1.0 % consisting of an entrée decrease of 3.4 % and an increase in average check of 2.4 % . franchise income . franchise income increased $ 0.9 million , or 8.1 % , to $ 12.5 million in fiscal year 2011. the year over year increase was driven primarily by a 7.7 % increase in comparable franchise-owned restaurant sales . food and beverage costs . food and beverage costs increased $ 9.1 million , or 9.1 % , to $ 109.6 million in fiscal year 2011. as a percentage of restaurant sales , food and beverage costs increased to 31.0 % in fiscal year 2011 from 29.8 % in fiscal year 2010. this increase in food and beverage costs as a percentage of restaurant sales was primarily due to increased beef prices . restaurant operating expenses . restaurant operating expenses increased $ 5.8 million , or 3.2 % , to $ 183.3 million in fiscal year 2011. the year over year increase was primarily due to higher restaurant sales . restaurant operating expenses were also adversely impacted by a 28.1 % increase in employee health care costs . despite the increase in total expense , restaurant operating expenses , as a percentage of restaurant sales , decreased to 51.8 % in fiscal year 2011 from 52.6 % in fiscal year 2010 due to leveraging higher comparable restaurant sales . depreciation and amortization expenses . depreciation and amortization expense decreased $ 0.5 million , or 3.3 % , to $ 14.9 million in fiscal year 2011 from fiscal year 2010. the decrease in depreciation and amortization is primarily attributable to certain restaurant assets becoming fully depreciated . loss on impairment and asset disposals . we recognized a loss on the impairment and asset disposals of $ 3.5 million in fiscal year 2011 compared to a loss of $ 0.8 million in fiscal year 2010. the fiscal year 2011 $ 3.0 million loss on impairment was attributable to a reduction in the estimated fair value of the mitchell 's fish market trademark . the fiscal year 2011 $ 0.5 million loss on asset disposals pertains primarily to property and equipment replaced during restaurant renovations . the fiscal year 2010 loss recognized was related to the impairment of long-lived assets at two ruth 's chris restaurants . restructuring expense ( benefit ) . in fiscal year 2011 , we recognized $ 0.5 million benefit attributable to favorable lease resolutions on closed/unopened restaurant sites . in fiscal year 2010 , we recognized $ 1.7 million of restructuring expense recoveries , which included a release from liability by a developer where lease exit costs were previously accrued and the correction of an immaterial prior year error in estimating lease exit costs . interest expense . interest expense , net of interest income , decreased $ 1.4 million , or 31.9 % , to $ 2.9 million in fiscal year 2011. the year over year decrease in expense was primarily due to the decrease in the average amount outstanding of our revolving credit loan . income tax expense . income tax expense decreased $ 3.2 million to $ 1.6 million in fiscal year 2011. the year over year decrease was largely due to the favorable impact of a $ 4.0 million benefit recorded in the second quarter of fiscal year 2011. the benefit pertained to a reduction of the valuation allowance on certain state deferred tax assets . income from continuing operations . income from continuing operations increased $ 2.3 million to $ 19.1 million in fiscal year 2011 from income of $ 16.8 million in fiscal year 2010. discontinued operations , net of income tax benefit . during 2011 we reported $ 0.5 million net of tax income on discontinued operations . the income pertained to a change in estimate of lease related liabilities . during fiscal year 2010 we reported a $ 0.9 million loss net of tax on discontinued operations . the fiscal 2010 discontinued operations loss primarily relates to a change in estimate related to lease exit costs of our former operations at one restaurant in new york , new york , and one restaurant in naples , florida . net income applicable to preferred and common shareholders . net income applicable to preferred and common shareholders increased $ 3.2 million to $ 16.7 million in fiscal year 2011 from $ 13.5 million in fiscal year 2010 . 25 potential fluctuations in quarterly results and seasonality our quarterly operating results may fluctuate significantly as a result of a variety of factors . see risk factors for a discussion of certain material risks that could affect our quarterly operating results . our business is also subject to seasonal fluctuations . historically , the percentages of our annual total revenues during the first and fourth fiscal quarters have been higher due , in part , to the year-end holiday season . accordingly , results for any one quarter are not necessarily indicative of results to be expected for any other quarter or for any year , and comparable restaurant sales for any particular period may decrease . liquidity and capital resources our principal sources of cash during fiscal year 2012 were net cash provided by operating activities and borrowings under our $ 100 million senior credit facility . our principal uses of cash during fiscal year 2012 were for the repurchase of all of our issued and outstanding preferred stock for $ 60.2 million and to repay borrowings under the senior credit facility .
| results of operations the table below sets forth certain operating data expressed as a percentage of restaurant sales and total revenues for the periods indicated . our historical results are not necessarily indicative of the operating results that may be expected in the future . certain prior year amounts have been reclassified to conform to the current year presentation of discontinued operations . replace_table_token_9_th fiscal year 2012 compared to fiscal year 2011 restaurant sales . restaurant sales increased $ 27.4 million , or 7.7 % , to $ 381.0 million in fiscal year 2012. the 53 rd week contributed $ 9 million of sales in fiscal year 2012. on a 52 week basis , ruth 's chris comparable restaurants experienced a sales increase of 5.2 % consisting of an entrée increase of 2.8 % and an increase in average check of 2.3 % . on a 52 week basis , mitchell 's fish market comparable restaurants experienced a sales increase of 2.5 % consisting of an entrée increase of 3.4 % and a decrease in average check of 0.8 % . 23 franchise income . franchise income increased $ 1.4 million , or 11 % , to $ 13.8 million in fiscal year 2012. the year over year increase was driven primarily by an increase in comparable franchise-owned restaurant sales , the 53 rd week included in fiscal year 2012 and new franchise unit development during the year . comparable franchise restaurant sales increased 4.6 % . food and beverage costs . food and beverage costs increased $ 11.5 million , or 10.4 % , to $ 121.0 million in fiscal year 2012. as a percentage of restaurant sales , food and beverage costs increased to 31.8 % in fiscal year 2012 from 31.0 % in fiscal year 2011. this increase in food and beverage costs as a percentage of restaurant sales was primarily due to increased beef costs . restaurant operating expenses .
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the company does not have story_separator_special_tag the following discussion is intended to assist you in understanding our results of operations and our present financial condition . our consolidated financial statements and the accompanying notes to the consolidated financial statements included elsewhere in this report contains additional information that should be referred to when reviewing this material . our subsidiaries are listed in note 1 to the consolidated financial statements . overview : we are an independent oil and natural gas company engaged in acquiring , developing and producing oil and natural gas . we presently own producing and non-producing properties located primarily in texas , oklahoma and west virginia . in addition , we own a substantial amount of well servicing equipment . all our oil and gas properties and interests are located in the united states . assets in our principal focus areas include mature properties with long-lived reserves and significant development opportunities as well as newer properties with development and exploration potential . we believe our balanced portfolio of assets and our ongoing hedging program position us well for both the current commodity price environment and future potential upside as we develop our attractive resource opportunities . our primary sources of liquidity are cash generated from our operations and our credit facility . 34 we attempt to assume the position of operator in all acquisitions of producing properties and will continue to evaluate prospects for leasehold acquisitions and for exploration and development operations in areas in which we own interests . we continue to actively pursue the acquisition of producing properties . to diversify and broaden our asset base , we will consider acquiring the assets or stock in other entities and companies in the oil and gas business . our main objective in making any such acquisitions will be to acquire income producing assets to build stockholder value through consistent growth in our oil and gas reserve base on a cost-efficient basis . our cash flows depend on many factors , including the price of oil and gas , the success of our acquisition and drilling activities and the operational performance of our producing properties . we use derivative instruments to manage our commodity price risk . this practice may prevent us from receiving the full advantage of any increases in oil and gas prices above the maximum fixed amount specified in the derivative agreements and subjects us to the credit risk of the counterparties to such agreements . since all our derivative contracts are accounted for under mark-to-market accounting , we expect continued volatility in gains and losses on mark-to-market derivative contracts in our consolidated statement of operations as changes occur in the nymex price indices . market conditions and commodity prices : our financial results depend on many factors , particularly the price of natural gas and crude oil and our ability to market our production on economically attractive terms . commodity prices are affected by many factors outside of our control , including changes in market supply and demand , which are impacted by weather conditions , pipeline capacity constraints , inventory storage levels , basis differentials and other factors . in addition , our realized prices are further impacted by our derivative and hedging activities . as a result , we can not accurately predict future commodity prices and , therefore , we can not determine with any degree of certainty what effect increases or decreases in these prices will have on our capital program , production volumes or revenues . location differentials have increased in certain regions , such as in the appalachian region , resulting in further declines in natural gas prices . we expect natural gas and crude oil prices to remain volatile . in addition to production volumes and commodity prices , finding and developing sufficient amounts of natural gas and crude oil reserves at economical costs are critical to our long-term success . critical accounting estimates : proved oil and gas reserves proved oil and gas reserves directly impact financial accounting estimates , including depreciation , depletion and amortization . proved reserves represent estimated quantities of natural gas , crude oil , condensate , and natural gas liquids that geological and engineering data demonstrate , with reasonable certainty , to be recoverable in future years from known reservoirs under economic and operating conditions existing at the time the estimates were made . the process of estimating quantities of proved oil and gas reserves is very complex , requiring significant subjective decisions in the evaluation of all available geological , engineering and economic data for each reservoir . the data for a given reservoir may also change substantially over time as a result of numerous factors including , but not limited to , additional development activity , evolving production history and continual reassessment of the viability of production under varying economic conditions . consequently , material revisions ( upward or downward ) to existing reserve estimates may occur from time to time . depreciation , depletion and amortization for oil and gas properties the quantities of estimated proved oil and gas reserves are a significant component of our calculation of depletion expense and revisions in such estimates may alter the rate of future expense . holding all other factors constant , if reserves were revised upward or downward , earnings would increase or decrease respectively . depreciation , depletion and amortization of the cost of proved oil and gas properties are calculated using the unit-of-production method . the reserve base used to calculate depletion , depreciation or amortization is the sum 35 of proved developed reserves and proved undeveloped reserves for leasehold acquisition costs and the cost to acquire proved properties . the reserve base includes only proved developed reserves for lease and well equipment costs , which include development costs and successful exploration drilling costs . estimated future dismantlement , restoration and abandonment costs , net of salvage values , are taken into account . story_separator_special_tag during 2017 , the company expended approximately $ 49.5 million in this program . development of our west texas resource has continued in the first quarter of 2018 with the drilling of three horizontal wells . as of march 31 , 2018 , these three wells have been drilled and are being prepared for hydraulic fracture stimulation . we also anticipate the drilling of an additional 8 wells in 2018 , although afes and specific plans for drilling have not been finalized . this additional activity brings the anticipated total to 11 horizontal wells drilled in 2018 in our west texas horizontal drilling program . in addition , the company is participating for less than 1 % interest in seven other horizontal wells that are in the process of being put on production . in upton county , texas , we are developing a contiguous 3,900 acre block with our joint venture partner , apache corporation , where the company holds approximately 48 % interest in 2,606 gross acres . through year-end 2017 , twenty-two wells have been drilled and completed in this joint venture . sixteen of these were drilled and completed in 2017 at a gross cost of $ 106,267,000. the company invested a net $ 43.3 million with an average 34.8 % interest . in the first quarter of 2018 , an additional three wells have been drilled and are in the process of being completed at an expected gross cost of $ 25,441,000. we have a 38.25 % interest in these wells and our expected net cost will be approximate $ 9,371,000. apache corporation has indicated plans to continue to pad drill the acreage and future phases of the development are expected to result in approximately 40 additional horizontal wells being drilled at a cost of about $ 312 million . the company owns various interests ranging from 14 % to 49 % in the lands to be developed in this project and expect our share of these capital expenditures to be approximately $ 80 million . the actual number of wells drilled , the cost , and the timing of drilling may vary based upon commodity market conditions . apache 's drilling plans indicate an additional eight wells will be drilled later this year at a cost of $ 50 million , of which our share is approximately $ 24 million . these wells meet the definition of proved undeveloped reserves , however , they were not included in our year-end reserve report because we had not yet received afes and formal drilling plans . in martin county , texas we are developing a 960 acre block with rsp permian . in 2016 , two wells were drilled and completed and two additional wells were drilled and brought on line in 2017. the company owns approximately 35 % to 38 % interest in the acreage of this joint venture where rsp permian is the operator . no 37 near-term plans have been received from rsp permian . during 2017 , the company spent approximately $ 3 million on this development . the company maintains an acreage position of 20,443 gross ( 12,766 net ) acres in the permian basin in west texas , primarily in reagan , upton , midland and martin counties . we believe this acreage has significant resource potential in multiple spraberry and wolfcamp intervals that support the potential drilling of as many as 250 additional horizontal wells . with regard to our oklahoma horizontal development program , which began in 2012 , the company has participated in 28 horizontal wells for approximately $ 27 million through year-end 2017. over this same time period the company chose to retain an overriding royalty interest in 28 other horizontal wells that were drilled . the company is currently participating in two horizontal wells operated by linn operating inc. in grady county , oklahoma . we are participating for 10 % interest in one well and 1 % interest in the other . the anticipated cost for these wells is $ 14,703,000 , with our net share being $ 828,000. both wells have been drilled and are waiting on fracture stimulation . in addition , the company has elected to retain an orri in 16 wells that are in the process of being drilled or completed in various counties of central oklahoma . also , in 2018 , the company anticipates participating in the drilling of as many as five additional horizontal wells in central oklahoma with interest of between 6 % and 12 % . the horizontal activity on company acreage in oklahoma is primarily focused in canadian , grady , kingfisher and garvin counties where we have approximately 2,231 net acres . we believe our acreage has significant additional resource potential that could support the drilling of 72 new horizontal wells based on an estimate of only two wells per section with our share of the capital expenditure being about $ 42 million at an average 10.5 % ownership level . during march 2018 and effective january 1 , 2018 , primeenergy agreed to sell its right , title and interest in 3,506 gross mineral acres , 16,000 net mineral acres , in garfield county , oklahoma , including 20 producing wells , for approximately $ 1,600,000. the company will retain an overriding royalty interest in the oil and gas produced from the properties . in a separate transaction , which closed march 2018 , the company sold 3,884 gross mineral acres , net mineral acres in yuma county , colorado , and cheyenne county , kansas , for $ 175,000. this divestiture includes 54 producing wells . in 2017 , in the u.s. gulf coast region of texas , the company participated in the drilling of one well and the recompletion of two wells operated by unit petroleum in the segno field of polk county , texas . the company invested $ 179,000 with a 2.8 % working interest and a 3.77 % revenue interest in these wells . all three wells were successful .
| results of operations : 2017 and 2016 compared we reported net income for 2017 of $ 42.0 million , or $ 18.99 per share , compared to $ 3.4 million or $ 1.50 per share for 2016. this increase was due to increases in oil and gas production and sales compared to 2016 combined with gains related to the sale of acreage . the significant components of net income are discussed below . oil and gas sales increased $ 28.6 million , or 74.6 % to $ 66.9 million for the year ended december 31 , 2017 from $ 38.3 million for the year ended december 31 , 2016. crude oil and natural gas sales vary due to changes in volumes of production sold and realized commodity prices . our realized prices at the well head increased an average of $ 10.06 per barrel , or 25.3 % on crude oil and increased $ 0.80 per mcf , or 31.4 % on natural gas during 2017 as compared to 2016. our crude oil production increased by 334,000 barrels , or 49.9 % from 670,000 barrels for the year ended december 31 , 2016 to 1,004,000 barrels for the year ended december 31 , 2017. our natural gas production increased by 462 mmcf , or 10.2 % from 4,546 mmcf for the year ended december 31 , 2016 to 5,008 mmcf for the year ended december 31 , 2017. the increase in crude oil and natural gas production volumes are a result of the natural decline of existing properties offset by our continued drilling success in the west texas and oklahoma regions as we place new wells into production . the following table summarizes the primary components of production volumes and average sales prices realized for the years ended december 31 , 2017 and 2016 ( excluding realized gains and losses from derivatives ) .
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see note 16 , “ revenue ” for further discussion of the company 's revenue . share-based compensation the company recognizes the compensation cost of employee and director services received in exchange for awards of equity instruments based on the grant date estimated fair value of the awards . share-based compensation cost is recognized over the period during which the employee or director is required to provide service in exchange for the award and , as forfeitures occur , the associated compensation cost recognized to date is reversed . for awards with performance-based payout conditions , the company recognizes compensation cost based on the probability of achieving the performance conditions , with changes in expectations recognized as an adjustment to earnings in the period of change . any recognized compensation cost is reversed if the conditions are ultimately not met . f-11 the company estimates the fair value of restricted stock units ( “ rsus ” ) and performance share awards ( “ psas ” ) using the story_separator_special_tag the following is management 's discussion and analysis of certain significant factors that have affected our consolidated financial condition and results of operations during the periods included herein . this discussion should be read in conjunction with our historical consolidated financial statements and notes to consolidated financial statements in part ii – item 8 . “ financial statements and supplementary data ” of this 2018 form 10-k. this discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties . our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors , including those set forth under part i – item 1a . “ risk factors ” or in other parts of this 2018 form 10-k. overview northwest pipe company is the largest manufacturer of engineered welded steel pipe water systems in north america . our manufacturing facilities are strategically positioned to meet north america 's growing needs for water and wastewater infrastructure . our solution-based products serve a wide range of markets including water transmission , plant piping , tunnels , and river crossings . our prominent position is based on a widely-recognized reputation for quality , service , and manufacturing to meet performance expectations in all categories including highly-corrosive environments . these pipeline systems are produced from several manufacturing facilities which are located in portland , oregon ; san luis río colorado , mexico ; adelanto , california ; saginaw , texas ; tracy , california ; parkersburg , west virginia ; st. louis , missouri ; and brea , california . in the second quarter of 2018 , we closed our leased facility in salt lake city , utah and ceased production at our monterrey , mexico facility . the monterrey , mexico facility was sold in december 2018. in july 2018 , we completed the acquisition of 100 % of ameron for a purchase price of $ 38.1 million . ameron was a major supplier of engineered welded steel pressure pipe as well as reinforced concrete pipe . in addition to strengthening our position in the water transmission pipe market , this acquisition expands our bar-wrapped concrete cylinder pipe capabilities and adds reinforced concrete pipe and t-lock ® —a proprietary pvc lining for concrete pipe sewer applications—to our product portfolio . in connection with the acquisition , we acquired pipe facilities in tracy , california and san luis río colorado , mexico , as well as a protective lining facility in brea , california . our water infrastructure products are sold generally to installation contractors , who include our products in their bids to municipal agencies or privately-owned water companies for specific projects . we believe our sales are substantially driven by spending on new water infrastructure with a recent trend towards spending on water infrastructure replacement , repair , and upgrade . within the total range of pipe products , our products tend to fit the larger-diameter , higher-pressure applications . our current economic environment we operate our business with a long-term time horizon . projects are often planned for many years in advance , and are sometimes part of 50-year build-out plans . long-term demand for water infrastructure projects in the united states appears strong . however , in the near term , we expect that strained governmental and water agency budgets along with increased capacity from competition could impact the business . fluctuating steel costs will also be a factor , as the ability to adjust our selling prices as steel costs fluctuate depends on market conditions . purchased steel represents a substantial portion of our cost of sales , and changes in our selling prices often correlate directly to changes in steel costs . in march 2018 , the president signed a proclamation imposing a 25 % tariff on all imported steel products for an indefinite amount of time under section 232 of the trade expansion act of 1962. in june 2018 , mexico imposed a 25 % tariff on all steel products shipped from the u.s. to mexico , and in july 2018 , canada imposed a 25 % surtax on imports of u.s. steel products . these tariffs cover our primary raw material , hot rolled coil , as well as our finished steel pipe product . we routinely ship steel pipe into canada . the tariffs may lead to project delays or cancellations while they are in place . in addition , our newly acquired location in slrc may also be negatively impacted . historically , the raw material has been purchased in the u.s. and shipped to mexico for manufacturing , and the finished product has been shipped from mexico to the u.s. if we continue this practice , we will have a tariff on the purchased hot rolled coil as well as the finished steel pipe . critical accounting policies and estimates the discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements included in part ii — item 8 . story_separator_special_tag to estimate net realizable value , we review recent sales and gross profit history , existing customer orders , current contract prices , industry supply and demand , forecasted steel prices , replacement costs , seasonal factors , general economic trends , and other information , as applicable . if future market conditions are less favorable than those projected by us , inventory write-downs may be required . the cost of raw material inventories of steel is either on a specific identification basis or on an average cost basis . the cost of all other raw material inventories , as well as work-in-process and supplies , is on an average cost basis . the cost of finished goods uses the first-in , first-out method of accounting . 19 property and equipment property and equipment are recorded at cost , and are depreciated using either the units of production method or the straight-line method depending on the classification of the asset . depreciation expense calculated under the units of production method may be less than , equal to , or greater than depreciation expense calculated under the straight-line method . we evaluate historical and projected units of production at each plant to reassess the units of production expected on an annual basis . we assess impairment of property and equipment whenever changes in circumstances indicate that the carrying values of the asset or asset group ( s ) may not be recoverable . the recoverable value of a long-lived asset group is determined by estimating future undiscounted cash flows using assumptions about our expected future operating performance . estimates of future cash flows used in the recoverability test incorporate our own assumptions about the use of the asset group and shall consider all available evidence . our estimates of undiscounted cash flows may differ from actual cash flow due to , among other things , technological changes , economic conditions , or changes to our business operations . if we determine the carrying value of the property and equipment will not be recoverable , we calculate and record an impairment loss . share -based compensation we recognize the compensation cost of employee and director services received in exchange for awards of equity instruments based on the grant date estimated fair value of the awards . share-based compensation cost is recognized over the period during which the employee or director is required to provide service in exchange for the award and , as forfeitures occur , the associated compensation cost recognized to date is reversed . for awards with performance-based payout conditions , we recognize compensation cost based on the probability of achieving the performance conditions , with changes in expectations recognized as an adjustment to earnings in the period of change . any recognized compensation cost is reversed if the conditions are ultimately not met . we estimate the fair value of restricted stock units and performance share awards ( “ psas ” ) using the value of our stock on the date of grant , with the exception of market-based psas , for which a monte carlo simulation model is used . the monte carlo simulation model calculates many potential outcomes for an award and estimates fair value based on the most likely outcome . income taxes income taxes are recorded using an asset and liability approach that requires the recognition of deferred income tax assets and liabilities for the expected future tax consequences of events that have been recognized in our consolidated financial statements or income tax returns . valuation allowances are established when necessary to reduce deferred income tax assets to the amount expected to be realized . the determination of our provision for income taxes requires significant judgment , the use of estimates , and the interpretation and application of complex tax laws . our provision for income taxes primarily reflects a combination of income earned and taxed in the various united states federal and state and , to a lesser extent , foreign jurisdictions . jurisdictional tax law changes , increases or decreases in permanent differences between book and tax items , accruals or adjustments of accruals for unrecognized income tax benefits or valuation allowances , and our change in the mix of earnings from these taxing jurisdictions all affect the overall effective income tax rate . we record income tax reserves for federal , state , local , and international exposures relating to periods subject to audit . the development of reserves for these exposures requires judgments about tax issues , potential outcomes and timing , and is a subjective estimate . we assess our income tax positions and record income tax benefits for all years subject to examination based upon management 's evaluation of the facts , circumstances , and information available at the reporting dates . for those income tax positions where it is more-likely-than-not that an income tax benefit will be sustained , we have recorded the largest amount of income tax benefit with a greater than 50 % likelihood of being realized upon settlement with a tax authority that has full knowledge of all relevant information . for those income tax positions where it is not more-likely-than-not that an income tax benefit will be sustained , no income tax benefit has been recognized in the consolidated financial statements . on december 22 , 2017 , the tax cuts and jobs act of 2017 was signed into law making significant changes to the internal revenue code .
| results of operations the following table sets forth , for the periods indicated , certain financial information regarding costs and expenses expressed in dollars ( in thousands ) and as a percentage of total net sales from continuing operations . replace_table_token_5_th we have one business segment , water transmission , which manufactures large-diameter , high-pressure , engineered welded steel pipeline systems , as well as reinforced concrete pipe and protective linings , for use in water infrastructure applications , which are primarily related to drinking water systems . these products are also used for hydroelectric power systems , wastewater systems , and other applications . in addition , we make products for industrial plant piping systems and certain structural applications . see note 3 and note 4 of the notes to consolidated financial statements in part ii – item 8 . “ financial statements and supplementary data ” of this 2018 form 10-k for information on our acquisition of ameron in july 2018 and our discontinued operations , which includes the results of our manufacturing facility in atchison , kansas that was sold in december 2017. year ended december 31 , 201 8 compared to year ended december 31 , 201 7 net sales . net sales from continuing operations increased 29.6 % to $ 172.1 million in 2018 from $ 132.8 million in 2017. the acquired ameron operations contributed $ 30.2 million of the increase in net sales in 2018. excluding the impact of the ameron acquisition , the increase in net sales in 2018 compared to 2017 of $ 9.1 million was due to a 6 % increase in selling price per ton and a 1 % increase in tons produced . the increase in selling price per ton was due to improved market conditions and a change in product mix , combined with higher material costs per ton .
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all derivative financial instruments are recognized on the balance sheet at fair value with changes in f-9 pennymac mortgage investment trust and subsidiaries notes to consolidated financial statements ( continued ) note 3significant accounting policies ( continued ) the fair values being reported in current period income . the fair value of the company 's derivative financial instruments is included in other assets and changes in fair value are included in net gain on mortgage loans acquired for sale in the company 's consolidated statements of operations . mortgage servicing rights ( `` msrs `` ) msrs arise from contractual agreements between the company and investors ( or their agents ) in mortgage securities and mortgage loans . under these contracts , the company is obligated to provide loan servicing functions in exchange for fees and other remuneration . the servicing functions typically performed include , among other responsibilities , collecting and remitting loan payments ; responding to borrower inquiries ; accounting for principal and interest , holding custodial ( impound ) funds for payment of property taxes and insurance premiums ; counseling delinquent mortgagors ; and supervising the acquisition of real estate in settlement of loans and property dispositions story_separator_special_tag this discussion includes forward-looking statements concerning future events and performance of the company , which are subject to certain risks and uncertainties as discussed above in the section entitled special note regarding forward-looking statements and in item 1a of this report , entitled risk factors . overview we are a specialty finance company that invests primarily in residential mortgage loans and mortgage-related assets . our objective is to provide attractive risk-adjusted returns to our investors over the long-term , principally through dividends and secondarily through capital appreciation . we intend to achieve this objective largely by investing in distressed mortgage assets and acquiring , pooling , securitizing or selling newly originated prime credit quality residential mortgage loans ( `` correspondent lending '' ) . we acquire distressed mortgage loans through direct acquisitions of mortgage loan portfolios from institutions such as banks , mortgage companies and insurance companies and direct acquisitions or participations in structured transactions . a substantial portion of the nonperforming loans we have purchased has been acquired from or through one or more subsidiaries of citigroup inc. we seek to maximize the value of the distressed mortgage loans that we acquire using means that are appropriate for the particular loan , including both proprietary and nonproprietary loan modification programs ( such as the u.s. departments of the treasury and housing and urban development 's home affordable modification program ( `` hamp '' ) ) , special servicing and other initiatives focused on avoiding foreclosure , when possible . when we are unable to effect a cure for a mortgage delinquency , our objective is to effect timely acquisition and or liquidation of the property securing the loan . during the year ended december 31 , 2011 , we purchased $ 647.6 million of distressed mortgage loans and received proceeds from liquidation , payoffs and sales from our portfolio of distressed mortgage loans totaling $ 147.3 million . changes in the mortgage market have significantly reduced the outlets for sales of newly originated mortgage loans by mortgage lenders who have traditionally sold their loans to larger mortgage companies and banks who , in turn , sold those loans to agencies and other investors or into securitizations . we believe these changes , along with recent reductions to government sponsored entity ( `` gse '' ) loan size limits and the reduced participation of large bank lenders due in part to anticipation of regulatory changes to securitization related capital requirements , provide us with the opportunity to act as a link between these loan originators and the agency and securitization markets . during the year ended december 31 , 2011 , we purchased loans with fair values totaling $ 1.3 billion in furtherance of our correspondent lending strategy , of which $ 1.0 billion was purchased during the fourth quarter of the year . to the extent that we purchase loans that conform to standards to be fha insured or veterans administration guaranteed , we sell such loans to pls , which is a licensed ginnie mae issuer and seller/servicer . the company receives a sourcing fee from pls of three basis points on the unpaid principal balance of each loan that it sells to pls under such arrangement . we held an inventory of mortgage loans acquired for sale totaling $ 232.0 million at december 31 , 2011. to the extent that we transfer these loans into securitizations in the future , we intend to retain a portion of the securities created in the securitization transaction . we supplement these activities through participation in other mortgage-related activities , which are in various states of analysis , planning or implementation including : acquisition of reit-eligible mbs . we believe that the recent dislocations of the residential mortgage markets have disproportionately affected the pricing of certain classes of mbs , thereby providing attractive investment opportunities in certain residential and commercial 50 mortgage-backed and asset-backed securities . such securities include securities backed by alt-a and subprime mortgage loans . we purchased $ 21.4 million of mbs during the year ended december 31 , 2011. our portfolio of mbs totaled $ 72.8 million at december 31 , 2011. providing inventory financing of mortgage loans for mortgage lenders . we believe this activity will supplement and make our correspondent lending business more attractive to lenders from which we acquire newly originated loans . acquisition of msrs from liquidating and other institutions . we believe that current market conditions may have adversely affected the financial condition and operations of certain owners of mortgage assets . further , regulatory and capital issues may have contributed to their decision to reduce their portfolio of msrs . we believe that msr investments may allow us to earn attractive current returns and to leverage the loan servicing capabilities and efficiencies of pls to improve the assets ' value . story_separator_special_tag following the acquisition of a mortgage loan portfolio , our income may be negatively affected by our loan modifications to the extent that the loan modifications reduce the principal amount or stated interest rates on loans and thereby reduce interest income ; by our foreclosures on loans where pennymac is unable to modify the loans on acceptable terms ; and by other losses on defaulted loans . we expect that these activities will primarily commence in the first periods after we acquire a portfolio . our primary sources of income are from realized gain or loss on the sale of mortgage loans , real estate or securities , unrealized appreciation or depreciation on loans and mbs , and net interest income . realized gain or loss . when we sell our mortgage loans , real estate or securities , we record a gain or loss which is determined by the nature and terms of the disposition transaction . when a mortgage loan is satisfied through a full or partial payoff , the amount of gain or loss recorded represents the difference between the amount received and the fair value of the loan at the beginning 52 of the month in which the payoff is received . gain or loss on the sale of real estate acquired in settlement of loans is determined by the difference between the net proceeds and the carrying value of the property at the date the property is sold . we are generally not in a position to dispose of our mortgage loans following modification until adequate time has passed to establish a satisfactory payment history . as a result , our ability to realize gain on our modified loans is correspondingly deferred and our initial periods of operations have not included material levels of disposition transactions with regard to modified loans . as a result of our fair value accounting , in the event of a significant loan modification , we record a realized gain ( or loss ) to the extent that the fair value of the modified loan exceeded ( or was less than ) the fair value of the loan before modification . the gain or loss we realize on the sale or securitization of loans acquired through our correspondent lending activities is primarily determined by the price paid for the loans , the effectiveness of any hedging and other risk management activities we undertake , the sales price of the loan , changes in interest rates and the value of any msrs received in the transaction . certain of these factors are beyond our control . if all other factors hold constant , nonperforming loans generally increase in value as they are held by us , due to shorter time to , and increased certainty of , resolution . these changes in value represent unrealized gain or loss when recorded in our financial results . therefore , when a loan is resolved , the amount of realized gain or loss recognized tends to be small compared to the differences between the cost of the loan and the proceeds received . unrealized gain or loss . many of our assets , including our mortgage loans and securities , are carried at fair value . accordingly , changes in the fair value affect the results of our operations for the period in which such change in value occurs , and these changes may be material . the expectation of changes in home prices is a major determinant of the value of residential mortgage loans . this factor is beyond our control . net interest income . interest income represents interest earned on our residential mortgage loans and mortgage-related assets . we anticipate that the primary contributing elements of our interest income ( some of which are beyond our control ) will be the size of our mortgage loan and securities portfolio , the timing of purchases and prices paid for such assets , the level and changes of interest rates , prepayment speeds and the payment performance of borrowers . we expect that interest expense will be driven by the size of our mortgage loan and securities portfolio , the leverage employed and borrowing rates . borrowing rates in turn will be dependent on market conditions , which are beyond our control , as well as the specific debt vehicle employed and the terms we are able to negotiate . expenses . we incur management and incentive fees payable to pcm that are determined based upon our equity and profitability , among other factors . we also incur loan servicing , origination and other fees payable to pls that are determined by the size of our mortgage loan portfolio , the characteristics of our loans and the volumes of property resolution events , loan modifications and refinancing and correspondent lending volumes , among other factors . we also incur ongoing operating and administrative expenses necessary to conduct our business . in connection with investigating portfolios for investment , we are obligated to reimburse pcm 's upfront expenses related to due diligence , credit and collateral evaluation and the costs to board the loans onto pcm 's and pls 's systems . in some cases , these costs may not be recoverable from the selling party if pcm 's bidding efforts are not successful . story_separator_special_tag illiquidity and the present lack of an active market for such securities . fair value of non-agency mbs is estimated using broker indications of value . for indications of value received , pcm 's capital markets and valuation staff review the price indications provided by non-affiliate brokers for completeness , accuracy and consistency across all similar bonds managed by pcm . bond-level analytics such as yield , weighted average life and projected prepayment and default speeds of the underlying collateral are computed . the reasonableness of the brokers ' indications of value and of changes in value from period to period is evaluated in light of the analytical review performed and considering market conditions .
| other factors influencing our results prepayment speeds . prepayment speeds , as reflected by the constant prepayment rate , vary according to interest rates , the type of investment , conditions in the financial markets , competition and 53 other factors , none of which can be predicted with any certainty . in general , when interest rates rise , it is relatively less attractive for borrowers to refinance their mortgage loans and , as a result , prepayment speeds tend to decrease . this can extend the period over which we earn interest income . when interest rates fall , prepayment speeds tend to increase , thereby decreasing the period over which we earn interest income . rising interest rate environment . rising interest rates increase our financing costs which may result in a net negative impact on our net interest income . with respect to our floating rate investments , such interest rate increases should result in increases in our net interest income because our floating rate assets will likely be greater in amount than the related floating rate liabilities . similarly , such an increase in interest rates should generally result in an increase in our net interest income on future fixed-rate investments made by us because our fixed-rate assets would be greater in amount than our fixed-rate liabilities . we expect , however , that our fixed-rate assets would decline in value in a rising interest rate environment and that our net interest spreads on fixed rate assets could decline in a rising interest rate environment to the extent such assets are financed with floating rate debt . changing home prices . the state of the real estate market/home prices will determine proceeds from sale of real estate acquired in settlement of loans .
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1a . above and the risk factors set forth in this annual report . generally , the words “ anticipate ” , “ expect ” , “ intend ” , “ believe ” and similar expressions identify forward-looking statements . the forward-looking statements made in this annual report are made as of the filing date of this annual report with the sec , and future events or circumstances could cause results that differ significantly from the forward-looking statements included here . accordingly , we caution readers not to place undue reliance on these statements . we expressly disclaim any obligation to update or alter our forward-looking statements , whether , as a result of new information , future events or otherwise after the date of this document . overview crexendo , inc. is an award-winning premier provider of cloud communications , ucaas ( unified communications as a service ) , call center , collaboration services , and other cloud business services that are designed to provide enterprise-class cloud services to any size business at affordable monthly rates . the company has two operating segments , which consist of cloud telecommunications and web services . cloud telecommunications – our cloud telecommunications services transmit calls using ip or cloud technology , which converts voice signals into digital data packets for transmission over the internet or cloud . each of our calling plans provides a number of basic features typically offered by traditional telephone service providers , plus a wide range of enhanced features that we believe offer an attractive value proposition to our customers . this platform enables a user , via a single “ identity ” or telephone number , to access and utilize services and features regardless of how the user is connected to the internet or cloud , whether it 's from a desktop device , computer , or an application on a mobile device . we generate recurring revenue from our cloud telecommunications and broadband internet services . our cloud telecommunications contracts typically have a thirty-six to sixty month term . we generate product revenue and equipment financing revenue from the sale and lease of our cloud telecommunications equipment . revenues from the sale of equipment , including those from sales-type leases , are recognized at the time of sale or at the inception of the lease , as appropriate . our cloud telecommunications service revenue increased 16 % or $ 1,913,000 to $ 14,002,000 for the year ended december 31 , 2020 as compared to $ 12,089,000 for the year ended december 31 , 2019. our cloud telecommunications product revenue increased 9 % or $ 152,000 to $ 1,843,000 for the year ended december 31 , 2020 as compared to $ 1,691,000 for the year ended december 31 , 2019. as of december 31 , 2020 and 2019 , our backlog was $ 28,551,000 and $ 26,110,000 , respectively . web services – we generate recurring revenue from website hosting and other professional services . our web services revenue decreased 17 % or $ 114,000 to $ 542,000 for the year ended december 31 , 2020 as compared to $ 656,000 for the year ended december 31 , 2019. results of consolidated operations the following discussion of financial condition and results of operations should be read in conjunction with the consolidated financial statements and notes thereto and other financial information included herein this annual report . results of consolidated operations ( in thousands , except for per share amounts ) replace_table_token_3_th 24 replace_table_token_4_th replace_table_token_5_th — ( 1 ) earnings per common share is computed independently for each of the quarters presented . therefore , the sums of quarterly earnings per common share amounts do not necessarily equal the total for the twelve month periods presented . year ended december 31 , 2020 compared to year ended december 31 , 2019 service revenue service revenue consists primarily of fees collected for cloud telecommunications services , professional services , interest from sales-type leases , reselling broadband internet services , administrative fees , website hosting , and web management services . service revenue increased 14 % or $ 1,799,000 , to $ 14,544,000 for the year ended december 31 , 2020 as compared to $ 12,745,000 for the year ended december 31 , 2019. cloud telecommunications service revenue increased 16 % or $ 1,913,000 , to $ 14,002,000 for the year ended december 31 , 2020 as compared to $ 12,089,000 for the year ended december 31 , 2019. web service revenue decreased 17 % or $ 114,000 , to $ 542,000 for the year ended december 31 , 2020 as compared to $ 656,000 for the year ended december 31 , 2019. product revenue product revenue consists primarily of fees collected for the sale of desktop phone devices and third-party equipment . product revenue increased by 9 % or $ 152,000 , to $ 1,843,000 for the year ended december 31 , 2020 as compared to $ 1,691,000 for the year ended december 31 , 2019. product revenue fluctuates from one period to the next based on timing of installations . our typical customer installation is complete within 30-60 days . however , larger enterprise customers can take multiple months , depending on size and the number of locations . product revenue is recognized when products have been installed and services commence . 25 income before income taxes income before income tax increased 66 % or $ 754,000 to $ 1,899,000 for the year ended december 31 , 2020 as compared to income before income tax of $ 1,145,000 for the year ended december 31 , 2019. the increase in income before income tax is primarily due to an increase in revenue of $ 1,951,000 and from the extinguishment of ppp debt of $ 1,007,000 , offset by an increase in total operating expenses of $ 2,095,000 and an increase in other expense of $ 109,000. income tax benefit/ ( provision ) we had an income tax benefit of $ 6,041,000 for the year ended december 31 , 2020 compared to an income tax provision of ( $ 6,000 ) story_separator_special_tag the company generally allocates a portion of the activation fees to the desktop devices , which is recognized at the time of the installation or customer acceptance , and a portion to the service , which is recognized over the contract term using the straight-line method . our telecommunications services contracts typically have a term of thirty-six to sixty months . when we provide a free trial period , we do not begin to recognize recurring revenue until the trial period has ended and the customer has been billed for the services . goodwill we have recorded goodwill as a result of past business acquisitions . goodwill is recorded when the purchase price paid for an acquisition exceeds the estimated fair value of the net identified tangible and intangible assets acquired . in each of our acquisitions , the objective of the acquisition was to expand our product offerings and customer base and to achieve synergies related to cross selling opportunities , all of which contributed to the recognition of goodwill . we test goodwill for impairment on an annual basis or more frequently if events or changes in circumstances indicate that goodwill might be impaired . the estimated fair value of the reporting unit is determined using our market capitalization as of our annual impairment assessment date or more frequently if circumstances indicate the goodwill might be impaired . items that could reasonably be expected to negatively affect key assumptions used in estimating fair value include but are not limited to : sustained decline in our stock price due to a decline in our financial performance due to the loss of key customers , loss of key personnel , emergence of new technologies or new competitors ; and decline in overall market or economic conditions leading to a decline in our stock price . intangible assets our intangible assets consist of customer relationships . the intangible assets are amortized following the patterns in which the economic benefits are consumed . we periodically review the estimated useful lives of our intangible assets and review these assets for impairment whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable . the determination of impairment is based on estimates of future undiscounted cash flows . if an intangible asset is considered to be impaired , the amount of the impairment will be equal to the excess of the carrying value over the fair value of the asset . deferred taxes our provision for income taxes is comprised of a current and a deferred portion . the current income tax provision is calculated as the estimated taxes payable or refundable on tax returns for the current year . the deferred income tax provision is calculated for the estimated future tax effects attributable to temporary differences and carryforwards using expected tax rates in effect during the years in which the differences are expected to reverse or the carryforwards are expected to be realized . 28 we currently have net deferred tax assets consisting of net operating loss carryforwards , tax credit carryforwards and deductible temporary differences . management periodically weighs the positive and negative evidence to determine if it is more likely than not that some or all of the deferred tax assets will be realized . as a result of our recent three years of cumulative pretax income and the weight of all other positive and negative evidence , management determined that it is more likely than not that we will be able to realize $ 6,054,000 of our deferred tax assets and we have released $ 7,487,000 of our valuation allowance as of december 31 , 2020. forecasts and projections of future pretax income are inherently subjective and require management to make assumption or complex judgments about matters that are inherently uncertain . product warranty we provide for the estimated cost of product warranties at the time we recognize revenue . we evaluate our warranty obligations on a product group basis . our standard product warranty terms generally include post-sales support and repairs or replacement of a product at no additional charge for a specified period of time . we base our estimated warranty obligation upon warranty terms , ongoing product failure rates , and current period product shipments . if actual product failure rates , repair rates or any other post-sales support costs were to differ from our estimates , we would be required to make revisions to the estimated warranty liability . warranty terms generally last for the duration that the customer has service . contingent liabilities contingent liabilities require significant judgment in estimating potential payouts . contingent considerations arising from business combinations and asset acquisitions require management to estimate future payouts based on forecasted results , which are highly sensitive to the estimates of discount rates and future revenues . these estimates can change significantly from period to period and are reviewed each reporting period to establish the fair value of the contingent liability . share-based compensation we account for our share-based compensation awards using the fair-value method . the grant date fair value was determined using the black-scholes-merton pricing model . the black-scholes-merton valuation calculation requires us to make key assumptions such as future stock price volatility , expected terms , risk-free rates , and dividend yield . our expected volatility is derived from our volatility rate as a publicly traded company . the expected term is based on our historical experience . the risk-free interest factor is based on the united states treasury yield curve in effect at the time of the grant for zero coupon united states treasury notes with maturities of approximately equal to each grant 's expected term . we have not paid cash dividends in the last three years and do not currently intend to pay cash dividends , and therefore , we have assumed a 0 % dividend yield . we develop an estimate of the number of share-based awards that will be forfeited due to employee turnover .
| segment operating results the company has two operating segments , which consist of cloud telecommunications and web services . the information below is organized in accordance with our two reportable segments . segment operating income is equal to segment net revenue less segment cost of service revenue , cost of product revenue , sales and marketing , research and development , and general and administrative expenses . 29 operating results of our cloud telecommunications segment ( in thousands ) : replace_table_token_8_th quarterly financial information replace_table_token_9_th 30 replace_table_token_10_th year ended december 31 , 2020 compared to year ended december 31 , 2019 service revenue cloud telecommunications service revenue consists primarily of fees collected for cloud telecommunications services , professional services , interest from sales-type leases , administrative fees , and reselling broadband internet services . service revenue increased 16 % or $ 1,913,000 , to $ 14,002,000 for the year ended december 31 , 2020 as compared to $ 12,089,000 for the year ended december 31 , 2019. the increase is due to an increase in contracted service revenue and usage charges of $ 1,785,000 , an increase in fees , commissions , and other , recognized over time of $ 137,000 , and an increase in sales-type lease interest of $ 106,000 , offset by a decrease in one time fees , commissions and other of $ 115,000 due to less professional installation fees . a substantial portion of cloud telecommunications segment revenue is generated through thirty-six to sixty month service contracts . product revenue product revenue consists primarily of fees collected for the sale of desktop phone devices and third party equipment . product revenue increased 9 % or $ 152,000 , to $ 1,843,000 for the year ended december 31 , 2020 as compared to $ 1,691,000 for the year ended december 31 , 2019. product revenue fluctuates from one period to the next based on timing of installations , as we recognize revenue when the installation is complete .
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4. bank borrowings on june 27 , 2008 , we entered into a loan and security agreement , or the bridge bank credit facility , with bridge bank , n. a. , or bridge bank . our obligations under the bridge bank credit facility were secured by a lien on our assets including intellectual property . the bridge bank credit facility provided for the advance of 62 egain communications corporation notes to consolidated financial story_separator_special_tag the following discussion of egain 's financial condition and results of operations should be read together with the consolidated financial statements and related notes in this annual report on form 10-k. this discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties . these risks and uncertainties may cause actual results to differ materially from those discussed in the forward-looking statements . overview the company was incorporated in delaware in september 1997. egain is one of the premier providers of cloud and on-site customer interaction software for sales and service . for over a decade , egain solutions have helped improve customer experience , grow sales , and optimize service processes across the web , social , and phone channels . hundreds of global enterprises rely on egain to transform fragmented sales engagement and customer service operations into unified customer interaction hubs . in fiscal year 2011 , we recorded annual revenue of $ 44.1 million and income from operations of $ 9.7 million , compared to an annual revenue of $ 29.9 million and income from operations of $ 1.2 million in the prior year . total revenue growth of 47 % , was primarily driven by the license and recurring revenue growth . cash from operations increased significantly to $ 6.8 million in fiscal year 2011 from $ 2.5 million in the prior year . based upon the strong increase in the demand for our products and services we continued to increase our investment in sales and marketing and began to expand our distribution capability during fiscal year 2011. if the demand continues for our products and services , we intend to continue to increase our sales and marketing investments and the expansion of distribution capability in fiscal year 2012. in addition , we intend to make further investments in product development and technology to enhance our current products and services , develop new products and services and further advance our solution offerings . we believe that existing capital resources will enable us to maintain current and planned operations for the next 12 months . due to our limited operating history and fluctuations in business , we believe that period-to-period comparisons of our revenue and operating results may not be meaningful and should not be relied upon as indications of future performance , but we anticipate an increase in revenue in fiscal year 2012. critical accounting policies and estimates 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 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 financial statements and the reported amounts of revenue and expenses during the reporting period . on an on-going basis , management evaluates its estimates and judgments , including those related to revenue recognition , allowance for doubtful accounts , valuation allowance and accrued liabilities , long-lived assets and stock-based compensation . management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . revenue recognition we derive revenue from three sources : license fees , recurring revenue , and professional services . recurring revenue include hosting and software maintenance and support . maintenance and support consists of technical support and software upgrades and enhancements . professional services primarily consist of consulting and implementation services and training . significant management judgments and estimates are made and used to determine the revenue recognized in any accounting period . material differences may result in changes to the amount and timing of our revenue for any period if different conditions were to prevail . we present revenue net of taxes collected from customers and remitted to governmental authorities . 24 we apply the provisions of financial accounting standards board , or fasb , accounting standards codification , or asc , 985-605 , software revenue recognition , to all transactions involving the licensing of software products . in the event of a multiple element arrangement for a license transaction , we evaluate the transaction as if each element represents a separate unit of accounting taking into account all factors following the accounting standards . we apply asc 605 , revenue recognition , for hosting transactions to determine the accounting treatment for multiple elements . we also apply asc 605 for fixed fee arrangements in which we use the percentage of completion method to recognize revenue when reliable estimates are available for the costs and efforts necessary to complete the implementation services . when such estimates are not available , the completed contract method is utilized . under the completed contract method , revenue is recognized only when a contract is completed or substantially complete . story_separator_special_tag accordingly , when a software element exists in a hosting services arrangement , license revenue for the perpetual software license element is determined using the residual method and is recognized upon delivery . revenue for the hosting and support elements is recognized ratably over the contractual time period . professional services are recognized as described below under professional services revenue. if evidence of fair value can not be established for the undelivered elements of an agreement , the entire amount of revenue from the arrangement is recognized ratably over the period that these elements are delivered . maintenance and support revenue included in recurring revenue is revenue derived from maintenance and support . we use vendor-specific objective evidence of fair value for maintenance and support to account for the arrangement using the residual method , regardless of any separate prices stated within the contract for each element . maintenance and support revenue is recognized ratably over the term of the maintenance contract , which is typically one year . maintenance and support is renewable by the customer on an annual basis . maintenance and support rates , including subsequent renewal rates , are typically established based upon a specified percentage of net license fees as set forth in the arrangement . professional services revenue included in professional services revenue is revenue derived from system implementation , consulting and training . for license transactions , the majority of our consulting and implementation services and accompanying agreements qualify for separate accounting . we use vendor-specific objective evidence of fair value for the services to account for the arrangement using the residual method , regardless of any separate prices stated within the contract for each element . our consulting and implementation service contracts are bid either on a fixed-fee basis or on a time-and-materials basis . substantially all of our contracts are on a time-and-materials basis . for time-and-materials contracts , where the services are not essential to the functionality , we recognize revenue as services are performed . if the services are essential to functionality , then both the product license revenue and the service revenue are recognized under the percentage of completion method . for a fixed-fee contract we recognize revenue based upon the costs and efforts to complete the services in accordance with the percentage of completion method , provided we are able to estimate such cost and efforts . 26 for hosting , consulting , and implementation services that do not qualify for separate accounting , we recognize the services revenue ratably over the estimated life of the customer hosting relationship . training revenue that meets the criteria to be accounted for separately is recognized when training is provided or , in the case of hosting , when the customer also has access to the hosting services . stock-based compensation we account for stock-based compensation in accordance with asc 718 , compensation stock compensation . under the fair value recognition provisions of asc 718 , stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as an expense over the vesting period . determining the fair value of the stock-based awards at the grant date requires significant judgment and the use of estimates , particularly surrounding black-scholes valuation assumptions such as stock price volatility and expected option lives . we determine the appropriate measure of expected volatility by reviewing historic volatility in the share price of our common stock , as adjusted for certain events that management deemed to be non-recurring and non-indicative of future events . prior to october 2009 , in developing our estimate of expected life of a stock option , we used a temporary method to develop the estimate of the expected life of a plain vanilla employee stock option . under this approach , the expected life would be presumed to be the mid-point between the vesting date and the end of the contractual term . in october 2009 we changed from using this approach to basing it on the historical exercise behavior , cancellations of all past option grants made by the company during the time period in which its equity shares have been publicly traded the contractual term , the vesting period and the expected remaining term of the option . the change in the estimate did not have a material effect on either the expected life or the valuation of the stock options . based on our historical experience of option pre-vesting cancellations , we have assumed an annualized 14 % forfeiture rate for our options . we record additional expense if the actual forfeiture rate is lower than we estimated , and record a recovery of prior expense if the actual forfeiture is higher than what we estimated . valuation of goodwill in accordance with asc 350 , goodwill and other intangible assets , we review goodwill annually for impairment ( or more frequently if impairment indicators arise ) . we perform an annual goodwill impairment review april 1 every year and we have found no impairment in the last three years . allowance for doubtful accounts we maintain an allowance for doubtful accounts to reserve for potential uncollectible trade receivables . we review our trade receivables by aging category to identify specific customers with known disputes or collectability issues . we exercise judgment when determining the adequacy of these reserves as we evaluate historical bad debt trends , general economic conditions in the u.s. and internationally , and changes in customer financial conditions . if we make different judgments or utilize different estimates , material differences may result in additional reserves for trade receivables , which would be reflected by charges in general and administrative expenses for any period presented . we write off a receivable after all collection efforts have been exhausted and the amount deemed uncollectible . leases lease agreements are evaluated to determine whether they are capital or operating leases in accordance with asc 840 , leases .
| results of operations the following table sets forth certain items reflected in our consolidated statements of operations expressed as a percent of total revenue for the periods indicated . replace_table_token_5_th revenue total revenue , which consists of license revenue , recurring revenue and professional services revenue , was $ 44.1 million , $ 29.9 million , and $ 33.2 million , in fiscal years 2011 , 2010 , and 2009 , respectively . in fiscal year 2011 , total revenue increased 47 % , or $ 14.2 million , from the prior year . our international sales accounted for approximately 53 % of total revenue in fiscal year 2011 , an increase from 47 % of total revenue in fiscal year 2010. the impact of the foreign exchange fluctuation between the u.s. dollar and against 28 the euro and british pound in total revenue was minimal in both fiscal year 2011 and 2010. one customer accounted for about 22 % of total revenue in fiscal year 2011. one customer accounted for 14 % of total revenue in both fiscal years 2010 and 2009. we are continuing to see increased interest in our customer interaction solutions but there remains a general unpredictability in the length of our current sales cycles , the timing of revenue recognition on more complex license transactions and seasonal buying patterns . this unpredictability has increased due to the global economic slowdown and the increased volatility of the value of the british pound and euro in relation to the u.s. dollar . also , because we offer a hybrid delivery model , the mix of new hosting and license transactions in a quarter could also have an impact on our revenue in a particular quarter . we are continuing to see that the mix of license and hosting business fluctuate from quarter to quarter .
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story_separator_special_tag financial condition and results of operations the following discussion of our financial condition and results of operations should be read in conjunction with the “ selected financial data ” and our consolidated financial statements and the related notes thereto included in this annual report on form 10-k. in addition to historical information , some of the information contained in the following discussion and analysis or set forth elsewhere in this report , including information with respect to our plans and strategy for our business , includes forward looking information that involves risks , uncertainties and assumptions . you should read the risk factors set forth in 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 . our actual results and the timing of events could differ materially from those anticipated by these forward looking statements . overview we design , develop and manufacture innovative , high-performance aerogel insulation used primarily in the energy infrastructure and building materials markets . we believe our aerogel blankets deliver the best thermal performance of any widely used insulation product available on the market today and provide a combination of performance attributes unmatched by traditional insulation materials . our end-use customers select our products where thermal performance is critical and to save money , improve resource efficiency , enhance sustainability , preserve operating assets and protect workers . our insulation is used by oil producers and the owners and operators of refineries , petrochemical plants , liquefied natural gas facilities , power generating assets and other energy infrastructure . our pyrogel and cryogel product lines have undergone rigorous technical validation by industry leading end-users and achieved significant market adoption . we also derive product revenue from the building materials and other end markets . customers in these markets use our products for applications as diverse as wall systems , military and commercial aircraft , trains , buses , appliances , apparel , footwear and outdoor gear . we generate product revenue through the sale of our line of aerogel blankets . we market and sell our products primarily through a sales force based in north america , europe and asia . the efforts of our sales force are supported by a small number of sales consultants with extensive knowledge of a particular market or region . our sales force is responsible for establishing and maintaining customer and partner relationships , delivering highly technical information and ensuring high-quality customer service . our salespeople work directly with end-use customers and engineering firms to promote the qualification , specification and acceptance of our products . we also rely on an existing and well-established channel of qualified insulation distributors and contractors in more than 50 countries around the world to ensure rapid delivery of our products and strong end-user support . our salespeople also work to educate insulation contractors about the technical and operating cost advantages of our aerogel blankets . we also perform research services under contracts with various agencies of the u.s. government , including the department of defense and the department of energy , and other institutions . research performed under contract with government agencies and other institutions enables us to develop and leverage technologies into broader commercial applications . we manufacture our products using our proprietary technology at our facility in east providence , rhode island . we have operated the east providence facility since 2008 and have increased our annual nameplate capacity through 2017 to 50 million square feet of aerogel blankets . during 2018 , we initiated a series of projects designed to increase this nameplate capacity to 60 million square feet of aerogel blankets by the end of 2020. as of december 31 , 2018 , we had increased our annual capacity to 55 million square feet of aerogel blankets as a result of this initiative . we had previously completed the design and engineering for a second manufacturing facility to be located in statesboro , georgia supported by a package of incentives , including free land , from state and local governmental authorities . during 2016 , we elected to delay construction of the facility due to our assessment of future demand . in december 2018 , the local governmental authorities notified us that they will exercise their right to terminate the incentive package in february 2019 and to make the identified site available to other parties . in addition , we determined that due to our cumulative manufacturing process advancements since 2016 and expected additional improvements in the near future , we will not use the existing design and engineering to construct a second facility in any location . accordingly , we determined that the design and engineering costs are not recoverable and recorded an impairment charge of $ 7.4 million on construction in progress assets during 2018. we have entered into a strategic partnership with basf to develop and commercialize products for the building materials and other markets . the strategic partnership includes a supply agreement governing the exclusive sale of specified products to basf and a joint development agreement targeting innovative products and technologies . basf has no obligation to purchase any products under 49 the supply agreement . pursuant to the supply agreement , basf may , in its sole dis cretion , make prepayments to us in the aggregate amount of up to $ 22.0 million during the term of the agreement . the prepayments may be repaid by us to basf at any time in whole or in part for any reason . basf made prepayments to us of $ 5.0 million during 2018. after january 1 , 2019 , 25.3 % of any amounts that we invoice for spaceloft a2 sold to basf will be credited against the outstanding balance of these 2018 prepayments . if any of these 2018 prepayments remain uncredited at december 31 , 2021 , basf may request that we repay the uncredited amount to basf . story_separator_special_tag in our industry may calculate ebitda or adjusted ebitda differently than we do , limiting their usefulness as a comparative measure . because of these limitations , our adjusted ebitda should not be considered as a measure of discretionary cash available to us to reinvest in the growth of our business or as a measure of cash available for us to meet our obligations . to properly and prudently evaluate our business , we encourage you to review the gaap financial statements included elsewhere in this annual report on form 10-k , and not to rely on any single financial measure to evaluate our business . the following table presents a reconciliation of net loss , the most directly comparable gaap measure , to adjusted ebitda for the years presented : replace_table_token_4_th ( 1 ) represents non-cash stock-based compensation related to vesting and modifications of stock option grants , vesting of restricted stock units and vesting and modification of restricted common stock . 51 the following table pre sents a reconciliation of net loss , the most directly comparable gaap measure , to adjusted ebitda for the quarters presented : replace_table_token_5_th ( 1 ) represents non-cash stock-based compensation related to vesting and modifications of stock option grants , vesting of restricted stock units and vesting and modification of restricted common stock . our financial performance , including such measures as net income ( loss ) , earnings per share and adjusted ebitda , are affected by a number of factors including volume and mix of aerogel products sold , average selling prices , our material and manufacturing costs , the costs associated with capacity expansions and start-up of additional production capacity , and the amount and timing of operating expenses , including patent enforcement costs . as we build out our manufacturing capacity , we expect increased manufacturing expenses will periodically have a negative impact on net income ( loss ) , earnings per share and adjusted ebitda , but will set the framework for improved performance in the longer term . accordingly , we expect that our net income ( loss ) , earnings per share and adjusted ebitda will vary from period to period , in particular when we expand our manufacturing capacity in new facilities . as a result of the conclusion of a multiyear petrochemical project with reliance industries limited and a decline in the volume of subsea projects , which together comprised 19 % of our product revenue during 2017 , we experienced a decrease in revenue during 2018. in addition , we increased our investment in new initiatives and personnel during 2018 to restore long-term growth in existing markets and to develop new business opportunities . we also experienced a significant increase in the cost of silica precursor materials , recorded an impairment charge of $ 7.4 million on pre-construction costs associated with a previously planned second manufacturing facility , and established a reserve for uncollectible accounts receivable for $ 2.8 million from a brazilian contractor related to a single project . as a result of the decrease in revenue , the increase in material costs and the impact of the identified operating expenses , we experienced a significant increase in net loss and net loss per share and decrease in adjusted ebitda during 2018. during 2019 , we are projecting growth in total revenue principally due to expected volume growth in our core petrochemical and refinery markets , an anticipated increase in project-based demand , particularly in the subsea and lng markets , and increasing penetration of new markets , including the building materials market . we have also implemented a price increase for 2019 designed to support revenue growth and to offset the increase in raw material costs . as a result of these factors , we are projecting total revenue growth versus 2018 in excess of 20 % , a decrease in net loss and a return to positive adjusted ebitda for the year . emerging growth company status the jobs act permits an “ emerging growth company ” such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies . we have opted out of this provision and , as a result , we comply with new or revised accounting standards as required when they are adopted . this decision to opt out of the extended transition period under the jobs act is irrevocable . 52 components of our results of operations revenue we recognize product revenue from the sale of our line of aerogel products and research services revenue from the provision of services under contracts with various agencies of the u.s. government and other institutions . product and research services revenue is recognized upon the satisfaction of contractual performance obligations . the following table sets forth the total revenue for the periods presented : replace_table_token_6_th product revenue accounted for 98 % of total revenue for each of the years ended december 31 , 2018 , 2017 and 2016. we experienced a decrease in revenue during 2018 due to the conclusion of the multiyear petrochemical project with reliance industries limited and a decrease in project related revenue in the subsea market , which together comprised 19 % of our product revenue during 2017. during 2019 , we are projecting growth in total revenue in excess of 20 % principally due to expected volume growth in our core petrochemical and refinery markets , an anticipated increase in project-based demand , particularly in the subsea and lng markets , and continued penetration of new markets , including the building materials market . we expect that research services revenue will remain a small percentage of total revenue due to limitations on our eligibility to receive contract awards under federal guidelines . a substantial majority of our revenue is generated from a limited number of direct customers , including distributors , contractors , oems , partners and end-use customers .
| results of operations the following tables set forth our results of operations for the periods presented : replace_table_token_7_th 56 year ended december 31 , 2018 compared to year ended december 31 , 2017 the following tables set forth our results of operations for the periods presented : replace_table_token_8_th revenue replace_table_token_9_th the following chart sets forth product shipments in square feet for the periods presented : year ended december 31 , change 2018 2017 amount percentage product shipments in square feet ( in thousands ) 34,435 37,519 ( 3,084 ) ( 8 ) % total revenue decreased by $ 7.2 million , or 7 % , in 2018 to $ 104.4 million from $ 111.6 million in 2017 due principally to a decrease in product revenue . product revenue decreased by $ 7.5 million , or 7 % , to $ 102.1 million in 2018 from $ 109.6 million in 2017. this decrease was principally the result of a decrease in project revenue in the subsea market and due to the conclusion of the multiyear petrochemical project with reliance industries limited , offset , in part , by growth in our core petrochemical and refinery markets , particularly in asia , and in the building materials market . product revenue for the year ended 2018 included $ 21.4 million in sales to distribution 57 international , inc. product revenue for the year ended 2017 included $ 16.7 million in sales to distribution international , inc. and $ 13.2 million in sales to technipfmc plc .
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the company liquidated its investment securities during 2018 to repay the $ 150.0 million convertible notes that matured august 1 , 2018. based on our decision story_separator_special_tag the following management 's discussion and analysis of financial condition and results of operations ( “ md & a ” ) should be read in conjunction with our annual consolidated financial statements and notes thereto appearing elsewhere in this annual report on form 10-k. md & a contains forward-looking statements . see “ forward-looking statements ” and “ item 1a . risk factors ” for a discussion of the uncertainties , risks and assumptions associated with these statements . actual results may differ materially from those contained in any forward-looking statements . overview servicesource international , inc. is a global leader in outsourced , performance-based customer success and revenue growth solutions . through our people , processes and technology , we grow and retain revenue on behalf of our clients — some of the world 's leading business-to-business companies — in more than 45 languages . our solutions help our clients strengthen their customer relationships , drive improved customer adoption , expansion and retention and minimize churn . our technology platform and best-practice business processes combined with our highly-trained , client-focused revenue delivery professionals and data from 20 years of operating experience enable us to provide our clients greater value for our customer success services than attained by our clients ' in-house customer success teams . our ceo manages and allocates resources on a company-wide basis as a single segment that is focused on service offerings which integrate data , processes and cloud technologies . factors affecting our performance sales cycle . we sell our integrated solution through our sales organization . at the beginning of the sales process , our quota-carrying sales representatives contact prospective clients and educate them about our offerings . educating prospective clients about the benefits of our solutions can take time , as many of these prospects have not historically relied upon integrated solutions like ours for service revenue management , nor have they typically put out a formal request for proposal or otherwise made a decision to focus on this area . as part of our sales process , our solutions design team performs a service performance analysis of our prospect 's service revenue . this includes an analysis of best practices , and benchmarks the prospect 's service revenue against industry peers . through this process , which typically takes several weeks , we are able to assess the characteristics and size of the prospect 's service revenue , identify potential areas of performance improvement , and formulate our proposal for managing the prospect 's service revenue . the length of our sales cycle for a new client , inclusive of the service performance analysis process and measured from our first formal discussion with the client until execution of a new client contract , is typically longer than six months and has increased in recent periods . implementation cycle . after entering into an engagement with a new client , and to a lesser extent after adding an engagement with an existing client , we incur sales and marketing expenses related to the commissions owed to our sales personnel . these commissions are generally based on realized revenue that the contract delivers over time with a smaller portion based on the estimated total annual contract value . commission amounts based on realized revenue are expensed in the period the related revenue is recognized by the company . upfront commissions based on estimated total annual contract value are capitalized as contract acquisition costs and expensed ratably over the expected life of the applicable contract or five years if the contract is between the company and one of its long-standing clients . we also make upfront investments in technology and personnel to support the engagement . these upfront commissions and investments are typically incurred one to three months before we begin generating sales and recognizing revenue . accordingly , in a given quarter , an increase in new clients , and , to a lesser extent , an increase in engagements with existing clients , or a significant increase in the contract value associated with such new clients and engagements , will negatively impact our gross margin and operating margins until we begin to achieve anticipated sales levels associated with the new engagements , which is typically two to three quarters after we begin selling contracts on behalf of our clients . although we expect new client engagements to contribute to our operating profitability over time , in the initial periods of a client relationship , the near term impact on our profitability can be negatively impacted by slower-than anticipated growth in revenues for these engagements as well as the impact of the upfront costs we incur , the lower initial level of associated service sales team productivity and lack of mature data and technology integration with the client . as a result , an increase in the mix of new clients as a percentage of total clients may initially have a negative impact on our operating results . similarly , a decline in the ratio of new clients to total clients may positively impact our near-term operating results . contract terms . a significant portion of our revenue comes from our pay-for-performance model . under our pay-for-performance model , we earn commissions based on the value of service contracts we sell on behalf of our clients . in some cases , we earn additional performance-based commissions for exceeding pre-determined service renewal targets . 22 our new client contracts typically have an initial term between two and four years . our contracts generally require our clients to deliver a minimum value of qualifying service revenue contracts for us to renew on their behalf during a specified period . to the extent that our clients do not meet their minimum contractual commitments over a specified period , they may be subject to fees for the shortfall . story_separator_special_tag ” operating expenses sales and marketing sales and marketing expenses are a significant component of our operating costs and consist primarily of compensation expenses and sales commissions for our sales and marketing staff , amortization of contract acquisition costs , allocated expenses and marketing programs and events . we sell our solutions through our global sales organization , which is organized across three geographic regions : nala , emea and apj . our commission plans generally provide multiple payments of commissions to our sales representatives based in part on the execution of a client contract and then on a percentage of revenue recorded during the first 18 to 21 months of the contract term . commissions paid as a percentage of recorded revenue is contingent on the sales representatives ' continued employment . we generally capitalize the amounts payable upon contract execution and amortize ratably to sales and marketing expense over the estimated contract term for new clients or estimated life of the client for long-standing client relationships . revenue based commissions are expensed to sales and marketing expense each quarter as revenue is recorded . research and development research and development expenses consist primarily of employee compensation expense , allocated costs and the cost of third-party service providers . we focus our research and development efforts on developing new products and applications related to our technology platform . we capitalize certain expenditures related to the development and enhancement of internal-use software related to our technology platform . general and administrative general and administrative expenses consist primarily of employee compensation expense for our executive , human resources , finance and legal functions and related expenses for professional fees for accounting , tax and legal services , as well as allocated expenses , which consist of depreciation , amortization of internally developed software , facility and technology costs . restructuring and other related costs restructuring and other related costs consist primarily of employees ' severance payments and related employee benefits , stock-based compensation related to the accelerated vesting of certain equity awards , related legal fees , asset impairment charges and charges related to leases and other contract termination costs . in february 2019 , the company announced a restructuring effort to better align its cost structure with current business and market conditions , including a headcount reduction . in connection with this restructuring effort , the company is expected to incur additional costs in severance and other employee related costs during 2019. interest and other expense , net interest and other expense , net consists of interest expense associated with our convertible notes and revolver , imputed interest from capital lease payments , interest income earned on our cash and cash equivalents and marketable securities , accretion of the debt discount , amortization of debt issuance costs and foreign exchange gains and losses . we recognize accretion of the debt discount and amortization of interest costs using the effective interest rate method . we expect interest expense and other , net to decrease significantly due to the maturity and payoff of our $ 150.0 million convertible notes in august 2018 and minimal activity expected on our revolver in 2019 . 24 provision for income tax benefit ( expense ) we account for income taxes using an asset and liability method , which requires the recognition of taxes payable or refundable for the current year and deferred tax assets and liabilities for the expected future tax consequences of temporary differences that currently exist between the tax basis and the financial reporting basis of our taxable subsidiaries ' assets and liabilities using the enacted tax rates in effect for the year in which the differences are expected to reverse . the effect of a change in tax rates on deferred tax assets and liabilities is recognized in operations in the period that includes the enactment date . the measurement of deferred tax assets is reduced , if necessary , by the amount of any tax benefits that , based on available evidence , are not expected to be realized . we evaluate our ability to realize the tax benefits associated with deferred tax assets on a jurisdictional basis . this evaluation utilizes the framework contained in asc 740 , income taxes , wherein management analyzes all positive and negative evidence available at the balance sheet date to determine whether all or some portion of our deferred tax assets will not be realized . under this guidance , a valuation allowance must be established for deferred tax assets when it is more-likely-than-not ( a probability level of more than 50 percent ) that they will not be realized . in assessing the realization of our deferred tax assets , we consider all available evidence , both positive and negative , and place significant emphasis on guidance contained in asc 740 , which states that “ a cumulative loss in recent years is a significant piece of negative evidence that is difficult to overcome. ” we account for unrecognized tax benefits using a more-likely-than-not threshold for financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return . we establish reserves for tax-related uncertainties based on estimates of whether , and the extent to which , additional taxes will be due . we record an income tax liability , if any , for the difference between the benefit recognized and measured and the tax position taken or expected to be taken on our tax returns . to the extent that the assessment of such tax positions change , the change in estimate is recorded in the period in which the determination is made . the reserves are adjusted in light of changing facts and circumstances , such as the outcome of a tax audit . the provision for income taxes includes the impact of reserve provisions and changes to reserves that are considered appropriate .
| results of operations for the year ended december 31 , 2018 compared to the year ended december 31 , 2017 net revenue , cost of revenue and gross profit replace_table_token_8_th net revenue decreased by $ 0.8 million for the year ended december 31 , 2018 compared to the same period in 2017 , primarily due to unexpected client churn and lower end user demand at several clients , offset by expansion and increased production within existing clients . cost of revenue increased $ 1.0 million , or 1 % , for the year ended december 31 , 2018 compared to the same period in 2017 , primarily due to the following : $ 4.9 million increase in employee related costs primarily due to operational improvements in managed services , new clients and expansion of business with existing clients resulting in an increase in headcount in lower costs locations ; $ 1.3 million increase in facility related costs primarily due to increased headcount ; and 25 $ 0.8 million increase in information technology costs ; partially offset by $ 5.4 million decrease in depreciation and amortization expense primarily due to intangible assets fully depreciated as of january 2018 and internally developed software fully depreciated as of july 2018 ; and $ 0.5 million decrease in professional fees .
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offering costs borne by the company in connection with its shelf registration will be deferred and recorded in `` other assets `` until such time the company completes a common stock offering where all or a portion will be reclassified story_separator_special_tag the following discussion provides the reader a narrative from the perspective of management and should be read in conjunction with our consolidated financial statements and related notes included in item 8 , `` financial statements and supplementary data '' of this annual report on form 10-k. overview the size and composition of our portfolio depend on investment strategies implemented by our manager , the accessibility to capital and overall market conditions , including availability of attractively priced target assets and financing . our objective is to provide an attractive risk adjusted return to our shareholders over the long term . our manager has built a diversified portfolio of our target assets to better enable us to deliver attractive returns through market cycles . our portfolio is mainly comprised of agency cmbs , agency rmbs , non-agency rmbs , non-agency cmbs and residential whole-loans and residential bridge loans . to a significantly lesser extent , we have invested in other securities including certain gse risk sharing securities , as well as certain non u.s. cmbs and abs investments secured by a portfolio of private student loans . in addition , our holdings include a securitized commercial loan from a consolidated vie . we use leverage as part of our business strategy in order to increase potential returns to our stockholders . we accomplish this by borrowing against existing investments primarily through repurchase agreements . we may also change our financing strategy and leverage without the consent of our stockholders . we operate and elected to be taxed as a reit , commencing with our taxable year ended december 31 , 2012. we generally will not be subject to u.s. federal income taxes on our taxable income to the extent that we annually distribute , in accordance with the reit regulations , all of our net taxable income to stockholders and maintain our intended qualification as a reit . certain of our non-qualifying investments were held in our taxable reit subsidiary or `` trs '' . net income generated in our trs is taxable and subject to federal , state and local income tax at the applicable corporate tax rates . we also intend to operate our business in a manner that will permit us to maintain our exemption from registration under the 1940 act . factors impacting our operating results our operating results can be affected by a number of factors and primarily depend on , among other things , the size of our investment portfolio , our net interest income , changes in the market value of our investments , derivative instruments and to a lesser extent realized gains and losses on the sale of our investments and termination of our derivative instruments . our overall performance is also impacted by the supply and demand for our target assets in the market , the terms and availability of financing for such assets , general economic conditions , the impact of u.s government actions that affect the real estate and mortgage sectors , and the unanticipated credit events experienced by borrowers whose loans are included in our mbs , as well as our residential whole and bridge loan borrowers . our net interest income , which includes the amortization of purchase premiums and accretion of discounts , will vary primarily as a result of changes in interest rates , defaults and loss severity rates , borrowing costs , and prepayment speeds on our mbs and other target assets ( as defined herein ) investments . similarly , the overall value of our investment portfolio will be impacted by these factors as well as changes in the value of residential and commercial real estate and continuing regulatory changes . see the item 1a . `` risk factors '' in this annual report on form 10-k for additional factors that may impact our operating results . recent market conditions our business is affected by general u.s. residential real estate fundamentals , domestic and foreign commercial real estate fundamentals and the overall u.s. and international economic environment . in particular , our strategy is influenced by the specific characteristics of these markets , including but not limited to prepayment rates and interest rate levels . we expect the results of our operations to be affected by various factors , many of which are beyond our control . our manager 's global outlook for 2017 was in line with market expectations for both robust growth and improving inflation has proven more optimistic than anticipated . the consensus transitioned from expectations for secular stagnation before the us election to global reflation afterward , to a more moderate tone today focusing on central bank monetary policy normalization . our manager 's current expectations for 2018 is for ongoing slow but steady economic growth and moderate inflation , both in the u.s. and abroad . during the fourth quarter of 2017 , the federal reserve raised the federal funds rate a quarter point , which indicates 37 the central bank is confident in the strength of the economy and ready to push rates to more normal levels . president trump 's nomination of jerome powell as the next federal reserve chair is predicted to bring little change to the central bank 's incremental rate increases and monetary policy normalization but we have yet to see how the fomc might react to unexpected inflation . at the meeting in january 2018 , the fomc , left the federal funds rate at 1.5 % since inflation is still below target , although unemployment is low . the fomc expects inflation to meet its 2 % target in 2018 and expects to gradually raise the federal funds rate to its normal level of 2 % . story_separator_special_tag if we intend to sell the security or if it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis , the entire amount of the impairment loss , if any , is recognized in earnings as otti and the cost basis of the security is adjusted to its fair value . additionally , for securities accounted for under asc 325-40 an otti is deemed to have occurred when there is an adverse change in the expected cash flows to be received and the fair value of the security is less than its carrying amount . in determining whether an adverse change in cash flows occurred , the present value of the remaining cash flows , as estimated at the initial transaction date ( or the last date previously revised ) , is compared to the present value of the expected cash flows at the current reporting date . the estimated cash flows reflect those a “ market participant ” would use and are discounted at a rate equal to the current yield used to accrete interest income . any resulting otti adjustments are reflected in “ other than temporary impairment ” in our consolidated statements of operations . increases in interest income may be recognized on a security on which we have previously recorded an otti charge if the cash flow of such security subsequently improves . in addition , unrealized losses on our agency securities , with explicit guarantee of principal and interest by the governmental sponsored entity ( `` gse '' ) , are not credit losses but rather were due to changes in interest rates and prepayment expectations . these securities would not be considered other than temporarily impaired provided we did not intend to sell the security . residential whole-loans investments in residential whole-loans are recorded in accordance with asc 310-20 , `` nonrefundable fees and other costs '' . we have chosen to make the fair value election pursuant to asc 825 for our entire residential whole-loan portfolio . residential whole-loans are recorded at fair value with periodic changes in fair market value being recorded in earnings as a component of `` unrealized gain ( loss ) , net '' . all other costs incurred in connection with acquiring residential whole-loans or committing to purchase these loans are charged to expense as incurred . on a quarterly basis , we evaluate the collectability of both interest and principal of each loan , if circumstances warrant , to determine whether such loan is impaired . a loan is impaired when , based on current information and events , it is probable that we will be unable to collect all amounts due according to the existing contractual terms . when a loan is impaired , we do not record an allowance for loan loss as we have elected the fair value option . however , income recognition is suspended for loans at the earlier of the date at which payments become 90-days past due or when , in the opinion of management , a full recovery of income and principal becomes doubtful . when the ultimate collectability of the principal of an impaired loan is in doubt , all payments are applied to principal under the cost recovery method . when the ultimate collectability of the principal of an impaired loan is not in doubt , contractual interest is recorded as interest income when received , under the cash basis method until an accrual is resumed when the loan becomes contractually current and performance is demonstrated to be resumed . a loan is written off when it is no longer realizable and or legally discharged . residential bridge loans for the bridge loans acquired prior to october 25 , 2017 , we did not elect the fair value option pursuant to asc 825 and accordingly these loans are recorded at their principal amount outstanding , net of any premium or discount in the consolidated balance sheets . commencing with purchases subsequent to october 25 , 2017 , we decided to elected the fair value option pursuant to asc 825 to be consistent with the accounting of our other investments , which are all carried at fair value . these loans are recorded at fair value with periodic changes in fair market value being recorded in earnings as a component of `` unrealized gain 39 ( loss ) , net '' . all other costs incurred in connection with acquiring the residential bridge loans or committing to purchase these loans are charged to expense as incurred . a loan is impaired when , based on current information and events , it is probable that we will be unable to collect all amounts due according to the existing contractual terms . we evaluate each of residential bridge loans that we did not elect the fair value option on a quarterly basis . these loans are individually specific as they relate to the borrower , collateral type , interest rate , ltv and term as well as geographic location . we evaluate the collectability of both principal and interest of each loan . when a loan is impaired , the impairment is then measured based on fair value of the collateral , since these loans are collateral dependent . upon measurement of impairment , we record an allowance to reduce the carrying value of the loan with a corresponding charge to net income . significant judgments are required in determining impairment , including assumptions regarding the value of the loan , the value of the underlying collateral and other provisions such as guarantees . we will not record an allowance for loan loss for the residential bridge loans that company has elected the fair value option . income recognition is suspended for loans at the earlier of the date at which payments become 90-days past due or when , in the opinion of management , a full recovery of income and principal becomes doubtful .
| results of operations general our operating results mainly depend upon the difference between the yield on our investments , the cost of our borrowing , including our hedging activity , and the composition and changes in market prices of our portfolio . for the year ended december 31 , 2017 , we had net income of $ 85.1 million or $ 2.03 per basic and diluted weighted average common share , compared to net loss of $ 25.0 million or $ 0.61 per basic and diluted weighted average common share for the year ended december 31 , 2016 . our results of operations , for the year ended december 31 , 2017 , was positively impacted by the reposition of our portfolio , the restructuring of our hedges , generally tighter spreads on our agency portfolio and our credit sensitive portfolio continued to perform well with the favorable environment in both residential and commercial real estate . in addition in october 2017 , we issued $ 115.0 million of convertible senior unsecured notes which enabled us to significantly increase the size of our investment portfolio . comparison of the year ended december 31 , 2017 to the year ended december 31 , 2016 51 net interest income the following tables set forth certain information regarding our net interest income on our investment portfolio for the years ended december 31 , 2017 and december 31 , 2016 ( dollars in thousands ) : replace_table_token_19_th ( 1 ) the convertible senior unsecured notes , net are reflected at the balance as of december 31 , 2017 . the average cost of financing is calculated based on annualized interest expense divided by the average carrying value for the period outstanding . replace_table_token_20_th 52 interest income for the years ended december 31 , 2017 and december 31 , 2016 , we earned interest income on our investments of approximately $ 124.3 million and $ 123.8 million , respectively .
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our december 31 , 2013 consolidated financial statements included elsewhere in this report . certain statements contained in this md & a may be deemed to be forward-looking statements . see special note regarding forward-looking statements. overview general lsb is a manufacturing and marketing company operating through our subsidiaries . lsb and its wholly-owned subsidiaries own the following core businesses : chemical business manufactures and sells nitrogen-based chemical products produced from four facilities located in el dorado , arkansas ; cherokee , alabama ; pryor , oklahoma ; and baytown , texas for the agricultural , industrial and mining markets . our products include high purity and commercial grade anhydrous ammonia for industrial and agricultural applications , industrial and fertilizer grade an , uan , sulfuric acids , nitric acids in various concentrations , nitrogen solutions , def and various other products . for 2013 , approximately 56 % of our consolidated net sales relates to the chemical business compared to 63 % for 2012. climate control business manufactures and sells a broad range of hvac products in the niche markets we serve consisting of geothermal and water source heat pumps , hydronic fan coils , large custom air handlers , modular geothermal and other chillers and other related products used to control the environment in commercial/institutional and residential new building construction , renovation of existing buildings and replacement of existing systems . our climate control business manufactures and distributes its products from seven facilities located in oklahoma city , oklahoma . for 2013 , approximately 42 % of our consolidated net sales relates to the climate control business compared to 35 % for 2012. issuance of senior secured notes , intended use of proceeds and amended working capital revolver loan on august 7 , 2013 , lsb sold $ 425 million aggregate principal amount of the 7.75 % senior secured notes due 2019 ( the senior secured notes ) in a private placement . lsb has used , or intends to use , the proceeds , net of commissions and fees , from the sale of the senior secured notes , as follows : $ 67.2 million was used to pay all outstanding borrowings , including the prepayment penalty , under a term loan agreement ( the secured term loan ) ; in connection with the construction and completion of the new ammonia plant at the el dorado facility , which when completed , we believe will significantly decrease our cost and exposure to fluctuations in the price of ammonia in the spot market ; in connection with the construction of the 65 % nitric acid plant and concentrator also at the el dorado facility , which , when completed , will replace lost capacity and add additional capacity to facilitation growth ; to improve plant reliability and environmental and safety upgrades at our chemical facilities ; and for the development of our natural gas working interest leasehold , which we believe will provide a partial hedge for our cost of natural gas , one of the key raw material imports . pending application of proceeds discussed above , the net proceeds from the senior secured notes are currently invested in highly rated money market funds , certificates of deposit and u.s. treasury bills . the senior secured notes are jointly and severally and fully and unconditionally guaranteed by all of lsb 's subsidiaries and are collateralized with a substantial portion of lsb and most of its subsidiaries ' assets . 26 on february 13 , 2014 , lsb entered into an amended and restated loan agreement , effective as of december 31 , 2013 , providing for a revolving line of credit up to $ 100 million subject to eligible collateral . see further discussion relating to the senior secured notes and the amended working capital revolver loan below under loan agreements terms and condition of this md & a . economic conditions since our two core business segments serve several diverse markets , we consider fundamentals for each market individually as we evaluate economic conditions . from a macro standpoint , we believe the u.s. economy is poised for modest growth , based upon certain economic reports , including the conference board composite index of leading indicators . chemical business our chemical business ' primary markets are agricultural , industrial and mining . during 2013 , sales were $ 381 million or 20 % lower than 2012. due to the significant downtime at certain of our chemical facilities , as discussed below under downtime at certain chemical facilities and related programs , production and sales ( in volumes and dollars ) were lower in all three of our primary markets compared to the same period in 2012. in normal circumstances , our agricultural sales volumes and prices depend upon the supply of and the demand for fertilizer , which in turn depends on the market fundamentals for crops including corn , wheat , cotton and forage . although currently showing strength , nitrogen fertilizer prices are lower than the same time a year ago due in part to the significant increase in urea imports from china earlier during 2013. in addition , there was a significant increase in the 2013-2014 corn harvest and much lower forward corn prices as compared to a year ago . according to the usda 's world agricultural supply and demand estimates , the u.s. yield per harvested acre of corn increased significantly from approximately 123 bushels per acre to 158 bushels per acre and the year end corn stocks were approximately double a year ago , resulting in a significant increase in the stock-to-use ratio . notwithstanding the current conditions , the fundamentals continue to be positive for nitrogen fertilizer products we produce and sell and gross margins , although lower , are still strong . however , the fertilizer outlook could change if there are unanticipated changes in domestic fertilizer production capacity , acres planted of crops requiring fertilizer , unfavorable weather conditions or continued low selling prices and increases in imported urea from china . story_separator_special_tag as previously reported , in november 2013 , carrier corporation ( carrier ) advised one of our subsidiaries , climate master , inc. ( cm ) , that the heat pump contracts will not be renewed between cm , as the manufacturer , and carrier , as the purchaser , effective may 11 , 2014. during 2013 , 2012 and 2011 , net sales pursuant to these heat pump contracts represented less than 5 % of lsb 's consolidated net sales during each of those periods . potential proxy contest we have received certain proposals as to our business and notice that there may be a slate of directors proposed in opposition to the three directors that are up for election at our 2014 annual meeting of shareholders and that would be nominated by our board of directors . our business , operating results , liquidity or financial condition have been and could continue to be adversely affected by the proposals and a potential proxy contest because , among other things : considering and responding to the proposals and a potential proxy contest has been , and may continue to be , disruptive , costly and time consuming and a significant distraction for our management ; perceived uncertainties as to our future may result in the loss of current customers and potential business opportunities and may make it more difficult to attract and retain qualified personnel ; it may adversely affect our ability to create additional value for our stockholders by effectively limiting the implementation of our business strategy . 30 see risk factors-our business could be negatively affected as a result of a proxy contest. downtime at certain chemical facilities and related programs during 2012 , 2013 and the first quarter of 2014 , our chemical business encountered a number of significant issues . these issues included an explosion in one of our nitric acid plants at the el dorado facility in may 2012 , a pipe rupture at the cherokee facility in november 2012 that damaged the ammonia plant , and the suspension of production at the pryor facility from time to time during 2012 , 2013 and into the first quarter of 2014 due to continued mechanical issues . all of these issues resulted in lost production causing an adverse effect on our sales , operating income and cash flow for 2012 and 2013 and the first quarter of 2014. the following table shows the estimated range of the adverse effect on operating income by facility resulting from the lost productions due to the downtime related to these issues offset by insurance recoveries : replace_table_token_14_th the estimated adverse effect shown above includes lost absorption and gross profit margins , based on current market conditions , and additional expenses incurred . although we believe these issues are unrelated to each other , the severity and frequency of the events at our pryor , cherokee , and el dorado facilities caused us to undergo a thorough reexamination of our process safety management ( psm ) , reliability and mechanical integrity programs . as a result , we have undertaken a concerted program to attempt to improve the reliability and mechanical integrity of our chemical plant facilities , which program is expected to take several years to complete . the improvement program includes engaging outside experts and consultants who specialize in risk management , reliability , mechanical integrity and psm . we are also recruiting and hiring additional corporate and plant engineering and operational personnel , and accelerating acquisition of additional spare parts to supplement our existing spare parts program . for 2013 , we incurred expenses of approximately $ 3.2 million in connection with this program and anticipates that we will incur additional expenses of $ 1.8 million during 2014 in connection with this program . the program also includes the installation of additional automation and improved diagnostics . el dorado facility during may , 2012 , the el dorado facility suffered significant damage when a reactor in its dsn plant exploded . as a result , the dsn plant was damaged beyond repair and several other plants and infrastructure within the el dorado facility sustained various degrees of damage . the dsn plant , which supplied approximately 20 % of the nitric acid produced at this facility , will be replaced with a new 65 % strength nitric acid plant and a 98 % concentrator . the design , fabrication , and engineering of the new nitric acid plant and concentrator are in process , and most equipment has been ordered . we estimate that the monthly negative effect on operating income at the el dorado facility will approximate $ 1 million until the new 65 % strength nitric acid plant and the 98 % concentrator are constructed and begin production during 2015. the estimated combined construction cost for the new nitric acid plant and concentrator is approximately $ 120 million , of which $ 48 million has been capitalized as of december 31 , 2013. together , these new plants are designed to be more efficient and provide higher production capacity . 31 cherokee facility during november , 2012 , a pipe ruptured within the cherokee facility causing damage primarily to the heat exchanger portion of its ammonia plant . as a result of the damage , the cherokee facility could only produce , on a limited basis , nitric acid and an solution from purchased ammonia until the repairs were completed that directly reduced our net sales and gross profit margins . the cherokee facility restarted in may 2013 and has been running consistently at normal production rates since resuming production during 2013 , with normal interruptions for maintenance . pryor facility during november 2012 , production was stopped at the primary ammonia plant to perform unplanned maintenance on a compressor .
| 2013 results our consolidated net sales for 2013 were $ 679 million , a decrease of $ 80 million compared to 2012. the sales decrease included a decrease of $ 97 million in our chemical business partially offset by an increase of $ 19 million in our climate control business as discussed in more detail below . our consolidated operating income was $ 105 million for 2013 , including $ 94.6 million business interruption and property damage insurance recoveries , compared to $ 96 million in 2012 which included $ 7.3 million insurance recoveries . excluding insurance recoveries , our chemical business operating income decreased $ 82 million and our climate control business increased $ 5 million , as discussed in more detail below . our resulting effective income tax rate for 2013 was 39 % compared to 36 % for 2012. chemical business our chemical business operates four chemical facilities . the cherokee and pryor facilities produce anhydrous ammonia and nitrogen products from natural gas delivered by pipeline but can also receive supplemental anhydrous ammonia by other modes of delivery . the el dorado and baytown facilities produce nitrogen products from anhydrous ammonia delivered by pipeline . our chemical business sales for 2013 were $ 381 million , a decrease of $ 97 million compared to 2012 , which includes a $ 50 million decrease in agricultural products sales , a $ 21 million decrease in industrial acids and other products sales , and a $ 33 million decrease in mining products sales .
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subject to adjustment , no more than story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes appearing in this annual report on form 10-k. some of the information contained in this discussion and analysis or set forth elsewhere in this annual report on form 10-k , including information with respect to our plans and strategy for our business and related financing , includes forward-looking statements that involve risks and uncertainties . as a result of many factors , including those factors set forth in the “ risk factors ” section of this annual report on form 10-k , our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . operating overview we are a biopharmaceutical company focused on the development of novel proprietary therapeutics based on hypoxia inducible factor , or hif , biology and the commercialization of these products for patients with serious unmet medical needs . hif is the primary regulator of the production of red blood cells , or rbcs , in the body and a potentially novel mechanism for the treatment of anemia secondary to chronic kidney disease , or ckd . pharmacologic modulation of the hif pathway may also have broader therapeutic applications in acute renal failure , organ protection , ischemia-reperfusion injury , cancer , ophthalmology , and inflammatory diseases . anemia is a serious medical condition in which blood is deficient in rbcs and hemoglobin , each of which is critical in delivering oxygen to tissue . anemia generally exists when hemoglobin , a protein in rbcs that carries oxygen , is less than 13 g/dl in men or 12 g/dl in women . untreated anemia is associated with chronic fatigue , increased risk of progression of multiple diseases and death . anemia is common in patients with ckd , cancer , heart failure , inflammatory diseases and other critical illnesses , as well as in the elderly . more than 30 million people in the united states have ckd , with estimates that over 1.8 million of these patients suffer from anemia . anemia from these indications is currently treated by injectable recombinant erythropoiesis-stimulating agents , or resas , —including epogen ® , procrit ® and aranesp ® — with iron supplementation or rbc transfusion . based on the reported revenues of companies that market and sell resas , we estimate that global sales of injectable resas were $ 7.0 billion in 2014 ; the vast majority of which were for renal indications . resas are designed to stimulate production of rbcs by binding directly to and saturating erythropoietin , or epo , receptors . while injectable resas and transfusions may be effective in raising hemoglobin levels , they carry significant potential side effects and need to be delivered subcutaneously or intravenously . in particular , injectable resas may lead to thrombosis , stroke , myocardial infarction and death . these risks are described in black box warnings on the prescribing information of all products marketed in this class . these safety concerns , which became evident starting in 2006 , have led to a significant reduction in the use of injectable resas . today , anemia is either not treated or inadequately treated in the majority of non-dialysis dependent ckd patients . as a result , we believe that a safe , effective , oral therapeutic option will take significant market share and meaningfully grow the market in patients not requiring dialysis . given the burdens of the current standard of care and costs associated with administering an injectable resa , we believe our lead product candidate , vadadustat , formerly known as akb-6548 , is a promising cost-effective alternative for the treatment of anemia in ckd . vadadustat is being developed as a once-daily , oral therapy and has successfully completed phase 2 development demonstrating that vadadustat can safely and predictably raise hemoglobin levels in patients with anemia related to ckd . vadadustat works by a differentiated mechanism of action that we believe has the potential to be safer than that of injectable resas and may offer additional beneficial therapeutics effects beyond anemia including delaying ckd progression . this novel mechanism of action is referred to as hif prolyl-hydroxylase , or hif-ph , inhibition . instead of binding directly to the epo receptors on cells in the bone marrow , vadadustat leads to activation of critical pathways for hemoglobin and rbc production . this approach mimics the physiological adjustment made by the body when exposed to reduced oxygen levels at higher altitudes . we recently commenced phase 3 development of vadadustat in non-dialysis patients . positive results from our phase 2b study in non-dialysis ckd patients demonstrated that vadadustat raised hemoglobin levels with no safety signal observed . in december 2015 , we began dosing patients in our phase 3 vadadustat program in non-dialysis patients with anemia related to ckd , pro 2 tect , after obtaining feedback from united states and european regulatory authorities regarding the design of the program . if the results from the pro 2 tect program support the results observed across our previous clinical studies , including 29,000 days of patient exposure , we anticipate submitting a new drug application , or nda , to the united states food and drug administration , or fda , for vadadustat in 2019 . 62 we have also completed a phase 2 study of vadadustat for t he treatment of anemia in patients undergoing dialysis , which found that vadadustat , dosed either once daily or three times per week , maintained stable hemoglobin levels following conversion from resa therapy with no safety signal observed . story_separator_special_tag shares of common stock underlying outstanding stock options and other equity instruments were proportionately increased and the respective exercise prices , if applicable , were proportionately reduced in accordance with the terms of the agreements governing such securities . shares of common stock reserved for issuance upon the conversion of our series a redeemable convertible preferred stock , series b redeemable convertible preferred stock and series c redeemable convertible preferred stock were proportionately increased , and the respective conversion prices were proportionately reduced . on march 25 , 2014 , we completed our ipo whereby we sold 6,762,000 shares of common stock , including 879,647 shares of common stock pursuant to the full exercise of an over-allotment option granted to the underwriters , at a price of $ 17.00 per share . the shares began trading on the nasdaq global market on march 20 , 2014. the aggregate net proceeds received by us from the offering were approximately $ 104.4 million , net of underwriting discounts and commissions and estimated offering expenses . upon the closing of the ipo , all of our outstanding shares of convertible redeemable preferred stock converted into 12,115,183 shares of common stock . additionally , we are now authorized to issue 175,000,000 shares of common stock and 25,000,000 shares of preferred stock . on april 22 , 2015 , we completed a follow-on public offering whereby we sold 8,363,636 shares of common stock , including 1,090,909 share of common stock pursuant to the full exercise of an over-allotment granted to the underwriters in connection with the offering , at a price of $ 8.25 per share . the aggregate net proceeds received by us from the offering were approximately $ 64.6 million , net of underwriting discounts and commissions and estimated offering expenses . in august 2015 , we entered into a sales agreement with cantor fitzgerald & co. to periodically sell up to $ 50 million of shares of our common stock in an at-the-market , or atm , offering . in january 2016 , we terminated the sales agreement in order to use the shares for the january 2016 follow-on offering . during 2015 , prior to the termination , we sold 1,719,434 shares of common stock pursuant to the sales agreement . the aggregate net proceeds received by the company were approximately $ 18.4 million , net of commissions . no additional shares of our common stock will be sold pursuant to the sales agreement . in december 2015 , we entered into a collaboration agreement with mitsubishi tanabe to develop and commercialize vadadustat in japan and certain other countries in asia for total milestone payments of up to $ 350 million , including up to $ 100 million in upfront and development payments , of which $ 40 million was received in january 2016. of the $ 40.0 million received , $ 20.0 million is subject to refund to mitsubishi depending on the outcome of discussions with the japanese regulator about the global trial design . in addition , we will receive tiered double-digit royalty payments on vadadustat sales . in january 2016 , we completed a follow-on public whereby we sold 7,250,000 shares of common stock at a price of $ 9.00 per share . the aggregate net proceeds received by us from the offering were approximately $ 61.0 million , net of underwriting discounts and commissions and estimated offering expenses payable by us . financial overview in the quarter ended december 31 , 2015 , we identified and corrected an error in the historical classification of certain operating costs between research and development and general and administrative expenses . we concluded the effect of this classification error was not material to our consolidated financial statements for any prior period . the classification correction had no effect on our current or historical total operating expenses or net loss . 64 revenue to date , we have not generated any revenue from the sales of products or other means . our ability to generate product revenue and become profitable depends upon our ability to successfully develop and commercialize products . we expect to incur losses for the foreseeable future , and we expect these losses to increase as we continue our development of , and seek regulatory approvals for , our product candidates and begin to commercialize any approved products . because of the numerous risks and uncertainties associated with product development , we are unable to predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability . even if we are able to generate revenue from the sale of our products , we may not become profitable . if we fail to become profitable or are unable to sustain profitability on a continuing basis , then we may be unable to continue our operations at planned levels and be forced to reduce our operations . we will begin to recognize revenue starting in 2016 related to our agreement with mitsubishi tanabe ( see note 12 ) . research and development expenses research and development expenses consist primarily of costs incurred for the development of our product candidates , which include : · employee-related expenses , including salaries , benefits , travel and stock-based compensation expense ; · expenses incurred under agreements with the cros and investigative sites that conduct our clinical studies ; · the cost of acquiring , developing and manufacturing clinical study materials ; · facilities , depreciation and other expenses , which include direct and allocated expenses for rent and maintenance of facilities , insurance and other supplies ; and · costs associated with preclinical and clinical activities . research and development costs are expensed as incurred . costs for certain development activities are recognized based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors and our clinical sites .
| results of operations comparison of the years ended december 31 , 2015 and 2014 replace_table_token_3_th 68 research and development expenses . research and development expenses were $ 43.0 million for the year ended december 31 , 2015 , compared to $ 23.3 million for the year ended december 31 , 2014. the increase of $ 19.7 million was primarily due to the following : replace_table_token_4_th general and administrative expenses . general and administrative expenses were $ 18.5 million for the year ended december 31 , 2015 , compared to $ 14.7 million for the year ended december 31 , 2014. the increase of $ 3.8 million was primarily due to the following expense increases : $ 1.2 million of wage and personnel-related costs due to additional headcount , $ 1.4 million in commercial planning costs , $ 0.7 million in legal costs and $ 0.7 million related to facilities . other income , net . other income , net , was $ 0.8 million for the year ended december 31 , 2015 , compared to $ 0.9 million for the year ended december 31 , 2014. other income , net for the year ended december 31 , 2015 , is primarily related to reimbursements under a services agreement for employee-related costs of approximately $ 0.3 million and interest income of approximately $ 0.5 million . other income , net for the year ended december 31 , 2014 is primarily related to reimbursements under a services agreement for employee-related costs of approximately $ 0.7 million and interest income of approximately $ 0.2 million . the decrease in reimbursements related to the services agreement for employee-related costs is principally the result of reduced time spent by our employees on the services agreement related activities . comparison of the years ended december 31 , 2014 and 2013 replace_table_token_5_th 69 research and development expenses .
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revenues in jefferies leveraged credit business were strong on increased trading volumes within high yield and distressed products , as a result of an improved credit environment , as well as strategic growth in the business , compared with mark-to-market write-downs in 2015. results in jefferies emerging markets business during 2016 were higher as compared to 2015 due to an upgraded sales and trading team and increased levels of volatility and improved market conditions . revenues in 2016 from jefferies corporates businesses increased as compared to 2015 due to increased client activity and higher demand for new issuances and higher yielding investments . jefferies securitized markets businesses were positively impacted by increased demand for spread products compared with the negative impact of market volatility as credit spreads tightened for these asset classes and expectations of future rate increases in 2015. the municipal securities business performed well during 2016 as improved trading activity was driven by market technicals compared with net outflows in 2015. volatility during 2016 due to fluctuating expectations as to future federal reserve interest rate increases contributed to increased revenues in jefferies u.s. rates business as compared to the prior year . investment banking revenues jefferies provides a full range of capital markets and financial advisory services to its clients across most industry sectors in the americas , europe and asia . capital markets revenues include underwriting and placement revenues related to corporate debt , municipal bonds , mortgage- and asset-backed securities and equity and equity-linked securities . advisory revenues consist primarily of advisory and transaction fees generated in connection with merger , acquisition and restructuring transactions . total investment banking revenues were $ 1,764.3 million for 2017 , 47.8 % higher than 2016. this increase was due to strong performance across jefferies debt capital markets , equity capital markets and advisory businesses , supported by a strong overall capital raising and merger and acquisition environment . in 2016 , new issue equity and leveraged finance capital markets were virtually closed throughout january and february and remained slow throughout 2016. capital markets revenues for 2017 increased 84.2 % from 2016. advisory revenues for 2017 increased 17.7 % compared to the prior year . 31 from equity and debt capital raising activities , jefferies generated $ 345.0 million and $ 649.2 million in revenues , respectively , for the year ended december 31 , 2017. during 2017 , jefferies completed 1,121 public and private debt financings that raised $ 292.1 billion in aggregate and jefferies completed 173 public and private equity and convertible offerings that raised $ 59.7 billion ( 164 of which jefferies acted as sole or joint bookrunner ) . financial advisory revenues totaled $ 770.1 million , including revenues from 171 merger and acquisition transactions and 10 restructuring and recapitalization transactions with an aggregate transaction value of $ 180.6 billion . total investment banking revenues were $ 1,194.0 million for 2016 , 17.0 % lower than 2015. lower investment banking results were attributable to lower new issue equity and leveraged finance capital markets revenues . this was primarily as a result of the capital markets slowdown , which began in the second half of 2015 and continued for much of 2016. from equity and debt capital raising activities , jefferies generated $ 235.2 million and $ 304.6 million in revenues , respectively , for 2016 , a decrease of 42.4 % and 23.5 % , respectively , from 2015. jefferies reduced capital markets activity for 2016 was partially offset by increased advisory revenues . specifically , jefferies advisory revenues for 2016 increased 3.5 % compared to 2015 , primarily through an increase in the number of merger , acquisition and restructuring transactions , including closing a record number of merger and acquisition transactions in excess of $ 1 billion . jefferies investment banking results benefited both from a record fourth quarter of advisory fees in 2016 , with jefferies merger , acquisition and restructuring and recapitalization businesses showing continued momentum , and from improvement in capital markets activity , which began in the late summer of 2016 , leading to an increase in new issue transaction volume . during 2016 , jefferies completed 892 public and private debt financings that raised $ 188.6 billion in aggregate and jefferies completed 129 public and private equity and convertible offerings that raised $ 24.4 billion ( 125 of which jefferies acted as sole or joint bookrunner ) . financial advisory revenues totaled $ 654.2 million , including revenues from 161 merger and acquisition transactions and 18 restructuring and recapitalization transactions with an aggregate transaction value of $ 135.2 billion . during 2015 , jefferies generated $ 1,438.8 million in investment banking revenues . from equity and debt capital raising activities , jefferies generated $ 408.5 million and $ 398.0 million in revenues , respectively , in 2015. advisory revenues of $ 632.4 million for 2015 were primarily due to higher transaction volume . during 2015 , jefferies completed 1,003 public and private debt financings that raised $ 199.8 billion in aggregate and jefferies completed 203 public and private equity and convertible offerings that raised $ 56.6 billion ( 183 of which jefferies acted as sole or joint bookrunner ) . financial advisory revenues totaled $ 632.4 million , including revenues from 158 merger and acquisition transactions and 13 restructuring and recapitalization transactions with an aggregate transaction value of $ 141.1 billion . compensation and benefits compensation and benefits expense consists of salaries , benefits , cash bonuses , commissions , annual cash compensation awards , and the amortization of certain non-annual share-based and cash compensation awards to employees . cash and historical share-based awards and a portion of cash awards granted to employees as part of year end compensation generally contain provisions such that employees who terminate their employment or are terminated without cause may continue to vest in their awards , so long as those awards are not forfeited as a result of other forfeiture provisions ( primarily story_separator_special_tag revenues in jefferies leveraged credit business were strong on increased trading volumes within high yield and distressed products , as a result of an improved credit environment , as well as strategic growth in the business , compared with mark-to-market write-downs in 2015. results in jefferies emerging markets business during 2016 were higher as compared to 2015 due to an upgraded sales and trading team and increased levels of volatility and improved market conditions . revenues in 2016 from jefferies corporates businesses increased as compared to 2015 due to increased client activity and higher demand for new issuances and higher yielding investments . jefferies securitized markets businesses were positively impacted by increased demand for spread products compared with the negative impact of market volatility as credit spreads tightened for these asset classes and expectations of future rate increases in 2015. the municipal securities business performed well during 2016 as improved trading activity was driven by market technicals compared with net outflows in 2015. volatility during 2016 due to fluctuating expectations as to future federal reserve interest rate increases contributed to increased revenues in jefferies u.s. rates business as compared to the prior year . investment banking revenues jefferies provides a full range of capital markets and financial advisory services to its clients across most industry sectors in the americas , europe and asia . capital markets revenues include underwriting and placement revenues related to corporate debt , municipal bonds , mortgage- and asset-backed securities and equity and equity-linked securities . advisory revenues consist primarily of advisory and transaction fees generated in connection with merger , acquisition and restructuring transactions . total investment banking revenues were $ 1,764.3 million for 2017 , 47.8 % higher than 2016. this increase was due to strong performance across jefferies debt capital markets , equity capital markets and advisory businesses , supported by a strong overall capital raising and merger and acquisition environment . in 2016 , new issue equity and leveraged finance capital markets were virtually closed throughout january and february and remained slow throughout 2016. capital markets revenues for 2017 increased 84.2 % from 2016. advisory revenues for 2017 increased 17.7 % compared to the prior year . 31 from equity and debt capital raising activities , jefferies generated $ 345.0 million and $ 649.2 million in revenues , respectively , for the year ended december 31 , 2017. during 2017 , jefferies completed 1,121 public and private debt financings that raised $ 292.1 billion in aggregate and jefferies completed 173 public and private equity and convertible offerings that raised $ 59.7 billion ( 164 of which jefferies acted as sole or joint bookrunner ) . financial advisory revenues totaled $ 770.1 million , including revenues from 171 merger and acquisition transactions and 10 restructuring and recapitalization transactions with an aggregate transaction value of $ 180.6 billion . total investment banking revenues were $ 1,194.0 million for 2016 , 17.0 % lower than 2015. lower investment banking results were attributable to lower new issue equity and leveraged finance capital markets revenues . this was primarily as a result of the capital markets slowdown , which began in the second half of 2015 and continued for much of 2016. from equity and debt capital raising activities , jefferies generated $ 235.2 million and $ 304.6 million in revenues , respectively , for 2016 , a decrease of 42.4 % and 23.5 % , respectively , from 2015. jefferies reduced capital markets activity for 2016 was partially offset by increased advisory revenues . specifically , jefferies advisory revenues for 2016 increased 3.5 % compared to 2015 , primarily through an increase in the number of merger , acquisition and restructuring transactions , including closing a record number of merger and acquisition transactions in excess of $ 1 billion . jefferies investment banking results benefited both from a record fourth quarter of advisory fees in 2016 , with jefferies merger , acquisition and restructuring and recapitalization businesses showing continued momentum , and from improvement in capital markets activity , which began in the late summer of 2016 , leading to an increase in new issue transaction volume . during 2016 , jefferies completed 892 public and private debt financings that raised $ 188.6 billion in aggregate and jefferies completed 129 public and private equity and convertible offerings that raised $ 24.4 billion ( 125 of which jefferies acted as sole or joint bookrunner ) . financial advisory revenues totaled $ 654.2 million , including revenues from 161 merger and acquisition transactions and 18 restructuring and recapitalization transactions with an aggregate transaction value of $ 135.2 billion . during 2015 , jefferies generated $ 1,438.8 million in investment banking revenues . from equity and debt capital raising activities , jefferies generated $ 408.5 million and $ 398.0 million in revenues , respectively , in 2015. advisory revenues of $ 632.4 million for 2015 were primarily due to higher transaction volume . during 2015 , jefferies completed 1,003 public and private debt financings that raised $ 199.8 billion in aggregate and jefferies completed 203 public and private equity and convertible offerings that raised $ 56.6 billion ( 183 of which jefferies acted as sole or joint bookrunner ) . financial advisory revenues totaled $ 632.4 million , including revenues from 158 merger and acquisition transactions and 13 restructuring and recapitalization transactions with an aggregate transaction value of $ 141.1 billion . compensation and benefits compensation and benefits expense consists of salaries , benefits , cash bonuses , commissions , annual cash compensation awards , and the amortization of certain non-annual share-based and cash compensation awards to employees . cash and historical share-based awards and a portion of cash awards granted to employees as part of year end compensation generally contain provisions such that employees who terminate their employment or are terminated without cause may continue to vest in their awards , so long as those awards are not forfeited as a result of other forfeiture provisions ( primarily
| corporate and other results a summary of results of operations for corporate and other for the three years in the period ended december 31 , 2017 is as follows ( in thousands ) : replace_table_token_10_th net revenues of corporate and other primarily include realized and unrealized securities gains and interest income for investments held at the holding company . net revenues for 2017 and 2016 , respectively , include a $ 6.1 million and $ 65.6 million increase in a trading asset which is held at fair value . net revenues for 2017 also include a $ 19.7 million realized security gain from an investment in a non-public security . net revenues for 2015 include a realized security gain related to a recovery of $ 35.0 million of an investment in a non-public security that was sold and had been written off in prior years . for the years ended december 31 , 2017 , 2016 and 2015 , corporate compensation and benefits includes incentive bonus expense of $ 10.1 million , $ 7.6 million and $ 17.4 million , respectively . share-based compensation expense was $ 20.9 million , $ 9.7 million and $ 14.6 million in 2017 , 2016 and 2015 , respectively . compensation and benefits also increased in 2017 compared to 2016 as a result of the growth of our other investments . pursuant to the agreement to sell one of our former subsidiaries , wiltel communications group , llc , the responsibility for wiltel 's defined benefit pension plan was retained by us . wiltel pension expense in 2015 includes a non-cash pension settlement charge of $ 40.7 million related to a voluntary lump sum offer to participants of the legacy plan . see note 19 to our consolidated financial statements for further information .
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msci clients include asset owners , such as pension funds , endowments , foundations , central banks , family offices and insurance companies ; asset management firms , such as mutual funds , hedge funds , providers of exchange-traded funds ( etfs ) ; private wealth managers ; and financial intermediaries , such as banks , broker-dealers , exchanges , custodians , trust companies and investment consultants . our products and services include indexes and analytical models ; ratings and analysis that enable institutional investors to integrate environmental , social and governance ( esg ) factors into their investment strategies ; and analysis of real estate in both privately and publicly owned portfolios . clients use our content and applications to help construct portfolios and allocate assets . our analytical tools help them measure and manage risk across all major asset classes . msci products and services can also be customized to meet the specific needs of our clients . as of december 31 , 2015 , we had approximately 6,400 clients across 86 countries . to calculate the number of clients , we may count certain affiliates , user locations , or business units within a single organization as separate clients . if we aggregate all related clients under their respective parent entity , the number of clients would be approximately 3,850 , as of december 31 , 2015. we had offices in 35 cities in 22 countries to help serve our diverse client base , with 52.2 % of our revenues coming from clients in the americas , 35.5 % in europe , the middle east and africa ( emea ) and 12.3 % in asia and australia . our principal business model is to license annual , recurring subscriptions to our products and services for use at specified locations , often by a given number of users or for a certain volume of services , for an annual fee paid up-front . additionally , our recurring subscriptions include our managed services offering , whereby we oversee the production of risk and performance reports on behalf of our clients . fees attributable to annual , recurring subscriptions are recorded as deferred revenues on our consolidated statement of financial condition and are recognized on our consolidated statement of income as the service is rendered . furthermore , a portion of our revenues comes from clients who use our indexes as the basis for index-linked investment products such as etfs or as the basis for passively managed funds and separate accounts . these clients commonly pay us a license fee for the use of our intellectual property based on the investment product 's assets . we also generate revenues from certain exchanges that use our indexes as the basis for futures and options contracts and pay us a license fee for the use of our intellectual property based on their volume of trades . in addition , we generate revenues from subscription agreements for the receipt of periodic benchmark reports , digests and other publications , which are most often associated with our real estate products that are recognized upon delivery of such reports or data updates . we also receive revenues from one-time fees related to certain implementation services , historical or customized reports , advisory and consulting services and from certain products and services that are designed for one-time usage . in evaluating our financial performance , we focus on revenue and profit growth , including gaap and non-gaap measures , for the company as a whole as well as by operating segment . in addition , we focus on operating metrics , including run rate , subscription sales and aggregate retention rate to manage the business . our business is not highly capital intensive and , as such , we expect to continue to convert a high percentage of our profits into excess cash in the future . our growth strategy includes : ( a ) expanding and deepening our relationships with investment institutions worldwide ; ( b ) developing new and enhancing existing product offerings , including combining existing product features or data derived from our products to create new 54 products ; and ( c ) seeking to acquire products , technologies and companies that will enhance , complement or expand our client base and product offerings . during the years ended december 31 , 2014 and 2013 , we significantly invested in and expanded our operating functions and infrastructure , including additional product management , sales and client support staff and facilities in locations around the world as well as our research and our data operations and technology functions . the purpose was to maximize our medium-term revenue and profit growth , while at the same time ensuring that msci would remain a leading provider of investment decision support tools into the future . as a result , the rate of growth of our investments and expenses had , in recent years , exceeded that of our revenues , which had slowed the growth of , or even reduced , our earnings . for example , for the year ended december 31 , 2014 , our revenues grew by 9.1 % but our operating income decreased by 0.9 % compared to the year ended december 31 , 2013 due , in part , to increased investment in our business . we completed our incremental level of investment in the year ended december 31 , 2014 , and have again achieved operating margin expansion for the year ended december 31 , 2015. changes in presentation effective during the year ended december 31 , 2015 , we changed our reportable segments to reflect certain changes made to the management of our product lines . this presentation better aligns our financial reporting with how our products and services are offered to our clients and offers additional insight into how we manage the company . we previously disclosed one reportable segment . following the change , we began disclosing three reportable segments : index , analytics and all other . the all other segment consists of esg and real estate . story_separator_special_tag amortization of intangible assets amortization of intangible assets expense relates to definite-lived intangible assets arising from past acquisitions and consists of customer relationships , trademarks and trade names , technology and software , proprietary processes and data and non-competition agreements . we amortize definite-lived intangible assets over their estimated useful lives . definite-lived intangible assets are tested for impairment when impairment indicators are present , and , if impaired , written down to fair value based on either discounted cash flows or appraised values . no impairment of intangible assets has been identified during any of the periods presented . we have no indefinite-lived intangibles . the intangible assets have remaining useful lives ranging from one to 20 years . depreciation and amortization of property , equipment and leasehold improvements this category consists of expenses related to depreciating or amortizing the cost of furniture & fixtures , computer and related equipment and leasehold improvements over the estimated useful life of the assets . other expense ( income ) , net this category consists primarily of interest we pay on our outstanding indebtedness , interest we collect on cash and short-term investments , transition services income associated with our sale of iss , foreign currency exchange rate gains and losses as well as other non-operating income and expense items . non-gaap financial measures adjusted ebitda adjusted ebitda , a measure used by management to assess operating performance , is defined as net income plus income ( loss ) from discontinued operations , net of income taxes , provision for income taxes , other expense ( income ) , net , depreciation and amortization of property , equipment and leasehold improvements , amortization of intangible assets and certain transactions or adjustments . adjusted ebitda expenses , a measure used by management to assess operating performance , is defined as operating expenses less depreciation and amortization of property , equipment and leasehold improvements and amortization of intangible assets . the company believes the adjusted ebitda and adjusted ebitda expenses measures are important in highlighting trends because these measures exclude costs that are more fixed from period to period . in addition , these measures provide more comparability between the historical operating results and recent operating results that reflect changes due to acquisitions , investments and capital structure . all companies do not calculate adjusted ebitda and adjusted ebitda expenses in the same way . these measures can differ significantly from company to company depending on long-term strategic decisions regarding capital structure , the tax jurisdictions 57 in which companies operate and capital investments . accordingly , the company 's computation of the adjusted ebitda and adjusted ebitda expenses measures may not be comparable to similarly titled measures computed by other companies . run rate at the end of any period , we generally have subscription and investment product license agreements in place for a large portion of total revenues for the following 12 months . we measure the fees related to these agreements and refer to this as run rate. see operating metrics run rate below for additional information on the calculation of this metric . subscription sales subscription sales is a key operating metric and is important because new subscription sales increase our run rate and ultimately our operating revenues . see operating metrics subscription sales below for additional information . aggregate retention rate another key operating metric is aggregate retention rate which is important because subscription cancellations decrease our run rate and ultimately our operating revenues . see operating metrics aggregate retention rate below for additional information on the calculation of this metric . critical accounting policies and estimates our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the united states ( gaap ) . these accounting principles require us to make certain estimates and judgments that can affect the reported amounts of assets and liabilities as of the date of the consolidated financial statements , as well as the reported amounts of revenues and expenses during the periods presented . we believe the estimates and judgments upon which we rely are reasonable based upon information available to us at the time these estimates and judgments are made . to the extent there are material differences between these estimates and actual results , our consolidated financial statements will be affected . see note 1 , introduction and basis of presentation significant accounting policies , of the notes to the consolidated financial statements included herein for a listing of our accounting policies . factors affecting the comparability of results acquisition of gmi ratings on august 11 , 2014 , we completed the acquisition of gmi ratings for $ 15.5 million through our subsidiary msci esg research inc. gmi ratings is a provider of corporate governance research and ratings on over 6,000 companies worldwide . clients of gmi ratings include leading institutional investors , banks , insurers , auditors , regulators and corporations seeking to incorporate esg factors into risk assessment and decision-making . the purchase price allocations for the gmi ratings acquisition were $ 9.9 million for goodwill , $ 3.6 million for identifiable intangible assets , $ 6.7 million for assets other than identifiable intangible assets and $ 4.7 million for other liabilities . the results of gmi ratings were included in our results of operations from its acquisition date of august 11 , 2014. the gmi ratings acquisition has not had a significant impact on our results of operations . share repurchases on december 13 , 2012 , the board of directors approved a stock repurchase program authorizing the purchase of up to $ 300.0 million worth of shares of our common stock beginning immediately and continuing through december 31 , 2014 ( the 2012 repurchase program ) . we utilized $ 200.0 million of the repurchase authority through december 31 , 2013 .
| segment results the results for each of our three reportable segments for the years ended december 31 , 2015 and 2014 are presented below : index segment the following table presents the results for the index segment for the years indicated : replace_table_token_18_th revenues related to index products increased 10.9 % to $ 559.0 million for the year ended december 31 , 2015 compared to $ 503.9 million for the year ended december 31 , 2014. recurring subscription revenues were up 10.3 % to $ 353.1 million for the year ended december 31 , 2015 compared to $ 320.1 million for the year ended december 31 , 2014. the increase was primarily driven by solid growth in benchmark and data products broadly , including strong growth in market cap products , combined with higher growth in factor , esg and thematic products . adjusting for the impact of foreign currency exchange rate fluctuations , recurring subscription revenues would have increased 11.1 % for the year ended december 31 , 2015 compared to the year ended december 31 , 2014. revenues from asset-based fees increased 11.8 % to $ 198.0 million for the year ended december 31 , 2015 compared to $ 177.1 million for the year ended december 31 , 2014. the increase was primarily driven by an increase in revenue from etf 's , as well as strong growth in revenues from non-etf institutional passive funds and exchange-traded futures and options linked to msci indexes . average aum in etfs linked to msci indexes increased $ 56.3 billion , or 15.5 % , to $ 418.8 billion primarily driven by cash inflows , partially offset by market depreciation . index segment adjusted ebitda expenses increased 7.6 % to $ 166.0 million for the year ended december 31 , 2015 compared to $ 154.2 million for the year ended december 31 , 2014. the increase primarily reflects higher compensation and benefits costs associated with our selling , development and g & a activities .
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the company 's principal products consist of subsea and surface wellheads , subsea and surface production trees , subsea control systems and manifolds , mudline hanger systems , specialty connectors and associated pipe , drilling and production riser systems , liner hangers , wellhead connectors and diverters . dril-quip also provides technical advisory services on an as-requested basis during installation of its products , as well as rework and reconditioning services for customer-owned dril-quip products and rental of running tools for use in connection with the installation and retrieval of the company 's products . oil and gas prices both the market for offshore drilling and production equipment and services and the company 's business are substantially dependent on the condition of the oil and gas industry and , in particular , the willingness of oil and gas companies to make capital expenditures on exploration , drilling and production operations offshore . oil and gas prices and the level of offshore drilling and production activity have historically been characterized by significant volatility . see item 1a . risk factorsa material or extended decline in expenditures by the oil and gas industry could significantly reduce our revenue and income. according to the energy information administration ( eia ) of the u.s. department of energy , average crude oil ( west texas intermediate cushing ) and natural gas ( henry hub ) closing prices are listed below for periods covered by this report : replace_table_token_5_th during 2009 , the average west texas intermediate crude oil price was $ 62.18 per barrel with a high of $ 81.37 per barrel and a low of $ 33.98 per barrel . crude oil ended 2009 at $ 79.36 per barrel . in 2010 , crude oil prices began the year at $ 81.52 per barrel and reached a peak in december at $ 91.48 per barrel . crude oil prices averaged $ 79.48 per barrel for 2010. in 2011 , crude oil prices ranged between $ 75.40 per barrel and $ 113.39 per barrel . crude oil ended the year at $ 98.83 per barrel . according to the january 2012 release of the short-term energy outlook published by the eia , west texas intermediate crude oil prices are projected to average $ 100.25 per barrel in 2012 and $ 103.75 in 2013. these projections are based upon the assumption that the u.s. real gross domestic product ( gdp ) will grow by 1.8 % in 2012 and 2.5 % in 2013. in its january 2012 report , the eia expects henry hub natural gas prices to average $ 3.64 per mcf in 2012 and $ 4.27 per mcf in 2013. henry hub natural gas were $ 3.08 per mcf at the end of december 2011 . 31 in its january 2012 oil market report , the international energy agency projected global oil demand to be 90 million barrels per day in 2012 compared to 89 million barrels per day in 2011. according to the eia , between january 1 , 2012 and february 14 , 2012 , the price of west texas intermediate crude oil ranged from $ 96.36 per barrel to $ 103.22 per barrel , closing at $ 100.82 per barrel on february 14 , 2012. for the same period , henry hub natural gas ranged from $ 2.30 per mcf to $ 3.06 per mcf , closing at $ 2.56 per mcf on february 14 , 2012. rig count detailed below is the average contracted offshore rig count for the company 's geographic regions for the years ended december 31 , 2011 , 2010 and 2009. the rig count data includes floating rigs ( semi-submersibles and drillships ) and jack-up rigs . the company has included only these types of rigs as they are the primary end users of the company 's products . replace_table_token_6_th the table represents rigs under contract and includes rigs currently drilling as well as rigs committed , but not yet drilling . according to ods-petrodata rigbase , as of december 31 , 2011 , there were 64 rigs under contract ( 35 jack-up rigs and 29 floating rigs ) in the u.s. gulf of mexico , 57 of which were actively drilling ( 35 jack-up rigs and 22 floating rigs ) . in 2010 there were 55 rigs under contract in the u.s. gulf of mexico ( 29 jack-up rigs and 26 floating rigs ) , of which 35 were actively drilling ( 28 jack-up rigs and 7 floating rigs ) , and in 2009 there were 59 rigs under contract ( 27 jack-up rigs and 32 floating rigs ) , of which 58 were actively drilling . the company believes that the number of rigs ( semi-submersibles , jack-up rigs and drillships ) under construction impacts its revenues because in certain cases , its customers order some of the company 's products during the construction of such rigs . as a result , an increase in rig construction activity tends to favorably impact the company 's backlog while a decrease in rig construction activity tends to negatively impact the company 's backlog . according to ods-petrodata , at the end of 2011 , 2010 and 2009 , there were 146 , 117 and 130 rigs , respectively , under construction and the expected delivery dates for the rigs under construction on december 31 , 2011 are as follows : replace_table_token_7_th regulation the demand for the company 's products and services is also affected by laws and regulations relating to the oil and gas industry in general , including those specifically directed to offshore operations . the adoption of new laws and regulations , or changes to existing laws or regulations that curtail exploration and development drilling for oil and gas for economic or other policy reasons could adversely affect the company 's operations by limiting demand for its products . for a description of certain actions taken by the u.s. government related to the deepwater horizon incident , see commitments and contingencies in note 10 of notes to consolidated financial statements . story_separator_special_tag revenues accounted for in this manner are generally recognized based upon a calculation of the percentage complete , which is used to determine the revenue earned and the appropriate portion of total estimated cost of sales . accordingly , price and cost estimates are reviewed periodically as the work progresses , and adjustments proportionate to the percent complete are reflected in the period when such estimates are revised . losses , if any , are recognized when they become known . amounts received from customers in excess of revenues recognized are classified as a current liability . see item 1a . risk factorswe may be required to recognize a charge against current earnings because of percentage-of-completion accounting. the following table sets forth , for the periods indicated , a breakdown of the company 's u.s. gulf of mexico products and services revenues : replace_table_token_8_th at this time , the company is unable to quantify the impact that the permitting delays related to the deepwater horizon incident and the related moratorium by the u.s. government will have on its future revenues . the company believes that the effects of the permitting delays will have little or no impact on revenues related to offshore rig equipment , but could have a significant adverse impact on revenues related to subsea equipment , and , to a lesser extent , surface equipment . in addition , service revenues in the gulf of mexico ( which were $ 25.8 million or approximately 4 % of the company 's total revenues during 2011 ) could continue to be negatively impacted by permitting delays related to the drilling moratorium . the company 's service revenues decreased in each quarter of 2010 as a percentage of worldwide revenues . in the first two quarters of 2011 there was an increase in service revenues . service revenues for the remainder of 2011 were basically flat as a percentage of worldwide revenues . the company will continue to monitor the effects of the drilling moratorium and permitting delays on its ongoing business operations . cost of sales . the principal elements of cost of sales are labor , raw materials and manufacturing overhead . cost of sales as a percentage of revenues is influenced by the product mix sold in any particular period and market conditions . the company 's costs related to its foreign operations do not significantly differ from its domestic costs . 34 selling , general and administrative expenses . selling , general and administrative expenses include the costs associated with sales and marketing , general corporate overhead , compensation expense , stock option expense , legal expenses , foreign currency transaction gains and losses and other related administrative functions . engineering and product development expenses . engineering and product development expenses consist of new product development and testing , as well as application engineering related to customized products . income tax provision . the company 's overall effective income tax rate has historically been lower than the statutory rate primarily due to foreign income tax rate differentials , research and development credits and deductions related to domestic production activities . story_separator_special_tag 6.9 million during the fourth quarter of 2010. the amount related to base salary and bonus , including payroll taxes , which totaled $ 4.9 million , is reflected in the accounts payable balance on the consolidated balance sheets as of december 31 , 2010. the acceleration of the vesting of his stock options increased pre-tax non-cash expenses by $ 2.0 million . interest income . interest income for 2011 was approximately $ 419,000 as compared to $ 321,000 in 2010. this increase was due to higher cash and short-term investment balances . the company keeps the majority of its short-term investments in funds that invest in u.s. treasury obligations , which normally earn lower interest rates than money market funds . interest expense . interest expense for 2011 was approximately $ 53,000 compared to $ 131,000 in 2010. the term credit agreement for dril-quip ( europe ) limited was paid in full in april 2011. income tax provision . income tax expense for 2011 was $ 34.7 million on income before taxes of $ 130.0 million , resulting in an effective income tax rate of approximately 26.7 % . income tax expense in 2010 was $ 36.7 million on income before taxes of $ 138.9 million , resulting in an effective tax rate of approximately 26.4 % . the increase in the effective income tax rate reflects the difference in income before income taxes among the company 's three geographic areas , which have different income tax rates . net income . net income was approximately $ 95.3 million in 2011 and $ 102.2 million in 2010 , for the reasons set forth above . year ended december 31 , 2010 compared to year ended december 31 , 2009 revenues . revenues increased by $ 26.1 million , or approximately 4.8 % , to $ 566.3 million in 2010 from $ 540.2 million in 2009. product revenues increased by approximately $ 30.1 million for the year ended december 31 , 2010 compared to the same period in 2009 as a result of increased revenues of $ 8.5 million in subsea equipment and $ 26.3 million in offshore rig equipment , partially offset by a $ 4.7 million decrease in 37 surface equipment . product revenues increased in the western hemisphere by $ 53.6 million and $ 11.9 million in asia-pacific , partially offset by a decrease in the eastern hemisphere of $ 35.4 million . service revenues decreased by approximately $ 4.0 million resulting from decreased service revenues in the eastern hemisphere of $ 5.6 million and $ 0.5 million in the western hemisphere , partially offset by a $ 2.1 million increase in asia pacific . the majority of the decreases in service revenues related to decreases in the rental of running and installation tools , slightly offset by increases in technical advisory services and reconditioning services . cost of sales .
| results of operations the following table sets forth , for the periods indicated , certain consolidated statements of income data expressed as a percentage of revenues : replace_table_token_9_th ( 1 ) see discussion on pages 36-39 under special items. the following table sets forth , for the periods indicated , a breakdown of our products and service revenues : replace_table_token_10_th 35 year ended december 31 , 2011 compared to year ended december 31 , 2010 revenues . revenues increased by $ 35.0 million , or approximately 6.2 % , to $ 601.3 million in 2011 from $ 566.3 million in 2010. product revenues increased by approximately $ 25.5 million for the year ended december 31 , 2011 compared to the same period in 2010 as a result of increased revenues of $ 53.1 million in subsea equipment and $ 0.5 million in surface equipment , partially offset by a $ 28.1 million decrease in offshore rig equipment.the decrease in offshore rig equipment revenue was primarily due to the reduction in the number of long-term projects with offshore rig equipment components . product revenues increased in the eastern hemisphere by $ 33.3 million and $ 0.9 million in asia-pacific , partially offset by a decrease in the western hemisphere of $ 8.7 million . service revenues increased by approximately $ 9.5 million resulting from increased service revenues in the eastern hemisphere of $ 2.9 million , $ 5.6 million in asia-pacific and $ 1.0 million in the western hemisphere . the majority of the increases in service revenues related to increased technical advisory services and the rental of running and installation tools , slightly offset by decreases in reconditioning services . cost of sales .
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on december 1 , 2017 , the company acquired usu . agi leverages its education technology infrastructure and expertise to allow its two universities , aspen university and united states university , to deliver on the vision of making college affordable again . because we believe higher education should be a catalyst to our students ' long-term economic success , we exert financial prudence by offering affordable tuition that is one of the greatest values in higher education . agi 's primary focus relative to future growth is to target the high growth nursing profession , as today 81 % of all students across both universities are degree-seeking nursing students . in march 2014 , aspen university unveiled a monthly payment plan available to all students across every online degree program offered by the university . the monthly payment plan is designed so that students will make one payment per month , and that monthly payment is applied towards the total cost of attendance ( tuition and fees , excluding textbooks ) . the monthly payment plan offers online associate and bachelor students the opportunity to pay their tuition and fees at $ 250/month , online master 's students $ 325/month , and online doctoral students $ 375/month , interest free , thereby giving students a monthly payment option versus taking out a federal financial aid loan . usu began offering monthly payment plans in the summer of 2017. today , monthly payment plans are available for the online rn to bsn program ( $ 250/month ) , online mba/m.a.ed/msn programs ( $ 325/month ) , and the online hybrid masters of nursing-family nurse practitioner ( fnp ) program ( $ 375/month ) . effective august 2019 , new student enrollments for usu 's fnp monthly payment plan will be offered a $ 9,000 two-year payment plan ( $ 375/month x 24 months ) designed to pay for the first year 's pre-clinical courses only ( approximate cost of $ 9,000 ) . the second academic year in which students complete their clinical courses ( approximate cost of $ 18,000 ) will be required to be funded through conventional payment methods ( either cash , private loans , corporate tuition reimbursement or federal financial aid ) . since 1993 , aspen university has been nationally accredited by the deac , a national accrediting agency recognized by the doe . in february 2019 , the deac informed aspen university that it had renewed its accreditation for five years to january 2024. since 2009 , usu has been regionally accredited by wscuc . both universities are qualified to participate under the higher education act and the federal student financial assistance programs ( title iv , hea programs ) . agi student population overview * agi 's total active student body ( includes both aspen university and usu ) grew 27 % year-over-year from 7,057 to 8,932. of the 8,932 total active students at both universities , 81 % or 7,213 are degree-seeking nursing students . aspen university 's total active degree-seeking student body grew 20 % year-over-year from 6,500 to 7,784. aspen 's school of nursing grew 28 % year-over-year , from 4,807 to 6,164 active students , which includes 396 active students in the bsn pre-licensure program in phoenix , az . usu 's total active degree-seeking student body grew sequentially from 961 to 1,148 students or a sequential increase of 19 % . of the 1,148 total active students at usu , 970 or 84 % are enrolled in the msn-fnp degree program . 38 * note : active degree-seeking students are defined as degree-seeking students who were enrolled in a course during the quarter reported or are registered for an upcoming course . agi new student enrollments agi delivered 1,560 new student enrollments for the fiscal fourth quarter , a 23 % increase year-over-year . aspen university accounted for 1,243 new student enrollments ( includes 113 doctoral enrollments and 186 pre-licensure bsn az campus enrollments ) . usu accounted for 317 new student enrollments ( primarily msn-family nurse practitioner ( fnp ) enrollments ) , a 79 % increase year-over-year . enrollments for aspen university 's pre-licensure bsn program increased 92 % sequentially as the university began accepting enrollments for prerequisite students taking online courses in anticipation of entering the honorhealth final two-year core campus program targeted to launch this upcoming september . below is a table reflecting unconditional acceptance new student enrollments for the past five quarters : replace_table_token_1_th 1 includes prerequisite students for honorhealth campus and students registered for upcoming start dates awaiting financial clearance . in terms of enrollment center staffing , the aspen ( nursing + other ) unit was staffed with 48 enrollment advisors ( eas ) , aspen doctoral ( 5 ) , aspen pre-licensure bsn ( 5 ) and usu ( 14 ) . note that enrollment center staffing on a year-over-year basis increased by 10 eas across its two newest business units ; usu and aspen 's pre-licensure bsn program , while the aspen ( nursing + other ) and aspen ( doctoral ) staffing decreased year-over-year by one ea in each unit , respectively . throughout the 2019 fiscal year just ended , the company has focused the majority of its growth resources on these two newest business units as the company has materially higher ltv 's ( see marketing efficiency ratio analysis ' section ) . by maintaining a relatively flat monthly spend rate ( $ 375,000 - $ 430,000 ) and ea staffing plan ( 45 50 eas ) since january 2018 in its aspen nursing + other unit , this allowed the company to achieve adjusted ebitda positive results earlier than expected . however , the company is planning to increase its ea staffing in its aspen nursing + other unit by 10-20 % starting in the summer months and as a result expects year-over-year enrollments to increase during the current fiscal year . story_separator_special_tag additionally , today we have an additional 273 students in the first-year pre-requisite phase of the program and we 're comfortable at this time predicting a two-thirds matriculation rate in this cohort that will successfully complete their 41 first-year credits and thereby enter the final two-year core clinical as a result , we expect that our aspen university bsn pre-licensure business will deliver the highest ltv 's among all degree programs offered by the company , and that the ltv per enrollment for the program will be approximately $ 30,000 . 41 the first quarter of fiscal year 2020 ( ending july 31 , 2019 ) will mark the completion of the first year of aspen 's inaugural campus in phoenix , az . revenues in this first campus are expected to rise to approximately 7 % - 8 % of the company 's revenues for the first quarter of fiscal year 2020. the company expects this inaugural campus to be profitable in the current first fiscal quarter of fiscal year 2020. accounts receivables and monthly payment plan since the inception of the monthly payment plan in the spring of 2014 , the accounts receivable balance , both short-term and long-term , has grown from a net number of $ 649,890 at april 30 , 2014 to a net number of $ 13,741,713 at april 30 , 2019. this growth could be portrayed as the engine of the monthly payment plan . the attractive aspect of being able to pay for a degree over a fixed period of time has fueled the growth of this plan and , as a result , the increase of the accounts receivable balance . each student 's receivable account is different depending on how many classes a student takes each period . if a student takes two classes each eight-week period while paying $ 250 , $ 325 or $ 375 a month , that student 's account receivable balance will rise accordingly . the converse is true also . a student who takes courses at a slower pace , even taking time off between eight-week terms , could have a balance due to them . it is much more likely however that a student participating in the monthly payment plan will have an accounts receivable balance , as the majority of students complete their degree program of study prior to the completion of the fixed monthly payment plan . the common thread is the actual monthly payment , which functions as a retail installment contract with no interest that each student commits to pay over a fixed number of months . if a student stops paying , that person can no longer register for a class . if a student decides to withdraw from the university , their account will be settled , either through collection of their balance or disbursement of the amount owed them . aspen university students paying tuition and fees through a monthly payment method grew by 19 % year-over-year , from 4,532 to 5,404. those 5,404 students paying through a monthly payment method represent 69 % of aspen university 's total active student body . usu students paying tuition and fees through a monthly payment method grew from 602 to 758 students sequentially . those 758 students paying through a monthly payment method represent 66 % of usu 's total active student body . relationship between accounts receivable and revenue the gross accounts receivable balance for any period is the net effect of the following three factors : 1. revenue ; 2. cash receipts , and ; 3. the net change in deferred revenue . all three factors equally determine the gross accounts receivable . if one quarter experiences particularly high cash receipts , the gross accounts receivable will go down . the same effect if cash receipts are lower or if there are significant changes in either of the other factors . simply looking at the change in revenue does not translate into an equally similar change in gross accounts receivable . the relative change in cash and the deferral must also be considered . for net accounts receivable , the changes in the reserve must also be considered . any additional reserve or write-offs will influence the balance . as it is a straight mathematical formula for both gross accounts receivable and net accounts receivable , and most of the information is public , one can reasonably calculate the two non-public pieces of information , namely the cash receipts in gross accounts receivable and the write-offs in net accounts receivable . for revenue , the quarterly change is primarily billings and the net impact of deferred revenue . the deferral from the prior quarter or year is added to the billings and the deferral at the end of the period is subtracted from the amount billed . the total deferred revenue at the end of every period is reflected in the liability section of the balance sheet . deferred revenue can vary for many reasons , but seasonality and the timing of the class starts in relation to the end of the quarter will cause changes in the balance . 42 as mentioned in the accounts receivable section , the change in revenue can not be compared to the change in accounts receivable . revenue does not have the impact of cash received whereas accounts receivable does . depending on the month and the amount of cash received , it is likely that revenue or accounts receivable will increase at a rate different from the other . the impact of cash is easy to substantiate as it agrees to deposits in our bank accounts . at april 30 , 2019 , the allowance for doubtful accounts was $ 1,247,031 which represents 8.3 % of the gross accounts receivable balance of $ 14,988,744 , the sum of both short-term and long-term receivables . the introduction of long-term accounts receivable when a student signs up for the monthly payment plan , there is a contractual amount that the company can expect to earn over the life of the student 's program .
| results of operations for the year ended april 30 , 2019 compared with the year ended april 30 , 2018 * note that the usu acquisition closed on december 1 , 2017 , therefore year-over-year comparatives include only five months of usu in the 2018 period . revenue revenue from operations for the year ended april 30 , 2019 ( 2019 period ) increased to $ 34,025,418 from $ 22,021,512 for the year ended april 30 , 2018 ( 2018 period ) , an increase of $ 12,003,906 or 55 % . aspen university 's revenues increased 27 % year-over-year in its traditional post-licensure online nursing + other degree programs ; and aspen university 's pre-licensure bsn program delivered approximately 4 % of the company 's revenues following its first campus launching in phoenix in july 2018. usu contributed approximately 20 % of the total revenues for the full fiscal year . cost of revenues ( exclusive of amortization ) the company 's cost of revenues consists of instructional costs and services and marketing and promotional costs . instructional costs and services instructional costs and services for the 2019 period rose to $ 6,880,668 from $ 4,424,991 for the 2018 period , an increase of $ 2,455,677 or 55 % . aspen university instructional costs and services represented 18 % of aspen university revenues for the 2019 period , while usu instructional costs and services equaled 29 % of usu revenues for the 2019 period . marketing and promotional marketing and promotional costs for the 2019 period were $ 9,096,550 compared to $ 5,428,828 for the 2018 period , an increase of $ 3,667,722 or 68 % . aspen university marketing and promotional expenses represented 24 % of aspen university revenues for the 2019 period , while usu marketing and promotional expenses equaled 24 % of usu revenues for the 2019 period . agi corporate marketing expenses equaled $ 852,904 for the 2019 period compared to $ 201,190 for the 2018 period , an increase of $ 651,714 or 324 % .
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” cautionary statement pursuant to safe harbor provisions of the private securities litigation reform act of 1995 this report on form 10-k includes `` forward–looking statements '' as that term is defined under the private securities litigation reform act of 1995. forward–looking statements include statements concerning kodak 's plans , objectives , goals , strategies , future events , future revenue or performance , capital expenditures , liquidity , investments , financing needs and business trends and other information that is not historical information . when used in this document , the words “ estimates , ” “ expects , ” “ anticipates , ” “ projects , ” “ plans , ” “ intends , ” “ believes , ” “ predicts , ” “ forecasts , ” “ strategy , ” “ continues , ” “ goals , ” “ targets ” or future or conditional verbs , such as “ will , ” “ should , ” “ could , ” or “ may , ” and similar expressions , as well as statements that do not relate strictly to historical or current facts , are intended to identify forward–looking statements . all forward–looking statements , including management 's examination of historical operating trends and data , are based upon kodak 's expectations and various assumptions . future events or results may differ from those anticipated or expressed in the forward-looking statements . important factors that could cause actual events or results to differ materially from the forward-looking statements include , among others , the risks and uncertainties described in more detail in this report on form 10–k under the headings “ business , ” “ risk factors , ” “ legal proceedings ” and or “ management 's discussion and analysis of financial condition and results of operations–liquidity and capital resources , ” and in other filings the company makes with the sec from time to time , as well as the following : kodak 's ability to improve and sustain its operating structure , cash flow , profitability and other financial results ; the ability of kodak to achieve cash forecasts , financial projections , and projected growth ; kodak 's ability to achieve the financial and operational results contained in its business plans ; kodak 's ability to comply with the covenants in its various credit facilities ; kodak 's ability to fund continued investments , capital needs and restructuring payments and service its debt and series a preferred stock ; kodak 's ability to discontinue , sell or spin-off certain businesses or operations , or otherwise monetize assets ; changes in foreign currency exchange rates , commodity prices and interest rates ; kodak 's ability to effectively anticipate technology trends and develop and market new products , solutions and technologies ; kodak 's ability to effectively compete with large , well-financed industry participants ; continued sufficient availability of borrowings and letters of credit under the amended credit agreement , kodak 's ability to obtain additional financing if and as needed and kodak 's ability to provide or facilitate financing for its customers ; the performance by third parties of their obligations to supply products , components or services to kodak ; and the impact of the global economic environment on kodak . there may be other factors that may cause kodak 's actual results to differ materially from the forward–looking statements . all forward–looking statements attributable to kodak or persons acting on its behalf apply only as of the date of this report on form 10-k and are expressly qualified in their entirety by the cautionary statements included in this document . kodak undertakes no obligation to update or revise forward–looking statements to reflect events or circumstances that arise after the date made or to reflect the occurrence of unanticipated events . critical accounting policies and estimates revenue recognition kodak 's revenue transactions include sales of products ( such as components and consumables for use in kodak , and other manufacturers ' equipment , and film based products ) , equipment , software , services , integrated solutions , and intellectual property and brand licensing . complex arrangements with nonstandard terms and conditions may require significant contract interpretation to determine the appropriate accounting . for equipment sales , revenue recognition may depend on completion of installation based on the type of equipment , level of customer specific customization and other contractual terms . in instances in which the agreement with the customer contains a customer acceptance clause , revenue is deferred until customer acceptance is obtained , provided the customer acceptance clause is considered to be substantive . at the time revenue is recognized , kodak also records reductions to revenue for customer incentive programs . such incentive programs include cash and volume discounts and promotional allowances . for those incentives that require the estimation of sales volumes or redemption rates , such as for volume rebates , kodak uses historical experience and both internal and customer data to estimate the sales incentive at the time revenue is recognized . in the event that the actual results of these items differ from the estimates , adjustments to the sales incentive accruals are recorded . 31 future market conditions and product transitions may require kodak to take actions to increase customer incentive offers , possibly resulting in an incremental reduction of revenue at the time the incentive i s offered . valuation and useful lives of long-lived assets , including goodwill and intangible assets kodak performs a test for goodwill impairment annually and whenever events or changes in circumstances occur that would more likely than not reduce the fair value of the reporting unit below its carrying amount . goodwill is tested for impairment at a level of reporting referred to as a reporting unit , which is an operating segment or one level below an operating segment ( a component ) if the component constitutes a business for which discrete financial information is available and regularly reviewed by segment management . the print systems segment has two goodwill reporting units : prepress solutions and electrophotographic printing solutions . story_separator_special_tag a terminal value was included for all reporting units at the end of the cash flow projection period to reflect the remaining value that the reporting unit is expected to generate . the terminal value was calculated using either the constant growth method ( “ cgm ” ) based on the cash flows of the final year of the discrete period or the h-model , which assumes the growth during the terminal period starts at a higher rate and declines in a linear manner over a specified transition period toward a stable growth rate . based upon the results of kodak 's december 31 , 2017 analysis , kodak concluded that no impairment of goodwill was indicated . impairment of goodwill could occur in the future if a reporting unit 's fair value changes significantly , if kodak 's market capitalization significantly declines , if a reporting unit 's carrying value changes materially compared with changes in its fair values , or as a result of changes in operating segments or reporting units . the carrying value of the indefinite-lived intangible asset related to the kodak trade name is evaluated for potential impairment annually or whenever events or changes in circumstances indicate that it is more likely than not that the asset is impaired . kodak performed an interim impairment test related to the kodak trade name as of september 30 , 2017 given the revised financial projections . the fair value of the kodak trade name , which as of september 30 , 2017 had a carrying value of $ 40 million , was valued using the income approach , specifically the relief from royalty method based on the following significant assumptions : ( a ) forecasted revenues ranging from october 1 , 2017 to december 31 , 2022 , including a terminal year with growth rates ranging from -4.5 % to 2.5 % ; ( b ) after-tax royalty rates ranging from .4 % to .8 % of expected net sales determined with regard to comparable market transactions and profitability analysis ; and ( c ) discount rates ranging from 10.2 % to 45.0 % , which were based on the after-tax weighted-average cost of capital . based on the results of kodak 's september 30 , 2017 assessment , the fair value of the kodak trade name exceeded its carrying value by 8 % and no impairment was indicated . kodak performed its annual test of impairment for the kodak trade name as of december 31 , 2017. the fair value of the kodak trade name was valued using the income approach , specifically the relief from royalty method based on the following significant assumptions : ( a ) forecasted revenues ranging from january 1 , 2018 to december 31 , 2022 , including a terminal year with growth rates ranging from -10 % to 2.5 % ; ( b ) after-tax royalty rates ranging from .4 % to .8 % of expected net sales determined with regard to comparable market transactions and profitability analysis ; and ( c ) discount rates ranging from 10 % to 55 % , which were based on the after-tax weighted-average cost of capital based on the results of kodak 's december 31 , 2017 assessment , the carrying value of the kodak trade name exceeded its fair value and kodak recorded a pre-tax impairment charge of $ 2 million . impairment of the kodak trade name could occur in the future if expected revenues decline or if there are significant changes in the discount rates or royalty rates . long-lived assets other than goodwill and indefinite-lived intangible assets are evaluated for impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable . when evaluating long-lived assets for impairment , the carrying value of an asset group is compared to its estimated undiscounted future cash flows . an impairment is indicated if the estimated future cash flows are less than the carrying value of the asset group . the impairment is the excess of the carrying value over the fair value of the long-lived asset group . the value of property , plant , and equipment is depreciated over its expected useful life in such a way as to allocate it as equitably as possible to the periods during which services are obtained from their use , which aims to distribute the value over the remaining estimated useful life of the unit in a systematic and rational manner . an estimate of useful life not only considers the economic life of the asset , but also the remaining life of the asset to the entity . impairment of long-lived assets other than goodwill and indefinite lived intangible assets could occur in the future if expected future cash flows decline or if there are significant changes in the estimated useful life of the assets . series a preferred stock embedded conversion features derivative on november 15 , 2016 , the company issued 2,000,000 shares of 5.50 % series a convertible preferred stock , no par value per share ( the “ series a preferred stock ” ) . the company concluded that the series a preferred stock is considered more akin to a debt-type instrument and that the economic characteristics and risks of the embedded conversion features , except where the conversion price is increased to the liquidation preference , were not considered clearly and closely related to the series a preferred stock . accordingly , these embedded conversion features were bifurcated from the series a preferred stock and separately accounted for on a combined basis at fair value as a single derivative . the company allocated $ 43 million of the net proceeds received to the derivative liability based on the aggregate fair value of the embedded conversion features on the date of issuance which reduced the original carrying value of the series a preferred stock .
| ailed results of operations net revenues from continuing operations by reportable segment replace_table_token_8_th segment operational ebitda and consolidated earnings ( loss ) from continuing operations before income taxes replace_table_token_9_th ( 1 ) red utilities variable interest entity which was deconsolidated as of december 31 , 2016 ( interest and depreciation of red are included in the respective lines below ) . ( 2 ) composed of interest cost , expected return on plan assets , amortization of actuarial gains and losses , and curtailments and settlement components of pension and other postretirement benefit expenses . ( 3 ) consulting and other costs are professional services and internal costs associated with certain corporate strategic initiatives . ( 4 ) in the fourth quarter of 2015 , kodak changed the timing of when affected u.s. employees earn their vacation benefits , which reduced kodak 's obligation to employees and the related accrual by $ 17 million as of december 31 , 2015. the reduction in the accrual impacted gross profit by approximately $ 9 million , sg & a by approximately $ 5 million , r & d by approximately $ 3 million . 38 ( 5 ) consists of third party costs such as security , maintenance , and utilities required to maintain la nd and buildings in certain locations not used in any kodak operations . ( 6 ) consists of manufacturing costs originally planned to be absorbed by silver metal mesh touch screen production that are now excluded from the measure of segment profit and loss . ( 7 ) includes indirect costs originally allocated to businesses that are now included in discontinued operations . when the businesses met the criteria to be reported as discontinued operations , the allocated costs were removed and recorded in continuing operations . ( 8 ) in 2015 a $ 3 million gain was recognized related to assets that were acquired for no monetary consideration as a part of the termination of the relationship with unipixel .
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tih pays the company a monthly fee equal to the aggregate amount of ( a ) its costs of providing management services ( including reasonable overhead allocated to the delivery of its services and including salaries , rent , equipment , and tenant improvements incurred for the benefit of story_separator_special_tag forward-looking statements this annual report on form 10-k contains forward-looking statements that involve a variety of risks and uncertainties , many of which are beyond our control , which may cause our actual results to differ materially from those discussed . these factors include , among others , limited operating history , difficulty in developing , exploiting and protecting proprietary technologies , intense competition and substantial regulation in the healthcare industry . additional information concerning factors that could cause or contribute to such differences can be found in the following discussion , as well as in item 1a . - “ risk factors. ” overview general ontrak is a leading ai-powered and telehealth-enabled , virtualized healthcare company . we harness proprietary big data predictive analytics , artificial intelligence and telehealth , combined with human interaction , to deliver improved member health and cost savings to health plans . we identify , engage and treat health plan members with unaddressed behavioral health conditions that worsen medical comorbidities . our mission is to help improve the health and save the lives of as many people as possible . we apply advanced data analytics and predictive modeling to identify members with untreated behavioral health conditions , whether diagnosed or not , and coexisting medical conditions that may be impacted through treatment in the ontrak program . we then uniquely engage health plan members who do not typically seek behavioral healthcare by leveraging proprietary enrollment capabilities built on deep insights into the drivers of care avoidance . our technology enabled ontrak program is an integrated suite of services that includes evidence-based psychosocial and medical interventions delivered either in-person or via telehealth , along with care coaching and in-market community care coordinators who address the social and environmental determinants of health , including loneliness . we believe that the company 's programs seek to improve member health and deliver validated cost savings of more than 50 % for enrolled members to healthcare payors . we operate as one segment in the united states and we have contracted with leading national and regional health plans to make the ontrak program available to eligible members in 30 states , as well as the nation 's capital . recent developments acquisition on october 28 , 2020 , we completed the acquisition of lifedojo inc. ( “ lifedojo ” ) , a comprehensive , science-backed behavior change platform based in san francisco , california , for total consideration of approximately $ 8.9 million , including $ 3.4 million in cash payment , 75,000 shares of our common stock ( of which 74,984 shares were issued and 16 fractional shares were settled in cash ) worth approximately $ 5.0 million at close , as well as certain contingent consideration based on a computation , as defined in the merger agreement , in the event the daily closing price per share of our common stock falls below a specified target price of $ 60 on two consecutive trading days during a six month period beginning on the sixth month anniversary to the twelfth month anniversary of the closing date of the acquisition ( measurement period ) . as of october 28 , 2020 , we determined that the fair value of this contingent consideration was $ 0.5 million . the contingent consideration amount , if any , is generally payable within five 23 business days following completion of the measurement period . lifedojo provides online behavior change and wellness programs , using a combination of coaching and mobile apps to help members form health habits and change health behaviors . preferred stock offering in 2020 , we completed the offering of a total of 3,770,265 shares of 9.50 % series a cumulative perpetual preferred stock ( the `` series a preferred stock '' ) , resulting in aggregate gross proceeds of $ 93.8 million to the company ( or $ 86.6 million net of underwriting fees and other offering expenses ) . the series a preferred stock is listed on the nasdaq global market under the symbol `` otrkp . '' we generally may not redeem the series a preferred stock until august 25 , 2025 , except upon the occurrence of a delisting event or change of control ( as defined in the certificate of designations establishing the series a preferred stock ) , and on and after august 25 , 2025 , we may , at our option , redeem the series a preferred stock , in whole , at any time , or in part , from time to time , for cash at a redemption price of $ 25.00 per share , plus any accrued and unpaid dividends . the series a preferred stock has no maturity date and will remain outstanding indefinitely unless redeemed by us or exchanged for shares of common stock in connection with a delisting event or change of control . holders of series a preferred stock generally have no voting rights , but will have limited voting rights if we fail to pay dividends for six or more quarters , whether or not declared or consecutive ) and in certain other events . we used a portion of the net proceeds of the initial offering to fund a segregated dividend account for the payments of the first eight quarterly dividend payments on the series a preferred stock and intends to use the remaining net proceeds for general corporate purposes , which may include working capital , m & a and investments in technology . story_separator_special_tag other income ( expense ) , net other income ( expense ) consists of gains ( losses ) associated with changes in fair value of warrant and contingent liabilities , debt termination costs and write-off of deferred debt issuance costs associated with loan payoff , as well as other miscellaneous income ( expense ) . 25 story_separator_special_tag 1pt ; text-align : center ; vertical-align : bottom '' > % change other expense , net $ 1,213 $ 2,598 $ ( 1,385 ) ( 53 ) % 27 other expense , net decreased $ 1.4 million , or 53 % , in 2020 as compared to 2019. the decrease in other expense , net was primarily due to $ 2.6 million of debt termination related costs as well as write-off of debt issuance costs related to the repayment and termination of our 2022 loan in 2019 , partially offset by the $ 1.2 million increase in loss related to the change in fair value of the warrant liability in 2020. interest expense , net year ended december 31 , ( in thousands , except percentages ) 2020 2019 change % change interest expense , net $ 7,219 $ 3,047 $ 4,172 137 % interest expense , net increased $ 4.2 million , or 137 % , in 2020 as compared to 2019. the increase in interest expenses was primarily due to interest and debt discount amortization expense related to our 2024 notes entered into in september 2019 , as well as higher average outstanding loan balance in 2020 compared to 2019. income tax benefit income tax benefit for the year ended december 31 , 2020 was $ 0.6 million , which was a result of the deferred tax liability recorded at the time of the lifedojo acquisition that was subsequently reversed at december 31 , 2020. there were no income tax benefit for the year ended december 31 , 2019. liquidity and capital resources cash and restricted cash was $ 103.2 million as of december 31 , 2020. we had working capital of approximately $ 87.2 million as of december 31 , 2020. we have incurred significant net losses and negative operating cash flows since our inception . we expect our current cash resources to cover expenses through at least the next twelve months from the filing date of this form 10-k. however , delays in cash collections , revenue , or unforeseen expenditures could impact this estimate . our ability to fund our ongoing operations is dependent on increasing the number of members that enroll in the ontrak program . we operate our ontrak solutions in 30 states , as well as the nation 's capital . we provide services to commercial ( employer funded ) , managed medicare advantage , managed medicaid and duel eligible ( medicare and medicaid ) populations . historically , we have seen and continue to see net losses , net loss from operations , negative cash flow from operating activities , and historical working capital deficits as we continue through a period of rapid growth . the accompanying consolidated financial statements do not reflect any adjustments that might result if we were unable to continue as a going concern . we have alleviated substantial doubt by both entering into contracts for additional revenue-generating health plan customers and expanding our ontrak program within existing health plan customers as well as completing debt and equity financings totaling approximately $ 87 million and $ 10 million , respectively , in 2020. to support this increased demand for services , we invested and will continue to invest in additional headcount and enhancements to technology needed to support the anticipated growth . additional management plans include increasing the effective outreach pool as well as improving our current enrollment rate . we will continue to explore ways to increase operational efficiencies resulting in increase in margins on both existing and new members . we have a growing customer base and believe we are able to fully scale our operations to service the contracts and future enrollment providing leverage in these investments that will generate positive cash flow by in the near future . we believe we will have enough capital to cover expenses through the foreseeable future and we will continue to monitor liquidity . if we add more health plans than budgeted , increase the size of the outreach pool by more than we anticipate , decide to invest in new products or seek out additional growth opportunities , we would consider financing these options with either a debt or equity financing . the following table sets forth a summary of our cash flows for the periods indicated ( in thousands ) : replace_table_token_6_th 28 we used $ 6.3 million of cash from operating activities during the year ended december 31 , 2020 compared with $ 16.9 million during the same period in 2019. the $ 10.6 million decrease in net cash used in operating activities in 2020 primarily relates to decreased in net loss related to higher revenue in 2020 resulting from the increase in members being treated , the addition of care coaches , outreach specialists , community care coordinators and other staff to manage the increasing number of enrolled members , and increased non-cash expenses in 2020 such as payment in-kind interest and stock-based compensation expense in 2020 compared to 2019 , as well as an increase in deferred revenue , partially offset by an increase in accounts receivable , related to the ontrak-ci expansion in the fourth quarter of 2020. net cash used in investing activities in 2020 was $ 4.6 million and none in the year ended december 31 , 2019. the $ 4.6 million of net cash used in investing activities includes $ 2.9 million relating to the acquisition of lifedojo in october 2020 and $ 1.7 million of capital expenditures , which were primarily related to capitalized software development costs and purchases of computer equipment .
| results of operations the table below and the discussion that follows summarize our results of operations for each of the periods indicated ( in thousands ) : replace_table_token_2_th revenue the mix of our revenues between commercial and government insured members remained consistent year over year . the following table sets forth our sources of revenue for each of the periods indicated : replace_table_token_3_th revenue increased $ 47.7 million , or 136 % , in 2020 as compared to 2019. enrolled members increased by 8,706 as of december 31 , 2020 compared to december 31 , 2019 , or 124 % . these increases were attributable to the continued expansion of our ontrak program with our existing health plan customers , including the ontrak-a program expansions in the first half of 2020 for a national health plan in nine states , including washington d.c. , and the ontrak-ci program expansion launched in october 2020 for a national health plan in 13 states , as well as the increase in our enrolled members from existing and new health plans . revenues relating to our expansion health plan members are generally billed up front for the ontrak program 's annual fee based on enrolled members and contributed to an increase in our deferred revenue at december 31 , 2020 , which we expect to recognize as revenue over the related service performance period . our deferred revenue increased by $ 15.2 million , or 261 % , as of december 31 , 2020 compared to the same period last year . 26 cost of revenue , gross profit and gross profit margin replace_table_token_4_th cost of revenue increased $ 23.2 million , or 114 % , in 2020 as compared to 2019. the increase in cost of revenue was primarily due to a $ 13.6 million increase in member facing headcount and a $ 9.5 million increase in provider related costs as well as third party administrators for processing claims .
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as required by french law , interparfums sa maintains its own profit sharing plan for all french employees who have completed three months of service , including executive officers of our european operations other than story_separator_special_tag overview we operate in the fragrance business , and manufacture , market and distribute a wide array of fragrances and fragrance related products . we manage our business in two segments , european based operations and united states based operations . certain prestige fragrance products are produced and marketed by our european operations through our 73 % owned subsidiary in paris , interparfums sa , which is also a publicly traded company as 27 % of interparfums sa shares trade on the nyse euronext . we produce and distribute our european based fragrance products primarily under license agreements with brand owners , and european based fragrance product sales represented approximately 81 % , 78 % and 77 % of net sales for 2017 , 2016 and 2015 , respectively . we have built a portfolio of prestige brands , which include boucheron , coach , jimmy choo , karl lagerfeld , lanvin , montblanc , paul smith , repetto , rochas , s.t . dupont and van cleef & arpels , whose products are distributed in over 100 countries around the world . with respect to the company 's largest brands , we own the lanvin brand name for its class of trade , and license the montblanc and jimmy choo brand names . as a percentage of net sales , product sales for the company 's largest brands were as follows : replace_table_token_8_th through our united states operations , we also market fragrance and fragrance related products . united states operations represented 19 % , 22 % and 23 % of net sales in 2017 , 2016 and 2015 , respectively . these fragrance products are sold primarily pursuant to license or other agreements with the owners of the abercrombie & fitch , agent provocateur , anna sui , bebe , dunhill , french connection , hollister and oscar de la renta brands . 34 quarterly sales fluctuations are influenced by the timing of new product launches as well as the third and fourth quarter holiday season . in certain markets where we sell directly to retailers , seasonality is more evident . we sell directly to retailers in france as well as through our own distribution subsidiaries in italy , germany , spain and the united states . we grow our business in two distinct ways . first , we grow by adding new brands to our portfolio , either through new licenses or other arrangements or out-right acquisitions of brands . second , we grow through the introduction of new products and by supporting new and established products through advertising , merchandising and sampling as well as by phasing out underperforming products so we can devote greater resources to those products with greater potential . the economics of developing , producing , launching and supporting products influence our sales and operating performance each year . our introduction of new products may have some cannibalizing effect on sales of existing products , which we take into account in our business planning . our business is not capital intensive , and it is important to note that we do not own manufacturing facilities . we act as a general contractor and source our needed components from our suppliers . these components are received at one of our distribution centers and then , based upon production needs , the components are sent to one of several third party fillers , which manufacture the finished product for us and then deliver them to one of our distribution centers . as with any global business , many aspects of our operations are subject to influences outside our control . we believe we have a strong brand portfolio with global reach and potential . as part of our strategy , we plan to continue to make investments behind fast-growing markets and channels to grow market share . for the past several years , the economic and political uncertainty and financial market volatility in eastern europe , the middle east and china had a minor negative impact on our business , but our sales in these regions have been improving and we do not anticipate dramatic changes in business conditions for the foreseeable future . however , if the degree of uncertainty or volatility worsens or is prolonged , then there will likely be a negative effect on ongoing consumer confidence , demand and spending and accordingly , our business . we believe general economic and other uncertainties still exist in select markets in which we do business , and we monitor these uncertainties and other risks that may affect our business . our reported net sales are impacted by changes in foreign currency exchange rates . a strong u.s. dollar has a negative impact on our net sales . however , earnings are positively affected by a strong dollar , because almost 45 % of net sales of our european operations are denominated in u.s. dollars , while almost all costs of our european operations are incurred in euro . conversely , a weak u.s. dollar has a favorable impact on our net sales while gross margins are negatively affected . our company addresses certain financial exposures through a controlled program of risk management that includes the use of derivative financial instruments . we primarily enter into foreign currency forward exchange contracts to reduce the effects of fluctuating foreign currency exchange rates . we are also carefully monitoring currency trends in the united kingdom as a result of the volatility created from the united kingdom 's decision to exit the european union . we have evaluated our pricing models and we do not expect any significant pricing changes . however , if the devaluation of the british pound worsens , it may affect future gross profit margins from sales in the territory . story_separator_special_tag the types of known or anticipated events that we have considered , and will continue to consider , include , but are not limited to , the financial condition of our customers , store closings by retailers , changes in the retail environment and our decision to continue to support new and existing products . we record estimated reserves for sales returns as a reduction of sales , cost of sales and accounts receivable . returned products are recorded as inventories and are valued based upon estimated realizable value . the physical condition and marketability of returned products are the major factors we consider in estimating realizable value . actual returns , as well as estimated realizable values of returned products , may differ significantly , either favorably or unfavorably , from our estimates , if factors such as economic conditions , inventory levels or competitive conditions differ from our expectations . inventories inventories are stated at the lower of cost and net realizable value . cost is principally determined by the first-in , first-out method . we record adjustments to the cost of inventories based upon our sales forecast and the physical condition of the inventories . these adjustments are estimates , which could vary significantly , either favorably or unfavorably , from actual results if future economic conditions or competitive conditions differ from our expectations . equipment and other long-lived assets equipment , which includes tools and molds , is recorded at cost and is depreciated on a straight-line basis over the estimated useful lives of such assets . changes in circumstances such as technological advances , changes to our business model or changes in our capital spending strategy can result in the actual useful lives differing from our estimates . in those cases where we determine that the useful life of equipment should be shortened , we would depreciate the net book value in excess of the salvage value , over its revised remaining useful life , thereby increasing depreciation expense . factors such as changes in the planned use of equipment , or market acceptance of products , could result in shortened useful lives . we evaluate indefinite-lived intangible assets for impairment at least annually during the fourth quarter , or more frequently when events occur or circumstances change , such as an unexpected decline in sales , that would more likely than not indicate that the carrying value of an indefinite-lived intangible asset may not be recoverable . when testing indefinite-lived intangible assets for impairment , the evaluation requires a comparison of the estimated fair value of the asset to the carrying value of the asset . the fair values used in our evaluations are estimated based upon discounted future cash flow projections using a weighted average cost of capital of 6.22 % . the cash flow projections are based upon a number of assumptions , including , future sales levels and future cost of goods and operating expense levels , as well as economic conditions , changes to our business model or changes in consumer acceptance of our products which are more subjective in nature . if the carrying value of an indefinite-lived intangible asset exceeds its fair value , an impairment charge is recorded . 38 we believe that the assumptions we have made in projecting future cash flows for the evaluations described above are reasonable . however , if future actual results do not meet our expectations , we may be required to record further impairment charges , the amount of which could be material to our results of operations . at december 31 , 2017 indefinite-lived intangible assets aggregated $ 129.0 million . the following table presents the impact a change in the following significant assumptions would have had on the calculated fair value in 2017 assuming all other assumptions remained constant : replace_table_token_9_th intangible assets subject to amortization are evaluated for impairment testing whenever events or changes in circumstances indicate that the carrying amount of an amortizable intangible asset may not be recoverable . if impairment indicators exist for an amortizable intangible asset , the undiscounted future cash flows associated with the expected service potential of the asset are compared to the carrying value of the asset . if our projection of undiscounted future cash flows is in excess of the carrying value of the intangible asset , no impairment charge is recorded . if our projection of undiscounted future cash flows is less than the carrying value of the intangible asset , an impairment charge would be recorded to reduce the intangible asset to its fair value . the cash flow projections are based upon a number of assumptions , including future sales levels and future cost of goods and operating expense levels , as well as economic conditions , changes to our business model or changes in consumer acceptance of our products which are more subjective in nature . in those cases where we determine that the useful life of long-lived assets should be shortened , we would amortize the net book value in excess of the salvage value ( after testing for impairment as described above ) , over the revised remaining useful life of such asset thereby increasing amortization expense . we believe that the assumptions we have made in projecting future cash flows for the evaluations described above are reasonable . in determining the useful life of our lanvin brand names and trademarks , we applied the provisions of asc topic 350-30-35-3. the only factor that prevented us from determining that the lanvin brand names and trademarks were indefinite life intangible assets was item c. “ any legal , regulatory , or contractual provisions that may limit the useful life. ” the existence of a repurchase option in 2025 may limit the useful life of the lanvin brand names and trademarks to the company . however , this limitation would only take effect if the repurchase option were to be exercised and the repurchase price was paid .
| results of operations replace_table_token_10_th net sales increased 13 % in 2017 to $ 591.3 million , as compared to $ 521.1 million in 2016. at comparable foreign currency exchange rates , net sales increased 12 % . net sales increased 11 % in 2016 to $ 521.1 million , as compared to $ 468.5 million in 2015. at comparable foreign currency exchange rates , net sales increased 12 % . the average u.s. dollar/euro exchange rates were 1.13 in 2017 and 1.11 in both 2016 and 2015. european based prestige product sales increased 18 % in 2017 to $ 476.5 million , as compared to $ 404.0 million in 2016. at comparable foreign currency exchange rates , european based prestige product sales increased 16 % in 2017. european based prestige product sales increased 11 % in 2016 to $ 404.0 million , as compared to $ 362.7 million in 2015. at comparable foreign currency exchange rates , european based prestige product sales increased 12.5 % in 2016. net sales in 2017 were stronger than our original expectations , with our new coach for men fragrance contributing much of the upside surprise . coach brand sales , which commenced in the second half of 2016 , increased 149 % in 2017 reaching $ 57.5 million , as compared to $ 23.1 million in 2016 , quickly making it our fourth largest brand . rochas , another of our newer brands , also performed quite well with the 2017 launch of our first new fragrance , mademoiselle rochas . rochas brand sales aggregated $ 46.2 million , up 34 % in 2017 , as compared to $ 34.6 in 2016. our three largest brands , montblanc , jimmy choo and lanvin , achieved year-over-year sales growth of 4 % , 20 % , and 5 % , respectively . 41 in 2016 , montblanc led the way in sales growth reaching $ 121.7 million in brand sales , a 25 % increase from the prior year .
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we also have four odas story_separator_special_tag the following management 's discussion and analysis of financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes . this management 's discussion and analysis of financial condition and results of operations may contain some statements and information that are not historical facts but are forward-looking statements . for a discussion of these forward-looking statements , and of important factors that could cause results to differ materially from the forward-looking statements contained in this report , see item 1 of part i , “ business—cautionary note regarding forward-looking statements , ” and item 1a of part i , “ risk factors. ” overview since our inception , our business has largely been focused on providing software solutions ( historically including reselling software from microsoft corporation ( “ microsoft ” ) ) and related engineering services to businesses that develop , market and sell dedicated purpose standalone intelligent systems . examples of dedicated purpose standalone intelligent systems include smart , connected computing devices such as smart phones , set-top boxes , point-of-sale terminals , kiosks , tablets and handheld data collection devices , as well as smart vending machines , atm machines , digital signs and in-vehicle telematics and entertainment devices . we focus on systems that utilize various microsoft windows embedded operating systems as well as devices running other popular operating systems such as android , linux , and qnx , and that are usually connected to a network or data cloud via a wired or wireless connection . our customers include world-class original equipment manufacturers ( “ oems ” ) , original design manufacturers ( “ odms ” ) , corporate enterprises ( “ enterprises ” ) , silicon vendors ( “ svs ” ) and peripheral vendors . a significant portion of our business historically has also been focused on reselling software from microsoft , from which a majority of our revenue currently continues to be derived . beginning in early 2014 , we initiated development efforts focused on new proprietary software products addressing the internet of things ( “ iot ” ) market , which is the interconnection of uniquely identifiable embedded computing devices within the existing internet infrastructure . while iot is a relatively new market , we believe the work we have engaged in since our inception—namely adding intelligence and connectivity to discrete standalone devices and systems—embodies much of what is central to the core functionality of iot . these software development efforts have driven a new business initiative for bsquare , which we refer to as datav . our datav solution includes software products , applications and services that are designed to render raw iot device data into meaningful and actionable data for our customers . we launched datav late in the first quarter of 2016 and announced our first three major customer bookings later that year . these bookings comprised software licensing , software maintenance and related systems integration services and are , we believe , indicative of the potential customer demand for datav . we believe that datav presents high growth opportunities in a large , expanding addressable market , at substantially higher gross margins as compared to our traditional business . over time , we intend for datav to become our primary focus , representing a transition away from dependence on resale software and engineering services toward increased reliance on our own proprietary software and related systems integration services . as a result , we focused virtually all of our research and development and marketing efforts , as well as a majority of our sales efforts , on datav during 2016. we intend to continue to run our legacy software resale and engineering services business for the foreseeable future . critical accounting judgments revenue recognition we recognize revenue from the sale of software and professional engineering services when the following four revenue recognition criteria are met : persuasive evidence of an arrangement exists ; delivery has occurred or services have been rendered ; the selling price is fixed or determinable ; and collectability is reasonably assured . we generally use contracts and customer purchase orders to determine the existence of an arrangement , and shipping documents and time records to verify delivery . we assess whether the selling price is fixed or determinable based on the contract and or customer purchase order and payment terms associated with the transaction and whether the sales price is subject to refund or adjustment . we assess collectability based primarily on the creditworthiness of the customer as determined by credit checks and analysis , as well as the customer 's payment history . periodically , we will begin work on engineering service engagements prior to having a signed contract and , in some cases , the contract is signed in a quarter after which service delivery costs are incurred . we do not defer costs associated with such engagements before we have received a signed contract . we recognize software revenue upon delivery provided that no significant obligations remain on our part , substantive acceptance conditions , if any , have been met and other revenue recognition criteria have been met . we recognize service revenue from time and materials contracts , and training service agreements , as we perform the services . fixed-price service agreements , and 21 certain time and materials service agreements with capped fee structures , are accounted for using the percentage-of-completion method assuming we can make reasonable estimates of completion . we use the percentage-of-completion method of accounting because we believe it is the most accurate method to recognize revenue based on the nature and scope of these engineering service contracts and provides the best match of revenue recognized with costs incurred . we measure the percentage of completion based primarily on input measures such as hours incurred to date compared to total estimated hours to complete , with consideration given to output measures , such as co ntract milestones , when applicable . story_separator_special_tag the first step in the impairment analy sis compares the fair value of the reporting unit with its carrying amount , including goodwill . if the carrying amount exceeds fair value , we then perform the second step of the impairment test to measure the amount of any impairment loss . we evaluate goodwill for impairment annually during the fourth quarter or more frequently when an event occurs or circumstances change that indicate that the carrying value may not be recoverable . we test goodwill for impairment by performing a qualitative assessment to determine whether the fair value of the reporting unit is more likely than not less than the carrying amount . if we determine that the fair value of the reporting unit is more likely greater than its carrying amount , we do not conduct further impairment testing . if we determine that the fair value of the reporting unit is not more likely greater than the carrying amount , we perform a quantitative two-step impairment test . stock-based compensation our stock-based compensation expense for stock options is estimated at the grant date based on the stock award 's fair value as calculated by the black-scholes-merton ( “ bsm ” ) option-pricing model and is recognized as expense over the requisite service period . the bsm model requires various highly judgmental assumptions including expected volatility and option life . if any of the assumptions used in the bsm model change significantly , stock-based compensation expense may differ materially in the future from that recorded in the current period . restricted stock units ( “ rsus ” ) and restricted stock awards ( “ rsas ” ) are measured based on the fair market values of the underlying stock on the dates of grant as determined based on the number of shares granted and the quoted price of our common stock on the date of grant . in addition , we are required to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest . we estimate the forfeiture rate based on historical experience and expected future activity . to the extent our actual forfeiture rate is different from our estimates , stock-based compensation expense is adjusted accordingly . incentive compensation we make certain estimates , judgments and assumptions regarding the likelihood of attainment , and the level thereof , of bonuses payable under our annual incentive compensation programs . we accrue bonuses and recognize the resulting expense when the bonus is judged reasonably likely to be earned as of year-end and is estimable . the amount accrued , and expense recognized , is the estimated portion of the bonus earned on a year-to-date basis less any amounts previously accrued . these estimates , judgments and assumptions are made quarterly based on available information and take into consideration our year-to-date actual results , and expected results for the remainder of the year . because we consider estimated future results in assessing the likelihood of attainment , significant judgment is required . if actual results differ materially from our estimates , the amount of bonus expense recorded in a particular quarter could be significantly over or under estimated . taxes as part of the process of preparing our consolidated financial statements , we are required to estimate income taxes in each of the countries and other jurisdictions in which we operate . this process involves estimating our current tax expense together with assessing temporary differences resulting from the differing treatment of items for tax and accounting purposes . these differences result in deferred tax assets and liabilities . net operating losses and tax credits , to the extent not already utilized to offset taxable income or income taxes , also give rise to deferred tax assets . we must then assess the likelihood that any deferred tax assets will be realized from future taxable income , and , to the extent we believe that recovery is not likely , we must establish a valuation allowance . we are required to use judgment as to the appropriate weighting of all available evidence when assessing the need for the establishment or the release of valuation allowances . as part of this analysis , we examine all available evidence on a jurisdiction-by-jurisdiction basis and weigh the positive and negative information when determining the need for full or partial valuation allowances . the evidence considered for each jurisdiction includes , among other items , ( i ) the historical levels of income or loss over a range of time periods that extends beyond the two years presented , ( ii ) the historical sources of income and losses , ( iii ) the expectations and risk associated with underlying estimates of future taxable income , ( iv ) the expectations and risk associated with new product offerings and uncertainties with the timing of future taxable income , and ( v ) prudent and feasible tax planning strategies . significant judgment is required in determining our provision for income taxes , deferred tax assets and liabilities and any valuation allowance recorded against our deferred tax assets . we estimate the valuation allowance related to our deferred tax assets on a quarterly basis . 23 our sales may be subject to other taxes , particularly withholding taxes , due to our sales to customers in countries other than the united states . the tax regulations governing withholding taxes are complex , causing us to have to make assu mptions about the appropriate tax treatment . further , we make sales in many jurisdictions across the united states , where tax regulations are varied and complex . we must therefore continue to analyze our state tax exposure and determine what the appropriat e tax treatments are , and make estimates for sales , franchise , income and other state taxes . story_separator_special_tag $ 345,000 and $ 326,000 of rebate credits in 2016 and 2015 , res pectively , which were accounted for as reductions in cost of sales .
| results of operations the following table presents certain financial data as a percentage of total revenue for the periods indicated . our historical operating results are not necessarily indicative of the results for any future period . replace_table_token_6_th comparison of the years ended december 31 , 2016 and 2015 revenue we generate revenue from the sale of software , both our own proprietary software and third-party software that we resell , and the sale of engineering services . total revenue decreased $ 9.2 million , or 9 % , to $ 97.4 million in 2016 from $ 106.6 million in 2015. this decrease was primarily due to lower sales of windows mobile and embedded operating systems , a decrease in engineering services revenue , as well as decreases in our proprietary software revenue . one customer , honeywell international inc. , accounted for 14 % of total revenue in 2016 and 16 % of total revenue in 2015. no other customers accounted for 10 % or more of total revenue in either 2016 or 2015. revenue from our customers outside of north america decreased $ 3.6 million , or 41 % , to $ 5.1 million in 2016 , from $ 8.7 million in 2015. revenue from our customers outside of north america represented 5 % of our total revenue in 2016 , compared to 8 % in 2015. the decrease in revenue from outside of north america in 2016 was primarily attributable to lower sales of third-party software systems and lower professional engineering services revenue in both asia and emea . 24 software revenue software revenue consists of sales of third-party software and revenue realized from our own proprietary software products , which include software license sales , royalties from our software products , support and maintenance revenue , and royalties from certain engineering service contracts .
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some of the risks that are foreseen by management are outlined above within item 1a. , “ risk factors ” . item 1a . constitutes an integral part of this report , and readers are strongly encouraged to review this section closely in conjunction with md & a . md & a basis of discussion - impact of divestiture in september 2015 , we sold our cyber-security business , marketed under the invotas brand , to certain former management personnel , resulting in a gain on the sale of $ 3.7 million , which is included in restructuring and reorganization charges in our 2015 income statement . the impact of invotas to our business prior to the divestiture date was not material . we retained a minority interest in the business such that the results of operations from the business are not included in our financial statements subsequent to the divestiture date . in february 2016 , this business was acquired by a third-party . based on the terms of our agreement with former management personnel , we received additional consideration contingent upon a liquidation event , as defined in the agreement , resulting in an additional gain on the sale of approximately $ 6.6 million , which reduced our 2016 restructuring and reorganization charges in our income statement . management overview results of operations . a summary of our results of operations for 2016 and 2015 , and other key performance metrics are as follows ( in thousands , except percentages and per share amounts ) : replace_table_token_7_th ( 1 ) stock-based compensation included in the table above excludes amounts that have been recorded in restructuring and reorganization charges . revenues . our revenues for 2016 were $ 761.0 million , a 1 % increase when compared to $ 752.5 million for 2015. the increase can be primarily attributed to a 5 % increase in our cloud and related solutions revenues . the increase in our cloud and related solutions revenues for 2016 was driven largely by the conversion of new customer accounts onto acp during the year , and increases in revenues from recurring managed services arrangements . these increases more than offset the decline in our software and services and maintenance revenues . operating results . operating income for 2016 was $ 132.6 million , or a 17.4 % operating income margin percentage , compared to $ 113.1 million , or a 15.0 % operating income margin percentage for 2015 , with the increase mainly attributed to the scale benefits we are achieved from increasing the number of customer accounts to our cloud solutions , and operational cost improvements made throughout 2015 and 2016 , to include the divestiture of invotas in 2015 , discussed above . diluted eps . diluted eps for 2016 was $ 1.90 compared to $ 1.87 for 2015 with the increase primarily attributed to the higher operating margin , which more than offset the negative impact of the loss on the repurchase of the 2010 convertible notes and higher interest expense , both related to the refinancing of this instrument earlier this year . 23 balance sheet and cash flows . as of december 31 , 2016 , we had cash , cash equivalents , and short-term investments of $ 276.5 million , as compared to $ 240.9 million as of december 31 , 2015. cash flows from operatin g activities for 2016 were $ 84.2 million , compared to $ 137.0 million for 2015 . cash flows from operations for 2016 were negatively impacted by year end working capital timing fluctuations and a payment made at year end as part of the closure of several ye ars of outstanding tax audits with the irs . see the liquidity section below for further discussion of our cash flows . significant client relationships comcast . comcast continues to be our largest client . for 2016 and 2015 , revenues from comcast were $ 196 million and $ 177 million , respectively , representing approximately 26 % and 24 % of our total revenues . this increase is driven primarily by the conversion of additional comcast customer accounts to our platform , as noted below . our agreement with comcast runs through june 30 , 2019 , with an option to extend the agreement for two consecutive one-year terms by exercising the renewal options no later than january 1 , 2019 for the first extension option , and january 1 , 2020 for the second extension option . since july 2014 , when we entered into an expanded and extended contract with comcast , we have converted approximately seven million residential comcast customer accounts onto acp . we believe we have the opportunity to convert up to an additional two to three million comcast customer accounts that are currently on one of our competitor 's platforms onto our solution over the next year as part of comcast 's future standardization initiatives for their residential business . however , the timing of and the number of additional customer accounts to be converted to csg , if any , is at the discretion of comcast . therefore , there can be no assurances as to the timing or the number of additional customer accounts converted to us by comcast , or whether we will experience any further material increase in revenues or profits under the amended agreement . see our risk factors for additional discussion . a copy of the comcast agreement and related amendments , with confidential information redacted , is included in the exhibits to our periodic filings with the sec . charter/time warner . in may 2016 , charter , our then fourth largest client , received final approval from regulators and closed on its acquisition of time warner , which was previously our third largest client . consequently , the time warner agreement was assigned to charter in connection with the merger and the time warner customer accounts serviced by us are now owned by charter . as a result , charter now receives more favorable volume-tier pricing terms due to their larger , combined business with us . story_separator_special_tag in these cases , revenues from fixed-price , professional service contracts are recognized using a method consistent with the proportional performance method , which is relatively consistent with our poc methodology . under a proportional performance model , revenue is recognized by allocating revenue between reporting periods based on relative service provided in each reporting period , and costs are generally recognized as incurred . we utilize an input-based approach ( i.e. , hours worked ) for purposes of measuring performance on these types of contracts . our input measure is considered a reasonable surrogate for an output measure . in instances when the work performed on fixed price agreements is of relatively short duration , or if we are unable to make reasonably dependable estimates at the outset of the arrangement , we use the completed contract method of accounting whereby revenue is recognized when the work is completed . our use of the poc and proportional performance methods of accounting on professional services engagements requires estimates of the total project revenues , total project costs and the expected hours necessary to complete a project . changes in estimates as a result of additional information or experience on a project as work progresses are inherent characteristics of the poc and proportional performance methods of accounting as we are exposed to various business risks in completing these engagements . the estimation process to support these methods of accounting is more difficult for projects of greater length and or complexity . the judgments and estimates made in this area could : ( i ) have a significant effect on revenues recognized in any period by changing the amount and or the timing of the revenue recognized ; and or ( ii ) impact the expected profitability of a project , including whether an overall loss on an arrangement has occurred . to mitigate the inherent risks in using the poc and proportional performance methods of accounting , we track our performance on projects and reevaluate the appropriateness of our estimates as part of our monthly accounting cycle . revenues are recognized only if we determine that the collection of the fees included in an arrangement is considered probable ( i.e. , we expect the client to pay all amounts in full when invoiced ) . in making our determination of collectability for revenue recognition purposes , we consider a number of factors depending upon the specific aspects of an arrangement , which may include , but is not limited to , the following items : ( i ) an assessment of the client 's specific credit worthiness , evidenced by its current financial position and or recent operating results , credit ratings , and or a bankruptcy filing status ( as applicable ) ; ( ii ) the client 's current accounts receivable status and or its historical payment patterns with us ( as applicable ) ; ( iii ) the economic condition of the industry in which the client conducts the majority of its business ; and or ( iv ) the economic conditions and or political stability of the country or region in which the client is domiciled and or conducts the majority of its business . the evaluation of these factors , and the ultimate determination of collectability , requires significant judgments to be made by us . the judgments made in this area could have a significant effect on revenues recognized in any period by changing the amount and or the timing of the revenue recognized . impairment assessments of goodwill and other long-lived assets . goodwill . goodwill is required to be tested for impairment on an annual basis . we have elected to do our annual test for possible impairment as of july 31 of each year . in addition to this annual requirement , goodwill is required to be evaluated for possible impairment on a periodic basis ( e.g. , quarterly ) if events occur or circumstances change that could indicate a possible impairment may have occurred . goodwill is considered impaired if the carrying value of the reporting unit , which includes the goodwill , is greater than the estimated fair value of the reporting unit . if it is determined that an impairment has occurred , an impairment loss ( equal to the excess of the carrying value of the goodwill over its estimated fair value ) is recorded . as of july 31 , 2016 , we had goodwill of approximately $ 208 million , which was assigned to a single reporting unit . since we had only a single reporting unit , we used our public market capitalization as our primary means to estimate the fair value for that single reporting unit . since our market capitalization exceeded the carrying value of our single reporting unit by a significant margin , we concluded there was no impairment of goodwill . we believe that our approach for testing our goodwill for impairment was appropriate . however , if we experience a significant drop in our market capitalization due to company performance , and or broader market conditions , it may result in an impairment loss . if a goodwill impairment was to be recorded in the future , it would likely materially impact our results of operations in the period such impairment is recognized , but such an impairment charge would be a non-cash expense , and therefore would have no impact on our cash flows , or on the financial position of our company . other long-lived assets . long-lived assets other than goodwill , which for us relates primarily to property and equipment , software , and client contracts , are required to be evaluated for possible impairment whenever events or changes in 26 circumstances indicate that the carrying amount of these assets may not be recoverable . a long-lived asset ( or group of long-lived assets ) is impaired if estimated future undiscounted cash flows associated with that asset , without consideration of interest , are insufficient to recover the carrying amount of the long-lived asset .
| detailed discussion of results of operations total revenues . total revenues for : ( i ) 2016 were $ 761.0 million , a 1 % increase from $ 752.5 million for 2015 ; and ( ii ) 2015 were $ 752.5 million , a slight increase from $ 751.3 million for 2014. the 1 % year-over-year increase in total revenues between 2016 and 2015 can be attributed to the 5 % growth of our cloud and related solutions revenues , driven primarily from continued conversions of customer accounts onto acp , and increases in revenues from recurring managed services arrangements . these increases more than offset the decline in our software and services and maintenance revenues , and negative foreign currency movements of approximately $ 5 million . the slight increase in revenues between 2015 and 2014 can be primarily attributed to growth in our cloud and related solutions revenues , offset by unfavorable foreign currency movements , which had a negative impact to total revenues of approximately $ 15 million . the growth in our cloud and related solutions revenues for 2015 was driven largely by the conversions of new customer accounts onto acp , and the continued revenue growth from our ascendon solution and international managed services offering , offset by some of the decreases we experienced in our software and services revenues . the components of total revenues , discussed in more detail below , are as follows : 27 replace_table_token_10_th cloud and relation solutions revenues . cloud and related solutions revenues for : ( i ) 2016 increased 5 % to $ 606.9 million , from $ 577.4 million for 2015 ; and ( ii ) 2015 increased 3 % to $ 577.4 million , from $ 562.1 million for 2014. the year-over-year increase between 2016 and 2015 in cloud and related solutions revenues can be mainly attributed to the conversion of customer accounts onto acp , and increases in revenues from recurring managed services arrangements .
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except to the extent restricted under the award agreement relating to the restricted shares of common stock , a participant granted restricted shares of common stock has all of the rights of a stockholder , including , without limitation , the right to vote and the right to receive dividends on the restricted shares of common stock , although dividends paid with respect to unvested restricted shares of common stock may be subject to satisfaction of the vesting criteria of the underlying shares , and , in the case of dividends paid with respect to unvested restricted shares that do not vest solely upon satisfaction of continued employment or service , such dividends will be held by us and paid when , and only to the extent that , the underlying shares vest . restricted stock units . a restricted stock unit award represents the right to receive shares of our common stock in the future , after the applicable vesting criteria , determined by the plan administrator , has been satisfied . the holder of an award of restricted stock units has no rights as a stockholder until shares of our common stock are issued in settlement of vested restricted stock units . our plan administrator may provide for a grant of ders in story_separator_special_tag the following discussion and analysis is based on , and should be read in conjunction with , the consolidated and combined financial statements and the related notes thereto of the city office reit , inc. and the city office predecessor ( as defined in this section ) for the periods ended december 31 , 2014 , december 31 , 2013 and december 31 , 2012. as used in this section , unless the context otherwise requires , references to we , our , us , and our company refer to city office reit , inc. , a maryland corporation , together with our consolidated subsidiaries , including city office reit operating partnership l.p. , a maryland limited partnership , of which we are the sole general partner and which we refer to in this section as our operating partnership , except where it is clear from the context that the term only means city office reit , inc. references to the city office predecessor are to the real estate activity and holdings of the entities that own the historical interests in the amberglen , central fairwinds , city center , cherry creek , corporate parkway and washington group plaza properties . this management 's discussion and analysis of financial condition and results of operations contains forward-looking statements that involve risks , uncertainties and assumptions . see cautionary statement regarding forward-looking statements for a discussion of the risks , uncertainties and assumptions associated with those statements . our actual results may differ materially from those expressed or implied in the forward-looking statements as a result of various factors , including , but not limited to , those in risk factors and included in other portions of this document . overview company we were formed as a maryland corporation on november 26 , 2013. on april 21 , 2014 , we completed our initial public offering ( ipo ) of shares of common stock . we contributed the net proceeds of the ipo to our operating partnership in exchange for common units in our operating partnership . both we and our operating partnership commenced operations upon completion of the ipo and certain related formation transactions ( the formation transactions ) . our interest in our operating partnership entitles us to share in distributions from , and allocations of profits and losses of , our operating partnership in proportion to our percentage ownership of common units . as the sole general partner of our operating partnership , we have the exclusive power under the partnership agreement to manage and conduct our operating partnership 's business , subject to limited approval and voting rights of the limited partners . on april 21 , 2014 , we closed the ipo , pursuant to which we sold 5,800,000 shares of common stock to the public at a public offering price of $ 12.50 per share . we raised $ 72.5 million in gross proceeds , resulting in net proceeds to us of approximately $ 63.4 million after deducting approximately $ 5.1 million in underwriting discounts and approximately $ 4.0 million in other expenses relating to the ipo . on may 9 , 2014 , the underwriters of the ipo partially exercised their overallotment option with respect to an additional 782,150 shares of our common stock at the ipo price of $ 12.50 a share resulting in additional gross proceeds of approximately $ 9.8 million . the net proceeds to us were $ 9.1 million after deducting approximately $ 0.7 million in underwriting discounts . our common stock began trading on the nyse under the symbol cio on april 15 , 2014. pursuant to the formation transactions and exercise of the underwriters ' over-allotment option , our operating partnership acquired a 100 % interest in each of the washington group plaza , cherry creek and corporate parkway properties and acquired an approximate 76 % economic interest in the amberglen property , 90 % interest in the central fairwinds property and 95 % interest in the city center property . these initial 41 property interests were contributed in exchange for 3,731,209 common units , 1,858,860 shares of our common stock and $ 19.4 million of cash . on may 9 , 2014 , subsequent to the exercise of the underwriters ' overallotment option , 479,305 common units and 248,095 common stock were redeemed for $ 9.1 million in cash . on december 10 , 2014 , we completed a public offering pursuant to which we sold 3,750,000 of our common stock to the public at a price of $ 12.50 per share . story_separator_special_tag as of december 31 , 2014 , our properties were approximately 93.4 % leased . the amount of rental revenue generated also depends on our ability to maintain or increase rental rates at our properties . we believe that the average rental rates for the portfolio of our properties are generally in-line or slightly below the current average quoted market rates . negative trends in one or more of these factors could adversely affect our rental revenue in future periods . future economic downturns or regional downturns affecting our markets or submarkets or downturns in our tenants ' industries that impair our ability to renew or re-let space and the ability of our tenants to fulfill their lease commitments , as in the case of tenant bankruptcies , could adversely affect our ability to maintain or increase rental rates at our properties . in addition , growth in rental revenue will also partially depend on our ability to acquire additional properties that meet our investment criteria . operating expenses our operating expenses generally consist of utilities , property and ad valorem taxes , insurance and site maintenance costs . increases in these expenses over tenants ' base years ( until the base year is reset at expiration ) are generally passed along to tenants in our full-service gross leased properties and are generally paid in full by tenants in our net leased properties . conditions in our markets positive or negative changes in economic or other conditions in the markets we operate in , including state budgetary shortfalls , employment rates , natural hazards and other factors , may impact our overall performance . 43 summary of significant accounting policies basis of preparation the city office predecessor represents a combination of certain entities holding interests in real estate that are commonly controlled . due to their common control , the financial statements of the separate entities which own our initial properties are presented on a combined basis . the accompanying combined financial statements have been prepared in accordance with accounting principles generally accepted in the united states of america ( gaap ) . all significant intercompany balances and transactions have been eliminated in combination . use of estimates we have made a number of significant estimates and assumptions relating to the reporting of assets and liabilities , the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses to prepare these combined financial statements in conformity with gaap . these estimates and assumptions are based on our best estimates and judgment . we evaluate our estimates and assumptions on an ongoing basis using historical experience and other factors , including the current economic environment . the current economic environment has increased the degree of uncertainty inherent in these estimates and assumptions . management adjusts such estimates when facts and circumstances dictate . the most significant estimates made include the recoverability of accounts receivable , allocation of property purchase price to tangible and intangible assets acquired and liabilities assumed , the determination of impairment of long-lived assets , loans receivable and equity method investments , valuation of derivative financial instruments and the useful lives of long-lived assets . actual results could differ materially from those estimates . business combinations the fair value of the real estate acquired , which includes the impact of fair value adjustments for assumed mortgage debt related to property acquisitions , is allocated to the acquired tangible assets , consisting of land , building and improvements and identified intangible assets and liabilities , consisting of the value of above-market and below-market leases , other value of in-place leases and value of tenant relationships , based in each case on their fair values . acquisition costs are expensed as incurred in the accompanying combined statement of income . also , non-controlling interests acquired are recorded at estimated fair market value . the fair value of the tangible assets of an acquired property ( which includes land , building and improvements and fixtures and equipment ) is determined by valuing the property as if it were vacant . the as-if-vacant value is then allocated to land and building and improvements based on our determination of relative fair values of these assets . factors considered by us in performing these analyses include an estimate of carrying costs during the expected lease-up periods considering current market conditions and costs to execute similar leases . in estimating carrying costs , we include real estate taxes , insurance and other operating expenses and estimates of lost rental revenue during the expected lease-up periods based on current market demand . we also estimate costs to execute similar leases including leasing commissions . the fair value of above-market and below-market lease values are recorded based on the difference between the current in place lease rent and our estimate of current market rents . below-market lease intangibles are recorded as part lease intangibles liability and amortized into rental revenue over the non-cancelable periods and bargain renewal periods of the respective leases . above-market leases are recorded as part of intangible assets and amortized as a direct charge against rental revenue over the non-cancelable portion of the respective leases . the fair value of acquired in place leases are recorded based on the costs we estimate we would have incurred to lease the property to the occupancy level of the property at the date of acquisition . such estimates 44 include the fair value of leasing commissions and legal costs that would be incurred to lease the property to this occupancy level . additionally , we evaluate the time period over such occupancy level would be achieved and include an estimate of the net operating costs incurred during the lease-up period . revenue recognition we recognize lease revenue on a straight-line basis over the term of the lease . certain leases allow for the tenant to terminate the lease , but the tenant must make a termination payment as stipulated in the lease .
| results of operations comparison of year ended december 31 , 2013 to year ended december 31 , 2012 revenue total revenue . revenue includes net rental income , including parking , signage and other income , as well as the recovery of operating costs and property taxes from tenants . total revenues increased $ 9.0 million , or 78 % , to $ 20.5 million for the year ended december 31 , 2013 compared to $ 11.5 million in the corresponding period in 2012. approximately $ 0.3 million of the increase resulted from the acquisition of the central fairwinds property in may 2012 as the year ended december 31 , 2013 includes a full period of rental and other income from this property . revenue also increased by $ 2.0 million from the acquisition of the corporate parkway property in may 2013 and $ 5.1 million from the acquisition of the washington group plaza property in june 2013. the remaining increase of $ 1.6 million in revenues is driven by increased occupancy at the city center and amberglen properties , both of which were owned throughout both periods . rental income . rental income includes net rental income , income from the city office predecessor 's ground lease and lease termination income . total rental income increased $ 8.4 million , or 84 % , to $ 18.4 million for the year ended december 31 , 2013 compared to $ 10.0 million for the year ended december 31 , 2012. the increase in rental income was primarily due to the acquisitions described above and an increase in average occupancy year-over-year at the city center and amberglen properties . the increase in rental income contributed by a full year of operating results at the central fairwinds property was a total of $ 0.2 million . the acquisition of the corporate parkway and washington group plaza properties contributed an additional $ 2.0 million and $ 4.8 million in additional rental income , respectively .
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adoption of recent accounting pronouncements story_separator_special_tag operations the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements ( “ financial statements ” ) and related notes thereto , included in part ii , item 8 , “ financial statements and supplementary data , ” of this annual report . overview energy focus , inc. engages primarily in the design , development , manufacturing , marketing and sale of energy-efficient led lighting systems and controls and recently announced development of uvcd products . we develop , market and sell high quality led lighting products and uvcd products and controls in the commercial market and mmm . our mission is to enable our customers to run their facilities and offices with greater energy efficiency , productivity , and human health through advanced led retrofit and uvcd solutions . our goal is to be the led and hcl technology and market leader for the most demanding applications where performance , quality , value ( high quality at an affordable price ) , environmental impact and health are considered paramount . we specialize in led lighting retrofit by replacing fluorescent , high-intensity discharge lighting and other types of lamps and fixtures in institutional buildings for primarily indoor lighting applications with our innovative , high-quality commercial and military tled , as well as other led and lighting control and uvcd products . on october 14 , 2020 , we announced the launch of our uvcd product portfolio . the led lighting industry has changed dramatically over the past several years due to increasing commoditization , competition and price erosion . we have been experiencing these industry forces in both our military business since 2016 and in our commercial segment , where we once commanded significant price premiums for our flicker-free tleds with primarily 10-year warranties . since april 2019 , we have focused on redesigning our products for lower costs and consolidating our supply chain for stronger purchasing power where appropriate in order to price our products more competitively . despite these efforts , the pricing of our legacy products remains at a premium to the competitive range and we expect aggressive pricing actions and commoditization to continue to be a headwind until our more differentiated new products ramp in volume . these trends are not unique to energy focus as evidenced by the increasing number of industry peers facing challenges , exiting led lighting , selling assets and even going out of business . in addition to continuously pursuing scheduled cost reductions , our strategy to combat these trends it to move up the value chain , with more innovative and differentiated products and solutions that offer greater , distinct value to our customers . two specific examples of these products we have developed include the redcap ® , our emergency backup battery integrated tled , and enfocus , our new dimmable/color-tunable lighting and control platform that we launched in 2020. we believe our revamped go-to-market strategy that focuses more on direct-sales marketing , selectively expanding our channel partner network that covers territories across the country , and listens to the voice of the customer , has led to better and more impactful product development efforts that we believe will eventually translate into larger addressable markets and greater sales growth for us . leveraging and integrating a broad range of rapidly advancing technologies including led lighting , uv-c disinfection , electronics , software , sensors , cloud and ai , the energy focus uvcd solutions aim to provide impactful and affordable disinfection products for businesses and homes to effectively reduce infection risks . in addition to being ozone-free , the products are designed to guard against the risks of direct human exposure to uv-c rays . abuv tm and nuvo tm include enclosed , self-contained uv-c disinfection units that continuously inactivate viruses while reducing overall pathogen levels in the air . muve tm incorporates advanced sensor , machine vision and autonomous technologies to avoid human exposure during disinfection operations . we believe energy focus uvcd solutions are capable of providing affordable continuous disinfection with optimal effectiveness and safety . we believe that the uvcd products will open up a new , emerging and sizable market for us and expand our sales and growth potential . since april 2019 , we have experienced significant change at the company . prior to james tu returning as chief executive officer and chairman at the beginning of april 2019 , the company had experienced significant sales declines , operating losses and increases in its inventory . immediately upon mr. tu returning to the company , significant additional restructuring efforts were undertaken . the company has since then replaced the entire senior management team , significantly reduced non-critical expenses , minimized the amount of inventory the company was purchasing , dramatically changed the composition of our board of directors , as well as adding very selectively to the executive team by hiring tod nestor as president and chief financial officer at the beginning of july 2019 , and james r. warren as senior vice president , general counsel and corporate secretary in september 2020 , in addition to recruiting new departmental leaders across the company . the cost savings efforts undertaken included the company implementing phased actions to reduce costs to minimize cash usage . our initial actions included the elimination of certain positions , restructuring of the sales organization and incentive plan , flattening of the senior management team , additional operational streamlining , management compensation reductions , and outsourcing of certain functions including 27 certain elements of supply chain and marketing . story_separator_special_tag we also plan to continue to actively follow , assess and analyze the ongoing impact of the covid-19 pandemic and stand ready to adjust our organizational structure , strategies , plans and processes to respond . because the situation continues to evolve , we can not reasonably estimate the ultimate impact to our business , results of operations , cash flows and financial position that the covid-19 pandemic may have . continuation of the covid-19 pandemic and government actions in response thereto could cause further disruptions to our operations and the operations of our customers , suppliers and logistics partners and could significantly adversely affect our near-term and long-term revenues , earnings , liquidity and cash flows . we aim to stay agile as an organization to respond to potential or continuing weakness in the macro environment and in the meantime expand sales channels and enter new markets such as uvcd that might be able to provide additional growth opportunities . story_separator_special_tag style= '' height:42.75pt ; position : relative ; width:100 % '' > 30 during 2020 , we recorded no restructuring-related severance and related benefits charges . during the first half of 2019 , we recorded severance and related benefits charges of $ 0.2 million with no material restructuring charges recorded during the second half of 2019. as of december 31 , 2020 , we estimate that we will receive a total of approximately $ 0.1 million in sublease payments to offset our remaining lease obligations of $ 0.2 million , which extend until june 2021. we expect to incur insignificant additional costs over the remaining life of our lease obligations . please refer to note 3 , “ restructuring , ” included in item 8 , “ financial statements and supplementary data , ” of this annual report for further information . other expenses interest expense we incurred $ 481 thousand in interest expense in 2020 , primarily related to interest on borrowings and non-cash amortization of fees related to the austin facility , the promissory note in the principal amount of $ 1.3 million ( the “ iliad note ” ) the company sold and issued to iliad research and trading , l.p. ( “ iliad ” ) , pursuant to a note purchase agreement ( the “ iliad note purchase agreement ” ) with iliad , and the interest on borrowings and non-cash amortization of fees related to the credit facilities . we incurred $ 317 thousand in interest expense in 2019 , primarily related to interest on borrowings and non-cash amortization of fees related to the austin facility and under the iliad note . loss on extinguishment of debt a loss of $ 276 thousand on the extinguishment of debt was recognized during the year ended december 31 , 2020 , consisting of a $ 100 thousand termination fee and the write-off of the remaining related debt acquisition costs of $ 59 thousand from the austin facility and the write-off of the remaining debt acquisition costs of $ 117 thousand relating to the iliad note . loss from change in fair value of warrants a loss of $ 1.1 million was recognized during the year ended december 31 , 2020 for the market value change in our warrant liabilities . the loss recognized was a result of the revaluation of the warrant liability using the market price of the company 's common stock at december 22 , 2020 , versus the market price of the company 's common stock at the time of initial issuance of the warrants ( january 13 , 2020 ) . on december 22 , 2020 , all warrant holders agreed to a modification of the terms of their warrants that qualified the warrants for equity accounting . at that time , the liability relating to the remaining 467,306 warrants was fair-valued with the offsetting adjustment recorded in income . the $ 1.4 million warrant liability was then reclassified into equity and the warrants are no longer subject to re-measurement at each balance sheet date . other expenses , net we recognized other expenses , net , of $ 73 thousand in 2020 , compared to other expenses , net , of $ 91 thousand in 2019. other expenses , net , in 2020 primarily consisted of bank and collateral management fees . other expenses , net in 2019 primarily consisted of $ 80 thousand of collateral management fees related to the austin facility and a net loss on the sale and disposal of fixed assets of $ 24 thousand , partially offset by various refunds of $ 12 thousand . income taxes for the years ended december 31 , 2020 and 2019 , our effective tax rate was 0.1 % and ( 0.1 ) % , respectively . in 2020 , our effective tax rate was lower than the statutory rate due to an increase in the valuation allowance as a result of the $ 7.1 million additional federal net operating loss we recognized for the year . in 2019 , our effective tax rate was lower than the statutory rate due to an increase in the valuation allowance as a result of the $ 8.3 million additional federal net operating loss we recognized for the year . deferred income tax assets are reduced by a valuation allowance when it is more likely than not that some portion of the deferred income tax assets will not be realized . in considering the need for a valuation allowance , we assess all evidence , both positive and negative , available to determine whether all or some portion of the deferred tax assets will not be realized . such evidence includes , but is not limited to , recent earnings history , projections of future income or loss , reversal patterns of existing taxable and deductible temporary differences , and tax planning strategies . we have recorded a full valuation allowance 31 against our deferred tax assets at december 31 , 2020 and 2019 , respectively .
| results of operations the following table sets forth the percentage of net sales represented by certain items reflected on our consolidated statements of operations for the following periods : replace_table_token_1_th net sales a further breakdown of our net sales by product line is as follows ( in thousands ) : replace_table_token_2_th our net sales of $ 16.8 million in 2020 increased 32.5 % compared to 2019 mainly driven by an increase of 136.6 % in mmm sales . mmm sales were lower in 2019 primarily due to two of our products that were pending evaluation by the defense logistics agency , during which time the us navy was not allowed to purchase these two products and also due to federal 29 government funding restrictions . in march 2020 , we won a contract worth about $ 3.5 million and throughout 2020 , our sales from our in-house sales and inside sales accounts grew significantly . net sales of our commercial products decreased 31.4 % in 2020 as compared to 2019 , reflecting fluctuations in the timing , pace , and size of commercial projects , including impacts of the covid-19 pandemic . international sales we do not generate significant sales from customers outside the united states . international net sales accounted for approximately 1 % of net sales in 2020 and 2019 , respectively . changes in currency exchange rates did not have an impact on net sales in 2020 or 2019 , as our sales , including international sales , are denominated in u.s. dollars . gross profit gross profit was $ 5.2 million in 2020 , compared to $ 2.0 million in 2019. the increase in gross profit was primarily driven by an increase in mmm sales as noted above , as well as improved efficiency in our plant operations .
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also , projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions , or that the story_separator_special_tag the following discussion should be read in conjunction with the consolidated financial statements and related notes included in item 15 of this annual report . amounts are in thousands of dollars or gallons unless indicated otherwise . executive summary our revenues and income are subject to material changes as a result of market prices and the availability of diesel fuel and gasoline . these factors are subject to the worldwide petroleum products supply chain , which historically has experienced price and supply volatility as a result of , among other things , severe weather , terrorism , political crises , military actions and variations in demand that are often the result of changes in the macroeconomic environment . also , concerted efforts by major oil producing countries and cartels to influence oil supply may impact prices . over the past few years there have been significant changes in the cost of fuel . during the year ended december 31 , 2017 , fuel prices did not materially change during the first half of 2017 , but trended steadily upward during the second half of 2017 , ending at a higher price than at the start of the year . the average fuel price was 21.8 % above the average fuel price during the year ended december 31 , 2016 . during the year ended december 31 , 2016 , fuel prices generally trended upward for the year , ending at a higher price than at the start of the year . however , fuel prices in 2015 were generally higher than in 2016 , therefore , the average fuel price was 15.9 % below the average fuel price during the year ended december 31 , 2015. some current economic forecasts reflect moderate price increases for fuel and an expectation of economic growth and inflation in the united states and elsewhere , which may impact demand for fuel and fuel prices . as noted above , various factors and events can cause fuel prices to change , sometimes suddenly and sharply . due to the volatility of our fuel costs and our methods of pricing fuel to our customers , we believe that fuel revenue is not a reliable metric for analyzing our results of operations from period to period . as a result solely of changes in fuel prices , our fuel revenue may materially increase or decrease , in both absolute amounts and on a percentage basis , without a comparable change in fuel sales volumes or in fuel gross margin . we therefore consider fuel sales volume , fuel gross margin and nonfuel revenue to be better measures of our performance . we generally are able to pass changes in our cost for fuel products to our customers , but typically with a delay , such that during periods of rising fuel commodity prices fuel gross margin per gallon tend to be lower than they otherwise may have been and during periods of falling fuel commodity prices fuel gross margin per gallon tend to be higher than they otherwise may have been . increases and volatility in the prices we pay for fuel can have negative effects on our sales and profitability and increase our working capital requirements . for more information about fuel market risks that may affect us and our actions to mitigate those risks , see item 7a , `` quantitative and qualitative disclosures about market risk '' elsewhere in this annual report . we believe that demand for diesel fuel by trucking companies for any given level of trucking activity will continue to decline over time because of technological innovations that improve fuel efficiency of motor vehicle engines , other fuel conservation practices and alternative fuels . we believe these factors combined with lower levels of trucking freight activity and competitive pressures , particularly during the three months ended march 31 , 2017 , were contributors to decreases in the level of fuel sales volumes we realized on a consolidated and same site basis for 2017 , as compared to 2016 . although fuel sales volume declined on a same site basis , the decrease was partially offset by increases from acquired locations and development properties opened in 2016 and 2017 . our fuel gross margin and fuel gross margin per gallon were lower in 2017 than in 2016 , primarily due to the federal biodiesel fuel tax credits that were available in 2016 that were not available in 2017 and increased competition , partially offset by the positive impact of our pricing strategies . 39 the net income attributable to common shareholders we achieved for 2017 , as compared to the loss we experienced during 2016 , was primarily due to the $ 58,602 income tax benefit that resulted from the resolution of certain previously uncertain tax positions during the 2017 third quarter and the related recognition of the affected deferred tax assets and reversal of the related accrued liability ( see note 9 to the notes to consolidated financial statements included in item 15 of this annual report for more information about this matter ) . in addition to the resolution of our previously uncertain tax positions , during 2017 we recognized the effects of a number of items that affected our profitability as compared to 2016 , primarily including the following : we recognized aggregate impairment charges of $ 9,769 on certain property and equipment and other asset write offs of $ 6,773 , which charges are included in depreciation and amortization expense in our consolidated statements of operations and comprehensive income ( loss ) . we incurred $ 9,706 of legal fees during 2017 in connection with our dispute with comdata , as further described below , which is included in selling , general and administrative expenses in our consolidated statements of operations and comprehensive income ( loss ) . story_separator_special_tag we acquired or developed nine travel centers during the three year period ended december 31 , 2017. of these travel centers , three are included in the same site data for the year ended december 31 , 2017. as of december 31 , 2017 , we had invested $ 21,122 ( including the cost of initial improvements ) in these three locations , and these locations generated $ 1,446 of site level gross margin in excess of site level operating expenses during the year ended december 31 , 2017. the remaining six locations were acquired or developed for a total investment of $ 112,338 ( including the cost of initial improvements ) , and these locations generated $ 7,528 of site level gross margin in excess of site level operating expenses during the year ended december 31 , 2017. four of these six locations were newly developed on land we owned ; these four properties were subsequently sold to , and leased back from , hpt . some of these six travel centers were fully or partially out of service while improvements were being made to them during the year ended december 31 , 2017. we acquired 197 convenience stores during the three year period ended december 31 , 2017. of these convenience stores , 168 are included in the same site data for the year ended december 31 , 2017. as of december 31 , 2017 , we had invested $ 327,910 ( including the cost of initial improvements ) in these 168 locations , and these locations generated $ 24,956 of site level gross margin in excess of site level operating expenses during the year ended december 31 , 2017. the remaining 29 locations were acquired for a total investment of $ 48,996 ( including the cost of initial improvements ) , and these locations generated $ 3,522 of site level gross margin in excess of site level operating expenses during the year ended december 31 , 2017. some of these 29 convenience stores were fully or partially out of service while improvements were being made to them during the year ended december 31 , 2017 . 41 story_separator_special_tag segment . corporate and other fuel gallons sold and fuel revenues represent wholesale sales to the locations we operate that are owned by an unconsolidated joint venture in which we own a noncontrolling interest and to other retailers . replace_table_token_9_th the decrease in fuel revenues for 2016 as compared to 2015 was due to significant decreases in market prices for fuel and lower fuel sales volume in our travel center segment as a result of fuel conservation methods adopted by our customers and due to increased competition , partially offset by increases in fuel sales volume in our convenience store segment as a result of acquired locations . nonfuel revenues . nonfuel revenues for 2016 increased by $ 163,114 , or 9.4 % , as compared to 2015 , primarily as a result of recently acquired locations . fuel gross margin . fuel gross margin for 2016 decrease d by $ 9,717 , or 2.3 % , as compared to 2015 , and fuel gross margin per gallon decrease d by $ 0.011 , or 5.6 % , as compared to 2015 . these decrease s were primarily due to an unusually favorable purchasing environment in the first four months of 2015 that did not recur in 2016 . nonfuel gross margin . nonfuel gross margin for 2016 increase d by $ 90,311 , or 9.4 % , as compared to 2015 , primarily due to recently acquired locations and our pricing and marketing initiatives . nonfuel gross margin as a percentage of nonfuel revenues was 55.3 % for each 2016 and 2015 . site level operating expenses . site level operating expenses for 2016 increase d by $ 73,761 , or 8.3 % , as compared to 2015 primarily due to recently acquired locations . site level operating expenses as a percentage of nonfuel revenues were 50.4 % and 50.9 % for 2016 and 2015 , respectively . the improved expense ratio reflects both a larger portion of our operations conducted at convenience stores and the continued stabilization of our acquired convenience store locations . selling , general and administrative expenses . selling , general and administrative expenses for 2016 increase d by $ 17,285 , or 14.2 % , as compared to 2015 . the increase was primarily attributable to increased personnel required to support the growth of our business , as well as increased spending on marketing and promotional activities . real estate rent expense . real estate rent expense for 2016 increase d by $ 30,707 , or 13.3 % , as compared to 2015 . the increase in real estate rent expense was primarily a result of the sale to , and lease back from , hpt of travel centers and improvements at leased locations since the beginning of 2015 , including the sales pursuant to the transaction agreement with hpt . depreciation and amortization expense . depreciation and amortization expense for 2016 increase d by $ 20,006 , or 27.6 % , as compared to 2015 . the increase in depreciation and amortization expense primarily resulted from the locations we acquired and capital investments at our owned locations that we completed since the beginning of 2015 . 44 benefit ( provision ) for income taxes . for 2016 , we had an income tax benefit of $ 1,733 as a result of a pretax loss . in 2015 , we had an income tax provision of $ 16,539 as a result of pretax income . see note 9 to the notes to consolidated financial statements included in item 15 of this annual report for more information about our income taxes . segment results of operations the following is a discussion of fuel and nonfuel revenues and site level gross margin in excess of site level operating expenses by reportable segment .
| results of operations consolidated financial results the following table presents changes in our operating results for the year ended december 31 , 2017 , as compared to the year ended december 31 , 2016 and for the year ended december 31 , 2016 , as compared to the year ended december 31 , 2015 . replace_table_token_7_th 42 year ended december 31 , 2017 , as compared to year ended december 31 , 2016 fuel revenues . fuel revenues for 2017 increase d by $ 560,763 , or 15.9 % , as compared to 2016 . the table below shows the change in fuel sales volumes and revenues by segment . corporate and other fuel gallons sold and fuel revenues represent wholesale sales to the locations we operate that are owned by an unconsolidated joint venture in which we own a noncontrolling interest and to other retailers . replace_table_token_8_th the increase in fuel revenues for 2017 as compared to 2016 was primarily due to increases in market prices for fuel , partially offset by decrease s in same site fuel sales volume primarily in our travel center segment . nonfuel revenues . nonfuel revenues for 2017 increase d by $ 40,558 , or 2.1 % , as compared to 2016 , primarily as a result of recently acquired and developed locations . fuel gross margin . fuel gross margin for 2017 decrease d by $ 10,598 , or 2.6 % , as compared to 2016 , and our fuel gross margin per gallon decrease d modestly by $ 0.001 , or 0.5 % , as compared to 2016 . these decreases were primarily due to the impact of the federal biodiesel fuel tax credits that were available to us in 2016 that were not available in 2017 and the effects of competition , partially offset by the positive impact of our marketing and pricing strategies . nonfuel gross margin .
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as of december 31 , 2013 , we owned 204 properties that contain an aggregate of approximately 24.8 million net rentable square feet and consist of 176 office properties , 19 industrial facilities , five mixed-use properties , one development property , two redevelopment properties , and one re-entitlement property ( collectively , the “ properties ” ) . in addition , as of december 31 , 2013 , we owned economic interests in 17 unconsolidated real estate ventures which own properties that contain approximately 5.7 million net rentable square feet ( collectively , the “ real estate ventures ” ) . as of december 31 , 2013 , we also owned 432 acres of undeveloped land , and held options to purchase approximately 51 additional acres of undeveloped land . as of december 31 , 2013 , the total potential development that these land parcels could support under current zoning , entitlements or combination thereof , amounted to 6.8 million square feet . the properties and the properties owned by the real estate ventures are located in or near philadelphia , pennsylvania ; metropolitan washington , d.c. ; southern new jersey ; richmond , virginia ; wilmington , delaware ; austin , texas and oakland , concord , and carlsbad , california . in addition to managing properties that we own , as of december 31 , 2013 , we were managing approximately 7.9 million net rentable square feet of office and industrial properties for third parties and the real estate ventures . unless otherwise indicated , all references in this form 10-k to square feet represent net rentable area . we do not have any foreign operations and our business is not seasonal . our operations are not dependent on a single tenant or a few tenants and no single tenant accounted for more than 10 % of our total 2013 revenue . during the year ended december 31 , 2013 , we were managing our portfolio within seven segments : ( 1 ) pennsylvania suburbs , ( 2 ) philadelphia cbd , ( 3 ) metropolitan washington d.c. , ( 4 ) new jersey/delaware , ( 5 ) richmond , virginia , ( 6 ) austin , texas and ( 7 ) california/other . the pennsylvania suburbs segment includes properties in chester , delaware , and montgomery counties in the philadelphia suburbs . the philadelphia cbd segment includes properties located in the city of philadelphia in pennsylvania . the metropolitan washington , d.c. segment includes properties in northern virginia and southern maryland . the new jersey/delaware segment includes properties in burlington and camden counties in new jersey and in new castle county in the state of delaware . the richmond , virginia segment includes properties primarily in albemarle , chesterfield , goochland and henrico counties and one property in durham , north carolina . the austin , texas segment includes properties in austin . on october 16 , 2013 , we contributed seven properties within the austin portfolio to a newly formed real estate venture . after contributing these properties , we wholly owned one property in austin , texas . for additional information , see item 1. business - 2013 transactions . the california segment includes properties in oakland , concord , and carlsbad . our corporate group is responsible for cash and investment management , development of certain real estate properties during the construction period , and certain other general support functions . we generate cash and revenue from leases of space at our properties and , to a lesser extent , from the management of properties owned by third parties and from investments in the real estate ventures . factors that we evaluate when leasing space include rental rates , costs of tenant improvements , tenant creditworthiness , current and expected operating costs , the length of the lease , vacancy levels and demand for office and industrial space . we also generate cash through sales of assets , including assets that we do not view as core to our portfolio , either because of location or expected growth potential , and assets that are commanding premium prices from third party investors . factors that may influence future results of operations global market and economic conditions in the u.s. , market and economic conditions have been improving , characterized by more availability to credit and modest growth . while recent economic data reflects modest growth , the cost and availability of credit may be adversely affected by illiquid credit markets and wider credit spreads . volatility in the u.s. and international markets and economies may adversely affect our liquidity and financial condition , and the liquidity and financial condition of our tenants . the continuance of these market conditions may limit our ability , as well as the ability of our tenants , to timely refinance maturing liabilities and access capital markets to meet liquidity needs . real estate asset valuation general economic conditions and the resulting impact on market conditions or a downturn in tenants ' businesses may adversely affect the value of our assets . challenging economic conditions in the u.s. , declining demand for leased office , mixed use , or industrial properties and or a decrease in market rental rates and or market values of real estate assets in our submarkets could have a negative impact on the value of our properties and related tenant improvements . if we were required under gaap to write down the carrying value of any of our properties to the lower of cost or fair value due to impairment , or if as a result of an early lease termination we were required to remove or dispose of material amounts of tenant improvements that are not reusable to another tenant , our financial condition and results of operations could be negatively affected . story_separator_special_tag tenant credit risk : in the event of a tenant default , we may experience delays in enforcing our rights as a landlord and may incur substantial costs in protecting our investment . our management regularly evaluates our accounts receivable reserve policy in light of our tenant base and general and local economic conditions . our accounts receivable allowance was $ 16.2 million or 10.3 % of total receivables ( including accrued rent receivable ) as of december 31 , 2013 compared to $ 16.6 million or 10.9 % of total receivables ( including accrued rent receivable ) as of december 31 , 2012 . if economic conditions persist or deteriorate further , we may experience increases in past due accounts , defaults , lower occupancy and reduced effective rents . this condition would negatively affect our future net income and cash flows and could have a material adverse effect on our financial condition . 45 development risk : on october 31 , 2013 we determined to proceed with development of the cira walnut tower ( `` cira walnut '' ) , which we currently contemplate as a 47 -story office and residential tower at 30 th and walnut streets in philadelphia on a site ground leased from the university of pennsylvania . we currently expect cira walnut to be ready for initial occupancy during the second quarter of 2016 and to include approximately 575,000 square feet of office space , 245,000 square feet of residential space consisting of 260 market rate finished and unfinished rental apartment units , and 10,000 square feet of retail space , with an additional floor containing a full range of amenities . to reduce development risk , we have pre-leased an aggregate of 61 % of the office square feet of cira walnut . the anchor tenant for approximately 253,000 square feet of office space is fmc corporation , a diversified chemical company serving agricultural , consumer and industrial markets globally . the lease with fmc has an initial term of sixteen ( 16 ) years from initial occupancy . in addition , we also pre-leased approximately 100,000 square feet of office space to the university of pennsylvania under a 20-year lease lease . cira walnut will be known as the fmc tower at cira centre south . we anticipate that the office component of the project will cost approximately $ 236.0 million with the residential component costing approximately $ 105.0 million for a total project cost of $ 341.0 million and intend to fund the cira walnut development costs through a combination of existing cash balances , capital raised through one or more joint venture formations , proceeds from additional asset sales or equity and debt financing including third party equity sources . our current intention is to either joint venture or pre-sell the residential component of the fmc tower at cira centre south . pursuant to this objective , we have executed a non-binding letter of intent with a residential development and operating company that contemplates either outcome . our ground lease with the university of pennsylvania has a term through july 2097 , with a variable rent that would provide the university with a percentage of the cash flow or proceeds of specified capital events subject to receipt of a priority return on the operating partnership 's investment . development projects are subject to a variety of risks , including construction delays , construction cost overruns , inability to obtain financing on favorable terms , inability to lease space at projected rates , inability to enter into construction , development and other agreements on favorable terms , and unexpected environmental and other hazards . see item 1a - risk factors . critical accounting policies and estimates management 's discussion and analysis of financial condition and results of operations discuss our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america ( gaap ) . the preparation of financial statements in conformity with gaap requires management to make estimates and assumptions that affect the reported amounts of assets , liabilities , and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses for the reporting periods . certain accounting policies are considered to be critical accounting policies , as they require management to make assumptions about matters that are highly uncertain at the time the estimate is made and changes in the accounting estimate are reasonably likely to occur from period to period . management believes the following critical accounting policies reflect our more significant judgments and estimates used in the preparation of our consolidated financial statements . for a summary of all of our significant accounting policies , see note 2 to our consolidated financial statements included elsewhere in this report . revenue recognition we recognize rental revenue on the straight-line basis from the later of the date of the commencement of the lease or the date of acquisition of the property subject to existing leases , which averages minimum rents over the terms of the leases . lease incentives , which are included as reductions of rental revenue are recognized on a straight-line basis over the term of the lease . our leases also typically provide for tenant reimbursement of a portion of common area maintenance expenses and other operating expenses to the extent that a tenant 's pro rata share of expenses exceeds a base year level set in the lease or to the extent that the tenant has a lease on a triple net basis . for certain leases , we make significant assumptions and judgments in determining the lease term , including assumptions when the lease provides the tenant with an early termination option . the lease term impacts the period over which we determine and record minimum rents and also impacts the period over which we amortize lease-related costs .
| results of operations comparison of the year ended december 31 , 2012 to the year ended december 31 , 2011 the table below shows selected operating information for the “ same store property portfolio ” and the “ total portfolio. ” after giving consideration to property sales through december 31 , 2013 the same store property portfolio consists of 191 properties containing an aggregate of approximately 21.4 million net rentable square feet that we owned for the entire twelve-month periods ended december 31 , 2012 and 2011 . the same store property portfolio includes properties acquired or placed in service on or prior to january 1 , 2011 and owned through december 31 , 2012 . the total portfolio includes the effects of other properties that were either placed into service , acquired or redeveloped after january 1 , 2011 or disposed of prior to december 31 , 2012 . a property is excluded from our same store property portfolio and moved into the redevelopment column in the period that we determine that a redevelopment would be the best use of the asset , and when said asset is taken out of service or is undergoing re-entitlement for a future development strategy . this table also includes a reconciliation from the same store property portfolio to the total portfolio net income ( i.e. , all properties owned by us during the twelve-month periods ended december 31 , 2012 and 2011 ) by providing information for the properties which were acquired , under development ( including lease-up assets ) or placed into service and administrative/elimination information for the twelve-month periods ended december 31 , 2012 and 2011 ( in thousands ) . the total portfolio net income presented in the table is equal to the net income of the parent company and the operating partnership .
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we also have audited , in accordance with the standards of the public company accounting oversight board ( united states ) , the consolidated balance sheets of pennsylvania real estate investment trust and subsidiaries as of december 31 , 2013 and 2012 , and the related consolidated statements of operations , comprehensive income , equity , and cash flows for each of the years in story_separator_special_tag the following analysis of our consolidated financial condition and results of operations should be read in conjunction with our consolidated financial statements and the notes thereto included elsewhere in this report . overview pennsylvania real estate investment trust , a pennsylvania business trust founded in 1960 and one of the first equity real estate investment trusts ( “ reits ” ) in the united states , has a primary investment focus on retail shopping malls located in the eastern half of the united states , primarily in the mid-atlantic region . we currently own interests in 43 retail properties , of which 40 are operating properties and three are development properties . the 40 operating properties , which are classified in continuing operations , include 35 enclosed malls and five power and strip centers , have a total of 30.4 million square feet and operate in 11 states . we and partnerships in which we own an interest own 23.6 million square feet at these properties ( excluding space owned by anchors ) . there are 33 operating retail properties in our portfolio that we consolidate for financial reporting purposes . these consolidated properties have a total of 25.8 million square feet , of which we own 20.5 million square feet . the seven operating retail properties that are owned by unconsolidated partnerships with third parties have a total of 4.6 million square feet , of which 3.1 million square feet are owned by such partnerships . the development portion of our portfolio contains three properties in two states , with two classified as “ mixed use ” ( a combination of retail and other uses ) and one classified as “ other. ” our primary business is owning and operating retail shopping malls , which we do primarily through our operating partnership , preit associates , l.p. ( “ preit associates ” or the “ operating partnership ” ) . we provide management , leasing and real estate development services through preit services , llc ( “ preit services ” ) , which generally develops and manages properties that we consolidate for financial reporting purposes , and preit-rubin , inc. ( “ pri ” ) , which generally develops and manages properties that we do not consolidate for financial reporting purposes , including properties we own interests in through partnerships with third parties and properties that are owned by third parties in which we do not have an interest . pri is a taxable reit subsidiary , as defined by federal tax laws , which means that it is able to offer additional services to tenants without jeopardizing our continuing qualification as a reit under federal tax law . our revenue consists primarily of fixed rental income , additional rent in the form of expense reimbursements , and percentage rent ( rent that is based on a percentage of our tenants ' sales or a percentage of sales in excess of thresholds that are specified in the leases ) derived from our income producing properties . we also receive income from our real estate partnership investments and from the management and leasing services pri provides . our net income increased by $ 79.8 million to $ 37.2 million for 2013 from a net loss of $ 42.6 million for the year ended december 31 , 2012 . the change in our 2013 results of operations from the prior year was primarily due to gains on sales of discontinued operations of $ 78.5 million in connection with the sales of orlando fashion square , paxton towne centre , christiana center and commons at magnolia , a $ 23.4 million decrease in interest expense , increased net operating income ( `` noi '' ) of $ 10.3 million at same store and properties acquired in 2013 and a decrease of $ 7.1 million in employee separation expenses . these favorable changes were partially offset by $ 30.0 million of impairment losses at chambersburg mall and north hanover mall , and an increase of $ 13.0 million in depreciation and amortization expenses . we evaluate operating results and allocate resources on a property-by-property basis , and do not distinguish or evaluate our consolidated operations on a geographic basis . due to the nature of our operating properties , which involve retail shopping , we have concluded that our individual properties have similar economic characteristics and meet all other aggregation criteria . accordingly , we have aggregated our individual properties into one reportable segment . in addition , no single tenant accounts for 10 % or more of our consolidated revenue , and none of our properties are located outside the united states . we hold our interest in our portfolio of properties through the operating partnership . we are the sole general partner of the operating partnership and , as of december 31 , 2013 , held a 97.0 % controlling interest in the operating partnership , and consolidated it for reporting purposes . we hold our investments in seven of the 40 retail properties and one of the three development properties in our portfolio through unconsolidated partnerships with third parties in which we own a 40 % to 50 % interest . we hold a non-controlling interest in each unconsolidated partnership , and account for such partnerships using the equity method of accounting . we do not control any of these equity method investees for the following reasons : 44 except for two properties that we co-manage with our partner , all of the other entities are managed on a day-to-day basis by one of our other partners as the managing general partner in each of the respective partnerships . story_separator_special_tag the estimates and assumptions made by management in applying critical accounting policies have not changed materially during 2013 , 2012 and 2011 , except as otherwise noted , and none of these estimates or assumptions have proven to be materially incorrect or resulted in our recording any significant adjustments relating to prior periods . we will continue to monitor the key factors underlying our estimates and judgments , but no change is currently expected . set forth below is a summary of the accounting policy that management believes is critical to the preparation of the consolidated financial statements . this summary should be read in conjunction with the more complete discussion of our accounting policies included in note 1 to our consolidated financial statements . asset impairment real estate investments and related intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the property might not be recoverable . a property to be held and used is considered impaired only if our management 's estimate of the aggregate future cash flows , less estimated capital expenditures , to be generated by the property , undiscounted and without interest charges , are less than the carrying value of the property . this estimate takes into consideration factors such as expected future operating income , trends and prospects , as well as the effects of demand , competition and other factors . in addition , these estimates may consider a probability weighted cash flow estimation approach when alternative courses of action to recover the carrying amount of a long-lived asset are under consideration or when a range of possible values is estimated . the determination of undiscounted cash flows requires significant estimates by management , including the expected course of action at the balance sheet date that would lead to such cash flows . subsequent changes in estimated undiscounted cash flows arising from changes in the anticipated action to be taken with respect to the property could impact the determination of whether an impairment exists and whether the effects could materially affect our net income . to the extent estimated undiscounted cash flows are less than the carrying value of the property , the loss will be measured as the excess of the carrying amount of the property over the estimated fair value of the property . assessment of our ability to recover certain lease related costs must be made when we have a reason to believe that the tenant might not be able to perform under the terms of the lease as originally expected . this requires us to make estimates as to the recoverability of such costs . an other than temporary impairment of an investment in an unconsolidated joint venture is recognized when the carrying value of the investment is not considered recoverable based on evaluation of the severity and duration of the decline in value . to the extent impairment has occurred , the excess carrying value of the asset over its estimated fair value is charged to income . if there is a triggering event in relation to a property to be held and used , we will estimate the aggregate future cash flows , less estimated capital expenditures , to be generated by the property , undiscounted and without interest charges . in addition , this estimate may consider a probability weighted cash flow estimation approach when alternative courses of action to recover the carrying amount of a long-lived asset are under consideration or when a range of possible values is estimated . in determining the estimated undiscounted cash flows of the properties that are being analyzed for impairment of assets , we take the sum of the estimated undiscounted cash flows , generally assuming a holding period of 10 years , plus a terminal value calculated using the estimated net operating income in the eleventh year and terminal capitalization rates , which in 2012 and 2013 ranged from 6.25 % to 12.0 % . in 2013 , two properties had triggering events that required further review for impairment . the fair values of the properties ( chambersburg mall and north hanover mall ) were determined based on negotiated sale prices of the properties as discussed further in note 2 to our consolidated financial statements . in 2012 , one property had a triggering event that required further review for impairment . in 2011 , after two properties had triggering events that required 46 further review for impairment , we estimated the fair value of the properties that experienced impairment of assets using discount rates applied to estimated cash flows ranging from 13 % to 14 % . chambersburg mall in 2013 , we recorded a loss on impairment of assets at chambersburg mall in chambersburg , pennsylvania of $ 23.7 million to write down the carrying value of the property 's long-lived assets to the property 's estimated fair value of $ 8.2 million . during the third quarter of 2013 , we entered into negotiations with a potential buyer of the property . as a result of this factor , we determined that the holding period for the property was less than had been previously estimated , which we concluded to be a triggering event , leading us to conduct an analysis of possible asset impairment at this property . using updated assumptions based on this factor , we determined that the estimated undiscounted cash flows , net of estimated capital expenditures , for chambersburg mall were less than the carrying value of the property , and recorded the impairment loss . we recorded the impairment loss in discontinued operations in the third quarter of 2013 and sold this property in the fourth quarter of 2013. north hanover mall in 2011 , we recorded a loss on impairment of assets at north hanover mall in hanover , pennsylvania of $ 24.1 million to write down the carrying value of the property 's long-lived assets to the property 's then estimated fair value of $ 22.5 million .
| results of operations overview net income for the year ended december 31 , 2013 was $ 37.2 million , an increase of $ 79.8 million compared to a net loss for the year ended december 31 , 2012 of $ 42.6 million . our 2013 and 2012 results of operations were primarily affected by the following : gains on sales of discontinued operations of $ 78.5 million in 2013 resulting from our sales of christiana center , paxton towne centre , commons at magnolia and orlando fashion square ; a decrease in interest expense of $ 26.0 million ( excluding the effects of loss on hedge ineffectiveness and accelerated amortization of deferred financing costs ) resulting from lower overall debt balances and lower average interest rates ; a decrease of $ 7.1 million in provision for employee separation expense ; an increase of $ 6.9 million in same store noi ( presented using the “ proportionate consolidation method ; ” see “ —net operating income ” ) ; and an increase of $ 3.3 million in net operating income from 907 market street , which was acquired in april 2013 ; partially offset by impairment of assets in 2013 of $ 23.7 million related to chambersburg mall and $ 6.3 million related to north hanover mall ; an increase of $ 13.0 million in depreciation and amortization expense ; an increase of $ 3.4 million in interest expense primarily due to net loss on hedge ineffectiveness that was recorded in interest expense ; and accelerated amortization of deferred financing fees of $ 1.1 million related to the repayment of the 2010 term loan and two other mortgage loans . net loss for the year ended december 31 , 2012 was $ 42.6 million , a decrease of $ 51.4 million compared to a net loss for the year ended december 31 , 2011 of $ 93.9 million .
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we have an experienced team of credit professionals , well-defined and implemented credit policies and procedure s , what we believe to be conservative loan underwriting criteria and active credit monitoring policies and procedures . increase core deposits and reduce reliance on higher cost borrowings . deposits are our primary source of funds for lending and investment . core deposits ( which we define as all deposits except for certificates of deposit ) , particularly non-interest-bearing demand deposits , represent a low-cost , stable source of funds . core deposits were 78.33 % of our total deposits at december 31 , 2019 . however , we also have to rely on higher cost federal home loan bank borrowings as a supplemental funding source as indicated by our high loan-to-deposit ratio . at december 31 , 2019 , our ratio of net loans to deposits was 121.4 % , and our federal home loan bank borrowings totaled $ 66.2 million . we used a portion of the net offering proceeds to repay our federal home loan bank borrowings , which we were able to do without incurring prepayment penalties . additionally , we continue to focus on expanding core deposits by leveraging our business development officers and commercial lending and retail relationships . grow organically and through opportunistic acquisitions or de novo branching . our primary intention is to grow our balance sheet organically , and the capital we raised in the offering which enabled us to increase our lending and investment capacity . as a local independent bank , we believe we will have opportunities to gain market share from customer fallout resulting from the consolidation of competing financial institutions in our market area into larger , out-of-market acquirers . in addition to organic growth , we may also consider expansion opportunities in our market area or in contiguous markets that we believe would enhance both our franchise value and stockholder returns . these opportunities include establishing loan production offices , establishing new , or de novo , branch offices and or acquiring branch offices and the capital raised in the offering will help us fund any such opportunities that may arise . we have no current plans or intentions regarding any such expansion plans . these strategies were developed to guide our investment of the net proceeds of our initial stock offering . we intend to continue to pursue this business strategy , subject to changes necessitated by future market conditions , regulatory restrictions and other factors . critical accounting policies the discussion and analysis of the financial condition and results of operations are based on our consolidated financial statements , which are prepared in conformity with generally accepted accounting principles used in the united states of america . the preparation of these financial statements requires management to make estimates and assumptions affecting the reported amounts of assets and liabilities , disclosure of contingent assets and liabilities and the reported amounts of income and expenses . we consider the accounting policies discussed below to be critical accounting policies . the estimates and assumptions that we use are based on historical experience and various other factors and are believed to be reasonable under the circumstances . actual results may differ from these estimates under different assumptions or conditions , resulting in a change that could have a material impact on the carrying value of our assets and liabilities and our results of operations . our critical accounting policies involve the calculation of the allowance for loan losses and the measurement of the fair value of financial instruments . a detailed description of these critical accounting policies can be found in notes 2 and 16 , respectively , to our consolidated financial statements beginning on page 45 of this annual report . emerging growth company status under the jobs act , a company with total annual gross revenues of less than $ 1.07 billion ( adjusted for inflation ) during its most recently completed fiscal year qualifies as an “ emerging growth company. ” first seacoast bancorp qualifies as an emerging growth company under the jobs act . an “ emerging growth company ” may choose not to hold non-binding advisory stockholder votes on annual executive compensation ( more frequently referred to as “ say-on-pay ” votes ) or on executive compensation payable in connection with a merger ( more frequently referred to as “ say-on-golden parachute ” votes ) . an emerging growth company also is not subject to the requirement that its auditors attest to the effectiveness of the company 's internal control over financial reporting and can provide scaled disclosure regarding executive compensation ; however , first seacoast bancorp will also not be subject to the auditor attestation requirement or additional executive compensation disclosure so long as it remains a “ smaller reporting 36 company ” under securities and exchange commission regulations ( generally less than $ 250 million of voting and non-vot ing equity held by non-affiliates ) . finally , an emerging growth company may elect to comply with new or amended accounting pronouncements in the same manner as a private company , but must make such election when the company is first required to file a regi stration statement . such an election is irrevocable during the period a company is an emerging growth company . the extended transition period is generally one year , although it may vary for any particular accounting pronouncement . the current expected cred it losses accounting standard ( cecl ) carries an extended transition period of two years . we have opted to take advantage of the benefits of this extended transition period . accordingly , our consolidated financial statements may not be comparable to compani es that comply with such new or revised accounting standards . story_separator_special_tag there were no brokered deposits included in certificates of deposit a t december 31 , 2019 and 2018 . advances from federal home loan bank . advances from federal home loan bank decreased $ 9.5 million , or 12.6 % , to $ 66.2 million at december 31 , 2019 from $ 75.7 million at december 31 , 2018. the decrease in advances from federal home loan bank was primarily the result of our use of funds received from the stock offering to pay down advances . total stockholders ' equity . total stockholders ' equity increased $ 24.3 million , or 74.4 % , to $ 57.1 million at december 31 , 2019 from $ 32.7 million at december 31 , 2018. this increase was due primarily to $ 25.1 million in funds received from the stock offering and other comprehensive income of $ 986,000 related to net changes in unrealized holding gains/losses in the available-for-sale securities portfolio offset by a net operating loss of $ 79,000 for the year ended december 31 , 2019 and $ 2.4 million for the purchase of 238,473 shares of common stock by the employee stock option plan ( “ esop ” ) . nonperforming assets . non-performing assets include loans that are 90 or more days past due or on non-accrual status , including troubled debt restructurings on non-accrual status , and real estate and other loan collateral acquired through foreclosure and repossession . troubled debt restructurings include loans for which either a portion of interest or principal has been forgiven or loans modified at interest rates materially less than current market rates . management determines that a loan is impaired or nonperforming when it is probable at least a portion of the loan will not be collected in accordance with the original terms due to a deterioration in the financial condition of the borrower or the value of the underlying collateral if the loan is collateral dependent . when a loan is determined to be impaired , the measurement of the loan in the allowance for loan losses is based on present value of expected future cash flows , except that all collateral-dependent loans are measured for impairment based on the fair value of the collateral . non-accrual loans are loans for which collectability is questionable and , therefore , interest on such loans will no longer be recognized on an accrual basis . we generally cease accruing interest on our loans when contractual payments of principal or interest have become 90 days past due or management has serious doubts about further collectability of principal or interest , even though the loan is currently performing . interest received on non-accrual loans generally is applied against principal or applied to interest on a cash basis . generally , loans are restored to accrual status when the obligation is brought current , has performed in accordance with the contractual terms for at least six consecutive months and the ultimate collectability of the total contractual principal and interest is no longer in doubt . nonperforming loans were $ 1.1 million and $ 68,000 , or 0.31 % and 0.02 % of total loans , at december 31 , 2019 and december 31 , 2018 , respectively . the increase in nonperforming loans was primarily due to a sba-guaranteed commercial and industrial loan , which had an outstanding balance of $ 1.0 million at december 31 , 2019 , and is secured by all business assets . the sba guaranty covers 75 % of the loan balance . although this loan was performing according to its original terms at december 31 , 2019 , it was considered nonperforming due to the financial condition and prospects of the borrower . at december 31 , 2019 and 2018 we had no troubled debt restructurings or foreclosed assets . comparison of operating results for the years ended december 31 , 2019 and 2018 net income . net loss was $ 79,000 for the year ended december 31 , 2019 , compared to net income of $ 1.1 million for the year ended december 31 , 2018 , a decrease of $ 1.2 million or 107.3 % . the decrease was related primarily to the $ 758,000 establishment of , and contribution to , our new charitable foundation , an increase in salaries and employee benefits of $ 865,000 and an increase in marketing expenses of $ 521,000 , primarily related to expenses incurred for the bank 's name change and rebranding , partially offset by a $ 386,000 increase in net interest income after provision for loan losses and a $ 421,000 decrease in income taxes during the year ended december 31 , 2019. interest and dividend income . interest and dividend income increased $ 1.2 million , or 8.3 % , to $ 15.4 million for the year ended december 31 , 2019 from $ 14.3 million for the year ended december 31 , 2018. this increase was due to a $ 972,000 , or 7.5 % , increase in interest and fees on loans , primarily due to an increase of $ 18.3 million in the average balance of the loan portfolio to $ 333.1 million for the year ended december 31 , 2019 from $ 314.8 million for the year ended december 31 , 2018 , and a $ 212,000 increase in interest and dividend income on investments , or 16.6 % , to $ 1.5 million for the year ended december 31 , 2019 from $ 1.3 million for the year ended december 31 , 2018. the weighted average yield for 38 the loan portfolio increased to 4.19 % for the year ended december 31 , 2019 from 4.13 % for the year ended december 31 , 2018 . the weighted average yield for the investment portfolio increased to 2.72 % for the year ended december 31 , 2019 from 2.55 % for the year ended december 31 , 2018 .
| financial condition and results of operations this discussion and analysis reflects our consolidated financial statements and other relevant statistical data and is intended to enhance your understanding of our financial condition and results of operations . the information in this section has been derived from the consolidated financial statements , which appear elsewhere in this annual report . certain prior year amounts have been reclassified to conform to the current year presentation . you should read the information in this section in conjunction with the other business and financial information provided in this annual report . overview our business consists primarily of taking deposits from the general public and investing those deposits , together with funds generated from operations and borrowings from the federal home loan bank , in one- to four-family residential real estate loans , commercial real estate and multi-family loans , acquisition , development and land loans , commercial and industrial loans , home equity loans and lines of credit and consumer loans . in recent years , we have increased our focus , consistent with what we believe to be conservative underwriting standards , on originating higher yielding commercial real estate and commercial and industrial loans , and we intend to continue that focus after the reorganization and offering . we conduct our operations from four full-service banking offices in strafford county , new hampshire , and one full-service banking office in rockingham county , new hampshire . we consider our primary lending market area to be strafford and rockingham counties in new hampshire and york county in southern maine . covid-19 pandemic . in december 2019 , a novel strain of coronavirus was reported in wuhan , china . the world health organization has declared the outbreak to constitute a “ public health emergency of international concern. ” the covid-19 outbreak is disrupting supply chains and affecting production and sales across a range of industries .
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introduction we are a leading provider of specialty contracting services , offering infrastructure solutions primarily to the electric power and oil and gas industries in the united states , canada and australia and select other international markets . the services we provide include the design , installation , upgrade , repair and maintenance of infrastructure within each of the industries we serve , such as electric power transmission and distribution networks , substation facilities , renewable energy facilities , and pipeline transmission and distribution systems and facilities . we report our results under two reportable segments : ( 1 ) electric power infrastructure services and ( 2 ) oil and gas infrastructure services . this structure is generally focused on broad end-user markets for our services . our consolidated revenues for the year ended december 31 , 2016 were approximately $ 7.65 billion , of which 63 % was attributable to the electric power infrastructure services segment and 37 % to the oil and gas infrastructure services segment . our customers include many of the leading companies in the industries we serve . we have developed strong strategic alliances with numerous customers and strive to develop and maintain our status as a preferred vendor to our customers . we enter into various types of contracts , including competitive unit price , hourly rate , cost-plus ( or time and materials basis ) , and fixed price ( or lump sum basis ) , the final terms and prices of which are frequently negotiated with the customer . although the terms of our contracts vary considerably , most are made on either a unit price or fixed price basis in which we agree to do the work for a price per unit of work performed ( unit price ) or for a fixed amount for the entire project ( fixed price ) . we complete a substantial majority of our fixed price projects , other than certain large transmission projects , within one year , while we frequently provide maintenance and repair work under open-ended unit price or cost-plus master service agreements that are renewable periodically . we recognize revenue on our unit price and cost-plus contracts as units are completed or services are performed . for our fixed price contracts , we record revenues as work on the contract progresses on a percentage-of-completion basis . under this method , revenue is recognized based on the percentage of total costs incurred to date in proportion to total estimated costs to complete the contract . fixed price contracts generally include retainage provisions under which a percentage of the contract price is withheld until the project is complete and has been accepted by our customer . for internal management purposes , we are organized into two internal divisions , namely , the electric power infrastructure services division and the oil and gas infrastructure services division . these internal divisions are closely aligned with the reportable segments described above based on the predominant type of work provided by the operating units within each division . 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 in support of our market strategies . these classifications 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 infrastructure service 37 index to financial statements projects for customers in multiple industries , deliver multiple types of infrastructure services under a single customer contract or provide services across 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 at each of our operating units requires that certain allocations , including allocations of shared and indirect costs , such as facility costs , indirect operating expenses including depreciation , and general and administrative costs , be made to determine operating segment profitability . corporate costs , such as payroll and benefits , employee travel expenses , facility costs , professional fees , acquisition costs and amortization related to intangible assets are not allocated . the electric power infrastructure services segment provides comprehensive network solutions to customers in the electric power industry . services performed by the electric power infrastructure services segment generally include the design , installation , upgrade , repair and maintenance of electric power transmission and distribution infrastructure and substation facilities along with other engineering and technical services . this segment also provides emergency restoration services , including the repair of infrastructure damaged by inclement weather , the energized installation , maintenance and upgrade of electric power infrastructure utilizing unique bare hand and hot stick methods and our proprietary robotic arm technologies , and the installation of smart grid technologies on electric power networks . in addition , this segment designs , installs and maintains renewable energy generation facilities , consisting of solar , wind and certain types of natural gas generation facilities , and related switchyards and transmission infrastructure . to a lesser extent , this segment provides services such as the construction of electric power generation facilities , the design , installation , maintenance and repair of commercial and industrial wiring , the installation of traffic networks and cable and control systems for light rail lines and ancillary telecommunication infrastructure services . the oil and gas infrastructure services segment provides comprehensive network solutions to customers involved in the development and transportation of natural gas , oil and other pipeline products . services performed by the oil and gas infrastructure services segment generally include the design , installation , repair and maintenance of pipeline transmission and distribution systems , gathering systems , production systems , storage systems and compressor and pump stations , as well as related trenching , directional boring and mechanized welding services . story_separator_special_tag in addition , we issued one share of series g preferred stock associated with 899,858 of the exchangeable shares , which generally votes on the same matters as quanta common stock and is entitled to a number of votes equal to the number of such exchangeable shares outstanding at that time . exchangeable shares not associated with preferred stock do not have voting rights . the aggregate value of the securities issued on the settlement dates of the acquisitions totaled approximately $ 134.5 million . as these transactions were effective during 2014 , the results of each acquired company have been included in our consolidated financial statements beginning on the respective dates of acquisition . seasonality ; fluctuations of results ; economic conditions our revenues and results of operations can be subject to seasonal and other variations . these variations are influenced by weather , customer spending patterns , bidding seasons , receipt of required regulatory approvals , 39 index to financial statements permits and rights of way , project timing and schedules , and holidays . typically , our revenues are lowest in the first quarter of the year because cold , snowy or wet conditions can cause delays on projects . in addition , many of our customers develop their capital budgets for the coming year during the first quarter and do not begin infrastructure projects in a meaningful way until their capital budgets are finalized . second quarter revenues are typically higher than those in the first quarter , as some projects begin , but continued cold and wet weather can often impact second quarter productivity . third quarter revenues are typically the highest of the year , as a greater number of projects are underway , and weather is more accommodating . generally , revenues during the fourth quarter of the year are lower than the third quarter but higher than the second quarter . many projects are completed in the fourth quarter , and revenues are often impacted positively by customers seeking to spend their capital budgets before the end of the year ; however , the holiday season and inclement weather can sometimes cause delays , reducing revenues and increasing costs . any quarter may be positively or negatively affected by atypical weather patterns in any of the areas we serve , such as severe weather , excessive rainfall or unusual winter weather , making it difficult to predict these variations and their effect on particular projects quarter to quarter . the timing of project awards and unanticipated changes in project schedules as a result of delays or accelerations can also create variations in the level of operating activity from quarter to quarter . these seasonal impacts are typical for our u.s. operations , but as our foreign operations continue to grow , we may see a lessening of this pattern impacting our quarterly revenues . for example , revenues in canada are often higher in the first quarter as projects are accelerated so that work can be completed prior to the break up , or seasonal thaw , as productivity is adversely affected by wet ground conditions during the warmer spring and summer months . also , although revenues from australia and other international operations have not been significant relative to our overall revenues to date , their seasonal patterns may differ from those in north america and may impact our seasonality more in the future . additionally , our industry can be highly cyclical . our volume of business may be adversely affected by declines or delays in new projects due to cyclicality , which may vary by geographic region , including the united states , canada and australia . project schedules , particularly in connection with larger , longer-term projects , can also create fluctuations in the services provided , which may adversely affect us in a given period . for example , in connection with larger , more complicated projects , the timing of obtaining permits and other approvals may be delayed , and we may need to maintain a portion of our workforce and equipment in an underutilized capacity to ensure we are strategically positioned to deliver on such projects when they move forward . examples of other items that may cause our results or demand for our services to fluctuate materially from quarter to quarter include : the financial condition of our customers and their access to capital ; margins of projects performed during any particular period ; regional , national and global economic and market conditions ; our customers capital spending , including on larger pipeline and electrical infrastructure projects ; natural gas and oil prices ; the timing of acquisitions , the timing and magnitude of acquisition and integration costs associated with acquisitions ; dispositions ; equity in earnings ( losses ) of unconsolidated affiliates ; impairments of goodwill , intangible assets , long-lived assets or investments ; effective tax rates ; and interest rates . accordingly , our operating results in any particular period may not be indicative of the results that can be expected for any other period . you should read outlook and understanding margins for additional discussion of trends and challenges that may affect our financial condition , results of operations and cash flows . understanding margins our gross margin is gross profit expressed as a percentage of revenues , and our operating margin is operating income expressed as a percentage of revenues . cost of services , which is subtracted from revenues to obtain gross profit , consists primarily of salaries , wages and benefits to employees , depreciation , fuel and other equipment expenses , equipment rentals , subcontracted services , insurance , facilities expenses , materials and parts and supplies . selling , general and administrative expenses and amortization of intangible assets are then subtracted from gross profit to obtain operating income . various factors some controllable , some not can impact our margins on a quarterly or annual basis . 40 index to financial statements seasonal and geographical .
| consolidated results replace_table_token_7_th 2016 compared to 2015 revenues . revenues increased $ 78.9 million , or 1.0 % , to $ 7.65 billion for the year ended december 31 , 2016. contributing to the increase was a $ 165.7 million increase in revenues from oil and gas infrastructure services , partially offset by a $ 86.8 million decrease in revenues from electric power infrastructure services . the increase in revenues from oil and gas infrastructure services primarily resulted from increased capital spending by our customers associated with larger projects , certain of which moved into full construction during the second half of 2016 , after experiencing regulatory and permitting delays in the first half of 2016 , as well as from increased customer spending for natural gas distribution services . consolidated revenues were also favorably 43 index to financial statements impacted by approximately $ 125 million due to revenues generated by acquired companies , primarily in the electric power infrastructure services segment . the decrease in revenues from electric power infrastructure services resulted from reduced customer spending associated with larger electric transmission projects as customers continued to face heightened regulatory and environmental requirements from state and federal agencies and more stringent permitting processes with various regional system operators . this regulatory environment negatively impacted the timing of existing projects and delayed the development of other infrastructure projects , which resulted in decreased demand for our services . in addition , revenues contributed by our international operations were negatively impacted by approximately $ 41 million due to less favorable average foreign currency translation rates in 2016 as compared to 2015 , primarily attributable to the strengthening of the u.s. dollar against the canadian dollar throughout 2016. gross profit .
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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 st airs , 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 hardware . 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 , 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 . during the housing downturn , which 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 618,400 in 2013 , which is the highest level achieved since 2008. despite this increase , single-family housing starts remain well below the historical average ( from 1959 through 2012 ) of 1.0 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 servicing large homebuilders with certain profitability expectations . our sales to the “ builder 100 , ” the country 's largest 100 homebuilders , increased 33.2 % during 2013 , compared to a 15.5 % 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 . 22 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 slowed during the downturn . we are seeing this trend 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 . over the past few years , the mortgage markets have experienced substantial disruption due to increased defaults . story_separator_special_tag we used the proceeds from the 2021 notes offering , together with cash on hand , to redeem $ 139.7 million in second priority senior secu red floating rate notes due 2016 ( “ 2016 notes ” ) , to pay off our $ 225.0 million first-lien term loan due 2015 ( “ term loan ” ) , including the prepayment premium , and to pay fees and expenses related to the transaction . upon the repayment of the outstanding borrowings and payment of the prepayment premium and accrued interest , we terminated the term loan , which included a $ 15.0 million letter of credit sub-facility ( “ sub-facility ” ) . the $ 12.7 million of outstanding letters of credit under the sub-facility at th e time were transferred to the 2013 facility . at the same time , we also terminated our $ 10.0 million letter of credit stand-alone facility ( “ stand-alone facility ” ) . there were no letters of credit outstanding under the stand-alone facility at the time of termination . for the year ended december 31 , 2013 , interest expense included refinancing costs of approximately $ 48.4 million . these refinancing costs include the $ 39.5 million prepayment premium on the term loan , a $ 6.8 million write-off of unamortized debt discount on the term loan , and a $ 2.1 million write-off of unamortized deferred loan costs on the term loan and 2016 notes . these refinancing charges negatively impacted our results for the year ended december 31 , 2013. however , as a result of our new capital structure our annual cash interest going forward will decrease by approximately $ 16.0 million , to approximately $ 28.0 million , assuming there are no borrowings under the 2013 facility . story_separator_special_tag style= '' font-weight : bold ; font-style : italic ; ; font-size:10pt ; font-family : times new roman ; text-transform : none ; font-variant : normal ; '' > 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 . 25 the following table shows sales classified by major product category ( dollars in millions ) : replace_table_token_6_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 in 2012 had risen to levels not seen on a consistent basis since 2005 and 2006. this commodity price inflation 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 mi llion . our gross margin percentage decreased from 20.3 % in 2011 to 20.0 % in 2012 , a 0.3 % decrease . our gross margin percentage 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 . selling , general and administrative expenses increased $ 2 9.3 million , or 15.2 % . our salaries and benefits expense , excluding stock compensation expense , was $ 137.5 million for 2012 , an increase of $ 27.1 million from 2011. delivery expenses increased $ 4.0 million primarily due to higher fuel costs and increased maintenance costs on vehicles . occupancy expenses decreased $ 0.6 million and our office general and administrative expense decreased $ 0.5 million , primarily due to $ 0.6 million in proceeds received from a litigation settlement . as a percent of sales , selling , general and administrative expenses , excluding asset impairments and stock compensation expense , decreased from 24.2 % in 2011 to 20.4 % in 2012. salaries and benefits expense , excluding stock compensation expense , decreased 1.3 % and delivery costs decre ased by 1.0 % . occupancy decreased by 0.7 % due to the fixed nature of the category and our office general and administrative expense decreased 0.7 % . interest expense , net . interest expense was $ 45.1 million in 2012 , an increase of $ 20.2 million . the increa se was primarily due to $ 17.5 million of interest expense on our term loan entered into in december 2011 and $ 4.3 million of fair value adjustments on the warrants issued as part of the term loan . these increases were partially offset by a $ 1.1 million reduction due to the termination of our revolving credit facility in 2011. income tax expense . we recorded income tax expense of $ 0.6 million and $ 2.2 million during 2012 and 2011 , respectively . we recorded an after-tax , non-cash valuation allowance of $ 19.6 million and $ 26.1 million related to our net deferred tax assets for 2012 and 2011 , respectively . absent this valuation allowance , our effective tax rate would have been 35.3 % and 38.3 % for 2012 and 2011 , respectively . 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 .
| 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 2013 compared with 2012 sales . sales for the year ended december 31 , 2013 were $ 1,489.9 million , a 39.2 % increase from sales of $ 1,070.7 million for 2012. actual u.s. single-family housing starts increased 15.5 % in 2013 as compared to 2012. in the south region , actual single-family starts also increased 15.5 % compared to 2012 , and single-family units under construction increased 25.4 % 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 sales increased 29.2 % due to volume and 10.0 % due to price for the year ended december 31 , 2013 compared to the year ended december 31 , 2012 . 24 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 17 .8 % higher in 2013 compared to 2012. during 2013 and 2012 , prices rose to levels not seen on a consistent basis since 2005 and 2006. this commodity price inflation contributed to sales growth for lumber & lumber sheet goods and prefabricated components exceeding that of our other product categories . growth in prefabricated components was also due to increased customer demand for these products as builders have become more focused on reducing construction cycle time . gross margin . gross margin increased $ 105.4 million to $ 319.9 million . our gross margin percentage increased from 20.0 % in 2012 to 21.5 % in 2013 , a 1.5 % increase .
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the 27 tank barges story_separator_special_tag statements contained in this form 10-k that are not historical facts , including , but not limited to , any projections contained herein , are forward-looking statements and involve a number of risks and uncertainties . such statements can be identified by the use of forward-looking terminology such as “ may , ” “ will , ” “ expect , ” “ anticipate , ” “ estimate , ” or “ continue , ” or the negative thereof or other variations thereon or comparable terminology . the actual results of the future events described in such forward-looking statements in this form 10-k could differ materially from those stated in such forward-looking statements . among the factors that could cause actual results to differ materially are : adverse economic conditions , industry competition and other competitive factors , adverse weather conditions such as high water , low water , tropical storms , hurricanes , tsunamis , fog and ice , tornados , covid-19 or other pandemics , marine accidents , lock delays , fuel costs , interest rates , construction of new equipment by competitors , government and environmental laws and regulations , and the timing , magnitude and number of acquisitions made by the company . for a more detailed discussion of factors that could cause actual results to differ from those presented in forward-looking statements , see item 1a-risk factors . forward-looking statements are based on currently available information and the company assumes no obligation to update any such statements . for purposes of management 's discussion , all net earnings per share attributable to kirby common stockholders are “ diluted earnings per share. ” the weighted average number of common shares outstanding applicable to diluted earnings per share for 2020 , 2019 and 2018 were 59,912,000 , 59,909,000 and 59,689,000 , respectively . overview the company is the nation 's largest domestic tank barge operator , transporting bulk liquid products throughout the mississippi river system , on the gulf intracoastal waterway , coastwise along all three united states coasts , and in alaska and hawaii . the company transports petrochemicals , black oil , refined petroleum products and agricultural chemicals by tank barge . as of december 31 , 2020 , the company operated a fleet of 1,066 inland tank barges with 24.1 million barrels of capacity , and operated an average of 248 inland towboats during the 2020 fourth quarter . the company 's coastal fleet consisted of 44 tank barges with 4.2 million barrels of capacity and 44 coastal tugboats . the company also owns and operates four offshore dry-bulk cargo barges , four offshore tugboats and one docking tugboat transporting dry-bulk commodities in united states coastal trade . through its distribution and services segment , the company provides after-market service and parts for engines , transmissions , reduction gears , and related equipment used in oilfield services , marine , power generation , on-highway , and other industrial applications . the company also rents equipment including generators , industrial compressors , railcar movers , and high capacity lift trucks for use in a variety of industrial markets , and manufactures and remanufactures oilfield service equipment , including pressure pumping units , for land-based oilfield service customers . for 2020 , net loss attributable to kirby was $ 272,546,000 , or $ 4.55 per share , on revenues of $ 2,171,408,000 , compared to 2019 net earnings attributable to kirby of $ 142,347,000 , or $ 2.37 per share , on revenues of $ 2,838,399,000. the 2020 first quarter included $ 561,274,000 before taxes , $ 433,341,000 after taxes , or $ 7.24 per share , non-cash charges related to inventory write-downs , impairment of long-lived assets , including intangible assets and property and equipment , and impairment of goodwill in the distribution and services segment . see note 7 , impairments and other charges for additional information . in addition , the 2020 first quarter was favorably impacted by an income tax benefit of $ 50,824,000 , or $ 0.85 per share related to net operating losses generated in 2018 and 2019 used to offset taxable income generated between 2013 and 2017. see note 9 , taxes on income for additional information . the 2019 fourth quarter included $ 35,525,000 before taxes , $ 27,978,000 after taxes , or $ 0.47 per share , non-cash inventory write-downs and $ 4,757,000 before taxes , $ 3,747,000 after taxes , or $ 0.06 per share , severance and early retirement expense . marine transportation for 2020 , 65 % of the company 's revenues were generated by its marine transportation segment . the segment 's customers include many of the major petrochemical and refining companies that operate in the united states . products transported include intermediate materials used to produce many of the end products used widely by businesses and consumers — plastics , fibers , paints , detergents , oil additives and paper , among others , as well as residual fuel oil , ship bunkers , asphalt , gasoline , diesel fuel , heating oil , crude oil , natural gas condensate and agricultural chemicals . consequently , the company 's marine transportation business is directly affected by the volumes produced by the company 's petroleum , petrochemical and refining customer base . 36 the company 's marine transportation segment 's revenues for 2020 decreased 12 % compared to 2019 and operating income decreased 24 % , compared to 2019. the decreases were primarily due to reduced barge utilization in the inland and coastal markets and decreased term and spot contract pricing in the inland market , each as a result of a reduction in demand due to the covid-19 pandemic , lower fuel rebills , retirements of three large coastal barges , and planned shipyard activity in the coastal market . story_separator_special_tag 37 the 2020 marine transportation operating margin was 11.7 % compared to 13.6 % for 2019. distribution and services during 2020 , the distribution and services segment generated 35 % of the company 's revenues , of which 93 % was generated from service and parts and 7 % from manufacturing . the results of the distribution and services segment are largely influenced by cycles of the land-based oilfield service and oil and gas operator and producer markets , marine , power generation , on-highway and other industrial markets . distribution and services revenues for 2020 decreased 39 % compared to 2019 and operating income decreased 118 % compared to 2019. the decreases were primarily attributable to reduced activity in the oilfield as a result of oil price volatility throughout 2019 and 2020 , the extensive downturn in oil and gas exploration due to low oil prices , caused in part by the covid-19 pandemic , an oversupply of pressure pumping equipment in north america , and reduced spending and enhanced cash flow discipline for the company 's major oilfield customers . as a result , customer demand and incremental orders for new and remanufactured pressure pumping equipment and sales of new and overhauled transmissions and related parts and service declined during 2020. for 2020 , the oil and gas market represented approximately 26 % of distribution and services revenues . the 2020 commercial and industrial market revenues decreased compared to 2019 , primarily due to reductions in on-highway and power generation service demand as a result of the covid‑19 pandemic and the resulting economic slowdown and nationwide , state , and local stay-at-home orders , partially offset by contributions from the convoy servicing company and agility fleet services , llc ( collectively “ convoy ” ) acquisition on january 3 , 2020. demand in the marine business was also down due to reduced major overhaul activity . for 2020 , the commercial and industrial market contributed 74 % of the distribution and services revenues . the distribution and services operating margin for 2020 was ( 1.6 ) % compared to 5.4 % for 2019. cash flow and capital expenditures the company generated favorable operating cash flow during 2020 with net cash provided by operating activities of $ 444,940,000 compared to $ 511,813,000 of net cash provided by operating activities for 2019 , a 13 % decrease . the decline was driven by decreased revenues and operating income in both the marine transportation and distribution and services segments . the decrease in the marine transportation segment was driven by decreased barge utilization in the inland and coastal markets and decreased term and spot contract pricing in the inland market , each as a result of a reduction in demand due to the covid-19 pandemic , partially offset by the savage acquisition in april 2020 and the cenac acquisition in march 2019 and reduced costs . t he decrease in the distribution and services segment was primarily attributable to reduced activity in the oilfield as a result of oil price volatility throughout 2019 and 2020 , the extensive downturn in oil and gas exploration due to low oil prices , caused in part by the covid-19 pandemic , an oversupply of pressure pumping equipment in north america , and reduced spending and enhanced cash flow discipline for the company 's major oilfield customers . the decline was also partially offset by changes in certain operating assets and liabilities primarily related to reduced incentive compensation payouts in the 2020 first quarter and a larger decrease in trade accounts receivable compared to an increase during 2019 , driven by reduced business activity levels in both the marine transportation and distribution and services segments . in addition , during 2020 , the company received a tax refund of $ 30,606,000 for its 2018 tax return related to net operating losses being carried back to offset taxable income generated during 2013. during 2020 and 2019 , the company generated cash of $ 17,310,000 and $ 57,657,000 , respectively , from proceeds from the disposition of assets , and $ 353,000 and $ 5,743,000 , respectively , from proceeds from the exercise of stock options . for 2020 , cash generated and borrowings under the company 's revolving credit facility were used for capital expenditures of $ 148,185,000 , ( including a decrease in accrued capital expenditures of $ 13,280,000 ) including $ 7,506,000 for inland towboat construction and $ 140,679,000 primarily for upgrading existing marine equipment and marine transportation and distribution and services facilities . the company also used $ 354,972,000 for acquisitions of businesses and marine equipment , more fully described under acquisitions below . 38 for 2019 , cash generated and borrowings under the company 's revolving credit facility were used for capital expenditures of $ 248,164,000 ( including a decrease in accrued capital expenditures of $ 13,875,000 ) , including $ 22,008,000 for inland towboat construction , $ 18,433,000 for progress payments on three 5000 horsepower coastal atb tugboats , $ 2,294,000 for final costs on a 155,000 barrel coastal atb under construction purchased from another operator that was delivered to the company in the 2018 fourth quarter , and $ 205,429,000 primarily for upgrading existing marine equipment and marine transportation and distribution and services facilities . the company also used $ 262,491,000 for acquisitions of businesses and marine equipment , more fully described under acquisitions below . the company 's debt-to-capitalization ratio increased to 32.2 % at december 31 , 2020 from 28.9 % at december 31 , 2019 , primarily due to borrowings under the revolving credit facility to acquire the savage fleet in the 2020 second quarter and the convoy acquisition in the 2020 first quarter as well as the decrease in total equity , primarily from the net loss attributable to kirby for 2020 of $ 272,546,000. the company 's debt outstanding as of december 31 , 2020 and december 31 , 2019 is detailed in long-term financing below .
| results of operations the following tables set forth the company 's net earnings ( loss ) attributable to kirby , along with per share amounts , and marine transportation and distribution and services revenues and the percentage of each to total revenues for the comparable periods ( dollars in thousands ) : replace_table_token_5_th replace_table_token_6_th the 2020 first quarter included $ 561,274,000 before taxes , $ 433,341,000 after taxes , or $ 7.24 per share , non-cash charges related to inventory write-downs , impairment of long-lived assets , including intangible assets and property and equipment , and impairment of goodwill in the distribution and services segment . see note 7 , impairments and other charges to the company ' s financial statements for additional information . in addition , the 2020 first quarter was favorably impacted by an income tax benefit of $ 50,824,000 , or $ 0.85 per share related to net operating losses generated in 2018 and 2019 used to offset taxable income generated between 2013 and 2017. see note 9 , taxes on income to the company ' s financial statements for additional information . the 2019 fourth quarter included $ 35,525,000 before taxes , $ 27,978,000 after taxes , or $ 0.47 per share , non-cash inventory write-downs and $ 4,757,000 before taxes , $ 3,747,000 after taxes , or $ 0.06 per share , severance and early retirement expense . the 2018 fourth quarter included $ 85,108,000 before taxes , $ 67,235,000 after taxes , or $ 1.12 per share , non-cash impairment of long-lived assets and lease cancellation costs and $ 2,702,000 before taxes , $ 2,135,000 after taxes , or $ 0.04 per share , non-cash impairment of goodwill .
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for the company 's backplane assembly plant in shanghai , china , which is managed in conjunction with the company 's u.s. operations , earnings are expected to be repatriated and therefore the company has provided u.s. income taxes on undistributed earnings . the company recognizes the effect of income tax positions only story_separator_special_tag this financial review presents our operating results for each of our three most recent fiscal years and our financial condition at december 31 , 2011. except for historical information contained herein , the following discussion contains forward-looking statements which are subject to known and unknown risks , uncertainties and other factors that may cause our actual results to differ materially from those expressed or implied by such forward-looking statements . we discuss such risks , uncertainties and other factors throughout this report and specifically under item 1a of part i of this report , risk factors . in addition , the following discussion should be read in connection with the information presented in our consolidated financial statements and the related notes to our consolidated financial statements . overview we are a leading global provider of time-critical and technologically complex printed circuit board ( pcb ) products and backplane assemblies ( pcbs populated with electronic components ) , which serve as the foundation of sophisticated electronic products . we provide our customers time-to-market and advanced technology products and offer a one-stop manufacturing solution to customers from engineering support to prototype development through final volume production . we serve a diversified customer base in various markets throughout the world , including manufacturers of networking/communications infrastructure products , touch screen tablets and mobile media devices ( cellular phones and smartphones ) . we also serve high-end computing , commercial aerospace/defense , and industrial/medical industries . our customers include both original equipment manufacturers ( oems ) and electronic manufacturing services ( ems ) providers . in april 2010 , we acquired from meadville all of the issued and outstanding capital stock of four of its subsidiaries . these four companies and their respective subsidiaries collectively referred to as the pcb subsidiaries , comprised meadville 's pcb manufacturing and distribution business . see note 3 in our consolidated financial statements . based on customer inputs regarding new product introductions and overall prospects for our business , the majority of our net sales for 2012 are expected in the second half of the year . additionally , in january 2012 we temporarily closed a significant facility , dongguan shengyi electronics ltd. ( sye ) , located in dongguan , china , for repairs and upgrades . the closure is expected to last until approximately june 2012. a majority of sye 's production and a significant portion of its work force will be temporarily transferred to our other facilities located in south china during this period . we estimate net sales in our asia pacific operating segment will be reduced by approximately $ 3.0 million to $ 6.0 million in each of the first two quarters of 2012 as a result of this temporary closure . while our customers include both oem and ems providers , we measure customers based on oem companies as they are the ultimate end customers . we measure customers as those companies that have placed orders of $ 2,000 or more in the preceding 12-month period . as of december 31 , 2011 , we had approximately 1,220 customers and as of december 31 , 2010 we had approximately 1,160 customers . sales to our 10 largest customers accounted for 46 % , 42 % and 56 % of our net sales in 2011 , 2010 and 2009 , respectively . we sell to oems both directly and indirectly through ems companies . the following table shows the percentage of our net sales attributable to each of the principal end markets we served for the periods indicated . replace_table_token_10_th 36 ( 1 ) sales to ems companies are classified by the end markets of their oem customers . for pcbs , we measure the time sensitivity of our products by tracking the quick-turn percentage of our work . we define quick-turn orders as those with delivery times of 10 days or less , which typically captures research and development , prototype , and new product introduction work , in addition to unexpected short-term demand among our customers . generally , we quote prices after we receive the design specifications and the time and volume requirements from our customers . our quick-turn services command a premium price as compared to standard lead-time products . we also deliver a significant percentage of compressed lead-time work with lead times of 11 to 20 days . we typically receive a premium price for this work as well . purchase orders may be cancelled prior to shipment . we charge customers a fee , based on percentage completed , if an order is cancelled once it has entered production . we derive revenues primarily from the sale of pcbs and backplane assemblies using customer-supplied engineering and design plans . we recognize revenues when persuasive evidence of a sales arrangement exists , the sales terms are fixed or determinable , title and risk of loss have transferred , and collectibility is reasonably assured generally when products are shipped to the customer . net sales consist of gross sales less an allowance for returns , which typically has been less than 2 % of gross sales . we provide our customers a limited right of return for defective pcbs and backplane assemblies . we record an estimated amount for sales returns and allowances at the time of sale based on historical information . cost of goods sold consists of materials , labor , outside services , and overhead expenses incurred in the manufacture and testing of our products as well as stock-based compensation expense . many factors affect our gross margin , including capacity utilization , product mix , production volume , and yield . story_separator_special_tag the second step compares the implied fair value of the reporting unit 's goodwill , determined in the same manner as the amount of goodwill recognized in a business combination , with the carrying amount of such goodwill . if the carrying amount of the reporting unit 's goodwill exceeds the implied fair value of that goodwill , an impairment loss is recognized in an amount equal to that excess . as of december 31 , 2011 , our assessment of goodwill impairment indicated that the carrying value of goodwill for our shanghai backplane assembly reporting unit , in our north america segment , was in excess of its fair value , and therefore goodwill for the north america segment was impaired . see note 5 to our consolidated financial statements . 38 we also assess other long-lived assets , specifically definite-lived intangibles and property , plant and equipment , for potential impairment given similar impairment indicators . when indicators of impairment exist related to our long-lived tangible assets and definite-lived intangible assets , we use an estimate of the undiscounted net cash flows in measuring whether the carrying amount of the assets is recoverable . measurement of the amount of impairment , if any , is based upon the difference between the asset 's carrying value and estimated fair value . fair value is determined through various valuation techniques , including market and income approaches as considered necessary , which involve judgments related to future cash flows and the application of the appropriate valuation model . during the year ended december 31 , 2011 , we recorded an impairment charge in the amount of $ 48.1 million to reduce the carrying value of certain long-lived assets in the asia pacific operating segment . see note 8 to our consolidated financial statements . derivative instruments and hedging activities as a matter of policy , we use derivatives for risk management purposes , and we do not use derivatives for speculative purposes . derivatives are typically entered into as hedges of changes in interest rates , currency exchange rates , and other risks . when we determine to designate a derivative instrument as a cash flow hedge , we formally document the hedging relationship and its risk management objective and strategy for undertaking the hedge , the hedging instrument , the hedged item , the nature of the risk being hedged , how the hedging instrument 's effectiveness in offsetting the hedged risk will be assessed , and a description of the method of measuring ineffectiveness . we also formally assess , both at the hedge 's inception and on an ongoing basis , whether the derivative that is used in hedging transactions is highly effective in offsetting changes in cash flows of hedged items . derivative financial instruments are recognized as either assets or liabilities on the consolidated balance sheet with measurement at fair value . fair value of the derivative instruments is determined using pricing models developed based on the underlying swap interest rate , foreign currency exchange rates , and other observable market data as appropriate . the values are also adjusted to reflect nonperformance risk of the counterparty and the company , as necessary . for derivatives that are designated as a cash flow hedge , changes in the fair value of the derivative are recognized in accumulated other comprehensive income , to the extent the derivative is effective at offsetting the changes in cash flow being hedged until the hedged item affects earnings . to the extent there is any hedge ineffectiveness , changes in fair value relating to the ineffective portion are immediately recognized in earnings . changes in the fair value of derivatives that are not designated as hedges are recorded in earnings each period . income taxes deferred income tax assets are reviewed for recoverability , and valuation allowances are provided , when necessary , to reduce deferred income tax assets to the amounts that are more likely than not to be realized based on our estimate of future taxable income . should our expectations of taxable income change in future periods , it may be necessary to establish a valuation allowance , which could affect our results of operations in the period such a determination is made . we record income tax provision or benefit during interim periods at a rate that is based on expected results for the full year . if future changes in market conditions cause actual results for the year to be more or less favorable than those expected , adjustments to the effective income tax rate could be required . in addition , we are subject to income taxes in the united states and foreign jurisdictions . significant judgment is required in determining our worldwide provision for income taxes . in the ordinary course of our business , there are many transactions where the ultimate tax determination is uncertain . additionally , our calculations of income taxes are based on our interpretations of applicable tax laws in the jurisdictions in which we file . self insurance we are primarily self-insured in north america for group health insurance and worker 's compensation benefits provided to our u.s. employees , and we purchase insurance to protect against annual claims at the individual and aggregate level . we estimate our exposure for claims incurred but not reported at the end of each 39 reporting period . we use our judgment using our historical claim data and information and analysis provided by actuarial and claim advisors , our insurance carriers and brokers on an annual basis to estimate our liability for these claims . this liability is subject to individual insured stop-loss coverage for both programs which is $ 250,000 per individual . our actual claims experience may differ from our estimates . story_separator_special_tag million for the year ended december 31 , 2010 to $ 301.3 million for the year ended december 31 , 2011. the overall gross margin decreased from 21.6 % for the year ended december 31 , 2010 to 21.1 % for the year ended december 31 , 2011.
| results of operations the year ended december 31 , 2009 does not include the results of operations from our acquired pcb subsidiaries , as the acquisition occurred on april 8 , 2010. included in the consolidated statement of operations for the year ended december 31 , 2010 are 267 days of results of operations for the asia pacific operations for the period from april 9 , 2010 through december 31 , 2010. the acquisition has had and will continue to have a significant effect on our operations as discussed in the various comparisons noted below . the following table sets forth the relationship of various items to net sales in our consolidated statement of operations : replace_table_token_11_th prior to our acquisition of the pcb subsidiaries , we had two operating segments , pcb manufacturing and backplane assembly , consistent with the nature of our operations . due to the acquisition , we reassessed our operating segments and now manage our worldwide operations based on two geographic operating segments : ( 1 ) north america , which consists of seven domestic pcb fabrication plants , including a facility that provides follow-on value-added services primarily for one of the pcb fabrication plants , and one backplane assembly plant in shanghai , china , which is managed in conjunction with our u.s. operations and its related european sales support infrastructure ; and ( 2 ) asia pacific , which consists of the pcb subsidiaries and their seven pcb fabrication plants , which include a substrate facility . each segment operates predominantly in the same industry with production facilities that produce similar customized products for our customers and use similar means of product distribution in their respective geographic regions .
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restricted equity securities : as a member of the federal home loan bank of pittsburgh ( fhlb ) , the company is required to purchase and hold stock in the fhlb to satisfy membership and borrowing requirements . this stock is restricted in that it can only be redeemed by the fhlb or to another member institution , and all redemptions of fhlb stock must be at par . as a result of these restrictions , fhlb stock is unlike other investment securities as there is no trading market for fhlb stock and the transfer price is determined by fhlb membership rules and not by market participants . the carrying value of restricted stock is included in other assets . bank owned life insurance : the company invests in bank owned life insurance ( boli ) as a source of funding for employee benefit expenses . boli involves the purchasing of life insurance by peoples bank on certain of its employees . the company is the owner and beneficiary of the policies . this life insurance investment is carried at the cash surrender value of the underlying policies and is included in other assets . income from increases in cash surrender value of the policies is included in noninterest income . pension and post-retirement benefit plans : the company sponsors various pension plans covering substantially all employees . the company also provides post-retirement benefit plans other than pensions , consisting principally of life insurance benefits , to eligible retirees . the liabilities and annual income or expense of the company 's pension and other post-retirement benefit -85- plans are determined using methodologies that involve several actuarial assumptions , the most significant of which are the discount rate and the long-term rate of asset return , based on the market-related value of assets . the fair values of plan assets are determined based on prevailing market prices or estimated fair value for investments with no available quoted prices . statements of cash flows : the consolidated statements of cash flows are presented using the indirect method . for purposes of cash flow , cash and cash equivalents include cash on hand , cash items in the process of collection , noninterest-bearing and interest-bearing deposits in other banks and federal funds sold . fair value of financial instruments : the company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosure under gaap . fair value estimates are calculated without attempting to estimate the value of anticipated future business and the value of certain assets and liabilities that are not considered financial . accordingly , such assets story_separator_special_tag ( dollars in thousands , except per share data ) operating environment : the united states economy continued to expand moderately in 2013 , as the gross domestic product ( gdp ) , the value of all goods and services produced in the u.s. , increased at an annual rate of 2.2 percent , compared to 2.8 percent in 2012. as a result of the tepid economic growth in 2013 , the federal open market committee ( fomc ) maintained the federal funds target range of 0 to 25 basis points throughout the year and further signaled that they intend to keep short-term rates at extraordinarily low levels through at least late 2014. despite experiencing an improvement in 2013 , many areas of the economy such as employment conditions and the housing market remained weak compared to historical standards . given these weaknesses , the fomc decided that this extraordinary monetary policy stance was necessary to support the recovery . at their most recent meeting , the fomc indicated that economic conditions will continue to warrant policy accommodation for an extended period . inflationary concerns continue to be relatively tame , as the consumer price index ( cpi ) at 1.3 percent for 2013 continued to be below the fomc 's benchmark of 2.0 percent . the cpi was 1.5 percent in 2012. moreover , the core personal consumption expenditure price index , which ignores food and energy , ranged from -0.50 percent to 2.4 percent and averaged 1.0 percent in 2013. employment conditions improved moderately in 2013. the civilian labor force decreased 548 thousand , while the number of people employed increased 1.4 million in 2013. as a result , the annual unemployment rate for the u.s. fell to 7.4 percent in 2013 from 8.1 percent in 2012. all sectors of employment , with the exception of the government sector , reported employment gains from the end of 2012. national , pennsylvania , new york and our market area 's non-seasonally-adjusted annual unemployment rates in 2013 and 2012 , are summarized as follows : replace_table_token_20_th employment conditions in 2013 were relatively unchanged at 8.0 percent for the commonwealth of pennsylvania . the unemployment rate for new york state dropped to 8.3 percent in 2013 , from 8.5 percent in 2012. with respect to the markets we serve , the unemployment rate decreased in all of the eight counties in which we have branches or atm locations . lackawanna county experienced the most significant improvement declining from 9.0 percent in 2012 to 7.9 percent in 2013. the lowest unemployment rate in 2013 , for all of counties we serve , was susquehanna county at 7.0 percent . the marked improvements in unemployment rates could impact the rate of economic growth and may cause interest rates to rise in the near term . with respect to the banking industry , net income for all federal deposit insurance corporation ( fdic ) -insured banks in 2013 totaled $ 154.7 billion , an increase of $ 13.6 billion or 9.6 percent over 2012. this is the fourth consecutive year that earnings have risen . approximately 54.2 percent of all institutions reported higher net income in 2013 , while only 7.8 percent reported net losses . story_separator_special_tag million and equaled 20.4 percent of average earning assets in 2013 , compared to $ 187.0 million and 22.1 percent in 2012. the tax-equivalent yield on the investment portfolio decreased 24 basis points to 3.17 percent in 2013 from 3.41 percent in 2012. loan portfolio : loans , net totaled $ 1.2 billion at december 31 , 2013 and $ 623.5 million at the end of 2012. business loans , including commercial loans and commercial mortgages , were $ 763.7 million at december 31 , 2013 , and $ 309.2 million at year-end 2012. residential mortgages and consumer loans were $ 322.1 million and $ 90.8 million at year end 2013 and $ 261.9 million and $ 52.4 million at year end 2012. loans averaged $ 689.4 million in 2013 , compared to $ 635.8 million in 2012. taxable loans averaged $ 637.2 million , while tax-exempt loans averaged $ 52.2 million at december 31 , 2013. due to the increase in loan demand , the loan portfolio played a more prominent role in our earning asset mix . as a percentage of earning assets , average loans equaled 76.0 percent in 2013 compared to 75.2 percent in 2012. the continuation of low interest rates caused the tax-equivalent yield on our loan portfolio to decrease 37 basis points to 4.88 percent in 2013 from 5.25 percent in 2012 fixed rate loans represented 34.6 percent of the loan portfolio at december 31 , 2013 , compared to 41.0 percent at the end of 2012. conversely , floating or adjustable rate loans as a percent of total loans amounted to 65.4 percent at year end 2013 and 59.0 percent at year end 2012. asset quality : nonperforming assets increased to 1.65 percent of loans , net and foreclosed assets at december 31 , 2013 , from 0.60 percent at the end of 2012. all major categories of nonperforming assets increased , except for foreclosed assets , as a result of the business combination . we maintain the allowance for loan losses at a level we believe adequate to absorb probable credit losses related to individually evaluated loans , as well as probable incurred losses inherent in the remainder of the loan portfolio as of the balance sheet date . the balance in the allowance for loan losses account is based on past events and current economic conditions . we employ the ffiec interagency policy statement , as amended , and gaap in assessing the adequacy of the allowance account . the allowance for loan losses increased $ 1.7 million to $ 8.7 million at december 31 , 2013 , from $ 7.0 million at the end of 2012. the increase resulted from a provision for loan losses of $ 2,361 exceeding net loans charged-off of $ 660. the allowance for loan losses , as a percentage of loans , net of unearned income , was 0.74 percent at the -63- end of 2013 , compared to 1.11 percent at the end of 2012. the reduction in this ratio was a result of following the accounting guidance for loans that we acquired in connection with the merger whereby there is no carryover of the related allowance for credit losses attributable to those loans . past due loans not satisfied through repossession , foreclosure or related actions are evaluated individually to determine if all or part of the outstanding balance should be charged against the allowance for loan losses account . any subsequent recoveries are credited to the allowance account . net loans charged-off decreased $ 25 to $ 660 in 2013 from $ 685 in 2012. net charge-offs , as a percentage of average loans outstanding , equaled 0.10 percent in 2013 and 0.11 percent in 2012. the allocated element of the allowance for loan losses account increased $ 1,701 to $ 8,651 at december 31 , 2013 , compared to $ 6,950 at december 31 , 2012. both the specific and formula portions of the allowance for loan losses increased from the end of 2012. the specific portion of the allowance for impairment of loans individually evaluated under fasb asc 310 , increased $ 798 to $ 2,024 at december 31 , 2013 , from $ 1,226 at year-end 2012. in addition , the formula portion of the allowance for loans collectively evaluated for impairment under fasb asc 450 , increased $ 903 to $ 6,627 at december 31 , 2013 , from $ 5,724 at december 31 , 2012. the total loss factor for collectively evaluated loans increased from year-end 2012 due to an increase in the qualitative factors related to the continued unrest in the economic climate . the coverage ratio , the allowance for loan losses account , as a percentage of nonperforming loans , is an industry ratio used to test the ability of the allowance account to absorb potential losses arising from nonperforming loans . the coverage ratio was 46.0 percent at december 31 , 2013 and 185.6 percent at december 31 , 2012. deposits : deposits totaled $ 1.4 billion at december 31 , 2013 and $ 721.9 million at december 31 , 2012. noninterest-bearing deposits represented 20.2 percent of total deposits at december 31 , 2013 , compared to interest-bearing deposits at 79.8 percent . comparatively , noninterest-bearing deposits and interest-bearing deposits represented 20.9 percent and 79.1 percent of total deposits at year end 2012. total deposits averaged $ 785.9 million in 2013 , an increase of $ 69.0 million or 9.6 percent , compared to $ 716.9 million in 2012. average noninterest-bearing deposits increased $ 18.8 million or 13.4 percent , while average interest-bearing accounts grew $ 50.2 million or 8.7 percent .
| review of financial performance : net income was $ 5,721 or $ 1.21 per share in 2013 and $ 10,589 or $ 2.37 per share in 2012. return on average assets ( roaa ) and return on average equity ( roae ) were 0.58 percent and 4.01 percent for the year ended december 31 , 2013. roaa was 1.14 percent and roae was 8.07 percent for the year ended december 31 , 2012. tax-equivalent net interest income was $ 35,415 in 2013 and $ 34,468 in 2012. our net interest margin equaled 3.91 percent in 2013 and 4.08 percent in 2012. noninterest income totaled $ 11,762 in 2013 and $ 11,441 in 2012. noninterest expense was $ 36,396 for the year ended december 31 , 2013 compared to $ 29,099 for the year ended december 31 2012. net interest income : for the year ended december 31 , tax-equivalent net interest income was $ 35,415 in 2013 and $ 34,468 in 2012. there was a positive volume variance offset partially by a negative rate variance . changes in the volumes of earning assets and interest-bearing liabilities contributed to an increase of $ 947 in net interest income . average earning assets increased $ 61.6 million to $ 906.9 million in 2013 from $ 845.3 million in 2012 and accounted for a $ 2,843 increase in interest income .
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such forward-looking statements are subject to risks , uncertainties and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements . factors that could cause or contribute to such differences include , but are not limited to , those identified below , and those discussed in the section titled “ risk factors ” included in this annual report on form 10-k. the forward-looking statements in this annual report on form 10-k represent our views as of the date of this annual report on form 10-k. except as may be required by law , we assume no obligation to update these forward-looking statements or the reasons that results could differ from these forward-looking statements . you should , therefore , not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this annual report on form 10-k. overview we are a team of experienced drug discoverers , developers , and innovators working to create life-altering medicines that target well-characterized genetic diseases at their source . we founded bridgebio in 2015 to identify and advance transformative medicines to treat patients who suffer from mendelian diseases , which are diseases that arise from defects in a single gene , and cancers with clear genetic drivers . our pipeline of over 20 development programs includes product candidates ranging from early discovery to late-stage development . several of our programs target indications that we believe present the potential for our product candidate , if approved , to target portions of market opportunities of at least $ 1.0 billion in annual sales . we have initiated a rolling nda submission for one of our product candidates , and have three product candidates in clinical trials that , if positive , we believe could support the filing of an application for marketing authorization . we focus on genetic diseases because they exist at the intersection of high unmet patient need and tractable biology . our approach is to translate research pioneered at academic laboratories and leading medical institutions into products that we hope will ultimately reach patients . we are able to realize this opportunity through a confluence of scientific advances : ( i ) identification of the genetic underpinnings of disease as more cost-efficient genome and exome sequencing becomes available ; ( ii ) progress in molecular biology ; and ( iii ) the development and maturation of longitudinal data and retrospective studies that enable the linkage of genes to diseases . we believe that this early-stage innovation represents one of the greatest practical sources for new drug creation . since our inception in 2015 , we have focused substantially all of our efforts and financial resources on acquiring and developing product and technology rights , building our intellectual property portfolio and conducting research and development activities for our product candidates within our wholly-owned subsidiaries and controlled entities , including partially-owned subsidiaries and subsidiaries we consolidate based on our deemed majority control of such entities as determined using either the variable interest entity , or vie model , or the voting interest entity , or voe model . to support these activities , we and our wholly-owned subsidiary , bridgebio services , inc. , ( i ) identify and secure new programs , ( ii ) set up new wholly-owned subsidiaries and controlled entities , ( iii ) recruit key management team members , ( iv ) raise and allocate capital across the portfolio and ( v ) provide certain shared services , including accounting and human resources , as well as workspaces . we do not have any products approved for sale and have not generated any revenue from product sales . to date , we have funded our operations with proceeds from the sale of our equity securities and , to a lesser extent , debt borrowings . 124 on july 1 , 2019 , immediately prior to the completion of the initial public offering of our common stock ( the ipo ) , we engaged in a series of transactions whereby bridgebio pharma llc , or bbp llc , became a wholly-owned subsidiary of bridgebio pharma , inc. , or bbp inc. , collectively with bbp llc , bridgebio . as part of the transactions , holders of preferred units , founder units , common units and management incentive units of bbp llc exchanged all outstanding units for an aggregate of 99,999,967 shares of common stock of bbp inc. on july 1 , 2019 , we completed the ipo . as part of the ipo , we issued and sold 23,575,000 shares of our common stock , which included 3,075,000 shares sold pursuant to the exercise of the underwriters ' over-allotment option , at a public offering price of $ 17.00 per share . in july 2019 , we received net proceeds of approximately $ 366.2 million from the ipo , after deducting underwriters ' discounts and commissions of $ 28.1 million and offering costs of $ 6.5 million . as of december 31 , 2019 , we had cash , cash equivalents and marketable securities of $ 577.1 million or $ 385.9 million excluding eidos . since our inception , we have incurred significant operating losses . for the years ended december 31 , 2019 , 2018 and 2017 , we incurred net losses of $ 288.6 million , $ 169.5 million and $ 43.8 million , respectively . our ability to generate product revenue sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of our product candidates at our wholly-owned subsidiaries and controlled entities . we expect to continue to incur significant expenses and increasing operating losses for at least the next several years . financial highlights the following table summarizes our financial results : replace_table_token_7_th license revenue increased by $ 40.6 million in 2019 due mainly to the upfront payment received by eidos upon execution of the alexion license agreement . story_separator_special_tag we previously determined that we were the primary beneficiary of pellepharm , as of december 31 , 2017 and through the date of execution of the leo agreement in november 2018. at the time of execution , we concluded that we are no longer the primary beneficiary of , and thus deconsolidated , pellepharm . subsequent to the leo agreement , we account for our retained investment in common and preferred stock of pellepharm under the equity method and cost method , 126 respectively . upon adoption asu 2016-01 in 2019 ( see note 2 to our consolidated financial statements ) , we concluded that our investment in preferred stock of pellepharm did not have a readily available fair value . as a result we started to measure the adjusted cost basis of our retained investment in pellepharm 's preferred stock of pellepharm at cost less impairment plus or minus observable price changes . since our investment in common stock was reduced to zero during the first quarter of 2019 as a result of applying the equity method , we subsequently adjusted the cost basis of our preferred stock investment by recording our percentage of net losses consistent with our preferred stock ownership percentage of 61.9 % until the adjusted cost basis was also reduced to zero during the remaining period of 2019. story_separator_special_tag roman ; font-weight : normal ; font-style : normal ; text-transform : none ; font-variant : normal ; '' > if not utilized . as of december 31 , 201 9 , we had state research and development credit carryforwards of $ 2.6 million . the state research and development tax credits have no expiration date . a valuation allowance is provided for deferred tax assets where the recoverability of the assets is uncertain . the determination to provide a valuation allowance is dependent upon the assessment of whether it is more likely than not that sufficient future taxable income will be generated to utilize the deferred tax assets . based on the weight of the available evidence , which includes our consolidated entities ' historical operating losses and forecast of future losses , we have provided a full valuation allowance against the deferred tax assets resulting from the tax loss and credits carried forward . utilization of the net operating loss and credit carryforwards may be subject to a substantial annual limitation due to an ownership change limitation as provided by section 382 of the code , and similar state provisions . the annual limitation may result in the expiration of net operating losses and credits before utilization . in the event that we have a change of ownership , utilization of the net operating loss and tax credit carryforwards may be restricted . net loss attributable to redeemable convertible noncontrolling interests and noncontrolling interests net loss attributable to redeemable convertible noncontrolling interests and noncontrolling interests in our consolidated statements of operations consists of the portion of the net loss of those consolidated entities that is not allocated to us . changes in the amount of net loss attributable to noncontrolling interests are directly impacted by changes in the net loss of our consolidated entities and are the result of ownership percentage changes . refer to note 7 to our consolidated financial statements . net loss attributable to redeemable convertible noncontrolling interests and noncontrolling interests was $ 28.0 million in 2019 , compared to $ 38.7 million in 2018 and $ 13.3 million in 2017. liquidity and capital resources we have historically financed our operations primarily through the sale of our equity securities , debt borrowings and revenue from collaboration arrangements . as of december 31 , 2019 , we had cash , cash equivalents and marketable securities of $ 577.1 million or $ 385.9 million excluding eidos . the funds that were held by our wholly-owned subsidiaries and controlled entities are available for specific entity usage , except in limited circumstances . the cash , cash equivalents and marketable securities of $ 191.2 million as of december 31 , 2019 belonging to eidos may only be used solely by eidos or its subsidiaries , if any . as of december 31 , 2019 , our outstanding debt was $ 91.8 million , net of debt issuance costs and accretion or $ 75.7 million excluding eidos . since our inception , we have incurred significant operating losses . for the years ended december 31 , 2019 , 2018 and 2017 , we incurred net losses of $ 288.6 million , $ 169.5 million and $ 43.8 million , respectively . we had an accumulated deficit as of december 31 , 2019 of $ 440.0 million . we expect to continue to incur net losses over the next several years as we continue our drug discovery efforts and incur significant preclinical and clinical development costs related to our current research and development programs as well as costs related to commercial launch readiness . in particular , to the extent we advance our programs into and through later-stage clinical studies without a partner , we will incur substantial expenses . our current business plan is also subject to significant uncertainties and risks as a result of , among other factors , our ability to generate product revenue sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of our product candidates at our consolidated entities . we expect our cash and cash equivalents and marketable securities will fund our operations for at least the next 12 months based on current operating plans and financial forecasts . if our current operating plans or financial forecasts change , we may require additional funding sooner in the form of public or private equity offerings , debt financings or additional collaborations and licensing arrangements . however , future financing may not be available in amounts or on terms acceptable to us , if at all . 130 sources of liquidity initial public offerings in june 2018 , our controlled subsidiary , eidos , completed its u.s. initial public offering of its common stock of which net proceeds received were $ 95.5 million .
| results of operations license revenue license revenue includes the recognition of upfront payments received in connection with our license agreements . the level of license revenue to be recognized depends in part upon the estimated recognition period of the upfront payments allocated to continuing performance obligations , the achievement of milestones and other contingent events , the amount of research and development work , and entering into new collaboration agreements , if any . license revenue for 2019 was $ 40.6 million arising primarily from the recognition of the upfront payment received by eidos upon execution of the alexion license agreement . eidos determined that the exclusive license granted to alexion was a distinct performance obligation and , as of the effective date , eidos had provided all necessary information to alexion to benefit from the license and the license term had begun . there were no revenues in 2018 and 2017. operating expenses cost of license revenue cost of license revenue represents sublicensing fees payable under the stanford license in connection with the alexion license agreement and was $ 2.5 million in 2019. there were no costs of license revenue in 2018 and 2017. research and development expenses replace_table_token_8_th 127 research and development costs consist primarily of external costs , such as fees paid to consultants , contractors , cmo s and cros in connection with our preclinical and clinical development activities and are tracked on a program-by-program basis . license fees and other costs incurred after a product candidate has been designated and that are directly related to the product candidate are included in the specific program expense . license fees and other costs incurred prior to designating a product candidate are included in early stage research programs .
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participation revenue generally includes a right to receive a share of our customers ' gaming revenue , typically as a share of net win but sometimes as a share of the handle or “ coin in ” . geographic range geographically , a majority of our revenue is derived from , and majority of our non-current assets are attributable to our uk operations . the remainder of our revenue is derived from , and non-current assets attributable to , italy , greece and the rest of the world . 37 for the twelve months ended december 31 , 2020 , we earned approximately 76.2 % of our revenue in the uk , 8.5 % in greece , 4.3 % in italy and the remaining 11.0 % across the rest of the world . during the twelve months ended december 31 , 2019 , we earned approximately 67.6 % , 13.5 % , 10.6 % and 8.3 % of our revenue in those regions , respectively . as of december 31 , 2020 , approximately 77 % , 14 % , 2 % , and 7 % of our non-current assets ( excluding goodwill ) were in those regions , respectively . foreign exchange our results are affected by changes in foreign currency exchange rates as a result of the translation of foreign functional currencies into our reporting currency and the re-measurement of foreign currency transactions and balances . the impact of foreign currency exchange rate fluctuations represents the difference between current rates and prior-period rates applied to current activity . the largest geographic region in which we operate is the uk and the british pound ( “ gbp ” ) is considered to be our functional currency . our reporting currency is the u.s. dollar ( “ usd ” ) . our results are translated from our functional currency of gbp into the reporting currency of usd using average rates for profit and loss transactions and applicable spot rates for period-end balances . the effect of translating our functional currency into our reporting currency , as well as translating the results of foreign subsidiaries that have a different functional currency into our functional currency , is reported separately in accumulated other comprehensive income . during the twelve months ended december 31 , 2020 , we derived approximately 24 % of our revenue from sales to customers outside the uk , compared to 32 % during the twelve months ended december 31 , 2019. in the section “ results of operations ” below , currency impacts shown have been calculated as the current-period average gbp : usd rate less the equivalent average rate in the prior period , multiplied by the current period amount in our functional currency ( gbp ) . the remaining difference , referred to as functional currency at constant rate , is calculated as the difference in our functional currency , multiplied by the prior-period average gbp : usd rate . this is not a u.s. gaap measure , but is one which management believes gives a clearer indication of results . in the tables below , variances in particular line items from period to period exclude currency translation movements , and currency translation impacts are shown independently . non-gaap financial measures we use certain financial measures that are not compliant with u.s. gaap ( “ non-gaap financial measures ” ) , including ebitda and adjusted ebitda , to analyze our operating performance . in this discussion and analysis , we present certain non-gaap financial measures , define and explain these measures and provide reconciliations to the most comparable u.s. gaap measures . see “ non-gaap financial measures ” below . story_separator_special_tag 0 ; text-align : justify '' > ● leisure revenue increased by $ 19.6 million , comprised of an increase in service revenue of $ 18.1 million and an increase in product sales of $ 1.5 million . the service revenue increase was comprised of $ 32.6 million attributable to the addition of the ntg acquisition for the nine months of 2020 ended september 30 ( not reflected in organic growth ) , offset by a $ 14.5 million decline in revenue due to the impact of the covid-19 closures , as venues were closed during much of the period . cost of sales , excluding depreciation and amortization cost of sales , excluding depreciation and amortization , increased by $ 6.2 million , or 16.1 % , on a reported basis , to $ 44.5 million , including the impact of $ 0.4 million from unfavorable currency movements . of this increase , $ 4.7 million was attributable to cost of service and $ 1.5 million was attributable to cost of product sales . on a functional currency ( at constant rate ) basis , cost of sales increased by $ 5.8 million , or 15.1 % , as detailed below : ● gaming cost of sales decreased by $ 2.2 million , comprised of a decrease in service costs of $ 2.6 million , partly offset by a $ 0.3 million increase in product costs . the service cost decrease was driven primarily by a $ 4.0 million decrease due to the decline in cost of service , offset by a $ 1.5 million increase attributable to the addition of the ntg acquisition for the nine months of 2020 ended september 30 ( not reflected in organic growth ) . ● virtual sports cost of sales increased by $ 0.3 million , or 9.6 % . this increase was driven by the organic growth of online virtuals . ● interactive cost of sales increased by $ 1.2 million , or 166 % . this increase was driven by $ 1.1 million from organic growth . ● leisure cost of sales increased by $ 6.6 million , comprised of an increase in service costs of $ 5.5 million and an increase in product sales of $ 1.1 million . story_separator_special_tag in addition , the year ended december 31 , 2019 also included a $ 3.2 million benefit from the gbp : usd cross-currency swap which was terminated on october 1 , 2019. income tax expense our effective tax rate for the period ended december 31 , 2020 was 1.4 % and our effective tax rate for the period ended december 31 , 2019 was 0.2 % . net loss during the period , net loss was $ 29.2 million compared to a net loss of $ 37.0 million in the prior period . on a functional currency at constant rate basis , net loss improved by $ 7.1 million , primarily due to the vat-related income and growth in interactive revenue . 41 twelve months ended december 31 , 2020 compared to twelve months ended december 31 , 2019 – gaming segment we generate revenue from our gaming segment through the selling and rental of our gaming machines . we receive rental fees for machines , typically on a long-term contract basis , on both a participation and fixed fee basis . our participation contracts are typically structured to pay us a percentage of net win ( defined as net revenue to our operator customers , after deducting player winnings , free bets or plays and any relevant regulatory levies ) from gaming terminals placed in our customers ' facilities . typically , we recognize revenue from these arrangements on a daily basis over the term of the contract . revenue growth for our gaming business is principally driven by the number of operator customers we have , the number of gaming machines in operation , the net win performance of the machines and the net win percentage that we receive pursuant to our contracts with our customers . gaming segment , key performance indicators replace_table_token_2_th ( 1 ) includes all gaming terminals in which the company takes a participation revenue share across all territories ( 2 ) includes all days of the year , including the days during which the gaming terminals were not operating due to covid-19 closures . in the table above : “ end of period installed base ” is equal to the number of deployed gaming terminals at the end of each period that have been placed on a participation or fixed rental basis . gaming participation revenue , which comprises the majority of gaming service revenue , is directly related to the participation terminal installed base . this is the medium by which our customers generate revenue and distribute a revenue share to the company . to the extent all other kpis and certain other factors remain constant , the larger the installed base , the higher the company 's revenue would be for a given period . management gives careful consideration to this kpi in terms of driving growth across the segment . this does not include service only terminals . revenue is derived from the performance of the installed base as described by the gross and net win kpis . if the end of period installed base is materially different from the average installed base ( described below ) , we believe this gives an indication as to potential future performance . we believe the end of period installed base is particularly useful for assessing new customers or markets , to indicate the progress being made with respect to entering new territories or jurisdictions . “ total gaming - average installed base ” is the average number of deployed gaming terminals during the period split by participation terminals and fixed rental terminals . therefore , it is more closely aligned to revenue in the period . we believe this measure is particularly useful for assessing existing customers or markets to provide comparisons of historical size and performance . this does not include service only terminals . “ participation - average installed base ” is the average number of deployed gaming terminals that generated revenue on a participation basis . “ fixed rental - average installed base ” is the average number of deployed gaming terminals that generated revenue on a fixed rental basis . “ service only - average installed base ” is the average number of terminals that generated revenue on a service only basis . 42 “ customer gross win per unit per day ” is a kpi used by our management to ( i ) assess impact on the company 's revenue , ( ii ) determine changes in the performance of the overall market and ( iii ) evaluate the impacts of regulatory change and our new content releases on our customers . customer gross win per unit per day is the average per unit cash generated across all gaming terminals in which the company takes a participation revenue share across all territories in the period , defined as the difference between the amounts staked less winnings to players divided by the average installed base in the period , then divided by the number of days in the period . gaming revenue accrued in the period is derived from customer gross win accrued in the period after deducting gaming taxes ( defined as a regulatory levy paid by the customer to government bodies ) and applying the company 's contractual revenue share percentage . our management believes customer gross win measures are meaningful because they represent a view of customer operating performance that is unaffected by our revenue share percentage and allow management to ( 1 ) readily view operating trends , ( 2 ) perform analytical comparisons and benchmarking between customers and ( 3 ) identify strategies to improve operating performance in the different markets in which we operate . “ customer net win per unit per day ” is customer gross win per unit per day after giving effect to the deduction of gaming taxes . “ inspired blended participation rate ” is the company 's average revenue share percentage across all participation terminals where revenue is earned on a participation basis , weighted by customer net win per unit per day .
| results of operations our fiscal year begins on january 1 and ends on december 31 of each calendar year . our results are affected by changes in foreign currency exchange rates , primarily between our functional currency ( gbp ) and our reporting currency ( usd ) . in the twelve-month periods ended december 31 , 2020 and december 31 , 2019 , the average gbp : usd rates were 1.29 and 1.28 , respectively . in the discussion and analysis below , any reference to organic variances and organic growth refers to variances in the results of operations of the company excluding results from the ntg acquisition for the nine-month period ended september 30 , 2020 , on a functional currency at constant rate basis . as a result , in order to facilitate a like-for-like comparison between the twelve-month periods ended december 31 , 2020 and december 31 , 2019 , respectively , organic variances and organic growth refer to results of operations that only include results from the ntg acquisition for the three-month period ended december 31 , 2020 , and december 31 , 2019. in addition , certain data may vary from the amounts presented in our consolidated financial statements due to rounding . 38 twelve months ended december 31 , 2020 compared to twelve months ended december 31 , 2019 replace_table_token_1_th revenue total reported revenue for the twelve months ended december 31 , 2020 increased by $ 46.4 million , or 30.2 % , to $ 199.8 million on a reported basis . this includes increases from leisure of $ 19.8 million , gaming of $ 19.0 million and interactive of $ 8.6 million , partly offset by virtual sports decline of $ 1.1 million .
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through its regulated energy delivery platform , the company provides electric and natural gas services to customers , generates , transmits and distributes electricity , and provides natural gas transportation , storage and gathering services . these businesses are regulated by state public service commissions and or the ferc . the construction materials and services platform provides construction services to a variety of industries , including commercial , industrial and governmental , and provides construction materials through aggregate mining and marketing of related products , such as ready-mixed concrete and asphalt . the company is organized into five reportable business segments . these business segments include : electric , natural gas distribution , pipeline and midstream , construction materials and contracting , and construction services . the company 's business segments are determined based on the company 's method of internal reporting , which generally segregates the strategic business units due to differences in products , services and regulation . the internal reporting of these segments is defined based on the reporting and review process used by the company 's chief executive officer . the company 's strategy is to apply its expertise in the regulated energy delivery and construction materials and services businesses to increase market share , increase profitability and enhance shareholder value through organic growth opportunities and strategic acquisitions . the company is focused on a disciplined approach to the acquisition of well-managed companies and properties . the company has capabilities to fund its growth and operations through various sources , including internally generated funds , commercial paper facilities , revolving credit facilities and the issuance from time to time of debt and equity securities . for more information on the company 's capital expenditures , see liquidity and capital commitments . on december 22 , 2017 , president trump signed into law the tcja making significant changes to the united states federal income tax laws . some of the more material changes from the tcja that impacted the company were reduced corporate tax rates , repeal of the domestic production deduction and disallowance of immediate expensing for regulated utility property . the company has reviewed the impacts of the tcja and is complying with all known tax rules and guidance . for additional information on the impacts of the tcja , see item 8 - note 13 . consolidated earnings overview the following table summarizes the contribution to the consolidated earnings by each of the company 's business segments . replace_table_token_12_th 32 mdu resources group , inc. form 10-k part ii 2018 compared to 2017 the company 's consolidated earnings decreased $ 8.1 million . the company 's earnings were positively impacted in 2018 as a result of the lower federal statutory tax rate , which was partially offset by the absence of a $ 39.5 million tax benefit recorded in the fourth quarter of 2017 for the revaluation of the business 's net deferred tax liabilities . both tax impacts were the result of the enactment of the tcja , as further discussed in item 8 - note 13 . decreased earnings due to lower returns on investments also offset the lower income tax rate . also positively impacting the company 's earnings were higher outside specialty contracting gross margins due to increased outside equipment sales and rentals at the construction services business , as well as a $ 4.2 million income tax benefit relating to the reversal of a regulatory liability recorded in 2017 based on a ferc final accounting order issued during the third quarter of 2018 at the pipeline and midstream business . 2017 compared to 2016 the company 's consolidated earnings increased $ 216.7 million . the company 's earnings were positively impacted due to the absence in 2017 of a loss associated with the sale of the refining business in june 2016 relating to discontinued operations , as well as an overall income tax benefit to the company of $ 39.5 million primarily for the revaluation of the company 's net deferred tax liabilities . also contributing to the company 's increased earnings were higher inside and outside specialty contracting margins driven by decreased costs and higher contracting workloads at the construction services business , higher natural gas retail sales margins as a result of increased retail sales volumes at the natural gas distribution business and higher electric retail sales margins at the electric business . these increases were partially offset by lower asphalt product and construction margins driven by competitive pricing and unfavorable weather at the construction materials and contracting business and lower gathering and processing revenues resulting from lower volumes due to the sale of the pronghorn assets in january 2017 at the pipeline and midstream business . a discussion of key financial data from the company 's business segments follows . business segment financial and operating data following are key financial and operating data for each of the company 's business segments . also included are highlights on key growth strategies , projections and certain assumptions for the company and its subsidiaries and other matters of the company 's business segments . many of these highlighted points are `` forward-looking statements . '' for more information , see part i - forward-looking statements . there is no assurance that the company 's projections , including estimates for growth and changes in earnings , will in fact be achieved . please refer to assumptions contained in this section , as well as the various important factors listed in item 1a - risk factors . changes in such assumptions and factors could cause actual future results to differ materially from the company 's growth and earnings projections . for information pertinent to various commitments and contingencies , see item 8 - notes to consolidated financial statements . for a summary of the company 's business segments , see item 8 - note 15 . story_separator_special_tag million of income tax expense in 2018 for the revaluation of nonutility net deferred tax assets in 2017 , as discussed in item 8 - note 13 . partially offsetting these decreases were lower production tax credits . a portion of the reduction in income taxes are being reserved against revenues , as previously discussed , resulting in a minimal impact on overall earnings . 2017 compared to 2016 electric earnings increased $ 7.2 million ( 17 percent ) as a result of : adjusted gross margin : increase of $ 17.1 million , primarily from increased electric retail sales margins from the recovery of an additional investment on the bsse project , approved rate recovery in all jurisdictions and 2 percent higher retail sales volumes to commercial and residential customers . operation and maintenance : increase of $ 6.4 million , largely from higher payroll-related costs , material costs and contract services at certain generating stations . depreciation , depletion and amortization : decrease of $ 2.5 million , largely from lower depreciation rates implemented in conjunction with regulatory recovery activity . taxes , other than income : increase of $ 1.2 million , primarily from higher property taxes in certain jurisdictions . other income : increase of $ 1.9 million , largely the result of higher returns on investments . interest expense : comparable to the prior year . income taxes : increase of $ 6.3 million , largely from increased income before income taxes and $ 2.1 million of income tax expense for the revaluation of nonutility net deferred tax assets , as discussed in item 8 - note 13 . mdu resources group , inc. form 10-k 35 part ii earnings overview - the following information summarizes the performance of the natural gas distribution segment . replace_table_token_14_th adjusted gross margin is a non-gaap financial measure . for additional information and reconciliation of the non-gaap adjusted gross margin attributable to the natural gas distribution segment , see the non-gaap financial measures section later in this item . 2018 compared to 2017 natural gas distribution earnings increased $ 5.5 million ( 17 percent ) as a result of : adjusted gross margin : increase of $ 1.4 million , primarily due to increased retail sales margins , mainly the result of weather normalization mechanisms in certain jurisdictions and conservation revenue , which offsets the conservation expense in operation and maintenance expense . also contributing to the retail sales margin increase were higher basic service charges as a result of increased retail sales customers and rate design . these increases were partially offset by tax reform revenue impacts for refunds to customers as a result of lower income taxes due to the enactment of tcja and lower volumes in certain jurisdictions . operation and maintenance : increase of $ 9.1 million , largely related to conservation expenses being recovered in revenue ; contract services , which includes the recognition of a non-recurring expense related to the approved wutc general rate case settlement in the second quarter 2018 ; and higher payroll-related costs . depreciation , depletion and amortization : increase of $ 3.1 million , primarily as a result of increased plant balances offset in part by lower depreciation rates implemented in certain jurisdictions . taxes , other than income : increase of $ 1.2 million due to higher property taxes in certain jurisdictions . other income : decrease of $ 1.8 million , primarily the result of lower returns on investments . interest expense : comparable to the prior year . income taxes : decrease of $ 18.7 million , largely due to the enactment of the tcja reduced corporate tax rate , as well as the absence of $ 4.3 million income tax expense related to the 2017 revaluation of nonutility net deferred tax assets , as discussed in item 8 - note 13 , 36 mdu resources group , inc. form 10-k part ii and reduced income before income taxes . a portion of the reduction in income taxes are being reserved against revenues or passed back to customers , as previously discussed , resulting in a minimal impact on overall earnings . 2017 compared to 2016 natural gas distribution earnings increased $ 5.1 million ( 19 percent ) as a result of : adjusted gross margin : increase of $ 30.4 million , primarily due to increased retail sales margins as a result of increased retail sales volumes of 13 percent across all customer classes from colder weather in all jurisdictions , offset in part by weather normalization in certain jurisdictions and 2 percent customer growth . also contributing to the increases were approved final and interim rate increases . operation and maintenance : increase of $ 7.4 million , primarily from increased payroll-related costs and material costs . depreciation , depletion and amortization : increase of $ 4.0 million as a result of increased plant balances . taxes , other than income : increase of $ 900,000 due to higher property taxes in certain jurisdictions . other income : increase of $ 1.4 million as a result of higher returns on investments . interest expense : increase of $ 800,000 due to increased debt balances . income taxes : increase of $ 13.6 million , largely the result of increased income before income taxes , as well as an additional $ 4.3 million income tax expense for the revaluation of nonutility net deferred tax assets , as discussed in item 8 - note 13 . outlook the company expects these segments will grow rate base by approximately 5 percent annually over the next five years on a compound basis . this growth projection is on a much larger base , having grown rate base at a record pace of 12 percent compounded annually over the past five-year period . operations are spread across eight states where the company expects customer growth to be higher than the national average . the company expects its customer base to grow by 1 percent to 2 percent per year .
| earnings overview - the following information summarizes the performance of the pipeline and midstream segment . replace_table_token_15_th 2018 compared to 2017 pipeline and midstream earnings increased $ 8.0 million ( 39 percent ) as a result of : revenues : increase of $ 6.7 million , largely attributable to increased volumes of natural gas transported through its system as a result of completed organic growth projects and higher nonregulated project workloads , which increased revenues $ 4.1 million . these increases were partially offset by decreased storage-related revenues reflecting the decrease in natural gas pricing spreads , as discussed in the outlook section . operation and maintenance : increase of $ 5.3 million , primarily from higher nonregulated project costs of $ 3.9 million directly related to the increase in nonregulated project workloads , as previously discussed , as well as higher professional services , material costs and contract services . depreciation , depletion and amortization : increase of $ 1.1 million , largely resulting from organic growth projects . taxes , other than income : comparable to the prior year . other income : decrease of $ 800,000 , primarily the result of lower returns on investments partially offset by higher afudc . interest expense : increase of $ 900,000 , largely resulting from higher debt balances . income taxes : decrease of $ 9.6 million , primarily resulting from the lower corporate tax rate due to the enactment of the tcja creating a reduction to income tax expense , as well as the realization of a $ 4.2 million income tax benefit related to the reversal of a regulatory liability recorded in 2017 based on a ferc final accounting order issued during third quarter of 2018 . 2017 compared to 2016 pipeline and midstream earnings decreased $ 2.9 million ( 13 percent ) as a result of : revenues : decrease of $ 19.4 million , largely resulting from lower gathering and processing revenues of $ 22.6 million .
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effective july 1 , 2018 ( the “ effective date ” ) , adamis signed an exclusive distribution and commercialization agreement with sandoz , inc. ( “ sandoz ” ) . this agreement grants sandoz the exclusive rights to story_separator_special_tag the following discussion and analysis of financial condition and results of operations should be read together with the consolidated financial statements and accompanying notes of the company appearing elsewhere in this report . this discussion of our financial condition and results of operations contains certain statements that are not strictly historical and are “ forward-looking ” statements and involve a high degree of risk and uncertainty . actual results may differ materially from those projected in the forward-looking statements due to other risks and uncertainties that exist in our operations , development efforts and business environment , including those set forth in this item 7 , and in the sections entitled “ 1a . risk factors ” and “ 1 . business ” in this report and uncertainties described elsewhere in this report . all forward-looking statements included in this report are based on information available to the company as of the date hereof . general company overview w e are a specialty biopharmaceutical company focused on developing and commercializing products in various therapeutic areas , including respiratory disease , allergy and opioid overdose . our products and product candidates in the allergy , respiratory , and opioid overdose markets include : symjepi ( epinephrine ) injection 0.3mg , which was approved by the u.s. food and drug administration , or fda , in 2017 for use in the emergency treatment of acute allergic reactions , including anaphylaxis ; symjepi ( epinephrine ) injection 0.15mg which was approved by the fda in september 2018 , for use in the treatment of anaphylaxis for patients weighing 33-66 pounds ; a naloxone injection product candidate , zimhi , based on the approved symject injection device and intended for the treatment of opioid overdose for which the company submitted an nda to the fda in december 2018 and with respect to which the company received a complete response letter , or crl , from the fda in november 2019 ; a beclomethasone metered dose inhaler product candidate ( apc-1000 ) intended for the treatment of asthma for which the company submitted an investigational new drug application , or ind , in january 2018 and initiated the start-up phase of phase 3 studies , which has been suspended ; and a fluticasone ( apc-4000 ) dry powder inhaler , or dpi , product candidate for the treatment of asthma . our goal is to create low cost therapeutic alternatives to existing treatments . consistent across all specialty pharmaceuticals product lines , we intend to submit ndas under section 505 ( b ) ( 2 ) , of the u.s. food , drug & cosmetic act , as amended , or fdca , or section 505 ( j ) abbreviated new drug applications , or andas , to the fda , whenever possible , in order to potentially reduce the time to market and to save on costs , compared to those associated with section 505 ( b ) ( 1 ) ndas for new drug products . o ur u.s. compounding , inc. , subsidiary , or usc , which we acquired in april 2016 and which is registered as a drug compounding outsourcing facility under section 503b of the fdca and the u.s. drug quality and security act , or dqsa , provides prescription compounded medications , including compounded sterile preparations and nonsterile compounds , to patients , physician clinics , hospitals , surgery centers and other clients throughout most of the united states . usc 's product offerings broadly include , among others , corticosteroids , hormone replacement therapies , hospital outsourcing products , injectables , urological preparations , topical compounds for pain and men 's and women 's health products . usc 's compounded formulations in many circumstances are offered as alternatives to drugs approved by the fda . usc also provides certain veterinary pharmaceutical products for animals . to achieve our goals and support our overall strategy , we will need to raise a substantial amount of funding and make significant investments in , among other things , new product development and working capital . symjepi ( epinephrine ) injection product on june 15 , 2017 , the fda approved the company 's symjepi ( epinephrine ) injection 0.3mg product for the emergency treatment of allergic reactions ( type i ) including anaphylaxis . symjepi ( epinephrine ) injection 0.3mg is intended to deliver a dose of epinephrine , which is used for emergency , immediate administration in acute anaphylactic reactions to insect stings or bites , allergic reaction to certain foods , drugs and other allergens , as well as idiopathic or exercise-induced anaphylaxis , to patients weighing 66 pounds or greater . on september 27 , 2018 , the fda approved our lower dose version ( 0.15mg ) of symjepi ( epinephrine ) injection , which is intended for patients weighing 33 to 66 pounds . 52 in july 2018 , we entered into a distribution and commercialization agreement with sandoz inc. , a division of novartis ag , to commercialize our symjepi product . under the terms of the agreement , we appointed sandoz as the exclusive distributor of symjepi in the united states and related territories , or the territory , in all fields including both the retail market and other markets , and granted sandoz an exclusive license under our patent and other intellectual property rights and know-how to market , sell , and otherwise commercialize and distribute the product in the territory , subject to the provisions of the agreement , in partial consideration of an upfront fee by sandoz and potential performance-based milestone payments . story_separator_special_tag if we do not obtain required additional equity or debt funding , our cash resources will be depleted and we could be required to materially reduce or suspend operations , which would likely have a material adverse effect on our business , stock price and our relationships with third parties with whom we have business relationships , at least until additional funding is obtained . if we do not have sufficient funds to continue operations , we could be required to seek bankruptcy protection or other alternatives that could result in our stockholders losing some or all of their investment in us . funding that we may receive during fiscal 2020 is expected to be used to satisfy existing obligations and liabilities and working capital needs , to support commercialization of our products and conduct the clinical and regulatory work to develop our product candidates , to begin building working capital reserves and to fund a number of projects , which may include , without limitation , some or all of the following : ● continue development and commercialization of our zimhi ( naloxone ) product candidate ; ● continue development of our allergy and respiratory product candidates ; ● pursue the development of other product candidates that we may develop or acquire ; ● fund clinical trials and seek regulatory approvals ; ● expand research and development activities ; ● access manufacturing , commercialization and sales capabilities ; ● implement additional internal systems and infrastructure ; ● maintain , defend and expand the scope of our intellectual property portfolio ; ● acquire products , technologies , intellectual property or companies and support continued development and funding thereof ; ● hire additional management , sales , research , development and clinical personnel ; and ● help fund the operations and capital expenditures of usc . 54 story_separator_special_tag style= '' margin-bottom : 0pt ; margin-left : 0 ; margin-top : 0pt ; text-indent : 0.5in ; font : 10pt times new roman , times , serif ; '' > other income ( expense ) consists of interest expense and interest income . other income ( expense ) for the years ended december 31 , 2019 and 2018 was approximately $ 53,000 and $ 88,000 , respectively . the decrease in other income ( expense ) during the year ended december 31 , 2019 , compared to the comparable period of 2018 was primarily due to a decrease in interest income of approximately $ 70,000 and a decrease of debt related expense ( interest expense ) of approximately $ 35,000 for the year ended december 31 , 2019. income tax ( expense ) benefit the income tax ( expense ) benefit for the years ended december 31 , 2019 and 2018 was approximately ( $ 9,000 ) and $ 369,000 respectively . the income tax ( provision ) benefit for 2019 and 2018 reflected the reassessment of the company 's valuation allowance related to the portion of the deferred tax asset that the company determined to be more-likely-than-not to be recognized . the reassessment resulted from the fact that the company 's indefinite lived taxable temporary differences are now available as a source of future taxable income to offset nols generated in the current year which , under the tax cuts and jobs act , do not expire . this reassessment resulted in a ( provision ) benefit of approximately ( $ 9,000 ) and $ 369,000 , respectively . liquidity and capital resources we have incurred net losses of approximately $ 29.3 million and $ 39.0 million for the years ended december 31 , 2019 and 2018 , respectively . since our inception , june 6 , 2006 , and through december 31 , 2019 , we have an accumulated deficit of approximately $ 182.3 million . since inception and through december 31 , 2019 , we have financed our operations principally through debt financing and through public and private issuances of common stock and preferred stock . since inception , we have raised a total of approximately $ 189.0 million in debt and equity financing transactions , consisting of approximately $ 23.5 million in debt financing and approximately $ 165.5 million in equity financing transactions . in february 2020 , we completed a registered direct offering of 11,600,000 shares of common stock , and a concurrent private placement of warrants to purchase 8,700,000 shares of common stock , to a small number of accredited institutional investors , resulting in estimated net proceeds of approximately $ 6.1 million . we will need significant additional funding before the end of fiscal 2020 to satisfy our obligations and fund the future expenditures that we believe will be required to support commercialization of our products and conduct the clinical and regulatory work to develop our product candidates . we may finance future cash needs primarily through proceeds from equity or debt financings , loans , share of profits anticipated to be received relating to sales in the u.s. of our symjepi products , sales of assets , out-licensing transactions , and or collaborative agreements with corporate partners , and from revenues from our sale of compounded pharmacy formulations . we have used the net proceeds from debt and equity financings for general corporate purposes , which have included funding for research and development , selling , general and administrative expenses , working capital , reducing indebtedness , pursuing and completing acquisitions or investments in other businesses , products or technologies , and for capital expenditures . assuming adequate funding , we anticipate that we may make capital expenditures before the end of fiscal 2020 of at least approximately $ 2.0 million to $ 2.5 million including , without limitation , expenditures relating to a new usc facility and the construction of manufacturing assembly lines for our symjepi ( epinephrine ) injection 0.3mg and 0.15mg products and our zimhi naloxone ( apc-6000 ) product candidate . n et cash used in operating activities for the years ended december 31 , 2019 and 2018 , was approximately $ 19.9 million and $ 32.7 million , respectively .
| results of operations our consolidated results of operations are presented for the year ending december 31 , 2019 and for the year ending december 31 , 2018. years ended december 31 , 2019 and 2018 revenues revenues were approximately $ 22,114,000 and $ 15,087,000 for the years ended december 31 , 2019 and 2018 , respectively , representing an increase of approximately $ 7,027,000. approximately $ 4,379,000 of the increase in revenues resulted from an increase in sales of usc 's sterile pharmaceutical formulations resulting in part from an increase in production in order to meet product demand and from marketing personnel efforts . this amount was partially offset by a decrease of approximately $ 1,115,000 in sales of usc 's non-sterile pharmaceutical formulations primarily due to the ceasing of sales of certain formulations and 503a products . the increase in revenue for 2019 compared to 2018 was also impacted by approximately $ 3,763,000 of outsourced manufacturing revenue relating to sales of symjepi ( epinephrine ) injection 0.3mg and 0.15mg . there was no revenue relating to the sale of those products for the year ended december 31 , 2018. cost of goods sold cost of goods sold was approximately $ 15,479,000 and $ 9,798,000 for the years ended december 31 , 2019 and 2018 , respectively . our cost of goods sold includes direct and indirect costs to manufacture formulations and sell products , including active pharmaceutical ingredients , personnel costs , packaging , storage , shipping and handling costs , the write-off of obsolete inventory and other related expenses .
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for this service , american home insurance receives commission revenues from insurance carriers o n policies that were originated in the prior month . in addition , to the extent a homebuyer renews their policy with the insurance carrier , american home insurance receives a renewal commission . upon origination of the policy story_separator_special_tag the following discussion should be read in conjunction with , and is qualified in its entirety by , the consolidated financial statements and notes thereto included elsewhere in this annual report on form 10-k. this item contains forward-looking statements that involve risks and uncertainties . actual results may differ materially from those indicated in such forward-looking statements . factors that may cause such a difference include , but are not limited to , those discussed in “ item 1a , risk factors relating to our business. ” replace_table_token_5_th 15 story_separator_special_tag font-family : times new roman ; font-size : 10pt ; '' > 16 tax cuts and jobs act of 2017 as a result of the tax cuts and jobs act , we believe our effective tax rate in 2018 will be significantly lower than the effective tax rate we have experienced over the most recent years . * * see `` forward-looking statements '' above . 17 homebuilding pretax income ( loss ) replace_table_token_6_th n/m – not meaningful homebuilding p retax income for 2017 was $ 185.9 million , an increase of $ 70.6 million from $ 115.4 million for the year ended december 31 , 2016. the increase was primarily attributable to an 11 % increase in home sale revenues , a 50 basis point improvement in gross margin from home sales percentage and $ 53.6 million in realized gains due to the sales of investments held by our corporate segment . the increases were slightly offset by a higher sg & a rate driven by compensation-related expenses that increased due to higher headcount . the year-over-year improvements in pretax income for our west and mountain segments were driven primarily by higher home sale revenues of 17 % and 7 % , respectively . pretax income was negatively impacted in our west segment as a result of a $ 4.6 million increase in impairments while pretax income was positively impacted in our mountain segment by an improving gross margin from home sales percentage . our east segment had a $ 9.5 million improvement in pretax income primarily as a result of a $ 4.4 million reduction in inventory impairments . the pretax gain for our corporate segment was driven by the realized gains on the sales of investments discussed above , partially offset by an increase in compensation-related expenses . homebuilding pretax income for 2016 was $ 115.4 million , an increase of $ 44.9 million from $ 70.4 million for the year ended december 31 , 2015. the increase was primarily attributable to a 22 % increase in home sale revenues , coupled with a 110 basis point improvement in our sg & a rate . the year-over-year increases in pretax income for each of our west , mountain and east segments were driven primarily by higher home sale revenues of 23 % , 24 % and 15 % , respectively , coupled with improvements in each segment 's sg & a rate . the pretax loss for our corporate segment was reduced from the prior year primarily as a result of an increase in interest and other income and a decrease in stock-based compensation expense . assets replace_table_token_7_th total homebuilding assets increased 10 % from december 31 , 2016 to december 31 , 2017 , mostly driven by our mountain and corporate segments . our mountain segment had ( 1 ) higher land and land under development balances due to strong land acquisition activity during the twelve months ended december 31 , 2017 , and ( 2 ) a higher number of homes completed or under construction as a result of an increase in backlog under construction . our corporate segment assets increased as a result of significant cash inflows from the issuance of an additional $ 150 million under our 6 % notes and positive operating results . corporate segment cash was utilized to increase inventories in our west and mountain operating segments . homebuilding assets in our east segment are down from december 31 , 2016 due to tempered land acquisition activity in maryland and virginia as our returns in these markets have been lower than the returns we expect to realize . 18 home and land sale revenues replace_table_token_8_th home and lan d sale revenues increased $ 240.4 million for the year ended december 31 , 2017 , due to a 10 % increase in new home deliveries . for the year ended december 31 , 2016 , home and land sale revenues increased $ 402.6 million year-over-year , due primarily to a 15 % increase in new home deliveries and a 6 % increase in the average selling price of new home deliveries . new home deliveries : replace_table_token_9_th replace_table_token_10_th 19 for the year ended december 31 , 2017 , the year-over-year changes in homes delivered in most of our markets were primarily the result of the year-over-year change in the number of units in backlog to begin the year . in our maryland and virginia markets , while we started the year with beginning backlog units up from the prior year , our number of homes delivered was down primarily due to declines in the number of net new orders in the first part of 2017 as a result of reductions in community count . our washington and utah markets experienced the largest year-over-year increases in the average selling price of homes delivered due to a combination of price increases implemented in most communities coupled with a shift in mix to higher priced communities . in colorado , where we have experienced the most significant roll-out of our seasons product line , we experienced a slight decrease in the average selling price of homes delivered . story_separator_special_tag every market in our west and mountain segments had year-over-year improvements in the dollar value of net new orders and , with the exception of colorado , all of these markets experienced an improved monthly sales absorption pace mostly due to sound economic fundamentals driving solid demand for new homes . while most of these markets had year-over-year declines in average active community count , the strong improvement in monthly sales absorption pace , notably in our arizona , nevada and washington markets , almost or completely offset the declines in average active communities . we saw the largest improvement in sales pace in our washington market , which benefited from robust demand in newly opened communities . in our colorado market , a 29 % year-over-year increase in the number of average active subdivisions was partially offset by a lower monthly sales absorption pace that was negatively impacted by a number of factors including ( 1 ) a higher cancellation rate and lower sales pace in the 2 nd half of 2017 as a result of the joist issue and ( 2 ) a higher number of sales coming from close-out ( i.e . inactive ) communities in 2016 compared to the same metric in 2017. in our east segment , each of our markets experienced a year-over-year decline in the dollar value of net new orders . both of our maryland and virginia markets experienced the most significant decreases in the number of new orders as a result of substantial declines in average activity community count . our florida market experienced the most significant decline in average selling price of net new orders as a result of a shift in mix of sales to communities with lower selling prices . 23 during the year ended december 31 , 2016 , we experienced year-over-year improvements in the dollar value of net new orders in all of our markets , resulting in a total year-over-year increase to the dollar value of net new orders of 14 % or $ 307.1 million . washington experienced the largest increase in average selling price percentage due to both a shift in mix to higher priced communities and price increases implemented in selling communities throughout 2016. our nevada and virginia markets each experienced the largest percentage improvement in the number of net new orders . in our virginia market , this was due to an increased monthly sales absorption pace resulting from certain communities that opened late in 2015 having a full year of strong sales activity in 2016. a 50 % year-over-year increase in the number of average active communities drove the improvement in nevada . however , the impact on net new orders from this higher average active community count was slightly offset by a year-over-year decline in monthly sales absorption pace as the 2015 monthly sales absorption pace was at unusually high levels during the first half of 2015. the absorption paces for our colorado and california markets were among the strongest in the company , with robust demand in each market . active subdivisions : replace_table_token_16_th at december 31 , 2017 , we had 151 active subdivisions , an 8 % decrease from 164 active subdivisions at the end of 2016. however , during 2017 , we approved the acquisition of almost 10,400 lots , representing a year-over-year increase of more than 100 % . as shown below in our lots owned and optioned section , the increased lot approval activity has substantially increased our lots controlled year-over-year , which we expect to drive increases in our active subdivision count in the future * . additionally , as of december 31 , 2017 our soon-to-be-active subdivision count was greater than our soon-to-be-inactive subdivision count for the first time since our 2015 third quarter . active subdivisions in our washington market were down 57 % year-over-year as of december 31 , 2017 , driven by the closeout of subdivisions earlier than anticipated due to strong sales pace and lower than anticipated land acquisition activity due to increased competition . in colorado , we have seen not only strong growth in our active subdivision count but also in our number of lots controlled as we have been successful in identifying multiple land acquisition opportunities while still focusing on affordability , which we believe is a key issue in the metro denver area . in virginia and maryland , we have tempered our land acquisition activity over the past two years as our recent returns in this segment have been lower than expected . for all remaining markets , the year-over-year changes were primarily driven by the timing of opening new subdivisions versus closing out older ones , with many subdivisions closing earlier than anticipated due to higher monthly absorption paces during 2017 compared to 2016 . * see `` forward-looking statements '' above . 24 cancellation rate : replace_table_token_17_th our cancellations as a percentage of gross sales in total and on an individual market-by-market basis have been relatively consistent among the years ended december 31 , 2017 , 2016 and 2015. backlog : replace_table_token_18_th at december 31 , 2017 , we had 3,159 homes in backlog with a total value of $ 1.60 billion , representing respective increases of 275 homes and $ 220.8 million from december 31 , 2016. the year-over-year changes in each market 's homes in backlog and average selling price are correlated with the year-over-year changes in net new orders with the exception of colorado and california . colorado was impacted by the joist issue that delayed the construction of certain of our homes and impacted our ability to close backlog , while california had a substantial year-over-year increase in the number of net new orders during the 2017 fourth quarter . 25 homes completed o r under construction : replace_table_token_19_th nearly three years ago , we increased our focus on build-to-order homes and limited the number of unsold homes that we start without a sales contract , giving our customers the best opportunity to personalize their homes .
| executive summary overview results for the twelve months ended december 31 , 2017 for the year ended december 31 , 2017 , we reported net inc ome of $ 141.8 million , or $ 2.48 per diluted share , a 37 % increase compared to net income of $ 103.2 million , or $ 1.85 per diluted share for the year earlier period . the increase was primarily due to an 11 % improvement in home sale revenues , a 50 basis point improvement in gross margin from home sales percentage , $ 53.6 million in realized gains due to the sales of investments held by our corporate segment and a $ 7.4 million improvement in pretax income from our financial services operations . these items were slightly offset by a 40 basis point increase in our selling , general and administrative ( “ sg & a ” ) expenses as a percentage of home sale revenues ( “ sg & a rate ” ) and a 630 basis point increase in our effective tax rate from 32.0 % to 38.3 % . our higher effective tax rate was primarily the result of the impact on our net deferred tax assets from the tax cuts and jobs act that was signed into law on december 22 , 2017. home sale revenues were up from $ 2.26 billion in 2016 to $ 2.50 billion in 2017. the improvement was primarily the result of a 10 % increase in deliveries due mostly to a 24 % increase in units in backlog to begin the year . the dollar value of net new home order s increased by 6 % year-over-year , as our number of net new orders and average selling price increased by 4 % and 3 % , respectively . a 9 % year-over-year increase in our monthly sales absorption pace , which was partially offset by a 4 % decline in average active communities , drove the increase in the number of net new orders .
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in all circumstances , longnecker considered our annual revenues and market capitalization levels in its benchmarking . the compensation analysis provided by longnecker covered all major components of total compensation , including annual base salary , annual short-term cash bonus and long-term incentive awards for our named executive officers as compared to officers of companies similarly situated in terms of structure , annual revenues and market capitalization and made determinations with respect 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 notes to audited consolidated financial statements included elsewhere in this report . adjusted ebitda is a non-gaap financial measure of performance that has limitations and should not be considered as a substitute for net income or cash provided by ( used in ) operating activities . please see “ key measures used to evaluate and assess our business ” below for a discussion of our use of adjusted ebitda in this “ management 's discussion and analysis of financial condition and results of operations ” and a reconciliation to net income for the periods presented . forward-looking statements this report , including without limitation , our discussion and analysis of our financial condition and results of operations , and any information incorporated by reference , contains statements that we believe are “ forward-looking statements. ” these forward-looking statements generally can be identified by use of phrases such as “ believe , ” “ plan , ” “ expect , ” “ anticipate , ” “ intend , ” “ forecast ” or other similar words or phrases . descriptions of our objectives , goals , targets , plans , strategies , costs , anticipated capital expenditures , expected cost savings and benefits are also forward-looking statements . these forward-looking statements are based on our current plans and expectations and involve a number of risks and uncertainties that could cause actual results and events to vary materially from the results and events anticipated or implied by such forward-looking statements , including : our ability to make , complete and integrate acquisitions from affiliates or third-parties ; business strategy and operations of energy transfer operating , l.p. and energy transfer lp and their respective conflicts of interest with us ; changes in the price of and demand for the motor fuel that we distribute and our ability to appropriately hedge any motor fuel we hold in inventory ; our dependence on limited principal suppliers ; competition in the wholesale motor fuel distribution and retail store industry ; changing customer preferences for alternate fuel sources or improvement in fuel efficiency ; changes in our credit rating , as assigned by rating agencies ; a deterioration in the credit and or capital market ; environmental , tax and other federal , state and local laws and regulations ; the fact that we are not fully insured against all risk incidents to our business ; dangers inherent in the storage and transportation of motor fuel ; our ability to manage growth and or control costs ; our reliance on senior management , supplier trade credit and information technology ; and our partnership structure , which may create conflicts of interest between us and sunoco gp llc , our general partner ( “ general partner ” ) , and its affiliates , and limits the fiduciary duties of our general partner and its affiliates . all forward-looking statements are expressly qualified in their entirety by the foregoing cautionary statements . for a discussion of these and other risks and uncertainties , please refer to “ item 1a . risk factors ” included herein . the list of factors that could affect future performance and the accuracy of forward-looking statements is illustrative but by no means exhaustive . accordingly , all forward-looking statements should be evaluated with the understanding of their inherent uncertainty . the forward‑looking statements included in this report are based on , and include , our estimates as of the filing of this report . we anticipate that subsequent 31 events and market developments will cause our estimates to change . however , while we may elect to update these forward-looking statements at some point in the future , we specifically disclaim any obligation to do so except as required by law , even if new information becomes available in the future . story_separator_special_tag style= '' line-height:120 % ; font-size:10pt ; '' > year ethanol offtake agreement with attis . total consideration for the divestiture was $ 20 million in cash plus certain working capital adjustments . on march 14 , 2019 , we completed a private offering of $ 600 million in aggregate principal amount of 6.000 % senior notes due 2027. we used the proceeds to repay a portion of the outstanding borrowings under our 2018 revolver . in connection with our issuance of the 2027 notes , we entered into a registration rights agreement with the initial purchasers pursuant to which we agreed to complete an offer to exchange the 2027 notes for an issue of registered notes with terms substantively identical to the 2027 notes and evidencing the same indebtedness as the 2027 notes on or before march 14 , 2020. the exchange offer was completed on july 17 , 2019. acquisition on january 18 , 2019 , we acquired certain convenience store locations from speedway llc for approximately $ 5 million plus working capital adjustments . we subsequently converted the acquired convenience store locations to commission agent locations . market and industry trends and outlook we expect that certain trends and economic or industry-wide factors will continue to affect our business , both in the short-term and long-term . we base our expectations on information currently available to us and assumptions made by us . to the extent our underlying assumptions about or interpretation of available information prove to be incorrect , our actual results may vary materially from our expected results . read “ item 1a . story_separator_special_tag 34 the following table presents a reconciliation of adjusted ebitda to net income ( loss ) for the years ended december 31 , 2019 and 2018 : replace_table_token_6_th _ ( 1 ) includes amounts from discontinued operations in 2018. year ended december 31 , 2019 compared to year ended december 31 , 2018 the following discussion of results for 2019 compared to 2018 compares the operations for the years ended december 31 , 2019 and 2018 , respectively . segment adjusted ebitda . total segment adjusted ebitda for 2019 was $ 665 million , an increase of $ 27 million from 2018 . the increase is primarily attributable to the following changes : a decrease in operating costs of $ 143 million , primarily as a result of the divestment of 1,030 company-operated fuel sites to 7-eleven on january 23 , 2018 , the conversion of 207 retail sites to commission agent sites during april 2018 and the may 2019 sale of our ethanol plant in fulton , new york . these expenses include other operating expense , general and administrative expense and lease expense ; and an increase in unconsolidated affiliate adjusted ebitda of $ 4 million ; partially offset by a decrease in non-motor fuel sales gross profit of $ 44 million , primarily related to lower merchandise gross profit as a result of the divestment of 1,030 company-operated fuel sites to 7-eleven on january 23 , 2018 and the conversion of 207 retail sites to commission agent sites during april 2018 ; and a decrease in the gross profit on motor fuel sales of $ 76 million , primarily due to lower fuel margins , a one-time benefit of approximately $ 25 million related to a cash settlement with a fuel supplier recorded for the year ended december 31 , 2018 and a $ 8 million one-time charge related to a reserve for an open contractual dispute recorded for the year ended december 31 , 2019 ; partially offset by a 4.2 % increase in gallons sold for the year ended december 31 , 2019 compared to the year ended december 31 , 2018. depreciation , amortization and accretion . depreciation , amortization and accretion was $ 183 million in 2019 , a slight increase of $ 1 million from 2018 . interest expense . interest expense was $ 173 million in 2019 , an increase of $ 27 million from 2018 . the increase is primarily attributable to an increase in total long-term debt . non-cash unit-based compensation expense . non-cash unit-based compensation expense was $ 13 million in 2019 , a slight increase of $ 1 million from 2018 . loss on disposal of assets and impairment charges . loss on disposal of assets and impairment charges was $ 68 million in 2019 , a decrease of $ 12 million from 2018 . the 2019 amount is primarily attributable to a $ 47 million write-down on assets held for sale and a $ 21 million loss on disposal of assets related to our ethanol plant in fulton , new york . the 2018 amount is primarily attributable to the loss on fixed assets driven by the 7-eleven sale and the $ 30 million impairment on our contractual rights intangible asset . 35 income tax expense/ ( benefit ) . income tax benefit for 2019 was $ 17 million , a change of $ 209 million from 2018 . the change is primarily due to the taxable gain recognized on the sales of assets to 7-eleven in 2018. the following table sets forth , for the periods indicated , information concerning key measures we rely on to gauge our operating performance : replace_table_token_7_th _ ( 1 ) excludes depreciation , amortization and accretion . ( 2 ) we define adjusted ebitda as described above under “ key measures used to evaluate and assess our business. ” ( 3 ) includes amounts from discontinued operations . ( 4 ) excludes the impact of inventory adjustments consistent with the definition of adjusted ebitda . the following table presents a reconciliation of adjusted ebitda to net income ( loss ) for the years ended december 31 , 2018 and 2017 : replace_table_token_8_th _ ( 1 ) includes amounts from discontinued operations . 36 year ended december 31 , 2018 compared to year ended december 31 , 2017 the following discussion of results for 2018 compared to 2017 compares the operations for the years ended december 31 , 2018 and 2017 , respectively . segment adjusted ebitda . total segment adjusted ebitda for 2018 was $ 638 million , a decrease of $ 94 million from 2017 . the decrease is primarily attributable to the following changes : a decrease in the gross profit on motor fuel sales of $ 294 million , primarily due to a 25.2 % , or $ 0.038 , decrease in cents per gallons sold as a result of the change in mix of gallons sold from higher gross profit company-operated fuel sites to supplying lower gross profit fuel distribution and marketing gallons as a result of the divestment of 1,030 company-operated fuel sites to 7-eleven on january 23 , 2018 ; a decrease in other gross profit of $ 671 million , primarily related to lower merchandise gross profit as a result of the divestment of 1,030 company-operated fuel sites to 7-eleven on january 23 , 2018 ; offset by a decrease in operating costs of $ 871 million , as a result of the divestment of 1,030 company-operated fuel sites to 7-eleven on january 23 , 2018. these expenses include other operating expense , general and administrative expense and rent expense . depreciation , amortization and accretion . depreciation , amortization and accretion was $ 182 million in 2018 , a decrease of $ 21 million from 2017 . the decrease is primarily due to the divestment of 1,030 company-operated fuel sites to 7-eleven on january 23 , 2018. interest expense . interest expense was $ 146 million in 2018 , a decrease of $ 99 million from 2017 .
| overview as used in this management 's discussion and analysis of financial condition and results of operations , the terms “ partnership , ” “ sun , ” “ we , ” “ us , ” or “ our ” should be understood to refer to sunoco lp and our consolidated subsidiaries , unless the context clearly indicates otherwise . we are a delaware master limited partnership primarily engaged in the distribution of motor fuels to independent dealers , distributors , and other customers and the distribution of motor fuels to end customers at retail sites operated by commission agents . in addition , we receive lease income through the leasing or subleasing of real estate used in the retail distribution of motor fuel . we also operate 75 retail stores located in hawaii and new jersey . we are managed by our general partner . as of december 31 , 2019 , energy transfer operating , l.p. ( “ eto ” ) owns 100 % of the membership interests in our general partner , all of our incentive distribution rights and approximately 34.3 % of our common units , which constitutes a 28.6 % limited partner interest in us . in october 2018 , energy transfer equity , l.p. ( “ ete ” ) and energy transfer partners , l.p. ( “ etp ” ) completed the previously announced merger of etp with a wholly‑owned subsidiary of ete in a unit-for-unit exchange .
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the custom chemicals product group is comprised of specialty chemicals manufactured for a single customer whereas the performance chemicals product group is comprised of chemicals manufactured for multiple customers . the biofuels segment is comprised of one product group . management believes that the diversity of each segment strengthens the company in the ability to utilize resources and is committed to growing each segment . major products in the custom chemicals manufacturing group include : ( i ) laundry detergent additive manufactured exclusively for a customer for use in a household detergent ; ( ii ) proprietary herbicide intermediates manufactured for select strategic customers ; ( iii ) chlorinated polyolefin adhesion promoters ( or “ cpos ” ) and antioxidant precursors ( or “ dipb ” ) for a customer ; and ( iv ) a biocide intermediate for another customer . the custom chemicals manufacturing group also includes consumer products ( cosmetics and personal care products , specialty polymers , and specialty products used in the fuels industry ) . revenues generated from the laundry detergent additive are based on a supply agreement with the customer . our agreement with that customer for sales of the laundry detergent additive ( entered into by our subsidiary , futurefuel chemical company ) was set to expire on december 31 , 2015. on september 30 , 2015 , futurefuel chemical company signed a contract amendment to extend the supply of the laundry detergent additive through 2018. the amendment ( i ) supersedes such customer 's notice of termination of the supply arrangement effective december 31 , 2015 ; ( ii ) extends the term of the supply arrangement to december 31 , 2018 ( unless terminated earlier in accordance with the provisions of the purchase agreement , as amended ) ; and ( iii ) provides for sales of the laundry detergent additive to this in reduced volumes with adjusted pricing during 2015-2018 to account for revised market conditions . also , we acquired certain intellectual property rights related to the laundry detergent additive which we anticipate will support sales of this product to other customers . as of december 31 , 2015 , business with this customer constitutes less than 10 % of our revenues . the contract with the customer provides that the price received by us for the laundry detergent additive is indexed to changes in certain items , enabling us to pass along most inflationary increases in production costs to the customer . this customer has informed us that , due to a decline in demand for dry powder household detergent , associated demand for the laundry detergent additive is likely to continue declining . in 2013 , we completed a supply agreement with a major multi-national life sciences company to manufacture an intermediate to a new herbicide . the equipment utilized for this project is , in part , the equipment vacated from the termination of previous contracts with other customers . the contract is effective through december 31 , 2016 and during 2015 was extended through december 31 , 2018. no assurances can be given , however , that the agreement will be further extended past 2018. pricing for the other custom manufacturing products is negotiated directly with the customer . some , but not all , of these products have pricing mechanisms and or protections against raw material or conversion cost changes . performance chemicals consist of specialty chemicals that are manufactured to general market-determined specifications and are sold to a broad customer base . the major product line in the performance chemicals group is ssipa/lisipa , a polymer modifier that aids the properties of nylon and polyesters . this group of products also includes other sulfonated monomers and hydrotropes , specialty solvents , polymer additives , and chemical intermediates , such as glycerin . ssipa/lisipa revenues are generated from a diverse customer base of nylon fiber manufacturers and other customers that produce condensation polymers . contract sales are , in certain instances , indexed to key raw materials for inflation ; otherwise , there is no pricing mechanism or specific protection against raw material or conversion cost changes . pricing for the other performance chemical products is established based upon competitive market conditions . some , but not all , of these products have pricing mechanisms and or specific protections against raw material or conversion cost changes . 30 for our biofuels segment , we procure all of our own feedstock and only sell biodiesel for our own account . in rare instances , we purchase biodiesel from other producers for resale . we have the capability to process multiple types of feedstock including vegetable oils , animal fats , and separated food waste oils . we can receive feedstock by rail or truck , and we have substantial storage capacity to acquire feedstock at advantaged prices when market conditions permit . our annual biodiesel production capacity is in excess of 58 million gallons per year . there currently is uncertainty as to whether we will produce biodiesel in the future . this uncertainty results from changes in feedstock prices relative to biodiesel prices and the lack of permanency of government mandates and tax credits . see “ risk factors ” above . while biodiesel is the principal component of the biofuels segment , we also generate revenue from the sale of petrodiesel both in blends with our biodiesel and , from time to time , with no biodiesel added . petrodiesel and biodiesel blends are available to customers at our leased storage facility in north little rock , arkansas and at our batesville plant . in addition , we deliver blended product to a small group of customers within our region . we also sell refined petroleum products on common carrier pipelines in part to maintain our status as an active shipper on these pipelines . the majority of our expenses are cost of goods sold . story_separator_special_tag chemicals segment replace_table_token_12_th 2015 compared to 2014 chemical sales revenue decreased $ 20,298 in 2015 compared with 2014. sales revenue for our custom chemicals product line ( unique chemicals produced for specific customers ) totaled $ 108,160 , a decline of $ 19,796 from 2014. the decline in the laundry detergent additive revenue was the most significant reduction in the custom chemical product line . our contract for sales of the laundry detergent additive ( entered into by our subsidiary , futurefuel chemical company ) was set to expire on december 31 , 2015. on september 30 , 2015 , futurefuel chemical company signed a contract amendment to extend the supply of the laundry detergent additive through 2018. the amendment ( i ) supersedes such customer 's notice of termination of the supply arrangement effective december 31 , 2015 ; ( ii ) extends the term of the supply arrangement to december 31 , 2018 ( unless terminated earlier in accordance with the provisions of the purchase agreement , as amended ) ; and ( iii ) provides for sales of the laundry detergent additive to this customer in reduced volumes with adjusted pricing during 2015-2018 to account for revised market conditions . revenue from the laundry detergent additive was less than 10 % of total revenue in 2015 as compared to 13 % in 2014. as part of the contract extension , we acquired additional intellectual property rights related to the laundry detergent additive product , which we anticipate will support sales of this product to other customers . to the extent such sales are realized , we anticipate reporting such sales as a component of our performance chemicals segment . this laundry detergent additive is currently only used in dry laundry powders and sales are challenged by the trend to liquid based laundry detergents . the decrease in revenue is also reflective of a graphite powder contract termination payment of $ 8,816 , which was recorded in revenue in 2014 and did not recur in 2015. we invested to expand production capacity to some our custom chemicals product lines , however , anticipated growth failed to materialize based on contraction in the energy exploration and agricultural chemistry industries . the growth we experienced in 2015 from other custom products helped minimize these impacts . performance chemical ( comprised of multi-customer products which are sold based on specification ) revenue was $ 17,688 in 2015 , a decrease of $ 502 from 2014. this decrease was from declines in sales of polymer modifier products . gross profit for the chemicals segment decreased $ 10,610 in 2015 compared with 2014. this decrease in gross profit is primarily attributed to reduced volumes and selling price of the laundry detergent additive . this decrease was offset by net gross profit improvements in custom chemicals due to growth in herbicide intermediate , biocide intermediates , and fuel additive products . furthermore , gross profit in the chemicals segment for the twelve months ended december 31 , 2015 was benefited by adjustments in the carrying value of our inventory as determined utilizing the lifo method of inventory accounting . 35 2014 compared to 2013 chemicals sales revenue decreased $ 15,535 in 2014 compared with 2013. this decline was primarily driven by reduced sales volumes of certain chemical products including the laundry detergent additive and the other custom products we no longer produce . the declines were partially offset by the aforementioned graphite powder contract termination payment of $ 8,816 in 2014. gross profit for the chemicals segment decreased $ 8,646 in 2014 compared to 2013 on reduced sales volumes in addition to : i ) slightly higher costs from the change in product mix year over year ; ii ) increased fixed cost share with reduced biodiesel production ; and iii ) adjustments in our inventory carrying value as determined utilizing the lifo method of inventory accounting were other contributing factors to the decline in gross profit . biofuels segment replace_table_token_13_th 2015 compared to 2014 biofuels sales revenue decreased $ 21,929 in 2015 compared to 2014 primarily from decreased sales prices as experienced globally in the industry . the renewable fuel final mandate was set in late 2015 and the btc was reinstated in december , retroactive to january 1 , 2015 , and made effective through december 31 , 2016. as a result of contractual provisions with certain customers , a share of the btc was owed upon reinstatement of a retroactive btc . increased sales volume on common carrier pipelines helped reduce the reduced price impact as well as to offset lower sales volumes of biodiesel and diesel blends . such sales from common carrier pipelines totaled $ 66,544 compared to $ 40,263 in 2014. revenues from common carrier pipelines varies as its revenue recognition depends upon whether a transaction is bought from and sold to the same party . purchases and sales of inventory with the same counterparty that are entered into in contemplation of one another ( including buy/sell agreements ) are combined and recorded on a net basis . revenue from common carrier pipelines fluctuates with market conditions . in 2015 , a portion of our revenue was generated by pipeline sales of petroleum products to a petroleum wholesale , storage , and transportation company . no assurances can be given that we will continue to sell to such customer , or , if we do sell , the volume we will sell or the profit margin we will realize .
| results of operations consolidated replace_table_token_11_th 2015 compared to 2014 consolidated sales revenue decreased $ 42,227 in 2015 compared to 2014. the biofuels segment suffered from lower prices as experienced in the industry as a whole , although this segment did experience higher sales volumes which helped to offset the decline in biofuels prices . the chemicals segment suffered from lower sales volumes , especially with respect to the laundry detergent additive product . the decrease in consolidated revenue is also reflective of a graphite powder contract termination payment of $ 8,816 , which was recorded in revenue in 2014 and did not recur in 2015. gross profit decreased by $ 8,927 in 2015 compared to 2014. this decrease in profit is attributable to : i ) reduced chemicals sales volumes of the laundry detergent additive ; ii ) reduced profitability on biodiesel as feedstock prices decreased at a slower rate than the selling price ; and iii ) reduced profitability on common carrier pipeline activity consistent with the global decline in the fuel market . our gross profit was benefited by adjustments in the carrying value of our inventory as determined utilizing the lifo method of inventory accounting , and improved margins in other custom chemicals . operating expenses increased $ 230 in 2015 compared to 2014. this increase was primarily the result of compensation expense recognized in 2015 from stock awards issued during 2014. provision for taxes the effective tax rates for the years ended december 31 , 2015 and 2014 reflect our expected tax rate on reported operating earnings before income taxes . in 2015 , the positive effect of the biodiesel btc constituted a larger proportion of futurefuel 's net income than in prior years . this increase in proportion combined with the income tax treatment of the btc served to reduce futurefuel 's effective income tax rate in 2015 relative to prior years .
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our actual results could differ materially from those discussed in this form 10-k. in evaluating these statements , you should review part i , item 1a : risk factors and our consolidated financial statements and notes thereto included in part ii , item 8 : financial statements and supplementary data of this form 10-k. overview plug power inc. , or the company , is a leading provider of alternative energy technology focused on the design , development , commercialization and manufacture of hydrogen fuel cell systems used primarily for the material handling and stationary power market . we are focused on proton exchange membrane , or pem , fuel cell and fuel processing technologies , fuel cell/battery hybrid technologies , and associated hydrogen storage and dispensing infrastructure from which multiple products are available . a fuel cell is an electrochemical device that combines hydrogen and oxygen to produce electricity and heat without combustion . hydrogen is derived from hydrocarbon fuels such as liquid petroleum gas , or lpg , natural gas , propane , methanol , ethanol , gasoline or biofuels . plug power develops complete hydrogen delivery , storage and refueling solutions for customer locations . hydrogen can also be obtained from the electrolysis of water , or produced on-site at consumer locations through a process known as reformation . currently , the company obtains hydrogen by purchasing it from fuel suppliers . we concentrate our efforts on developing , manufacturing and selling our hydrogen products and services on commercial terms for material handling applications , with a focus on multi-shift high volume manufacturing and high throughput distribution sites . recent developments on march 2 , 2016 , the company , together with its subsidiaries emerging power inc. and emergent power inc. ( loan parties ) , entered into a loan agreement with generate lending , llc ( lender ) . see the liquidity and capital resources section for a summary of key terms of the agreement . 26 story_separator_special_tag size= '' 2 '' > revenueother . other revenue primarily represents cost reimbursement research and development contracts associated with the development of pem fuel cell technology . we generally share in the cost of these programs with our cost-sharing percentages ranging from 30 % to 50 % of total project costs . revenue from time and material contracts is recognized on the basis of hours expended plus other reimbursable contract costs incurred during the period . we expect to continue certain research and development contract work that is related to our current product development efforts . other miscellaneous revenue is recognized from time to time . other revenue for the year ended december 31 , 2015 decreased $ 1.4 million , or 74.9 % , to $ 0.5 million from $ 1.9 million for the year ended december 31 , 2014. the company had been working on a u.s. government-related research and development contract primarily in 2014 , which had lower costs ( and therefore associated revenues ) carry over into 2015. during 2015 , the company also recorded $ 0.1 million in technology access fees from a customer related to stacks being developed internally . other revenue for the year ended december 31 , 2014 increased $ 0.4 million , or 28.3 % , to $ 1.9 million from $ 1.5 million for the year ended december 31 , 2013. the increase is primarily related to increased activity on a u.s. government-related research and development contract . cost of revenuesales of fuel cell systems and related infrastructure . cost of revenue from sales of fuel cell systems and related infrastructure includes direct material , labor costs , and allocated overhead costs related to the manufacture of our fuel cells such as gendrive units and relion 's stationary backup power units , as well as hydrogen fueling infrastructure referred to at the site level as hydrogen installations . cost of revenue from sales of fuel cell systems and related infrastructure for the year ended december 31 , 2015 increased $ 24.3 million , or 56.1 % , to $ 67.7 million from $ 43.4 million for the year ended december 31 , 2014. gross margin generated from sales of fuel cell systems and related infrastructure was 13.2 % in 2015 and 10.2 % in 2014. gross margin on gendrive sales in 2015 was 21.3 % , an improvement from 13.7 % in 2014. total costs have increased due to higher volume , however gross margin has improved from better leverage on the fixed cost base , supply chain and product design cost down programs , as well as manufacturing process improvements . gross margin on hydrogen infrastructure sales in 2015 was ( 4.4 % ) , an improvement from ( 7.3 % ) in 2014. approximately $ 2.5 million of the overall increase in costs is also due to the inclusion of relion for a full year as compared to nine months in 2014 , which was the year the company completed the acquisition . gross 29 margin on relion revenues improved to 13.2 % in 2015 , from 8.3 % in 2014 , due to cost synergies with the integration of relion operations into the company . cost of revenue from sales of fuel cell systems and related infrastructure for the year ended december 31 , 2014 increased $ 23.0 million , or 112.5 % , to $ 43.4 million from $ 20.4 million for the year ended december 31 , 2013. gross margin generated from sales of fuel cell systems and related infrastructure was 10.2 % for 2014 and ( 10.7 ) % for 2013. gross margin on gendrive sales in 2014 was 13.7 % , an improvement from ( 10.7 % ) in 2013. although costs overall are higher due to volume , the company did see gross margin improvement from leverage on the fixed cost base , supply chain and product design cost down programs , as well as manufacturing process improvements . also , the increase can be attributed to the new hydrogen installations ( which we did not have in 2013 ) . story_separator_special_tag cost of revenue from power purchase agreements for the year ended december 31 , 2015 increased $ 4.2 million , or 399.3 % , to $ 5.3 million from $ 1.1 million for the year ended december 31 , 2014. the increase was a result of the increase in the number of customer sites in which the company completed sale/leaseback transactions ( 14 at december 31 , 2015 as compared to four at december 31 , 2014 ) . gross margin declined to 8.1 % in 2015 from 50.8 % in 2014 , due to changes in financing pricing , as well as decreases in the timing difference between when systems were deployed at customer sites ( beginning of the revenue stream ) and when agreements with financial institutions were reached ( beginning expense recognition of lease payments ) . we began entering into power purchase agreements in the second half of 2014 and there were no power purchase agreements entered into during 2013. cost of revenuefuel delivered to customers . cost of revenue from fuel delivered to customers represents the purchase of hydrogen from suppliers that ultimately is sold to customers . as part of the genkey solution , the company contracts with fuel suppliers to purchase liquid hydrogen and separately sells to its customers upon delivery . cost of revenue from fuel delivered to customers for the year ended december 31 , 2015 increased $ 4.5 million , or 203.8 % , to $ 6.7 million from $ 2.2 million for the year ended december 31 , 2014. the increase is due to higher volume of liquid hydrogen delivered to customer sites , as a result of an increase in the number of hydrogen installations completed under genkey agreements . at december 31 , 2015 , there were 22 customer sites taking hydrogen fuel delivery compared to seven customer sites at december 31 , 2014. the sites generally are the same as those who had purchased hydrogen installations within the genkey solution . the company began selling hydrogen fuel to customers during the second half of 2014. gross margin declined to ( 31.9 % ) in 2015 from ( 12.5 % ) in 2014 , due to inefficiencies related to new product design causing differences between the volume of fuel delivered ( purchased ) and dispensed ( sold ) . 31 cost of revenueother . other cost of revenue primarily represents costs associated with research and development contracts including : cash and non-cash compensation and benefits for engineering and related support staff , fees paid to outside suppliers for subcontracted components and services , fees paid to consultants for services provided , materials and supplies used and other directly allocable general overhead costs allocated to specific research and development contracts . cost of other revenue for the year ended december 31 , 2015 decreased $ 2.7 million , or 83.1 % , to $ 0.5 million from $ 3.2 million for the year ended december 31 , 2014. the company had been working on a u.s. government-related research and development contract primarily in 2014 , which was close to completion and had less activity in 2015. cost of other revenue for the year ended december 31 , 2014 increased $ 0.7 million , or 27.8 % , to $ 3.2 million from $ 2.5 million for the year ended december 31 , 2013. the increase is primarily related to increased activity on a u.s. government-related research and development contract . research and development expense . research and development expense includes : materials to build development and prototype units , cash and non-cash compensation and benefits for the engineering and related staff , expenses for contract engineers , fees paid to consultants for services provided , materials and supplies consumed , facility related costs such as computer and network services , and other general overhead costs associated with our research and development activities . research and development expense for the year ended december 31 , 2015 increased $ 8.5 million , or 131.1 % , to $ 14.9 million from $ 6.5 million for the year ended december 31 , 2014. this increase was primarily related to an increase in personnel related expenses , materials and fuel consumed on refinement of hydrogen infrastructure design , and $ 0.4 million of incremental costs due to the impact of research and development associated with relion for an entire year . the increases in personnel and materials were a result of increased efforts on multiple product cost-down programs and prototyping for stack performance enhancement . research and development expense for the year ended december 31 , 2014 increased $ 3.4 million , or 107.3 % , to $ 6.5 million from $ 3.1 million for the year ended december 31 , 2013. this increase was primarily related to an increase in personnel related expenses , coupled with $ 1.1 million in research and development expenses associated with the acquisition of relion . incremental research and development costs , exclusive of the incremental activities related to relion , were specifically associated with the new turn-key commercial solution as well as numerous product cost-down programs and product design performance enhancements . selling , general and administrative expenses . selling , general and administrative expenses includes cash and non-cash compensation , benefits , amortization of intangible assets and related costs in support of our general corporate functions , including general management , finance and accounting , human resources , selling and marketing , information technology and legal services . selling , general and administrative expenses for the year ended december 31 , 2015 increased $ 7.6 million , or 28.4 % , to $ 34.2 million from $ 26.6 million for the year ended december 31 , 2014. approximately $ 7.8 million of this increase was primarily related to an increase in personnel related expenses ( for example salary , benefits , travel and stock-based compensation ) resulting from continued investment in professional staff to support the additional growth in the business .
| results of operations revenue , cost of revenue , gross profit/ ( loss ) and gross margin for the years ended december 31 , 2015 , 2014 , and 2013 , was as follows ( in thousands ) : replace_table_token_4_th our primary sources of revenue are from sales of fuel cell systems and related infrastructure , services performed on fuel cell systems and related infrastructure , power purchase agreements , and fuel delivered to customers . revenue from sales of fuel cell systems and related infrastructure represents sales of our gendrive units , relion stationary backup power units , as well as hydrogen fueling infrastructures . revenue from services performed on fuel cell systems and related infrastructure represents revenue earned on our service and maintenance contracts and sales of spare parts . revenue from power purchase agreements represents payments received from customers for leased units . all leased units are associated with sale/leaseback transactions in which the company sells fuel cell systems and related infrastructure to a third-party , leases them back and provides them to customers who are parties to power purchase agreements with the company . revenue associated with fuel delivered to customers represents the sale of hydrogen to customers that has been purchased by the company from a third party . as part of the genkey solution , the company contracts with fuel suppliers to purchase liquid hydrogen , which is then sold to its customers . revenuesales of fuel cell systems and related infrastructure . revenue from sales of fuel cell systems and related infrastructure represents revenue from the sale of our fuel cells , such as gendrive units and relion 's stationary backup power units , as well as hydrogen fueling infrastructure referred to at the site level as hydrogen installations .
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our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors , including but not limited to those under the heading “ risk factors ” beginning on page 7. we do not assume , and specifically disclaim , any obligation to update any forward-looking statement contained in this report . overview the primary source of our operating revenue is truckload revenue , which we generate by transporting long-haul and regional freight for our customers and report within our truckload segment . generally , we are paid by the mile for our services . we also derive truckload revenue from fuel surcharges , loading and unloading activities , equipment detention and other ancillary services . the main factors that affect our truckload revenue are the rate per mile we receive from our customers , the percentage of miles for which we are compensated , the number of miles we generate with our equipment and changes in fuel prices . we monitor our revenue production primarily through average truckload revenue , net of fuel surcharges , per tractor per week . we also analyze our average truckload revenue , net of fuel surcharges , per total mile , non-revenue miles percentage , the miles per tractor we generate , our accessorial revenue and our other sources of operating revenue . our operating revenue also includes revenue reported within our logistics segment , which consists of revenue from our internal brokerage and intermodal operations , and through our 45 % interest in mwl , a third-party provider of logistics services to the transportation industry , until we deconsolidated mwl effective march 28 , 2013. brokerage services involve arranging for another company to transport freight for our customers while we retain the billing , collection and customer management responsibilities . intermodal services involve the transport of our trailers on railroad flatcars for a portion of a trip , with the balance of the trip using our tractors or , to a lesser extent , contracted carriers . the main factors that affect our logistics revenue are the rate per mile and other charges we receive from our customers . in addition to the factors discussed above , our operating revenue is also affected by , among other things , the united states economy , inventory levels , the level of truck and rail capacity in the transportation market and specific customer demand . our operating revenue increased $ 20.8 million , or 3.3 % , in 2013. our operating revenue , net of fuel surcharges and mwl revenue , increased $ 38.1 million , or 7.8 % , compared with 2012. truckload segment revenue , net of fuel surcharges , increased 5.8 % primarily due to an increase in our average truckload revenue , net of fuel surcharges , per tractor per week of 3.8 % and an increase in our average fleet size of 2.3 % from 2012. fuel surcharge revenue increased by $ 6.6 million , or 5.4 % , primarily due to an increase in volume for our truckload and intermodal services . logistics segment revenue , net of intermodal fuel surcharges and mwl revenue , increased 15.0 % compared with 2012. this increase primarily resulted from continued volume growth in our intermodal services . logistics revenue as a percentage of our operating revenue , with each net of mwl revenue , was 22.3 % in 2013 compared to 20.5 % in 2012. our profitability on the expense side is impacted by variable costs of transporting freight for our customers , fixed costs , and expenses containing both fixed and variable components . the variable costs include fuel expense , driver-related expenses , such as wages , benefits , training , and recruitment , and independent contractor costs , which are recorded under purchased transportation . expenses that have both fixed and variable components include maintenance and tire expense and our total cost of insurance and claims . these expenses generally vary with the miles we travel , but also have a controllable component based on safety , fleet age , efficiency and other factors . our main fixed costs relate to the acquisition of long-term assets , such as revenue equipment and operating terminals . we expect our annual cost of tractor and trailer ownership will increase in future periods as a result of higher prices of new equipment . although certain factors affecting our expenses are beyond our control , we monitor them closely and attempt to anticipate changes in these factors in managing our business . for example , fuel prices have fluctuated dramatically over the past several years . we manage our exposure to changes in fuel prices primarily through fuel surcharge programs with our customers , as well as through volume fuel purchasing arrangements with national fuel centers and bulk purchases of fuel at our terminals . to help further reduce fuel expense , we installed auxiliary power units in our tractors to provide climate control and electrical power for our drivers without idling the tractor engine . for our logistics segment , our profitability on the expense side is impacted by the percentage of logistics revenue we pay to providers for the transportation services we arrange . 17 our operating expenses as a percentage of operating revenue , or “ operating ratio , ” improved to 92.1 % in 2013 from 92.8 % in 2012. operating expenses as a percentage of operating revenue , with both amounts net of fuel surcharge revenue , improved to 90.2 % for 2013 from 91.1 % for 2012. our net income increased 10.6 % to $ 30.1 million in 2013 from $ 27.3 million in 2012. our business requires substantial , ongoing capital investments , particularly for new tractors and trailers . at december 31 , 2013 , we had approximately $ 13.7 million of cash and cash equivalents , $ 359.1 million in stockholders ' equity and no long-term debt outstanding . story_separator_special_tag the operating ratio for our truckload segment in 2012 was consistent with 2011. logistics segment revenue increased $ 7.3 million , or 4.9 % , to $ 155.1 million in 2012 from $ 147.8 million in 2011. logistics segment revenue , net of intermodal fuel surcharges , increased 4.6 % . the increase in logistics revenue resulted from continued volume growth in each of our internal brokerage and intermodal services . the improvement in the operating ratio for our logistics segment in 2012 was primarily due to a decrease in the payments to carriers for transportation services which we arranged as a percentage of our brokerage revenue . the following table sets forth for the years indicated the dollar and percentage increase or decrease of the items in our consolidated statements of operations , and those items as a percentage of operating revenue : replace_table_token_9_th 25 the increase in salaries , wages and benefits resulted primarily from a 6.4 % increase in the total miles driven by company drivers , an additional $ 1.5 million of detention pay due to a change in our policy to compensate company drivers when they are detained at pick up or delivery and additional amounts paid to company drivers due to changes in our policies for safety and productivity bonuses and holiday pay . additionally , employees ' health insurance expense increased by $ 2.0 million due to an increase in our self-insured medical claims . purchased transportation expense increased $ 3.9 million in total , or 3.3 % , in 2012 from 2011. payments to carriers for transportation services we arranged in our brokerage and intermodal operations increased $ 6.8 million to $ 117.6 million in 2012 from $ 110.8 million in 2011. the portion of purchased transportation expense related to our independent contractors , including fuel surcharges , decreased $ 2.9 million in 2012 , primarily due to a decrease in the number of independent contractor-owned tractors in our fleet . fuel and fuel taxes increased by $ 8.0 million in 2012 from 2011. net fuel expense ( fuel and fuel taxes net of fuel surcharge revenue and surcharges passed through to independent contractors , outside drayage carriers and railroads ) increased $ 910,000 , or 1.6 % , to $ 56.3 million in 2012 from $ 55.3 million in 2011. fuel surcharges passed through to independent contractors , outside drayage carriers and railroads were $ 13.8 million in 2012 and $ 12.8 million in 2011. we have worked diligently to control fuel usage and costs by improving our volume purchasing arrangements and optimizing our drivers ' fuel purchases with national fuel centers , focusing on shorter lengths of haul , installing and tightly managing the use of auxiliary power units in our tractors to minimize engine idling and improving fuel usage in the temperature-control units on our trailers . the increase in net fuel expense was primarily due to an increase in the doe national average cost of fuel to $ 3.97 per gallon in 2012 from $ 3.83 per gallon in 2011 and an increase in total miles driven . the cost control measures stated above helped to offset these factors . net fuel expense represented 13.0 % of truckload and intermodal revenue , net of fuel surcharges , in 2012 , compared with 13.6 % in 2011. our supplies and maintenance expense decreased $ 392,000 , or 1.0 % , from 2011 while our average fleet size was relatively consistent . we experienced higher tire and toll costs in 2012 ; however , these increased costs were more than offset by lower repair costs at both internal and external facilities . the increase in depreciation was primarily due to a continued increase in the cost of revenue equipment and an increase in the relative percentage of company-owned tractors to independent contractor-owned tractors in 2012. the $ 2.5 million increase in insurance and claims in 2012 was primarily due to increases in the cost of physical damage claims related to our tractor and trailers and in the cost of workers ' compensation accident claims . gain on disposition of revenue equipment increased to $ 5.3 million in 2012 from $ 3.8 million in 2011 primarily due to an increase in the market value for used revenue equipment , along with an increase in the number of planned tractor dispositions . as a result of the foregoing factors , our operating expenses as a percentage of operating revenue , or “ operating ratio , ” improved to 92.8 % in 2012 from 92.9 % in 2011. the operating ratio for our truckload segment was 92.4 % and 92.3 % in 2012 and 2011 , respectively . the operating ratio for our logistics segment was 94.2 % and 94.8 % in 2012 and 2011 , respectively . operating expenses as a percentage of operating revenue , with both amounts net of fuel surcharge revenue , improved to 91.1 % for 2012 from 91.2 % for 2011 . our effective income tax rate decreased to 39.9 % for 2012 from 42.5 % for 2011 , primarily due to a decrease to our deferred income tax liability as a result of a change in income apportionment for several states . as a result of the factors described above , net income increased to $ 27.3 million in 2012 from $ 24.3 million in 2011. net earnings per diluted share increased to $ 0.82 in 2012 from $ 0.73 in 2011 . 26 liquidity and capital resources our business requires substantial , ongoing capital investments , particularly for new tractors and trailers . our primary sources of liquidity are funds provided by operations and our revolving credit facility . a portion of our tractor fleet is provided by independent contractors who own and operate their own equipment . we have no capital expenditure requirements relating to those drivers who own their tractors or obtain financing through third parties .
| results of operations the following table sets forth for the years indicated certain operating statistics regarding our revenue and operations : replace_table_token_5_th ( 1 ) includes tractors driven by both company-employed drivers and independent contractors . independent contractors provided 49 , 36 and 48 tractors as of december 31 , 2013 , 2012 and 2011 , respectively . 19 comparison of year ended december 31 , 2013 to year ended december 31 , 2012 the following table sets forth for the years indicated our operating revenue , operating income and operating ratio by segment , along with the change for each component : replace_table_token_6_th ( 1 ) logistics revenue is net of $ 2.1 million and $ 9.7 million of inter-segment revenue in 2013 and 2012 , respectively , for loads transported by our tractors and arranged by mwl that have been eliminated in consolidation . the inter-segment revenue in 2013 relates to loads transported prior to the deconsolidation of mwl effective march 28 , 2013 ( 2 ) represents operating expenses as a percentage of operating revenue . truckload segment depreciation expense was $ 59.3 million and $ 56.7 million , and logistics segment depreciation expense was $ 5.2 million and $ 4.2 million , in 2013 and 2012 , respectively . our operating revenue increased $ 20.8 million , or 3.3 % , to $ 659.2 million in 2013 from $ 638.5 million in 2012. our operating revenue , net of fuel surcharges and mwl revenue , increased $ 38.1 million , or 7.8 % , to $ 524.8 million in 2013 from $ 486.7 million in 2012. this increase was primarily due to an increase in truckload revenue , net of fuel surcharges , along with growth in intermodal revenue . fuel surcharge revenue increased to $ 127.7 million in 2013 from $ 121.1 million in 2012 primarily due to an increase in volume for our truckload and intermodal services .
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we report our operations through our commercial/industrial , defense , and power segments . we are positioned as a market leader across a diversified array of niche markets through engineering and technological leadership , precision manufacturing , and strong relationships with our customers . our overall strategy is to be a balanced and diversified company , less vulnerable to cycles or downturns in any one market , with a focus on establishing and expanding strong technological breadth , market positions , and financial performance . impacts of inflation , pricing , and volume we have not historically been and do not expect to be significantly impacted by inflation . increases in payroll costs and any increases in raw material costs that we have encountered are generally offset through lean manufacturing activities or price increases , if our terms and conditions provide for such increases . we have consistently made annual investments in capital that deliver efficiencies and cost savings . the benefits of these efforts generally offset the margin impact of competitive pricing conditions in all of the markets we serve . analytical definitions 22 throughout md & a , the terms “ incremental ” and “ organic ” are used to explain changes from period to period . the term “ incremental ” is used to highlight the impact that acquisitions and divestitures had on the current year results . the results of operations for acquisitions are incremental for the first twelve months from the date of acquisition . additionally , the results of operations of divested businesses are removed from the comparable prior year period for purposes of calculating “ organic ” and “ incremental ” results . the definition of “ organic ” excludes the effects of total restructuring charges and foreign currency translation . market analysis and economic factors economic factors impacting our markets curtiss-wright corporation is a global , diversified manufacturing and service company that designs , manufactures , and overhauls precision components and provides highly engineered products and services to the aerospace , defense , general industrial , and power generation markets . many of curtiss-wright 's industrial businesses are driven in large part by global economic growth , primarily led by operations in the u.s. , canada , europe , and china . in march 2020 , the world health organization characterized covid-19 as a pandemic , which resulted in significant travel restrictions and disruption of the financial markets , as well as negatively impacted our supply chains and production levels . the pandemic has caused demand in the commercial aerospace and general industrial end markets to be negatively impacted for the foreseeable future , the extent of which is contingent upon future developments . these future developments , which are highly uncertain and unpredictable , include new information concerning the severity and duration of the outbreak as well as impacts to our supply chain , transportation networks , and customers . in the last decade , the u.s. economy , as measured by real gross domestic product ( gdp ) , has slowly improved , aided by decreased levels of unemployment , improvements in the housing market , and a low interest rate environment . initial expectations for 2020 implied a slight contraction from 2019 's u.s. gdp growth rate of 2.2 % , primarily due to the impact of u.s./china trade tensions and ongoing concerns about global recessionary conditions . however , due to the impact of the covid-19 pandemic , 2020 u.s. gdp is now expected to show a decline of 3.5 % . looking ahead to 2021 , economists expect growth in the broader u.s. economy to rebound , with current estimates for u.s. gdp ranging from 4 % to more than 6 % growth . meanwhile , the global environment , which is typically influenced by international trade , economic conditions , and geopolitical uncertainty , has been greatly impacted by the pandemic . according to the international monetary fund 's world economic outlook - 2020 , global gdp in world economies , which was originally forecasted to grow approximately 3 % , is now expected to decline 4.4 % in 2020 , but rebound and grow 5.2 % in 2021. looking ahead to the next few years , we remain cautiously optimistic that our economically-sensitive commercial and industrial markets will improve based upon a return to normalized global growth conditions . defense we have a well-diversified portfolio of products and services that supply all branches of the u.s. military , with content on critical high-performance programs and platforms , as well as a growing international defense business . a significant portion of our defense business operations is attributed to the united states market , and characterized by long-term programs and contracts driven primarily by the department of defense ( dod ) budgets and funding levels . the u.s. defense budget serves as a leading indicator of our growth in the defense market . following across-the-board sequestration mandated by the bca , defense spending and related supplemental budgets bottomed in 2015. however , growth has stabilized in recent years . in early 2018 , congress signed a bill to provide relief against the spending caps associated with the bca . in addition , the fiscal year 2019 defense appropriations bill , signed in september 2018 , was the first to be signed into law on time in over a decade . more recently , the two-year , bipartisan budget act signed in august 2019 brought an improved sense of security to federal agencies , essentially cancelling the prior two years of the bca and its sequestration caps , while setting solid topline spending figures for 2020 and 2021 in excess of $ 700 billion . in early 2021 , the fiscal year 2021 budget was authorized at $ 696 billion , slightly ahead of the fiscal year 2020 budget . looking ahead , in conjunction with the president 's budget request , the dod submitted its plan , which is referred to as the future years defense program ( fydp ) . story_separator_special_tag as a result , the industry has been tasked with reassessing operating practices , improving efficiency , and reducing costs to help keep nuclear power competitive in a changing electricity market , which are collectively referred to as `` delivering the nuclear promise . '' additionally , u.s. reactor operators were faced with increased security and post-fukushima regulatory requirements over most of the past decade . all of these factors contributed to plant operators diverting and deferring their typical plant capital expenditure budgets significantly away from planned maintenance . however , in late 2017 , as those necessary requirements abated and plant operators resumed a more normalized maintenance schedule , the industry began to turn the corner . as a result , we expect increased opportunities for our vast portfolio of advanced nuclear technologies moving forward . longer term , there are several factors driving global commercial nuclear power demand , especially in developing countries with growing populations but limited power supply such as china and india , which will require increased capacity . in addition , the continued supply constraints and environmental concerns attributed to the current dependence on fossil fuels have led to a greater appreciation of the value of nuclear technology as the most efficient and environmentally friendly source of energy available today . as a result , we expect growth opportunities in this market both domestically and internationally , although the timing of orders remains uncertain . we also play an important role in the new build market for the generation iii+ westinghouse ap1000 reactor design , for which we are a supplier of rcps and also expect to supply a variety of ancillary plant products and services . domestically , two new build reactors remain under construction in georgia utilizing the ap1000 design . on a global basis , nuclear plant construction is active . cu rrently , there are approximately 53 new reactors under construction across 19 countries , with approximately 98 planned and 326 proposed over the next several decades according to the world nuclear organization . in particular , china intends to expand its nuclear power capabilities significantly through the construction of new nuclear power plant s over the next few decades , led by the successful start-up and operation of the first two ap1000 plants ( four reactors ) in late 2018 and early 2019 , which are the first generation iii+ reactors in operation worldwide . we continue to expect to play a role in new build nuclear plant construction with our largest opportunities for large scale reactors in china and india , and worldwide through future construction of advanced and small modular reactors . our future success in this industry will be led by new order activity for our vast array of nuclear technologies due to ongoing maintenance and upgrade requirements on operating nuclear plants , a renewed interest in products to aid safety and extend the reliability of existing reactors , and the continued emphasis on global nuclear power construction . general industrial revenue derived from our widely diversified offering to the general industrial market consists of electronic sensors and control systems , critical-function valves and valve systems , and surface treatment services . we supply our products and services to oems and aftermarket industrial customers , including the transportation , commercial trucking , off-road equipment , agriculture , construction , automotive , chemical , and oil and gas industries . our performance in these markets is typically sensitive to the performance of the u.s. and global economies , with changes in global gdp rates and industrial production driving our sales , particularly for our surface treatment services . one of the key drivers within our general industrial market is our electronic sensors and controls systems products serving the on-and-off highway , medical mobility , and specialty vehicles markets . notable products include electronic throttle controls , shift controls , joysticks , power management systems , and traction control systems . increased industry demand for electronic control systems and sensors has been driven by the need for improved operational efficiency , safety , repeatability , reduced emissions , enhanced functionality , and greater fuel efficiencies to customers worldwide . key to our future growth is expanding the human-machine interface ( hmi ) technology portfolio and providing a complete system solution to our customers . existing and emerging trends in commercial vehicle safety , emissions control , and improved driver efficiency , as well as electrification and the industrial internet of things , are propelling commercial vehicle oems toward higher performance subsystems . these trends are accelerating the evolution from discrete hmi components towards a more integrated vehicle interface architecture . meanwhile , our surface treatment services , which include shot and laser peening , engineered coatings , and analytical testing services , are used to increase the safety , reliability , and longevity of components operating in harsh environments . sales are primarily driven by global demand from general industrial customers . we also service the oil and gas , chemical , and petrochemical industries through numerous industrial valve products , in which nearly all of our industrial valve sales are to the downstream markets . we maintain a global maintenance , repair , and overhaul ( mro ) business for our pressure-relief valve technologies as refineries opportunistically service or upgrade equipment that has been operating at or near full capacity . we also produce severe service , operation-critical valves for the power and process 25 industries . sales in these industries are driven by global supply and demand , crude oil prices , industry regulations , and the natural gas market . over the long run , we believe improved economic conditions and continued global expansion will be key drivers for future growth of our severe service and operation-critical valves serving the process industry . story_separator_special_tag results by business segment commercial/industrial 27 sales in the commercial/industrial segment are primarily generated from the general industrial and commercial aerospace markets and , to a lesser extent , the defense and power generation markets .
| results of operations the following md & a is intended to help the reader understand the results of operations and financial condition of the corporation for the year ended december 31 , 2020 , as compared to the year ended december 31 , 2019. discussion and analysis of our financial condition and results of operations for the year ended december 31 , 2019 , as compared to the year ended december 31 , 2018 , is contained in our 2019 annual report on form 10-k , filed with the sec on february 27 , 2020. replace_table_token_8_th nm - not meaningful components of sales and operating income growth ( decrease ) : 26 replace_table_token_9_th sales for the year decreased $ 97 million , or 4 % , to $ 2,391 million , compared with the prior year period . on a segment basis , sales from the commercial/industrial and power segments decreased $ 188 million and $ 17 million , respectively , with sales from the defense segment increasing $ 108 million . changes in sales by segment are discussed in further detail in the `` results by business segment '' section below . operating income for the year decreased $ 115 million , or 28 % , to $ 289 million , and operating margin decreased 410 basis points compared with 2019. the decreases in operating income and operating margin were primarily due to unfavorable overhead absorption on lower sales in the commercial/industrial segment , an impairment loss of $ 33 million in the commercial/industrial segment due to our industrial valve business in germany being classified as held for sale during the current period , as well as restructuring costs of $ 41 million recognized across all segments . non-segment operating expense for the year increased $ 3 million , or 8 % , to $ 38 million , primarily due to higher post-retirement costs and foreign exchange losses .
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the consolidated statement of cash flows has been revised to properly reclassify $ 3.3 million from net cash used in financing activities to net cash provided by operating activities for the year ended december 31 , 2016. in addition , approximately $ 5.4 million of expense was recorded during the first quarter of 2017 for a tax assessment relating to prior periods . these adjustments were not material to the current and previously-issued financial statements . note 2. restructuring and other charges restructuring and other charges primarily consist of separation costs for employees including severance , outplacement and other benefit costs . 2017 productivity program on february 15 , 2017 , the company announced that it was adopting a multi-year productivity program designed to improve overall financial performance , provide flexibility to invest in growth opportunities and drive long-term value creation . in connection with this program , we expect to optimize our global footprint and simplify the company 's organizational structures globally . in connection with this initiative , the company story_separator_special_tag ( unless indicated otherwise , dollars in millions except per share amounts ) overview company background we are a leading innovator of sensory experiences , co-creating unique products that consumers taste , smell , or feel in fine fragrances and cosmetics , detergents and household goods , and food and beverages . we take advantage of our capabilities in consumer insights , research and product development ( “ r & d ” ) , creative expertise and customer intimacy to partner with our customers in developing innovative and differentiated offerings for consumers . we believe that this collaborative approach will generate market share gains for our customers . our flavors and fragrance compounds combine a number of ingredients that are blended , mixed or reacted together to produce proprietary formulas created by our flavorists and perfumers . flavors are the key building blocks that impart taste experiences in food and beverage products and , as such , play a significant role in determining consumer preference for the end products in which they are used . as a leading creator of flavors , we help our customers deliver on the promise of delicious and healthy foods and drinks that appeal to consumers . while we are a global leader , our flavors business is more regional in nature , with different formulas that reflect local taste preferences . our flavors compounds are ultimately used by our customers in four end-use categories : ( 1 ) savory , ( 2 ) beverages , ( 3 ) sweet and ( 4 ) dairy . we are a global leader in the creation of fragrance compounds that are integral elements in the world 's finest perfumes and best-known consumer products within fabric care , home care , personal wash , hair care and toiletries products . our fragrances business consists of fragrance compounds and fragrance ingredients . our fragrance compounds are defined into two broad categories , fine fragrances and consumer fragrances . consumer fragrances consists of five end-use categories of products : ( 1 ) fabric care , ( 2 ) home care , ( 3 ) personal wash , ( 4 ) hair care and ( 5 ) toiletries . fragrance ingredients consist of active and functional ingredients that are used internally and sold to third parties , including customers and competitors , and are included in the fragrances business unit . the flavors and fragrances market is part of a larger market that supplies a wide variety of ingredients and compounds that are used in consumer products . the broader market includes large multinational companies and smaller regional and local participants which supply products such as seasonings , texturizers , spices , enzymes , certain food-related commodities , fortified products and cosmetic active ingredients . the global market for flavors and fragrances has expanded consistently , primarily as a result of an increase in demand for , as well as an increase in the variety of , consumer products containing flavors and fragrances . in 2017 , the flavors and fragrances market was estimated by management to be approximately $ 24.8 billion and is forecasted to grow approximately 2-3 % by 2021 , primarily driven by expected growth in emerging markets . development of new flavors and fragrance compounds is driven by a variety of sources , including requests from our customers who are in need of a specific flavor or fragrance for use in a new or modified consumer product , or as a result of internal initiatives stemming from our consumer insights program . our product development team works in partnership with our scientists and researchers to optimize the consumer appeal of the flavor or fragrance . it then becomes a collaborative process among our researchers , our product development team and our customers to perfect the flavor or fragrance so that it is ready to be included in the final consumer product . 2017 overview our 25 largest customers accounted for 50 % of total sales in 2017 ; this percentage has remained fairly constant for several years . sales to our largest customer across all end-use categories accounted for 11 % to 12 % of our sales for each of the last three fiscal years . a key factor for commercial success is inclusion on our strategic customers ' core supplier lists , which provides opportunities to win new business . we are on the core supplier lists of a large majority of our global and strategic customers within fragrances and flavors . sales in 2017 increased 9 % on both a reported and currency neutral basis ( which excludes the effects of changes in currency ) , with the effects of acquisitions contributing approximately 5 % to both the reported and currency neutral growth rates . flavors achieved reported sales growth of 9 % and currency neutral sales growth of 10 % , with the effect of acquisitions contributing approximately 5 % to both reported and currency neutral growth rates . story_separator_special_tag we believe that , in 2018 , we will continue to see higher prices on certain categories ( such as vanilla and citrus ) , increases related to turpentine and oil derived materials and higher costs on a key ingredient due to the basf supply disruption related to one of our key ingredients . we continue to seek improvements in our margins through operational performance , cost reduction efforts and mix enhancement . operating profit increased $ 14.1 million to $ 581.4 million ( 17.1 % of sales ) in 2017 compared to $ 567.4 million ( 18.2 % of sales ) in 2016 . included in 2017 were restructuring and other charges of $ 19.7 million , acquisition-related costs of $ 20.4 million , $ 11.0 million relating to an fda mandated product recall , reserve for payment of a tax assessment related to commercial rent for prior periods of $ 5.3 million , integration related costs of $ 4.2 million , pension settlement charges of $ 2.8 million , operational improvement initiative costs of $ 1.8 million , additional charge related to litigation settlement of $ 1.0 million and gain on sale of fixed assets of $ 0.2 million . included in 2016 were net legal charges/credits of $ 48.5 million , acquisition-related costs of $ 12.2 million , gain on sale of fixed assets of $ 7.8 million , operational improvement initiative costs of $ 2.4 million and restructuring and other charges , net of $ 0.3 million . excluding these charges , adjusted operating profit was $ 647.4 million ( 19.0 % of sales ) for 2017 versus $ 623.0 million ( 20.0 % of sales ) for 2016 . the decrease in operating profit as a percentage of sales was principally driven by lower gross margins in 2017. foreign currency changes had a favorable impact on operating profit of 1 % in 2017 and an unfavorable impact on operating profit of approximately 2 % in 2016 . cash flows from operations were $ 390.8 million or 11.5 % of sales in 2017 as compared to cash flows from operations of $ 550.1 million , or 17.7 % of sales , during 2016 . the decrease in operating cash flows in 2017 as compared to 2016 is principally related to the impact of increased core working capital requirements ( trade receivables , inventories and accounts payable ) and due to payments on legal claims along with payments for severance , integration and acquisition costs . 35 our capital spend was $ 129.0 million ( 3.8 % of sales ) during 2017 . in light of our requirement to begin relocating our fragrance facility in china and the ongoing construction of a new facility in india , we expect that capital spending in 2018 will be about 4.5- 5 % of sales ( net of potential grants and other reimbursements from government authorities ) . during 2017 , we received approximately $ 15.0 million in payments related to the future relocation of our zhejiang ingredients plant and total payments for which are expected to approximate up to $ 50 million . story_separator_special_tag style= '' line-height:120 % ; padding-top:12px ; text-indent:32px ; font-size:10pt ; '' > r & d expenses , as a percentage of sales , remained relatively consistent with the prior year period at 8.4 % in 2017 compared to 8.2 % in 2016 . the slight increase in 2017 was principally driven by recent acquisitions , and , to a lesser extent , incentive compensation . selling and administrative ( s & a ) s & a , as a percentage of sales , decreased 180 bps to 16.4 % versus 18.2 % ( or 15.9 % and 16.4 % on an adjusted basis in 2017 and 2016 , respectively ) . included in 2017 were commercial real estate tax assessment charges of $ 5.3 million , acquisition and integration related costs of $ 4.5 million and $ 3.3 million , respectively , uk pension settlement charge of $ 1.9 million and net legal charges/credits , principally related to a litigation accrual of $ 1.0 million , compared to net legal charges/credits , principally related to a litigation accrual of $ 48.5 million , acquisition related costs of $ 4.5 million and severance costs related to the termination of a former executive officer of $ 1.4 million in 2016. during 2017 , costs were higher as a result of recently acquired companies , offset by slightly lower legal and professional fees associated with various finance initiatives , and decreases in legal and patent fees . restructuring and other charges restructuring and other charges primarily consist of separation costs for employees , including severance , outplacement and other benefit costs . 38 replace_table_token_8_th 2015 severance and contingent consideration charges during the fourth quarter of 2015 , we established a series of initiatives intended to streamline the company 's management structure , simplify decision-making and accountability , better leverage and align its capabilities across the organization and improve efficiency of its global manufacturing and operations network . as a result , in 2015 , the company recorded a pre-tax charge of $ 7.6 million , included in restructuring and other charges , net , related to severance and related costs pertaining to approximately 150 positions that were affected . during 2016 , the company recorded a credit of $ 1.7 million related to the reversal of severance accruals that were determined to be no longer required . separately , in 2015 , the company recorded a charge of $ 7.2 million , included in selling and administrative expenses , associated with the acceleration from 2016 to 2015 of contingent consideration payments from the aromor acquisition that were triggered by certain of the management structure changes noted above . in addition , during 2017 , the company made payments of $ 0.2 million related to severance and recorded a credit of $ 2.3 million related to the reversal of severance accruals that were determined to be no longer required .
| results of operations replace_table_token_6_th ( 1 ) adjusted operating margin for the year ended december 31 , 2017 excludes net legal charges/credits of $ 1.0 million , acquisition related costs of $ 20.4 million , gain on sale of assets of $ 0.2 million , operational improvement initiative costs of $ 1.8 million , restructuring and other charges , net of $ 19.7 million , fda mandated product recall costs of $ 11.0 million , uk pension settlement charge of $ 2.8 million , tax assessment of $ 5.3 million , and integration related costs of $ 4.2 million . adjusted operating margin for the year ended december 31 , 2016 excludes net legal charges/credits of $ 48.5 million , acquisition related costs of $ 12.2 million , gain on sale of assets of $ 7.8 million , operational improvement initiative costs of $ 2.4 million and restructuring and other charges , net of $ 0.3 million . adjusted operating margin for the year ended december 31 , 2015 excludes acquisition related costs of $ 18.3 million , the reversal of the previously recorded provision for the spanish capital tax case of $ 10.5 million , restructuring and other charges , net of $ 7.6 million , accelerated contingent consideration payments of $ 7.2 million and operational improvement initiative costs of $ 1.1 million . cost of goods sold includes the cost of materials and manufacturing expenses ; raw materials generally constitute approximately 70 % of the total . r & d expenses relate to the development of new and improved molecules and technologies , technical product support and compliance with governmental regulations . s & a expenses include expenses necessary to support 36 our commercial activities and administrative expenses principally associated with staff groups that support our overall operating activities .
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98 notes to consolidated financial statements of american airlines group inc. 5. debt long-term debt included in the consolidated balance sheets consisted of ( in millions ) : replace_table_token_57_th the table below shows the maximum availability under revolving credit facilities , all of which were undrawn , as of december 31 , 2018 ( in millions ) : 2013 revolving facility $ 1,000 2014 revolving facility 1,543 april 2016 revolving facility 300 total $ 2,843 secured financings are collateralized by assets , primarily aircraft , engines , simulators , aircraft spare parts , airport gate leasehold rights , route story_separator_special_tag background together with our wholly-owned regional airline subsidiaries and third-party regional carriers operating as american eagle , we operate an average of nearly 6,700 flights per day to nearly 350 destinations in more than 50 countries through hubs and gateways in charlotte , chicago , dallas/fort worth , london heathrow , los angeles , miami , new york , philadelphia , phoenix and washington , d.c. in 2018 , approximately 204 million passengers boarded our flights . 2018 financial overview fuel costs and the u.s. airline industry while 2018 marked another profitable year for the u.s. airline industry , higher fuel costs significantly impacted industry results . with respect to fuel costs , the price of brent crude oil per barrel , which jet fuel prices tend to follow , was on average approximately 33 % higher in 2018 as compared to 2017 . the average daily spot price for brent crude oil during 2018 was $ 72 per barrel as compared to an average daily spot price of $ 54 per barrel during 2017 . on a daily basis , brent crude oil prices fluctuated during 2018 between a high of $ 86 per barrel to a low of $ 50 per barrel , and closed the year on december 31 , 2018 at $ 54 per barrel . brent crude oil prices were higher in the 2018 period due principally to reductions of global inventories driven by strong demand and continued production restraint led primarily by the organization of petroleum exporting countries ( opec ) . u.s. sanctions against iran , coupled with declining output from venezuela further limited supply . concerns about slowing global growth and lower demand for oil surfaced in the fourth quarter of 2018 causing brent crude oil prices to drop . with respect to revenue , the network u.s. airlines reported positive unit revenue growth in 2018 driven by strong demand and higher yields as airlines attempted to pass along the cost of rising fuel prices . the positive unit revenue growth in 2018 was led by international markets , primarily in the atlantic market , with the domestic market also contributing to the growth . see part i , item 1a . risk factors – “ downturns in economic conditions could adversely affect our business , ” “ our business is very dependent on the price and availability of aircraft fuel . continued periods of high volatility in fuel costs , increased fuel prices or significant disruptions in the supply of aircraft fuel could have a significant negative impact on our operating results and liquidity ” and “ our business has been and will continue to be affected by many changing economic and other conditions beyond our control , including global events that affect travel behavior , and our results of operations could be volatile and fluctuate due to seasonality . ” 48 aag 's 2018 results the selected financial data presented below is derived from aag 's audited consolidated financial statements included in part ii , item 8a of this report and should be read in conjunction with those financial statements and the related notes thereto . we adopted three new accounting standards as of january 1 , 2018 : the new lease standard , the new revenue standard and the new retirement standard . the 2017 and 2016 financial information presented within item 7. management 's discussion and analysis of financial condition and results of operations has been recast to reflect the impact of the adoption of the new revenue standard and the new retirement standard . the new lease standard did not require the recast of prior periods . see note 1 ( b ) to aag 's and american 's consolidated financial statements in part ii , items 8a and 8b , respectively , for further information on the impacts of these new accounting standards . replace_table_token_10_th ( 1 ) see part ii , item 6. selected consolidated financial data – “ reconciliation of gaap to non-gaap financial measures ” and note 2 to aag 's consolidated financial statements in part ii , item 8a for details on the components of special items . pre-tax income and net income pre-tax income and net income were $ 1.9 billion and $ 1.4 billion in 2018 , respectively . this compares to 2017 pre-tax income and net income of $ 3.4 billion and $ 1.3 billion , respectively . excluding the effects of pre-tax net special items , pre-tax income was $ 2.8 billion and $ 4.2 billion in 2018 and 2017 , respectively . the year-over-year declines in our pre-tax income on both a gaap basis and excluding pre-tax net special items were principally driven by a 29.0 % increase in the average price per gallon of fuel . this increase was offset in part by higher revenues driven by strong demand . revenue in 2018 , we reported total operating revenues of $ 44.5 billion , an increase of $ 1.9 billion , or 4.5 % , as compared to 2017 . passenger revenues were $ 40.7 billion , an increase of $ 1.5 billion , or 3.9 % , as compared to 2017 . the increase in passenger revenues was due to a 2.1 % increase in revenue passenger miles ( rpms ) and a 1.8 % increase in yields driven by strong demand . story_separator_special_tag operating revenues replace_table_token_12_th 51 this table presents our total passenger revenue and the year-over-year change in certain operating statistics : replace_table_token_13_th passenger revenue increase d $ 1.5 billion , or 3.9 % , in 2018 from 2017 due to a 2.1 % year-over-year increase in rpms and a 1.8 % increase in yields driven by continued strong demand . domestic yield increased 0.9 % and international yields increased 4.2 % , led by a 5.3 % increase in yield in the atlantic market . cargo revenue increase d $ 123 million , or 13.8 % , from 2017 driven primarily by increases in domestic and international freight yields and international freight volume . other revenue increase d $ 251 million , or 9.7 % , in 2018 from 2017 primarily driven by higher revenue associated with our loyalty program . in 2018 and 2017 , loyalty revenue included in other revenue was $ 2.4 billion and $ 2.1 billion , respectively . total operating revenues in 2018 increase d $ 1.9 billion , or 4.5 % , from 2017 driven principally by a 3.9 % increase in passenger revenue as described above . our trasm was 15.79 cents in 2018 , a 2.4 % increase as compared to 15.42 cents in 2017 . operating expenses replace_table_token_14_th total operating expenses increase d $ 3.5 billion , or 9.1 % , in 2018 from 2017 . the increase in operating expenses was primarily driven by an increase in fuel costs . see detailed explanations below relating to changes in total casm . total casm we sometimes use financial measures that are derived from the consolidated financial statements but that are not presented in accordance with gaap to understand and evaluate our current operating performance to allow for period-to-period comparisons . we believe these non-gaap financial measures may also provide useful information to investors and others . these non-gaap measures may not be comparable to similarly titled non-gaap measures of other companies , and should be considered in addition to , and not as a substitute for or superior to , any measure of performance , cash flow or liquidity prepared in accordance with gaap . we are providing a reconciliation of reported non-gaap financial measures to their comparable financial measures on a gaap basis . 52 the table below presents the reconciliation of total operating expenses ( gaap measure ) to total operating costs excluding special items and fuel ( non-gaap measure ) . management uses total operating costs excluding special items and fuel to evaluate our current operating performance and for period-to-period comparisons . the price of fuel , over which we have no control , impacts the comparability of period-to-period financial performance . the adjustment to exclude aircraft fuel and special items allows management an additional tool to understand and analyze our non-fuel costs and core operating performance . the major components of our total casm and our total casm excluding special items and fuel for the years ended december 31 , 2018 and 2017 are as follows ( amounts may not recalculate due to rounding ) : replace_table_token_15_th ( 1 ) not meaningful . significant changes in the components of total casm are as follows : aircraft fuel and related taxes per asm increase d 28.8 % primarily due to a 29.1 % increase in the average price per gallon of fuel to $ 2.21 in 2018 from $ 1.71 in 2017 , as well as a 1.8 % increase in gallons of fuel consumed . depreciation and amortization per asm increase d 5.9 % due in part to our fleet renewal program , as we took delivery of eight owned mainline aircraft in 2018 . the continued rollout of premium economy and harmonization of seating configurations across our fleet as well as information technology and software development projects associated with our merger integration also drove higher depreciation and amortization expense . regional aircraft fuel and related taxes per asm increase d 30.7 % primarily due to a 28.3 % increase in the average price per gallon of fuel to $ 2.30 in 2018 from $ 1.79 in 2017 as well as a 4.0 % increase in gallons of fuel consumed . 53 operating special items , net replace_table_token_16_th ( 1 ) fleet restructuring expenses principally included accelerated depreciation and rent expense for aircraft and related equipment grounded or expected to be grounded earlier than planned . ( 2 ) merger integration expenses included costs associated with integration projects , principally our flight attendant , human resources and payroll , and technical operations systems . ( 3 ) severance expenses primarily included costs associated with reductions of management and support staff team members . ( 4 ) settlement of a private party antitrust lawsuit . see note 12 ( e ) - “ private party antitrust action related to passenger capacity ” to aag 's consolidated financial statements in part ii , item 8a for further discussion . ( 5 ) intangible asset impairment includes a non-cash charge to write-off our brazil route authority as a result of the u.s.-brazil open skies agreement . ( 6 ) bankruptcy obligations that will be settled in shares of our common stock are marked-to-market based on our stock price . ( 7 ) employee bonus expense included costs related to the $ 1,000 cash bonus and associated payroll taxes granted to mainline employees as of december 31 , 2017 in recognition of h.r . 1 , the 2017 tax cuts and jobs act ( the 2017 tax act ) . nonoperating results replace_table_token_17_th our short-term investments in each period consisted of highly liquid investments that provided nominal returns . interest income increase d $ 24 million , or 25.8 % , in 2018 principally due to a 103 basis point increase in average yields in 2018 as compared to 2017 .
| nonoperating results replace_table_token_31_th american 's short-term investments in each period consisted of highly liquid investments that provided nominal returns . interest income increase d $ 111 million due to higher interest-bearing related party receivables from american 's parent company , aag , as well as a 50 basis point increase in average yields in 2017 as compared to 2016 . interest expense , net increase d $ 82 million in 2017 primarily due to higher outstanding debt as a result of aircraft financings associated with american 's fleet renewal program . other nonoperating income , net in 2017 and 2016 , principally included $ 138 million and $ 77 million , respectively , of non-service related pension and other postretirement benefit plan income , which reflects an increase in the expected return on pension plan assets in 2017 as compared to 2016. in 2017 and 2016 , this income was offset in part by $ 22 million and $ 49 million , respectively , of net special charges associated with debt refinancings and extinguishments . income taxes american is part of the aag consolidated income tax return . 64 in 2017 and 2016 , american recorded an income tax provision of $ 2.3 billion and $ 1.6 billion , respectively , which was substantially non-cash . substantially all of american 's income before income taxes was attributable to the united states . in 2017 , american recorded a special , non-cash income tax charge of $ 924 million to reflect the impact of lower corporate income tax rates on the company 's deferred tax asset and liabilities due to the 2017 tax act , which reduced the federal corporate income tax rate from 35 % to 21 % . see note 5 to american 's consolidated financial statements in part ii , item 8b for additional information on income taxes .
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these estimates , assumptions and judgments are based on information available as of the date of the financial statements . accordingly , as this information changes , the financial statements could reflect different estimates , assumptions and judgments . certain policies inherently have a greater reliance on the use of estimates , assumptions and judgments and , as such , have a greater possibility of producing results that could be materially different than originally reported . estimates , assumptions and judgments are necessary when assets and liabilities are required to be recorded at fair value , when a decline in the value of an asset not carried on the financial statements at fair value warrants an impairment write-down or valuation reserve to be established or when an asset or liability needs to be recorded contingent upon a future event . carrying assets and liabilities at fair value inherently results in more financial statement volatility . the fair values and the information used to record valuation adjustments for certain assets and liabilities are based either on quoted market prices or are provided by other third-party sources , when available . when these sources are not available , management makes estimates based upon what it considers to be the best available information . allowance for loan losses the allowance for loan losses is an estimate of the losses that exist in the loan portfolio . the allowance is based on two principles of accounting : ( 1 ) fasb asc topic 450 “ contingencies , ” which requires that losses be accrued when they are probable of occurring and are estimable and ( 2 ) fasb asc 310 “ receivables , ” which requires that losses be accrued when it is probable that the company will not collect all principal and interest payments according to the contractual terms of the loan . the loss , if any , is determined by the difference between the loan balance and the value of collateral , the present value of expected future cash flows and values observable in the secondary markets . the allowance for loan losses balance is an estimate based upon management 's evaluation of the loan portfolio . the allowance includes a specific and a general component . the specific component consists of management 's evaluation of impaired loans . impairment is measured on a loan-by-loan basis using one of three acceptable methods : the present value of expected future cash flows discounted at the loan 's effective interest rate , the loan 's observable market price , or the fair value of the collateral , if the loan is collateral dependent . management assesses the ability of the borrower to repay the loan based upon all information available . loans are examined to determine a specific allowance based upon the borrower 's payment history , economic conditions specific to the loan or borrower and other factors that would impact the borrower 's ability to repay the loan on its contractual basis . depending on the assessment of the borrower 's ability to pay and the type , condition and value of collateral , management will establish an allowance amount specific to the loan . management uses a risk scale to assign grades to commercial relationships , which include commercial real estate , residential rentals , construction and land development , commercial loans and commercial equipment loans . commercial loan relationships with an aggregate exposure to the bank of $ 1,000,000 or greater are risk rated . residential first mortgages , home equity and second mortgages and consumer loans are monitored on an ongoing basis based on borrower payment history . consumer loans and residential real estate loans are classified as unrated unless they are part of a larger commercial relationship that requires grading or are troubled debt restructures or nonperforming loans with an other assets especially mentioned or higher risk rating due to a delinquent payment history . the company 's commercial loan portfolio is periodically reviewed by regulators and independent consultants engaged by management . 41 in establishing the general component of the allowance , management analyzes non-impaired loans in the portfolio including changes in the amount and type of loans . this analysis includes trends by portfolio segment in charge-offs , delinquency , classified loans , loan concentrations and the rate of portfolio segment growth . qualitative factors also include an assessment of the current regulatory environment , the quality of credit administration and loan portfolio management and national and local economic trends . based upon this analysis a loss factor is applied to each loan category and the bank adjusts the loan loss allowance by increasing or decreasing the provision for loan losses . management has significant discretion in making the judgments inherent in the determination of the allowance for loan losses , including the valuation of collateral , assessing a borrower 's prospects of repayment and in establishing loss factors on the general component of the allowance . changes in loss factors have a direct impact on the amount of the provision and on net income . errors in management 's assessment of the global factors and their impact on the portfolio could result in the allowance not being adequate to cover losses in the portfolio and may result in additional provisions . for additional information regarding the allowance for loan losses , refer to notes 1 and 3 of the consolidated financial statements and the discussion in this md & a . goodwill goodwill represents the excess of the cost of businesses acquired over the fair value of the net assets acquired . goodwill is assigned to reporting units and tested for impairment at least annually in the fourth quarter or on an interim basis if an event occurs or circumstances changed that would more likely than not reduce the fair value of the reporting unit below its carrying value . the bank is the only reporting unit of the company with intangible assets . story_separator_special_tag story_separator_special_tag roman ' , sans-serif ; font-size:10pt ; font-weight:400 ; line-height:120 % ; text-decoration : underline '' > at december 31 , 2020 , covid-19 deferred loans were $ 35.4 million , 1.75 % of assets , or 2.35 % of gross loans , excluding sba ppp loans . non-performing assets improved in 2020 comparing december 31 , 2020 to december 31 , 2019 : ◦ classified assets as a percentage of assets decreased 83 basis points to 1.10 % . ◦ non-accrual loans , oreo and tdrs to total assets decreased 38 basis points to 1.08 % . total deposits increased $ 233.8 million or 15.5 % to $ 1,745.6 million at december 31 , 2020 , which included an increase in transaction accounts of $ 274.1 million and a decrease in time deposits of $ 40.3 million . transaction deposit accounts increased to 79.7 % of deposits at december 31 , 2020 from 73.9 % at december 31 , 2019. liquidity increased in 2020 primarily due to the growth in transaction deposits which was partially offset by a reduction in time deposits . the company 's net loan to deposit ratio has decreased from 95.6 % at december 31 , 2019 to 91.3 % at december 31 , 2020. the company used available on-balance sheet liquidity during 2020 to fund loans , increase investments and pay down wholesale funding . in the fourth quarter of 2020 , the company used excess liquidity to pay-off higher rate long term fhlb advances . the decrease in wholesale funding increased available off-balance sheet lines of credit . the company redeemed and issued subordinated notes : ◦ on february 15 , 2020 , the company redeemed $ 23.0 million of 6.25 % fixed-to-floating rate subordinated notes . ◦ on october 14 , 2020 , the company issued and sold $ 20.0 million 4.75 % fixed to floating rate subordinated notes due 2030. the company contributed $ 10.0 million of the net proceeds to the bank as tier 1 capital and may use the remainder of the net proceeds for general corporate purposes , to support bank regulatory capital ratios and for potential common stock share repurchases . the following were balance sheet financial highlights for 2019 : on december 31 , 2019 , the company issued a total of 312,747 shares of its common stock , par value $ 0.01 in a private placement offering . the company received net proceeds of $ 10.6 million after deal expenses . in the fourth quarter of 2019 , the company reclassified all htm investments as afs . the company no longer intends to hold htm investments . management 's decision should improve interest rate risk management opportunities and increase available on-balance sheet liquidity . in addition , at the bank 's current asset size , regulatory capital ratios will not be impacted as accumulated other comprehensive income ( “ aoci ” ) is excluded . net interest income the primary component of the company 's net income is its net interest income , which is the difference between income earned on assets and interest paid on the deposits and borrowings used to fund them . net interest income is affected by the difference between the yields earned on the company 's interest-earning assets and the rates paid on interest-bearing liabilities , as well as the relative amounts of such assets and liabilities . net interest income , divided by average interest-earning assets , represents the company 's net interest margin . 45 average balances and yields : the following tables set forth average balances , average yields and costs , and certain other information for the periods indicated . no tax-equivalent yield adjustments were made , as the effect thereof was not material . all average balances are daily average balances . non-accrual loans were included in the computation of average balances . the yields set forth below include the effect of deferred fees , discounts and premiums that are amortized or accreted to interest income or expense . there was $ 0.6 million and $ 0.9 million of accretion interest during the years ended december 31 , 2020 and 2019 , respectively . replace_table_token_8_th 46 average balances and yields : ( continued ) replace_table_token_9_th * * transaction deposits exclude time deposits . 47 the tables below summarize changes in interest income and interest expense of the bank for the periods indicated . for each category of interest-earning asset and interest-bearing liability , information is provided on changes attributable to ( 1 ) changes in volume ( changes in volume multiplied by old rate ) ; and ( 2 ) changes in rate ( changes in rate multiplied by old volume ) . changes in rate-volume ( changes in rate multiplied by the change in volume ) have been allocated to changes due to volume . replace_table_token_10_th net interest income totaled $ 60.9 million for the year ended december 31 , 2020 , which represents a 13.8 % increase from $ 53.5 million for the year ended december 31 , 2019. net interest income increased during 2020 compared to the prior year as the positive impacts of average interest-earning asset growth , income from sba ppp loans and decreased funding costs outpaced the negative impacts of lower yields earned on loans and investments and growth in the average balances of interest-bearing liabilities . the bank has increased lower cost transaction deposits in every year over the last five years , including during the pandemic . non-interest bearing accounts and transaction accounts increased to 20.7 % and 79.7 % of deposits at december 31 , 2020 from 16.0 % and 73.9 % at december 31 , 2019. net interest margin of 3.36 % for the year ended december 31 , 2020 , was five basis points higher than the 3.31 % for the year ended december 31 , 2019. increased net interest margin resulted primarily from the company 's overall funding costs decreasing at a faster rate ( 65 basis points ) than interest earning asset yields ( 56 basis points ) .
| summary financial results the covid-19 pandemic presented both economic and operational challenges in 2020. despite these challenges , the company 's 2020 operating results were strong . our core profitability increased from a stable net interest margin primarily due to improved funding composition , increased non-interest income from additional products and services and expense control . the company addressed covid-19 credit concerns by increasing the allowance for loan losses , resolving multiple oreo assets and adding subordinated debt to strengthen regulatory capital . we helped our community and customers navigate economic uncertainty by originating u.s. small business administration paycheck protection program loans ( `` sba ppp '' ) and providing payment deferrals on our own portfolio loans . we believe current market disruptions caused by both the covid-19 pandemic and industry consolidation will provide opportunities for continued organic growth in 2021. the addition of new customers during 2020 , continued our success in increasing lower cost transaction deposits in every year the last five years . non-interest-bearing accounts and transaction accounts increased to 20.7 % and 79.7 % of deposits at december 31 , 2020 from 16.0 % and 73.9 % at december 31 , 2019. net income for the year ended december 31 , 2020 was $ 16.1 million or $ 2.74 per diluted share compared to net income of $ 15.3 million or $ 2.75 per diluted share for the year ended december 31 , 2019. the company 's roaa and roace were 0.81 % and 8.46 % for the year ended december 31 , 2020 compared to 0.88 % and 9.32 % for the year ended december 31 , 2019. the company 's ptpp roaa and ptpp roace were 1.58 % and 16.43 % for the year ended december 31 , 2020 compared to 1.32 % and 14.07 % for the year ended december 31 , 2019. increased earnings in 2020 were the result of improving bank 's funding composition of interest-bearing liabilities , controlling operating costs , and
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the preparation of our financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities , revenues and expenses and the related disclosure of contingent assets and liabilities at the date of our financial statements . actual results may differ significantly from these estimates under different assumptions or conditions . this discussion should be read in conjunction with our consolidated financial statements herein and the accompanying notes thereto , and the information set forth under the caption critical accounting policies and estimates below . our continuing operations are reported in three segments , domestic rental and management , international rental and management and network development services . among other factors , management uses segment gross margin and segment operating profit in its assessment of operating performance in each business segment . we define segment gross margin as segment revenue less segment operating expenses , excluding stock-based compensation expense recorded in costs of operations ; depreciation , amortization and accretion ; selling , general , administrative and development expense ; and other operating expense . we define segment operating profit as segment gross margin less selling , general , administrative and development expense attributable to the segment , excluding stock-based compensation expense and corporate expenses . segment gross margin and segment operating profit for the international rental and management segment also include interest income , tv azteca , net ( see note 21 to our consolidated financial statements included herein ) . these measures of segment gross margin and segment operating profit are also before interest income , interest expense , loss on retirement of long-term obligations , other income ( expense ) , net income ( loss ) attributable to noncontrolling interest , income ( loss ) on equity method investments and income tax provision ( benefit ) . executive overview our primary business is leasing antenna space on multi-tenant communications sites to wireless service providers , radio and television broadcast companies , wireless data and data providers , government agencies and municipalities and tenants in a number of other industries . in addition to the communications sites in our portfolio , we manage rooftop and tower sites for property owners under various contractual arrangements . we also hold property interests that we lease to communications service providers and third-party tower operators . we refer to this business as our rental and management operations , which accounted for approximately 98 % of our total revenues for the year ended december 31 , 2013 and includes our domestic rental and management segment and our international rental and management segment . through our network development services , we offer tower-related services domestically , including site acquisition , zoning and permitting services and structural analysis services , which primarily support our site leasing business and the addition of new tenants and equipment on our sites . we began operating as a reit for federal income tax purposes effective january 1 , 2012 . 28 the following table details the number of communications sites we owned or operated as of december 31 , 2013 : replace_table_token_8_th ( 1 ) all of the communications sites we operate are held pursuant to long-term capital leases , including those subject to purchase options . the majority of our tenant leases with wireless carriers have an initial non-cancellable term of five to ten years , with multiple five-year renewal terms . accordingly , nearly all of the revenue generated by our rental and management operations during the year ended december 31 , 2013 was recurring revenue that we should continue to receive in future periods . based upon foreign currency exchange rates and the tenant leases in place as of december 31 , 2013 , we expect to generate approximately $ 23 billion of non-cancellable tenant lease revenue over future periods , absent the impact of straight-line lease accounting . most of our tenant leases have provisions that periodically increase the rent due under the lease , typically annually based on a fixed escalation ( approximately 3.0 % -3.5 % in the united states ) or an inflationary index in our international markets . the revenues generated by our rental and management operations may also be affected by cancellations of existing tenant leases . as discussed above , most of our tenant leases with wireless carriers and broadcasters are multi-year contracts , which typically are non-cancellable ; however in some instances , a lease may be canceled upon the payment of a termination fee . revenue lost from either cancellations of leases at the end of their terms or rent negotiations historically have not had a material adverse effect on the revenues generated by our rental and management operations . during the year ended december 31 , 2013 , loss of annual revenue from tenant lease cancellations or renegotiations represented less than 1.5 % of our rental and management operations revenues . rental and management operations revenue growth . our rental and management revenue growth is comprised of ( i ) growth in organic revenue , which is revenue from sites that existed in our portfolio as of the beginning of the prior year period ( legacy sites ) and ( ii ) growth from sites acquired or constructed since the beginning of the prior year period ( new sites ) . the primary factors affecting the revenue growth of our domestic and international rental and management segments are : recurring revenues from tenant leases generated from legacy sites ; contractual rent escalations on existing tenant leases , net of cancellations ; new revenue generated from leasing additional space on our legacy sites ; and new revenue generated from new sites . 29 we continue to believe that our site leasing revenue is likely to increase due to the growing use of wireless communications services and our ability to meet the corresponding incremental demand for wireless real estate by adding new tenants and new equipment for existing tenants on our legacy sites , which increases these sites ' utilization and profitability . story_separator_special_tag with a more mature customer base , higher smartphone penetration and significantly higher per capita data usage , carrier investment in networks is focused on 4g coverage and capacity . we believe that the network technology migration we have seen in the united states , which has led to significantly denser networks and meaningful new business commencements for us over a number of years , will ultimately be replicated in our less advanced international markets . as a result , we expect to be able to leverage our extensive international portfolio of approximately 39,400 communications sites and the relationships we have built with our carrier customers to drive sustainable , long-term growth . rental and management operations new site revenue growth . the results of operations of mipt have been included in our consolidated results of operations since october 1 , 2013 , the date of the acquisition . during the period from october 1 , 2013 to december 31 , 2013 , mipt generated total revenues of $ 84.1 million and gross margin of $ 65.0 million . in addition to the approximately 5,370 sites acquired through the acquisition of mipt , during the year ended december 31 , 2013 , we grew our portfolio of communications real estate through the acquisition and construction of approximately 7,700 sites . in a majority of our international markets , the acquisition or construction of new sites results in increased pass-through revenues ( such as ground rent or fuel costs ) and expenses . we continue to evaluate opportunities to acquire larger communications real estate portfolios , both domestically and internationally , to determine whether they meet our risk adjusted hurdle rates and whether we believe we can effectively integrate them into our existing portfolio . replace_table_token_9_th ( 1 ) the majority of sites acquired or constructed in 2013 were in brazil , colombia , costa rica , india , mexico and south africa ; in 2012 were in brazil , germany , india and uganda ; and in 2011 were in brazil , colombia , ghana , india , mexico and south africa . 31 network development services segment revenue growth . as we continue to focus on growing our rental and management operations , we anticipate that our network development services revenue will continue to represent a relatively small percentage of our total revenues . through our network development services segment , we offer tower-related services , including site acquisition , zoning and permitting services and structural analysis services , which primarily support our site leasing business and the addition of new tenants and equipment on our sites , including in connection with provider network upgrades . rental and management operations expenses . direct operating expenses incurred by our domestic and international rental and management segments include direct site level expenses and consist primarily of ground rent , property taxes , repairs and maintenance , security and power and fuel costs , some of which may be passed through to our tenants . these segment direct operating expenses exclude all segment and corporate selling , general , administrative and development expenses , which are aggregated into one line item entitled selling , general , administrative and development expense in our consolidated statements of operations . in general , our domestic and international rental and management segments ' selling , general , administrative and development expenses do not significantly increase as a result of adding incremental tenants to our legacy sites and typically increase only modestly year-over-year . as a result , leasing additional space to new tenants on our legacy sites provides significant incremental cash flow . we may incur additional segment selling , general , administrative and development expenses as we increase our presence in geographic areas where we have recently launched operations or are focused on expanding our portfolio . our profit margin growth is therefore positively impacted by the addition of new tenants to our legacy sites and can be temporarily diluted by our development activities . non-gaap financial measures included in our analysis of our results of operations are discussions regarding earnings before interest , taxes , depreciation , amortization and accretion , as adjusted ( adjusted ebitda ) , funds from operations , as defined by the national association of real estate investment trusts ( nareit ffo ) , and adjusted funds from operations ( affo ) . we define adjusted ebitda as net income before income ( loss ) on discontinued operations , net ; income ( loss ) on equity method investments ; income tax provision ( benefit ) ; other income ( expense ) ; loss on retirement of long-term obligations ; interest expense ; interest income ; other operating income ( expense ) ; depreciation , amortization and accretion ; and stock-based compensation expense . nareit ffo is defined as net income before gains or losses from the sale or disposal of real estate , real estate related impairment charges and real estate related depreciation , amortization and accretion , and including adjustments for ( i ) unconsolidated affiliates and ( ii ) noncontrolling interest . we define affo as nareit ffo before ( i ) straight-line revenue and expense ; ( ii ) stock-based compensation expense ; ( iii ) the non-cash portion of our tax provision ; ( iv ) non-real estate related depreciation , amortization and accretion ; ( v ) amortization of deferred financing costs , capitalized interest , debt discounts and premiums and long-term deferred interest charges ; ( vi ) other income ( expense ) ; ( vii ) loss on retirement of long-term obligations ; ( viii ) other operating income ( expense ) ; and adjustments for ( ix ) unconsolidated affiliates and ( x ) noncontrolling interest , less cash payments related to capital improvements and cash payments related to corporate capital expenditures . adjusted ebitda , nareit ffo and affo are not intended to replace net income or any other performance measures determined in accordance with gaap .
| results of operations years ended december 31 , 2013 and 2012 ( in thousands , except percentages ) revenue replace_table_token_10_th total revenues for the year ended december 31 , 2013 increased 17 % to $ 3,361.4 million . the increase was primarily attributable to an increase in both of our rental and management segments , including organic revenue growth attributable to our legacy sites and revenue growth attributable to the approximately 21,880 new sites that we have constructed or acquired since january 1 , 2012. approximately $ 84.1 million of the increase was attributable to revenues generated by mipt . domestic rental and management segment revenue for the year ended december 31 , 2013 increased 13 % to $ 2,189.4 million . this growth was comprised of : revenue growth from legacy sites of approximately 7 % , which includes approximately 6 % due to incremental revenue primarily generated from new tenant leases and amendments to existing tenant leases on our legacy sites and approximately 2 % attributable to contractual rent escalations , net of tenant lease cancellations , partially offset by approximately 1 % due to a tenant billing settlement and a lease termination settlement during the year ended december 31 , 2012 , which totaled $ 15.6 million ; revenue growth of approximately 4 % attributable to the addition of approximately 4,860 domestic sites , as well as managed sites , rooftops and land interests under third-party sites in connection with our acquisition of mipt ; revenue growth from new sites ( excluding mipt ) of approximately 3 % , resulting from the construction or acquisition of approximately 1,360 new sites , as well as land interests under third-party sites since january 1 , 2012 ; and a decrease of approximately 1 % from the impact of straight-line lease accounting . 33 international rental and management segment revenue for the year ended december 31 , 2013 increased 27 % to $ 1,097.7 million .
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the gas distribution operations segment provides natural gas service and transportation for residential , commercial and industrial customers in ohio , pennsylvania , virginia , kentucky , maryland , indiana and massachusetts . the electric operations segment provides electric service in 20 counties in the northern part of indiana . the table below reconciles revenue disaggregation by customer class to segment revenue as well as to revenues reflected on the statements of consolidated income ( loss ) : replace_table_token_22_th ( 1 ) customer revenue amounts exclude intersegment revenues . see note 22 , `` segments of business , `` for discussion of intersegment revenues . customer accounts receivable . accounts receivable on our consolidated balance sheets includes both billed and unbilled amounts , as well as certain amounts that are not related to customer revenues . unbilled amounts of accounts receivable relate to a portion of a customer 's consumption of gas or electricity from the date of the last cycle billing through the last day of the month ( balance sheet date ) . factors taken into consideration when estimating unbilled revenue include historical usage , customer rates and weather . the opening and closing balances of customer receivables for the years ended december 31 , 2018 and 2017 are presented in the table below . we had no significant contract assets or liabilities during the period . additionally , we have not incurred any significant costs to obtain or fulfill contracts . replace_table_token_23_th ( 1 ) customer billed receivables increased over the period due to november 2018 being colder than november 2017 , leading to more gas usage included in december bills . ( 2 ) customer unbilled receivables decreased over the period due december 2018 being warmer than december 2017 , leading to less estimated gas usage . 63 n i s ource i nc . notes to consolidated financial statements item 8. financial statements and supplementary data ( continued ) utility revenues are billed to customers monthly on a cycle basis . we generally expect that substantially all customer accounts receivable will be collected within the month following customer billing , as this revenue consists primarily of monthly , tariff-based billings for service and usage . other revenues . as permitted by accounting principles generally accepted in the united states , regulated utilities have the ability to earn certain types of revenue that are outside the scope of asc 606. these revenues primarily represent revenue earned under alternative revenue programs . alternative revenue programs represent regulator-approved programs that allow for the adjustment of billings and revenue for certain broad , external factors , or for additional billings if the entity achieves certain objectives , such as a specified reduction of costs . we maintain a variety of these programs , including demand side management initiatives that recover costs associated with the implementation of energy efficiency programs , as well as normalization programs that adjust revenues for the effects of weather or other external factors . additionally , we maintain certain programs with future test periods that operate similarly to ferc formula rate programs and allow for recovery of costs incurred to replace aging infrastructure . when the criteria to recognize alternative revenue have been met , we establish a regulatory asset and present revenue from alternative revenue programs on the statements of consolidated income ( loss ) as “ other revenues . ” when amounts previously recognized under alternative revenue accounting guidance are billed , we reduce the regulatory asset and record a customer account receivable . 4 . earnings per share basic eps is computed by dividing story_separator_special_tag n i s ource i nc . in january 2017 , we changed the method used to estimate the service and interest components of net periodic benefit cost for pension and other postretirement benefits . this change , compared to the previous method , resulted in a decrease in the actuarially-determined service and interest cost components . historically , we estimated service and interest cost utilizing a single weighted-average discount rate derived from the yield curve used to measure the benefit obligation at the beginning of the period . for fiscal 2017 and beyond , we now utilize a full yield curve approach to estimate these components by applying the specific spot rates along the yield curve used in the determination of the benefit obligation to the relevant projected cash flows . for further discussion of our pension and other postretirement benefits , see note 11 , “ pension and other postretirement benefits , ” in the notes to consolidated financial statements . goodwill . we have seven goodwill reporting units , comprised of the seven state operating companies within the gas distribution operations reportable segment . our goodwill assets at december 31 , 2018 were $ 1,690.7 million , most of which resulted from the acquisition of columbia on november 1 , 2000. as required by gaap , we test for impairment of goodwill on an annual basis and on an interim basis when events or circumstances indicate that a potential impairment may exist . our annual goodwill test takes place in the second quarter of each year and was most recently finalized as of may 1 , 2018. in the third quarter of 2018 , we determined the greater lawrence incident represented a triggering event that required an impairment analysis of goodwill . the incident specifically impacts our columbia of massachusetts reporting unit . the quantitative impairment analysis as of september 30 , 2018 determined the fair value of columbia of massachusetts reporting unit continued to exceed its carrying value . for additional information , refer to note 6 , `` goodwill and other intangible assets , '' in the notes to consolidated financial statements . we completed a quantitative ( `` step 1 '' ) fair value measurement of our reporting units during the may 1 , 2016 goodwill test . consistent with our historical impairment testing of goodwill , fair value of the story_separator_special_tag the gas distribution operations segment provides natural gas service and transportation for residential , commercial and industrial customers in ohio , pennsylvania , virginia , kentucky , maryland , indiana and massachusetts . the electric operations segment provides electric service in 20 counties in the northern part of indiana . the table below reconciles revenue disaggregation by customer class to segment revenue as well as to revenues reflected on the statements of consolidated income ( loss ) : replace_table_token_22_th ( 1 ) customer revenue amounts exclude intersegment revenues . see note 22 , `` segments of business , `` for discussion of intersegment revenues . customer accounts receivable . accounts receivable on our consolidated balance sheets includes both billed and unbilled amounts , as well as certain amounts that are not related to customer revenues . unbilled amounts of accounts receivable relate to a portion of a customer 's consumption of gas or electricity from the date of the last cycle billing through the last day of the month ( balance sheet date ) . factors taken into consideration when estimating unbilled revenue include historical usage , customer rates and weather . the opening and closing balances of customer receivables for the years ended december 31 , 2018 and 2017 are presented in the table below . we had no significant contract assets or liabilities during the period . additionally , we have not incurred any significant costs to obtain or fulfill contracts . replace_table_token_23_th ( 1 ) customer billed receivables increased over the period due to november 2018 being colder than november 2017 , leading to more gas usage included in december bills . ( 2 ) customer unbilled receivables decreased over the period due december 2018 being warmer than december 2017 , leading to less estimated gas usage . 63 n i s ource i nc . notes to consolidated financial statements item 8. financial statements and supplementary data ( continued ) utility revenues are billed to customers monthly on a cycle basis . we generally expect that substantially all customer accounts receivable will be collected within the month following customer billing , as this revenue consists primarily of monthly , tariff-based billings for service and usage . other revenues . as permitted by accounting principles generally accepted in the united states , regulated utilities have the ability to earn certain types of revenue that are outside the scope of asc 606. these revenues primarily represent revenue earned under alternative revenue programs . alternative revenue programs represent regulator-approved programs that allow for the adjustment of billings and revenue for certain broad , external factors , or for additional billings if the entity achieves certain objectives , such as a specified reduction of costs . we maintain a variety of these programs , including demand side management initiatives that recover costs associated with the implementation of energy efficiency programs , as well as normalization programs that adjust revenues for the effects of weather or other external factors . additionally , we maintain certain programs with future test periods that operate similarly to ferc formula rate programs and allow for recovery of costs incurred to replace aging infrastructure . when the criteria to recognize alternative revenue have been met , we establish a regulatory asset and present revenue from alternative revenue programs on the statements of consolidated income ( loss ) as “ other revenues . ” when amounts previously recognized under alternative revenue accounting guidance are billed , we reduce the regulatory asset and record a customer account receivable . 4 . earnings per share basic eps is computed by dividing story_separator_special_tag n i s ource i nc . in january 2017 , we changed the method used to estimate the service and interest components of net periodic benefit cost for pension and other postretirement benefits . this change , compared to the previous method , resulted in a decrease in the actuarially-determined service and interest cost components . historically , we estimated service and interest cost utilizing a single weighted-average discount rate derived from the yield curve used to measure the benefit obligation at the beginning of the period . for fiscal 2017 and beyond , we now utilize a full yield curve approach to estimate these components by applying the specific spot rates along the yield curve used in the determination of the benefit obligation to the relevant projected cash flows . for further discussion of our pension and other postretirement benefits , see note 11 , “ pension and other postretirement benefits , ” in the notes to consolidated financial statements . goodwill . we have seven goodwill reporting units , comprised of the seven state operating companies within the gas distribution operations reportable segment . our goodwill assets at december 31 , 2018 were $ 1,690.7 million , most of which resulted from the acquisition of columbia on november 1 , 2000. as required by gaap , we test for impairment of goodwill on an annual basis and on an interim basis when events or circumstances indicate that a potential impairment may exist . our annual goodwill test takes place in the second quarter of each year and was most recently finalized as of may 1 , 2018. in the third quarter of 2018 , we determined the greater lawrence incident represented a triggering event that required an impairment analysis of goodwill . the incident specifically impacts our columbia of massachusetts reporting unit . the quantitative impairment analysis as of september 30 , 2018 determined the fair value of columbia of massachusetts reporting unit continued to exceed its carrying value . for additional information , refer to note 6 , `` goodwill and other intangible assets , '' in the notes to consolidated financial statements . we completed a quantitative ( `` step 1 '' ) fair value measurement of our reporting units during the may 1 , 2016 goodwill test . consistent with our historical impairment testing of goodwill , fair value of the
| revenue recognition . revenue is recorded as products and services are delivered . utility revenues are billed to customers monthly on a cycle basis . revenues are recorded on the accrual basis and include estimates for electricity and gas delivered but not billed . we adopted the provisions of asc 606 beginning on january 1 , 2018 using a modified retrospective method , which was applied to all contracts . no material adjustments were made to january 1 , 2018 opening balances and no material changes in the amount or timing of future revenue recognition occurred as a result of the adoption of asc 606. refer to note 3 `` revenue recognition , '' in the notes to consolidated financial statements . recently issued accounting pronouncements refer to note 2 , `` recent accounting pronouncements , '' in the notes to consolidated financial
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for the year ended december 31 , 2020 , the amount of depreciation and amortization was $ 2,696,065 , which included general property and equipment depreciation of $ 1,579,635 . the company recorded operating lease expense of $ 223,949 and $ 124,763 for the years ended december 31 , 2020 and 2019 , including operating lease amortization expense of $ 192,779 and $ 101,199 for the years ended december 31 , 2020 and 2019 , respectively . note 9. derivative financial instruments derivative financial instruments the company has adopted the provisions of asc subtopic 825-10 , financial instruments ( “ asc 825-10 ” ) . asc 825-10 defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date . when determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value , the company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability , such as inherent risk , transfer restrictions , and risk of nonperformance . asc 825-10 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value . debt derivatives – in may and july of 2019 , the company issued three convertible promissory notes to labrys fund , lp . auctus fund , llc and harbor gates capital , llc the notes were convertible into common stock , at holders ' option , at a discount to the market price of the company 's common stock . the company has identified the embedded derivatives relating to certain anti-dilutive ( reset ) provisions in the notes . these embedded derivatives included certain conversion features . the accounting treatment of derivative financial instruments requires that the company record fair value of the derivatives as of the inception date of debenture and record the change in fair value as of each subsequent reporting date . during 2019 and 2020 , the company redeemed the notes issued to labrys fund , lp , harbor gates capital , llc and auctus fund , llc . warrant liabilities – the company issued two common stock purchase warrants ( the “ warrants ” ) to purchase 28,200 shares and 21,000 shares of the registrant 's common stock to labrys fund , lp and auctus fund , llc . these warrants contain certain reset provisions . the accounting treatment of derivative financial instruments requires that the company record fair value of the derivatives as of the inception date ( issuance date ) and to record changes in fair value as of each subsequent reporting date . in january 2020 the company issued 38,322 shares of common stock to labrys fund , lp in full satisfaction of its warrant . at december 31 , 2020 , the company marked to market the fair value of the auctus fund warrant liability and determined a fair value of $ 1,149 . the company recorded a loss from issuance expense and change in fair value of warrant liability of $ 139,467 and $ 110,840 for the year ended december 31 , 2020. the fair value of the warrant liability was determined using binomial option pricing model based on the following assumptions : ( 1 ) dividend yield of 0 % , ( 2 ) expected volatility of 79.14 % , ( 3 ) weighted average risk-free interest rate of 0.257 % , ( 4 ) expected life of 1.58 years , and ( 5 ) the quoted market price of the company 's common stock at each valuation date . note 10. non-controlling interests jiarun is the company 's majority-owned subsidiary , which is consolidated in the company 's financial statements with a non-controlling interest ( nci ) recognized . the company held a 70 % interest in jiarun as of december 31 , 2020 and 2019. as of december 31 , 2020 and 2019 , nci in the consolidated balance sheet was $ 9,802,677 and $ 8,168,613 , respectively . for the year ended december 31 , 2020 , the comprehensive income attributable to shareholders ' equity and nci is $ 3,804,952 and $ 1,634,064 , respectively . for the year ended december 31 , 2019 , the comprehensive income attributable to shareholders ' equity and ncis is $ 634,297 and $ 273,237 , respectively . f- 18 jrsis health care corporation notes to consolidated financial statements ( amounts in usd ) note 11. revenue the company 's revenue consists of medicine sales and patient care revenue . replace_table_token_17_th note 12. income tax expense the company uses the asset-liability method of accounting for income taxes prescribed by asc 740 income taxes . the company and its subsidiaries each file their taxes individually . united states jrss is subject to the united states of america tax law at tax story_separator_special_tag the following discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements and the notes thereto included elsewhere in this annual report on form 10-k , which have been prepared in accordance with accounting principles generally accepted in the united states . the preparation of such financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues , and expenses . on an ongoing basis , we evaluate these estimates , including those related to useful lives of real estate assets , bad debts , impairment , contingencies and litigation . story_separator_special_tag we base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . there can be no assurance that actual results will not differ from those estimates . the analysis set forth below is provided pursuant to applicable sec regulations and is not intended to serve as a basis for projections of future events . see “ cautionary statement regarding forward looking statements ” above . critical accounting policies and management estimates in preparing our financial statements we are required to formulate accounting policies regarding valuation of our assets and liabilities and to develop estimates of those values . in our preparation of the financial statements for the year ended december 31 , 2020 , there were two estimates made which were ( a ) subject to a high degree of uncertainty and ( b ) material to our results , as follows : ● the determination , as set forth in note 3 to our financial statements , that the $ 7,691,679 balance in accounts receivable as of december 31 , 2020 warranted an allowance for doubtful accounts of $ 3,300,027. the determination was based on our review of the statement from harbin medical insurance management center , generally , the center sets for each hospital an insurance claim limit , even though the hospital is not permitted to refuse to receive patients . if the hospital receive too many patients , it will exceed the claim limit , and record an excess insurance claim . the center will pay part of the excess insurance claim from an insurance regulatory fund that is shared among all local hospital that have excess insurance claims , but full reimbursement is not assured . in accordance with the principle of prudence , the company made a determination that any excess insurance claim outstanding for more than two years without reimbursement should be treated as a doubtful account . as of december 31 , 2020 , the amount of excess insurance claims aged over two years without reimbursement was $ 3,300,027 , which was treated as a bad debt . ● the determination to record depreciation of our principal medical property and equipment over an average useful life of approximately twenty years . ( a quantification of that depreciation is set forth in note 6 to our financial statements . ) the determination was based primarily on our expectation that the useful life of our hospital facilities would exceed thirty years , based on the experience of comparable facilities in our location . 15 results of operations for the years ended december 31 , 2020 and 2019 the following table shows key components of the results of operations during the years ended december 31 , 2020 and 2019 : replace_table_token_1_th revenue operating revenue for the year ended december 31 , 2020 , which resulted primarily from medicine ( i.e . pharmaceuticals ) revenue and patient services revenue , was $ 35,706,197 , an increase of 13 % as compared with the operating revenue of $ 31,463,433 for the year ended december 31 , 2019. revenue from the sale of medicine decreased by 13 % , while revenue from provision of patient services grew by 27 % . the increase in patient service revenue occurred despite the fact that the number of treated inpatients decreased by 29 % to 14,649 patients , 6,002 less than the 20,651 patients treated in 2019. however , as the spread of covid-19 through the population of the city of harbin in 2020 resulted in patients with complex and life-threatening situations , the per capita medical expenses of inpatients increased to $ 1,151 in 2020 , $ 387 or 51 % more than the per capita medical expenses of inpatients in 2019. that 51 % increase in per capita expense yielded only a 27 % increase in patient service revenue , however , because the quarantines related to the pandemic prevented much of the elective medical procedures from occurring . operating costs and expenses total operating costs and expenses were $ 30,112,807 for the year ended december 31 , 2020 , an increase of $ 3,316,887 or 12 % as compared to $ 26,795,920 for 2019. since revenue increased by only 13 % year-to-year , the 12 % increase in operating costs and expenses correlated with the 13 % increase in revenue . the primary components of the $ 3,316,887 increase in costs and expenses were : ● $ 3,667,196 increase in the cost of medical consumables . this 78 % increase in expenses attributable to medical consumables was primarily related to the 51 % increase in per capita medical expenses , as covid-19 patients required more intensive treatment . medical consumables mainly consist of materials expenses , medical repair expenses and test reagents . the largest components of the increase was the increase in materials expenses of $ 2,770,116 and an increase in inspection expenses of $ 448,620 . ● $ 871,601 increase in salaries and benefits , reflecting $ 1,125,966 increase in salaries , partially offset by a $ 300,002 decrease in social insurance expense . this 12 % increase in our labor costs was primarily caused by the revenue increase attributable to the hospitals , as we incurred labor costs in preparation for full scale operations of our branch hospitals . ● $ 76,797 increase in advertising and promotion expenses , likewise primarily attributable to the expansion of our operations during 2020 . 16 ● $ 484,043 increase in depreciation and amortization . this increase occurred because we increased the book value of our property and equipment as a result of additional property and equipment placed in service by $ 2,555,443 during 2019 and by $ 9,276,833 during 2020 , which led to a 22 % increase in depreciation during
| income taxes corporate income tax ( cit ) is determined under the provisional regulations of prc concerning income tax on enterprises promulgated by the prc , income tax is payable by enterprises at a rate of 25 % of their taxable income . the following table shows the components of the allowance for prc income tax recorded for 2020 : amounts income tax expense $ - income tax : 2020 deferred 1,369,615 tax expense from continuing operation $ 1,369,615 amounts reconciliation : income tax at statutory rate $ 1,369,615 tax expense from continuing operation $ 1,369,615 according to the prc “ notice on preferential corporate income tax ( cit ) treatment for eligible equipment or machinery ( cai shui [ 2018 ] no . 54 ) ” , a 100 % immediate tax deduction for cit purposes is allowed for purchases of equipment on the condition that the unit price of each item of equipment or machinery is individually less than rmb5 million . depreciation for tax purposes is not required . basis differences between tax and gaap for depreciation of property and equipment exist because in 2020 the company purchased eligible equipment for rmb42.13 million , which produced $ 1,369,615 in deferred income tax , representing the difference between prc tax treatment and gaap treatment of taxation arising from equipment acquisition . net income after deducting other income and expenses as well as the provision for income tax , the company 's net income for the year ended december 31 , 2020 was $ 3,827,278 , representing an increase of $ 2,558,619 or 202 % from the $ 1,268,659 recorded for the year ended december 31 , 2019. the increase in net income for the year ended december 31 , 2020 was primarily due to aforementioned changes in operating revenue and expenses .
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these events and changes in circumstances may include a significant decrease in the story_separator_special_tag results of operations the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes thereto included in this annual report on form 10-k. unless expressly stated or the context otherwise requires , the terms “ first solar , ” “ the company , ” “ we , ” “ us , ” and “ our ” refer to first solar , inc. and its consolidated subsidiaries . in addition to historical consolidated financial information , the following discussion and analysis contains forward-looking statements that involve risks , uncertainties , and assumptions as described under the “ note regarding forward-looking statements ” that appears earlier in this annual report on form 10-k. our actual results could differ materially from those anticipated by these forward-looking statements as a result of many factors , including those discussed under item 1a . “ risk factors , ” and elsewhere in this annual report on form 10-k. executive overview we are a leading global provider of comprehensive pv solar energy solutions . we design , manufacture , and sell pv solar modules with an advanced thin-film semiconductor technology and also develop , design , construct , and sell pv solar power systems that primarily use the modules we manufacture . additionally , we provide o & m services to system owners that use solar modules manufactured by us or by third-party manufacturers . we have substantial , ongoing r & d efforts focused on module and system-level innovations . we are the world 's largest thin-film pv solar module manufacturer and one of the world 's largest pv solar module manufacturers . our mission is to create enduring value by enabling a world powered by clean , affordable solar energy . certain highlights of our financial results and other key operational developments for the year ended december 31 , 2016 include the following : net sales for 2016 decreased by 18 % to $ 3.0 billion compared to $ 3.6 billion in 2015 . the decrease in net sales was primarily attributable to the sale of majority interests in the north star and lost hills projects in 2015 , the completion of substantially all construction activities on the imperial solar energy center west and decatur projects in 2015 , the completion of substantially all construction activities on the silver state south and mccoy projects in the first half of 2016 , and lower revenue from “ module plus ” transactions , which are transactions in which we sell both our modules plus selected bos parts . this decrease in revenue was partially offset by an increase in the volume of modules sold to third parties , higher revenue from the commencement of construction of the taylor and butler projects in late 2015 , and the commencement of construction of the east pecos project in early 2016 . gross profit decreased 1.8 percentage points to 23.9 % during 2016 from 25.7 % during 2015 , primarily due to the mix of lower gross profit projects sold and under construction , higher inventory write-downs , and the reduction in our module collection and recycling obligation in 2015 resulting from certain recycling technology advancements , partially offset by the higher gross margins on modules sales to third parties . as of december 31 , 2016 , we had 28 installed production lines at our manufacturing facilities in perrysburg , ohio and kulim , malaysia . we produced 3.1 gw of solar modules during 2016 , which represented a 24 % increase from 2015 . the increase in production was primarily driven by increased throughput and higher module conversion efficiencies . we expect to produce approximately 2.2 gw of solar modules during 2017 as we ramp down production of our series 4 modules and continue the transition to series 6 module manufacturing . during 2016 , we ran our manufacturing facilities at approximately 97 % capacity utilization , which represented a 5.0 percentage point increase from 2015 . the average conversion efficiency of our modules produced in 2016 was 16.4 % , which represented an improvement of 0.8 percentage points from our average conversion efficiency of 15.6 % in 2015 . 47 market overview the solar industry continues to be characterized by intense pricing competition , both at the module and system levels . in particular , module average selling prices in the united states and several other key markets have experienced an accelerated decline in recent months , and module average selling prices are expected to continue to decline to some degree in the short and medium terms according to market forecasts . in the aggregate , we believe manufacturers of solar modules and cells have significant installed production capacity , relative to global demand , and the ability for additional capacity expansion . we believe the solar industry may from time to time experience periods of structural imbalance between supply and demand ( i.e. , where production capacity exceeds global demand ) , and that such periods will put pressure on pricing . we believe the solar industry is currently in such a period . additionally , intense competition at the system level may result in an environment in which pricing falls rapidly , thereby further increasing demand for solar energy solutions but constraining the ability for project developers ; epc companies ; and vertically-integrated solar companies such as first solar to sustain meaningful and consistent profitability . in light of such market realities , we are executing our long term strategic plan , under which we are focusing on our competitive strengths . such strengths include our advanced module and system technologies as well as our vertically-integrated business model that enables us to provide utility-scale pv solar energy solutions to key markets with current electricity needs . story_separator_special_tag the resulting labor and material savings are expected to represent a significant improvement compared to current technologies and a substantial reduction in total installed costs resulting in improved project returns as bos costs represent a significant portion of the costs associated with the construction of a typical utility-scale system . see note 4 “ restructuring and asset impairments ” to our consolidated financial statements for the year ended december 31 , 2016 included in this annual report on form 10-k for additional information regarding the transition to series 6 module manufacturing . in terms of energy yield , in many climates , our cdte modules provide a significant energy production advantage over most conventional crystalline silicon solar modules ( including bsf and perc technologies ) of equivalent efficiency rating . for example , our cdte solar modules provide a superior temperature coefficient , which results in stronger system performance in typical high insolation climates as the majority of a system 's generation , on average , occurs when module temperatures are well above 25°c ( standard test conditions ) . in addition , our cdte modules provide a superior spectral response in humid environments where atmospheric moisture alters the solar spectrum relative to laboratory standards . our cdte solar modules also provide a better shading response than conventional crystalline silicon solar modules , which may lose up to three times as much power as cdte solar modules when shading occurs . as a result of these and other factors , our pv solar power systems typically produce more annual energy in real world field conditions than competing systems with the same nameplate capacity . while our modules and pv solar power systems are generally competitive in cost , reliability , and performance attributes , there can be no guarantee such competitiveness will continue to exist in the future to the same extent or at all . any declines in the competitiveness of our products could result in additional margin compression , further declines in the average selling prices of our modules and systems , erosion in our market share for modules and systems , decreases in the rate of net sales growth , and or declines in overall net sales . we continue to focus on enhancing the competitiveness of our solar modules and pv solar power systems by accelerating progress along our module technology and cost reduction roadmaps , continuing to make technological advances at the system level , using innovative installation techniques and know-how , and leveraging volume procurement around standardized hardware platforms . such procurement efforts include the use of high-quality , conventional bos components as we have phased out the use of our proprietary trackers and fixed mounting structures to further reduce system costs and streamline our operations . certain trends and uncertainties we believe that our operations may be favorably or unfavorably impacted by the following trends and uncertainties that may affect our financial condition and results of operations . see item 1a . “ risk factors ” and elsewhere in this annual report on form 10-k for a discussion of other risks that may affect our financial condition and results of operations . 49 long term strategic plan our long term strategic plan is a long-term roadmap to achieve our technology , growth , and cost leadership objectives . in executing our long term strategic plan , we are focusing on providing utility-scale pv solar energy solutions using our modules in key geographic markets that we believe have a compelling need for mass-scale pv electricity , including markets throughout the americas , the asia-pacific region , and the middle east . as part of our long term strategic plan , we are focusing on opportunities in which our pv solar energy solutions can compete directly with fossil fuel offerings on an lcoe or similar basis , or complement such fossil fuel electricity offerings . execution of the long term strategic plan entails a prioritization of market opportunities worldwide relative to our core strengths and a corresponding allocation of resources around the globe . this prioritization involves a focus on our core module and utility-scale offerings and exists within a current market environment that includes rooftop and distributed generation solar , particularly in the united states . while it is unclear how rooftop and distributed generation solar might impact our core utility-scale offerings in the next several years , we believe that utility-scale solar will continue to be a compelling solar offering for companies with technology and cost leadership and will continue to represent an increasing portion of the overall electricity generation mix . we are closely evaluating and managing the appropriate level of resources required as we pursue the most advantageous and cost effective projects and partnerships in our target markets . we have dedicated , and intend to continue to dedicate , significant capital and human resources to reduce the total installed cost of pv solar energy , to optimize the design and logistics around our pv solar energy solutions , and to ensure that our solutions integrate well into the overall electricity ecosystem of each specific market . we expect that , over time , an increasing portion of our consolidated net sales , operating income , and cash flows may come from solar offerings in the key geographic markets described above as we execute on our long term strategic plan . the timing , execution , and financial impacts of our long term strategic plan are subject to risks and uncertainties , as described in item 1a . “ risk factors , ” and elsewhere in this annual report on form 10-k. we are focusing our resources in those markets and energy applications in which solar power can be a least-cost , best-fit energy solution , particularly in regions with high solar resources , significant current or projected electricity demand , and or relatively high existing electricity prices . as part of these efforts , we continue to optimize resources globally , including business development , sales personnel , and other supporting professional staff in target markets .
| results of operations the following table sets forth our consolidated statements of operations as a percentage of net sales for the years ended december 31 , 2016 , 2015 , and 2014 : replace_table_token_6_th segment overview we operate our business in two segments . our components segment involves the design , manufacture , and sale of cdte solar modules , which convert sunlight into electricity , and our systems segment includes the development , construction , operation , and maintenance of pv solar power systems , which primarily use our solar modules . see note 23 “ segment and geographical information ” to our consolidated financial statements for the year ended december 31 , 2016 included in this annual report on form 10-k for more information on our operating segments . see also item 7 “ management 's discussion and analysis of financial condition and results of operations – systems project pipeline ” for a description of the system projects in our advanced-stage project pipeline . product revenue the following table sets forth the total amounts of solar module and solar power system net sales for the years ended december 31 , 2016 , 2015 , and 2014 . for the purpose of the following table , ( i ) solar module revenue is composed of revenue from the sale of solar modules to third parties , which does not include any modules sold as part of our pv solar power systems , and ( ii ) solar power system revenue is composed of revenue from the sale of pv solar power systems and related products and services , including any modules installed in such systems and any revenue generated by such systems ( in thousands ) : replace_table_token_7_th solar module revenue to third parties increased by $ 448.0 million during 2016 compared to 2015 primarily as a result of a 211 % increase in the volume of watts sold , partially offset by
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we have provided these adjusted amounts because we believe it helps investors assess our year-over-year operating performance . 2012 financial overview story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > 18 critical accounting estimates we prepare our consolidated financial statements in accordance with u.s. generally accepted accounting principles ( gaap ) , which requires management to make estimates and assumptions that affect reported amounts and related disclosures . management identifies critical accounting estimates as : those that require the use of assumptions about matters that are inherently and highly uncertain at the time the estimates are made ; and those for which changes in the estimate or assumptions , or the use of different estimates and assumptions , could have a material impact on our consolidated results of operations or financial condition . management has discussed the development , selection and disclosure of our critical accounting estimates with the audit committee of our board . we believe the following critical accounting estimates require us to make the most difficult , subjective or complex judgments . allowance for doubtful accounts we maintain an allowance for doubtful accounts for an estimate of the losses we will incur if our customers do not make required payments . we perform periodic credit evaluations of our customers and typically do not require collateral . consistent with industry practices , we generally require payment from our north american customers within 30 days except for sales under early buy programs for which we provide extended payment terms to qualified customers . the extended terms usually require payments in equal installments in april , may and june or may and june , depending on geographic location . credit losses have generally been within or better than our expectations . as our business is seasonal , our customers ' businesses are also seasonal . sales are lowest in the winter months and our past due accounts receivable balance as a percentage of total receivables generally increases during this time . we provide reserves for uncollectible accounts based on the accounts receivable aging ranging from 0.1 % for amounts currently due up to 100 % for specific accounts more than 60 days past due . at the end of each quarter , we perform a reserve analysis of all accounts with balances greater than $ 20,000 and more than 60 days past due . additionally , we perform a separate reserve analysis on the balance of our accounts receivables with emphasis on past due accounts . as we review these past due accounts , we evaluate collectibility based on a combination of factors including : aging statistics and trends ; customer payment history ; independent credit reports ; and discussions with customers . during the year , we write off account balances when we have exhausted reasonable collection efforts and determined that the likelihood of collection is remote . these write-offs are charged against our allowance for doubtful accounts . in the past five years , write-offs have averaged approximately 0.3 % of net sales annually . write-offs as a percentage of net sales were 0.1 % in 2012 , 0.2 % in 2011 and 0.3 % in 2010 . write-offs in 2010 were higher than our long-term historical average of approximately 0.2 % of net sales due to the negative impacts on some of our customers ' businesses from the challenging external environment between 2007 and 2010. based on significant reductions in our past due receivables aging categories due to gradually improving external market trends , heightened collection efforts and creditworthiness evaluations , net write-offs improved significantly in 2011 and 2012. we expect that write-offs will be approximately 0.1 % of net sales in 2013 . if the balance of the accounts receivable reserve increased or decreased by 20 % at december 31 , 2012 , pretax income would change by approximately $ 1.1 million and earnings per share would change by approximately $ 0.01 per diluted share ( based on the number of weighted average diluted shares outstanding for the year ended december 31 , 2012 ) . inventory obsolescence product inventories represent the largest asset on our balance sheet . our goal is to manage our inventory such that we minimize stock-outs to provide the highest level of service to our customers . to do this , we maintain at each sales center an adequate inventory of stock keeping units ( skus ) with the highest sales volumes . at the same time , we continuously strive to better manage our slower moving classes of inventory , which are not as critical to our customers and thus , inherently have lower velocity . sales centers classify products into 13 classes based on sales at that location over the past 12 months ( or 36 months for tile products ) . 19 all inventory is included in these classes , except for non-stock special order items and products with less than 12 months of usage . the table below presents a description of these inventory classes : class 0 new products with less than 12 months usage ( or 36 months for tile products ) classes 1-4 highest sales value items , which represent approximately 80 % of net sales at the sales center classes 5-12 lower sales value items , which we keep in stock to provide a high level of customer service class 13 products with no sales for the past 12 months at the local sales center level , excluding special order products not yet delivered to the customer null class non-stock special order items there is little risk of obsolescence for products in classes 1-4 because products in these classes generally turn quickly . we establish our reserve for inventory obsolescence based on inventory classes 5-13 , which we believe represent some exposure to inventory obsolescence , with particular emphasis on skus with the least sales over the previous 12 months . the reserve is intended to reflect the value of inventory that we may not be able to sell at a profit . story_separator_special_tag incentive compensation accrual our incentive compensation structure is designed to attract , motivate and retain employees . our incentive compensation packages include bonus plans that are specific to each group of eligible participants and their levels and areas of responsibility . the majority of our bonus plans have annual cash payments that are based primarily on objective performance criteria , with a component based on management 's discretion . we calculate bonuses based on the achievement of certain key measurable financial and operational results , including budgeted operating income and diluted earnings per share . we generally make bonus payments at the end of february following the most recently completed fiscal year . management sets the objectives for our bonus plans at the beginning of the bonus plan year using both historical information and forecasted results of operations for the current plan year . the compensation committee of our board approves these objectives for certain bonus plans . we record an incentive compensation accrual at the end of each month using management 's estimate of the total overall incentives earned based on the amount of progress achieved toward the stated bonus plan objectives . during the third and fourth quarters and as of our fiscal year end , we adjust our estimated incentive compensation accrual based on our detailed analysis of each bonus plan , the participants ' progress toward achievement of their specific objectives and management 's estimates related to the discretionary components of the bonus plans . our quarterly incentive compensation expense and accrual balances may vary relative to actual annual bonus expense and payouts due to the following : the discretionary components of the bonus plans ; differences between estimated and actual performance ; and our projections related to achievement of multiple-year performance objectives for our strategic plan incentive program . 21 impairment of goodwill our largest intangible asset is goodwill . at december 31 , 2012 , our goodwill balance was $ 170.0 million , representing approximately 22 % of total assets . goodwill represents the excess of the amount we paid to acquire a company over the estimated fair value of tangible assets and identifiable intangible assets acquired , less liabilities assumed . we are required to test goodwill for impairment annually or on a more frequent basis if events or changes in circumstances occur that indicate potential impairment . if the estimated fair value of any of our reporting units has fallen below their carrying value , we compare the estimated fair value of the reporting unit 's goodwill to its carrying value . if the carrying value of a reporting unit 's goodwill exceeds its estimated fair value , we recognize the difference as an impairment loss in operating income . since we define an operating segment as an individual sales center and we do not have operations below the sales center level , our reporting unit is an individual sales center . as of october 1 , 2012 , we had 209 reporting units with allocated goodwill balances . the highest goodwill balance was $ 5.7 million and the average goodwill balance was $ 0.8 million . we estimate the fair value of our reporting units by utilizing a present value model that incorporates our assumptions for projected future cash flows , discount rates and multiples . in order to determine the reasonableness of the assumptions included in our fair value estimates , we compare the total estimated fair value for all aggregated reporting units to our market capitalization on the date of our impairment test . we also review for potential impairment indicators at the reporting unit level based on an evaluation of recent historical operating trends , current and projected local market conditions and other relevant factors as appropriate . during the third quarter of 2012 , we performed an interim goodwill impairment analysis based on our identification of impairment indicators related to our results through the end of the 2012 pool season and the depressed economic conditions in the united kingdom . our results for the nine months ended september 30 , 2012 were significantly lower than our 2012 sales , gross profit and operating profit estimates for the united kingdom reporting unit that we used in our 2011 annual goodwill impairment test . we updated our 2011 impairment analysis for both our actual 2012 year to date results and our updated growth estimates for future years based on expectations for a more prolonged economic recovery period in the united kingdom . our updated projections had a significant impact on our projected future cash flow calculation and resulted in a much lower estimated fair value for our united kingdom reporting unit . consequently , we recorded a non-cash goodwill impairment charge of $ 6.9 million equal to the total carrying amount of our united kingdom reporting unit . in october 2012 , we performed our annual goodwill impairment test and did not identify any goodwill impairment at the reporting unit level . based on the combination of their higher goodwill balances and the overall economic conditions and uncertainty in europe , we identified our spain and italy reporting units as the most at risk for goodwill impairment . we believe that our domestic reporting units most at risk for goodwill impairment are the three horizon locations in texas that had a recorded goodwill impairment in 2011. other domestic reporting units considered at risk for goodwill impairment include two additional horizon locations in texas , one horizon location in nevada and one superior location in new jersey that each had marginal results in recent years , but improved profitability in 2012. as of december 31 , 2012 , our european at risk reporting units had an aggregate goodwill balance of $ 6.4 million and our domestic at risk reporting units had an aggregate goodwill balance of $ 9.5 million . if our assumptions or estimates in our fair value calculations change , we could incur additional impairment charges in future periods , especially related to the reporting units discussed above .
| financial results solid performance in 2012 produced record results , surpassing our objectives . net sales increased 9 % compared to 2011 , including a 7 % increase in base business sales . base business sales growth was driven by market share gains , continued improvement in consumer discretionary expenditures , growth in the installed base of pools and some price inflation , partially offset by unfavorable currency fluctuations of approximately 1 % . gross profit increased 7 % compared to 2011 , while gross profit as a percentage of net sales ( gross margin ) decreased 60 basis points to 29.0 % . this decrease reflects unfavorable product and customer mix changes and competitive pricing pressures . gross margin in 2012 was also comparatively lower than 2011 gross margin due to the benefits realized in 2011 from opportunistic inventory purchases . selling and administrative expenses ( operating expenses ) for 2012 increased 3 % , with base business operating expenses essentially flat year over year . decreases in employee incentive costs , lower bad debt expense and the impact of currency fluctuations were offset by higher professional fees and increases in wages and employee insurance . during the third quarter of 2012 , we recorded a non-cash goodwill impairment charge of $ 6.9 million , equal to the total goodwill carrying amount of our united kingdom reporting unit . this impairment charge had a $ 0.14 negative impact on diluted eps for the year ended december 31 , 2012. since this goodwill impairment charge was not deductible for tax purposes , our effective income tax rate for the year ended december 31 , 2012 was higher than normal . during the fourth quarter of 2011 , we recorded a non-cash goodwill impairment charge of $ 1.6 million resulting from our annual goodwill impairment analysis .
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on march 1 , 2018 , we acquired the 318-room hyatt centric arlington hotel located in arlington , virginia for an aggregate purchase price of approximately $ 79.7 million , including seller credits . the hyatt centric arlington hotel is subject to a long-term ground lease agreement that covers all of the land underlying the hotel . on september 27 , 2019 , we acquired the hotel commercial unit of the hyde beach house resort & residences , a 342-unit condominium-hotel located in the hollywood , florida market . the company has experienced a substantial number of corporate group-related cancellations and we have observed a sharp decline in transient business travel due to concerns about covid-19 . these cancellations and reduced bookings are part of an industry-wide trend and are likely to continue in the near term in response to governmental travel advisories , increased travel restrictions from corporations , and significant airline flight cancellations . we expect these developments to have a material adverse impact on the company 's financial results for the first quarter of 2020 and the year as a whole . due to the developing nature of the situation surrounding covid-19 , the company will wait until the situation stabilizes before issuing updated guidance for 2020. as of december 31 , 2019 , our hotel portfolio consisted of twelve full-service , primarily upscale and upper-upscale hotels with an aggregate total of 3,156 rooms , as well as interests in two condominium hotels and their associated rental programs . nine of our hotels operate under well-known brands such as doubletree , hyatt and sheraton , and three are independent hotels . as of december 31 , 2019 , our portfolio consisted of the following hotel properties : replace_table_token_12_th ( 1 ) operated as an independent hotel . ( 2 ) we own the hotel commercial unit and operate a rental program . reflects only those condominium units that were participating in the rental program as of december 31 , 2019. at any given time , some portion of the units participating in our rental program may be occupied by the unit owner ( s ) and unavailable for rental to hotel guests . we sometimes refer to each participating condominium unit as a “ room ” . 47 we conduct substantially all our business through the operating partnership , sotherly hotels lp . the company is the sole general partner of the operating partnership and currently owns an approximate 92.3 % interest in the operating partnership , with the remaining interest being held by limited partners who were contributors of our initial hotel properties and related assets . to qualify as a reit , neither the company nor the operating partnership can operate our hotels . therefore , our wholly-owned hotel properties are leased to our trs lessees that are wholly-owned subsidiaries of the operating partnership , which then engage hotel management companies to operate the hotels under a management agreement . our trs lessees have engaged our town , chesapeake hospitality , and highgate hotels to manage our hotels . our trs lessees , and their parent , mhi holding ( mhi hospitality trs holding , inc. ) , are consolidated into each of our financial statements for accounting purposes . the earnings of mhi holding are subject to taxation similar to other c corporations . key operating metrics in the hotel industry , room revenue is considered the most important category of revenue and drives other revenue categories such as food , beverage , catering , parking and telephone . there are three key performance indicators used in the hotel industry to measure room revenues : occupancy , or the number of rooms sold , usually expressed as a percentage of total rooms available ; average daily rate , or adr , which is total room revenue divided by the number of rooms sold ; and revenue per available room , or revpar , which is total room revenue divided by the total number of available rooms . revpar changes that are primarily driven by changes in occupancy have different implications for overall revenues and profitability than changes that are driven primarily by changes in adr . for example , an increase in occupancy at a hotel would lead to additional variable operating costs ( such as housekeeping services , laundry , utilities , room supplies , franchise fees , management fees , credit card commissions and reservations expense ) , but could also result in increased non-room revenue from the hotel 's restaurant , banquet or parking facilities . changes in revpar that are primarily driven by changes in adr typically have a greater impact on operating margins and profitability as they do not generate all the additional variable operating costs associated with higher occupancy . we also use ffo , adjusted ffo and hotel ebitda as measures of our operating performance . see “ non-gaap financial measures ” . story_separator_special_tag approximately $ 1.8 million , or 6.0 % , to approximately $ 32.1 million compared to rooms expense of approximately $ 30.3 million for the year ended december 31 , 2018. the net increase in rooms expense for the twelve months ended december 31 , 2019 resulted mainly from the acquisition of the hyatt centric arlington , which increased room expenses by approximately $ 0.6 million . in addition , there was a net aggregate increase in room expenses of approximately $ 1.2 million for the period , from the remaining properties . story_separator_special_tag as of december 31 , 2019 , the fair market value of the interest rate cap was $ 4,504 compared to the fair market value of $ 94,697 , as of december 31 , 2018. as of december 31 , 2019 , the fair market value of the interest rate swap was a liability of $ 2,064,709 , compared to the fair market value of $ 984,677 , as of december 31 , 2018. the unrealized loss on hedging activities during the years ended december 31 , 2019 and 2018 , was $ 1,177,871 and $ 808,958 , respectively . gain on involuntary conversion of asset s. gain on involuntary conversion of assets for the twelve months ended december 31 , 2019 decreased approximately $ 0.6 million to approximately $ 0.3 million compared to gain on involuntary conversion of assets of approximately $ 0.9 million for the twelve months ended december 31 , 2018. during march 2019 , we received an involuntary conversion reimbursement for flooding damage to our wilmington property of approximately $ 0.2 million . during september 2019 , we had mechanical failure and flooding damage from failure of the sewer system resulting in damage to the boiler at the desoto property with a one-time involuntary conversion in the amount of approximately $ 0.1 million . income tax ( provision ) benefit . the change in the income tax benefit for the year ended december 31 , 2019 increased approximately $ 0.7 million , to approximately $ 0.2 million compared to an income tax provision of approximately $ 0.5 million for the year ended december 31 , 2019. the income tax provision was primarily derived from the operations of our trs lessees . our trs lessees realized a net operating loss for the year ended december 31 , 2019 compared to a net operating income for the year ended december 31 , 2018 , resulting in an income tax benefit instead of an income tax provision . at december 31 , 2019 and 2018 , deferred tax assets total approximately $ 5.4 and $ 5.1 million , respectively , of which approximately $ 5.0 and $ 4.4 million , respectively , relate to net operating losses of our trs lessees . at december 31 , 2019 , we determined , based on all available positive and negative evidence , that it is more-likely-than-not that future taxable income will be available during the carryforward periods to absorb all of the consolidated federal and state net operating loss carryforward . we will continue to regularly evaluate the likelihood that we will be able to realize our deferred tax assets and the need for a valuation allowance for the deferred tax assets . 50 net ( loss ) income . net income for the year ended december 31 , 2019 increased approximately $ 1 . 8 million , or 293.3 % , to approximately $ 1 . 2 million compared to a net loss of approximately $ 0.6 million for the year ended december 31 , 2018 , as a result of the operating results discussed above . distributions to preferred stockholders . during the year ended december 31 , 2019 , we recorded distributions to preferred stockholders of approximately $ 7.8 million , compared to approximately $ 5.8 million distributions to preferred stockholders for the year ended december 31 , 2018. as of december 31 , 2019 and 2018 , we accrued approximately $ 2.2 million and $ 1.5 million , respectively , as dividends on the preferred stock . these increases were due to the issuance of series c and series d preferred stock during 2019. comparison of year ended december 31 , 2018 to year ended december 31 , 2017 the following table illustrates the key operating metrics for the years ended december 31 , 2018 and 2017 for our wholly-owned hotels and the hyde resort & residences , during each respective reporting period ( “ composite portfolio ” properties ) , as well as the key operating metrics for the eleven wholly-owned properties that were under our control during all of 2018 ( “ same-store ” properties ) . accordingly , the same-store data does not reflect the performance of the crowne plaza hampton marina , which was sold in february 2017 , the hyatt centric arlington , which was acquired in february 2018 and the hyde resort & residences , which was acquired in january 2017. replace_table_token_14_th revenue . total revenue for the year ended december 31 , 2018 was approximately $ 178.2 million , an increase of approximately $ 23.9 million , or 15.5 % , from total revenue for the year ended december 31 , 2017 of approximately $ 154.3 million . the increase in revenue for the twelve months ended december 31 , 2018 resulted mainly from the acquisition of the hyatt centric arlington , on march 1 , 2018 , which increased revenues by approximately $ 18.1 million . in addition , our interest in the hyde resort & residences condominium hotel , which started operations on january 30 , 2017 , has continued to ramp up and accounted for an increase of approximately $ 2.7 million for the period . there was also a net aggregate increase in revenues of approximately $ 3.1 million for the period from the remaining properties . room revenues at our properties for the year ended december 31 , 2018 increased approximately $ 15.3 million , or 14.4 % , to approximately $ 121.0 million compared to room revenues for the year ended december 31 , 2017 of approximately $ 105.7 million . the increase in room revenue for the twelve months ended december 31 , 2018 resulted mainly from the acquisition of the hyatt centric arlington , on march 1 , 2018 , which increased room revenues by approximately $ 14.8 million . in addition , there was a net aggregate increase in room revenues of approximately $ 0.5 million for the period from the remaining properties . food and beverage revenues at our properties for the year ended december 31 , 2018 increased approximately $ 3.6
| results of operations comparison of year ended december 31 , 2019 to year ended december 31 , 2018 the following table illustrates the key operating metrics for the years ended december 31 , 2019 and 2018 for our wholly-owned hotels and the hyde resort & residences , during each respective reporting period ( “ composite portfolio ” properties ) , as well as the key operating metrics for the eleven wholly-owned properties that were under our control during all of 2019 ( “ same-store ” properties ) . accordingly , the same-store data does not reflect the performance of the hyatt centric arlington , which was acquired in february 2018 and the hyde beach house resort & residences , which was acquired in september 2019. replace_table_token_13_th revenue . total revenue for the year ended december 31 , 2019 was approximately $ 185.8 million , an increase of approximately $ 7.6 million , or 4.3 % , from total revenue for the year ended december 31 , 2018 of approximately $ 178.2 million . the increase in revenue for the twelve months ended december 31 , 2019 resulted mainly from the acquisitions of the hyatt centric arlington , on march 1 , 2018 , which increased revenues by approximately $ 3.2 million and the acquisition of the hyde beach house resort & residences in september 2019 , which increased revenues by approximately $ 1.2 million . in addition , our renovated properties in wilmington , north carolina and savannah , georgia have been benefiting from increased demand and accounted for an aggregate increase of approximately $ 3.1 million for the period . there was also a net aggregate increase in revenues of approximately $ 0.1 million for the period from the remaining properties .
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international revenues as of the end of december 31 , 2017 accounted for 44 % of consolidated revenue for the year ended december 31 , 2017 as compared to 36 % of consolidated revenues for the year ended december 31 , 2016. the increase in consolidated revenues was primarily driven by the growth in the average number of paid streaming memberships globally , the majority of which was growth in our international memberships . average paid international streaming memberships accounted for 49 % of total average paid streaming memberships as of december 31 , 2017 , as compared to 43 % of total average paid streaming memberships as of december 31 , 2016 . the impact from membership growth was coupled with an increase in global streaming average monthly revenue per paying membership resulting from price changes and plan mix . the increase in operating income is due primarily to increased revenues partially offset by increased content expenses as we continue to acquire , license and produce content , including more netflix originals . this increase in content expenses includes a $ 39.1 million expense related to unreleased content that we have abandoned . headcount costs to support continued improvements in our streaming service , our international expansion and increased content production activities also increased . the increase in net income was comprised of an increase in operating income and an increase in the tax benefit primarily due to the adoption of asu 2016-09 in the first quarter of 2017 , partially offset by an increase in interest expense primarily due to the higher principal of notes outstanding and an increase in foreign exchange losses primarily due to the remeasurement of our euro denominated senior notes . we offer three types of streaming membership plans . our `` basic '' plan includes access to standard definition quality streaming on a single screen at a time . our `` standard '' plan is our most popular streaming plan and includes access to high definition quality streaming on two screens concurrently . our `` premium '' plan includes access to high definition and ultra-high definition quality content on four screens concurrently . as of december 31 , 2017 , pricing on our plans ranged in the u.s. from $ 7.99 to $ 13.99 per month and internationally from the u.s. dollar equivalent of approximately $ 4 to $ 20 per month . we expect that from time to time the prices of our membership plans in each country may increase . the following represents the key elements to our segment results of operations : we define contribution profit ( loss ) as revenues less cost of revenues and marketing expenses incurred by the segment . we believe this is an important measure of our operating segment performance as it represents each segment 's performance before global corporate costs . as markets within our international streaming segment become profitable , we increasingly focus on our global operating margin as a measure of profitability . for the domestic and international streaming segments , amortization of the streaming content assets makes up the vast majority of cost of revenues . increasingly , we obtain multi-territory or global rights for our streaming content and allocate these rights between domestic and international streaming segments based on estimated fair market value . expenses associated with the acquisition , licensing and production of streaming content , streaming delivery costs and other operations costs make up the remainder of cost of revenues . we have built our own global content delivery network ( `` open connect '' ) to help us efficiently stream a high volume of content to our members over the internet . streaming delivery expenses , therefore , include equipment costs related to open connect and all third-party costs , such 19 as cloud computing costs , associated with delivering streaming content over the internet . other operations costs include customer service and payment processing fees , including those we pay to our integrated payment partners , as well as other costs incurred in making our content available to members . for the domestic and international streaming segments , marketing expenses consist primarily of advertising expenses and certain payments made to our marketing partners , including consumer electronics manufacturers , mvpd 's , mobile operators and isp 's . advertising expenses include promotional activities such as digital and television advertising . marketing expenses are incurred by our domestic and international streaming segments given our focus on building consumer awareness of the streaming offerings , and in particular our original content . story_separator_special_tag style= '' line-height:120 % ; padding-top:6px ; text-align : left ; text-indent:29px ; font-size:10pt ; '' > in the domestic dvd segment , we derive revenues from our dvd-by-mail membership services . the price per plan for dvd-by-mail varies from $ 4.99 to $ 14.99 per month according to the plan chosen by the member . dvd-by-mail plans differ by the number of dvds that a member may have out at any given point . members electing access to high definition blu-ray discs , in addition to standard definition dvds , pay a surcharge ranging from $ 2 to $ 3 per month for our most popular plans . cost of revenues in the domestic dvd segment consist primarily of delivery expenses such as packaging and postage costs , content expenses , and other expenses associated with our dvd processing and customer service centers . the number of memberships to our dvd-by-mail offering is declining , and we anticipate that this decline will continue . our domestic dvd segment had a contribution margin of 55 % for the year ended december 31 , 2017 , up from 52 % for the year ended december 31 , 2016 due to the decrease in dvd usage by paying members and decreased dvd content expenses . story_separator_special_tag provision for income taxes replace_table_token_14_th year ended december 31 , 2017 as compared to the year ended december 31 , 2016 at the beginning of 2017 , we underwent a corporate restructuring that better aligns our corporate structure with how our business operates . as a result of this restructuring and our increasing international income , there is now significantly more income being taxed at rates lower than the u.s. tax rate . the decrease in our effective tax rate is mainly due to the recognition of excess tax benefits attributable to the adoption of asu 2016-09 and an increase in foreign income taxed at rates lower than the u.s. statutory rate . in 2017 , the difference between our ( 15 ) % effective tax rate and the federal statutory rate of 35 % was $ ( 243.5 ) million primarily due to the recognition of excess tax benefits as a component of the provision for income taxes , an increase in foreign income taxed at rates lower than the u.s. statutory rate and federal and california research and development credits ( “ r & d ” ) , partially offset by state taxes and non-deductible expenses as well as the provisional impact of changes to tax law . on december 22 , 2017 , the tax cuts and jobs act of 2017 ( the “ act ” ) was signed into law making significant changes to the internal revenue code . changes include , but are not limited to , a corporate tax rate decrease from 35 % to 21 % effective for tax years beginning after december 31 , 2017 , the transition of u.s international taxation from a worldwide tax system to a territorial system , and a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings as of december 31 , 2017. we have calculated our best estimate of the impact of the act in our year end income tax provision in accordance with our understanding of the act and guidance available as of the date of this filing and as a result have recorded $ 79.1 million as additional income tax expense in the fourth quarter of 2017 , the period in which the legislation was enacted . the provisional amount related to the remeasurement of certain deferred tax assets and liabilities , based on the rates at which they are expected to reverse in the future , was $ 46.9 million . the provisional amount related to the one-time transition tax on the mandatory deemed repatriation of foreign earnings was $ 32.2 million based on cumulative foreign earnings of $ 484.9 million . we also recorded a $ 66.5 million benefit related to foreign taxes expensed in prior years that may now be claimed as a foreign tax credit . we have determined there is sufficient foreign source income projected to utilize these credits . year ended december 31 , 2016 as compared to the year ended december 31 , 2015 the increase in our effective tax rate is mainly due to a $ 13.4 million release of tax reserves in 2015 and an increase in foreign taxes . in 2016 , the difference between our 28 % effective tax rate and the federal statutory rate of 35 % was $ 17.3 million primarily due to the 2016 federal and california r & d credits partially offset by state income taxes , foreign taxes , and nondeductible expenses . 25 liquidity and capital resources year ended december 31 , 2017 2016 ( in thousands ) cash and cash equivalents and short-term investments $ 2,822,795 $ 1,733,782 long-term debt 6,499,432 3,364,311 cash , cash equivalents and short-term investments increased $ 1,089.0 million in the year ended december 31 , 2017 primarily due to cash received from the issuance of debt partially offset by an increase in cash used in operations . as of december 31 , 2017 , cash and cash equivalents held by our foreign subsidiaries amounted to $ 611.3 million . the tax cut and jobs act of 2017 included a one-time transition tax on unremitted foreign earnings , and accordingly , we recorded tax expense of $ 32.2 million related to the transition tax on the one-time mandatory deemed repatriation of all our foreign earnings as of december 31 , 2017 . see note 9 income taxes in the accompanying 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 information on income taxes . long-term debt , net of debt issuance costs , increased $ 3,135.1 million due to long-term note issuances of 1,300.0 million in may 2017 and $ 1,600.0 million in october 2017. the earliest maturity date for our outstanding long-term debt is february 2021. in july 2017 , we entered into a $ 500.0 million unsecured revolving credit facility ( “ revolving credit agreement ” ) , with an uncommitted incremental facility to increase the amount of the revolving credit facility by up to an additional $ 250.0 million subject to certain terms and conditions . as of december 31 , 2017 , no amounts had been borrowed under the revolving credit agreement . see note 4 long-term debt in the accompanying 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 information about long-term debt . we anticipate financing our capital needs in the debt market , as we believe our after-tax cost of debt is lower than our cost of equity . our ability to obtain any additional financing that we may choose to , or need to , obtain will depend on , among other things , our development efforts , business plans , operating performance and the condition of the capital markets at the time we seek financing . we may not be able to obtain such financing on terms acceptable to us or at all .
| segment results domestic streaming segment replace_table_token_7_th year ended december 31 , 2017 as compared to the year ended december 31 , 2016 in the domestic streaming segment , we derive revenues from monthly membership fees for services consisting solely of streaming content to our members in the united states . the increase in our domestic streaming revenues was due to a 10 % growth in the average number of paid memberships and an 11 % increase in average monthly revenue per paying membership . the increase in average monthly revenue per paying membership resulted from our price changes and plan mix . our standard plan continues to be the most popular plan choice for new memberships . the increase in domestic streaming cost of revenues was primarily due to a $ 419.0 million increase in content amortization relating to our existing and new streaming content , including more exclusive and original programming . in addition , we had a $ 44.4 million increase in other costs , such as payment processing fees and customer service call centers , due to our growing member base . domestic marketing expenses increased primarily due to an increase in advertising and public relations spending as well as increased payments to our partners . in 2018 , we expect marketing spending growth to outpace revenue growth . our domestic streaming segment had a contribution margin of 37 % for the year ended december 31 , 2017 , which increased as compared to the contribution margin of 36 % for the year ended december 31 , 2016 due to growth in paid memberships and revenue , which continued to outpace content spending .
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changes in the fair value of the derivatives that qualify as cash flow hedges are recorded in “ accumulated other comprehensive income ” in the accompanying consolidated balance sheets until earnings are affected by the variability of the cash flows . the company 's malaysian operations have entered into forward exchange contracts on a rolling basis with a total notional value of $ 54.1 million as of september 29 , 2012 . these forward contracts story_separator_special_tag overview plexus corp. and its subsidiaries ( together “ plexus , ” the “ company , ” or “ we ” ) participate in the electronic manufacturing services ( “ ems ” ) industry . we deliver optimized product realization solutions through a unique product realization value stream services model . this customer focused services model seamlessly integrates innovative product conceptualization , design , commercialization , manufacturing , fulfillment and sustaining services to deliver comprehensive end-to-end solutions for customers in the americas ( `` amer '' ) , europe , middle east and africa ( `` emea '' ) and asia-pacific ( `` apac '' ) regions . customer service is provided to over 140 branded product companies in the networking/communications , healthcare/life sciences , industrial/commercial and defense/security/aerospace market sectors . our customers ' products typically require exceptional production and supply-chain flexibility , necessitating an optimized demand-pull-based manufacturing and supply chain solution across an integrated global platform . many of our customers ' products require complex configuration management and direct order fulfillment to their customers across the globe . in such cases we provide global logistics management and after-market service and repair . our customers ' products may have stringent requirements for quality , reliability and regulatory compliance . we offer our customers the ability to outsource all phases of product realization , including product specifications ; development , design and design verification ; regulatory compliance support ; prototyping and new product introduction ; manufacturing test equipment development ; materials sourcing , procurement and supply-chain management ; product assembly/manufacturing , configuration and test ; order fulfillment , logistics and service/repair . we provide most of our contract manufacturing services on a turnkey basis , which means that we procure some or all of the materials required for product assembly . we provide some services on a consignment basis , which means that the customer supplies the necessary materials , and we provide the labor and other services required for product assembly . turnkey services require material procurement and warehousing , in addition to manufacturing , and involve greater resource investments than consignment services . other than certain test equipment and software used for internal operations , we do not design or manufacture our own proprietary products . beginning in fiscal 2013 , we renamed our medical market sector as the healthcare/life sciences market sector . this change stems from our evolving strategy and enhanced capabilities within this market and reflects the industry 's progression to holistic patient care . we believe healthcare/life sciences more accurately defines this growing industry and aligns with our existing and targeted customer base . the following information should be read in conjunction with our consolidated financial statements included herein and “ risk factors ” included in part i , item 1a herein . results of operations story_separator_special_tag this sector . net sales for the industrial/commercial sector increased $ 169.0 million for fiscal 2011 compared to fiscal 2010 . the increase in the sector was a result of the ramp of production for the significant customer noted above . healthcare/life sciences . net sales for the healthcare/life sciences sector increased $ 24.2 million for fiscal 2012 compared to fiscal 2011 . the increase was primarily due to market share gain and new programs with existing customers . net sales for the healthcare/life sciences sector increased $ 70.9 million for fiscal 2011 compared to fiscal 2010 . the increase was due to higher overall end-market demand in the market sector . defense/security/aerospace . net sales for the defense/security/aerospace sector increased $ 34.8 million for fiscal 2012 compared to fiscal 2011 . the increase was primarily due to stronger end-market demand in the aerospace market as well as the addition of a new customer in this sector . net sales for the defense/security/aerospace sector increased $ 48.0 million for fiscal 2011 compared to fiscal 2010 . the increase in the sector was primarily due to increased demand from an existing customer as a result of new program wins and a program ramp for a new customer . 27 the percentages of net sales to customers representing 10 percent or more of net sales and net sales to our ten largest customers for fiscal 2012 , 2011 and 2010 were as follows : replace_table_token_6_th on november 5 , 2012 , juniper notified us that it will disengage with plexus . the specific timing of the transition of the juniper business from plexus is not known at this time , although it is currently expected to occur by the end of fiscal 2013. the company is currently evaluating the financial , operational and other impacts of the disengagement . gross profit . for fiscal 2012 , gross profit increased $ 5.2 million compared to fiscal 2011 primarily due to the net sales increase . the increase was partially offset by increased fixed expenses related to higher headcount to support the revenue growth , costs related to the addition of a fourth facility in penang , malaysia of approximately $ 5.9 million , transition costs due to the kontron arrangement , and an unfavorable change in customer mix . customer mix negatively impacted gross profit due to a higher portion of sales from new programs , which tend to be inherently less profitable during early production stages than mature programs . gross profit was also negatively impacted by escalated pricing pressure , particularly in our networking/communications sector . these factors led to the reduction in gross margin from 9.6 percent for fiscal 2011 to 9.5 percent for fiscal 2012 . story_separator_special_tag accordingly , as of september 29 , 2012 , the company established an additional valuation allowance of $ 20.6 million ( $ 22.8 million provision , offset by $ 2.2 million to other comprehensive income ) against our u.s. deferred tax assets . this was based on the significant negative evidence of the company 's u.s. cumulative loss position and the deterioration of our forecasts late in the fourth quarter of fiscal 2012 for fiscal 2013 , which has impacted forecasted profitability in the near term in the amer region . we currently expect the annual effective tax rate for fiscal 2013 to be approximately 6 to 8 percent . the rate is consistent with the fiscal 2012 rate before the effects of the valuation allowance are taken into account . the company has been granted tax holidays for its malaysian and xiamen , china subsidiaries . these tax holidays expire in 2024 and 2013 , respectively , and are subject to certain conditions with which the company expects to comply . the expiration of the tax holiday in china is not expected to have a material impact on the effective tax rate . however , we can not provide any assurances as to the effect and will continue to monitor the projected impact . in fiscal 2012 , 2011 and 2010 , these subsidiaries generated income , which resulted in tax reductions of approximately $ 17.5 million ( $ 0.50 per basic share ) , $ 21.7 million ( $ 0.57 per basic share ) and $ 23.0 million ( $ 0.58 per basic share ) , respectively . net income . primarily as a result of the valuation allowance adjustment discussed above , net income for fiscal 2012 decreased by $ 27.2 million , or 30.4 percent , to $ 62.1 million from fiscal 2011 . excluding the valuation allowance adjustment , net income was $ 84.9 million , a decrease of $ 4.4 million , or 4.9 percent from fiscal 2011 as a result of higher fixed expenses and increased interest expense , partially offset by the effect of higher net sales . primarily as a result of lower gross margins and increases to income tax expense , net income for fiscal 2011 decreased by $ 0.3 million , or 0.3 percent , to $ 89.3 million from fiscal 2010 . diluted earnings per share . diluted earnings per share decreased to $ 1.75 for fiscal 2012 from $ 2.30 for fiscal 2011 primarily as a result of the valuation allowance adjustment discussed above . excluding the valuation allowance adjustment , diluted earnings per share increased to $ 2.39 for fiscal 2012. the increase in diluted earnings per share excluding the valuation allowance adjustment was primarily due to the effect of a decrease in diluted weighted average shares outstanding as a result of our share repurchases completed late in fiscal 2011 , partially offset by lower net income . diluted earnings per share increased to $ 2.30 for fiscal 2011 from $ 2.19 for fiscal 2010 . the increase in diluted earnings per share was primarily due to the effect of a decrease in diluted weighted average shares outstanding as a result of our share repurchases completed in fiscal 2011 , partially offset by the slight decrease in net income previously noted . return on invested capital ( “ roic ” ) . we use a 5-10-5 financial model which is aligned with our business strategy , and includes a roic goal of 500 basis points over our weighted average cost of capital ( “ wacc ” ) , a 10 % gross margin target and a 5 % operating margin target . our primary focus is our roic goal , which is designed to create shareholder value and generate 29 enough cash to self-fund our targeted organic revenue growth rate of 15 % . we review our internal calculation of wacc annually , and our estimated wacc was 12.5 percent for fiscal 2012. by exercising discipline to generate roic in excess of our wacc , our goal is to create value for our shareholders . roic was 15.5 % ( excluding $ 20.6 million net deferred tax asset reduction ) , 15.6 % and 19.5 % for fiscal 2012 , 2011 and 2010 , respectively . the decrease from fiscal 2011 to fiscal 2012 was due primarily to slightly lower tax-effected annualized operating income as a result of a higher effective tax rate . see the table below for our calculation of roic ( dollars in millions ) : replace_table_token_8_th we define roic as tax-effected annualized operating income divided by average invested capital over a rolling five-quarter period for the fiscal year . invested capital is defined as equity plus debt , less cash and cash equivalents . other companies may not define or calculate roic in the same way . roic is a non-gaap financial measure which should be considered in addition to , not as a substitute for , measures of our financial performance prepared in accordance with united states generally accepted accounting principles ( “ gaap ” ) . non-gaap financial measures , including roic , are used for internal management assessments because such measures provide additional insight into ongoing financial performance . in particular , we provide roic because we believe it offers insight into the metrics that are driving management decisions because we view roic as an important measure in evaluating the efficiency and effectiveness of our long-term capital requirements . we also use a derivative measure of roic as a performance criteria in determining certain elements of compensation . for a reconciliation of roic to our financial statements that were prepared using gaap , see exhibit 99.1 to this annual report on form 10-k , which exhibit is incorporated herein by reference .
| consolidated performance summary the following table presents selected consolidated financial data for fiscal 2012 , 2011 and 2010 ( dollars in millions , except per share data ) : 2012 2011 2010 net sales $ 2,306.7 $ 2,231.2 $ 2,013.4 gross profit 219.9 214.7 206.9 gross margin 9.5 % 9.6 % 10.3 % operating income 104.2 101.2 99.7 operating margin 4.5 % 4.5 % 4.9 % net income 62.1 * 89.3 89.5 earnings per share ( diluted ) $ 1.75 * $ 2.30 $ 2.19 return on invested capital 15.5 % 15.6 % 19.5 % * see note 7 in notes to consolidated financial statements for discussion regarding the fiscal 2012 valuation allowance for deferred tax assets on page 56. net sales . net sales for fiscal 2012 increased $ 75.5 million , or 3.4 percent , as compared to fiscal 2011 . the net sales increase 26 resulted from higher net sales in all of our market sectors , except for a decrease in the networking/communications sector . the net sales increase primarily related to the continued ramp of production for a significant industrial/commercial sector customer and $ 81.9 million of incremental revenue from the previously announced strategic arrangement with kontron ( the `` kontron arrangement '' ) , as well as program ramps from several other existing customers . these increases in net sales were partially offset by decreased sales in the networking/communications sector due to lower end-market demand and the two previously announced customer disengagements due to the acquisition of such customers . see below regarding an intended disengagement by juniper , our largest customer . net sales for fiscal 2011 increased $ 217.8 million , or 10.8 percent , as compared to fiscal 2010 .
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fasb amended asc 740 - 10 - 15 - 4 ( a ) to state that an entity should include the amount of tax based on income in the tax provision and should record any incremental amount recorded as a tax not based on income . this amendment effectively reverses the order in which an entity determines the type of tax under current u.s. gaap . the company does not have a hybrid tax regime currently . fasb also removed the previous guidance that prohibit recognition of a deferred tax asset for a step up in tax basis “ except to the extent that the newly deductible goodwill amount exceeds the remaining balance of book goodwill . ” instead , the amended guidance contains a model under which an entity can consider a list of factors in determining whether the step-up in tax basis is related to the business combination that caused the initial recognition of goodwill or to a separate transaction . the company does not have a step up in tax basis for goodwill . asu 2019 - 12 also modified intra-period tax allocation exception to incremental approach . as per the modification , an entity should determine the tax effect of income from continuing operations without considering the tax effect of items that are not included in continuing operations , such as discontinued operations or other comprehensive income . the company does not believe this to have material impact on their consolidated financial statements . the asu also makes one minor improvements to the codification topics . tax benefit of tax-deductible dividends on allocated and unallocated employee stock ownership plan shares shall be recognized in the income statement . fasb decided to change the phrase “ recognized in the income statement ” to “ recognized in income taxes allocated to continuing operations ” to clarify where income tax benefits related to tax-deductible dividends should be presented in the income statement . this improvement is not expected to have material impact on the company . the above amendments are effective for fiscal years beginning after december 15 , 2020. in august 2018 , the financial accounting standards board ( `` fasb `` ) issued accounting standards update ( `` asu `` ) 2018 - 14 , compensation-retirement benefits-defined benefit plans-general ( subtopic 715 - 20 ) : disclosure framework - changes to the disclosure requirements for defined benefit plans ( “ asu 2018 - 14 ” ) . the amendment makes minor changes to the disclosure requirements for employers that sponsor defined benefit pension and or other post retirement benefit plans . the new guidance eliminates requirements for certain disclosures that are no longer considered cost beneficial and requires new ones that the fasb considers pertinent . asu no . 2018 - 14 is effective for fiscal years ending after december 15 , 2020. the company has evaluated the impact of this asu and found that to be immaterial . in june 2016 , fasb issued asu 2016 - 13 , financial instruments - credit losses ( topic 326 ) ( `` asu 2016 - 13 `` ) , measurement of credit losses on financial instruments . the standard significantly changes how entities will measure credit losses for most financial assets and certain other instruments that are n't measured at fair value through net income . the standard will replace today 's `` incurred loss `` approach with an `` expected loss `` model for instruments measured at amortized cost . for available for-sale debt securities , entities will be required to record allowances rather than reduce the carrying amount , as they do today under the other-than-temporary impairment model . it also simplifies the accounting model for purchased credit impaired debt securities and loans . this asu is effective for annual periods beginning after december 15 , 2022 , and interim periods therein for smaller reporting companies . we do not expect the adoption of asu 2016 - 13 will have a material impact on our consolidated financial statements . in march 2020 , the fasb issued asu no . 2020 - 04 , “ facilitation of the effects of reference rate reform on financial reporting . ” this asu provides temporary optional expedients and exceptions to the guidance in us gaap on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the london interbank offered rate ( “ libor ” ) and other interbank offered rates to alternative reference rates , such as the secured overnight financing rate ( “ sofr ” ) . entities can elect not to apply certain modification accounting requirements to contracts affected by what the guidance calls reference rate reform , if certain criteria are met . an entity that makes this election would not have to remeasure the contracts at the modification date or reassess a previous accounting determination . the guidance is effective upon issuance and generally can be applied through december 31 , 2022. the company is still in the process of assessing the optional adoption of this asu . 37 3. goodwill and intangible assets goodwill the carrying value of goodwill is allocated to reporting units is as follows : replace_table_token_10_th we perform a goodwill impairment analysis at least annually ( in the fourth quarter of each year ) unless indicators of impairment exist in interim periods . the goodwill was allocated to the reporting units using a relative fair value allocation approach . we performed a quantitative assessment to determine if the fair value of each of our reporting units with goodwill exceeded its carrying value . story_separator_special_tag , a subsidiary of the company , participated in this transaction by contributing a total of $ 30 million in a limited partnership managed by csp to acquire both an indirect beneficial interest of approximately 26 % in css , as well as an option to acquire a controlling stake which is currently not exercisable . the option to acquire a majority stake in css is at the sole discretion of startek , and the company has no obligation to do so . 19 results of operations — years ended december 31 , 2020 and 2019 revenue our gross revenues for the years ended december 31 , 2020 decreased by 2.6 % to $ 641,844 as compared to $ 659,205 for the year ended december 31 , 2019. our net revenue for the years ended december 31 , 2020 and 2019 : replace_table_token_2_th our net revenues adjusted for warrant contra revenue for the year ended december 31 , 2020 was lower at $ 640,222 compared to $ 657,910 for the year ended december 31 , 2019. lower net revenues were largely a result of adverse movement in foreign currencies relative to us dollar . the temporary supply side shocks faced across various geographies that the company operates in during the onset of the pandemic during the first half of 2020 was offset by the rebound in the second half of 2020 as the restrictions began to ease . the breakdown of our net revenues from various industry verticals for years ended december 31 , 2020 and 2019 is as follows : replace_table_token_3_th 20 our concentration to telecom revenue decreased to 34 % of our revenue for the year ended december 31 , 2020 as compared to 38 % for the year ended december 31 , 2019. the volumes in the telecom vertical during 2020 remained strong . telecommunication was one of the key essential services during the pandemic leading to strong underlying demand . the decrease in revenues is largely driven by company 's decision to not renew the contract with a government-owned telecom client and partially also due to depreciation of certain currencies relative to the us dollar . the company has partially offset this contraction in revenue percentage from telecom vertical with expansion in revenues from other verticals . while our net revenues for the year ended december 31 , 2020 were negatively impacted by covid-19 , primarily due to lockdowns and lower active workforce , the company did see improvement in the second half of the year as countries and states began to gradually re-open . cost of services and gross profit overall , cost of services as a percentage of revenue increased to 86 % for the year ended december 31 , 2020 as compared to 83.1 % for the year ended december 31 , 2019. employee expenses , rent costs and depreciation and amortization are the most significant costs for the company , representing 75.5 % , 5.7 % and 4.1 % of total cost of services , respectively . the breakdown of cost of services is listed in the table below : replace_table_token_4_th employee expenses : our business heavily relies on our employees to provide professional services to our clients . thus , our most significant costs are payments made to agents , supervisors , and trainers who are directly involved in delivering services to the clients . employee expenses as a percentage of revenues increased to 64.9 % for the current period as compared to 63.5 % for the previous period . the increase in employee costs , as a percentage of revenues , was largely attributable to deleveraging resulting from covid 19 negative impact on revenues . the company also had to incur higher costs on ensuring employees had a safe and secure work environment and following all the protocols and guidelines issued by various local authorities across the geographies we operate in . on a year on year basis , the costs were also impacted negatively by increase in minimum wages , primarily in india . rent expense : rent expense as a percentage of revenue increased to 4.9 % for the current period as compared to 4.6 % for previous period . rent expense increased as a percentage of sales driven by deleveraging resulting from the covid-19 negative impact on revenues . depreciation and amortization : depreciation and amortization expense as a percentage of revenue for the current period was marginally higher at 3.5 % as compared 3.3 % for the previous period . other expense includes technology , utility , travel and outsourcing costs . as a percentage of revenue , these costs marginally increased from 11.8 % to 12.7 % . the increase was due to higher outsourcing expenses , communication expenses , insurance and rates and taxes which was partly offset by lower traveling and recruitment expenses . as a result , gross profit as a percentage of revenue for the current period decreased to 14 % as compared to 16.9 % for the previous period . selling , general and administrative expenses selling , general and administrative expenses ( sg & a ) as a percentage of revenue decreased from 13.9 % in the previous year to 9.7 % in the current year . the decrease was partly due to full year impact of cost rationalization steps taken during the previous year and partly due to lower travel , recruitment , and outsourcing expenses in the current fiscal year . 21 impairment losses and restructuring charges , net impairment losses and restructuring costs , net totaled $ 37,799 for the current year as compared to $ 9,827 for the previous year .
| variability of operating results we have experienced and expect to continue to experience some quarterly variations in revenue and operating results due to a variety of factors , many of which are outside our control , including : ( i ) timing and amount of costs incurred to expand capacity in order to provide for volume growth from existing and future clients ; ( ii ) changes in the volume of services provided to principal clients ; ( iii ) expiration or termination of client projects or contracts ; ( iv ) timing of existing and future client product launches or service offerings ; ( v ) seasonal nature of certain clients ' businesses ; and ( vi ) variability in demand for our services by our clients depending on demand for their products or services and or depending on our performance . 23 critical accounting policies and estimates in preparing our consolidated financial statements in conformity with us-gaap , management must undertake decisions that impact the reported amounts and related disclosures . such decisions include the selection of the appropriate accounting principles to be applied and assumptions upon which accounting estimates are based . management applies its best judgment based on its understanding and analysis of the relevant circumstances to reach these decisions . by their nature , these judgments are subject to an inherent degree of uncertainty . accordingly , actual results may vary significantly from the estimates we have applied . please refer to note 2 , `` summary of significant accounting policies '' of the notes to the consolidated financial statements included in item 8 for a complete description of our critical accounting policies and
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level 2 securities include certificates of deposit , commercial paper and corporate notes that use as their basis readily observable market parameters . the company did not transfer any assets between level 2 and level 1 during the years ended december 31 , 2017 and 2016 . 74 the company held certain assets that are required to be measured at fair value on a recurring basis as of december 31 , 2017 , as follows : replace_table_token_26_th total assets measured at fair story_separator_special_tag included in this annual report on form 10-k. replace_table_token_3_th replace_table_token_4_th ( 1 ) net income for the year ended december 31 , 2014 includes a gain on arbitration settlement of $ 77.6 million , or $ 2.23 and $ 2.12 per basic and diluted share , respectively . 46 item 7. manag ement 's discussion and analysis of financial condition and results of operations you should read the following discussion and analysis of our financial condition and results of operations together with selected consolidated financial data and our consolidated financial statements and related notes appearing 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 include historical information and other information with respect to our plans and strategy for our business and contain forward-looking statements that involve risks , uncertainties and assumptions . our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors , including but not limited to those set forth under the risk factors section of this report and elsewhere in this annual report on form 10-k. overview vanda pharmaceuticals inc. ( we , our or vanda ) is a global biopharmaceutical company focused on the development and commercialization of innovative therapies to address high unmet medical needs and improve the lives of patients . we commenced operations in 2003 and our product portfolio includes : hetlioz ® ( tasimelteon ) , a product for the treatment of non-24-hour sleep-wake disorder ( non-24 ) , was approved by the u.s. food and drug administration ( fda ) in january 2014 and launched commercially in the u.s. in april 2014. in july 2015 , the european commission ( ec ) granted centralized marketing authorization with unified labeling for hetlioz ® for the treatment of non-24 in totally blind adults . hetlioz ® was commercially launched in germany in august 2016. hetlioz ® has potential utility in a number of other circadian rhythm disorders and is presently in clinical development for the treatment of pediatric non-24 , jet lag disorder and smith-magenis syndrome ( sms ) . fanapt ® ( iloperidone ) , a product for the treatment of schizophrenia , the oral formulation of which was approved by the fda in may 2009 and launched commercially in the u.s. by novartis pharma ag ( novartis ) in january of 2010. novartis transferred all the u.s. and canadian commercial rights to the fanapt ® franchise to us on december 31 , 2014. additionally , our distribution partners launched fanapt ® in israel and mexico in 2014. fanapt ® has potential utility in a number of other disorders . an assessment of new fanapt ® clinical opportunities is ongoing . tradipitant ( vly-686 ) , a small molecule neurokinin-1 receptor ( nk-1r ) antagonist , which is presently in clinical development for the treatment of chronic pruritus in atopic dermatitis and the treatment of gastroparesis . vtr-297 ( formerly trichostatin a ) , a small molecule histone deacetylase ( hdac ) inhibitor . vqw-765 ( formerly aqw-051 ) , a phase ii alpha-7 nicotinic acetylcholine receptor partial agonist . portfolio of cystic fibrosis transmembrane conductance regulator ( cftr ) activators and inhibitors . operational highlights tradipitant a tradipitant for atopic dermatitis phase iii clinical study is expected to begin in the first half of 2018. a tradipitant clinical study for the treatment of gastroparesis is ongoing . results are expected by the end of 2018. hetlioz ® hetlioz ® studies for the treatment of jet lag disorder ( 2102 and 3107 ) have each completed enrollment . results from the jet lag disorder clinical program are expected in the first quarter of 2018. enrollment in a pharmacokinetic study of the hetlioz ® pediatric liquid formulation was completed in the fourth quarter of 2017. enrollment in the sms clinical study is ongoing . results are expected by the end of 2018. vtr-297 ( histone deactetylase ( hdac ) inhibitor ) a vtr-297 phase i study ( 1101 ) in patients with hematologic malignancies is expected to start in the second half of 2018. cash , cash equivalents and marketable securities ( cash ) were $ 143.4 million as of december 31 , 2017 , representing an increase to cash of $ 2.1 million during 2017. since we began operations in march 2003 , we have devoted substantially all of our resources to the in-licensing , clinical development and commercialization of our products . our ability to generate meaningful product sales and achieve profitability largely depends on our level of success in commercializing hetlioz ® and fanapt ® in the u.s. and europe , on our ability , alone or with others , to complete the development of our products , and to obtain the regulatory approvals for and to manufacture , market and sell our products . the results of our operations will vary significantly from year-to-year and quarter-to-quarter and depend on a number of factors , including risks related to our business , risks related to our industry , and other risks which are detailed in risk factors reported in item 1a of part i of this annual report on form 10-k. as described in part i , item 3 , legal proceedings , of this annual report on form 10-k , we have initiated lawsuits to enforce our patent rights against certain generic pharmaceutical companies . story_separator_special_tag estimates for expected medicare part d coverage gap are based in part on historical activity and , where available , actual and pending prescriptions for which we have validated the insurance benefits . funding of the coverage gap is generally invoiced and paid in arrears so that the accrual balance consists of an estimate of the amount expected to be incurred for the current quarter 's activity , plus an accrual balance for known prior quarter activity . if actual future funding varies from estimates , we may need to adjust accruals , which would affect net sales in the period of adjustment . 48 service fees : we incur specialty pharmacy fees and wholesaler fees for services and their data . these fees are based on contracted terms and are known amounts . we accrue service fees at the time of revenue recognition , resulting in a reduction of product sales and the recognition of an accrued liability , unless it receives an identifiable and separate benefit for the consideration and it can reasonably estimate the fair value of the benefit received . in which case , service fees are recorded as selling , general and administrative expense . co-payment assistance : patients who have commercial insurance and meet certain eligibility requirements may receive co-payment assistance . co-pay assistance utilization is based on information provided by our third-party administrator . the allowance for co-pay assistance is based on actual sales and an estimate for pending sales based on either historical activity or pending sales for which we have validated the insurance benefits . product returns : consistent with industry practice , we generally offer direct customers a limited right to return as defined within our returns policy . we consider several factors in the estimation process , including historical return activity , expiration dates of product shipped to specialty pharmacies , inventory levels within the distribution channel , product shelf life , prescription trends and other relevant factors . the following table summarizes sales discounts and allowance activity as of and for the years ended december 31 , 2017 , 2016 and 2015 : replace_table_token_5_th the provision for rebates and chargebacks of $ 53.4 million and $ 56.1 million for the years ended december 31 , 2017 and 2016 , respectively , primarily represents medicaid rebates and contracted rebate programs applicable to sales of fanapt ® . the provision for discounts , returns and other of $ 23.8 million and $ 19.5 for the years ended december 31 , 2017 and 2016 , respectively , primarily represents wholesaler distribution fees applicable to sales of fanapt ® and , to a lesser extent , product returns of fanapt ® in the normal course of business , as well as co-pay assistance costs and prompt pay discounts applicable to the sales of both hetlioz ® and fanapt ® . stock-based compensation . compensation costs for all stock-based awards to employees and directors are measured based on the grant date fair value of those awards and recognized over the period during which the employee or director is required to perform service in exchange for the award . we use the black-scholes-merton option pricing model to determine the fair value of stock options . the determination of the fair value of stock options on the date of grant using an option pricing model is affected by our stock price as well as assumptions regarding a number of complex and subjective variables . these variables include the expected stock price volatility over the expected term of the awards , actual and projected employee stock option exercise behaviors , risk-free interest rate and expected dividends . expected volatility rates are based on the historical volatility of our publicly traded common stock and other factors . the risk-free interest rates are based on the u.s. treasury yield for a period consistent with the expected term of the option in effect at the time of the grant . we have not paid dividends to our stockholders since our inception ( other than a dividend of preferred share purchase rights which was declared in september 2008 ) and do not plan to pay dividends in the foreseeable future . as stock-based compensation expense recognized in the consolidated statements of operations is based on awards ultimately expected to vest , it has been reduced for estimated forfeitures . forfeitures are estimated at the time of grant and revised , if necessary , in subsequent periods if actual forfeitures differ from those estimates . 49 research and development expenses . research and development expenses consist primarily of fees for services provided by third parties in connection with the clinical trials , costs of contract manufacturing services for clinical trial use , milestone payments made under licensing agreements prior to regulatory approval , costs of materials used in clinical trials and research and development , costs for regulatory consultants and filings , depreciation of capital resources used to develop products , related facilities costs , and salaries , other employee-related costs and stock-based compensation for research and development personnel . we expense research and development costs as they are incurred for products in the development stage , including manufacturing costs and milestone payments made under license agreements prior to fda approval . upon and subsequent to fda approval , manufacturing and milestone payments made under license agreements are capitalized . milestone payments are accrued when it is deemed probable that the milestone event will be achieved . costs related to the acquisition of intellectual property are expensed as incurred if the underlying technology is developed in connection with our research and development efforts and has no alternative future use . clinical trials are inherently complex , often involve multiple service providers , and can include payments made to investigator physicians at study sites . because billing for services often lags delivery of service by a substantial amount of time , we often are required to estimate a significant portion of our accrued clinical expenses .
| results of operations we anticipate that our results of operations will fluctuate for the foreseeable future due to several factors , including our and our partners ' ability to successfully commercialize our products , any possible payments made or received pursuant to license or collaboration agreements , progress of our research and development efforts , the timing and outcome of clinical trials and related possible regulatory approvals . since our inception , we have incurred significant losses resulting in an accumulated deficit of $ 361.4 million as of december 31 , 2017. our total stockholders ' equity was $ 131.4 million as of december 31 , 2017. year ended december 31 , 2017 compared to year ended december 31 , 2016 revenues . total revenues increased by $ 19.1 million , or 13 % , to $ 165.1 million for the year ended december 31 , 2017 compared to $ 146.0 million for the year ended december 31 , 2016. during the years ended december 31 , 2017 and 2016 , revenues consisted of the following : replace_table_token_6_th hetlioz ® product sales increased by $ 18.3 million , or 26 % , to $ 90.0 million for the year ended december 31 , 2017 compared to $ 71.7 million for the year ended december 31 , 2016. the increase to net product sales was attributable to an increase in volume and , to a lesser extent , an increase to price net of deductions . fanapt ® product sales increased by $ 0.8 million , or 1 % , to $ 75.1 million for the year ended december 31 , 2017 compared to $ 74.3 million for the year ended december 31 , 2016. the increase to net product sales was attributable to an increase in price net of deductions and partially offset by a decrease in volume . cost of goods sold .
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we adjust our net asset value for the changes in the value of our publicly held securities , if applicable , and material changes in the value of private securities , generally determined on a quarterly basis or as announced in a story_separator_special_tag overview equus is a bdc that provides financing solutions for privately held middle market and small capitalization companies . we began operations in 1983 and have been a publicly traded closed-end fund since 1991. our investment objective is to seek the highest total return , consisting of capital appreciation and current income . consistent with our announced intention to transform equus into an operating company or a permanent capital vehicle , on january 20 , 2021 , our shareholders authorized our board to withdraw our bdc election at any time before august 31 , 2021. nevertheless , we will not withdraw this election unless and until we have entered into a definitive agreement to convert equus into an operating company or a permanent capital vehicle . further , we will require a subsequent affirmative vote from holders of a majority of our outstanding voting shares to enter into any such definitive agreement or change the nature of our business . see significant developments – authorization to withdraw bdc election above . as a bdc , we are required to comply with certain regulatory requirements . for instance , we generally have to invest at least 70 % of the fund 's total assets in “ qualifying assets , ” including securities of private u.s. companies , certain public u.s. companies with a total market capitalization not in excess of $ 250 million , cash , cash equivalents , u.s. government securities and short-term high-quality debt investments . equus is a ric under subchapter m of the code . to qualify as a ric , we must meet certain source of income and asset diversification requirements . if we comply with the provisions of subchapter m , the fund generally does not have to pay corporate-level income taxes on any income that is distributed to our stockholders . investment income . we generate investment income from interest payable on the debt securities that the fund holds , dividends received on equity interests in our portfolio companies and capital gains , if any , realized upon sales of equity and , to a lesser extent , debt securities in the investment portfolio . our equity investments may include shares of common and preferred stock , membership interests in limited liability companies and warrants to purchase additional equity interests . these equity securities may or may not pay dividends , and the exercise prices of warrants that we acquire in connection with debt investments , if any , vary by investment . our debt investments in portfolio companies may be in the form of senior or subordinated loans and may be unsecured or have a first or second lien on some or all of the assets of the borrower . our loans typically have a term of three to seven years and bear interest at fixed or floating rates . interest on these debt securities is generally payable either quarterly or semiannually . some promissory notes held by the fund provide that a portfolio company may elect to pay interest in cash or provide that discount interest may accrete in the form of original issue discount or payment-in-kind ( pik ) over the life of the notes by adding unpaid interest amounts to the principal balance . amortization of principal on our debt investments is generally deferred for several years from the date of initial investment . the principal amount of these debt securities and any accrued but unpaid interest generally will become due at maturity . we also earn interest income at market rates on investments in short-term marketable securities . from time to time , we generate income in the form of commitment , origination , structuring , and extension fees in connection with our investments . we recognize all such fees when earned . expenses . currently , our primary operating expenses include director fees and expenses , professional fees , compensation expense , and general and administrative fees . during 2020 , 2019 and 2018 , we did not incur any non-recurring expenses . non-operating subsidiary . we have established equus total return ( canada ) inc. as a wholly-owned subsidiary to facilitate payments to canadian personnel and contractors who provide services to the fund . we consider equus total return ( canada ) inc. a disregarded entity for accounting purposes , inasmuch as it does not have active operations . operating activities . we use cash to make new investments and follow-on investments in our existing portfolio companies . we record these investments at cost on the applicable trade date . realized gains or losses are computed using the specific identification method . on an ongoing basis , we carry our investments in our financial statements at fair value , as determined by our board of directors . see “ critical accounting policies – valuation of investments ” below . as of december 31 , 2020 , we had invested 11.9 % of our assets in securities of portfolio companies that constituted qualifying investments under the 1940 act . at that time , we had invested 100 % in membership interests in limited liability companies . commitments . under certain circumstances , we make follow-on investments in some of our portfolio companies . as of december 31 , 2020 , we had no outstanding commitments to our portfolio company investments . 24 financing activities . from time to time , we use leverage to finance a portion of our investments . we then repay such debt from the sale of portfolio securities . story_separator_special_tag with respect to investments for which market quotations are not readily available or when such market quotations are deemed not to represent fair value , our board has approved a multi-step valuation process each quarter , as described below : 1. each portfolio company or investment is reviewed by our investment professionals ; 2. with respect to investments with a fair value exceeding $ 2.5 million that have been held for more than one year , we engage independent valuation firms to assist our investment professionals . these independent valuation firms conduct independent valuations and make their own independent assessments ; 3. our management produces a report that summarized each of our portfolio investments and recommends a fair value of each such investment as of the date of the report ; 4. the audit committee of our board reviews and discusses the preliminary valuation of our portfolio investments as recommended by management in their report and any reports or recommendations of the independent valuation firms , and then approves and recommends the fair values of our investments so determined to our board for final approval ; and 5. the board discusses valuations and determines the fair value of each portfolio investment in good faith based on the input of our management , the respective independent valuation firm , as applicable , and the audit committee . during the first twelve months after an investment is made , we rely on the original investment amount to determine the fair value unless significant developments have occurred during this twelve-month period which would indicate a material effect on the portfolio company ( such as results of operations or changes in general market conditions ) . investments are valued utilizing a yield analysis , enterprise value ( “ ev ” ) analysis , net asset value analysis , liquidation analysis , discounted cash flow analysis , or a combination of methods , as appropriate . the yield analysis uses loan spreads and other relevant information implied by market data involving identical or comparable assets or liabilities . under the ev analysis , the ev of a portfolio company is first determined and allocated over the portfolio company 's securities in order of their preference relative to one another ( i.e. , “ waterfall ” allocation ) . to determine the ev , we typically use a market multiples approach that considers relevant and applicable market trading data of guideline public companies , transaction metrics from precedent m & a transactions and or a discounted cash flow analysis . the net asset value analysis is used to derive a value of an underlying investment ( such as real estate property ) by dividing a relevant earnings stream by an appropriate capitalization rate . for this purpose , we consider capitalization rates for similar enterprises as may be obtained from guideline public companies and or relevant transactions . the liquidation analysis is intended to approximate the net recovery value of an investment based on , among other things , assumptions regarding liquidation proceeds based on a hypothetical liquidation of a portfolio company 's assets . the discounted cash flow analysis uses valuation techniques to convert future cash flows or earnings to a range of fair values from which a single estimate may be derived utilizing an appropriate discount rate . the measurement is based on the net present value indicated by current market expectations about those future amounts . in applying these methodologies , additional factors that we consider in fair value pricing our investments may include , as we deem relevant : security covenants , call protection provisions , and information rights ; the nature and realizable value of any collateral ; the portfolio company 's ability to make payments ; the principal markets in which the portfolio company does business ; publicly available financial ratios of peer companies ; the principal market ; and enterprise values , among other factors . also , any failure by a portfolio company to achieve its business plan or obtain and maintain its financing arrangements could result in increased volatility and result in a significant and rapid change in its value . our general intent is to hold our loans to maturity when appraising our privately held debt investments . as such , we believe that the fair value will not exceed the cost of the investment . however , in addition to the previously described analysis involving allocation of value to the debt instrument , we perform a yield analysis assuming a hypothetical current sale of the security to determine if a debt security has been impaired . the yield analysis considers changes in interest rates and changes in leverage levels of the portfolio company as compared to the market interest rates and leverage levels . assuming the credit quality of the portfolio company remains stable , the fund will use the value determined by the yield analysis as the fair value for that security if less than the cost of the investment . we will record unrealized depreciation on investments when we determine that the fair value of a security is less than its cost basis and will record unrealized appreciation when we determine that the fair value is greater than its cost basis . 26 because of the inherent uncertainty of the valuation of portfolio securities which do not have readily ascertainable market values , amounting to $ 7.0 million and $ 37.0 million as of december 31 , 2020 and 2019 , respectively , our fair value determinations may materially differ from the values that would have been used had a ready market existed for the securities . as of december 31 , 2019 , one of our portfolio investments , mvc capital , inc. , was publicly listed on the nyse with 563,894 common shares . in the fourth quarter of 2020 , we disposed of these shares , together with additional shares of mvc that were received as dividends during the first three quarters of that year .
| results of operations investment income and expense year ended december 31 , 2020 as compared to year ended december 31 , 2019 total income from portfolio securities was comparable from 2019 to 2020 , and were $ 0.3 million respectively . compensation expense in 2019 was $ 1.7 million . compensation expense in 2020 totaled $ 3.1 million , an increase of $ 1.4 million . this amount included bonus accruals of $ 990,000 , which amount will be paid out over the next three fiscal years . the difference in compensation expense from 2019 to 2020 was a result of bonuses earned in connection with dispositions of certain of the fund 's portfolio investments in 2020. professional fees increased to $ 1.1 million in 2020 from $ 1.0 million in 2019 , primarily due to an increase in consulting and legal fees . general and administrative expenses were comparable from 2019 to 2020 , and were $ 0.2 million respectively . as a result of the factors described above , net investment loss after expenses was $ 4.9 million for 2020 as compared to a net investment loss of $ 3.4 million in 2019. year ended december 31 , 2019 as compared to year ended december 31 , 2018 total income from portfolio securities decreased $ 0.1 million in 2019 due to the decrease in interest-bearing investments . compensation expense was comparable from 2018 to 2019 , and was $ 1.7 million in each year . professional fees decreased to $ 1.0 million in 2019 from $ 1.3 million in 2018 , primarily due to a decline in consulting and legal fees . general and administrative expenses were comparable from 2018 to 2019 , and were $ 0.5 million and $ 0.4 million , respectively .
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our net income was $ 348.1 million , or $ 3.07 per diluted share , in 2014 , compared to $ 424.4 million , or $ 3.81 per diluted share , in 2013 , and $ 750.3 million , or $ 6.75 per diluted share , in 2012 . net income in 2012 included an income tax benefit of $ 335.8 million , primarily attributable to the release of substantially all of the valuation allowance against our deferred tax assets . refer to `` results of operations '' below for further details of our financial results . we currently have three marketed products : eylea ( aflibercept ) injection . we commenced sales of eylea for the treatment of wet amd in november 2011 , for the treatment of macular edema following crvo in september 2012 , and for the treatment of dme in july 2014 , following receipt of regulatory approval in the united states . in addition , in october 2014 , the fda approved eylea for the treatment of macular edema following rvo , which includes macular edema following brvo . bayer healthcare commenced sales of eylea for the treatment of wet amd in the fourth quarter of 2012 and for the treatment of macular edema secondary to crvo in the fourth quarter of 2013 following receipt of regulatory approvals outside the united states . in addition , bayer healthcare commenced sales of eylea for the treatment of visual impairment due to dme in the third quarter of 2014 following receipt of regulatory approval in the eu . in september 2014 , the japanese mhlw approved eylea for mcnv . bayer healthcare has additional regulatory applications for eylea for the treatment of wet amd , macular edema secondary to crvo , and dme pending in other countries . in addition , bayer healthcare has submitted applications to the ema and mhlw seeking marketing authorization in the eu and japan , respectively , for eylea for the treatment of macular edema following brvo . in september 2014 , based on data from the vivid-dme and vista-dme trials , the fda granted eylea breakthrough therapy designation for the treatment of diabetic retinopathy in patients with dme . in november 2014 , the fda accepted for priority review the sbla for eylea for the treatment of diabetic retinopathy in patients with dme , with a target action date of march 30 , 2015. we are collaborating with bayer healthcare on the global development and commercialization of eylea outside the united states . bayer healthcare markets , and records revenue from sales of , eylea outside the united states , where , for countries other than japan , the companies share equally the profits and losses from sales of eylea . in japan , we are entitled to receive a percentage of the sales of eylea . we maintain exclusive rights to eylea in the united states and are entitled to all profits from such sales . net product sales of eylea in the united states were $ 1,736.4 million in 2014 , $ 1,408.7 million in 2013 , and $ 837.9 million in 2012 . bayer healthcare records revenue from sales of eylea outside the united states . eylea net product sales outside of the united states were $ 1,038.5 million in 2014 , $ 472.1 million in 2013 , and $ 19.0 million in 2012. zaltrap ( ziv-aflibercept ) injection for intravenous infusion . we and sanofi globally collaborate on the development and commercialization of zaltrap , and share profits and losses from commercialization of zaltrap , except for japan , where we are entitled to receive a percentage of the sales of zaltrap . zaltrap net product sales , which are recorded by sanofi , commenced in the united states in august 2012 and in europe in the first quarter of 2013 , and were $ 91.4 million in 2014 , $ 70.2 million in 2013 , and $ 31.7 million in 2012. regulatory applications for marketing authorization of zaltrap for the treatment of previously treated mcrc patients in other countries have also been submitted and are currently under review by the respective regulatory agencies . arcalyst ( rilonacept ) injection for subcutaneous use . arcalyst is available in the united states for the treatment of caps in adults and children 12 years and older . caps are a group of rare , inherited , auto-inflammatory conditions characterized by life-long , recurrent symptoms of rash , fever/chills , joint pain , eye redness/pain , and fatigue . intermittent , disruptive exacerbations or flares can be triggered at any time by exposure to cooling temperatures , stress , exercise , or 52 other unknown stimuli . net product sales of arcalyst were $ 14.4 million in 2014 , $ 17.1 million in 2013 , and $ 20.2 million in 2012 . developing and commercializing new medicines entails significant risk and expense . before significant revenues from the commercialization of our antibody candidates or new indications for our marketed products can be realized , we ( or our collaborators ) must overcome a number of hurdles which include successfully completing research and development and obtaining regulatory approval from the fda and regulatory authorities in other countries . in addition , the biotechnology and pharmaceutical industries are rapidly evolving and highly competitive , and new developments may render our products and technologies uncompetitive or obsolete . our ability to continue to generate profits and to generate positive cash flow from operations over the next several years depends significantly on our continued success in commercializing eylea . we expect to continue to incur substantial expenses related to our research and development activities , a significant portion of which we expect to be reimbursed by our collaborators . also , our research and development activities outside our collaborations , the costs of which are not reimbursed , will expand and require additional resources . story_separator_special_tag edema following brvo fda decision on sbla for diabetic retinopathy in patients with dme reported positive two-year results from the phase 3 vista-dme and vivid-dme studies bayer healthcare reported positive results from the vivid-japan study received positive week 52 results from the phase 3 brvo vibrant study reported positive results from the phase 3 sight study in wet amd in china bayer healthcare submitted regulatory applications seeking marketing authorization in the eu and japan for eylea for the treatment of macular edema following brvo fda approved eylea for the treatment of dme bayer healthcare received regulatory approval for eylea in the eu for the treatment of visual impairment due to dme received breakthrough therapy designation from the fda for the treatment of diabetic retinopathy in patients with dme bayer healthcare received regulatory approval for mcnv and dme in japan fda approved eylea for the treatment of macular edema following rvo ( including macular edema following brvo ) fda accepted for priority review sbla for diabetic retinopathy in patients with dme bayer healthcare submitted application in china for regulatory approval for the treatment of wet amd chmp recommended eylea for approval for the treatment of macular edema secondary to brvo zaltrap sanofi received regulatory approval in additional countries for zaltrap for patients with mcrc that is resistant to or has progressed following an oxaliplatin-containing regimen regulatory agency decisions outside the united states on additional applications for zaltrap in the treatment of previously treated mcrc patients 55 antibody-based clinical programs : replace_table_token_6_th 56 replace_table_token_7_th critical accounting policies and use of estimates a summary of the significant accounting policies that impact us is provided in note 2 to our consolidated financial statements . the preparation of financial statements in accordance with accounting principles generally accepted in the united states of america ( gaap ) requires management to make estimates and assumptions that affect reported amounts and related disclosures in the financial statements . management considers an accounting estimate to be critical if : it requires an assumption ( or assumptions ) regarding a future outcome ; and changes in the estimate or the use of different assumptions to prepare the estimate could have a material effect on our results of operations or financial condition . management believes the current assumptions used to estimate amounts reflected in our consolidated financial statements are appropriate . however , if actual experience differs from the assumptions used in estimating amounts reflected in our consolidated financial statements , the resulting changes could have a material adverse effect on our results of operations , and in certain situations , could have a material adverse effect on our liquidity and financial condition . the critical accounting estimates that impact our consolidated financial statements are described below . revenue recognition product revenue product sales consist of u.s. sales of eylea and arcalyst . revenue from product sales is recognized when persuasive evidence of an arrangement exists , title to product and associated risk of loss have passed to the customer , the price is fixed or determinable , collection from the customer is reasonably assured , we have no further performance obligations , and returns can be reasonably estimated . we record revenue from product sales upon delivery to our distributors and specialty pharmacies ( collectively , our customers ) . revenue from product sales is recorded net of applicable provisions for rebates and chargebacks under governmental programs , such as medicaid and veterans ' administration ( va ) , distribution-related fees , prompt pay discounts , and other sales-related deductions . we estimate reductions to product sales based upon contracts with customers and government agencies , statutorily-defined discounts applicable to government-funded programs , historical experience , estimated payer mix , inventory levels in the distribution channel , shelf life of the product , and other relevant factors . calculating these provisions involves estimates and 57 judgments . we review our estimates of rebates , chargebacks , and other applicable provisions each period and record any necessary adjustments in the current period 's net product sales . the following table summarizes the provisions , and credits/payments , for sales-related deductions . replace_table_token_8_th collaboration revenue we earn collaboration revenue in connection with collaboration agreements to develop and commercialize product candidates and utilize our technology platforms . these arrangements may require us to deliver various rights , services , and or goods across the entire life cycle of a product or product candidate . the terms of these agreements typically include that consideration be provided to us in the form of non-refundable up-front licensing payments , research progress ( milestone ) payments , payments for development and commercialization activities , and sharing of profits or losses arising from the commercialization of products . in arrangements involving multiple deliverables , we must determine whether each deliverable qualifies as a separate unit of accounting , whether the deliverables have value to the collaborator on a standalone basis , and how the consideration should be allocated to each separate unit of accounting based on the relative selling price of each deliverable . payments which are based on achieving a specific substantive performance milestone , involving a degree of risk , are recognized as revenue when the milestone is achieved and the related payment is due and non-refundable , provided there is no future service obligation associated with that milestone . in determining whether a payment is deemed to be a substantive performance milestone , we take into consideration ( i ) the enhancement in value to the related development product candidate , ( ii ) our performance and the relative level of effort required to achieve the milestone , ( iii ) whether the milestone relates solely to past performance , and ( iv ) whether the milestone payment is considered reasonable relative to all of the deliverables and payment terms . payments for achieving milestones which are not considered substantive are deferred and recognized over the related performance period .
| results of operations years ended december 31 , 2014 and 2013 net income net income in 2014 and 2013 consists of the following : replace_table_token_9_th revenues revenues in 2014 and 2013 consist of the following : replace_table_token_10_th net product sales net product sales consist of u.s. sales of eylea and arcalyst . we received marketing approval from the fda for eylea for the treatment of wet amd in november 2011 , for the treatment of macular edema following crvo in september 2012 , and for the treatment of dme in july 2014. in 2014 , eylea net product sales increased to $ 1,736.4 million from $ 1,408.7 million in 2013 due to higher sales volume . in 2014 , arcalyst net product sales were $ 14.4 million compared to $ 17.1 million in 2013 . 61 sanofi collaboration revenue sanofi collaboration revenue , as detailed below , consisted primarily of reimbursement for research and development expenses that we incurred , partly offset by sharing of pre-launch commercialization expenses , in connection with the companies ' antibody collaboration . in addition , sanofi collaboration revenue in 2013 was reduced by two $ 10.0 million up-front payments to sanofi in connection with our acquisition from sanofi of full exclusive rights to two families of novel antibodies , as described below . replace_table_token_11_th sanofi commenced sales of zaltrap for treatment , in combination with folfiri , of patients with mcrc that is resistant to or has progressed following an oxaliplatin-containing regimen , in the united states in the third quarter of 2012 and in certain european and other countries in the first quarter of 2013. regeneron 's share of the loss in connection with commercialization of zaltrap , as shown in the table below , represents our 50 % share of zaltrap net product sales less cost of goods sold and shared commercialization and other expenses .
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we have established a portfolio of proprietary software content for the major hardware platforms in a wide range of genres , including action , adventure , family/casual , racing , role-playing , shooter , sports and strategy , which we distribute worldwide . we believe that our commitment to creativity and innovation is a distinguishing strength , enabling us to differentiate our products in the marketplace by combining advanced technology with compelling storylines and characters that provide unique gameplay experiences for consumers . we have created , acquired or licensed a group of highly recognizable brands to match the broad consumer demographics we serve , ranging from adults to children and game enthusiasts to casual gamers . another cornerstone of our strategy is to support the success of our products in the marketplace through innovative marketing programs and global distribution on platforms and through channels that are relevant to our target audience . our revenue is primarily derived from the sale of internally developed software titles and software titles developed by third-parties . operating margins are dependent in part upon our ability to release new , commercially successful software products and to manage effectively their development costs . we have internal development studios located in canada , china , czech republic , the united kingdom and the united states . software titles published by our rockstar games label are primarily internally developed . we expect rockstar games , our wholly-owned publisher of the grand theft auto , max payne , midnight club , red dead and other popular franchises , to continue to be a leader in the action / adventure product category and to create groundbreaking entertainment by leveraging our existing titles as well as by developing new brands . we believe that rockstar has established a uniquely original , popular cultural phenomenon with its grand theft auto series , which is the interactive entertainment industry 's most iconic and critically acclaimed brand and has sold-in over 260 million units . the latest installment , grand theft auto v , was released on sony 's ps3 and microsoft 's xbox 360 in september 2013 , on sony 's ps4 and microsoft 's xbox one in november 2014 , and on pc in april 2015. grand theft auto v includes access to grand theft auto online , which initially launched in october 2013. rockstar games is also well known for developing brands in other genres , including the l.a. noire , bully and manhunt franchises . rockstar games continues to expand on our established franchises by developing sequels , offering downloadable episodes , content and virtual currency , and releasing titles for smartphones and tablets . our 2k label has published a variety of popular entertainment properties across all key platforms and across a range of genres including shooter , action , role-playing , strategy , sports and family/casual entertainment . we expect 2k to continue to develop new , successful franchises in the future . 2k 's internally owned and developed franchises include the critically acclaimed , multi-million unit selling bioshock , mafia , sid meier 's civilization and xcom series . in may 2016 , 2k launched battleborn , a new brand created by gearbox software , the makers of borderlands . 2k also publishes successful externally developed franchises , such as borderlands and evolve . 2k 's realistic sports simulation titles include our flagship nba 2k series , which continues to be the top-ranked nba basketball video game , and the wwe 2k professional wrestling series . we are continuing to execute on our growth initiatives in asia , where our strategy is to broaden the distribution of our existing products and expand our online gaming presence , especially in china and south korea . 2k has secured a multi-year license from the nba to develop an online version of the nba simulation game in china , taiwan , south korea and southeast asia . in october 2012 , nba 2k online , our free-to-play nba simulation game , which was co-developed by 2k and tencent , launched commercially on the tencent games portal in china . on january 31 , 2017 , take-two acquired privately-held social point ( refer to note 23 of our consolidated financial statements ) . founded in 2008 and headquartered in barcelona , spain , social point is a highly-successful free-to-play mobile game developer and publisher that focuses on delivering high-quality , deeply-engaging entertainment experiences . social point currently has multiple profitable titles in the market , including its two most successful games , dragon city and monster legends . in addition , social point has a robust development pipeline with a number of exciting games planned for launch over the next two years . social point 's games currently are available in north america , latin america and emea , and approximately 50 % of its revenue is derived from the united states . in 2016 , over 90 % of its revenue was generated from mobile platforms . trends and factors affecting our business product release schedule . our financial results are affected by the timing of our product releases and the commercial success of those titles . our grand theft auto products in particular have historically accounted for a significant portion of our revenue . sales of grand theft auto products generated 38.2 % of our net revenue for the fiscal year ended march 31 , 2017 . the timing of our grand theft auto product releases may affect our financial performance on a quarterly and annual basis . 24 economic environment and retailer performance . we continue to monitor economic conditions that may unfavorably affect our businesses , such as deteriorating consumer demand , pricing pressure on our products , credit quality of our receivables , and foreign currency exchange rates . our business is dependent upon a limited number of customers that account for a significant portion of our revenue . story_separator_special_tag the increase in net cash provided by operations was due primarily to cash generated from sales of grand theft auto v , nba 2k17 , wwe 2k17 , mafia iii , and virtual currency , partially offset by investments in software development and licenses and the funding of internal royalty payments . net cash used in investing and financing activities related primarily to our acquisition of social point and the net share settlements of stock-based awards . critical accounting policies and estimates the preparation of financial statements in conformity with u.s. generally accepted accounting principles ( `` u.s. gaap '' ) requires management to make estimates and assumptions about future events and apply judgments that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of net revenues and expenses during the reporting periods . we base our estimates , assumptions and judgments on historical experience , current trends and other factors that management believes to be relevant at the time our consolidated financial statements are prepared . on a regular basis , management reviews the accounting policies , assumptions , estimates and judgments to ensure that our financial statements are fairly presented in accordance with u.s. gaap . however , because future events and their effects can not be determined with certainty , actual amounts could differ significantly from these estimates . we have identified the policies below as critical to our business operations and the understanding of our financial results and they require management 's most difficult , subjective or complex judgments , resulting from the need to make estimates about the effect of matters that are inherently uncertain . the effect and any associated risks related to these policies on our business operations is discussed throughout management 's discussion and analysis of financial condition and results of operations where such policies affect our reported and expected financial results . for a detailed discussion on the application of these and other accounting policies , see note 1 to the consolidated financial statements . management has reviewed these critical accounting estimates and related disclosures with the audit committee of our board of directors . revenue recognition we recognize revenue on the sales of software products upon the transfer of title and risk of loss to our customers . accordingly , we recognize revenue for software titles when there is ( 1 ) persuasive evidence that an arrangement with the customer exists , ( 2 ) the product is delivered , ( 3 ) the selling price is fixed or determinable and ( 4 ) collection of the customer receivable is deemed probable . certain products are sold to customers with a street date ( i.e. , the earliest date these products may be sold by retailers ) . for these products we recognize revenue on the later of the street date or the sale date . in addition , some of our software products are sold as full game digital downloads and digital add-on content for which the consumer takes possession of the digital content for a fee . revenue from product downloads is generally recognized when the download is made available to the end user ( assuming all other recognition criteria are met ) . in providing credit terms to our customers , our payment arrangements typically provide net 30 and 60 day terms . advances received for licensing and exclusivity arrangements are reported on our consolidated balance sheets as deferred revenue until we meet our performance obligations , at which point we recognize the revenue . 26 for some of our software products , we enter into multiple element revenue arrangements in which we may provide a combination of full game software , online multi-player functionality , and related post-contract customer support ( `` pcs '' ) which generally includes additional free unspecified add-on content updates , maintenance , and online support services . for these arrangements , we evaluate the significance of the pcs at the time each game is released based on the guidance in accounting standards codification 985-605 , `` software—revenue recognition '' ( `` asc 985-605 '' ) to determine if the pcs rises to the level of a separate deliverable . we monitor our initial assessments on an ongoing basis and consider any changes that may arise . in conjunction with our evaluation , we consider such factors as the significance of the development effort , the nature of online features , the extent of anticipated marketing focus on online features , the significance of the online features to the consumers ' anticipated overall gameplay experience , and the significance and length of time of our post sale obligations to consumers . determining whether pcs is significant for a particular game is subjective and requires management 's judgment . when a software arrangement includes multiple elements , the arrangement consideration is allocated to each revenue element based on its relative fair value , based on the vendor specific objective evidence ( `` vsoe '' ) of fair value for each element . when vsoe of fair value does not exist for all of the elements in the arrangement , asc 985-605 requires either the use of the residual method or the deferral of revenue until the earlier point at which vsoe of fair value exists for any undelivered element or until only one undelivered element remains . for arrangements that require the deferral of revenue , the related cost of goods sold is deferred and recognized as the related net revenue is recognized . deferred cost of goods sold includes product costs and licenses . we do not have vsoe for our pcs obligations and in those arrangements where pcs obligations have been determined to be significant we recognize revenue from the sale of software products and the related cost of goods sold ratably over the period we expect to offer the pcs to the consumer ( `` estimated service period '' ) , assuming all other recognition criteria are met .
| results of operations the following table sets forth , for the periods indicated , our statements of operations , net revenue by geographic region , net revenue by platform and net revenue by distribution channel : 32 replace_table_token_8_th replace_table_token_9_th fiscal years ended march 31 , 2017 and 2016 replace_table_token_10_th ( 1 ) includes $ 21,056 and $ 15,323 of stock-based compensation expense in 2017 and 2016 , respectively . for the fiscal year ended march 31 , 2017 , net revenue increased by $ 366.1 million , as compared to the prior year . this increase was due primarily to ( 1 ) an increase of $ 265.8 million in revenues from our nba 2k franchise ; ( 2 ) an increase of $ 161.2 million in net revenues from mafia iii , which released in october 2016 ; and ( 3 ) an increase of $ 63.8 million in net revenues from civilization vi , which released in october 2016. the increase was partially offset by a decrease of $ 91.2 million in net revenue from our grand theft auto franchise , due primarily to lower net revenues from grand theft auto v , and a decrease of $ 80.3 million in net revenues from evolve , which released in fiscal 2016. net revenue from console games increased by $ 273.1 million , and accounted for 81.0 % of our total net revenue in the fiscal year ended march 31 , 2017 , as compared to 82.6 % in the prior year . the increase in net revenues from console games was due primarily to higher net revenue from our nba 2k franchise and mafia iii . net revenue from pc and other increased by $ 92.9 million , as 33 compared to the prior year , and increased as a percentage of revenue to 19.0 % compared to 17.4 % in the prior year .
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the amendments in this update become effective for annual periods and interim periods within those annual periods beginning after december 15 , 2016. we are currently evaluating the impact of adopting the new guidance on the consolidated financial statements , but it is not expected to have a material impact . fasb asc 860 in june 2014 , the fasb issued an update ( asu no . 2014-11 , repurchase-to-maturity transactions , repurchase financings , and disclosures ) impacting fasb asc 860 , transfers and servicing . the amendments in this update change the accounting for repurchase-to-maturity transactions and linked repurchase financings to secured borrowing accounting , which is consistent with the accounting for other repurchase agreements . the amendments also require new disclosures . an entity is required to disclose information story_separator_special_tag the following discussion is an analysis of our results of operations for the fiscal years ended december 31 , 2014 , 2013 and 2012 , and financial condition as of december 31 , 2014 and 2013. this discussion and analysis should be read in conjunction with our consolidated financial statements and related notes . this discussion contains forward-looking statements concerning our business . readers are cautioned that , by their nature , forward-looking statements are based on estimates and assumptions and are subject to risks , uncertainties , and other factors . actual results may differ materially from our expectations that are expressed or implied by any forward-looking statement . the discussion in item 1a , risk factors , lists some of the factors that could cause our actual results to vary materially from those expressed or implied by any forward-looking statements , and such discussion is incorporated into this discussion by reference . general overview old national is the largest financial holding company incorporated in the state of indiana and maintains its principal executive offices in evansville , indiana . old national , through old national bank , provides a wide range of services , including commercial and consumer loan and depository services , lease financing and other traditional banking services . old national also provides services to supplement the traditional banking business including fiduciary and wealth management services , investment and brokerage services , investment consulting , insurance and other financial services . our basic mission is to be the community bank in the cities and towns we serve . we focus on establishing and maintaining long-term relationships with customers , and are committed to serving the financial needs of the communities in our market area . old national provides financial services primarily in indiana , southeastern illinois , western kentucky , and southwestern michigan . corporate developments in fiscal 2014 2014 was a transformational year for old national . we closed three whole bank acquisitions during the year and consummated a fourth on january 1 , 2015. through this acquisition activity , and that of the past decade , we have moved into stronger , higher growth markets compared to our legacy footprint . net income for 2014 was $ 103.7 million , this compares to 2013 net income of $ 100.9 million . net interest income in both years benefitted from accretion income associated with our acquired loans . our special asset officers made tremendous progress in 2014 , resolving many credit impaired loans purchased in part with our fdic-assisted transaction in 2011. while this progress is commendable , it is worth noting that improvements in our loss expectations increase the amortization expense associated with our indemnification asset ( ia ) . amortization expense associated with our ia was $ 43.2 million in 2014 compared to $ 9.3 million of expense in 2013. we expect lower levels of ia amortization expense in future periods as our remaining indemnification asset balance had declined to $ 20.6 million at december 31 , 2014. diluted earnings per share available to common shareholders were $ 0.95 per share , compared to $ 1.00 in 2013 . 2014 included higher merger and integration costs and the issuance of 18.3 million shares in conjunction with our acquisition activity . 29 business outlook while we believe the interest rate environment will continue to pose challenges for 2015 revenue growth , our clients are expressing more optimism regarding the state of the economy than we have seen in recent years . our focus for 2015 is execution . over the past decade , we have determined our desired geographic footprint , transitioning into higher growth markets . our priorities for 2015 are as follows : core revenue growth . we operate under a true community bank model . we are active in and supportive of the communities we serve . as a result , we believe we are often provided with the first opportunity to bid on loans and other business opportunities . yes , we remain a conservative lender ; but our charge in 2015 will be to enhance our cross-sell culture , leverage our fee-based businesses , and originate solid production , across all loan categories , without compromising structure . improve operating leverage . management is committed to improving the quality of its branch network and right-sizing the franchise . we believe this can be accomplished through the successful integration of our recently acquired bank franchises and the rationalization of branches which , in our opinion , are not of sufficient size to produce satisfactory returns or are located in low or negative growth areas . subsequent to december 31 , 2014 , we announced our intent to sell , consolidate or close 36 branches throughout our franchise . in addition , an early retirement program has been implemented and , when combined with other actions , should reduce our overall workforce by 10 % . prudent use of capital . maintaining a strong capital position and delivering long-term value to our shareholders continues to be a top priority for old national . our capital position remained above industry requirements at the end of the year . story_separator_special_tag included in average earning assets for 2014 are approximately $ 313.0 million of assets from the tower acquisition that was completed in april 2014 , $ 322.8 million from the united acquisition that was completed in july 2014 , and $ 50.2 million from the lsb acquisition that was completed in november 2014. the loan portfolio , which generally has an average yield higher than the investment portfolio , was approximately 62.9 % of average interest earning assets at december 31 , 2014. the increase in loans in 2014 reflected the tower , united and lsb acquisitions along with organic loan growth . these increases were partially offset by a $ 70.1 million decrease in our covered loan portfolio and the reclassification of $ 197.9 million from loans to loans held for sale . the increase in 2014 in the average balance of the investment portfolio was primarily due to the tower , united and lsb acquisitions . included in the increase is approximately $ 75.2 million from the tower acquisition , $ 61.9 million from the united acquisition and $ 10.5 million from the lsb acquisition . positively affecting margin was a decrease in time deposits combined with increases in now accounts , savings accounts and money market accounts . average time deposits , which have an average interest rate higher than other types of deposits , decreased $ 127.9 million in 2014 as higher-rate time deposits continue to mature . offsetting these benefits was an increase in average borrowed funds of $ 101.9 million in 2014 reflecting the issuance of $ 175.0 million of senior unsecured notes in august 2014 . 32 the following table presents a three-year average balance sheet and for each major asset and liability category , its related interest income and yield or its expense and rate for the years ended december 31. replace_table_token_7_th ( 1 ) the 2014 , 2013 and 2012 average balances include $ 12.3 million , $ 16.7 million and $ 23.5 million , respectively , of required and excess balances held at the federal reserve . ( 2 ) changes in fair value are reflected in the average balance ; however , yield information does not give effect to changes in fair value that are reflected as a component of shareholders ' equity . ( 3 ) includes u.s. government-sponsored entities and agency mortgage-backed securities at december 31 , 2014 . ( 4 ) interest on state and political subdivision investment securities and commercial loans includes the effect of taxable equivalent adjustments of $ 11.8 million and $ 5.2 million , respectively , in 2014 ; $ 12.3 million and $ 4.6 million , respectively , in 2013 ; and $ 8.8 million and $ 4.4 million , respectively , in 2012 ; using the federal statutory tax rate in effect of 35 % for all periods adjusted for the tefra interest disallowance applicable to certain tax-exempt obligations . ( 5 ) includes principal balances of nonaccrual loans . interest income relating to nonaccrual loans is included only if received . ( 6 ) includes finance leases held for sale . ( 7 ) includes loans held for sale . 33 the following table shows fluctuations in net interest income attributable to changes in the average balances of assets and liabilities and the yields earned or rates paid for the years ended december 31. replace_table_token_8_th the variance not solely due to rate or volume is allocated equally between the rate and volume variances . ( 1 ) interest on investment securities and loans includes the effect of taxable equivalent adjustments of $ 11.8 million and $ 5.2 million , respectively , in 2014 ; $ 12.3 million and $ 4.6 million , respectively , in 2013 ; and $ 8.8 million and $ 4.4 million , respectively , in 2012 ; using the federal statutory rate in effect of 35 % for all periods adjusted for the tefra interest disallowance applicable to certain tax-exempt obligations . provision for loan losses the provision for loan losses was an expense of $ 3.1 million in 2014 , compared to a credit of $ 2.3 million in 2013. charge-offs have remained low during 2014 and we continue to see positive trends in credit quality ; however , loan growth in 2014 contributed to the need for additional loan loss reserve and provision expense . continued loan growth in future periods or credit quality deterioration would result in additional provision expense . for additional information about non-performing loans , charge-offs and additional items impacting the provision , refer to the risk management credit risk section of item 7 , management 's discussion and analysis of financial condition and results of operations . noninterest income we generate revenues in the form of noninterest income through client fees and sales commissions from our core banking franchise and other related businesses , such as wealth management , investment consulting , investment products and insurance . this source of revenue has decreased as a percentage of total revenue to 31.1 % in 2014 compared to 36.8 % in 2013. noninterest income was $ 165.1 million in 2014 , a decrease of $ 19.6 million , or 10.6 % , compared to $ 184.8 million in 2013. the decrease in noninterest income in 2014 was primarily due to an unfavorable variance in adjustments to the fdic indemnification asset and a gain on branch divestitures that was recorded in the first quarter of 2013. these decreases were partially offset by increases in net securities gains , wealth management fees and insurance premiums and commissions . wealth management fees increased by $ 5.2 million to $ 28.7 million in 2014. the increase in wealth management fees in 2014 was primarily attributable to our recent acquisitions , as tower contributed $ 2.4 million and united contributed $ 1.8 million . in addition , wealth management fees grow in tandem with the fixed income and equities markets .
| business line results we operate in two operating segments : banking and insurance . see part 1 , item 1 for a discussion of our operating segments . the following table summarizes our business line results for the years ended december 31. replace_table_token_11_th the 2014 banking segment profit increased $ 5.5 million from 2013 , primarily due to the acquisitions of tower in april 2014 , united in july 2014 , and lsb in november 2014. the 2013 banking segment profit increased $ 7.4 million from 2012 , primarily due to the acquisition of ibt , which occurred on september 15 , 2012. financial condition overview at december 31 , 2014 , our assets were $ 11.648 billion , a 21.6 % increase compared to $ 9.582 billion at december 31 , 2013. the increase is primarily due to the acquisitions of tower in april 2014 , united in july 2014 , and lsb in november 2014. earning assets , comprised of investment securities , portfolio loans , loans held for sale , money market investments , interest earning accounts with the federal reserve and trading securities , were $ 10.111 billion at december 31 , 2014 , an increase of 22.0 % compared to $ 8.286 billion at december 31 , 2013. earning assets investment securities we classify the majority of our investment securities as available-for-sale to give management the flexibility to sell the securities prior to maturity if needed , based on fluctuating interest rates or changes in our funding requirements .
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we were founded in 1971 by our current executive chairman , richard agree , and our common stock was listed on the nyse in 1994. our assets are held by , and all of our operations are conducted through , directly or indirectly , the operating partnership , of which we are the sole general partner and in which we held a 99.1 % interest as of december 31 , 2018. as of december 31 , 2018 , our portfolio consisted of 645 properties located in 46 states and totaling approximately 11.2 million square feet of gla . as of december 31 , 2018 , our portfolio was approximately 99.8 % leased and had a weighted average remaining lease term of approximately 10.2 years . substantially all of our tenants are subject to net lease agreements . a net lease typically requires the tenant to be responsible for minimum monthly rent and property operating expenses including property taxes , insurance and maintenance . we elected to be taxed as a reit for federal income tax purposes commencing with our taxable year ended december 31 , 1994. we believe that we have been organized and have operated in a manner that has allowed us to qualify as a reit for federal income tax purposes and we intend to continue operating in such a manner . recent accounting pronouncements refer to “ note 2 – summary of significant accounting policies ” in the consolidated financial statements for a summary and anticipated impact of each accounting pronouncement on the company 's financial statements . critical accounting policies our accounting policies are determined in accordance with generally accepted accounting principles ( “ gaap ” ) . the preparation of our financial statements requires us to make estimates and assumptions that are subjective in nature and , as a result , our actual results could differ materially from our estimates . set forth below are the more critical accounting policies that require management judgment and estimates in the preparation of our consolidated financial statements . this summary should be read in conjunction with the more complete discussion of our accounting policies and procedures included in note 2 to our consolidated financial statements . revenue recognition we lease real estate to our tenants under long-term net leases which we account for as operating leases . under this method , leases that have fixed and determinable rent increases are recognized on a straight-line basis over the lease term . rental increases based upon changes in the consumer price indexes , or other variable factors , are recognized only after changes in such factors have occurred and are then applied according to the lease agreements . certain leases also provide for additional rent based on tenants ' sales volumes . these rents are recognized when determinable by us after the tenant exceeds a sales breakpoint . contractually obligated reimbursements from tenants for recoverable real estate taxes and operating expenses are generally included in operating costs reimbursement in the period when such expenses are incurred . real estate investments we record the acquisition of real estate at cost , including acquisition and closing costs . for properties developed by us , all direct and indirect costs related to planning , development and construction , including interest , real estate taxes and other miscellaneous costs incurred during the construction period , are capitalized for financial reporting purposes and recorded as property under development until construction has been completed . accounting for acquisitions of real estate the acquisition of property for investment purposes is typically accounted for as an asset acquisition . we allocate the purchase price to land , building and identified intangible assets and liabilities , based in each case on their relative estimated fair values and without giving rise to goodwill . intangible assets and liabilities represent the value of in-place leases and 25 above- or below-market leases . in making estimates of fair values , we may use a number of sources , including data provided by independent third parties , as well as information obtained by the company as a result of our due diligence , including expected future cash flows of the property and various characteristics of the markets where the property is located . depreciation our real estate portfolio is depreciated using the straight-line method over the estimated remaining useful life of the properties , which are generally 40 years for buildings and 10 to 20 years for improvements . properties classified as “ held for sale ” and properties under development are not depreciated . impairments we review our real estate investments periodically for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable . events or circumstances that may occur include , but are not limited to , significant changes in real estate market conditions or our ability to re-lease or sell properties that are vacant or become vacant . management determines whether an impairment in value has occurred by comparing the estimated future cash flows ( undiscounted and without interest charges ) , including the residual value of the real estate , with the carrying cost of the individual asset . an asset is considered impaired if its carrying value exceeds its estimated undiscounted cash flows and an impairment charge is recorded in the amount by which the carrying value of the asset exceeds its estimated fair value . story_separator_special_tag expenses . our tenants subsequently reimbursed us for the majority of these expenses . land lease payments remained consistent with prior periods . the years ended december 31 , 2017 and 2016 totaled approximately $ 0.7 million . general and administrative expenses increased $ 1.8 million , or 23 % , to $ 9.7 million in 2017 , compared to $ 7.9 million in 2016. the increase was primarily the result of increased employee headcount and associated professional costs and was partially offset by a one-time credit of $ 0.2 million to reflect a reduction in the company 's deferred tax liability due to new tax legislation . general and administrative expenses as a percentage of total revenue decreased to 8.3 story_separator_special_tag including the increased commitments , the amended and restated credit agreement provides for a $ 325.0 million unsecured revolving credit facility , a $ 65.0 million unsecured term loan facility and a $ 35.0 million unsecured term loan facility ( referenced above as 2024 term loan facilities ) . the unsecured revolving credit facility matures january 2021 with options to extend the maturity date to january 2022. the 2024 term loan facilities mature january 2024. the company has the ability to increase the aggregate borrowing capacity under the credit agreement up to $ 500.0 million , subject to lender approval . 29 borrowings under the revolving credit facility bear interest at libor plus 85 to 155 basis points , depending on the company 's credit rating . additionally , the company is required to pay a facility fee at an annual rate of 0 to 55 basis points of the total amount of the revolving credit facility , depending on the company 's credit rating . the credit agreement contains certain financial covenants , including a maximum leverage ratio , a minimum fixed charge coverage ratio , and a maximum percentage of secured debt to total asset value . as of december 31 , 2018 , and december 31 , 2017 , the company had $ 19.0 million and $ 14.0 million of outstanding borrowings under the revolving credit facility , respectively , bearing weighted average interest rates of approximately 3.38 % and 2.63 % , respectively . as of december 31 , 2018 , $ 306.0 million was available for borrowing under the revolving credit facility and the company was in compliance with the credit agreement covenants the company and richard agree , the executive chairman of the company , are parties to a reimbursement agreement dated november 18 , 2014. pursuant to the reimbursement agreement , mr. agree has agreed to reimburse the company for any loss incurred under the unsecured revolving credit facility in an amount not to exceed $ 14 million to the extent that the value of the operating partnership 's assets available to satisfy the operating partnership 's obligations under the revolving credit facility is less than $ 14 million . unsecured term loan facilities the amended and restated credit agreement extended the maturity dates of the $ 65.0 million unsecured term loan facility and $ 35.0 million unsecured term loan facility ( together , the “ 2024 term loan facilities ” ) to january 2024. in connection with entering into the amended and restated credit agreement , the prior notes evidencing the existing $ 65.0 million unsecured term loan facility and $ 35.0 million unsecured term loan facility were canceled and new notes evidencing the 2024 term loan facilities were executed . borrowings under the unsecured 2024 term loan facilities bear interest at a variable libor plus 85 to 165 basis points , depending on the company 's credit rating . the company utilized existing interest rate swaps to effectively fix the libor rate at 213 basis points until maturity . as of december 31 , 2018 , $ 100.0 million was outstanding under the 2024 term loan facilities bearing an all-in interest rate of 3.13 % , including the swaps . in july 2016 , the company completed a $ 40.0 million unsecured term loan facility that matures july 2023 ( the “ 2023 term loan ” ) . borrowings under the 2023 term loan are priced at libor plus 85 to 165 basis points , depending on the company 's credit rating . the company entered into an interest rate swap to fix libor at 140 basis points until maturity . as of december 31 , 2018 , $ 40.0 million was outstanding under the 2023 term loan , which was subject to an all-in interest rate of 2.40 % , including the swap . in august 2016 , the company entered into a $ 20.3 million unsecured amortizing term loan that matures may 2019 ( the “ 2019 term loan ” ) . borrowings under the 2019 term loan are priced at libor plus 170 basis points . in order to fix libor on the 2019 term loan at 1.92 % until maturity , the company had an interest rate swap agreement in place , which was assigned by the lender under the mortgage note to the 2019 term loan lender . as of december 31 , 2018 , $ 18.5 million was outstanding under the 2019 term loan bearing an all-in interest rate of 3.62 % , including the swap . in december 2018 , the company entered into a $ 100.0 million unsecured term loan facility that matures january 2026 ( the “ 2026 term loan ” ) . borrowings under the 2026 term loan are priced at libor plus 145 to 240 basis points , depending on the company 's credit rating . the company entered into an interest rate swap to fix libor at 266 basis points until maturity . as of december 31 , 2018 , $ 100.0 million was outstanding under the 2026 term loan , which was subject to an all-in interest rate of 4.26 % , including the swaps . senior unsecured notes in may 2015 , the company and the operating partnership completed a private placement of $ 100.0 million principal amount of senior unsecured notes . the senior unsecured notes were sold in two series ; $ 50.0 million of 4.16 % notes due may 2025 ( the “ 2025 senior unsecured notes ” ) and $ 50.0 million of 4.26 % notes due may 2027 ( the “ 2027 senior unsecured notes ” ) . the senior unsecured notes were sold only to institutional investors and did not involve a public offering in reliance of the exemption from registration in section 4 ( a ) ( 2 ) of the securities act . in july 2016 , the company and the operating partnership entered into a note purchase agreement with institutional purchasers .
| results of operations comparison of year ended december 31 , 2018 to year ended december 31 , 2017 minimum rental income increased $ 27.7 million , or 26 % , to $ 132.8 million in 2018 , compared to $ 105.1 million in 2017. approximately $ 29.5 million of the increase was due to the acquisition of 225 properties in 2018 and the full year impact of 79 properties acquired in 2017. approximately $ 2.8 million of the increase was attributable to eight development projects completed in 2018 and the full year impact of four development projects completed in 2017. the increases were partially offset by a $ 4.8 million reduction in minimum rental income from properties sold during 2018 that were owned for all or part of 2017. operating cost reimbursements increased $ 4.1 million , or 38 % , to $ 14.9 million in 2018 , compared to $ 10.8 million in 2017. operating cost reimbursements increased primarily due to increased property count . the portfolio recovery rate remained consistent at 91 % in 2018 and 2017. real estate taxes increased $ 2.5 million , or 31 % , to $ 10.7 million in 2018 , compared to $ 8.2 million in 2017. the increase was due to the ownership of additional properties in 2018 compared to 2017 for which we remit real estate taxes and are reimbursed by tenants . property operating expenses increased $ 2.0 million , or 56 % , to $ 5.6 million in 2018 , compared to $ 3.6 million in 2017. the increase was due to the ownership of additional properties in 2018 compared to 2017. land lease payments decreased $ 0.1 million in 2018 to $ 0.6 million compared to $ 0.7 million in 2017. the decrease was due to exercising the option to purchase the fee simple interest in a property for which we were previously the lessee .
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under the service agreement , the company provided facilities and up to 10 percent of the services of certain employees to spriaso for a period of 18 months which expired january 23 , 2015. effective january 23 , 2015 , the company entered into an amended services agreement with spriaso in which the company agreed to continue providing up to 10 percent story_separator_special_tag the following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes thereto and other financial information included elsewhere in this report . as used in the discussion below , “ we , ” “ our , ” and “ us ” refers to the historical financial results of lipocine . forward looking statements this section and other parts of this report contain 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 , that involve risks and uncertainties . forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact . forward-looking statements may refer to such matters as products , product benefits , pre-clinical and clinical development timelines , clinical and regulatory expectations and plans , anticipated financial performance , future revenues or earnings , business prospects , projected ventures , new products and services , anticipated market performance , future expectations for liquidity and capital resources needs and similar matters . such words as “ may ” , “ will ” , “ expect ” , “ continue ” , “ estimate ” , “ project ” , and “ intend ” and similar terms and expressions are intended to identify forward looking statements . forward-looking statements are not guarantees of future performance and our actual results may differ significantly from the results discussed in the forward-looking statements . factors that might cause such differences include , but are not limited to those discussed in part i , item 1a ( risk factors ) of this form 10-k. except as required by applicable law , we assume no obligation to revise or update any forward-looking statements for any reason . overview of our business we are a specialty pharmaceutical company focused on applying our oral drug delivery technology for the development of pharmaceutical products in the area of men 's and women 's health . our proprietary delivery technologies are designed to improve patient compliance and safety through orally available treatment options . our primary development programs are based on oral delivery solutions for poorly bioavailable drugs . we have a portfolio of proprietary product candidates designed to produce favorable pharmacokinetic ( “ pk ” ) characteristics and facilitate lower dosing requirements , bypass first-pass metabolism in certain cases , reduce side effects , and eliminate gastrointestinal interactions that limit bioavailability . our lead product candidate , lpcn 1021 , is an oral testosterone replacement therapy ( “ trt ” ) that received a complete response letter ( “ crl ” ) from the u.s. food and drug administration ( `` fda '' ) on june 28 , 2016 , after filing a new drug application ( “ nda ” ) . we completed a post action meeting with the fda relating to the crl for lpcn 1021 and announced the on-going conduct of two new clinical studies , the dosing validation ( “ dv ” ) clinical study and the dosing flexibility ( “ df ” ) clinical study . additional pipeline candidates include lpcn 1111 , a next generation oral testosterone therapy product with the potential for once daily dosing , that is currently in phase 2 testing , and lpcn 1107 , which has the potential to become the first oral hydroxyprogesterone caproate product indicated for the prevention of recurrent preterm birth , and has completed an end-of-phase 2 meeting with the fda . to date , we have funded our operations primarily through the sale of equity securities and convertible debt and through up-front payments , research funding and milestone payments from our license and collaboration arrangements . we have not generated any revenues from product sales and we do not expect to generate revenue from product sales unless and until we obtain regulatory approval of lpcn 1021 or other products . we have incurred losses in most years since our inception . as of december 31 , 2016 , we had an accumulated deficit of $ 105.4 million . income and losses fluctuate year to year , primarily depending on the timing of recognition of revenues from our license and collaboration agreements . our net loss was $ 19.0 million for the year ended december 31 , 2016 , compared to $ 18.2 million for the year ended december 31 , 2015. substantially all of our operating losses resulted from expenses incurred in connection with our product candidate development programs , our research activities and general and administrative costs associated with our operations . 49 we expect to continue to incur significant expenses and operating losses for the foreseeable future as we : conduct the dosing validation study and dosing flexibility study for lpcn 1021 ; conduct further development of our other product candidates , including lpcn 1111 and lpcn 1107 ; continue our research efforts ; maintain , expand and protect our intellectual property portfolio ; and provide general and administrative support for our operations . to fund future long-term operations , we will need to raise additional capital . story_separator_special_tag a crl is a communication from the fda that informs companies that an application can not be approved in its present form . the crl identified deficiencies related to the dosing algorithm for the label . specifically , the proposed titration scheme for clinical practice was significantly different from the titration scheme used in the phase 3 trial leading to discordance in titration decisions between the phase 3 trial and real-world clinical practice . in response to the crl , we met with the fda in a post action meeting , and proposed a dosing regimen to the fda based on analyses of existing data . the fda noted that while the proposed dosing regimen might be acceptable , validation in a clinical trial would be needed prior to resubmission . the on-going dv study is in response to the fda 's request . prior to initiating the dv study , the fda reviewed the dv study protocol through a special protocol assessment ( “ spa ” ) . lipocine received the fda 's initial feedback on the protocol submitted via spa prior to initiating the dv study in december 2016. we also initiated the df study to assess lpcn 1021 in hypogonadal males on a fixed daily dose of 450 mg divided into three equal doses . there is no guarantee of approval of lpcn 1021 , even if the dv study and or df study achieve the fda responder analysis targets . 52 lpcn 1111 : a next-generation oral product candidate for trt lpcn 1111 is a next-generation , novel ester prodrug of testosterone which uses the lip'ral technology to enhance solubility and improve systemic absorption . we completed a phase 2b dose finding study in hypogonadal men in the third quarter of 2016. the primary objectives of the phase 2b clinical study were to determine the starting phase 3 dose of lpcn 1111 along with safety and tolerability of lpcn 1111 and its metabolites following oral administration of single and multiple doses in hypogonadal men . the phase 2b clinical trial was a randomized , open label , two-period , multi-dose pk study that enrolled hypogonadal males into five treatment groups . each of the 12 subjects in a group received treatment for 14 days . results of the phase 2b study suggest that the primary objectives were met , including identifying the dose expected to be tested in a phase 3 study . good dose-response relationship was observed over the tested dose range in the phase 2b study . additionally , the target phase 3 dose met primary and secondary end points . overall , lpcn 1111 was well tolerated with no drug-related severe or serious adverse events reported in the phase 2b study . additionally in october 2014 , we completed a phase 2a proof-of-concept study in hypogonadal men . the phase 2a open-label , dose-escalating single and multiple dose study enrolled 12 males . results from the phase 2a clinical study demonstrated the feasibility of a once daily dosing with lpcn 1111 in hypogonadal men and a good dose response . additionally , the study confirmed that steady state is achieved by day 14 with consistent inter-day performance observed on day 14 , 21 and 28. no subjects exceeded cmax of 1500 ng/dl at any time during the 28-day dosing period on multi-dose exposure . overall , lpcn 1111 was well tolerated with no serious ae 's reported . the next step will be to conduct a preclinical toxicology study with lpcn 1111 and subsequently meet with the fda for an end of phase 2 meeting . we anticipate the end of phase 2 meeting will occur in the second half of 2017. lpcn 1107 : an oral product candidate for the prevention of preterm birth we believe lpcn 1107 has the potential to become the first oral hydroxyprogesterone caproate ( “ hpc ” ) product indicated for the reduction of risk of preterm birth ( “ ptb ” ) in women with singleton pregnancy who have a history of singleton spontaneous ptb . prevention of ptb is a significant unmet need as ~11.7 % of all u.s. pregnancies result in ptb ( delivery less than 37 weeks ) , a leading cause of neonatal mortality and morbidity . we have completed a multi-dose pk dose selection study in pregnant women . the objective of the multi-dose pk selection study was to assess hpc blood levels in order to identify the appropriate lpcn 1107 phase 3 dose . the multi-dose pk dose selection study was an open-label , four-period , four-treatment , randomized , single and multiple dose , pk study in pregnant women of three dose levels of lpcn 1107 and the injectable intramuscular ( `` im '' ) hpc ( makena® ) . the study enrolled 12 healthy pregnant women ( average age of 27 years ) with a gestational age of approximately 16 to 19 weeks . subjects received three dose levels of lpcn 1107 ( 400 mg bid , 600 mg bid , or 800 mg bid ) in a randomized , crossover manner during the first three treatment periods and then received five weekly injections of hpc during the fourth treatment period . during each of the lpcn 1107 treatment periods , subjects received a single dose of lpcn 1107 on day 1 followed by twice daily administration from day 2 to day 8. following completion of the three lpcn 1107 treatment periods and a washout period , all subjects received five weekly injections of hpc . results from this study demonstrated that average steady state hpc levels ( c avg 0-24 ) were comparable or higher for all three lpcn 1107 doses than for injectable hpc . additionally , hpc levels as a function of daily dose were linear for the three lpcn 1107 doses . also unlike the injectable hpc , steady state exposure was achieved for all three lpcn 1107 doses within seven days .
| results from soar soar was a randomized , open-label , parallel-group , active-controlled , phase 3 clinical study of lpcn 1021 in hypogonadal males with low testosterone ( < 300 ng/dl ) . in total , 315 subjects at 40 active sites were assigned , such that 210 were randomized to lpcn 1021 and 105 were randomized to the active control , androgel 1.62 % ® , for 52 weeks of treatment . the active control is included for safety assessment . lpcn 1021 subjects were started at 225 mg tu ( equivalent to ~ 142 mg of t ) twice daily ( “ bid ” ) with a standard meal and then dose titrated , if needed , based on average t levels during the day , cavg , and peak serumt levels , cmax , up to 300 mg tu bid or down to 150 mg tu bid based on serum testosterone measured at weeks 3 and 7 based on pk profile with multiple blood samples drawn at each time period . the mean age of the subjects in the trial was ~53 yrs with ~91 % of the patients < 65 yrs of age . primary statistical analysis was conducted using the efficacy population set ( `` eps '' ) . the eps is defined as subjects randomized into the study with at least one pk profile and no significant protocol deviations and includes imputed missing data by last observation carried forward , n=151 . further analysis was performed using the full analysis set ( `` fas '' ) ( any subject randomized into the study with at least one post-baseline efficacy variable response , n=193 ) and the safety set ( “ ss ” ) ( any subject that was randomized into the study and took at least one dose , n=210 ) . efficacy the primary efficacy endpoint is the percentage of subjects with cavg within the normal range , which is defined as 300-1140 ng/dl , after 13 weeks of treatment .
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village competes by using low pricing , superior customer service , and a broad range of consistently available quality products , including shoprite private labeled products . the shoprite price plus card also strengthens customer loyalty . 13 we consider a variety of indicators to evaluate our performance , such as same store sales , percentage of total sales by department ( mix ) ; shrink ; departmental gross profit percentage ; sales per labor hour ; and hourly labor rates . during fiscal 2012 and 2011 , the supermarket industry was impacted by changing consumer behavior due to the weak economy and high unemployment . consumers are increasingly cooking meals at home , but spending cautiously by trading down to lower priced items , including private label , and concentrating their buying on sale items . also , the company estimates that product prices overall experienced inflation in fiscal 2012 and in the second half of fiscal 2011. the company utilizes a 52 - 53 week fiscal year , ending on the last saturday in the month of july . fiscal 2010 contains 53 weeks . the inclusion of the 53rd week in fiscal 2010 had an estimated positive impact on net income of $ 1,200. fiscal 2012 and 2011 contain 52 weeks . story_separator_special_tag additions , including the new stores in maryland and old bridge . interest expense interest expense was $ 4,415 , $ 4,280 , and $ 3,660 in fiscal 2012 , 2011 , and 2010 , respectively . interest expense increased in 2011 compared to the prior year due to an amendment of a store lease near the end of fiscal 2010 being treated as a capital lease . interest income interest income was $ 2,571 , $ 2,207 , and $ 2,020 in fiscal 2012 , 2011 , and 2010 , respectively . interest income increased in fiscal 2012 and 2011 compared to the prior years due to higher amounts invested . income taxes the company 's effective income tax rate was 41.5 % , 42.1 % , and 41.8 % in fiscal 2012 , 2011 , and 2010 , respectively . net income net income was $ 31,445 in fiscal 2012 compared to $ 20,982 in the prior year . excluding a $ 4,241 ( net of tax ) charge for the withdrawal liability from a multi-employer pension plan in the prior year , net income increased 25 % . net income increased primarily due to improved same store sales and increased gross profit percentages . net income increased despite losses in the two new maryland stores as sales in maryland are lower than expected and we continue to build market share and brand awareness . net income in fiscal 2011 was $ 20,982 , a decrease of 17 % from the prior year . net income decreased primarily due to a $ 4,241 ( net of tax ) charge for a withdrawal liability from a multi-employer pension plan in fiscal 2011 and the prior year including a $ 1,200 estimated positive impact of the 53 rd week . excluding these two items , net income increased 4 % , due to improved same store sales . 15 critical accounting policies critical accounting policies are those accounting policies that management believes are important to the portrayal of the company 's financial condition and results of operations . these policies require management 's most difficult , subjective or complex judgments , often as a result of the need to make estimates about the effect of matters that are inherently uncertain . the preparation of financial statements in conformity with u.s. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period . actual results could differ from those estimates . impairment the company reviews the carrying values of its long-lived assets , such as property , equipment and fixtures for possible impairment whenever events or changes in circumstances indicate that the carrying amount of assets may not be recoverable . such review analyzes the undiscounted estimated future cash flows from asset groups at the store level to determine if the carrying value of such assets are recoverable from their respective cash flows . if impairment is indicated , it is measured by comparing the fair value of the long-lived asset groups held for use to their carrying value . goodwill is tested for impairment at the end of each fiscal year , or more frequently if circumstances dictate . since the company 's stock is not widely traded , management utilizes valuation techniques , such as earnings multiples , in addition to the company 's market capitalization to assess goodwill for impairment . calculating the fair value of a reporting unit requires the use of estimates . management believes the fair value of village 's one reporting unit exceeds its carrying value at july 28 , 2012. should the company 's carrying value of its one reporting unit exceed its fair value , the amount of any resulting goodwill impairment may be material to the company 's financial position and results of operations . patronage dividends as a stockholder of wakefern , village earns a share of wakefern 's earnings , which are distributed as a “ patronage dividend ” ( see note 3 ) . this dividend is based on a distribution of substantially all of wakefern 's operating profits for its fiscal year ( which ends september 30 ) in proportion to the dollar volume of purchases by each member from wakefern during that fiscal year . story_separator_special_tag actual results could materially differ from these estimates and could significantly affect the effective tax rate and cash flows in future years . liquidity and capital resources cash flows net cash provided by operating activities was $ 43,432 in fiscal 2012 compared to $ 64,144 in the corresponding period of the prior year . this decrease is primarily attributable to settlement of a $ 7,028 pension withdrawal liability in fiscal 2012 , a decrease in payables in the current fiscal year as compared to an increase in the prior fiscal year , and the prior year including a refund of cash the company had placed in escrow to fund a property acquisition . these decreases were partially offset by higher net income in the current fiscal year . during fiscal 2012 , village used cash to fund capital expenditures of $ 16,729 , the acquisition of the old bridge shoprite of $ 4,123 and dividends of $ 9,758. capital expenditures include remodeling and equipment for the acquired maryland stores , the installation of solar panels in one store and several small remodels . 17 net cash provided by operating activities was $ 64,144 in fiscal 2011 compared to $ 35,313 in fiscal 2010. this increase is primarily attributable to an increase in payables in the current fiscal year compared to a decrease in payables in the prior fiscal year . the changes in payable balances outstanding were due to the $ 7,028 pension withdrawal liability and differences in the timing of payments . during fiscal 2011 , village used cash to fund capital expenditures of $ 13,346 , dividends of $ 19,086 , the acquisition of the maryland stores for $ 6,595 and treasury stock purchases of $ 2,171. capital expenditures include the purchase of land for future development , several small remodels , and remodeling and equipment for the acquired maryland stores . liquidity and debt working capital was $ 71,672 , $ 44,448 , and $ 41,201 at july 28 , 2012 , july 30 , 2011 , and july 31 , 2010 , respectively . working capital ratios at the same dates were 1.72 , 1.41 , and 1.49 to one , respectively . the company 's working capital needs are reduced since inventory is generally sold before payments to wakefern and other suppliers are due . village has budgeted approximately $ 20,000 for capital expenditures in fiscal 2013. planned expenditures include the beginning of construction of two replacement stores and three major remodels . the company 's primary sources of liquidity in fiscal 2013 are expected to be cash and cash equivalents on hand at july 28 , 2012 and operating cash flow generated in fiscal 2013. at july 28 , 2012 , the company had a $ 20,918 15-month note receivable due from wakefern earning a fixed rate of 7 % . this note is automatically extended for additional , recurring 90-day periods , unless , not later than one year prior to the due date , the company notifies wakefern requesting payment on the due date . this note currently is scheduled to mature on august 19 , 2013. village has an unsecured revolving credit agreement providing a maximum amount available for borrowing of $ 25,000. this loan agreement expires on december 31 , 2014. the revolving credit line can be used for general corporate purposes . indebtedness under this agreement bears interest at the prime rate , or at the eurodollar rate , at the company 's option , plus applicable margins based on the company 's fixed charge coverage ratio . there were no amounts outstanding at july 28 , 2012 or july 30 , 2011 under this facility . the revolving loan agreement contains covenants that , among other conditions , require a maximum liabilities to tangible net worth ratio , a minimum fixed charge coverage ratio and a positive net income . at july 28 , 2012 , the company was in compliance with all terms and covenants of the revolving loan agreement . under the above covenants , village had approximately $ 124,534 of net worth available at july 28 , 2012 for the payment of dividends . during fiscal 2012 , village paid cash dividends of $ 9,758. dividends in fiscal 2012 consist of $ .85 per class a common share and $ .5525 per class b common share . during fiscal 2011 , village paid cash dividends of $ 19,086. dividends in fiscal 2011 consist of $ 1.70 per class a common share and $ 1.105 per class b common share . these amounts include $ 14,005 of special dividends paid in december 2010 , comprised of $ 1.25 per class a common share and $ .8125 per class b common share . 18 contractual obligations and commitments the table below presents significant contractual obligations of the company at july 28 , 2012 : replace_table_token_7_th ( 1 ) in addition , the company is obligated to purchase 85 % of its primary merchandise requirements from wakefern ( see note 3 ) . ( 2 ) the above amounts for capital , financing and operating leases include interest , but do not include certain obligations under these leases for other charges . these charges consisted of the following in fiscal 2012 : real estate taxes - $ 4,431 ; common area maintenance - $ 1,994 ; insurance - $ 271 ; and contingent rentals - $ 882 . ( 3 ) pension plan funding requirements are excluded from the above table as estimated contribution amounts for future years are uncertain . required future contributions will be determined by , among other factors , actual investment performance of plan assets , interest rates required to be used to calculate pension obligations , and changes in legislation .
| results of operations the following table sets forth the components of the consolidated statements of operations of the company as a percentage of sales : replace_table_token_6_th sales sales were $ 1,422,243 in fiscal 2012 , an increase of $ 123,315 , or 9.5 % from the prior year . sales increased due to the opening of two new stores in maryland on july 28 , 2011 , the acquisition of a store in old bridge , nj on january 29 , 2012 and a same store sales increase of 4.9 % . same stores sales increased due to higher sales in seven stores due to store closings by competitors , inflation , increased customer counts , and improved sales in the washington and marmora stores , which opened in recent fiscal years . although village experienced inflation in fiscal 2012 , there was minimal change in the average transaction size during the year . as expected , the impact of the competitive store closures that began in the second half of fiscal 2011 and inflation both moderated beginning in the third quarter of fiscal 2012 , resulting in a fourth quarter same store sales increase of 1.8 % . sales continue to be impacted by economic weakness , high gas prices and high unemployment , which has resulted in increased sale item penetration and trading down . the company expects same store sales in fiscal 2013 to increase from 2.0 % to 4.0 % , including the positive impact from the inclusion of the maryland stores in same stores sales beginning in the first quarter of fiscal 2013. new stores and replacement stores are included in same store sales in the quarter after the store has been in operation for four full quarters . store renovations are included in same store sales immediately . sales were $ 1,298,928 in fiscal 2011 , an increase of $ 37,103 , or 2.9 % from the prior year . the prior year included $ 21,000 of sales attributable to a 53rd week .
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notwithstanding boem 's 2016 ntl , boem may also bolster its financial assurance requirements mandated by rule for all companies operating in federal waters . the future cost of compliance with respect to supplemental bonding , including the obligations imposed on us as a result of the 2016 ntl , to the extent implemented , as well as any other future boem directives , or any other changes to boem 's rules applicable to our or any of our subsidiaries ' properties , could materially and adversely affect our financial condition , cash flows and results of operations . deepwater operations . we have interests in deepwater fields in the gulf of mexico . operations in the deepwater can result in increased operational risks as has been demonstrated by the deepwater horizon disaster in 2010. despite technological advances since this disaster , liabilities for environmental losses , personal injury and loss of life and significant regulatory fines in the event of a disaster could be well in excess of insured amounts and result in significant current losses on our statements of operations as well as going concern issues . oil spill response plan . we maintain a regional oil spill response plan that defines our response requirements , procedures and remediation plans in the event we have an oil spill . oil spill response plans are generally approved by bsee bi-annually , except when changes are required , in which case revised plans are required to be submitted for approval at the time changes are made . additionally , these plans are tested and drills are conducted periodically at all levels . hurricanes . since our operations are in the gulf of mexico , we are particularly vulnerable to the effects of hurricanes on production . additionally , affordable insurance coverage for property damage to our facilities for hurricanes has become less effective due to rising retentions and limitations on named windstorm coverage and has been difficult to obtain at times in recent years . significant hurricane impacts could include reductions and or deferrals of future oil and natural gas production and revenues , increased lease operating expenses for evacuations and repairs and possible acceleration of p & a costs . how we evaluate our operations we use a variety of financial and operational metrics to assess the performance of our oil and natural gas operations , including : production volumes ; realized prices on the sale of oil , natural gas and ngls , including the effect of our commodity derivative contracts ; lease operating expenses ; capital expenditures ; and adjusted ebitda , which is discussed under—supplemental non-gaap measure . 67 basis of presentation sources of revenues our revenues are derived from the sale of our oil and natural gas production , as well as the sale of ngls that are extracted from our natural gas during processing . our oil , natural gas and ngl revenues do not include the effects of derivatives , which are reported in price risk management activities income in our consolidated statements of operations . the following table presents a breakout of each revenue component : replace_table_token_15_th our revenues may vary significantly from period to period as a result of changes in volumes of production sold or changes in commodity prices . realized prices on the sale of oil , natural gas and ngls . the nymex wti prompt month oil settlement price is a widely used benchmark in the pricing of domestic oil in the united states . the actual prices we realize from the sale of oil differ from the quoted nymex wti price as a result of quality and location differentials . for example , the prices we realize on the oil we produce are affected by the gulf of mexico basin 's proximity to u.s. gulf coast refineries and the quality of the oil production sold in eugene island crude , louisiana light sweet crude and heavy louisiana sweet crude markets . the nymex henry hub price of natural gas is a widely used benchmark for the pricing of natural gas in the united states . similar to oil , the actual prices we realize from the sale of natural gas differ from the quoted nymex henry hub price as a result of quality and location differentials . currently , the sales points of our gas production are generally within close proximity to the henry hub which creates a minimal differential in the prices we receive for our production versus average henry hub prices . in the past , oil and natural gas prices have been extremely volatile , and we expect this volatility to continue , as indicated in the table below , which provides the high , low and average prices for nymex wti and nymex henry hub monthly contract prices as well as our average realized oil and natural gas sales prices for the periods indicated . replace_table_token_16_th 68 to achieve more predictable cash flow , and to reduce exposure to adverse fluctuations in commodity prices , from time to time we enter into commodity derivative arrangements for our anticipated production . by removing a significant portion of price volatility associated with our anticipated production , we believe it will mitigate , but not eliminate , the potential negative effects of reductions in oil and natural gas prices on our cash flow from operations for those periods . however , in a portion of our current positions , our price risk management activity may also reduce our ability to benefit from increases in prices . we will sustain losses to the extent our commodity derivatives contract prices are lower than market prices and , conversely , we will sustain gains to the extent our commodity derivatives contract prices are higher than market prices . story_separator_special_tag we will continue to use commodity derivative instruments to manage commodity price risk in the future . our hedging strategy and future hedging transactions will be determined at our discretion and may be different from what we have done on a historical basis . expenses direct lease operating expense . direct lease operating expense consists of the daily costs incurred to bring oil , natural gas and ngls out of the underground formation and to the market , together with the daily costs incurred to maintain our producing properties . expenses for direct labor , hp-i lease , materials and supplies , rental and third party costs comprise the most significant portion of our direct lease operating expense . in july 2016 , we executed a new contract for the hp-i accounted for as a capital lease , thus reducing the amount recorded as direct lease operating expenses going forward . insurance expense . insurance expense consists of the cost of insurance policies to cover some of our risk of loss associated with our operations , and we maintain the amount of insurance we believe is prudent based on our estimated loss potential . our significant domestic and international policies include general liability , physical damage to our oil and gas properties , operational control of well , named gulf of mexico windstorm and oil pollution . production taxes . production taxes consist of severance taxes levied by the louisiana department of revenue on production of oil and natural gas from land or water bottoms within the boundaries of the state of louisiana . workover and maintenance expense . workover and maintenance expense consists of costs associated with major remedial operations on completed wells to restore , maintain or improve the well 's production . because the amount of workover and maintenance expense is closely correlated to the levels of workover activity , which is not regularly scheduled , workover and maintenance expense is not necessarily comparable from period to period . depreciation , depletion and amortization expense . depreciation , depletion and amortization expense is the expensing of the capitalized costs incurred to acquire , explore and develop oil and natural gas reserves . we use the full cost method of accounting for oil and natural gas activities . see part ii , item 8. financial statements and supplementary data — note 2 — summary of significant accounting policies for further discussion . accretion expense . we have obligations associated with the retirement of our oil and natural gas wells and related infrastructure . we have obligations to plug wells when production on those wells is exhausted , when we no longer plan to use them or when we abandon them . we accrue a liability with respect to these obligations based on our estimate of the timing and amount to replace , remove or retire the associated assets . accretion of the liability is recognized for changes in the value of the liability as a result of the passage of time over the estimated productive life of the related assets as the discounted liabilities are accreted to their expected settlement values . general and administrative expense . general and administrative expense generally consists of costs incurred for overhead , including payroll and benefits for our corporate staff , costs of maintaining our headquarters , costs of managing our production operations , bad debt expense , equity based compensation expense , audit and other fees for professional services and legal compliance . interest expense . we finance a portion of our working capital requirements , capital expenditures and acquisitions with borrowings under our bank credit facility and term based debt . as a result , we incur interest expense that is affected by both fluctuations in interest rates and our financing decisions . interest includes interest incurred under our debt agreements , the amortization of deferred financing costs ( including origination and amendment fees ) , commitment fees , imputed interest on our capital lease , performance bond premiums and annual agency fees . interest expense is net of capitalized interest on expenditures made in connection with exploratory projects that are not subject to current amortization . 69 price risk management activities . we utilize commodity derivative instruments to reduce our exposure to fluctuations in the price of oil and natural gas . we recognize gains and losses associated with our open commodity derivative contracts as commodity prices and the associated fair value of our commodity derivative contracts change . the commodity derivative contracts we have in place are not designated as hedges for accounting purposes . consequently , these commodity derivative contracts are marked-to-market each quarter with fair value gains and losses recognized currently as a gain or loss in our results of operations . cash flow is only impacted to the extent the actual settlements under the contracts result in making a payment to or receiving a payment from the counterparty . story_separator_special_tag and maintenance expense and accretion expense , respectively , in connection with the stone combination . price risk management activities . price risk management activities for year ended december 31 , 2018 resulted in income of $ 60.4 million compared to an expense of $ 27.6 million for the year ended december 31 , 2017. the income of $ 60.4 million for the year ended december 31 , 2018 consists of $ 111.1 million in cash settlement losses offset by $ 171.6 million in non-cash gains from the increase in the fair value of our open derivative contracts . the expense of $ 27.6 million for the year ended december 31 , 2017 consists of cash settlement gains of $ 23.8 million offset by a $ 51.4 million in non-cash losses from the decrease in the fair value of our open derivatives contracts . these unrealized gains on open derivative contracts relate to production for future periods ; however , changes in the fair value of all of our open derivative contracts are recorded
| results of operations comparison of the year ended december 31 , 2018 and 2017 the information below provides the financial results and an analysis of significant variances in these results for the year ended december 31 , 2018 and 2017 ( in thousands ) : replace_table_token_17_th 70 the table below provides additional detail of our oil , natural gas and ngl production volumes and sales prices per unit . replace_table_token_18_th 71 the following table highlights operating expense items in total and on a cost per boe production basis . the information below provides the financial results and an analysis of significant variances in these results for the year ended december 31 , 2018 and 2017 ( in thousands , except per boe data ) : replace_table_token_19_th revenue . total revenue for the year ended december 31 , 2018 was $ 891.3 million compared to $ 412.8 million for the year ended december 31 , 2017 , an increase of approximately $ 478.5 million or 116 % . oil revenue increased by approximately $ 437.0 million , or 127 % , during the year ended december 31 , 2018 compared to the corresponding period in 2017. this increase was primarily due to an increase of $ 17.50 per bbl in our realized oil sales price and a 12.9 mbblpd increase in oil production volumes . the increase in oil production volumes was attributable to 11.7 mbblpd from the stone combination and the whistler acquisition collectively , and 3.2 mbblpd from the tornado ii well in the phoenix field which commenced initial production in december 2017. the increase in production was partially offset by unplanned third party downtime .
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the company does not use derivative instruments for trading or speculative purposes . the company 's objective in managing exposure to market risk is to limit the impact on earnings and cash flow . the extent to which the company uses such instruments is dependent upon its access to these contracts in the financial markets and its success using other methods , such as netting exposures in the same currencies to mitigate foreign exchange risk and using sales agreements that permit the pass-through of commodity price and foreign exchange rate risk to customers . for derivative financial instruments accounted for in hedging relationships , the company formally designates and documents , at inception , the financial instrument as a hedge story_separator_special_tag ( in millions , except per share , average settlement cost per asbestos claim , employee , shareholder and statistical data ) introduction the following discussion summarizes the significant factors affecting the results of operations and financial condition of crown holdings , inc. ( the `` company '' ) as of and during the three-year period ended december 31 , 2020. this discussion should be read in conjunction with the consolidated financial statements included in this annual report . business strategy and trends the company 's strategy is to grow its businesses in targeted growth markets , while improving operations and results in more mature markets through disciplined pricing , cost control and careful capital allocation . the company 's global beverage can business continues to be a major strategic focus for organic growth . beverage cans are the world 's most sustainable and recycled beverage packaging and continue to gain market share in new beverage product launches . the company continues to drive brand differentiation by increasing its ability to offer multiple product sizes . for several years , global industry demand for beverage cans has been growing . in north america , beverage can growth has accelerated in recent years mainly due to the outsized portion of new beverage products being introduced in cans versus other packaging formats . in addition , markets such as brazil , europe , mexico and southeast asia have also experienced higher volumes and market expansion , although volumes in certain of those markets were negatively affected by the impact of covid-19 in 2020. the company continues to invest in capacity expansion to meet the accelerating demand . the company 's primary capital allocation focus has been to reduce leverage , as was successfully accomplished following previous acquisitions , and to begin to return capital to its shareholders . in november 2019 , the company announced a board-led review of the company 's portfolio and capital allocation strategy , which is ongoing . the company is currently marketing its european tinplate business , which is comprised of its food cans , food closures , aerosol cans and promotional containers operations . there can be no assurances as to the timing , price realized or certainty of such a sale and as a result , a potential sale could result in a future impairment charge . the company intends to initiate a regularly quarterly dividend beginning in the first quarter of 2021. in addition , the company anticipates opportunistically repurchasing shares of its common stock in 2021 pursuant to an authorization by the company 's board of directors to repurchase up to $ 1.5 billion of the company 's common stock through the end of 2023. in direct response to the coronavirus pandemic , the company has taken specific actions to ensure the safety of its employees . following the implementation of travel and visitor restrictions in february , the company continues to update its policies as new information becomes available . the company has increased safety measures in its manufacturing facilities to protect the safety of its employees and the products they produce . in addition , as many employees as possible are working remotely . the company 's products are a vital part of the support system to its customers and consumers . in addition to manufacturing containers that provide protection for food and beverages , the company also produces closures for baby food , aerosol containers for cleaning and sanitizing products and numerous other products that provide for the safe and secure transportation of goods in transit . the company is working to keep its manufacturing facilities around the world operational and equipped with the resources required to meet continually evolving customer demand by delivering high quality products in a safe and timely manner . the company is actively monitoring and managing supply chain challenges , including coordinating with its suppliers to identify and mitigate potential areas of risk and manage inventories . the company continues to actively elevate its industry-leading commitment to sustainability , which is a core value of the company . in july 2020 , the company debuted twentyby30 , a robust program that outlines twenty measurable environmental , social and governance goals to be completed by 2030 or sooner . 27 crown holdings , inc. story_separator_special_tag beverage segment manufactures steel and aluminum beverage cans and ends and supplies a variety of customers from its operations throughout europe , the middle east and north africa . in recent years , the western european beverage can markets have been growing . in october 2018 , the first line of a new beverage can plant in valencia , spain began operations and a second line began operations in february 2019. additionally , in december 2019 , the company commenced operations at a new one-line plant in parma , italy . in the second quarter of 2020 , both beverage can lines in the seville , spain plant began commercial production of aluminum cans . net sales and segment income in the european beverage segment were as follows : replace_table_token_4_th year ended december 31 , 2020 compared to 2019 net sales decreased primarily due to the pass-through of lower aluminum costs , partially offset by $ 16 related to the impact of foreign currency translation . segment income increased primarily due to improved operational performance and cost savings . story_separator_special_tag translation . the company 's north america food can business benefited from more at-home meal preparation during the coronavirus pandemic . segment income decreased primarily due to $ 16 arising from the carryover of higher tinplate costs from the prior year-end inventory and lower shipments in the company 's global aerosol can businesses , partially offset by higher sales in the company 's beverage can equipment operations and higher sales unit volumes in the company 's north america food can business . year ended december 31 , 2019 compared to 2018 net sales increased primarily due to the pass-through of higher tinplate costs and 5 % higher sales unit volumes in the company 's north america food can business partially offset by lower sales unit volumes in the company 's equipment operations and $ 17 from the impact of foreign currency translation . segment income increased primarily due to higher sales unit volumes and lower freight costs in the company 's north america food can business and favorable product mix in the company 's equipment operations , partially offset by higher tinplate and other operating costs in the company 's global aerosol businesses that were not fully passed through in selling price . corporate and unallocated replace_table_token_9_th corporate and unallocated costs increased from 2019 to 2020 primarily due to higher incentive compensation costs . 31 crown holdings , inc. corporate and unallocated costs increased from 2018 to 2019 primarily due to higher incentive compensation and claims activity in 2019. interest expense interest expense decreased from $ 378 in 2019 to $ 300 in 2020 primarily due to lower outstanding debt and lower interest rates . interest expense decreased from $ 384 in 2018 to $ 378 in 2019 primarily due to lower interest rates offset by higher average outstanding debt incurred to finance the signode acquisition . taxes on income the company 's effective income tax rates were as follows : replace_table_token_10_th the effective tax rate in 2020 was 26.3 % . the lower effective tax rate in 2019 included a benefit of $ 36 from the release of a valuation allowance against the company 's net deferred tax assets in luxembourg and a benefit of $ 9 arising from tax law changes in india , partially offset by a charge of $ 15 to settle a tax contingency arising from a transaction that occurred prior to the acquisition of signode in 2018. the effective tax rate in 2018 included $ 24 related to taxes on the distributions of foreign earnings , which were previously asserted to be indefinitely reinvested . for additional information regarding income taxes , see note r to the consolidated financial statements . net income attributable to noncontrolling interests net income attributable to noncontrolling interest decreased from $ 115 in 2019 to $ 109 in 2020 primarily due to higher income in brazil in 2019 related to a favorable court ruling for one of the company 's brazilian subsidiaries related to indirect taxes . net income attributable to noncontrolling interest increased from $ 89 in 2018 to $ 115 in 2019 primarily due to higher earnings in the company 's beverage can operations in brazil , including the impact of a favorable court ruling related to the recovery of indirect taxes paid in prior years . liquidity and capital resources operating activities cash provided by operating activities increased from $ 1,163 in 2019 to $ 1,315 in 2020 primarily due to higher income from operations . receivables increased from $ 1,528 at december 31 , 2019 to $ 1,783 at december 31 , 2020 primarily due to higher sales unit volumes and the impact of foreign currency translation . days sales outstanding for trade receivables , excluding the impact of unbilled receivables , increased from 36 at december 31 , 2019 to 38 at december 31 , 2020. inventories increased from $ 1,626 at december 31 , 2019 to $ 1,673 at december 31 , 2020 primarily due to the impact of foreign currency translation . inventory turnover was 63 days at december 31 , 2019 compared to 64 days at december 31 , 2020. the food can business is seasonal with the first quarter tending to be the slowest period as the autumn packaging period in the northern hemisphere has ended and new crops are not yet planted . the industry enters its busiest period in the third quarter when the majority of fruits and vegetables in the northern hemisphere are harvested . due to this seasonality , inventory levels increase in the first half of the year to meet peak demand in the second and third quarters . the beverage can business is also seasonal with inventory levels generally increasing in the first half of the year to meet peak demand in the summer months in the northern hemisphere . 32 crown holdings , inc. accounts payable increased from $ 2,646 at december 31 , 2019 to $ 2,845 at december 31 , 2020 and days outstanding for trade payables increased from 99 days at december 31 , 2019 to 108 days at december 31 , 2020 primarily due to higher sales unit volumes and the impact of foreign currency translation . investing activities cash used for investing activities increased from $ 374 in 2019 to $ 535 in 2020 primarily due to increased capital expenditures related to capacity expansion projects in the americas beverage segment . the company currently expects capital expenditures in 2021 to be approximately $ 850. at december 31 , 2020 , the company had approximately $ 177 of capital commitments primarily related to its americas beverage segment . the company expects to fund these commitments primarily through cash generated from operations .
| results of operations the key measure used by the company in assessing performance is segment income , a non-gaap measure generally defined by the company as income from operations adjusted to exclude intangibles amortization charges , provisions for asbestos and restructuring and other , and the impact of fair value adjustments to inventory acquired in an acquisition . the foreign currency translation impacts referred to in the discussion below were primarily due to changes in the euro and pound sterling in the company 's european segments , the mexican peso in the company 's americas segments , the thai baht in the company 's asia pacific segment and the mexican peso , the indian rupee and the euro in the company 's transit packaging segment . the company calculates the impact of foreign currency translation by multiplying or dividing , as appropriate , current year u.s. dollar results by the current year average foreign exchange rates and then multiplying or dividing , as appropriate , those amounts by the applicable prior year average exchange rates . net sales and segment income replace_table_token_2_th year ended december 31 , 2020 compared to 2019 net sales decreased primarily due to the pass-through of lower raw material costs and $ 59 from the impact of foreign currency translation , partially offset by 4 % higher global beverage can sales unit volumes and 7 % higher global food can sales unit volumes . year ended december 31 , 2019 compared to 2018 net sales increased primarily due to $ 569 from an additional three months of signode 's operations , following its acquisition in april 2018 , and 3 % higher global beverage sales unit volumes , partially offset by the impact of foreign currency translation .
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the espp period is semi-annual and allows participants to purchase the company 's stock at 85 % of the lower of ( i ) the market value per share of the common stock on the first day story_separator_special_tag the discussion below contains forward-looking statements that involve risks and uncertainties . our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors , including those which are discussed in the “ risk factors ” section in part i , item 1a of this 10-k. also see “ statement regarding forward-looking statements ” preceding part i. the following discussion and analysis should be read in conjunction with the consolidated financial statements and the notes thereto included in this 10-k. overview we are a high-growth outdoor sporting goods retailer focused on meeting the everyday needs of the seasoned outdoor veteran , the first-time participant and every enthusiast in between . our mission is to provide a one-stop shopping experience that equips our customers with the right quality , brand name hunting , shooting , fishing and camping gear to maximize their enjoyment of the outdoors . our business was founded in 1986 as a single retail store in midvale , utah . today , we operate 66 stores in 20 states , totaling approximately 2.8 million gross square feet . during fiscal year 2015 , we increased our gross square footage by 9.8 % through the opening of nine stores in the following locations : ● spokane , washington on march 7 , 2015 ; ● klamath falls , oregon on april 25 , 2015 ; ● heber city , utah on may 9 , 2015 ; ● show low , arizona on june 27 , 2015 ; ● williston , north dakota on july 11 , 2015 ; ● fresno , california on july 18 , 2015 ; ● albany , oregon on august 15 , 2015 ; ● flagstaff , arizona on september 12 , 2015 ; and ● sheridan , colorado on september 19 , 2015. during fiscal year 2016 , we have opened stores in the following locations : ● slidell , louisiana on february 27 , 2016 and ● south jordan , utah , on march 19 , 2016. individual stores are aggregated into one operating and reportable segment . how we assess the performance of our business in assessing the performance of our business , we consider a variety of performance and financial measures . the key measures for determining how our business is performing are net sales , same store sales , gross margin , selling , general and administrative expenses , income from operations and adjusted ebitda . fiscal year we operate using a 52/53 week fiscal year ending on the saturday closest to january 31. fiscal years 2015 , 2014 and 2013 ended on january 30 , 2016 , january 31 , 2015 and february 1 , 2014 , respectively . fiscal years 2015 , 2014 , and 2013 each contained 52 weeks of operations . 37 net sales and same store sales our net sales are primarily received from revenue generated in our stores and also include sales generated through our e-commerce platform . when measuring revenue generated from our stores , we review our same store sales as well as the performance of our stores that have not operated for a sufficient amount of time to be included in same store sales . we include net sales from a store in same store sales on the first day of the 13th full fiscal month following the store 's opening or acquisition by us . we exclude net sales from e-commerce from our calculation of same store sales . measuring the change in year-over-year same store sales allows us to evaluate how our retail store base is performing . various factors affect same store sales , including : · changes or anticipated changes to regulations related to some of the products we sell ; · consumer preferences , buying trends and overall economic trends ; · our ability to identify and respond effectively to local and regional trends and customer preferences ; · our ability to provide quality customer service that will increase our conversion of shoppers into paying customers ; · competition in the regional market of a store ; · atypical weather ; · changes in our product mix ; and · changes in pricing and average ticket sales . opening new stores is also an important part of our growth strategy . since the beginning of fiscal year 2010 , we opened 29 stores , including the nine new stores we have opened in fiscal year 2015 and the two new stores we have opened in fiscal year 2016. for the next several years , we intend to grow our store base at a rate of greater than 10 percent annually . as part of our growth strategy , we also re-acquired 10 stores in fiscal ye a r 2013 that were previously operated under our sportsman 's warehouse banner . for our new locations , we measure our investment by reviewing the new store 's four-wall adjusted ebitda margin and pre-tax return on invested capital ( “ roic ” ) . we target a minimum 10 % four-wall adjusted ebitda margin and a minimum roic of 50 % excluding initial inventory costs ( or 20 % including initial inventory cost ) for the first full twelve months of operation for a new store . the 20 new stores that we have opened since 2010 and that have been open for a full twelve months ( excluding the 10 acquired stores ) have achieved an average four-wall adjusted ebitda margin of 14.1 % and an average roic of 98.3 % excluding initial inventory cost ( and 34.2 % including initial inventory cost ) during their first full twelve months of operations . four-wall adjusted ebitda means , for any period , a particular store 's adjusted ebitda , excluding any allocations of corporate selling , general and administrative expenses allocated to that store . story_separator_special_tag this increase was partially offset by an $ 18.3 million decrease in the hunting and shooting department as a result of decreased demand for firearms , ammunition and related products as compared to the corresponding period of fiscal year 2013. during the fourth fiscal quarter of fiscal year 2012 , we experienced increased demand for firearms that continued into fiscal year 2013 , due in part to the public perception during that period that federal or state legislation might be enacted that would potentially make it more difficult to purchase certain firearms , ammunition and reloading supplies . our sales of firearms returned closer to historical sales levels during the latter part of fiscal year 2013 , which when combined with sales of ammunition and related products , resulted in the decrease in same store sales for fiscal year 2014 compared to the same period in fiscal year 2013. with respect to same store sales , four of our six departments ( clothing , hunting and shooting , fishing , and optics , electronics and accessories ) realized a decline in same store sales because of the decrease in demand for firearms and ammunition , as discussed above , and the associated decrease in customer traffic associated with this decreased demand . our hunting and shooting department experienced a same store sales decline of 16.1 % during fiscal year 2014 when compared to fiscal year 2013. warm weather in our markets also adversely impacted the sales of our clothing products causing clothing department sales to decline approximately 2.0 % when compared with clothing department sales from fiscal year 2013. these declines were partially offset by the camping and footwear departments , which had same store sales increases of 2.9 % and 3.3 % , respectively , during the same period . as of january 31 , 2015 , we had 47 stores included in our same store sales calculation . during fiscal year 2014 , we opened eight new stores . these eight new locations generated net sales of $ 51.1 million during this period . existing stores that were not included in same store sales generated $ 18.4 million in additional net sales in fiscal year 2014 over fiscal year 2013. net sales from our e-commerce business remained flat at $ 7.5 million in fiscal year 2014 when compared to fiscal year 2013 . 41 gross profit . gross profit increased by $ 8.0 million , or 3.8 % , to $ 215.2 million for fiscal year 2014 from $ 207.2 million for fiscal year 2013. as a percentage of net sales , gross profit increased by 0.4 % to 32.6 % for fiscal year 2014 from 32.2 % in fiscal year 2013. the increase in gross profit from the corresponding period of the prior fiscal year was due to an increase in vendor incentives received during the year combined with a shift in the sales mix from lower margin products to higher margin products . selling , general and administrative expenses . selling , general and administrative expenses increased by $ 23.2 million , or 15.8 % , to $ 170.3 million for fiscal year 2014 from $ 147.1 million for fiscal year 2013. the increase in these expenses resulted from an increase in the number of stores in operation over the corresponding period of the prior year . our payroll , rent and depreciation and amortization expenses increased $ 10.7 million , $ 4.7 million and $ 2.9 million , respectively , for fiscal year 2014 from fiscal year 2013. also , as described in “ item 3. legal proceedings ” , there was an additional $ 4.0 million increase in other operating expenses due to an accrual with respect to a litigation matter . these increases were partially offset by a decrease in the costs associated with our acquisition of the 10 stores in march 2013 of $ 2.3 million during fiscal year 2013. our total payroll expense for the first half of fiscal year 2014 included $ 2.2 million in bonuses paid as a result of the successful completion of our initial public offering and pursuant to the terms of the employment agreements with our executive officers and $ 3.3 million in non-cash stock-based compensation , $ 1.2 million of which was due to accelerated vesting triggered by our initial public offering . selling , general and administrative expenses were 25.8 % of net sales in fiscal year 2014 compared to 22.9 % of net sales in fiscal year 2013. selling , general and administrative expenses increased as a percentage of net sales primarily due to the increase in bonuses and stock-based compensation expense related to our initial public offering , increased payroll , rent and pre-opening expenses from the new store locations and the litigation accrual described above . interest expense . interest expense decreased by $ 3.0 million , or 11.7 % , to $ 22.5 million in fiscal year 2014 from $ 25.4 million for fiscal year 2013. interest expense decreased primarily as a result of our lower debt balance during fiscal year 2014 compared to fiscal year 2013. specifically , as described below under “ —liquidity and capital resources , ” we used the net proceeds from our initial public offering and partial exercise of the underwriter 's overallotment to repay $ 73.3 million outstanding under our term loan facility in april and may of 2014. additionally , we refinanced our term loan in the fourth quarter of 2014 , which resulted in additional interest expense of $ 5.7 million in fiscal year 2014 related to this refinance and increased our outstanding amount from $ 158.8 million to $ 160.0 million . in august 2013 , we refinanced our term loan facility and increased the outstanding amount under this facility by $ 110.0 million , from $ 125.0 million to $ 235.0 million , and , as a result of this refinance , we recorded $ 8.1 million of interest expense in fiscal year 2013. income taxes .
| results of operations the following table summarizes key components of our results of operations as a percentage of net sales for the periods indicated : replace_table_token_9_th 39 the following table shows our sales during the periods presented by department : replace_table_token_10_th fiscal year 2015 compared to fiscal year 2014 net sales . net sales increased by $ 69.9 million , or 10.6 % , to $ 729.9 million in the fiscal year 2015 compared to $ 660.0 million in fiscal year 2014. net sales increased due to net sales generated from our nine new stores openings during fiscal year 2015 and a full year of the eight stores opened during fiscal year 2014 for the period of time prior to inclusion in our same store sales . these new stores generated $ 62.5 million in additional net sales in the fiscal year 2015 compared to fiscal year 2014. this increase from our new store openings was supplemented by an increase in our same stores sales for the period of 1.1 % . with respect to same store sales , three of our six departments ( camping , hunting and shooting , and fishing ) realized an increase in same store sales . our hunting and shooting department experienced a same store sales increase of 2.2 % during fiscal year 2015 when compared to fiscal year 2014. our camping and fishing departments experienced same store sales increases of 6.5 % and 2.6 % , respectively . sales in our camping department were positively impacted by increased product innovations within various categories . the increases in camping , hunting and shooting , and fishing were partially offset by the clothing , footwear , and optics , electronics and accessories departments , which had same store sales decreases of 7.7 % , 2.3 % , and 1.0 % , respectively , during the same period . our clothing and footwear departments were negatively impacted by unseasonably warm weather in the majority of our markets .
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( morgan schaffer ) ; and nrg systems , inc. ( nrg ) . · technical packaging : thermoform engineered quality llc ( teq ) ; plastique limited and plastique sp . z o.o . ( together , plastique ) . 17 filtration . pti , vacco and crissair primarily design and manufacture specialty filtration products including hydraulic filter elements and fluid control devices used in commercial aerospace applications , unique filter mechanisms used in micro-propulsion devices for satellites and custom designed filters for manned aircraft and submarines . westland designs , develops and manufactures elastomeric-based signature reduction solutions for u.s. naval vessels . mayday designs and manufactures mission-critical bushings , pins , sleeves and precision-tolerance machined components for landing gear , rotor heads , engine mounts , flight controls , and actuation systems for the aerospace and defense industries . hi-tech is a full-service metal processor serving aerospace suppliers . test . ets-lindgren is an industry leader in providing its customers with the ability to identify , measure and contain magnetic , electromagnetic and acoustic energy . usg . doble provides high-end , intelligent diagnostic test solutions for the electric power delivery industry and is a leading supplier of power factor and partial discharge testing instruments used to assess the integrity of high-voltage power delivery equipment . morgan schaffer provides an integrated offering of dissolved gas analysis , oil testing , and data management solutions which enhance the ability of electric utilities to accurately monitor the health of critical power transformers . nrg designs and manufactures decision support tools for the renewable energy industry , primarily wind . technical packaging . the companies within this segment provide innovative solutions to the medical and commercial markets for thermoformed and precision molded pulp fiber packages and specialty products using a wide variety of thin gauge plastics and pulp . the company continues to operate with meaningful growth prospects in its primary served markets and with considerable financial flexibility . the company continues to focus on new products that incorporate proprietary design and process technologies . management is committed to delivering shareholder value through organic growth , ongoing performance improvement initiatives , and acquisitions . highlights of 2017 operations · sales , net earnings and diluted earnings per share in 2017 were $ 685.7 million , $ 53.7 million and $ 2.07 per share , respectively , compared to sales , net earnings and diluted earnings per share in 2016 of $ 571.5 million , $ 45.9 million and $ 1.77 per share , respectively . · diluted eps – as adjusted for 2017 was $ 2.22 and excludes $ 6.1 million of pretax charges ( or $ 0.15 per share after tax ) consisting of non-cash purchase accounting inventory step-up charges and costs incurred to complete the company 's 2017 acquisitions , described below . diluted eps – as adjusted for 2016 was $ 2.03 and excludes $ 7.8 million of pretax charges ( or $ 0.26 per share after tax ) of restructuring charges related to the 2016 test and doble restructuring actions . · net cash provided by operating activities was approximately $ 67.3 million in 2017 compared to $ 73.9 million in 2016 , mainly due to an increase in working capital . · at september 30 , 2017 , cash on hand was $ 45.5 million and outstanding debt was $ 275 million , for a net debt position ( total debt less net cash ) of approximately $ 229.5 million . · entered orders for 2017 were $ 736.6 million resulting in a book-to-bill ratio of 1.07x . backlog at september 30 , 2017 was $ 377.1 million compared to $ 326.2 million at september 30 , 2016 . · in august 2017 , the company acquired the assets of vanguard instruments company ( vanguard instruments ) , a test equipment provider serving the global electric utility market , located in ontario , california , for a purchase price of $ 36.0 million in cash . since the date of acquisition , the operating results for vanguard instruments have been included as a product line of doble within the company 's usg segment . · in may 2017 , the company acquired the assets of morgan schaffer inc. ( morgan schaffer ) , a global utilities provider located in montreal , quebec , canada for a purchase price of $ 48.8 million in cash . morgan schaffer manufactures an integrated offering of dissolved gas analysis , oil testing , and data management solutions serving the electric utility market . since the date of acquisition , the operating results for morgan schaffer have been included in the company 's usg segment . · in may 2017 , the company acquired nrg systems , inc. ( nrg ) , located in hinesburg , vermont , for a purchase price of $ 38.6 million in cash . nrg is a market leader in the design and manufacture of decision support tools for the renewable energy industry , primarily wind . since the date of acquisition , the operating results for nrg have been included in the company 's usg segment . 18 · in november 2016 , the company acquired aerospace suppliers mayday manufacturing co. ( mayday ) and its affiliate , hi-tech metals , inc. ( hi-tech ) , located in denton , texas , for a purchase price of approximately $ 75 million in cash . mayday is a manufacturer of bushings , pins , sleeves and precision-tolerance machined components for the aerospace and defense industry . since the date of acquisition , the operating results for mayday and hi-tech have been included in the company 's filtration segment . · the company declared dividends of $ 0.32 per share during 2017 , totaling $ 8.3 million in dividend payments . story_separator_special_tag the $ 1.5 million increase in ebit in 2016 as compared to 2015 was primarily due to an increase in sales volumes and the full year ebit contribution from the 2015 acquisition of enoserv . in addition , 2016 ebit was negatively impacted by $ 2.0 million of incremental restructuring charges incurred related to the closing of the brazil office consisting mainly of employee severance and compensation benefits and asset write downs . technical packaging ebit decreased $ 1.1 million in 2017 as compared to 2016 mainly due to higher sg & a expenses at plastique due to the full year being included in 2017. ebit increased $ 4.7 million in 2016 as compared to 2015 mainly due to the acquisitions of plastique and fremont and the higher sales volumes to commercial and medical customers . corporate corporate operating charges included in 2017 consolidated ebit increased to $ 32.1 million as compared to $ 30.1 million in 2016 due to an increase in acquisition related expenses , mainly from increased amortization of intangible assets on recent acquisitions . corporate operating charges included in 2016 consolidated ebit increased to $ 30.1 million as compared to $ 23.4 million in 2015 due to an increase in professional fees , acquisition related expenses , and head count related expenses . the “ reconciliation to consolidated totals ( corporate ) ” in note 13 to the consolidated financial statements included herein represents corporate office operating charges . interest expense , net interest expense was $ 4.6 million in 2017 , $ 1.3 million in 2016 and $ 0.8 million in 2015. the increase in interest expense in 2017 as compared to 2016 was due to higher average outstanding borrowings ( $ 211.3 million compared to $ 89.2 million ) and higher average interest rates ( 2.1 % vs. 1.6 % ) as a result of the additional borrowings to fund the company 's 2017 acquisitions ( mayday , morgan schaffer , nrg and vanguard instruments ) .the increase in interest expense in 2016 as compared to 2015 was due to higher average interest rates ( 1.6 % vs. 1.3 % ) and higher average outstanding borrowings ( $ 89.2 million vs. $ 68.5 million ) as a result of the additional borrowings to fund the company 's 2016 acquisitions ( westland , plastique and fremont ) . income tax expense the effective tax rates from continuing operations for 2017 , 2016 and 2015 were 33.0 % , 32.9 % and 32.2 % , respectively . the increase in the 2017 effective tax rate as compared to 2016 as well as the 2016 effective tax rate as compared to 2015 was primarily due to normal tax fluctuations within the ordinary course of business . 22 the company 's foreign subsidiaries had accumulated unremitted earnings of $ 48.9 million and cash of $ 28.4 million at september 30 , 2017. no deferred taxes have been provided on these accumulated unremitted earnings because these funds are not needed to meet the liquidity requirements of the company 's u.s. operations and it is the company 's intention to indefinitely reinvest these earnings in continuing international operations . in the event these foreign entities ' earnings were distributed , it is estimated that u.s. taxes , net of available foreign tax credits , of approximately $ 6.9 million would be due , which would correspondingly reduce the company 's net earnings . no significant portion of the company 's foreign subsidiaries ' earnings was taxed at a rate significantly less than the u.s. statutory tax rate . capital resources and liquidity the company 's overall financial position and liquidity are strong . working capital ( current assets less current liabilities ) increased to $ 197.8 million at september 30 , 2017 , from $ 165.4 million at september 30 , 2016 , mainly due to higher accounts receivable and inventory balances . the $ 39.1 million increase in accounts receivable at september 30 , 2017 was mainly due to a $ 17.5 million increase within the filtration segment mainly due to the acquisition of mayday and a $ 16.2 million increase within the usg segment mainly due to the acquisitions of nrg , morgan schaffer and vanguard instruments . the $ 19.0 million increase in inventory at september 30 , 2017 was mainly due to a $ 10.9 million increase in the usg segment due to the nrg , morgan schaffer and vanguard instruments acquisitions and a $ 7.5 million increase in the filtration segment due to the mayday acquisition . net cash provided by operating activities from continuing operations was $ 67.3 million , $ 73.9 million and $ 65.0 million in 2017 , 2016 and 2015 , respectively ; the changes were mainly due to changes in working capital . net cash used in investing activities from continuing operations was $ 233.9 million , $ 104.6 million and $ 39.5 million in 2017 , 2016 , and 2015 , respectively . the increase in net cash used in investing activities in 2017 as compared to 2016 was due to the company 's 2017 acquisitions of mayday , nrg , morgan schaffer and vanguard instruments . capital expenditures for continuing operations were $ 29.7 million , $ 13.8 million and $ 12.4 million in 2017 , 2016 and 2015 , respectively . the increase in capital expenditures in 2017 as compared to 2016 was mainly due to an increase in machinery and equipment at vacco , a facility expansion at plastique and the capital expenditures specific to the company 's recently acquired entities . there were no commitments outstanding that were considered material for capital expenditures at september 30 , 2017. in addition , the company incurred expenditures for capitalized software of $ 9.0 million , $ 8.7 million and $ 6.9 million 2017 , 2016 and 2015 , respectively . the increase in 2016 as compared to 2015 was mainly due to higher capitalized software expenditures within the usg and test segments .
| results of operations net sales replace_table_token_3_th net sales increased $ 114.2 million , or 20.0 % , to $ 685.7 million in 2017 from $ 571.5 million in 2016. the increase in net sales in 2017 as compared to 2016 was due to a $ 71.7 million increase in the filtration segment , a $ 34.6 million increase in the usg segment and an $ 8.5 million increase in the technical packaging segment , partially offset by a $ 0.6 million decrease in the test segment . net sales increased $ 34.2 million , or 6.4 % , to $ 571.5 million in 2016 from $ 537.3 million in 2015. the increase in net sales in 2016 as compared to 2015 was due to a $ 35.0 million increase in the technical packaging segment , an $ 11.1 million increase in the filtration segment and a $ 4.2 million increase in the usg segment , partially offset by a $ 16.1 million decrease in the test segment . filtration . the $ 71.7 million , or 34.5 % increase in net sales in 2017 as compared to 2016 was primarily driven by the company 's recent acquisitions of westland and mayday , described under “ acquisitions ” below , which contributed $ 21.0 million and $ 40.0 million , respectively ; and a $ 12.4 million increase at vacco due to higher shipments of its defense products including navy spares , partially offset by a $ 2.4 million decrease in sales at crissair due to lower aerospace shipments .
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we are under no obligation to update any of the forward-looking statements after the filing of this annual report to conform such statements to actual results or to changes in our expectations . the following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes and other financial information appearing elsewhere in this annual report . readers are also urged to carefully review and consider the various disclosures made by us which attempt to advise interested parties of the factors which affect our business , including without limitation the disclosures made in item 1a of part i of this annual report under the caption “ risk factors ” . risk factors that could cause actual results to differ from those contained in the forward-looking statements include but are not limited to risks related to : volatility in our revenues and results of operations ; changing conditions in the financial markets ; our ability to generate sufficient revenues to achieve and maintain profitability ; the short term nature of our engagements ; the accuracy of our estimates and valuations of inventory or assets in “ guarantee ” based engagements ; competition in the asset management business potential losses related to our auction or liquidation engagements ; our dependence on communications , information and other systems and third parties ; potential losses related to purchase transactions in our auction and liquidations business ; the potential loss of financial institution clients ; potential losses from or illiquidity of our proprietary investments ; changing economic and market conditions ; potential liability and harm to our reputation if we were to provide an inaccurate appraisal or valuation ; potential mark-downs in inventory in connection with purchase transactions ; failure to successfully compete in any of our segments ; loss of key personnel ; our ability to borrow under our credit facilities as necessary ; failure to comply with the terms of our credit agreements ; our ability to meet future capital requirements ; our ability to realize the benefits of our completed and proposed acquisitions , including our ability to achieve anticipated opportunities and operating cost savings , and accretion to reported earnings estimated to result from completed and proposed acquisitions in the time frame expected by management or at all ; the possibility that our proposed acquisition of fbr & co , inc. ( “ fbr ” ) does not close when expected or at all ; our ability to promptly and effectively integrate our business with that of fbr if such transaction closes ; the reaction to the fbr acquisition of our and fbr 's customers , employees and counterparties ; and the diversion of management time on acquisition-related issues . except as otherwise required by the context , references in this annual report to “ the “ company , ” “ b . riley , ” “ we , ” “ us ” or “ our ” refer to the combined business of b. riley financial , inc. and all of its subsidiaries . overview b. riley financial , inc. and its subsidiaries ( nasdaq : rily ) provides collaborative financial services and solutions through several operating subsidiaries including : § b. riley & co. , llc ( “ brc ” ) , a mid-sized , full service investment bank providing financial advisory , corporate finance , research , and sales & trading services to corporate , institutional and high net worth individual clients ; § b. riley capital management , llc , a securities and exchange commission ( “ sec ” ) registered investment advisor , which includes b. riley asset management , a provider of investment products to institutional and high net worth investors ; b. riley wealth management ( formally mk capital advisors ) , a multi-family office practice and wealth management firm focused on the needs of ultra-high net worth individuals and families ; and great american capital partners , llc ( “ gacp ” ) , the general partner of a private fund , gacp i , l.p. , a direct lending fund that provides senior secured loans and second lien secured loan facilities to middle market public and private u.s. companies ; § great american group , llc , a leading provider of asset disposition and auction solutions to a wide range of retail and industrial clients ; § great american group advisory and valuation services , llc , a leading provider of valuation services for asset based lenders and corporate clients ; and 39 we also pursue a strategy of investing in or acquiring companies which we believe have attractive investment return characteristics . on july 1 , 2016 , we acquired united online , inc. ( “ uol ” ) as part of our principal investments strategy . uol is a communications company that offers consumer subscription services and products , consisting of internet access services and devices under the netzero and juno brands primarily sold in the united states . with the acquisition of uol on july 1 , 2016 , for financial reporting purposes we now classify our businesses into four operating segments : ( i ) capital markets , ( ii ) auction and liquidation , ( iii ) valuation and appraisal and ( iv ) principal investments - united online . capital markets segment . our capital markets segment provides a full array of investment banking , corporate finance , research , wealth management , sales and trading services to corporate , institutional and high net worth clients . our corporate finance and investment banking services include merger and acquisitions advisory services to public and private companies , initial and secondary public offerings , and institutional private placements . in addition , we trade equity securities as a principal for our account , including investments in funds managed by our subsidiaries . our capital markets segment also includes our asset management businesses that manage various private and public funds for institutional and individual investors . auction and liquidation segment . story_separator_special_tag we currently estimate that 5.3 million shares of our common stock will be issued in connection with this transaction , with an assumed value of $ 93.0 million based on the closing price of our common stock on february 17 , 2017. in addition , prior to the closing of the merger , the board of directors of fbr may declare and pay a cash dividend to holders of fbr common stock and fbr equity awards . such dividend on a per share basis will be equal to the value of cash and certain specified investments on fbr 's balance sheet in excess of $ 33.5 million and certain transaction expenses divided by the total number of fully diluted shares of fbr common stock outstanding ( subject to certain adjustments if such dividend would be equal to or more than $ 8.50 per fully diluted share of fbr common stock ) . consummation of the merger is subject to certain closing conditions , as set forth in the merger agreement , including the approval of the merger by our shareholders and the shareholders of fbr . the merger is currently expected to close in the second quarter of 2017. if the merger is consummated , we anticipate that fbr 's operations will be included in our capital markets segment . the merger agreement further provides that , at or prior to the effective time of the merger , the number of directors comprising our full board of directors will be increased by one , with richard j. hendrix , chairman , president and chief executive officer of fbr , being appointed to fill the new seat in accordance with the terms of the employment agreement described below . in connection with the execution of the merger agreement , on february 17 , 2017 , brc and we entered into an employment agreement with mr. hendrix , which provides that , following the closing of the merger , mr. hendrix will become president and chief executive officer of the combined business of fbr and brc and will be appointed to our board of directors , contingent on mr. hendrix remaining employed by fbr through the closing of the merger . in addition , on february 17 , 2017 , certain officers and directors of fbr entered into voting agreements with us with respect to shares of fbr common stock held by such officers or directors , and certain of our officers and directors entered into voting agreements with fbr with respect to shares of our common stock held by such officers or directors , which generally require each stockholder party thereto in his or her capacity as a stockholder , to vote all of the shares of common stock over which such party has voting control in favor of adoption of the merger agreement and certain related matters and against alternative transactions and generally prohibit them from transferring their shares of common stock , subject to certain exceptions . 41 story_separator_special_tag period . in the principal investments - united online segment , revenues from the sale of goods was primarily due to the sale of mobile broadband devices that are sold in connection with the mobile broadband services we offer our customers . revenues from the sale of goods in 2015 was primarily due to the sale of retail goods related to the retail liquidation engagement of schoenenreus in the netherlands where we took title to the goods and operated the schoenenreus stores during the liquidation period . cost of goods sold in 2016 was $ 14.8 million resulting in a gross margin of $ 11.4 million or 43.5 % during the year ended december 31 , 2016. cost of goods sold in 2015 was $ 3.1 million resulting in a gross margin of $ 7.5 million or 71.0 % during the year ended december 31 , 2015 . 43 operating expenses direct costs of services . direct cost of services and direct cost of services measured as a percentage of revenues – services and fees by segment during the years ended december 31 , 2016 and 2015 are as follows : replace_table_token_7_th n/m – not applicable or not meaningful . total direct costs increased $ 11.8 million , to $ 40.9 million during the year ended december 31 , 2016 from $ 29.1 million during the year ended december 31 , 2015. direct costs of services increased by ( a ) $ 2.3 million in the auction and liquidation segment , ( b ) $ 0.4 million in the valuation and appraisal segment , and ( c ) $ 9.1 million in the principal investments - united online segment as a result of the acquisition of uol on july 1 , 2016. the increase in direct costs in the auction and liquidation segment was primarily due to costs incurred in connection with the retail liquidation of inventory from operating the ms mode retail stores located in the netherlands in 2016. the increase in direct costs of services in the valuation and appraisal segment was primarily due to an increase in payroll and related expenses due to an increase headcount 2016 as compared to the same period in 2015. auction and liquidation gross margin in the auction and liquidation segment for services and fees increased to 71.3 % of revenues during the year ended december 31 , 2016 , as compared to 56.5 % of revenues during the year ended december 31 , 2015. the increase in gross margin during the year ended december 31 , 2016 was primarily due to a change in the mix of fee type engagements in 2016 as compared to the same period in 2015 and the impact of the revenues we earned from the liquidation of inventory for the going-out-of-business sale of 185 hancock fabric stores in the united states and liquidation of inventory for the going-out-of-business sale of 63 masters home improvement stores in australia .
| results of operations the following period to period comparisons of our financial results are not necessarily indicative of future results . year ended december 31 , 2016 compared to year ended december 31 , 2015 consolidated statements of operations ( dollars in thousands ) replace_table_token_4_th revenues the table below and the discussion that follows are based on how we analyze our business . replace_table_token_5_th total revenues increased $ 77.8 million to $ 190.4 million during the year ended december 31 , 2016 from $ 112.6 million during the year ended december 31 , 2015. the increase in revenues during the year ended december 31 , 2016 was primarily due to an increase in revenues from services and fees of $ 62.3 million and an increase in revenues from the sale of goods of $ 15.5 million . the increase in revenues from services and fees of $ 62.3 million in 2016 was primarily due to an increase in revenues of ( a ) $ 4.1 million in the capital markets segment , ( b ) $ 26.3 million in the auction and liquidation segment , ( c ) $ 0.6 million in the valuation and appraisal segment , and ( d ) $ 31.3 million in the principal investments - united online segment from the acquisition of uol on july 1 , 2016. the increase in revenues from sale of goods of $ 15.5 million was primarily due to sale of retail goods that we acquired title to in september 2016 in connection with the retail liquidation engagement of ms mode , a retailer of women 's apparel that operated 130 retail locations throughout the netherlands .
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such statements are based upon current expectations , assumptions , estimates and projections about travelzoo and our industry . these forward-looking statements are subject to the many risks and uncertainties that exist in our operations and business environment that may cause actual results , performance or achievements of travelzoo to be different from those expected or anticipated in the forward-looking statements . any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements . for example , words such as “ may ” , “ will ” , “ should ” , “ estimates ” , “ predicts ” , “ potential ” , “ continue ” , “ strategy ” , “ believes ” , “ anticipates ” , “ plans ” , “ expects ” , “ intends ” , and similar expressions are intended to identify forward-looking statements . travelzoo 's actual results and the timing of certain events could differ significantly from those anticipated in such forward-looking statements . factors that might cause or contribute to such a discrepancy include , but are not limited to , those discussed elsewhere in this report in the section entitled “ risk factors ” and the risks discussed in our other sec filings . the forward-looking statements included in this report reflect the beliefs of our management on the date of this report . travelzoo undertakes no obligation to update publicly any forward-looking statements for any reason , even if new information becomes available or other circumstances occur in the future . 30 overview travelzoo inc. ( the “ company ” , or “ travelzoo ” ) is a global internet media company . we inform over 26 million subscribers in north america , europe and asia pacific , as well as millions of website users , about the best travel and entertainment deals available from thousands of companies . our deal experts source , research and test-book offers , recommending only those that meet travelzoo 's rigorous quality standards . we provide travel , entertainment and local businesses with a fast , flexible , and cost-effective way to reach millions of consumers . our revenues are generated primarily from advertising fees . in asia pacific , the travelzoo business is operated by travelzoo ( asia ) limited and travelzoo japan k.k . under a license agreement with travelzoo inc. our publications and products include the travelzoo websites ( www.travelzoo.com , www.travelzoo.ca , www.travelzoo.co.uk , www.travelzoo.de , www.travelzoo.es , www.travelzoo.fr , among others ) , the travelzoo top 20 e-mail newsletter , and the newsflash e-mail alert service . we operate supersearch , a pay-per-click travel search tool , and the travelzoo network , a network of third-party websites that list deals published by travelzoo . we also operate fly.com , a travel search engine that allows users to quickly and easily find the best prices on flights from hundreds of airlines and online travel agencies . in addition , our travelzoo websites include our local deals and getaway products that allow our subscribers to purchase vouchers for deals from local businesses such as spas , hotels and restaurants . vouchers are redeemable at the local businesses during the promotional period . we receive a percentage of the face value of the voucher from the local businesses . in 2009 , we sold our asia pacific operating segment , including our wholly-owned subsidiaries , travelzoo ( asia ) limited and travelzoo japan k.k. , to azzurro capital inc. we have not had significant ongoing involvement with the operations of the asia pacific operating segment and have not had material economic interests in the asia pacific operating segment since the completion of the sale . starting november 1 , 2009 , the travelzoo websites in asia pacific ( cn.travelzoo.com , www.travelzoo.co.jp , www.travelzoo.com.au , www.travelzoo.com.hk , www.travelzoo.com.tw , among others ) , the travelzoo top 20 e-mail newsletters in asia pacific and the newsflash e-mail alert service in asia pacific have been published by travelzoo ( asia ) limited and travelzoo japan k.k. , under a license agreement with the company . there is a reciprocal revenue-sharing agreement among the entities operating the travelzoo business in asia pacific and the company related to cross-selling audiences . in addition , as part of the sale of the asia pacific operating segment in 2009 , the company obtained an option , which expires in june 2020 , to repurchase the asia pacific business pursuant to the terms of the option agreement . more than 2,000 companies use our services , including air new zealand , apple vacation , british airways , harrah 's entertainment , expedia , fairmont hotels and resorts , hilton hotels , interstate hotels & resorts , jetblue airways , key tours international , liberty travel , marriott hotels , royal caribbean , spirit airlines , starwood hotels & resorts worldwide , travelocity , united airlines , and virgin atlantic . we have two operating segments based on geographic regions : north america and europe . north america consists of our operations in canada and the u.s. europe consists of our operations in france , germany , spain , and the u.k. for the year ended december 31 , 2013 , european operations were 29 % of revenues . financial information with respect to our business segments and certain financial information about geographic areas appears in note 12 to the accompanying consolidated financial statements . when evaluating the financial condition and operating performance of the company , management focuses on financial and non-financial indicators such as growth in the number of subscribers to the company 's newsletters , operating margin , growth in revenues in the absolute and relative to the growth in reach of the company 's publications measured as revenue per subscriber and revenue per employee as a measure of productivity . how we generate revenue our revenues are advertising revenues , consisting primarily of listing fees paid by travel , entertainment and local businesses to advertise their offers on travelzoo 's media properties . story_separator_special_tag local revenues have been and may continue to decline over time due to market conditions driven by competition and declines in consumer demand . since the introduction of local deals in 2010 and getaway in 2011 , we have seen a decline in the number of average vouchers sold per deal and a decrease in the average take rate earned by us from the merchants for the voucher sold . 32 our ability to continue to generate advertising revenue depends heavily upon our ability to maintain and grow an attractive audience to reach with our advertising publications . we monitor our subscribers and page views of our websites to assess our efforts to maintain and grow our audience reach . we obtain additional subscribers and activity on our websites by acquiring traffic from internet search companies . the costs to grow our audience have had , and we expect will continue to have , a significant impact on our financial results and can vary from period to period . we may have to increase our expenditures on acquiring traffic to continue to grow or maintain our reach of our publications due to competition . we continue to see a shift in the audience to accessing our services through mobile devices and social media . we are addressing this growing channel of our audience through development of our mobile applications and through marketing on social media channels . however , we will need to keep pace with technological change and this trend to further address the shift in audience behavior in order to offset any related declines in revenue . we believe that we can increase our advertising rates only if the reach of our publications increases . we do not know if we will be able to increase the reach of our publications . if we are able to increase the reach of our publications , we still may not be able to or want to increase rates given market conditions such as intense competition in our industry . we have not had any significant rate increase in recent years due to intense competition in our industry . even if we increase our rates , based upon the increased price this may reduce the amount of advertisers willing to advertise for the increased rates and therefore decrease our revenue . we do not know what our cost of revenues as a percentage of revenues will be in future periods . our cost of revenues will increase if the number of searches performed on fly.com increases because we pay a fee based on the number of searches performed on fly.com . our cost of revenues may increase if the face value of vouchers that we sell for local deals and getaway increases or the total number of vouchers sold increases because we have credit card fees based upon face value of vouchers sold , due to customer service costs related to vouchers sold and due to subscriber refunds on vouchers sold . we expect fluctuations in cost of revenues as a percentage of revenues from quarter to quarter . some of the fluctuations may be significant and have a material impact on our results of operations . we do not know what our sales and marketing expenses as a percentage of revenue will be in future periods . increased competition in our industry may require us to increase advertising for our brand and for our products . in order to increase the reach of our publications , we have to acquire a significant number of new subscribers in every quarter and continue to promote our brand . one significant factor that impacts our advertising expenses is the average cost per acquisition of a new subscriber . increases in the average cost of acquiring new subscribers may result in an increase of sales and marketing expenses as a percentage of revenue . we believe that the average cost per acquisition depends mainly on the advertising rates which we pay for media buys , our ability to manage our subscriber acquisition efforts successfully , and the degree of competition in our industry . we may decide to accelerate our subscriber acquisition for various strategic and tactical reasons and , as a result , increase our marketing expenses . we may see a unique opportunity for a brand marketing campaign that will result in an increase of marketing expenses . in addition , there may be a significant number of subscribers that cancel their subscription for various reasons , which may drive us to spend more on subscriber acquisition in order to replace the lost subscribers . further , we expect to continue our strategy over time to replicate our business model in selected foreign markets to result in a significant increase in our sales and marketing expenses and have a material adverse impact on our results of operations . due to the continued desire to grow our business both in the north america and europe we expect relatively high level of sales and marketing expenses in the foreseeable future . we expect fluctuations in sales and marketing expenses as a percentage of revenue from year to year and from quarter to quarter . some of the fluctuations may be significant and have a material impact on our results of operations . we expect increased marketing expense to spur continued growth in subscribers and revenue in future periods ; however , we can not be assured of this due to the many factors that impact our growth in subscribers and revenue . we expect to adjust the level of such incremental spending during any given quarter based upon market conditions as well as our performance in each quarter . we have increased and may continue to increase our spending on sales and marketing to increase the number of our subscribers and address the growing audience from mobile and social media channels , as well as to increase our analytic capabilities to continuously improve the presentation of our offerings to our audience .
| results of operations the following table sets forth , as a percentage of total revenues , the results from our operations for the periods indicated . replace_table_token_5_th 35 operating metrics the following table sets forth operating metrics in north america and europe : replace_table_token_6_th ( 1 ) in asia pacific , the travelzoo business is operated by travelzoo ( asia ) limited and travelzoo japan k.k . under a license agreement with travelzoo inc. and is not owned by the company . the total subscriber amounts exclude asia pacific subscribers of 3,600,000 , 3,600,000 and 3,100,000 for the years ended december 31 , 2013 , 2012 and 2011 , respectively . ( 2 ) annual revenue divided by number of employees at the end of the year . ( 3 ) annual revenue divided by number of subscribers at the beginning of the year . 36 revenues the following table sets forth the breakdown of revenues ( in thousands ) by type and segment . travel revenue includes travel publications ( top 20 , website , newsflash , travelzoo network ) and getaway vouchers . search revenue includes supersearch and fly.com . local revenue includes local deals vouchers and entertainment offers ( vouchers and direct bookings ) . replace_table_token_7_th north america north america revenues increased $ 3.2 million in 2013 compared to 2012 . this increase was primarily due to an increase in travel revenues offset by a decrease in search and local revenues . the increase in travel revenue of $ 7.2 million was primarily due to an increase in revenues from getaways due to increased number of getaways vouchers sold and an increase in revenues from travel publications due to increased number of e-mails delivered . the decrease in search revenue of $ 2.4 million was primarily due to the decreased number of clicks that generate revenue as a result of decreased spending on traffic acquisition .
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this ownership interest in wakefern provides village with many of the economies of scale in purchasing , distribution , advanced retail technology , marketing and advertising associated with larger chains . 12 the company 's stores , six of which are owned , average 59,000 total square feet . these larger store sizes enable the company 's stores to provide a “ one-stop ” shopping experience and to feature expanded higher margin specialty departments such as an on-site bakery , an expanded delicatessen , a variety of natural and organic foods , ethnic and international foods , prepared foods and pharmacies . during fiscal 2016 , sales per store were $ 56,376 and sales per average square foot of selling space were $ 1,208 . management believes these figures are among the highest in the supermarket industry . the supermarket industry is highly competitive and characterized by narrow profit margins . the company competes directly with multiple retail formats both in-store and online , including national , regional and local supermarket chains as well as warehouse clubs , supercenters , drug stores , discount general merchandise stores , fast food chains , restaurants , dollar stores and convenience stores . village competes by using low pricing , superior customer service , and a broad range of consistently available quality products ( including shoprite private labeled products ) . the shoprite price plus card also strengthens customer loyalty . many of our stores emphasize a power alley , which features high margin , fresh , convenience offerings in an area within the store that provides quick customer entry and exit for those customers shopping for today 's lunch or dinner . certain of our stores include the village food garden concept , featuring a restaurant style kitchen and several kiosks offering a wide variety of store prepared specialty foods for both take-home and in-store dining . village also has on-site registered dieticians in fifteen stores that provide customers with free , private consultations on healthy meals and proper nutrition , as well as leading health related events both in store and in the community as part of the live right with shoprite program . wakefern and village have responded to customers ' increased use of the internet by creating a smart phone app and shoprite.com to provide weekly advertising and other shopping information . in addition , on-line shopping is available in thirteen stores with store pick-up and delivery options servicing our current market . we consider a variety of indicators to evaluate our performance , such as same store sales ; percentage of total sales by department ( mix ) ; shrink ; departmental gross profit percentage ; sales per labor hour ; units per labor hour ; and hourly labor rates . the company utilizes a 52 - 53 week fiscal year , ending on the last saturday in the month of july . fiscal 2016 contains 53 weeks . fiscal 2015 and 2014 contain 52 weeks . story_separator_special_tag benefit of $ 6,452 related to settlement of the new jersey tax dispute , net of interest and penalties accrued in fiscal 2015 prior to settlement . fiscal 2014 includes a $ 10,052 charge related to tax positions taken in prior years as a result of the unfavorable ruling by the new jersey tax court , a higher tax rate due to $ 1,557 of accrued interest and penalties related to the new jersey tax dispute , a charge for future lease obligations due to the closure of the morris plains and union stores of $ 2,551 ( net of tax ) and pre-opening costs for the replacement stores in greater morristown and union of $ 1,141 ( net of tax ) . excluding these items from both fiscal years , net income in fiscal 2015 increased 27 % compared to the prior year primarily due to the impact of the greater morristown and union replacement stores , the 2.1 % same store sales increase and higher gross margin percentages . critical accounting policies critical accounting policies are those accounting policies that management believes are important to the portrayal of the company 's financial condition and results of operations . these policies require management 's most difficult , subjective or complex judgments , often as a result of the need to make estimates about the effect of matters that are inherently uncertain . the preparation of financial statements in conformity with u.s. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period . actual results could differ from those estimates . impairment the company reviews the carrying values of its long-lived assets , such as property , equipment and fixtures for possible impairment whenever events or changes in circumstances indicate that the carrying amount of assets may not be recoverable . such review analyzes the undiscounted estimated future net cash flows from asset groups at the store level to determine if the carrying value of such assets are recoverable from their respective cash flows . if impairment is indicated , it is measured by comparing the fair value of the long-lived asset groups to their carrying value . goodwill is tested for impairment at the end of each fiscal year , or more frequently if circumstances dictate . the company utilizes valuation techniques , such as earnings multiples , in addition to the company 's market capitalization , to assess goodwill for impairment . calculating the fair value of a reporting unit requires the use of estimates . management believes the fair value of village 's one reporting unit exceeds its carrying value at july 30 , 2016 . should the company 's carrying value of its one reporting unit exceed its fair value , the amount of any resulting goodwill impairment may be material to the company 's financial position and results of operations . story_separator_special_tag the updated guidance is effective for fiscal years , and interim periods within those years , beginning after december 15 , 2015. early adoption is permitted . companies have an option of using either a full retrospective or modified retrospective adoption approach . the company is evaluating the effect that asu 2015-02 will have on its consolidated financial statements and related disclosures . in february 2016 , the fasb issued asu 2016-02 , `` leases . '' this guidance requires lessees to recognize lease liabilities and a right-of-use asset for all leases with terms of more than 12 months on the balance sheet . this guidance is effective for fiscal years , and interim periods within those years , beginning after december 15 , 2018 , with earlier adoption permitted . asu 2016-02 requires a modified retrospective approach for all leases existing at , or entered into after the date of initial adoption . the company is evaluating the effect that asu 2016-02 will have on its consolidated financial statements and related disclosures . in march 2016 , the fasb issued asu 2016-09 , `` improvements to employee share-based payment accounting . '' the guidance changes several aspects of the accounting for share-based payment award transactions , including accounting for income taxes , classification of awards as either equity or liabilities , and classification on the statement of cash flows . this guidance is effective for fiscal years , and interim periods within those years , beginning after december 15 , 2016 , with earlier adoption permitted . the company is evaluating the effect that asu 2016-09 will have on its consolidated financial statements and related disclosures . liquidity and capital resources cash flows net cash provided by operating activities was $ 64,101 in fiscal 2016 compared to $ 17,468 in fiscal 2015 and $ 52,447 in fiscal 2014. net cash provided by operating activities was generated primarily by changes in working capital and net income adjusted for non-cash expenses including depreciation and amortization , share-based compensation , deferred taxes and the provision to value inventories at lifo . the decrease in non-cash items in fiscal 2016 , compared to fiscal 2015 , was primarily due to the impact on deferred taxes in fiscal 2015 resulting from the $ 33,000 settlement with the new jersey division of taxation . the increase in non-cash items in fiscal 2015 , compared to fiscal 2014 , was also primarily due to the impact on deferred taxes in fiscal 2015 resulting from the $ 33,000 settlement with the new jersey division of taxation and increases in depreciation and amortization . working capital changes increased ( decreased ) net cash provided by operating activities by $ 12,002 , $ ( 54,616 ) and $ 30,163 in fiscal 2016 , 2015 and 2014 , respectively . working capital changes in income taxes receivable/payable , merchandise inventories , accounts payable to wakefern and accrued wages and benefits increased cash provided by operating activities in fiscal 2016 compared to fiscal 2015. working capital changes in income taxes receivable/payable , accounts payable to wakefern and accrued wages and benefits decreased cash provided by operating activities in fiscal 2015 compared to fiscal 2014. the decrease in income taxes receivable/payable in fiscal 2015 was due primarily to the $ 33,000 settlement with the new jersey division of taxation . 17 during fiscal 2016 , village used cash to fund capital expenditures of $ 19,971 , dividends of $ 12,634 and invested an additional $ 1,314 in notes receivable from wakefern . capital expenditures primarily includes costs associated with the completion of the remodel and expansion of the stirling , new jersey store , one major remodel and several smaller remodels of other existing stores . in october 2015 , village sold the land and building of a closed store in washington , new jersey for $ 900. during fiscal 2015 , village used cash to fund capital expenditures of $ 23,517 , dividends of $ 12,577 and invested an additional $ 823 in notes receivable from wakefern . capital expenditures primarily include costs associated with the major remodel and expansion of the stirling , new jersey store and smaller remodels of other existing stores . during fiscal 2014 , village used cash to fund capital expenditures of $ 50,322 , dividends of $ 12,432 and $ 18,177 of additional investments in notes receivable from wakefern . capital expenditures include the construction of the greater morristown and union replacement stores . liquidity and debt working capital was $ 60,538 , $ 41,760 , and $ 16,782 at july 30 , 2016 , july 25 , 2015 and july 26 , 2014 , respectively . working capital ratios at the same dates were 1.61 , 1.44 , and 1.11 to one , respectively . the increase in working capital in fiscal 2016 compared to fiscal 2015 is due primarily to operating cash flows in excess of capital expenditures and dividends . the increase in working capital in fiscal 2015 compared to fiscal 2014 is due primarily to operating cash flows and the favorable settlement with the new jersey division of taxation in relation to amounts accrued . the company 's working capital needs are reduced , since inventories are generally sold by the time payments to wakefern and other suppliers are due . village has budgeted approximately $ 25,000 for capital expenditures in fiscal 2017 . planned expenditures include the beginning of construction of a new store in the bronx , new york , one major remodel , several smaller remodels and certain energy efficient lighting projects . the company 's primary sources of liquidity in fiscal 2017 are expected to be cash and cash equivalents on hand at july 30 , 2016 and operating cash flow generated in fiscal 2017 . at july 30 , 2016 , the company had $ 42,735 in notes receivable due from wakefern .
| results of operations the following table sets forth the components of the consolidated statements of operations of the company as a percentage of sales : replace_table_token_5_th sales sales were $ 1,634,904 in fiscal 2016 , an increase of $ 51,115 , or 3.2 % from the prior year . sales increased $ 29,233 , or 1.8 % , due to fiscal 2016 containing 53 weeks . same store sales , excluding the impact of the 53rd week , increased 1.4 % . same store sales increased due to the closing of two competitor stores and continued sales growth in the expanded or replaced stores in stirling , greater morristown and union . these increases were partially offset by six new competitor store openings , including stores formerly operated by a & p . new stores and replacement stores are included in same store sales in the quarter after the store has been in operation for four full quarters . store renovations and expansions are included in same store sales immediately . 13 sales were $ 1,583,789 in fiscal 2015 , an increase of $ 65,153 , or 4.3 % from the prior year . sales increased due to the opening of the greater morristown replacement store on november 6 , 2013 and the union replacement store on april 30 , 2014. same store sales increased 2.1 % due to improved sales in the greater morristown replacement store in its second year of operations , higher average transaction size and increased customer counts . gross profit gross profit as a percentage of sales decreased .13 % in fiscal 2016 compared to the prior year primarily due to decreased departmental gross margin percentages ( .21 % ) and increased warehouse assessment charges from wakefern ( .04 % ) . these decreases were partially offset by lower promotional spending ( .07 % ) , improved mix ( .02 % ) and higher patronage dividends ( .02 % ) .
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this assessment requires that the company applies judgment in determining whether these interests , in the aggregate , are considered potentially significant to the vie . factors considered in assessing significance include : the design of the vie , including its capitalization structure ; subordination of interests ; payment priority ; relative share of interests held across various classes within the vie 's capital structure ; and the reasons why the interests are held by the company . the company issued a commercial mortgage backed security ( `` cmbs `` ) which is a rated security issued story_separator_special_tag overview we are a specialty finance company that is primarily focused on directly originating , managing and servicing a diversified portfolio of commercial real estate ( `` cre '' ) debt-related investments for our own account . our target investments include senior loans , bridge loans , subordinated mortgages and b-notes , preferred equity and other cre-related investments . through our manager , we have investment professionals strategically located across the nation who directly source new loan opportunities for us with owners , operators and sponsors of cre properties . we generally hold our loans for investment and earn interest and interest-related income . this is our primary business segment , referred to as the principal lending business . we are also engaged in the mortgage banking business through our wholly owned subsidiary , acre capital llc , which we believe is complementary to our principal lending business . in this business segment , we directly originate long-term senior loans collateralized by multifamily and senior-living properties and sell them to third parties pursuant to gse programs . while we earn little interest income from these activities as we generally only hold loans for short periods , we receive origination fees when we close loans and sale premiums when we sell loans . we also retain the rights to service the loans , which are known as msrs and receive fees for providing such service during the life of the loans which generally last ten years or more . because we operate both as a principal lender and a mortgage banker ( with respect to loans collateralized by multifamily and senior-living properties ) , we can offer a wider array of financing solutions to our customers , including ( i ) short and long-term loans ranging from one to ten ( or more ) years , ( ii ) bridge and permanent loans , ( iii ) floating and fixed rate loans , and ( iv ) loans collateralized by development , value-add ( or transitional ) and stabilized properties . we also have the flexibility to provide a combination of solutions to our customers , including instances where our principal lending business provides a short-term , bridge loan to an owner of multifamily properties while our mortgage banking business seeks long-term permanent financing for the same customer . this provides us the opportunity to offer a customer an efficient `` one stop '' financial product and at the same time to earn revenues at multiple times in the relationship with the customer . first , we earn interest and interest-related income while holding the short term bridge loan . second , we earn origination fees and sale premiums when we provide permanent financing and sell the loans under gse programs . and , third , we earn servicing fees from msrs that we retain on the permanent loans . we were formed and commenced operations in late 2011. we are a maryland corporation and completed our initial public offering ( the `` ipo '' ) in may 2012. we are externally managed by our manager , a wholly owned subsidiary of ares management , a global alternative asset manager and a sec registered investment adviser , pursuant to the terms of a management agreement . we have elected and qualified to be taxed as a real estate investment trust for u.s. federal income tax purposes ( `` reit '' ) under the internal revenue code of 1986 , as amended ( the `` code '' ) , 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 . in connection with the acquisition , we created a wholly owned subsidiary , acre capital holdings llc ( `` trs holdings '' ) , to hold the common units of acre capital . an entity classification election to be taxed as a corporation and a taxable reit subsidiary ( `` trs '' ) election were made with respect to trs holdings . in addition , in december 2013 , we formed a new wholly owned subsidiary , acrc lender w trs llc ( `` acrc trs '' ) , for which an entity classification election to be taxed as a corporation and a trs election were made , in order to issue and hold certain loans intended for sale . a trs is an entity taxed as a corporation other than a reit in which a reit directly or indirectly 89 holds equity , and that has made a joint election with such reit to be treated as a trs . other than some activities relating to lodging and health care facilities , a trs generally may engage in any business , including investing in assets and engaging in activities that could not be held or conducted directly by we without jeopardizing our qualification as a reit . a trs is subject to applicable u.s. federal , state , local and foreign income tax on our taxable income . in addition , as a reit , we also may be subject to a 100 % excise tax on certain transactions between it and our trs that are not conducted on an arm's-length basis . story_separator_special_tag 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 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 ; 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 . 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 remains muted 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 value creation transition . more particularly , the available financing products tend to come with limited flexibility , especially with respect to prepayment . consequently , we anticipate a high demand for the type of 91 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 , costs savings or other key initiatives and realize the improved value through a subsequent sale or refinancing . we also see a changing landscape in which many historical debt capital providers respond to banking regulatory reform with less active participation or more rigid products , less tailored to the needs of the borrowing community . while we expect to see or have seen the emergence of new providers , we believe those with deep experience and strong backing will have the opportunity to build market share . performance of multifamily and other 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 , as well as an increased level of servicer advances and losses from acre capital 's fannie mae dus allowance for loss sharing . the level of losses from fannie mae allowance for loss sharing . loans originated and sold by acre capital to fannie mae under the fannie mae dus program are subject to the terms and conditions of a master loss sharing agreement , which was amended and restated during 2012. under the master loss sharing agreement , acre capital is responsible for absorbing certain losses incurred by fannie mae with respect to loans originated under the dus program , as described below in more detail . the losses incurred with respect to individual loans are allocated between acre capital and fannie mae based on the loss level designation ( `` loss level '' ) for the particular loan . loans are designated as loss level i , loss level ii or loss level iii . all loans are designated loss level i unless fannie mae and acre capital agree upon a different loss level for a particular loan at the time of the loan commitment , or if fannie mae determines that the loan was not underwritten , processed or serviced according to fannie mae guidelines . losses on loss level i loans are shared 33.33 % by acre capital and 66.67 % by fannie mae . the maximum amount of acre capital 's risk-sharing obligation with respect to any loss level i loan is 33.33 % of the original principal amount of the loan . losses incurred in connection with loss level ii and loss level iii loans are allocated disproportionately to acre capital until acre capital has absorbed the maximum level of its risk-sharing obligation with respect to the particular loan . the maximum loss allocable to acre capital for loss level ii loans is 30 % of the original principal amount of the loan , and for loss level iii loans is 40 % of the original principal amount of the loan . the price of loans in the secondary market .
| results of operations the following discussion of our results of operations highlights our performance for the years ended december 31 , 2013 and 2012. we do not believe that a comparison of our results of operations for the period from september 1 , 2011 ( inception ) to december 31 , 2011 is meaningful because we 94 commenced investment operations on december 9 , 2011 and had less than one month of operations for all of calendar year 2011. the following table sets forth consolidated results of operations for the years ended december 31 , 2013 and 2012 and for the period from september 1 , 2011 ( inception ) to december 31 , 2011 ( $ in thousands ) : replace_table_token_6_th 2013 to 2012 net interest margin for the years ended december 31 , 2013 and 2012 , we earned approximately $ 28.8 million and $ 6.9 million in net interest margin , respectively . for the years ended december 31 , 2013 and 2012 , interest income from loans held for investment of $ 37.6 million and $ 9.3 million , respectively , was generated by average earning assets of $ 555.0 million and $ 123.4 million , respectively , offset by $ 8.8 million and $ 2.3 million , respectively , of interest expense , unused fees and amortization of deferred loan costs . the average borrowings under our secured funding agreements were $ 246.0 million 95 and $ 42.6 million for the years ended december 31 , 2013 and 2012 , respectively . the increase in net interest margin for the year ended december 31 , 2013 compared to the year ended december 31 , 2012 primarily relates to the increase in the number of loans held for investment from 15 loans to 33 loans as of december 31 , 2013. mortgage banking revenue for the year ended december 31 , 2013 , we earned approximately $ 5.8 million in net servicing fees .
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certain statements in this report , including statements regarding our business strategies , operations , financial condition , and prospects are forward-looking statements . use of the words “ anticipates , ” “ believes , ” “ could , ” “ estimates , ” “ expects , ” “ intends , ” “ may , ” “ plans , ” “ potential , ” “ predicts , ” “ projects , ” “ should , ” “ will , ” “ would , ” “ will likely continue , ” “ will likely result ” and similar expressions that contemplate future events may identify forward-looking statements . the information contained in this section is not a complete description of our business or the risks associated with an investment in our common stock . we urge you to carefully review and consider the various disclosures made by us in this report and in our other reports filed with the sec , which are available on the sec 's website at http : //www.sec.gov . the section entitled “ risk factors ” set forth in part i , item 1a of this report , and similar discussions in our other sec filings , describe some of the important factors , risks and uncertainties that may affect our business , results of operations and financial condition and could cause actual results to differ materially from those expressed or implied by these or any other forward-looking statements made by us or on our behalf . you are cautioned not to place undue reliance on these forward-looking statements , which are based on current expectations and reflect management 's opinions only as of the date thereof . we do not assume any obligation to revise or update forward-looking statements . finally , our historic results should not be viewed as indicative of future performance . overview we are a leading online provider of aftermarket auto parts , including collision parts , engine parts , and performance parts and accessories . our user-friendly websites provide customers with a broad selection of skus , with detailed product descriptions and photographs . our proprietary product database maps our skus to product applications based on vehicle makes , models and years . we principally sell our products to individual consumers through our network of websites and online marketplaces . our flagship consumer websites are located at www.autopartswarehouse.com , www.carparts.com and www.jcwhitney.com and our corporate website is located at www.usautoparts.net . we believe our strategy of disintermediating the traditional auto parts supply chain and selling products directly to customers over the internet allows us to efficiently deliver products to our customers . industry-wide trends that support our strategy include : 1. number of skus required to serve the market . the number of automotive skus has grown dramatically over the last several years . in today 's market , unless the consumer is driving a high volume produced vehicle and needs a simple maintenance item , the part they need is not typically on the shelf at a brick-and-mortar store . we believe our user-friendly websites provide customers with a favorable alternative to the brick-and-mortar shopping experience by offering a comprehensive selection of over 1.0 million skus with detailed product descriptions , attributes and photographs combined with the flexibility of fulfilling orders using both drop-ship and stock-and-ship methods . 24 2. u.s. vehicle fleet expanding and aging . the average age of u.s. vehicles , an indicator of auto parts demand , rose to a record-high 11.5 years as of january 2016 , according to ihs automotive , a market analytics firm that expects the average age to rise to 11.8 years by 2019. ihs expects the number of vehicles that are 12 years or older to increase by 15 % through 2019. ihs found that the total number of light vehicles in operation in the u.s. has increased to record levels , and should continue to rise through 2019. we believe an increasing vehicle base and rising average age of vehicles will have a positive impact on overall aftermarket parts demand because older vehicles generally require more repairs . in many cases we believe these older vehicles are driven by do-it-yourself ( `` diy '' ) car owners who are more likely to handle any necessary repairs themselves rather than taking their car to the professional repair shop . 3. growth of online sales . the u.s. auto care association estimates that overall revenue from online sales of auto parts and accessories is projected to increase to approximately $ 13.2 billion in 2018 and more than double by 2023. improved product availability , lower prices and consumers ' growing comfort with digital platforms are driving the shift to online sales . we believe that we are well positioned for the shift to online sales due to our history of being a leading source for aftermarket automotive parts through online marketplaces and our network of websites . our history . we were formed in california in 1995 as a distributor of aftermarket auto parts and launched our first website in 2000. we reincorporated in delaware in 2006 and expanded our online operations , increasing the number of skus sold through our e-commerce network , adding additional websites , improving our internet marketing proficiency and commencing sales in online marketplaces . additionally , in august 2010 , through our acquisition of whitney automotive group , inc. ( referred to herein as “ wag ” ) , we expanded our product-lines and increased our customer reach in the diy automobile and off-road accessories market . international operations . in april 2007 , we established offshore operations in the philippines . our offshore operations allow us to access a workforce with the necessary technical skills at a significantly lower cost than comparably experienced u.s.-based professionals . our offshore operations are responsible for a majority of our website development , catalog management , and back office support . our offshore operations also house our main call center . we had 703 employees in the philippines as of december 30 , 2017 . story_separator_special_tag the company also believes that such measure is used by rating agencies , securities analysts , investors and other parties in evaluating the company . it should not be considered , however , as an alternative to operating income , or as an alternative to cash flows as a measure of the company 's overall liquidity , as presented in the company 's consolidated financial statements . further , the adjusted ebitda measure shown may not be comparable to similarly titled measures used by other companies . refer to the table presented below for reconciliation of net loss to adjusted ebitda . total revenues increased in fiscal 2017 compared to fiscal 2016 primarily due to growth in our offline sales . our online sales , which include our e-commerce , online marketplace sales channels and online advertising , contributed 90.4 % of total revenues , and our offline sales , which consist of our kool-vue ® and wholesale operations , contributed 9.6 % of total revenues . our online sales for fiscal year 2017 decreased by $ 1,560 , or 0.6 % , to $ 274,308 compared to $ 275,868 in fiscal 2016 primarily due to a decrease in average order value of 9.9 % partially offset by an increase in total online orders of 6.0 % . our offline sales increased by $ 1,608 , or 5.9 % , to $ 29,059 compared to the same period last year primarily due to increased offline sales of our kool-vue ® product . like most e-commerce retailers , our success depends on our ability to attract online consumers to our websites and convert them into customers in a cost-effective manner . historically , marketing through search engines provided the most 26 efficient opportunity to reach millions of online auto part buyers . we are included in search results through paid search listings , where we purchase specific search terms that will result in the inclusion of our listing , and algorithmic searches that depend upon the searchable content on our websites . algorithmic listings can not be purchased and instead are determined and displayed solely by a set of formulas utilized by the search engine . we have had a history of success with our search engine marketing techniques , which gave our different websites preferred positions in search results . search engines , like google , revise their algorithms from time to time in an attempt to optimize their search results . during the last few years , google has changed its search results ranking algorithm . in some cases our unique visitor count , and therefore our financial results , were negatively impacted by these changes . we continue to address the ongoing changes to the google methodology , but during the fiscal year 2017 , our unique visitor count decreased by 21 million , or 17.8 % , to 96.9 million unique visitors compared to 117.9 million unique visitors in fiscal 2016 primarily due to a shift in traffic from our e-commerce sites to our online marketplaces . as in the past we expect google will continue to make changes in their search engine algorithms to improve their user experience . as we are significantly dependent upon search engines for our website traffic , if we are unable to address these ongoing changes and attract unique visitors , our business and results of operations will be harmed . total expenses , which primarily consisted of cost of sales and operating costs , increased in fiscal year 2017 compared to the same period in 2016 . components of our cost of sales and operating costs are described in further detail under — “ basis of presentation ” below . in 2017 , we made positive strides towards achieving our strategic goals and in 2018 we will continue to pursue these strategies to continue our positive sales growth , improve gross profit while reducing operating costs as percent of sales : we believe we can return to positive e-commerce growth by continuing to focus on making the auto parts purchasing process as easy and seamless as possible . we plan to continue to provide unique catalog content and provide better content on our websites with the goal of improving our ranking on the search results . we continue to work to improve the website purchase experience for our customers by ( 1 ) helping our customers find the parts they want to buy by reducing failed searches and increasing user purchase confidence ; ( 2 ) implementing guided navigation and custom buying experiences specific to strategic part names ; ( 3 ) increasing order size across our sites through improved recommendation engines ; ( 4 ) improving our site speed ; and ( 5 ) creating a frictionless checkout experience for our customers . in addition , we intend to continue to improve our mobile enabled features to take advantage of shifting consumer behaviors . these efforts may increase the conversion rate of our visitors to customers , the total number of orders and average order value , and the number of repeat purchases , as well as contribute to our revenue growth . we continue to work towards becoming one of the preferred low price options in the market for aftermarket auto parts and accessories . we also continue to offer lower prices by increasing foreign sourced private label products as they are generally less expensive and we believe provide better value for the consumer . we believe our product offering can improve the conversion rate of visitors to our websites , grow our revenues and improve our margins . we continue to increase product selection by being the first to market with many new skus . we currently have over 55,000 private label skus and over 1.0 million branded skus in our product selection . we will continue to seek to add new categories and expand our existing specialty categories . we believe continued product expansion will increase the total number of orders and contribute to our revenue growth .
| results of operations the following table sets forth selected statement of operations data for the periods indicated , expressed as a percentage of net sales : replace_table_token_6_th 29 fifty-two weeks ended december 30 , 2017 compared to the fifty-two weeks ended december 31 , 2016 net sales and gross margin replace_table_token_7_th net sales increased $ 42 for fiscal year 2017 compared to fiscal year 2016 . our net sales consisted of online sales , which include our e-commerce sites , online marketplace sales channels and online advertising , representing 90.4 % of the total for fiscal year 2017 ( compared to 90.9 % in fiscal year 2016 ) , and offline sales , representing 9.6 % of the total for fiscal year 2017 ( compared to 9.1 % in fiscal year 2016 ) . the net sales increase was due to an increase of $ 1,608 , or 5.9 % , in offline sales , partially offset by a decrease of $ 1,560 , or 0.6 % , in online sales . offline sales increased primarily due to increased kool-vue ® sales , while online sales decreased primarily due to a decrease in average order value of 9.9 % partially offset by an increase in total online orders of 6.0 % . gross profit decreased $ 2,387 , or 2.6 % , in fiscal year 2017 compared to fiscal year 2016 . gross margin decreased 0.7 % to 29.6 % in fiscal year 2017 compared to 30.3 % in fiscal year 2016 . gross margin decreased in fiscal year 2017 compared to fiscal year 2016 primarily due to a sales channel mix shift towards online marketplaces , partially offset by a favorable mix shift of private label sales compared to last year . marketing expense replace_table_token_8_th total marketing expense decreased $ 1,811 , or 4.4 % , for fiscal year 2017 compared to fiscal year 2016 .
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if there has been a significant decrease in the volume and level of activity for the asset or liability , a change in valuation technique or the use of multiple valuation techniques may be appropriate . in such instances , determining the price at which willing market participants would transact story_separator_special_tag ( dollars in thousands , except per share data ) operating environment : the united states economy continued to expand moderately in 2014 , as the gross domestic product ( “ gdp ” ) , the value of all goods and services produced in the nation , increased at an annual rate of 2.4 percent , compared to 2.2 percent in 2013. the federal open market committee ( “ fomc ” ) maintained the federal funds target range of 0 to 25 basis points throughout 2014 and further signaled that they intend to keep short-term rates at extraordinarily low levels through at least late 2015. despite experiencing an improvement in 2014 , many areas of the economy remain weaker compared to historical standards . given these circumstances , the fomc decided that this extraordinary monetary policy stance was necessary to support the recovery . during the recent testimony of the chair of the fomc before the senate banking committee , she discussed the fomc 's plans for raising interest rates . after years of accommodative monetary policy , she said that current economic conditions do not warrant an increase to interest rates for at least the next couple of fomc meetings . inflationary concerns continue to be relatively tame , as the consumer price index ( “ cpi ” ) at 0.8 percent for 2014 continued to be below the fomc 's benchmark of 2.0 percent . the cpi was 1.3 percent in 2013. moreover , the core personal consumption expenditure price index , which ignores food and energy , averaged 1.6 percent in 2014. employment conditions improved in 2014. the civilian labor force increased 1.1 million , while the number of people employed increased 2.8 million in 2014. as a result , the annual unemployment rate for the u.s. fell to 6.2 percent in 2014 from 7.4 percent in 2013. all sectors of employment , with the exception of the government sector , reported employment gains from the end of 2013 national , pennsylvania , new york and our market area 's non-seasonally-adjusted annual unemployment rates in 2014 and 2013 , are summarized as follows : replace_table_token_20_th employment conditions in 2014 improved for the commonwealth of pennsylvania as evidenced by a reduction in the unemployment rate to 5.6 percent in 2014 from 8.0 percent in 2013. similarly , the unemployment rate for new york state dropped to 6.4 percent in 2014 , from 8.3 percent in 2013. with respect to the markets we serve , the unemployment rate decreased in all of the eight counties in which we have branches or atm locations . wyoming county experienced the most significant improvement declining to 6.8 percent in 2014 from 9.4 percent in 2013. the lowest unemployment rate in 2014 , for all of the counties we serve , was susquehanna county at 5.0 percent as a result of increased activity related to the extraction of natural gas . the marked improvements in unemployment rates could impact the rate of economic growth and may cause interest rates to rise in the near term . with respect to the banking industry , net income for all federal deposit insurance corporation ( “ fdic ” ) -insured banks in 2014 totaled $ 153.6 billion , a decrease of $ 1.1 billion or 0.7 percent from 2013. this is the first year that earnings have not risen in the last five years . approximately 63.9 percent of all institutions reported higher net income in 2014 , while only 6.1 percent reported net losses . this is the lowest annual proportion of unprofitable institutions for the - 60 - industry since 2004. loan loss provisions of $ 29.7 billion in 2014 were $ 2.7 billion or 8.4 percent less than banks set aside in 2013. this is the fifth year in a row that loan loss provisions have been lower , and the total allocation for 2014 was the smallest amount since 2006. net interest income increased for the first time in four years , by $ 5.5 billion or 1.3 percent , as interest expense fell more rapidly than interest income . noninterest income was $ 5.5 billion or 2.2 percent below the level of 2013 , as servicing fee income declined by $ 8.9 billion or 49.6 percent . realized gains on securities were $ 1.3 billion or 8.4 percent lower than a year ago . total noninterest expense increased $ 5.2 billion or 1.2 percent comparing 2014 and 2013. the average return on average assets for 2014 was 1.02 percent , down from an eight year high of 1.07 percent set in 2013. the united states economy is on a more self-sustaining path as we move into 2015. this could affect interest rates which may adversely impact bank earnings as net interest margins compress from the inability of management to keep fund costs low . continuous expense control , sound balance sheet management and lower loan loss provisions could offset some of the negative impact of the reduction in net interest margins . story_separator_special_tag roman , times , serif ; font-size : 10pt ; '' > asset quality : more effective special asset management and repayments over the past year has led to prompt resolution of troubled loans and liquidation of foreclosed properties . story_separator_special_tag we continued to experience strong growth in these account types , as customers continued to receive lease payments and royalties from gas companies for drilling rights to their properties and are opting to retain funds readily available given the low interest rate environment . total time deposits decreased $ 35.2 million to $ 267.7 million at december 31 , 2014 from $ 302.9 million at december 31 , 2013. the decrease was primarily due to reductions in time deposits with maturities of one year or shorter . total deposits averaged $ 1.4 billion in 2014 , an increase of $ 625.6 million or 79.6 percent , compared to $ 785.9 million in 2013. the significant increases in the 2014 versus 2013 year-over-year comparison resulted primarily from the application of purchase accounting whereby those financial statement components of the legal acquirer for periods prior - 63 - to the merger were excluded from peoples 2013 financial statements . average noninterest-bearing deposits increased $ 132.9 million , while average interest-bearing accounts grew $ 492.7 million . average interest-bearing transaction deposits , including money market , now and savings accounts , increased $ 381.0 million while average total time deposits decreased $ 111.7 million comparing 2014 and 2013. our cost of interest-bearing deposits increased 3 basis points to 0.49 percent in 2014 from 0.46 percent in 2013. specifically , the cost of interest-bearing transaction accounts increased 13 basis points to 0.32 percent while the cost of time deposits decreased 15 basis points to 0.94 percent comparing 2014 and 2013. volatile deposits , time deposits $ 100 or more , were $ 75.9 million at december 31 , 2014 compared to $ 98.4 million at the end of 2013. large denomination time deposits averaged $ 88.9 million in 2014 , an increase of $ 1.6 million or 1.8 percent from $ 87.3 million in 2013. our average cost of these funds decreased 37 basis points to 0.85 percent in 2014 , from 1.22 percent in 2013. market risk sensitivity : with respect to evaluating our exposure to irr on earnings , we utilize a gap analysis model that considers repricing frequencies of rsa and rsl . gap analysis attempts to measure our interest rate exposure by calculating the net amount of rsa and rsl that reprice within specific time intervals . a positive gap occurs when the amount of rsa repricing in a specific period is greater than the amount of rsl repricing within that same time frame and is indicated by a rsa/rsl ratio greater than 1.0. a negative gap occurs when the amount of rsl repricing is greater than the amount of rsa and is indicated by a rsa/rsl ratio less than 1.0. a positive gap implies that earnings will be impacted favorably if interest rates rise and adversely if interest rates fall during the period . a negative gap tends to indicate that earnings will be affected inversely to interest rate changes . at december 31 , 2014 and 2013 , we had cumulative one-year rsa/rsl ratios of 1.56 and 1.34. as previously mentioned , this indicated that if interest rates increase , our earnings would likely be favorably impacted . given current improvement in economic conditions and the recent announcement of the fomc that it will consider raising short-term rates in the latter part of 2015 , the focus of alco has been to maintain the positive gap position in order to safeguard future earning from the potential risk of rising interest rates . however , alco recently took steps to reduce the magnitude of our positive gap position and guard against rates unchanged through the origination of five- to seven-year fixed rate loans and utilizing any excess funds not used for lending through purchasing six- to eight-year tax-exempt state and municipal obligations . the change in our cumulative one-year ratio from the previous year-end resulted from a $ 67.4 million or 13.3 percent decrease in rsl coupled with a $ 7.7 million or 1.1 percent increase in rsa maturing or repricing within one year . the increase in rsl resulted primarily from a $ 33.3 million decrease in total time deposits maturing or repricing within this time frame , coupled with a decrease of $ 30.8 million in interest-bearing transaction accounts . the majority of the growth in money market and now accounts resulted from an increase in the deposit balances of local school districts and certain commercial customer . due to the somewhat cyclical nature associated with these deposits , we classified money market and now accounts in the `` due within twelve months '' category . with respect to the increase in rsa maturing or repricing within a twelve month time horizon , investment securities increased $ 10.7 million and loans , net of unearned income , rose $ 7.9 million . although short-term interest rates began to increase during 2014 , long-term interest rates fell causing a flattening in the yield curve . in an effort to mitigate irr in the investment portfolio and provide a source of liquidity , we chose to invest in fixed-rate , short-term u.s. government-sponsored agency securities . the increase in loans , net of unearned income , resulted from an increase in commercial lending , which primarily involves loans with adjustable-rate terms that reprice in the near term . partially offsetting these increases were reductions of $ 3.1 million in interest-bearing deposits in other banks and $ 9.5 million in federal funds sold . - 64 - liquidity : we employ a number of analytical techniques in assessing the adequacy of our liquidity position . one such technique is the use of ratio analysis to illustrate our reliance on noncore funds to fund our investments and loans maturing after 2014. at december 31 , 2014 , our noncore funds consisted of time deposits in denominations of $ 100 or more , repurchase agreements , short-term borrowings and long-term debt .
| review of financial position : total assets , loans and deposits were $ 1.7 billion , $ 1.2 billion and $ 1.4 billion , respectively , at december 31 , 2014. total assets , loans and deposits grew 3.2 percent , 2.8 percent and 3.3 percent , respectively , compared to 2013 year-end balances . the loan portfolio consisted of $ 813.1 million of business loans , including commercial and commercial real estate loans , and $ 396.8 million in retail loans , including residential mortgage and consumer loans at december 31 , 2014. total investment securities were $ 354.3 million at december 31 , 2014 , including $ 339.6 million of investment securities classified as available-for sale and $ 14.7 million classified as held-to-maturity . total deposits consisted of $ 313.5 million in noninterest-bearing deposits and $ 1.1 billion in interest-bearing deposits at december 31 , 2014. stockholders ' equity equaled $ 246.8 million , or $ 32.69 per share , at december 31 , 2014 , and $ 238.8 million , or $ 31.62 per share , at december 31 , 2013. dividends declared for the 2014 amounted to $ 1.24 per share representing 53.0 percent of net income .
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as a result core deposits increased 12.7 % at december 31 , 2011 compared to december 31 , 2010 ; · ensured that the senior management team has the talent and expertise needed to implement this strategic realignment and determined a means to retain and recruit seasoned professionals , as necessary ; and · developed a plan to return the bank to profitable operations . some of the specific steps that will be taken to both enhance profitability and improve the bank 's capital position are : · the sale of approximately $ 10.0 million in sba loans at premiums approximating 10 % · prepayment of fhlb advances , thereby reducing the balance sheet and removing higher costs borrowings · the sale certain pre-identified afs securities all of which were in an unrealized gain position · downstream of $ 500,000 to $ 1.0 million from the cwbc to cwb · lowering rates on interest bearing deposits additionally , the bank has downsized the sba group and will focus lending in california . the board and management will continue to work closely with the occ to achieve compliance with the terms of the agreement and to improve bank 's strength , security and performance . critical accounting policies the company 's accounting policies are more fully described in note 1 of the consolidated financial statements . as disclosed in note 1 , the preparation of financial statements in conformity with accounting principles generally accepted in the united states requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes . actual results could differ significantly from those estimates . the company believes that the following discussion addresses the company 's most critical accounting policies , which are those that are most important to the portrayal of the company 's financial condition and results of operations and require management 's most difficult , subjective and complex judgments . provision and allowance for loan losses – the company maintains a detailed , systematic analysis and procedural discipline to determine the amount of the allowance for loan losses ( “ all ” ) . the all is based on estimates and is intended to be adequate to provide for probable losses inherent in the loan portfolio . this process involves deriving probable loss estimates that are based on migration analysis/historical loss rates and qualitative factors that are based on management 's judgment . the migration analysis and historical loss rate calculations are based upon the annualized loss rates utilizing a twelve quarter loss history . migration analysis is utilized for the commercial real estate , commercial and sba portfolio segments . the historical loss rate method is utilized for the homogeneous loan segments which include manufactured housing , heloc 's , single family residential and consumer loans . the migration analysis takes into account the risk rating of loans that are charged off in each loan segment . - 21 - foreclosed real estate and repossessed assets – foreclosed real estate and repossessed assets includes real estate and other repossessed assets and the collateral property is recorded at fair value at the time of foreclosure less estimated costs to sell . any excess of loan balance over the fair value less costs to sell of the other assets is charged-off against the allowance for loan losses . subsequent to the legal ownership date , management periodically performs a new valuation and the asset is carried at the lower of carrying amount or fair value . operating expenses or income , and gains or losses on disposition of such properties , are recorded in current operations . servicing rights – the guaranteed portion of certain sba loans can be sold into the secondary market . servicing rights are recognized as separate assets when loans are sold with servicing retained . servicing rights are amortized in proportion to , and over the period of , estimated future net servicing income . the company uses industry prepayment statistics and its own prepayment experience in estimating the expected life of the loans . management evaluates its servicing rights for impairment quarterly . servicing rights are evaluated for impairment based upon the fair value of the rights as compared to amortized cost . fair value is determined using discounted future cash flows calculated on a loan-by-loan basis and aggregated by predominated risk characteristics . the initial servicing rights and resulting gain on sale are calculated based on the difference between the best actual par and premium bids on an individual loan basis . recent accounting pronouncements – in april 2011 , the fasb issued asu no . 2011-02 , “ a creditor 's determination of whether a restructuring is a troubled debt restructuring. ” the provisions of asu no . 2011-02 provide additional guidance related to determining whether a creditor has granted a concession , include factors and examples for creditors to consider in evaluating whether a restructuring results in a delay in payment that is insignificant , prohibit creditors from using the borrower 's effective rate test to evaluate whether a concession has been granted to the borrower , and adds factors for creditors to use in determining whether a borrower is experiencing financial difficulties . a provision in asu no . 2011-02 also ends the fasb 's deferral of the additional disclosures related to troubled debt restructurings as required by asu no . 2010-20. the provisions of asu no . 2011-02 were effective for the company 's reporting period beginning on or after june 15 , 2011. in the third quarter of 2011 , the company adopted the provisions of asu no . 2010-20 retrospectively to all modifications and restructuring activities that have occurred from january 1 , 2011. in may 2011 , the fasb issued asu no . 2011-04 , “ amendments to achieve common fair value measurement and disclosure requirements in u.s. gaap and ifrss. ” asu no . story_separator_special_tag interest rates charged on the company 's loans are affected principally by the demand for such loans , the supply of money available for lending purposes , competitive factors and general economic conditions such as federal economic policies , legislative tax policies and governmental budgetary matters . to maintain its net interest margin , the company must manage the relationship between interest earned and paid . - 23 - the following table sets forth , for the period indicated , the increase or decrease in dollars and percentages of certain items in the consolidated statement of operations as compared to the prior periods : replace_table_token_3_th comparison of 2011 to 2010 net interest income declined by $ 1.0 million , or 3.5 % , for 2011 compared to 2010. total interest income declined by $ 2.7 million , or 6.9 % , from $ 39.2 million in 2010 to $ 36.5 million in 2011. of this decline , $ 2.1 million resulted from the decline in interest earnings assets from $ 650.4 million for 2010 to $ 617.0 million for 2011. also contributing to the decline was an increase in non-accrual loans from $ 35.0 million at december 31 , 2010 to $ 42.3 million at december 31 , 2011. yields on interest earning-assets also declined from 6.03 % for 2010 to 5.92 % for 2011 . - 24 - the decline in interest income was partly offset by the reduction of interest expense from $ 10.0 million for 2010 to $ 8.3 million for 2011. of this decline , $ 822,000 resulted from lower rates paid on deposits and borrowings . rates on interest-bearing deposits declined from 1.52 % for 2010 to 1.27 % for 2011. overall , rates on deposits and borrowings were 1.53 % for 2011 compared to 1.73 % for 2010. the combination of the decline in rates paid on deposits and borrowings and the decline in yields on interest-earning assets resulted in a margin improvement of 0.08 % from 4.50 % for 2010 to 4.58 % for 2011. comparison of 2010 to 2009 net interest income increased by $ 3.3 million , or 12.8 % , for 2010 compared to 2009. total interest income declined by $ 1.7 million , or 4.1 % , from $ 40.9 million in 2009 to $ 39.2 million in 2010. of this decline , $ 1.3 million was due to a decline in yields on interest-earning assets , which declined from 6.17 % for 2009 to 6.03 % for 2010. the remaining decline resulted from the decline in the average balance of interest-earning assets from $ 663.2 million for 2009 to $ 650.4 million for 2010. the decline in interest income was more than offset by the reduction of interest expense from $ 14.9 million for 2009 to $ 10.0 million for 2010. of this decline , $ 4.2 million resulted from lower rates paid on deposits and borrowings . rates on interest-bearing deposits declined from 2.42 % for 2009 to 1.52 % for 2010. overall , rates on deposits and borrowings were 1.73 % for 2010 compared to 2.60 % for 2009. the combination of the decline in rates paid on deposits and borrowings and the decline in yields on interest-earning assets resulted in a margin improvement of 0.59 % from 3.91 % for 2009 to 4.50 % for 2010. the following table sets forth the changes in interest income and expense attributable to changes in rate and volume : replace_table_token_4_th - 25 - the following table presents the net interest income and net interest margin for the three years indicated : replace_table_token_5_th provision for loan losses the provision for loan losses increased $ 5.8 million to $ 14.6 million for 2011 compared to $ 8.7 million for 2010. the following schedule summarizes the provision , charge-offs and recoveries by loan segment for the year ended december 31 , 2011 : replace_table_token_6_th the following schedule summarizes the provision , charge-offs and recoveries by loan segment for the year ended december 31 , 2010 : replace_table_token_7_th the allowance for loan losses increased 14.8 % in response to key metric increases including a rise in the level of charge-offs , the balance of non-accrual and impaired loans and overall loan portfolio classifications . while past due loans have increased in several categories , overall there has been a decline from $ 27.1 million to $ 24.9 million . sba loans past due declined from $ 20.1 million to $ 10.0 million and are primarily responsible for the overall reduction . while impaired loans increased $ 25.0 million , the specific valuation allowance on impaired loans remained relatively stable . the specific allowance of $ 248,000 to total impaired loans of $ 39.9 million indicates an expectation , based on current known facts , that principal will be recovered on most of these loans . however , challenges remain in the portfolio in which net non-accrual loans have increased from $ 12.7 million at december 31 , 2010 to $ 28.7 million at december 31 , 2011 and net charge-offs increased from $ 9.2 million for 2010 to $ 12.6 for 2011. past portfolio performance is not necessarily indicative of future results . included in the company 's held-to-maturity portfolio is home equity loans , “ heloc ” , which guidance issued by the sec characterizes as higher-risk . the heloc portfolio of $ 20.3 million consists of credits secured by residential real estate in santa barbara and ventura counties . in 2011 , the net charge-offs in this portfolio were $ 1,000. as of december 31 , 2011 , $ 333,000 of the portfolio is past due and $ 29,000 is on non-accrual status . the allowance for loan losses for this portfolio is $ 349,000 , or 1.7 % . the company believes that , overall , this portfolio is adequately supported by real estate collateral .
| results of operations the following discussion is designed to provide insight into management 's assessment of significant trends related to the consolidated financial condition , results of operations , liquidity , capital resources and interest rate risk for community west bancshares ( “ cwbc ” ) and its wholly-owned subsidiary , community west bank ( “ cwb ” or “ bank ” ) . unless otherwise stated , “ company ” refers to cwbc and cwb as a consolidated entity . the following discussion should be read in conjunction with the company 's consolidated financial statements and notes thereto and the other financial information appearing elsewhere in this 2011 annual report on form 10-k. forward-looking statements this 2011 annual report on form 10-k contains statements that constitute 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 . those forward-looking statements include statements regarding the intent , belief or current expectations of the company and its management . any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties , and actual results may differ materially from those projected in the forward-looking statements . overview of earnings performance net loss applicable to common shareholders of the company was $ 11.5 million , or $ ( 1.93 ) per basic and diluted common share for 2011 compared to net income applicable to common shareholders of $ 1.0 million , or $ 0.18 per basic and diluted common share for 2010. the company 's earnings performance was impacted in 2011 by : § the provision for loan losses increased to $ 14.6 million for 2011 compared to $ 8.7 million for 2010. net charge-offs increased from $ 9.2 million for 2010 to $ 12.6 million for 2011 .
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insurance underwriting includes the following subsidiaries of the company : mendota insurance company ( `` mendota '' ) , mendakota insurance company ( `` mendakota '' ) , mendakota casualty company ( formerly universal casualty company ) ( `` mcc '' ) , kingsway amigo insurance company ( `` amigo '' ) and kingsway reinsurance corporation . throughout this 2015 annual report , the term `` insurance underwriting '' is used to refer to this segment . insurance underwriting provides non-standard automobile insurance to individuals who do not meet the criteria for coverage by standard automobile insurers . insurance underwriting has policyholders in 12 states ; however new business is accepted in only nine states . in 2015 , production in the following states represented 84.8 % of insurance underwriting 's gross premiums written : florida ( 24.0 % ) , texas ( 16.3 % ) , illinois ( 15.7 % ) , california ( 10.3 % ) , nevada ( 9.9 % ) and colorado ( 8.6 % ) . for the year ended december 31 , 2015 , non-standard automobile insurance accounted for 100.0 % of insurance underwriting 's gross premiums written . the company previously placed amigo and mcc into voluntary run-off in 2012 and 2011 , respectively . each of amigo and mcc entered into a comprehensive run-off plan which was approved by its respective state of domicile . kingsway continues to manage amigo and mcc in a manner consistent with the run-off plans . during the first quarter of 2015 , mcc sent a letter of intent to the illinois department of insurance to resume writing private passenger automobile policies in the state of illinois . mcc began writing these policies on april 1 , 2015. insurance services includes the following subsidiaries of the company : iws acquisition corporation ( `` iws '' ) and trinity warranty solutions llc ( `` trinity '' ) . throughout this 2015 annual report , the term `` insurance services '' is used to refer to this segment . iws is a licensed motor vehicle service agreement company and is a provider of after-market vehicle protection services distributed by credit unions in 26 states to their members . trinity is a provider of warranty products and maintenance support to consumers and businesses in the heating , ventilation , air conditioning ( `` hvac '' ) , standby generator , commercial led lighting and refrigeration industries . trinity distributes its warranty products through original equipment manufacturers , hvac distributors and commercial and residential contractors . trinity distributes its maintenance support direct through corporate owners of retail spaces throughout the united states . effective april 1 , 2015 , the company closed on the sale of its wholly owned subsidiary , assigned risk solutions ltd. ( `` ars '' ) . as a result , ars has been classified as discontinued operations and the results of their operations are reported separately for all periods presented . prior to the transaction , ars was included in the insurance services segment . as a result of classifying ars as a discontinued operation , all segmented information has been restated to exclude ars from the insurance services segment . effective march 31 , 2014 , the company 's wholly owned subsidiary , 1347 property insurance holdings , inc. ( `` pih '' ) , formerly known as maison insurance holdings , inc. , completed an initial public offering of its common stock . upon completion of the transaction , the company maintained a minority ownership interest in the common shares of pih . the earnings of pih are included in the consolidated statements of operations through the march 31 , 2014 transaction date . prior to the transaction , pih was included in the insurance underwriting segment . as a result of the disposal of the company 's majority interest in pih on march 31 , 2014 , all segmented information has been restated to exclude pih from the insurance underwriting segment . non u.s.-gaap financial measures throughout this 2015 annual report , we present our operations in the way we believe will be most meaningful , useful and transparent to anyone using this financial information to evaluate our performance . in addition to the u.s. gaap presentation of net income ( loss ) , we show certain statutory reporting information and other non-u.s. gaap financial measures that we believe are relevant in managing our business and drawing comparisons to our peers . these measures are segment operating ( loss ) income , gross premiums written , net premiums written and underwriting ratios . following is a list of non-u.s. gaap measures found throughout this report with their definitions , relationships to u.s. gaap measures and explanations of their importance to our operations . replace_table_token_36_th kingsway financial services inc. management 's discussion and analysis segment operating ( loss ) income segment operating ( loss ) income represents one measure of the pretax profitability of our segments and is derived by subtracting direct segment expenses from direct segment revenues . revenues and expenses are presented in the consolidated statements of operations , but are not subtotaled by segment . however , this information is available in total and by segment in note 22 , `` segmented information , '' to the consolidated financial statements , regarding reportable segment information . the nearest comparable u.s. gaap measure is loss from continuing operations before income tax expense ( benefit ) which , in addition to operating ( loss ) income , includes net investment income , net realized gains , other-than-temporary impairment loss , other income not allocated to segments , general and administrative expenses , amortization of intangible assets , contingent consideration benefit , impairment of asset held for sale , interest expense , foreign exchange losses , net , ( gain ) loss on change in fair value of debt , loss on disposal of subsidiary , loss on disposal of asset held for sale , loss on deconsolidation of subsidiary and equity in net loss of investee . story_separator_special_tag the actuarial point estimate is intended to represent the actuaries ' best estimate and will not necessarily be at the mid-point of the high and low estimates of the range . valuation of fixed maturities and equity investments our equity investments , including warrants , are recorded at fair value using quoted market values based on latest bid prices , where active markets exist , or models based on significant market observable inputs , where no active markets exist . for fixed maturities , we use observable inputs such as quoted prices in inactive markets , quoted prices in active markets for similar instruments , benchmark interest rates , broker quotes and other relevant inputs . we do not have any investments in our portfolio which require us to use unobservable inputs . any change in the estimated fair value of our investments could impact the amount of unrealized gain or loss we have recorded , which could change the amount we have recorded for our investments and other comprehensive income ( loss ) on our consolidated balance sheets . gains and losses realized on the disposition of investments are determined on the first-in first-out basis and credited or charged to the consolidated statements of operations . premium and discount on investments are amortized and accredited using the interest method and charged or credited to net investment income . the establishment of an other-than-temporary impairment on an investment requires a number of judgments and estimates . we perform a quarterly analysis of the individual investments to determine if declines in market value are other-than-temporary . the analysis includes some or all of the following procedures , as applicable : identifying all unrealized loss positions that have existed for at least six months ; identifying other circumstances which management believes may impact the recoverability of the unrealized loss positions ; obtaining a valuation analysis from third-party investment managers regarding the intrinsic value of these investments based on their knowledge and experience together with market-based valuation techniques ; reviewing the trading range of certain investments over the preceding calendar period ; assessing if declines in market value are other-than-temporary for debt instruments based on the investment grade credit ratings from third-party rating agencies ; assessing if declines in market value are other-than-temporary for any debt instrument with a non-investment grade credit rating based on the continuity of its debt service record ; determining the necessary provision for declines in market value that are considered other-than-temporary based on the analyses performed ; and assessing the company 's ability and intent to hold these investments at least until the investment impairment is recovered . the risks and uncertainties inherent in the assessment methodology used to determine declines in market value that are other-than-temporary include , but may not be limited to , the following : the opinions of professional investment managers could be incorrect ; replace_table_token_38_th kingsway financial services inc. management 's discussion and analysis the past trading patterns of individual investments may not reflect future valuation trends ; the credit ratings assigned by independent credit rating agencies may be incorrect due to unforeseen or unknown facts related to a company 's financial situation ; and the debt service pattern of non-investment grade instruments may not reflect future debt service capabilities and may not reflect a company 's unknown underlying financial problems . as a result of the analysis performed by the company to determine declines in market value that are other-than-temporary , the company recorded a write down of $ 0.0 million for other-than-temporary impairment related to fixed maturities for the year ended december 31 , 2015 . the company did not recognize any impairment related to its investments that was considered other-than-temporary for the year ended december 31 , 2014 . valuation of deferred income taxes the provision for income taxes is calculated based on the expected tax treatment of transactions recorded in our consolidated financial statements . in determining our provision for income taxes , we interpret tax legislation in a variety of jurisdictions and make assumptions about the expected timing of the reversal of deferred income tax assets and liabilities and the valuation of deferred income taxes . the ultimate realization of the deferred income tax asset balance is dependent upon the generation of future taxable income during the periods in which the company 's temporary differences reverse and become deductible . a valuation allowance is established when it is more likely than not that all or a portion of the deferred income tax asset balance will not be realized . in determining whether a valuation allowance is needed , management considers all available positive and negative evidence affecting specific deferred income tax asset balances , including the company 's past and anticipated future performance , the reversal of deferred income tax liabilities , and the availability of tax planning strategies . objective positive evidence is necessary to support a conclusion that a valuation allowance is not needed for all or a portion of a company 's deferred income tax asset balances when significant negative evidence exists . cumulative losses are the most compelling form of negative evidence considered by management in this determination . to the extent a valuation allowance is established in a period , an expense must be recorded within the income tax provision in the consolidated statements of operations . as of december 31 , 2015 , the company maintains a valuation allowance of $ 283.6 million , $ 277.1 million of which relates to its u.s. deferred income taxes . the largest component of the u.s. deferred income tax asset balance relates to tax loss carryforwards that have arisen as a result of losses generated from the company 's u.s. operations . uncertainty over the company 's ability to utilize these losses over the short-term has led the company to record a valuation allowance . future events may result in the valuation allowance being adjusted , which could materially impact our financial position and results of operations .
| results of continuing operations a reconciliation of total segment operating ( loss ) income to net income ( loss ) for the years ended december 31 , 2015 and 2014 is presented in table 1 below : table 1 segment operating ( loss ) income for the years ended december 31 ( in thousands of dollars ) replace_table_token_41_th replace_table_token_42_th kingsway financial services inc. management 's discussion and analysis loss from continuing operations , net income ( loss ) and diluted earnings ( loss ) per share for the year ended december 31 , 2015 , we incurred a loss from continuing operations of $ 11.4 million ( $ 0.60 per diluted share ) compared to $ 14.7 million ( $ 0.95 per diluted share ) for the year ended december 31 , 2014 . the loss from continuing operations for the year ended december 31 , 2015 is primarily attributable to operating loss in insurance underwriting and insurance services , income and expenses not allocated to segments , interest expense , and loss on deconsolidation of subsidiary , partially offset by net investment income and gain on change in fair value of debt . the loss from continuing operations for the year ended december 31 , 2014 is attributable to income and expenses not allocated to segments , impairment of asset held for sale , interest expense , loss on change in fair value of debt and loss on disposal of subsidiary , partially offset by net realized gains , contingent consideration benefit and operating income in insurance services and insurance underwriting . for the year ended december 31 , 2015 , we reported net income of $ 1.3 million ( $ 0.04 per diluted share ) compared to net loss of $ 11.2 million ( $ 0.75 per diluted share ) for the year ended december 31 , 2014 . insurance underwriting for the year ended december 31 , 2015 , insurance underwriting gross premiums written were $ 116.4
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will , ” “ would , ” “ contemplate , ” “ possible , ” “ attempt , ” “ seek , ” “ should , ” “ could , ” “ goal , ” “ target , ” “ on track , ” “ comfortable with , ” “ optimistic ” and similar words , although some forward-looking statements are expressed differently . you should consider statements that contain these words carefully because they describe our expectations , plans , strategies and goals and our beliefs concerning future business conditions , our results of operations , financial position , and our business outlook or they state other “ forward-looking ” information based on currently available information . the “ risk factors ” in item 1a provide examples of risks , uncertainties and events that could cause our actual results to differ materially from the expectations expressed in our forward-looking statements . assumptions and other important factors that could cause our actual results to differ materially from those anticipated in our forward-looking statements include , among other things : changes in or sustained low interest rates causing reductions in investment income , the margins of our fixed annuity and life insurance businesses , and sales of , and demand for , our products ; general economic , market and political conditions , including the performance and fluctuations of the financial markets which may affect the value of our investments as well as our ability to raise capital or refinance existing indebtedness and the cost of doing so ; the ultimate outcome of lawsuits filed against us and other legal and regulatory proceedings to which we are subject ; our ability to make anticipated changes to certain nges of our life insurance products ; our ability to obtain adequate and timely rate increases on our health products , including our long-term care business ; the receipt of any required regulatory approvals for dividend and surplus debenture interest payments from our insurance subsidiaries ; mortality , morbidity , the increased cost and usage of health care services , persistency , the adequacy of our previous reserve estimates and other factors which may affect the profitability of our insurance products ; changes in our assumptions related to deferred acquisition costs or the present value of future profits ; the recoverability of our deferred tax assets and the effect of potential ownership changes and tax rate changes on their value ; our assumption that the positions we take on our tax return filings , including our position that our 7.0 % debentures will not be treated as stock for purposes of section 382 of the code and will not trigger an ownership change , will not be successfully challenged by the irs ; changes in accounting principles and the interpretation thereof ( including changes in principles related to accounting for deferred acquisition costs ) ; our ability to continue to satisfy the financial ratio and balance requirements and other covenants of our debt agreements ; our ability to achieve anticipated expense reductions and levels of operational efficiencies including improvements in claims adjudication and continued automation and rationalization of operating systems ; 46 performance and valuation of our investments , including the impact of realized losses ( including other-than-temporary impairment charges ) ; our ability to identify products and markets in which we can compete effectively against competitors with greater market share , higher ratings , greater financial resources and stronger brand recognition ; our ability to generate sufficient liquidity to meet our debt service obligations and other cash needs ; our ability to maintain effective controls over financial reporting ; our ability to continue to recruit and retain productive agents and distribution partners and customer response to new products , distribution channels and marketing initiatives ; our ability to achieve eventual upgrades of the financial strength ratings of cno and our insurance company subsidiaries as well as the impact of our ratings on our business , our ability to access capital , and the cost of capital ; the risk factors or uncertainties listed from time to time in our filings with the sec ; regulatory changes or actions , including those relating to regulation of the financial affairs of our insurance companies , such as the payment of dividends and surplus debenture interest to us , regulation of the sale , underwriting and pricing of products , and health care regulation affecting health insurance products ; and changes in the federal income tax laws and regulations which may affect or eliminate the relative tax advantages of some of our products or affect the value of our deferred tax assets . other factors and assumptions not identified above are also relevant to the forward-looking statements , and if they prove incorrect , could also cause actual results to differ materially from those projected . all written or oral forward-looking statements attributable to us are expressly qualified in their entirety by the foregoing cautionary statement . our forward-looking statements speak only as of the date made . we assume no obligation to update or to publicly announce the results of any revisions to any of the forward-looking statements to reflect actual results , future events or developments , changes in assumptions or changes in other factors affecting the forward-looking statements . overview we are a holding company for a group of insurance companies operating throughout the united states that develop , market and administer health insurance , annuity , individual life insurance and other insurance products . we focus on serving the senior and middle-income markets , which we believe are attractive , underserved , high growth markets . we sell our products through three distribution channels : career agents , independent producers ( some of whom sell one or more of our product lines exclusively ) and direct marketing . story_separator_special_tag under the terms of the investment ; ( vii ) whether we intend to sell the investment or it is more likely than not that circumstances will require us to sell the investment before recovery occurs ; ( viii ) the underlying current and prospective asset and enterprise values of the issuer and the extent to which the recoverability of the carrying value of our investment may be affected by changes in such values ; ( ix ) projections of , and unfavorable changes in , cash flows on structured securities including mortgage-backed and asset-backed securities ; ( x ) the value of any collateral ; and ( xi ) other objective and subjective factors . future events may occur , or additional information may become available , which may necessitate future realized losses of securities in our portfolio . significant losses in the estimated fair values of our investments could have a material adverse effect on our consolidated financial statements in future periods . impairment losses on equity securities are recognized in net income . the manner in which impairment losses on fixed maturity securities , available for sale , are recognized in the financial statements is dependent on the facts and circumstances related to the specific security . if we intend to sell a security or it is more likely than not that we would be required to sell a security before the recovery of its amortized cost , the security is other-than-temporarily impaired and the full amount of the impairment is recognized as a loss through earnings . if we do not expect to recover the amortized cost basis , we do not plan to sell the security , and if it is not more likely than not that we would be required to sell a security before the recovery of its amortized cost , less any current period credit loss , the recognition of the other-than-temporary impairment is bifurcated . we recognize the credit loss portion in net income and the noncredit loss portion in accumulated other comprehensive income ( loss ) . we estimate the amount of the credit loss component of a fixed maturity security impairment as the difference between amortized cost and the present value of the expected cash flows of the security . the present value is determined using the best estimate of future cash flows discounted at the effective interest rate implicit to the security at the date of purchase or the current yield to accrete an asset-backed or floating rate security . the methodology and assumptions for establishing the best estimate of future cash flows vary depending on the type of security . for most structured securities , cash flow estimates are based on bond specific facts and circumstances that may include collateral characteristics , expectations of delinquency and default rates , loss severity , prepayment speeds and structural support , including excess spread , subordination and guarantees . for corporate bonds , cash flow estimates are derived from scenario-based outcomes of expected corporate restructurings or the disposition of assets using bond specific facts and circumstances including timing , secured interest and loss severity . the previous amortized cost basis less the impairment recognized in net income becomes the security 's new cost basis . we accrete the new cost basis to the estimated future cash flows over the expected remaining life of the security . the remaining non-credit impairment , which is recorded in accumulated other comprehensive income ( loss ) , is the difference between the security 's estimated fair value and our best estimate of future cash flows discounted at the effective interest rate prior to impairment . the remaining non-credit impairment typically represents changes in the market interest rates , current market liquidity and risk premiums . as of december 31 , 2011 , other-than-temporary impairments included in accumulated other comprehensive income of $ 11.8 million ( before taxes and related amortization ) related to structured securities . fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date and , therefore , represents an exit price , not an entry price . we hold fixed maturities , equity securities , trading securities , investments held by variable interest entities , derivatives and separate account assets , which are carried at fair value . the degree of judgment utilized in measuring the fair value of financial instruments is largely dependent on the level to which pricing is based on observable inputs . observable inputs reflect market data obtained from independent sources , while unobservable inputs reflect our view of market assumptions in the absence of observable market information . financial instruments with readily available active quoted prices would be considered to have fair values based on the highest level of observable inputs , and little judgment would be utilized in measuring fair value . financial instruments that rarely trade often have fair value based on a lower level of observable inputs , and more judgment would be utilized in measuring fair value . there is a three-level hierarchy for valuing assets or liabilities at fair value based on whether inputs are observable or unobservable . level 1 – includes assets and liabilities valued using inputs that are quoted prices in active markets for identical assets or liabilities . our level 1 assets include exchange traded securities . 50 level 2 – includes assets and liabilities valued using inputs that are quoted prices for similar assets in an active market , quoted prices for identical or similar assets in a market that is not active , observable inputs , or observable inputs that can be corroborated by market data . level 2 assets and liabilities include those financial instruments that are valued by independent pricing services using models or other valuation methodologies .
| results of operations : we manage our business through the following operating segments : bankers life , washington national and colonial penn , which are defined on the basis of product distribution ; other cno business , comprised primarily of products we no longer sell actively ; and corporate operations , comprised of holding company activities and certain noninsurance company businesses . please read this discussion in conjunction with the consolidated financial statements and notes included in this form 10-k. the following tables and narratives summarize the operating results of our segments ( dollars in millions ) : replace_table_token_15_th ( a ) these non-gaap measures as presented in the above table and in the following segment financial data and discussions of segment results exclude net realized investment gains ( losses ) and fair value of embedded derivative liabilities , net of related amortization and before income taxes . these are considered non-gaap financial measures . a non-gaap measure is a numerical measure of a company 's performance , financial position , or cash flows that excludes or includes amounts that are normally excluded or included in the most directly comparable measure calculated and presented in accordance with gaap . 61 these non-gaap financial measures of “ income ( loss ) before net realized investment gains ( losses ) and fair value of embedded derivative liabilities , net of related amortization , and before income taxes ” differ from “ income ( loss ) before income taxes ” as presented in our consolidated statement of operations prepared in accordance with gaap due to the exclusion of before tax realized investment gains ( losses ) and fair value of embedded derivative liabilities , net of related amortization . we measure segment performance excluding realized investment gains ( losses ) and fair value of embedded derivative liabilities because we believe that this performance measure is a better indicator of the ongoing businesses and trends in our business .
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” cautionary statement pursuant to safe harbor provisions of the private securities litigation reform act of 1995 this report on form 10-k includes `` forward–looking statements '' as that term is defined under the private securities litigation reform act of 1995. forward–looking statements include statements concerning kodak 's plans , objectives , goals , strategies , future events , future revenue or performance , capital expenditures , liquidity , investments , financing needs and business trends and other information that is not historical information . when used in this document , the words “ estimates , ” “ expects , ” “ anticipates , ” “ projects , ” “ plans , ” “ intends , ” “ believes , ” “ predicts , ” “ forecasts , ” “ strategy , ” “ continues , ” “ goals , ” “ targets ” or future or conditional verbs , such as “ will , ” “ should , ” “ could , ” or “ may , ” and similar expressions , as well as statements that do not relate strictly to historical or current facts , are intended to identify forward–looking statements . all forward–looking statements , including management 's examination of historical operating trends and data , are based upon kodak 's expectations and various assumptions . future events or results may differ from those anticipated or expressed in the forward-looking statements . important factors that could cause actual events or results to differ materially from the forward-looking statements include , among others , the risks and uncertainties described in more detail in this report on form 10–k under the headings “ business , ” “ risk factors , ” “ legal proceedings ” and or “ management 's discussion and analysis of financial condition and results of operations–liquidity and capital resources , ” and in other filings the company makes with the sec from time to time , as well as the following : kodak 's ability to improve and sustain its operating structure , cash flow , profitability and other financial results ; kodak 's ability to achieve cash forecasts , financial projections , and projected growth ; kodak 's ability to achieve the financial and operational results contained in its business plans ; kodak 's ability to comply with the covenants in its various credit facilities ; kodak 's ability to fund continued investments , capital needs and restructuring payments and service its debt and series a preferred stock ; changes in foreign currency exchange rates , commodity prices and interest rates ; kodak 's ability to effectively anticipate technology trends and develop and market new products , solutions and technologies ; kodak 's ability to effectively compete with large , well-financed industry participants ; continued sufficient availability of borrowings and letters of credit under the abl credit agreement , kodak 's ability to obtain additional financing if and as needed and kodak 's ability to provide or facilitate financing for its customers ; the performance by third parties of their obligations to supply products , components or services to kodak ; kodak 's ability to effect strategic transactions , such as divestitures , acquisitions , strategic alliances and similar transactions , or to achieve the benefits sought to be achieved from such strategic transactions ; and the impact on kodak of the global economic environment or medical epidemics such as the recent coronavirus outbreak . there may be other factors that may cause kodak 's actual results to differ materially from the forward–looking statements . all forward–looking statements attributable to kodak or persons acting on its behalf apply only as of the date of this report on form 10-k and are expressly qualified in their entirety by the cautionary statements included in this document . kodak undertakes no obligation to update or revise forward–looking statements to reflect events or circumstances that arise after the date made or to reflect the occurrence of unanticipated events , except as required by law . critical accounting policies and estimates revenue recognition kodak 's revenue transactions include sales of products ( such as components and consumables for use in kodak , and other manufacturers ' equipment , and film-based products ) , equipment , software , services , integrated solutions , and intellectual property and brand licensing . complex arrangements with nonstandard terms and conditions may require significant contract interpretation to determine the appropriate accounting , including the allocation of transaction price to the various performance obligations and determination of the stand-alone selling price of each performance obligation . for equipment sales , revenue recognition may depend on completion of installation based on the type of equipment , level of customer specific customization and other contractual terms . in instances in which the agreement with the customer contains a customer acceptance clause , revenue is deferred until customer acceptance is obtained , provided the customer acceptance clause is considered to be substantive . 27 at the time revenue is recognized , kodak also records reductions to revenue for customer incentive programs . such incentive programs include cash and volume discounts and promotional allowances . for those incentives that require the estimation of sales volumes or redemption rates , such as for volume rebates , kodak uses h istorical experience and both internal and customer data to estimate the sales incentive at the time revenue is recognized . in the event that the actual results of these items differ from the estimates , adjustments to the sales incentive accruals are reco rded . future market conditions and product transitions may require kodak to take actions to increase customer incentive offers , possibly resulting in an incremental reduction of revenue at the time the incentive is offered . valuation and useful lives of long-lived assets , including goodwill and intangible assets kodak performs a test for goodwill impairment annually and whenever events or changes in circumstances occur that would more likely than not reduce the fair value of the reporting unit below its carrying amount . story_separator_special_tag long-lived assets other than goodwill and indefinite-lived intangible assets are evaluated for impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable . when evaluating long-lived assets for impairment , the carrying value of an asset group is compared to its estimated undiscounted future cash flows . an impairment is indicated if the estimated future cash flows are less than the carrying value of the asset group . the impairment is the excess of the carrying value over the fair value of the long-lived asset group . kodak recorded a $ 2 million pre-tax impairment charge related to one building no longer in use . the value of property , plant , and equipment is depreciated over its expected useful life in such a way as to allocate it as equitably as possible to the periods during which services are obtained from their use , which aims to distribute the value over the remaining estimated useful life of the unit in a systematic and rational manner . an estimate of useful life not only considers the economic life of the asset , but also the remaining life of the asset to the entity . impairment of long-lived assets other than goodwill and indefinite lived intangible assets could occur in the future if expected future cash flows decline or if there are significant changes in the estimated useful life of the assets . series a preferred stock and convertible notes embedded conversion features and term extension derivatives on november 15 , 2016 , the company issued 2,000,000 shares of series a preferred stock no par value per share . on may 24 , 2019 , the company issued $ 100 million aggregate principal amount of convertible notes . the company concluded that the series a preferred stock and convertible notes are considered more akin to debt-type instruments and that the economic characteristics and risks of the embedded conversion features and term extension at the company 's option ( in the case of the convertible notes ) , except where the conversion price is increased to the liquidation preference in the case of the series a preferred stock , were not considered clearly and closely related to the series a preferred stock or the convertible notes . accordingly , these embedded features were bifurcated from the series a preferred stock and convertible notes and separately accounted for on a combined basis at fair value as two single derivatives . the company allocated $ 43 million of the net series a preferred stock proceeds to the series a preferred stock derivative liability based on the aggregate fair value of the embedded conversion features on the date of issuance which reduced the original carrying value of the series a preferred stock . the company allocated $ 14 million of the net convertible notes proceeds to the convertible notes derivative liability based on the aggregate fair value of the embedded features on the date of issuance which reduced the original carrying value of the convertible notes . the derivatives are being accounted for at fair value with subsequent changes in the fair value being reported as part of other charges , net in the consolidated statement of operations . the fair value of the series a preferred stock derivative as of december 31 , 2019 was a liability of $ 1 million and is included in other long-term liabilities in the accompanying consolidated statement of financial position . the fair value of the series a preferred stock derivative as december 31 , 2018 was an asset of $ 4 million and is included within other long-term assets in the accompanying consolidated statement of financial position . the fair value of the convertible notes derivative as of december 31 , 2019 was a liability of $ 51 million and is included within other long-term liabilities in the accompanying consolidated statement of financial position . the fair value of the embedded conversion features and term extension option derivatives are calculated using unobservable inputs ( level 3 fair measurements ) . the value of the optional conversion associated with both the convertible notes and series a preferred stock is calculated using a binomial lattice model . the value of the term extension option reflects the probability weighted average value of the convertible notes using the original maturity date and a hypothetical extended maturity date , with all other contractual terms unchanged . the following tables present the key inputs in the determination of fair value for the embedded conversion features and termination option derivatives : convertible notes : replace_table_token_1_th 29 series a preferred stock : replace_table_token_2_th the fundamental change and reorganization conversion values at issuance were calculated as the difference between the total value of the convertible notes or series a preferred stock , as applicable , and the sum of the net present value of the cash flows if the convertible notes are repaid at their initial maturity date or series a preferred stock is redeemed on its fifth anniversary and the values of the other embedded derivatives . the fundamental change and reorganization conversion values reduce the value of the embedded conversion features and term extension option derivative liability . other than events which alter the likelihood of a fundamental change or reorganization event , the value of the fundamental change and reorganization conversion reflects the value as of the issuance date , amortized for the passage of time . the fundamental change and reorganization conversion value for the series a preferred stock exceeded the value of the optional conversion and mandatory conversion values at december 31 , 2018 resulting in the derivative being reported as an asset . taxes kodak recognizes deferred tax liabilities and assets for the expected future tax consequences of operating losses , credit carry-forwards and temporary differences between the carrying amounts and tax basis of kodak 's assets and liabilities . kodak records a valuation allowance to reduce its net deferred tax assets to the amount that is more likely than not to be realized .
| results of operations replace_table_token_6_th revenues for the year ended december 31 , 2019 , revenues decreased by approximately $ 78 million compared with the same period in 2018. volume and pricing declines partially offset by favorable product mix within print systems ( $ 40 million and $ 12 million , respectively ) , volume declines in kodak software ( $ 8 million ) and enterprise inkjet systems ( $ 7 million ) and unfavorable foreign currency ( $ 27 million ) drove the decline . intellectual property licensing revenue of $ 13 million related to the huaguang relationship positively impacted results . see segment discussions for additional details . gross profit gross profit for 2019 increased by approximately $ 2 million . the increase reflected intellectual property licensing revenue of $ 13 million related to the huaguang relationship and cost improvements across film manufacturing ( $ 6 million ) , lower aluminum costs ( $ 7 million ) , refunds of aluminum tariffs paid by kodak in the last half of 2018 in print systems ( $ 2 million ) and lower depreciation and amortization expense ( $ 15 million ) . the improvements were offset by lower volume and unfavorable pricing and product mix in print systems ( $ 19 million ) , volume declines in kodak software ( $ 5 million ) and enterprise inkjet systems ( $ 3 million ) , unfavorable manufacturing costs and equipment inventory write-downs in enterprise inkjet systems ( $ 6 million ) , declines in consumer inkjet systems ( $ 3 million ) and unfavorable foreign currency ( $ 2 million ) . see segment discussions for additional details . selling , general and administrative expenses consolidated sg & a for 2019 decreased $ 13 million primarily due to lower investment in selling and marketing activities in print systems ( $ 7 million ) and lower consulting and project costs ( $ 7 million ) partially offset by $ 2 million of compensation included in the former ceo separation agreement .
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expense recognition certain direct expenses pertaining to specific events , including prize and point fund monies and sanction fees paid to various sanctioning bodies , including nascar , marketing and other expenses associated with the promotion of our racing events are deferred until the event is held , at which point they are expensed . the cost of non-event related advertising , promotion and marketing programs is expensed as incurred . advertising expenses were $ 2,192,000 , $ 2,781,000 and $ 3,387,000 in 2010 , 2009 and 2008 , respectively . net loss per common share basic and diluted net loss per common share ( eps ) are calculated in accordance with the provisions of asc topic 260 , earnings per share . nonvested share-based payment awards that include rights to dividends or dividend equivalents , whether paid or unpaid , are considered participating securities , and the two-class method of computing eps is applied for all periods presented . our restricted stock awards include the right to dividends with respect to nonvested shares . the nonvested shares of our restricted stock grants are considered participating securities and must be included in our computation of eps . accordingly , we have computed eps to include the impact of outstanding nonvested shares of restricted stock in the calculation of basic eps . the following table sets forth the computation of basic and diluted eps for the years ended december 31 , 2010 , 2009 and 2008 ( in thousands , except per share amounts ) : replace_table_token_8_th 39 replace_table_token_9_th for the years ended december 31 , 2010 , 2009 and 2008 , options to purchase 293,000 , 482,000 and 523,001 shares of common stock , respectively , were outstanding but not included in the computation of diluted eps because they would have been anti-dilutive . accounting for stock-based compensation we recorded total stock-based compensation expense of $ 662,000 , $ 495,000 and $ 598,000 as general and administrative expenses for the years ended december 31 , 2010 , 2009 and 2008 , respectively . we recorded income tax benefits of $ 127,000 , $ 130,000 and $ 243,000 for the years ended december 31 , 2010 , 2009 and 2008 , respectively , related to our restricted stock awards . use of estimates the preparation of story_separator_special_tag the following discussion is based upon and should be read together with the consolidated financial statements and notes thereto included elsewhere in this document . we classify our revenues as admissions , event-related , broadcasting and other . admissions includes ticket sales for all our events . event-related revenue includes amounts received from sponsorship fees ; luxury suite rentals ; hospitality tent rentals and catering ; concessions and souvenir sales and vendor commissions for the right to sell concessions and souvenirs at our facilities ; sales of programs ; track rentals and other event-related revenues . broadcasting revenue includes rights fees obtained for television and radio broadcasts of events held at our speedways and ancillary media rights fees . revenues pertaining to specific events are deferred until the event is held . concession revenue from concession stand sales and sales of souvenirs are recorded at the time of sale . revenues and related expenses from barter transactions in which we receive advertising or other goods or services in exchange for sponsorships of motorsports events are recorded at fair value . barter transactions accounted for $ 848,000 , $ 936,000 and $ 1,163,000 of total revenues for the years ended december 31 , 2010 , 2009 and 2008 , respectively . expenses that are not directly related to a specific event are recorded as incurred . expenses that specifically relate to an event are deferred until the event is held , at which time they are expensed . these expenses include prize and point fund monies and sanction fees paid to various sanctioning bodies , including nascar , labor , marketing , cost of goods sold for merchandise and souvenirs , and other expenses associated with the promotion of our racing events . 14 story_separator_special_tag style= '' margin-top:18px ; margin-bottom:0px '' > year ended december 31 , 2009 vs. year ended december 31 , 2008 admissions revenue was $ 24,741,000 in 2009 as compared to $ 31,034,000 in 2008. we promoted fourteen major events during 2009 as compared to fifteen during 2008. the $ 6,293,000 decrease was primarily related to lower admissions revenue at our nascar event weekends at dover international speedway and to a lesser extent lower admissions at all other major events we promoted during 2009. we believe the decrease in attendance was attributable primarily to the general downturn in economic conditions , including those affecting disposable consumer income and corporate budgets such as employment , business conditions , interest rates and taxation rates . we believe that adverse economic trends , particularly credit availability , the decline in consumer confidence and the rise in unemployment have increasingly contributed to the decrease in attendance . inclement weather during the september nascar event weekend at dover international speedway also negatively impacted attendance . additionally , the decrease was partially attributable to a change in our major motorsports event schedule . the indy racing league event at our nashville superspeedway that we promoted during 2008 was not promoted in 2009 . 16 event-related revenue was $ 17,971,000 in 2009 as compared to $ 25,652,000 in 2008. the $ 7,681,000 decrease was primarily related to lower sponsorship revenues at most events we promoted during 2009 and lower luxury suite rentals and concession sales at our nascar sprint cup series events at dover international speedway we believe as a result of economic conditions . additionally , the decrease was partially attributable to the change in our major motorsports event schedule . story_separator_special_tag the maximum borrowing limit under the facility reduces to $ 65,000,000 as of june 1 , 2011 and $ 63,000,000 as of october 1 , 2011 and the facility expires january 1 , 2012. there was $ 38,200,000 outstanding under the credit facility at december 31 , 2010 , at a weighted average interest rate of 4.6 % . the credit agreement is secured by all of our assets . it provides for seasonal funding needs , capital improvements , letter of credit requirements and other general corporate purposes . on october 28 , 2010 , we amended the credit agreement to revise certain financial covenants effective for the september 30 , 2010 period and for the subsequent two quarterly measurement periods under the agreement , and to revise certain definitions . interest is based , at our option , upon libor plus a margin that varies between 300 and 400 basis points ( 400 basis points at december 31 , 2010 ) depending on the ratio of funded debt to earnings before interest , taxes , depreciation and amortization ( the leverage ratio ) or upon the base rate ( the greater of the prime rate , the federal funds rate plus 0.5 % or the daily libor rate plus 1.0 % ) plus a margin that varies between 200 and 300 basis points ( 300 basis points at december 31 , 2010 ) depending on the leverage ratio . the terms of the credit facility contain certain covenants including minimum tangible net worth , fixed charge coverage and maximum funded debt to earnings before interest , taxes , depreciation and amortization . in addition , the credit agreement includes a material adverse change clause and prohibits the payment of dividends by us . the credit facility also provides that if we default under any other loan agreement , that would be a default under this credit facility . at december 31 , 2010 , we were in compliance with the terms of the credit facility . material adverse changes in our results of operations could impact our ability to maintain financial ratios necessary to satisfy these requirements . after consideration of stand-by letters of credit outstanding , the remaining maximum borrowings available pursuant to the credit facility were $ 8,448,000 at december 31 , 2010 ; however , in order to maintain compliance with the required quarterly debt covenant calculations as of december 31 , 2010 only $ 3,844,000 could have been borrowed as of that date . we expect to be in compliance with the financial covenants , and all other covenants , for all measurement periods during the next twelve months . our current credit agreement is scheduled to mature on january 1 , 2012. we are currently evaluating possible options to address the expiration of the credit facility including refinancing with a new credit facility or other available financing options . we believe that we will be able to obtain sufficient financing to address the credit facility expiration . in november 2010 , we announced the closing of our gateway facility . the gateway facility is located on approximately 290 acres of land in madison , illinois and the racetrack is primarily on leased property . we had long-term leases for approximately 150 acres with four landlords . we also own approximately 140 acres near the gateway facility . in february 2011 , three of the four landlords agreed to terminate the land leases in exchange for 18.5 acres of owned real estate and our agreement to abandon all improvements and certain personal property ( including the racetrack ) on the leased land . as a result , we recorded an expense for facility exit costs of $ 324,000 at december 31 , 2010 primarily to record a liability for the value of the real property we conveyed to the landlords 18 in connection with terminating the leases . as part of the lease termination agreement with one of the landlords , we provided a six month purchase option on the remaining approximately 120 acres of owned land at $ 10,000 per acre , which approximates our carrying value . we closed our memphis motorsports park facility in october 2009 and executed an agreement to sell it in december 2010. the real estate sale closed on january 31 , 2011. after closing costs and including the proceeds from the separate sale of all personal property at the facility , our net proceeds were approximately $ 2,000,000 , all of which was used to pay down indebtedness of the memphis facility . since the carrying amount of the long-lived assets of the memphis facility exceeded the sales price , we recognized a non-cash impairment charge of $ 809,000 in the fourth quarter of 2010. cash provided by operating activities is expected to substantially fund our capital expenditures . based on current business conditions , we expect to spend approximately $ 500,000 on capital expenditures during 2011. additionally , we expect to contribute approximately $ 700,000 to our pension plans for 2011. we expect continued cash flows from operating activities and funds available from our credit agreement to provide for our working capital needs and capital spending requirements at least through the next twelve months and also provide for our long-term liquidity . contractual obligations at december 31 , 2010 , we had the following contractual obligations and other commercial commitments : replace_table_token_2_th ( a ) the future interest payments on our revolving credit agreement were estimated using the current outstanding principal as of december 31 , 2010 and related interest rates . ( b ) we expect to contribute approximately $ 700,000 to our pension plans for 2011. for years subsequent to 2011 , we are unable to estimate what our pension contributions will be .
| results of operations year ended december 31 , 2010 vs. year ended december 31 , 2009 admissions revenue was $ 19,251,000 in 2010 as compared to $ 24,741,000 in 2009. the $ 5,490,000 decrease was primarily related to lower admissions revenue at our nascar event weekends at dover international speedway and to a lesser extent lower admissions at the other major events we promoted during 2010. we promoted thirteen major events during 2010 and fourteen during 2009. we believe the decrease in attendance was attributable primarily to the general downturn in economic conditions , including those affecting disposable consumer income and corporate budgets such as employment , business conditions , interest rates and taxation rates . we believe that adverse economic trends , particularly credit availability , the decline in consumer confidence and the rise in unemployment have increasingly contributed to the decrease in attendance . additionally , revenue associated with our special and weekly events at our memphis facility did not recur in 2010 since that facility closed during the fourth quarter of 2009. event-related revenue was $ 15,010,000 in 2010 as compared to $ 17,971,000 in 2009. the $ 2,961,000 decrease was primarily related to lower hospitality and luxury suite rentals , as well as lower concessions and souvenir sales as a result of the lower attendance and the aforementioned economic conditions . additionally , revenue associated with our special and weekly events at our memphis facility did not recur .
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from inception through december 31 , 2020 , the company raised aggregate net proceeds ( net of broker 's commissions and fees ) of approximately $ 8.5 million under the 2018 equity distribution agreement through the sale of 2,230,997 shares of its common stock . for the year ended december 31 , 2020 , the company raised aggregate net proceeds ( net of broker 's commissions and fees ) of approximately $ 8.5 million under the 2018 equity distribution agreement through the sale of 2,227,797 shares of its common stock . additionally , in connection with this transaction $ 126,492 was incurred in fees relating to the equity distribution agreement . see note 11 for details regarding additional sales of common stock under the 2018 equity distribution agreement after december 31 , 2020 . 2019 issuances upon warrant and option exercises on august 10 , 2018 , the company issued to cotterford company limited ( “ cotterford ” ) 5.0 million shares of common stock at a price of $ 1.80 per share in a private placement offering , for aggregate gross proceeds of $ 9.0 million . in connection with the transaction , approximately $ 0.1 million was incurred for legal and other fees resulting in net proceeds of approximately $ 8.9 million . additionally , the company issued to cotterford a warrant to purchase up to an additional 5.0 million shares of common stock at an exercise price of $ 3.00 per share payable in cash . this transaction resulted in cotterford becoming a significant stockholder and therefore a related party in accordance with u.s. gaap . the shares of common stock ( including the shares underlying the warrant ) were subsequently registered for resale on form s-3 ( declared effective by the sec on october 15 , 2018 , file no . 333-227731 ) . from january 30 , 2019 to february 26 , 2019 , warrants to purchase 754,475 shares of our common stock were exercised at a price of $ 2.20 per share , for gross proceeds to the company of approximately $ 1.66 million . on march 8 , 2019 , cotterford partially exercised its warrant and purchased 1,724,138 shares of our common stock at a price of $ 2.90 per share , for gross proceeds to the company of $ 5.0 million . f-44 volitionrx limited notes to consolidated financial statements for years ended december 31 , 2020 and 2019 ( $ expressed in united states dollars ) note 7 - common stock ( continued ) 2019 ( continued ) issuances upon warrant and option exercises ( continued ) on may 3 , 2019 , cotterford partially exercised its warrant and purchased 1,666,667 shares of our common stock at a price of $ 3.00 per share , for gross proceeds to the company of $ 5.0 million . on july 24 , 2019 , cotterford exercised the remainder of its warrant and purchased 1,609,195 shares of our common stock at a price of $ 3.00 per share , for gross proceeds to the company of approximately $ 4.8 million . from august story_separator_special_tag company overview the following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and related notes thereto , which are included in part ii , item 8 of this report . we have identified the specific processes and resources required to achieve the near and medium-term objectives of our business plan , including personnel , facilities , equipment , research and testing materials including antibodies and clinical samples , and the protection of intellectual property . to date , operations have proceeded satisfactorily in relation to our business plan . however , it is possible that some resources will not readily become available in a suitable form or on a timely basis or at an acceptable cost . it is also possible that the results of some processes may not be as expected , and that modifications of procedures and materials may be required . such events could result in delays to the achievement of the near and medium-term objectives of our business plan , in particular the progression of clinical validation studies and regulatory approval processes for the purpose of bringing products to the ivd market . our future as an operating business will depend on our ability to obtain sufficient capital contributions , financing and or generate revenues as may be required to sustain our operations . management plans to address the above as needed by : ( a ) securing additional grant funds ; ( b ) obtaining additional equity or debt financing ; ( c ) granting licenses to third parties in exchange for specified up-front and or back end payments ; and ( d ) developing and commercializing our products on an accelerated timeline . management continues to exercise tight cost controls to conserve cash . our ability to continue as a going concern is dependent upon our accomplishment of the plans described in the preceding paragraph and eventually to attain profitable operations . the accompanying consolidated financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern . if we are unable to obtain adequate capital , we could be forced to cease operations . developments—covid-19 pandemic on march 11 , 2020 , the world health organization designated the outbreak of a novel strain of coronavirus known as covid-19 as a global pandemic . governments and businesses around the world have taken unprecedented actions to mitigate the spread of covid-19 , including but not limited to implementing shelter-in-place orders and significant restrictions on travel , as well as restrictions and guidelines that prohibit many employees from going to work . uncertainty with respect to the economic effects of the pandemic has introduced significant volatility in the financial markets . story_separator_special_tag during the year ended december 31 , 2020 , we implemented contingency planning to protect the health and well-being of our employees , with the majority of our employees now working remotely where possible . we have implemented travel restrictions as well as protocols limiting visitor access to our facilities , and we are following social distancing practices . we did not observe significant impacts on our business or results of operations for the year ended december 31 , 2020 , due to the covid-19 pandemic or the mitigation actions taken to slow its spread . to the extent the pandemic worsens , we can not predict the effects it may have on our business , in particular with respect to demand for our services , our strategy , and our prospects , or the impact on our financial results . liquidity and capital resources we have financed our operations since inception primarily through private placements and public offerings of our common stock . as of december 31 , 2020 , we had cash and cash equivalents of approximately $ 19.4 million . net cash used in operating activities was $ 16.5 million and $ 12.7 million for the years ended december 31 , 2020 and december 31 , 2019 , respectively . the increase in cash used in operating activities during 2020 was primarily due to increased research and development activities together with increased personnel expenses . net cash used in investing activities was $ 1.6 million and $ 0.5 million for the years ended december 31 , 2020 and december 31 , 2019 , respectively . the increase in cash used in investing activities during 2020 was primarily a result of increased purchases of laboratory equipment for our manufacturing facility in belgium . net cash provided by financing activities was $ 20.6 million and $ 16.9 million for the years ended december 31 , 2020 and december 31 , 2019 , respectively . the increase in cash provided by financing activities during 2020 was primarily due to more capital raised from equity financing . 23 the following table summarizes our approximate contractual payments due by year as of december 31 , 2020. replace_table_token_2_th we intend to use our cash reserves to predominantly fund further research and development activities . we do not have any substantial source of revenues and expect to rely on additional future financing , through the sale of equity or debt securities , or the sale of licensing rights , to provide sufficient funding to execute our strategic plan . there is no assurance that we will be successful in raising further funds . in the event additional financing is delayed , we will prioritize the maintenance of our research and development personnel and facilities , primarily in belgium , and the maintenance of our patent rights . in such instance , the completion of clinical validation studies and regulatory approval processes for the purpose of bringing products to the ivd market would be delayed . in the event of an ongoing lack of financing , it may be necessary to discontinue operations , which will adversely affect the value of our common stock . we have not attained profitable operations and are dependent upon obtaining financing to pursue any extensive activities . for these reasons , our auditors included in their report on our audited financial statements for the fiscal year ended december 31 , 2020 an explanatory paragraph regarding factors that raise substantial doubt that we will be able to continue as a going concern . 24 story_separator_special_tag style= '' font:10pt times new roman ; margin:0 ; color : # 000000 '' > we consider the following accounting policies to be critical : stock-based compensation the company records stock-based compensation in accordance with asc 718 , “ compensation – stock compensation ” . under the provisions of asc 718 , stock-based compensation cost is measured at the grant date , based on the fair value of the award , and is recognized over the employee 's requisite service period , which is generally the vesting period . the fair value of our stock options and warrants is estimated using a black-scholes option valuation model . restricted stock units are valued based on the closing stock price on the date of grant ( see note 8 of the notes to the consolidated financial statements ) . impairment of long-lived assets in accordance with asc 360 , “ property plant and equipment ” , the company tests long-lived assets or asset groups for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable . circumstances which could trigger a review include , but are not limited to : significant decreases in the market price of the asset ; significant adverse changes in the business climate or legal factors ; accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset ; current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset ; and current expectation that the asset will more likely than not be sold or disposed of significantly before the end of its estimated useful life . recoverability is assessed based on the carrying amount of the asset and its fair value which is generally determined based on the sum of the undiscounted cash flows expected to result from the use and the eventual disposal of the asset , as well as specific appraisal in certain instances . an impairment loss is recognized when the carrying amount is not recoverable and exceeds fair value . impairment losses of $ nil and $ nil were recognized during the years ended december 31 , 2020 and december 31 , 2019 , respectively . 27 foreign currency translation the company has functional currencies in euros , united states dollars and british pounds sterling and its reporting currency
| results of operations comparison of the years ended december 31 , 2020 and december 31 , 2019 the following table sets forth our results of operations for the years ended on december 31 , 2020 and december 31 , 2019 , respectively ( expressed in united stated dollars , except outstanding share numbers and percentages ) . replace_table_token_3_th revenues our operations are still predominantly in the research and development stage and we had minimal revenues of $ 13,433 and $ 17,096 during the years ended december 31 , 2020 and december 31 , 2019 , respectively . operating expenses total operating expenses increased to $ 21.3 million from $ 16.1 million for the years ended december 31 , 2020 and december 31 , 2019 , respectively , as a result of the factors described below . 25 research and development expenses research and development expenses increased to $ 14.5 million from $ 10.4 million for the years ended december 31 , 2020 and december 31 , 2019 , respectively . the increase in overall research and development expenditures during 2020 was primarily related to higher antibody , sample , laboratory , personnel expenses and employee acquisition costs relating to volition germany . replace_table_token_4_th general and administrative expenses general and administrative expenses increased to $ 5.7 million from $ 4.7 million for the years ended december 31 , 2020 and december 31 , 2019 , respectively . the increase in overall general and administrative expenditures during 2020 was primarily due to higher legal fees in connection with our capital raises and increased premiums for director and officer liability insurance . replace_table_token_5_th sales and marketing expenses sales and marketing expenses increased to $ 1.1 million from $ 1.0 million for the years ended december 31 , 2020 and december 31 , 2019 , respectively . the increase in overall sales and marketing expenditures was primarily due to increased direct marketing and professional fees partially offset by lower personnel expenses .
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policyholder account balances relate to contracts or contract features where the company story_separator_special_tag index to management 's discussion and analysis of financial condition and results of operations page forward-looking statements and other financial information 52 story_separator_special_tag style= '' overflow : hidden ; height:12px ; font-size:10pt ; '' > unfavorable change in net derivative gains ( losses ) of $ 223 million ( $ 176 million , net of income tax ) adjusted earnings available to common shareholders up $ 306 million ( 1 ) see “ — results of operations — consolidated results ” and “ — non-gaap and other financial disclosures ” for reconciliations and definitions of non-gaap financial measures . consolidated results - adjusted earnings highlights adjusted earnings available to common shareholders up $ 306 million : the primary drivers of the increase in adjusted earnings were benefits from certain tax settlements and higher net investment income due to growth in the investment portfolio , partially offset by higher interest credited expense , unfavorable underwriting and the impact of our annual actuarial assumption review . our results for 2019 included the following : unfavorable impact from our annual actuarial assumption review of $ 143 million , net of income tax a $ 17 million , net of income tax , charge due to an increase in our incurred but not reported ( “ ibnr ” ) long-term care reserves , reflecting enhancements to our methodology related to potential claims expenses associated with our previously announced unit cost initiative of $ 332 million , net of income tax a $ 317 million tax benefit related to the resolution of an uncertainty regarding the deemed repatriation transition tax enacted as a part of u.s. tax reform a $ 222 million benefit from the irs audit settlement related to the tax treatment of a wholly-owned u.k. investment subsidiary of mlic , which was comprised of a $ 158 million tax benefit and a $ 64 million interest benefit our results for 2018 included the following : a $ 349 million benefit from the irs audit settlement related to the tax treatment of a wholly-owned u.k. investment subsidiary of mlic , which was comprised of a $ 168 million tax benefit and a $ 181 million interest benefit favorable reserve adjustment of $ 62 million , net of income tax , relating to certain variable annuity guarantees assumed from a former joint venture in japan a $ 37 million , net of income tax , favorable net insurance adjustment resulting from reserve and dac modeling improvements in our individual disability insurance business expenses associated with our previously announced unit cost initiative of $ 284 million , net of income tax a $ 63 million , net of income tax , charge due to an increase in our ibnr life reserves , reflecting enhancements to our processes related to potential claims a $ 60 million , net of income tax , increase in litigation reserves unfavorable impact from our annual actuarial assumption review of $ 42 million , net of income tax 54 for a more in-depth discussion of our consolidated results , see “ — results of operations — consolidated results , ” “ — results of operations — consolidated results — adjusted earnings ” and “ — results of operations — segment results and corporate & other. ” consolidated company outlook at the december 2019 investor day , we introduced our next horizon strategy which is founded on three pillars : ( i ) “ focus ” — generate strong free cash flow by deploying capital and resources to the highest value opportunities , ( ii ) “ simplify ” — simplify our business to deliver operational efficiency and an outstanding customer experience , and ( iii ) “ differentiate ” — drive competitive advantage through our brand , scale , talent , and innovation . the pillars of our next horizon strategy are the basis of our ability to create and deliver optimal shareholder value . we continue to shift our business mix to protection-oriented and fee-based businesses . as a result , we expect our results to be less sensitive to interest rates . assuming interest rates follow the observable forward yield curves , as of the year ended december 31 , 2019 , we expect the ratio of free cash flow to adjusted earnings over the two-year period of 2020 and 2021 to be 65 % to 75 % , assuming a 10-year u.s. treasury rate between 1.5 % and 4.5 % . we believe that free cash flow is a key determinant of common stock dividends and common stock repurchases . we have returned approximately $ 16.0 billion to shareholders from 2016 through 2019 and we expect to generate approximately $ 20.0 billion in free cash flow over the next five years , while maintaining a $ 3.0 billion to $ 4.0 billion buffer of liquid assets at the holding companies . despite the prolonged low interest rate environment , we continue to project adjusted return on equity , excluding accumulated other comprehensive income ( “ aoci ” ) other than foreign currency translation adjustments ( “ fcta ” ) , of 12 % to 14 % over the near-term . this target reflects the completion of restructuring charges related to our unit cost improvement program in 2019 which we project will result in approximately $ 900 million of pre-tax expense margin expansion in 2020. we expect to maintain this margin by holding to a 12.3 % direct expense ratio in 2020 , excluding total notable items related to direct expenses and pension risk transfers , while creating additional capacity to fund over $ 1.0 billion in incremental technology and innovation investments to accelerate our growth over the next five years . when making these and other projections , we must rely on the accuracy of our assumptions about future economic and business conditions , which can be affected by known and unknown risks and other uncertainties . additional guidance from the u.s. treasury , sec or the fasb may require us to revise these projections in future periods . story_separator_special_tag sustained periods of low u.s. interest rates , may cause us to : reduce the difference between interest credited to policyholders and interest earned on supporting assets ( “ gross margin ” ) ; reinvest investment proceeds in lower yielding assets and experience higher frequency prepayment or redemption of assets in our portfolio ; increase our reserves or trigger loss recognition events related to policy liabilities , accelerate amortization of dac and voba , and potentially impair intangible assets ; reduce interest expense , change pension and other post-retirement benefit calculations , and change derivative cash flows and market values ; change our product offerings , design features , crediting rates and sales mix ; and experience changing policyholder behavior , including surrender or withdrawal activity . for additional discussion on gross margin and interest rate assumptions , as well as the potential impact of low interest rates , see “ risk factors — economic environment and capital markets risks — difficult economic conditions may harm our businesses , results of operations or financial condition — interest rate risk ; ” “ risk factors — business risks — we may be required to accelerate the amortization of or impair dac , dsi or voba ; ” “ risk factors — business risks — we may be required to recognize an impairment of our goodwill or other long-lived assets or to establish a valuation allowance against our deferred income tax assets ; ” “ risk factors — business risks — guarantees within certain products may decrease our earnings , increase the volatility of our results , result in higher risk management costs and expose us to increased counterparty risk ; ” and “ — results of operations — consolidated results — year ended december 31 , 2019 compared with the year ended december 31 , 2018 — actuarial assumption review and certain other insurance adjustments. ” 56 mitigating actions to mitigate unfavorable impacts of a low u.s. interest rate environment , we maintain diversification across products , distribution channels , and geographies while proactively evaluating interest rate and product strategies . in addition , we apply disciplined asset/liability management ( “ alm ” ) strategies , including the use of derivatives , and may take management actions such as : lowering interest crediting rates or adjusting the dividend scale on products ; limiting or closing certain products to new sales to manage exposures ; and shifting sales focus to less interest rate sensitive products . our ability to take such actions may be limited by competition , regulatory approval requirements , or minimum crediting rate guarantees and may not match the timing or magnitude of interest rate changes . in addition to proactive mitigation strategies , businesses within our latin america , emea , and asia ( exclusive of our japan business ) segments help mitigate unfavorable impacts to our consolidated results given their limited u.s. interest rate sensitivity . as a result of the foregoing , we expect adjusted earnings will continue to increase over the near term despite the sustained low u.s. interest rate environment . for additional discussion on interest rate risk management and our ability to change interest crediting rates or dividend scales , see “ risk factors — economic environment and capital markets risks — difficult economic conditions may harm our businesses , results of operations or financial condition — interest rate risk ; ” “ management 's discussion and analysis of financial condition and results of operations — policyholder liabilities ; ” and “ quantitative and qualitative disclosures about market risk — management of market risk exposures. ” low interest rate scenario to illustrate our sensitivity to lower u.s. interest rates , we compared the outcome of a hypothetical low interest rate environment ( the “ low interest rate scenario ” ) relative to the economic assumptions used for our insurance contracts ( the “ base scenario ” ) through 2022. the low interest rate scenario assumes an immediate decline of u.s. interest rates for all maturities to 1.00 % on january 1 , 2020 and subsequent 10 basis point increases for maturities one year and longer on january 1 , 2021 and january 1 , 2022. other than changing u.s. interest rates through 2022 , all other economic assumptions are equivalent in the low interest rate scenario and base scenario . the following table compares the most relevant short-term and long-term interest rate assumptions for the dates indicated : replace_table_token_6_th hypothetical impact to net derivative gains ( losses ) and adjusted earnings we estimate a net favorable impact to net derivative gains ( losses ) from non-va program derivatives through 2022. we hold significant positions in long-duration receive-fixed u.s. interest rate swaps , which are most sensitive to the 10-year and 30-year swap rates , to hedge reinvestment risk . for purposes of the low interest rate scenario , we have excluded all va program derivatives . for information regarding our va and non-va program derivatives , see “ — results of operations — consolidated results. ” we estimate a net unfavorable impact to consolidated adjusted earnings through 2022. the negative impact of reinvesting cash flows in lower yielding assets is partially offset by lowering interest crediting rates and dividend scales on products , and additional derivative income . 57 the following table summarizes the hypothetical impact on net derivative gains ( losses ) and the adjusted earnings for certain segments , as well as corporate & other for the dates indicated : replace_table_token_7_th segments and corporate & other the primary drivers of the low interest rate scenario impacting our segments , as well as corporate & other , are summarized below . our latin america , emea , and asia ( exclusive of our japan business ) segments are excluded given their limited u.s. interest rate sensitivity .
| executive summary 52 industry trends 55 summary of critical accounting estimates 61 economic capital 68 acquisitions and dispositions 68 results of operations 69 effects of inflation 84 investments 85 derivatives 101 off-balance sheet arrangements 103 insolvency assessments 104 policyholder liabilities 104 liquidity and capital resources 112 adoption of new accounting pronouncements 129 future adoption of new accounting pronouncements 129 non-gaap and other financial disclosures 129 subsequent events 133 51 forward-looking statements and other financial information for purposes of this discussion , “ metlife , ” the “ company , ” “ we , ” “ our ” and “ us ” refer to metlife , inc. , a delaware corporation incorporated in 1999 , its subsidiaries and affiliates . this discussion should be read in conjunction with “ note regarding forward-looking statements , ” “ risk factors , ” “ selected financial data , ” “ quantitative and qualitative disclosures about market risk ” and the company 's consolidated financial statements included elsewhere herein . this management 's discussion and analysis of financial condition and results of operations may contain or incorporate by reference information that includes or is based upon forward-looking statements within the meaning of the private securities litigation reform act of 1995. see “ note regarding forward-looking statements ” for cautionary language regarding forward-looking statements . this management 's discussion and analysis of financial condition and results of operations includes references to our performance measures , adjusted earnings and adjusted earnings available to common shareholders , that are not based on gaap . see “ — non-gaap and other financial disclosures ” for definitions and a discussion of these and other financial measures , and “ — results of operations ” for reconciliations of historical non-gaap financial measures to the most directly comparable gaap measures .
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this discussion summarizes the significant factors affecting our results of operations and financial condition as of and during the years ended december 31 , 2019 , 2018 , and 2017. this discussion is provided to increase the understanding of , and should be read in conjunction with , our consolidated financial statements and the notes thereto included elsewhere in this report . overview and business environment we are a leading global brokerage and financial technology company servicing the global financial markets . through brands including bgc® , gfi® , sunrise , besso , ed broking® , poten & partners and rp martin , among others , our businesses specialize in the brokerage of a broad range of products , including fixed income such as government bonds , corporate bonds , and other debt instruments , as well as related interest rate derivatives and credit derivatives . we also broker products across fx , equities , energy and commodities , insurance , and futures . our businesses also provide a wide variety of services , including trade execution , brokerage services , clearing , trade compression , post-trade , information , and other back-office services to a broad assortment of financial and non-financial institutions . our integrated platform is designed to provide flexibility to customers with regard to price discovery , execution and processing of transactions , and enables them to use voice , hybrid , or in many markets , fully electronic brokerage services in connection with transactions executed either otc or through an exchange . through our fenics® group of electronic brands , we offer a number of market infrastructure and connectivity services , fully electronic marketplaces , and the fully electronic brokerage of certain products that also may trade via voice and hybrid execution . the full suite of fenics® offerings include market data and related information services , fully electronic brokerage , compression and other post-trade services , analytics related to financial instruments and markets , and other financial technology solutions . fenics® brands operate under the names fenics® , bgc trader , creditmatch® , fenics md , bgc market data , kace 2 ® , embonds® , capitalab® , swaptioniser® , cbid® and lucera® . we previously offered real estate services through our publicly traded subsidiary , newmark ( nasdaq : nmrk ) . on november 30 , 2018 , we completed the spin-off of newmark ( see “ newmark ipo , separation transaction and spin-off ” for more information ) . bgc , bgc partners , bgc trader , gfi , gfi ginga , creditmatch , fenics , fenics.com , sunrise brokers , besso , ed broking , poten & partners , rp martin , kace 2 , embonds , capitalab , swaptioniser , cbid and lucera are trademarks/service marks , and or registered trademarks/service marks of bgc partners , inc. and or its affiliates . our customers include many of the world 's largest banks , broker-dealers , investment banks , trading firms , hedge funds , governments , corporations , and investment firms . we have dozens of offices globally in major markets including new york and london , as well as in bahrain , beijing , bermuda , bogotá , brisbane , buenos aires , chicago , copenhagen , dubai , dublin , frankfurt , geneva , hong kong , houston , istanbul , johannesburg , madrid , melbourne , mexico city , moscow , nyon , paris , rio de janeiro , santiago , são paulo , seoul , shanghai , singapore , sydney , tel aviv , tokyo and toronto . as of december 31 , 2019 , we had over 2,900 brokers , salespeople , managers and other front-office personnel across our businesses . newmark ipo , separation and spin-off on december 13 , 2017 , prior to the newmark ipo , pursuant to the separation and distribution agreement , we transferred substantially all of the assets and liabilities relating to our real estate services business to newmark . in connection with the separation , newmark assumed certain indebtedness and made a proportional distribution of interests in newmark holdings to holders of interests in bgc holdings . in december 2017 , newmark completed its ipo of an aggregate of 23 million shares of newmark class a common stock . prior to the newmark ipo , newmark was our wholly owned subsidiary . on november 30 , 2018 , we completed the spin-off of the shares of newmark class a and class b common stock held by us to our stockholders as of the close of business on the record date through a special pro-rata stock dividend pursuant to which shares of newmark class a common stock held by bgc were distributed to holders of bgc class a common stock and shares of newmark class b common stock held by bgc were distributed to holders of bgc class b common stock ( which holders of bgc class b common stock were cantor and another entity controlled by our ceo , howard w. lutnick ) . following the spin-off , bgc no longer holds any shares of newmark . for more information about these transactions , see note 1— “ organization and basis of presentation ” to our consolidated financial statements in part ii , item 8 of this annual report on form 10-k. 77 gfi merger on january 12 , 2016 , we completed our acquisition of gfi , a leading intermediary and provider of trading technologies and support services to the global otc and listed markets , via the gfi merger . gfi serves institutional clients in operating electronic and hybrid markets for cash and derivative products across multiple asset classes . story_separator_special_tag fenics go recently added citadel securities , who joined imc , maven securities , and optiver as electronic liquidity providers ; 78 fenics ust , which generated volume growth of approximately 230 % year-on-year in december 2019. this compar e s with a decline of 18 % for overall primary dealer u . s . treasury volumes . primary dealer volumes are based on data from the securities industry and financial markets association . over the same timeframe , fenics ust increased its market share of clob trading from approximately 2 % to nearly 10 % and is now the second largest clob platform for u . s . treasuries . clob market share is based on data from greenwich associates for the u . s . treasury volumes of fenics ust , cme brokertec , nasdaq fixed income , and dealerweb . including these clob platforms as well as the volumes of platforms using other fully electronic u . s . treasury trading protocols , fenics ust increased its market share from 1.3 % to 5.4 % year-on-year in december 2019 , per greenwich associates . our expanded fenics fx platforms , including midfx , spot , fx options , and non-deliverable and fx forwards ; lucera , which is our software-defined network , offering the trading community direct connectivity to each other ; and capitalab 's nikkei 225 options compression service , which is in partnership with the singapore exchange . collectively , our newer fenics offerings , such as the five listed above , are not yet fully up to scale , and are not yet generating significant revenues . the net loss relating to investment in these new products and services was more than $ 55 million and $ 30 million for the years ended december 31 , 2019 and 2018 , respectively . looking ahead , we expect the net loss relating to these investments in fenics offerings to improve by $ 15 million in 2020 and for the net loss to be approximately $ 40 million , and for these newer businesses to break even during 2021 . over time , we expect these new products and services to become profitable , high-margin businesses as their scale and revenues increase , all else equal . we believe that our newer fenics offerings have created significant shareholder value . as we continue to focus our efforts on converting voice and hybrid desks to fully electronic execution , net revenues in our higher margin fully electronic businesses across brokerage , data , software , and post-trade increased 12.2 % to $ 73.2 million for the year ended december 31 , 2019. going forward , we expect fenics to become an even more valuable part of bgc as it continues to grow . we continue to analyze how to optimally configure our voice/hybrid and fully electronic businesses . possible restructuring before our first quarter 2020 earnings call , we expect to submit a proposal to the board and relevant committees with respect to converting our partnership into a corporation . our current target is to be positioned to begin executing a conversion around the end of the third quarter of 2020 , and expect to complete the execution around year end 2020. any such restructuring would be subject to tax , accounting , regulatory , and other considerations and approvals . impact of asc 606 on results from 2014 through 2016 , the fasb issued several accounting standard updates , which together comprise asc topic 606 , revenue from contracts with customers . beginning in the first quarter of 2018 , the company began recording its financial results to conform to asc 606. asc 606 does not currently materially impact the results of bgc . the consolidated company has elected to adopt the guidance using the modified retrospective approach to asc 606 , under which the consolidated company applied the new standard only to new contracts initiated on or after january 1 , 2018 and recorded the transition adjustments as part of “ total equity ” . financial services industry the financial services industry has grown historically due to several factors . one factor was the increasing use of derivatives to manage risk or to take advantage of the anticipated direction of a market by allowing users to protect gains and or guard against losses in the price of underlying assets without having to buy or sell the underlying assets . derivatives are often used to mitigate the risks associated with interest rates , equity ownership , changes in the value of fx , credit defaults by corporate and sovereign debtors and changes in the prices of commodity products . over this same timeframe , demand from financial institutions , financial services intermediaries and large corporations have increased volumes in the wholesale derivatives market , thereby increasing the business opportunity for financial intermediaries . another key factor in the historical growth of the financial services industry has been the increase in the number of new financial products . as market participants and their customers strive to mitigate risk , new types of equity and fixed income securities , futures , options and other financial instruments have been developed . most of these new securities and derivatives were not immediately ready for more liquid and standardized electronic markets , and generally increased the need for trading and required broker-assisted execution . due largely to the impacts of the global financial crises of 2008-2009 , our businesses had faced more challenging market conditions from 2009 until the second half of 2016. accommodative monetary policies were enacted by several major central banks , including the federal reserve , bank of england , bank of japan and the european central bank , in response to the global financial crises . these policies have resulted in historically low levels of volatility and interest rates across many of the financial markets in which we operate . the global credit markets also faced structural issues , such as increased bank capital requirements under basel iii .
| results of operations the following table sets forth our consolidated statements of operations data expressed as a percentage of total revenues for the periods indicated ( in thousands ) : replace_table_token_3_th 1 the components of equity-based compensation and allocations of net income to limited partnership units and fpus are as follows ( in thousands ) : 88 replace_table_token_4_th year ended december 31 , 2019 compared to year ended december 31 , 2018 revenues brokerage revenues total brokerage revenues increased by $ 143.2 million , or 7.8 % , to $ 1,967.7 million for the year ended december 31 , 2019 as compared to the year ended december 31 , 2018. commission revenues increased by $ 134.3 million , or 8.9 % , to $ 1,645.8 million for the year ended december 31 , 2019 as compared to the year ended december 31 , 2018. principal transactions revenues increased by $ 8.9 million , or 2.8 % , to $ 321.9 million for the year ended december 31 , 2019 as compared to the year ended december 31 , 2018. the increase in total brokerage revenues was primarily driven by increases in revenues from energy and commodities , equities , insurance , and other asset classes , rates , and credit , partially offset by a decrease in revenues from fx . our brokerage revenues from energy and commodities increased by $ 58.4 million , or 25.6 % , to $ 286.6 million for the year ended december 31 , 2019. this increase was primarily driven by the acquisitions of poten & partners and ginga petroleum , as well as organic growth , partially offset by the sale of csc commodities . our brokerage revenues from equities , insurance , and other asset classes increased by $ 51.1 million , or 14.3 % , to $ 409.2 million for the year ended december 31 , 2019. this increase was driven by the acquisition of ed broking .
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impairment of long-lived assets the company reviews its long-lived assets and amortizable intangibles for impairment whenever events or changes in circumstances indicate that story_separator_special_tag the following discussion and analysis should be read in conjunction with our consolidated financial statements and notes which appear elsewhere in this annual report on form 10-k. this discussion contains forward-looking statements that involve risks , uncertainties and assumptions . our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors , including those set forth in part i , item 1a . risk factors and elsewhere in this annual report on form 10-k. organization orbcomm llc was organized as a delaware limited liability company on april 4 , 2001 and on april 23 , 2001 , we acquired substantially all of the non-cash assets and assumed certain liabilities of orbcomm global l.p. and its subsidiaries , which had filed for relief under chapter 11 of the u.s. bankruptcy code . the assets acquired from orbcomm global l.p. and its subsidiaries consisted principally of the in-orbit satellites and supporting u.s. ground infrastructure equipment that we own today . at the same time , orbcomm llc also entered an agreement that resulted in the acquisition of the fcc licenses required to own and operate the communications system from a subsidiary of orbital sciences corporation , which was not in bankruptcy , in a related transaction . prior to april 23 , 2001 , orbcomm llc did not have any operating activities . we were formed as a delaware corporation in october 2003 and on february 17 , 2004 , the members of orbcomm llc contributed all of their outstanding membership interests in orbcomm llc to us in exchange for shares of our common stock , representing ownership interests in us equal in proportion to their prior ownership interest in orbcomm llc . as a result of , and immediately following the contribution , orbcomm llc became a wholly-owned subsidiary of ours . overview we operate a global commercial wireless messaging system optimized for narrowband communications . our system consists of a global network of 27 low-earth orbit , or leo satellites , 2 ais microsatellites and accompanying ground infrastructure . our two-way communications system enables our customers and end-users , which include large and established multinational businesses and government agencies , to track , monitor , control 52 and communicate cost-effectively with fixed and mobile assets located worldwide . we also provide terrestrial-based cellular communication services through reseller agreements with major cellular wireless providers . currently , our agreements with major cellular providers include gsm and cdma offerings in the united states and gsm services with significant coverage worldwide . these terrestrial-based communication services enable our customers who have higher bandwidth requirements to receive and send messages from communication devices based on terrestrial-based technologies using the cellular providers ' wireless networks as well as from dual-mode devices combining our satellite subscriber communicators with devices for terrestrial-based technologies . as a result , our customers are now able to integrate into their applications a terrestrial communications device that will allow them to send and receive messages , including data intensive messaging using the cellular providers ' wireless networks . our products and services enable our customers and end-users to enhance productivity , reduce costs and improve security through a variety of commercial , government , and emerging homeland security applications . we enable our customers and end-users to achieve these benefits using a single global satellite technology standard for machine-to-machine and telematic , or m2m , data communications . our customers have made significant investments in developing orbcomm-based applications . examples of assets that are connected through our m2m data communications system include trucks , trailers , railcars , containers , heavy equipment , fluid tanks , utility meters , and pipeline monitoring equipment , marine vessels , and oil wells . our customers include original equipment manufacturers , or oems , such as caterpillar inc. , ( caterpillar ) , doosan infracore america , hitachi construction machinery co. , ltd. , ( hitachi ) , hyundai heavy industries , komatsu ltd. , ( komatsu ) , the manitowoc company and volvo construction equipment . in addition , we market our services through a distribution network of vertical market technology integrators known as vars and ivars , such as ai , xata corporation and american innovations , ltd. , and u.s. government agencies . as a result of our acquisition of the net assets of startrak systems , llc ( or startrak ) on may 16 , 2011 , we began providing customers with the ability to proactively monitor , manage and remotely control their refrigerated transport assets . with the acquisition of the net assets of par logistics management systems corporation ( or lms ) on january 12 , 2012 , we are further able to provide complete end-to-end solutions for refrigerated and non-refrigerated transport assets . these solutions enable optimal business efficiencies , increased asset utilization , repositioning mitigation , and substantially reduce asset write-offs and manual yard counts of chassis , refrigeration units , containers and gensets . through increased asset visibility and management , these systems allow shipping , rail , and leasing companies to decrease their fleet sizes of chassis , gensets , refrigeration units and containers . their information services also help industry leaders realize better fleet efficiency and utilization while reducing risk by adding safety monitoring of perishable cargo . in addition to relationships with leading refrigerated unit manufacturers such as carrier and thermo king , and customers who include well-known brands such as tropicana , maersk line , prime inc. , c.r . england , ffe transport , inc. target , chiquita , ryder , j.b. hunt , hapag-lloyd , golden state foods , martin-brower and exel transportation . as of december 31 , 2011 , we had approximately 648,000 billable subscriber communicators compared to approximately 575,000 billable subscriber communicators as of december 31 , 2010 , an increase of 12.7 % . story_separator_special_tag par logistics management systems corporation effective on the close of business on january 12 , 2012 , we completed the acquisition of the assets of par logistics management systems corporation , ( lms ) , a wholly-owned subsidiary of par technology corporation , including but not limited to , accounts receivable , inventory , equipment , intellectual property , all of lms 's rights to customer contracts , supplier lists and assumed certain liabilities pursuant to an asset purchase agreement dated as of december 23 , 2011. as this acquisition was effective on january 12 , 2012 , the results of operations of lms will be included our consolidated financial statements beginning january 13 , 2012. the consideration paid to acquire lms was valued at $ 6.1 million , consisting of $ 4.0 million in cash subject to a final working capital adjustment and the issuance of 645,162 shares of common stock valued at $ 2.1 million . in addition to the consideration paid , up to additional $ 3.9 million in contingent payments is payable to par technology corporation . up to $ 3.0 million will be payable based on achieving certain agreed-upon new subscriber targets for calendar year 2012 and up to $ 0.9 million will be payable based on achieving certain agreed-upon sales targets for calendar years 2012 through 2014. see note 4 to the consolidated financial statements for further discussion . ebitda ebitda is defined as earnings attributable to orbcomm inc. , before interest income ( expense ) , provision for income taxes and depreciation and amortization . we believe ebitda is useful to our management and investors in evaluating our operating performance because it is one of the primary measures we use to evaluate the economic productivity of our operations , including our ability to obtain and maintain our customers , our ability to operate our business effectively , the efficiency of our employees and the profitability associated with their performance . it also helps our management and investors to meaningfully evaluate and compare the results of our operations from period to period on a consistent basis by removing the impact of our financing transactions and the depreciation and amortization impact of capital investments from our operating results . in addition , our management uses ebitda in presentations to our board of directors to enable it to have the same measurement of operating performance used by management and for planning purposes , including the preparation of our annual operating budget . ebitda is not a performance measure calculated in accordance with accounting principles generally accepted in the united states , or gaap . while we consider ebitda to be an important measure of operating performance , it should be considered in addition to , and not as a substitute for , or superior to , net loss or other measures of financial performance prepared in accordance with gaap and may be different than ebitda measures presented by other companies . 55 the following table reconciles our net loss to ebitda for the periods shown : replace_table_token_5_th ebitda in 2011 improved $ 6.9 million over 2010. the improvement was primarily due to increases in service revenues of $ 3.3 million and product revenues of $ 6.4 million and a non-cash impairment charge of $ 3.3 million in discontinued operations to write down net assets held for sale in 2010. the increase in service revenues was primarily due to an increase in satellite and terrestrial revenues of $ 10.9 million including $ 4.8 million of incremental revenue from startrak , offset by a reduction in ais revenue of $ 8.3 million which included a one-time recognition in 2010 of the remaining unamortized ais deferred service revenue of $ 5.9 million prepaid by the uscg . product revenues included $ 5.2 million from startrak . the increase in total revenues was offset by an increase in expenses , excluding depreciation and amortization , of $ 6.6 million primarily due to a non-cash impairment charge to satellite network of $ 6.5 million in 2010 and $ 10.7 million in expenses , excluding depreciation and amortization , from startrak and $ 1.9 million of acquisition-related costs and losses . ebitda in 2010 decreased by $ 16.9 million over 2009 primarily due to a net gain in 2009 of $ 15.0 million on an insurance settlement , and 2010 non-cash impairment charges of $ 6.5 million and $ 3.3 million related to the sale of stellar in discontinued operations , offset by higher net service revenues of $ 7.1 million of which $ 5.9 million is related to recognizing the remaining unamortized ais deferred professional services revenues that was prepaid by the uscg . revenues we derive service revenues from our resellers and direct customers from utilization of satellite subscriber communicators and the reselling of airtime from a third party satellite system and the utilization of terrestrial-based subscriber communicators using sims on the cellular providers ' wireless networks . these service revenues generally consist of a one-time activation fee for each subscriber communicator and sims activated for use and monthly usage fees . usage fees that we charge our customers are based upon the number , size and frequency of data transmitted by the customer and the overall number of subscriber communicators and sims activated by each customer . revenues for usage fees from currently billing subscriber communicators and sims are recognized on an accrual basis , as services are rendered , or on a cash basis , if collection from the customer is not reasonably assured at the time the service is provided . usage fees charged to our resellers and direct customers are charged primarily at wholesale rates based on the overall number of subscriber communicators activated by them and the total amount of data transmitted .
| results of operations revenues the table below presents our revenues ( in thousands ) for the years ending december 31 , 2011 , 2010 and 2009 , together with the percentage of total revenue represented by each revenue category : replace_table_token_7_th 2011 vs. 2010 : total revenues for 2011 increased $ 9.6 million , or 26.3 % , to $ 46.3 million from $ 36.7 million in 2010 . 64 2010 vs. 2009 : total revenues for 2010 increased $ 9.1 million , or 33.0 % , to $ 36.7 million from $ 27.6 million in 2009. service revenues 2011 vs. 2010 : service revenues increased $ 3.3 million in 2011 , or 9.5 % , to $ 37.5 million from $ 34.3 million in 2010. the increase in service revenues in 2011 over 2010 were primarily due an increase in satellite and terrestrial revenues of $ 10.9 million primarily from an increase in messaging service due to increases in billable subscriber communicators and usage by some customers and $ 4.8 million of incremental revenue from startrak , offset by a reduction in ais revenue of $ 8.3 million which included a one-time recognition in 2010 of the remaining unamortized ais deferred service revenue of $ 5.9 million prepaid by the uscg . as of december 31 , 2011 , we had approximately 648,000 billable subscriber communicators compared to approximately 575,000 billable subscriber communicators as of december 31 , 2010 , an increase of 12.7 % . 2010 vs. 2009 : service revenues increased $ 7.1 million in 2010 , or 26.2 % , to $ 34.3 million from $ 27.1 million in 2009. the increase in service revenues in 2010 over 2009 were primarily due to an increase in the number of billable subscriber communicators on our communications system , an increase in ais revenue of $ 0.4 million and recognizing $ 5.9 million of ais revenues from the expiration of the agreement with the uscg .
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specifically , forward-looking statements may include statements relating to : ● the future financial performance of the company; ● the market for the company 's products and services; ● expansion plans and opportunities , including currently contemplated or future acquisitions or additional business combinations; and ● other statements preceded by , followed by or that include words such as “ anticipate ” , “ believe ” , “ can ” , “ continue ” , “ could ” , “ estimate ” , “ expect ” , “ forecast ” , “ intend ” , “ may ” , “ might ” , “ plan ” , “ possible ” , “ potential ” , “ predict ” , “ project ” , “ proposed ” , “ scheduled ” , “ seek ” , “ should ” , “ target ” , “ would ” or similar expressions , among others . these forward-looking statements are based on information available as of the date hereof , and current expectations , forecasts and assumptions that involve a number of judgments , risks and uncertainties . accordingly , forward-looking statements should not be relied upon as representing our views as of any subsequent date , and we do not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date they were made , whether as a result of new information , future events or otherwise , except as may be required under applicable securities laws . as a result of a number of known and unknown risks and uncertainties , our actual results or performance may be materially different from those expressed or implied by these forward-looking statements . some factors that could cause our actual results or performance to differ include : ● the effect and impact of the ongoing global coronavirus ( covid-19 ) pandemic on our business with respect to the potential duration of the pandemic , the various government-ordered emergency measures including travel restrictions , social distancing and or shelter in place orders and closure of retail venues and the remediation plans put in place by each government to potentially mitigate these effects , the detail , scope and application of which are still largely unknown ; ● our ability to compete effectively in our industries ; ● the effect of evolving technology on our business ; ● our ability to renew long-term contracts and retain customers , and secure new contracts and customers ; ● our ability to maintain relationships with suppliers ; ● our ability to protect our intellectual property ; ● government regulation of our industries ; ● income trends with respect to b2/b3 gaming machines in the united kingdom ( “ uk ” ) following a substantial reduction of maximum permitted bets , which came into effect on april 1 , 2019 ; ● our ability to successfully grow by acquisition as well as organically ; 32 ● our ability to attract and retain key members of our management team ; ● our need for working capital ; ● our ability to secure capital for growth and expansion ; ● changing consumer , technology and other trends in our industries ; ● our ability to successfully operate across multiple jurisdictions and sectors around the world ; ● changes in local , regional and global economic and political conditions ; ● our ability to effectively integrate the operations of businesses we acquire , and to grow and expand such operations ; and ● other factors . subsequent events investors and potential investors are advised to review this annual report on form 10-k in light of ongoing events . as with other businesses worldwide , we are experiencing severe disruption to our business as a result of the covid-19 pandemic and the far-reaching actions of the governments of various countries where we do , and hope to do , business , as well as countries sourcing our supply chain . the world health organization has declared covid-19 to be a global pandemic . there have been a number of government-imposed emergency measures in many of the jurisdictions in which we operate in response to the pandemic . the duration of these measures are unknown , but include the closure of all retail venues ( including pubs , bookmakers , holiday parks , and adult gaming centers ) , restrictions on all non-essential travel , social distancing , bans on public mobility and shelter in place measures . retail operations of our customers in italy , greece , the u.s and the uk have closed and are no longer generating revenues for us . our interactive business , which includes virtual sports products , to the extent delivered online , remain operational . although there have been a number of government-supported initiatives ( across our various geographies ) proposed to ease the burden on businesses and employees , including employee retention schemes , credit relief and tax deferrals , there is still much uncertainty regarding the scope of these initiatives or their respective impact on our business . while the situation is fluid , we have already experienced adverse effects on our business , which we are currently working to mitigate . since mid-march , we have drawn down the full amount of gbp20.0 million ( equivalent to $ 24.8 million at current exchange rates ) on our revolving credit facility to provide additional near-term liquidity and cancelled or delayed material capital expenditures . most recently , we implemented furloughs , reduced work hours and compensation levels , as well as additional measures across our entire business . the objective of these actions has been to lower our future cash expenditures for the period in which these initiatives remain in place . story_separator_special_tag we use our operating results and identified assets of each of our operating segments in order to make prospective operating decisions . although our revenue and cost of sales ( excluding depreciation and amortization ) are reported exclusively by segment , we do include unallocated items in our consolidated financial statements for certain expenses including depreciation and amortization as well as selling , general and administrative expenses . unallocated balance sheet line items include items that are a shared resource and therefore not allocated between operating segments . in this report , we have changed how certain selling , general and administrative expenses are split between segments , reducing the allocation of costs within “ corporate functions ” , which management believes provides a more informed allocation . as such , we have restated the segment splits for the comparative prior periods in line with the revised allocations , to give a clear comparison with the current period . commentary within this section refers to changes from the restated segment numbers . our sbg business segment designs , develops , markets and distributes a broad portfolio of games through our digital network architecture . our sbg customers include uk licensed betting offices ( “ lbos ” ) , casinos , gaming hall operators , bingo operators and regulated operators of lotteries , as well as government-affiliated operators . our virtual sports business segment designs , develops , markets and distributes ultra-high-definition games that create an always-on sports wagering experience . our virtual sports customers include virtual sports retail and digital operators , including regulated betting operators , lotteries , casinos , online operators and other gaming and lottery operators in the uk , continental europe , africa , asia and north america . our interactive business segment ( reported as part of virtual sports ) comprises the offering of our sbg and virtual sports content via our remote gaming servers . our acquired businesses design , develop , market and distribute a broad portfolio of games through our digital network architecture . in addition , it operates analog gaming and amusement machines for certain customers , including uk pubs , adult gaming centers , motorway service stations and holiday resorts . 34 revenue we generate revenue in three principal ways : on a participation basis , on a fixed rental fee basis and through product sales and software license fees . participation revenue includes a right to receive a share of revenue generated from ( i ) our virtual sports products placed with operators ; ( ii ) our sbg terminals placed in gaming and lottery venues ; ( iii ) licensing our game content and intellectual property to third parties ; and ( iv ) our games on third-party online gaming platforms that are interoperable with our game servers . the revenue recognition processes we applied prior to adoption of asc 606 align with the recognition and measurement guidance of the new standard . therefore , adoption of asc 606 did not require a cumulative adjustment to opening equity . sbg revenue from sbg terminals , access to our content and sbg platform , including electronic table gaming products is recognized based upon a contracted percentage of the operator 's net winnings from the terminals ' daily use . where this is not the case , revenue is based upon a fixed daily or weekly usage fee . we recognize revenue from these arrangements in accordance with the series guidance in asc 606 over time on a daily basis over the term of the arrangement , or when not specified over the expected customer relationship period . hardware sales take the form of a transfer of ownership of our developed gaming terminals , and are recognized at a point in time upon delivery . virtual sports virtual sports retail revenue , which includes the provision of virtual sports content and services to retail betting outlets , and virtual sports online and mobile revenue , which includes the provision of virtual sports content and services to mobile and online operators , is based upon a contracted percentage of the operator 's net winnings or a fixed rental fee . we recognize revenue for these fees over time on a daily or weekly basis in accordance with the series guidance in asc 606 over the term of the arrangement . these arrangements also typically include a perpetual license billed up front , granted to the customer for access to our gaming platform and content . as these up-front bills represent payment for future services , revenue from the licensing of perpetual licenses is recognized ratably over time , or when not specified , over the expected customer relationship period . revenue from the development of bespoke games licensed on a perpetual basis to mobile and online operators is recognized at a point in time on delivery and acceptance by the customer . acquired businesses revenue from gaming and amusement terminals , access to our content and sbg platform , including electronic table gaming products is recognized based upon a contracted percentage of the operator 's net winnings from the terminals ' daily use . where this is not the case , particularly in the pub rental sector , revenue is based upon a fixed daily or weekly usage fee . we recognize revenue from these arrangements in accordance with the series guidance in asc 606 over time on a daily basis over the term of the arrangement , or when not specified over the expected customer relationship period . hardware sales take the form of a transfer of ownership of our developed gaming terminals , and are recognized at a point in time upon delivery . geographic range geographically , more than half of our revenue is derived from , and more than half of our non-current assets are attributed to , our uk operations , with the remainder of our revenue derived from , and non-current assets attributed to , italy , greece and the rest of the world .
| results of operations the following discussion and analysis of our results of operations has been organized in the following manner : ● a discussion and analysis of the company 's results of operations for the year ended december 31 , 2019 , compared to the twelve-month period ended december 31 , 2018 ; and ● a discussion and analysis of the results of operations of our sbg and virtual sports business segments for the twelve-month period ended december 31 , 2019 , compared to the year ended december 31 , 2018 , including kpi analysis ; and ● a discussion and analysis of the results of operations of our acquired business segments for the period commencing with the consummation of the acquisition on october 1 , 2019 and ended december 31 , 2019 . ● a discussion and analysis of the company 's results of operations for the three-month period ended december 31 , 2018 , compared to the same period in 2017 ; and ● a discussion and analysis of the results of operations of our sbg and virtual sports business segments for the three-month period ended december 31 , 2018 , compared to the same period in 2017 , including kpi analysis . we changed our financial year-end from september 30 to december 31 , effective for the fiscal year ended december 31 , 2019 , with our previous fiscal year-end was september 30 , 2018. subsequent to this change in financial year , we filed a transition report on form 10-q , covering the transition period of october 1 , 2018 to december 31 , 2018. as a result , we have provided results for the twelve-month period ended december 31 , 2018 for comparative purposes . the results for the twelve months ended december 31 , 2018 are unaudited .
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at december 31 , 2015 , the company owned and managed a portfolio of 60 operating properties ( excluding properties held for sale ) totaling approximately 9.5 million square feet of gross leasable area ( gla ) . the portfolio was 91.5 % leased and 90.5 % occupied at december 31 , 2015. the company , organized as a maryland corporation , has established an umbrella partnership structure through the contribution of substantially all of its assets to cedar realty trust partnership l.p. ( the operating partnership ) , organized as a limited partnership under the laws of delaware . the company conducts substantially all of its business through the operating partnership . at december 31 , 2015 , the company owned 99.6 % of the operating partnership and is its sole general partner . the 352,000 limited operating partnership units ( op units ) are economically equivalent to the company 's common stock and are convertible into the company 's common stock at the option of the holders on a one-to-one basis . the company derives substantially all of its revenues from rents and operating expense reimbursements received pursuant to long-term leases . the company 's operating results therefore depend on the ability of its tenants to make the payments required by the terms of their leases . the company focuses its investment activities on grocery-anchored shopping centers . the company believes that , because of the need of consumers to purchase food and other staple goods and services generally available at such centers , its type of necessities-based properties should provide relatively stable revenue flows even during difficult economic times . significant transactions - 2015 acquisitions on january 23 , 2015 , the company acquired the new london mall joint venture partner 's 60 % ownership interest , giving the company a 100 % ownership interest in this property , which is located in new london , connecticut . the purchase price for the interest was $ 27.3 million , consisting of $ 10.9 million in cash , and $ 16.4 million representing the 60 % share of the in-place mortgage financing . as the property was previously controlled and consolidated by the company , the acquisition of the 60 % noncontrolling ownership interest was recorded as a capital transaction . on february 27 , 2015 , the company acquired lawndale plaza , located in philadelphia , pennsylvania . the purchase price for the property , which was unencumbered , was $ 25.2 million . the company incurred costs of $ 0.5 million in connection with this acquisition . on december 23 , 2015 , the company acquired east river park , located in washington d.c. the purchase price for the property was $ 39.0 million , of which $ 20.5 million was funded from the assumption of a mortgage loan payable bearing interest at the rate of 3.9 % per annum and maturing in september 2022. the company incurred costs of $ 0.7 million in connection with this acquisition . 29 dispositions during 2015 , the company sold the following properties : replace_table_token_14_th debt on february 5 , 2015 , the company amended its existing $ 310 million unsecured credit facility . in addition , on february 5 , 2015 , the company closed on $ 100 million of new unsecured term loans . see liquidity and capital resources below for additional details . during 2015 , the company repaid the following mortgage loans payable : replace_table_token_15_th equity on january 12 , 2015 , the company concluded a public offering of 5,750,000 shares of its common stock ( including 750,000 shares relating to the exercise of an over-allotment option by the underwriters ) , and realized net proceeds , after offering expenses , of approximately $ 41.9 million . on april 25 , 2015 , the demand registration rights afforded to the holders of the mezzanine op units expired and , accordingly , such op units now meet the requirements for equity classification . the company had at-the-market offering programs , which expired on may 29 , 2015 , under which it could offer and sell , from time-to-time , shares of its common and preferred stock . prior to the expiration of these programs , there were no shares sold during 2015 . 30 summary of critical accounting policies the preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the united states ( gaap ) requires the company to make estimates and judgments that affect the reported amounts of assets and liabilities , revenues and expenses , and related disclosures of contingent assets and liabilities . on an ongoing basis , management evaluates its estimates , including those related to revenue recognition and the allowance for doubtful accounts receivable , real estate investments and purchase accounting allocations related thereto , asset impairment , and derivatives used to hedge interest-rate risks . management 's estimates are based both on information that is currently available and on various other assumptions management believes to be reasonable under the circumstances . actual results could differ from those estimates and those estimates could be different under varying assumptions or conditions . the company has identified the following critical accounting policies , the application of which requires significant judgments and estimates : revenue recognition rental income with scheduled rent increases is recognized using the straight-line method over the respective terms of the leases . the aggregate excess of rental revenue recognized on a straight-line basis over base rents under applicable lease provisions is included in straight-line rents receivable on the consolidated balance sheet . leases also generally contain provisions under which the tenants reimburse the company for a portion of property operating expenses and real estate taxes incurred ; such income is recognized in the periods earned . in addition , certain operating leases contain contingent rent provisions under which tenants are required to pay a percentage of their sales in excess of a specified amount as additional rent . the company defers recognition of contingent rental income until those specified targets are met . story_separator_special_tag accordingly , higher allocations to below-market lease liability and other intangibles would result in higher rental income and amortization expense , 32 whereas lower allocations to below-market lease liability and other intangibles would result in lower rental income and amortization expense . management reviews each real estate investment for impairment whenever events or circumstances indicate that the carrying value of a real estate investment may not be recoverable . the review of recoverability is based on an estimate of the future cash flows that are expected to result from the real estate investment 's use and eventual disposition . these estimates of cash flows consider factors such as expected future operating income , trends and prospects , as well as the effects of leasing demand , competition and other factors . if an impairment event exists due to the projected inability to recover the carrying value of a real estate investment , an impairment loss is recorded to the extent that the carrying value exceeds estimated fair value . a real estate investment held for sale is carried at the lower of its carrying amount or estimated fair value , less the cost of a potential sale . depreciation and amortization are suspended during the period the property is held for sale . management is required to make subjective assessments as to whether there are impairments in the value of its real estate properties . these assessments have a direct impact on net income , because an impairment loss is recognized in the period that the assessment is made . new accounting pronouncements see note 2 of notes to consolidated financial statements included in item 8 below for information relating to new accounting pronouncements . story_separator_special_tag roman '' > interest expense was lower primarily as a result of ( 1 ) by $ 1.7 million as a result of a lower weighted average interest rate , and ( 2 ) by $ 0.9 million as a result of a decrease in the overall outstanding principal balance of debt . early extinguishment of debt costs in 2014 and 2013 relates to defeasement fees and the accelerated write-off of unamortized fees associated with the prepayment of certain mortgage loans payable . discontinued operations for 2014 and 2013 include the results of operations , impairment reversals/ ( charges ) , net , gain on extinguishment of debt obligations , and gain on sales attributable to properties that qualified for treatment as discontinued operations . same-property net operating income same-property net operating income ( same-property noi ) is a widely-used non-gaap financial measure for reits that the company believes , when considered with financial statements prepared in accordance with gaap , is useful to investors as it provides an indication of the recurring cash generated by the company 's properties by excluding certain non-cash revenues and expenses , as well as other infrequent items such as lease termination income which tends to fluctuate more than rents from year to year . properties are included in same-property noi if they are owned and operated for the entirety of both periods being compared , except for properties undergoing significant redevelopment and expansion until such properties have stabilized , and properties classified as held for sale . consistent with the capital treatment of such costs under gaap , tenant improvements , leasing commissions and other direct leasing costs are excluded from same-property noi . the most directly comparable gaap financial measure is consolidated operating income . same-property noi should not be considered as an alternative to consolidated operating income prepared in accordance with gaap or as a measure of liquidity . further , same-property noi is a measure for which there is no standard industry definition and , as such , it is not consistently defined or reported on among the company 's peers , and thus may not provide an adequate basis for comparison between reits . the following table reconciles same-property noi to the company 's consolidated operating income : 36 replace_table_token_18_th same-property noi for the comparative periods increased by 1.9 % . the results reflect an increase in average base rent of $ 0.35 per square foot , partially offset by a reduction in occupancy of 210 basis points ( bps ) . leasing activity the following is a summary of the company 's leasing activity during 2015 : replace_table_token_19_th ( a ) includes both tenant allowance and landlord work . excludes first generation space . ( b ) legal fees and leasing commissions averaged a combined total of $ 2.34 per square foot . 37 liquidity and capital resources the company funds operating expenses and other short-term liquidity requirements , including debt service , tenant improvements , leasing commissions , preferred and common dividend distributions and distributions to minority interest partners , if made , primarily from its operations . the company may also use its revolving credit facility for these purposes . the company expects to fund long-term liquidity requirements for property acquisitions , redevelopment costs , capital improvements , and maturing debt initially with its revolving credit facility , and ultimately through a combination of issuing and or assuming additional debt , the sale of equity securities , the issuance of additional op units , and or the sale of properties . although the company believes it has access to secured and unsecured financing , there can be no assurance that the company will have the availability of financing on completed development projects , additional construction financing , or proceeds from the refinancing of existing debt . the company has a $ 310 million unsecured credit facility which , as amended on february 5 , 2015 , consists of ( 1 ) a $ 260 million revolving credit facility , expiring on february 5 , 2019 , and ( 2 ) a $ 50 million term loan , expiring on february 5 , 2020. the revolving credit facility may be extended , at the company 's option , for an additional one-year period , subject to customary conditions .
| results of operations comparison of 2015 to 2014 replace_table_token_16_th 33 revenues were higher as a result of ( 1 ) an increase of $ 4.1 million in rental revenues and expense recoveries attributable to properties acquired in 2015 and 2014 , ( 2 ) an increase of $ 1.1 million in base rental revenue , percentage rental revenue and expense recoveries attributable to the company 's same-center properties , ( 3 ) an increase of $ 1.0 million in rental revenues and expense recoveries attributable to the company 's redevelopment properties , and ( 4 ) an increase of $ 0.5 million in other income , offset by ( 1 ) a decrease of $ 4.1 million in rental revenues and expense recoveries attributable to properties that were sold in 2015 and 2014 , and ( 2 ) a decrease of $ 1.6 million in straight-line revenue and amortization of intangible lease liabilities revenue attributable to the company 's same-center properties . property operating expenses were lower as a result of ( 1 ) a decrease of $ 0.9 million in property operating expenses attributable to properties that were sold in 2015 and 2014 , ( 2 ) a decrease of $ 0.6 million in other operating expenses , primarily bad debt expense , repairs and maintenance , and non-billable expenses , and ( 3 ) a decrease of $ 0.1 million in payroll and payroll related costs , offset by an increase of $ 1.4 million in property operating expenses attributable to properties acquired in 2015 and 2014. general and administrative costs were higher primarily as a result of increased costs across various administrative items . acquisition costs in 2015 relate to the purchase of lawndale plaza , located in philadelphia , pennsylvania and east river park , located in washington d.c. acquisition costs in 2014 relate to the purchase of quartermaster plaza , located in philadelphia , pennsylvania . depreciation and amortization expenses were lower as a result of ( 1 ) a decrease of $ 1.1
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derivative instruments and fair value of financial instruments the company uses futures contracts , options , and forward swap contracts primarily to reduce the exposure to changes in crude oil prices , finished goods product prices and interest rates and to provide economic hedges of inventory positions . these derivative instruments have not been designated as hedges for accounting purposes . accordingly , these instruments are recorded in the consolidated balance sheets at fair value , and each period 's gain or loss is recorded as a component of gain ( story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations in conjunction with our financial statements and related notes included elsewhere in this report . forward-looking statements this report , including , without limitation , the sections captioned `` business '' and `` management 's discussion and analysis of financial condition and results of operations , '' contains `` forward-looking statements '' as defined by the sec . such statements are those concerning contemplated transactions and strategic plans , expectations and objectives for future operations . these include , without limitation : statements , other than statements of historical fact , that address activities , events or developments that we expect , believe or anticipate will or may occur in the future ; statements relating to future financial performance , future capital sources and other matters ; and any other statements preceded by , followed by or that include the words `` anticipates , '' `` believes , '' `` expects , '' `` plans , '' `` intends , '' `` estimates , '' `` projects , '' `` could , '' `` should , '' `` may , '' or similar expressions . 64 although we believe that our plans , intentions and expectations reflected in or suggested by the forward-looking statements we make in this report , including this management 's discussion and analysis of financial condition and results of operations , are reasonable , we can give no assurance that such plans , intentions or expectations will be achieved . these statements are based on assumptions made by us based on our experience and perception of historical trends , current conditions , expected future developments and other factors that we believe are appropriate in the circumstances . such statements are subject to a number of risks and uncertainties , many of which are beyond our control . you are cautioned that any such statements are not guarantees of future performance and that actual results or developments may differ materially from those projected in the forward-looking statements as a result of various factors , including but not limited to those set forth under the section captioned `` risk factors '' and contained elsewhere in this report . all forward-looking statements contained in this report only speak as of the date of this report . we undertake no obligation to publicly update or revise any forward-looking statements to reflect events or circumstances that occur after the date of this report , or to reflect the occurrence of unanticipated events , except as may be required by law . overview and executive summary we are a diversified holding company primarily engaged in the petroleum refining and nitrogen fertilizer manufacturing industries through our holdings in the refining partnership and the nitrogen fertilizer partnership . the refining partnership is an independent petroleum refiner and marketer of high value transportation fuels . the nitrogen fertilizer partnership produces nitrogen fertilizers in the form of ammonia and uan . we own the general partner and a majority of the common units representing limited partner interests in each of the refining partnership and the nitrogen fertilizer partnership . we operate under two business segments : petroleum and nitrogen fertilizer . for the fiscal years ended december 31 , 2012 , 2011 and 2010 , we generated consolidated net sales of $ 8.6 billion , $ 5.0 billion and $ 4.1 billion , respectively , and operating income of $ 1,034.9 million , $ 566.6 million and $ 93.1 million , respectively . the petroleum business generated net sales of $ 8.3 billion , $ 4.8 billion and $ 3.9 billion , and the nitrogen fertilizer business generated net sales of $ 302.3 million , $ 302.9 million and $ 180.5 million in each case for the years ended december 31 , 2012 , 2011 and 2010 , respectively . the petroleum business generated operating income of $ 1,012.5 million , $ 465.7 million and $ 104.6 million in each case , for the years ended december 31 , 2012 , 2011 and 2010 , respectively . the nitrogen fertilizer business generated operating income of $ 115.8 million , $ 136.2 million and $ 20.4 million in each case for the years ended december 31 , 2012 , 2011 and 2010 , respectively . petroleum business . the petroleum business consists of our interest in the refining partnership . we own the general partner and approximately 81 % of the common units of the refining partnership . the petroleum business consists of a 115,000 bpd complex full coking medium-sour crude oil refinery in coffeyville , kansas and , as of december 15 , 2011 , a 70,000 bpd medium complexity crude oil unit refinery in wynnewood , oklahoma capable of processing 20,000 bpd of light sour crude oil ( within its 70,000 bpd capacity ) . story_separator_special_tag on average , during the past five years , over 70 % of the pet coke utilized by the nitrogen fertilizer plant was produced and supplied by the refining partnership 's crude oil refinery in coffeyville . transaction agreement on april 18 , 2012 , cvr energy entered into a transaction agreement ( the `` transaction agreement '' ) with certain affiliates of icahn enterprises and carl c. icahn . pursuant to the transaction agreement , a wholly-owned subsidiary of icahn enterprises offered ( the `` offer '' ) to purchase all of the issued and outstanding shares of cvr energy 's common stock for a price of $ 30.00 per share in cash , without interest , less any applicable withholding taxes , plus one non-transferable contingent cash payment ( `` ccp '' ) right for each share , which represents the contractual right to receive an additional cash payment per share if a definitive agreement for the sale of cvr energy is executed on or before august 18 , 2013 and such transaction closes . in may 2012 , affiliates of icahn enterprises acquired a majority of the common stock of cvr energy through the offer . as a result of shares tendered into the offer during the initial offering period and subsequent additional purchases , icahn enterprises owned approximately 82 % of cvr energy 's outstanding common stock as of december 31 , 2012. pursuant to the transaction agreement , all employee restricted share awards scheduled to vest in 2012 were converted to restricted stock units whereby the recipient received cash settlement of the offer price of $ 30.00 per share in cash plus one ccp upon vesting . restricted shares scheduled to vest in 2013 , 2014 and 2015 were converted to restricted stock units whereby the awards will be settled in cash upon vesting in an amount equal to the lesser of the offer price or the fair market value as determined at the most recent valuation date of december 31 of each year . for awards vesting subsequent to 2012 , the awards will be remeasured at each subsequent reporting date until they vest . nitrogen fertilizer partnership shelf registration statement on august 29 , 2012 , the nitrogen fertilizer partnership 's registration statement on form s-3 was declared effective by the sec enabling us to offer and sell from time to time , in one or more public offerings or direct placements , up to 50,920,000 common units . refining partnership initial public offering on january 23 , 2013 , the refining partnership completed the refining partnership ipo . the refining partnership sold 24,000,000 common units at a price of $ 25.00 per common unit , resulting in gross proceeds of $ 600.0 million . of the common units issued , 4,000,000 units were purchased by an affiliate of icahn enterprises . additionally , on january 30 , 2013 , the underwriters closed their option to purchase an additional 3,600,000 common units at a price of $ 25.00 per common unit resulting in gross proceeds of $ 90.0 million . the common units , which are listed on the nyse , began trading on january 17 , 2013 under the symbol `` cvrr . '' in connection with the refining partnership ipo , the refining partnership paid approximately $ 32.5 million in underwriting fees and incurred approximately $ 3.9 million of other offering costs . following the refining partnership ipo , cvr energy indirectly owns approximately 81 % of the refining partnership 's outstanding common units and 100 % of the refining partnership 's general 67 partner , which holds a non-economic general partner interest . as of december 31 , 2012 , cvr energy owned 100 % of cvr refining . accordingly , our financial statements for the year ended december 31 , 2012 contained in this report do not reflect any noncontrolling interest in the refining partnership . major influences on results of operations petroleum business the earnings and cash flows of the petroleum business are primarily affected by the relationship between refined product prices and the prices for crude oil and other feedstocks that are processed and blended into refined products . the cost to acquire crude oil and other feedstocks and the price for which refined products are ultimately sold depend on factors beyond its control , including the supply of and demand for crude oil , as well as gasoline and other refined products which , in turn , depend on , among other factors , changes in domestic and foreign economies , weather conditions , domestic and foreign political affairs , production levels , the availability of imports , the marketing of competitive fuels and the extent of government regulation . because the petroleum business applies first-in , first-out ( `` fifo '' ) accounting to value its inventory , crude oil price movements may impact net income in the short term because of changes in the value of its unhedged on-hand inventory . the effect of changes in crude oil prices on our results of operations is influenced by the rate at which the prices of refined products adjust to reflect these changes . the prices of crude oil and other feedstocks and refined product prices are also affected by other factors , such as product pipeline capacity , local market conditions and the operating levels of competing refineries . crude oil costs and the prices of refined products have historically been subject to wide fluctuations . widespread expansion or upgrades of competitors ' facilities , price volatility , international political and economic developments and other factors are likely to continue to play an important role in refining industry economics . these factors can impact , among other things , the level of inventories in the market , resulting in price volatility and a reduction in product margins .
| wynnewood refinery financial results net sales $ 2,647.1 cost of product sold ( exclusive of depreciation and amortization ) 2,160.9 direct operating expenses ( exclusive of depreciation and amortization ) 113.7 major scheduled turnaround expense 102.5 depreciation and amortization 34.5 gross profit $ 235.5 plus direct operating expenses ( exclusive of depreciation and amortization ) and major scheduled turnaround expenses 216.2 plus depreciation and amortization 34.5 refining margin $ 486.2 year ended december 31 , 2012 ( dollars per barrel ) wynnewood refinery key operating statistics per crude oil throughput barrel : refining margin $ 24.34 gross profit 11.79 direct operating expenses ( exclusive of depreciation and amortization ) and major scheduled turnaround expenses 10.83 direct operating expenses and major scheduled turnaround expenses per barrel sold 9.76 barrels sold ( barrels per day ) 60,496 90 replace_table_token_24_th year ended december 31 , 2012 compared to the year ended december 31 , 2011 ( petroleum business ) net sales . petroleum net sales were $ 8,281.5 million for the year ended december 31 , 2012 compared to $ 4,751.8 million for the year ended december 31 , 2011. the increase of $ 3,529.7 million was the result of significantly higher overall sales volume and higher product prices . the higher sales volume is due to the inclusion of a full year of sales for the wynnewood refinery for the year ended december 31 , 2012. the average sales price per gallon for the year ended december 31 , 2012 for gasoline of $ 2.86 and distillate of $ 3.08 increased by approximately 1.5 % and 1.8 % , respectively , as compared to the year ended december 31 , 2011. replace_table_token_25_th ( 1 ) barrels in millions ( 2 ) sales dollars in millions cost of product sold ( exclusive of depreciation and amortization ) .
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the determination of the transition tax requires further analysis regarding the amount and composition of the company 's historical foreign earnings , which is expected to be completed in the second half story_separator_special_tag overview pending acquisition of orbital atk on september 17 , 2017 , the company entered into a definitive merger agreement to acquire all of the outstanding shares of orbital atk , inc. ( orbital atk ) for approximately $ 7.8 billion in cash , plus the assumption of approximately $ 1.4 billion in net debt ( the “ orbital atk acquisition ” ) . see item 1.01 in our current report on form 8-k filed with the sec on september 18 , 2017 for a summary and copy of the merger agreement . we believe this acquisition will enable us to broaden our capabilities and offerings , create value for shareholders , provide expanded opportunities for our combined employees and enhance our ability to provide innovative solutions to meet our customers ' emerging requirements . under the terms of the merger agreement , orbital atk shareholders are to receive all-cash consideration of $ 134.50 per share . we expect to fund the orbital atk acquisition with the proceeds from our debt financing completed in october 2017 and cash on hand . see note 10 to the consolidated financial statements for further information on our orbital atk acquisition financing . on november 29 , 2017 , orbital atk shareholders approved the proposed orbital atk acquisition . we currently expect the transaction to close in the first half of 2018 , after receiving regulatory approvals . upon completion of the orbital atk acquisition , we plan to establish orbital atk as a new , fourth business sector named northrop grumman innovation systems . u.s. tax reform in december 2017 , the tax cuts and jobs act ( the “ 2017 tax act ” ) was enacted . the 2017 tax act represents major tax reform legislation that , among other provisions , reduces the u.s. corporate tax rate . certain income tax effects of the 2017 tax act , including $ 300 million of tax expense recorded principally due to the write-down of our net deferred tax assets , are reflected in our financial results in accordance with staff accounting bulletin no . 118 ( sab 118 ) , which provides sec staff guidance regarding the application of accounting standards codification ( asc ) topic 740 , income taxes , in the reporting period in which the 2017 tax act became law . see note 7 to the consolidated financial statements for further information on the financial statement impact of the 2017 tax act . global security and economic environment the u.s. and its allies continue to face a global security environment of heightened tensions and instability , threats from state and non-state actors as well as terrorist organizations , emerging nuclear tensions and diverse regional security concerns . global threats persist across all domains , from undersea to space to cyber . the market for defense products , services and solutions globally is driven by these complex and evolving security challenges , considered in the broader context of political and socioeconomic priorities . the global economic environment also continues to be marked by uncertainty , instability and geopolitical tensions . global economic growth is expected to remain in the low single digits in 2018 , reflecting the impact of and uncertainty surrounding geopolitical tensions globally and financial market volatility . the global economy may also be affected by britain 's exit from the european union , the impact of which is not known at this time . global economic conditions could impact customer purchasing decisions . u.s. political and economic environment the u.s. continues to face an uncertain political environment and substantial fiscal and economic challenges , which affect funding for discretionary and non-discretionary budgets . part i of the budget control act of 2011 ( the bca ) provided for a reduction in planned defense budgets by at least $ 487 billion over a ten year period . part ii mandated substantial additional reductions , through a process known as “ sequestration , ” which took effect in march 2013. on november 2 , 2015 , the president signed the bipartisan budget act of 2015 ( the budget act ) . the budget act raised the debt ceiling until march 2017 and raised the sequester caps imposed by the bca by $ 80 billion , split equally between defense and non-defense discretionary spending in the government 's fy 2016 and fy 2017 ( $ 50 billion in fy 2016 and $ 30 billion in fy 2017 ) . sequestration spending caps under the bca could reduce defense spending again in fy 2018. on february 9 , 2016 , the president delivered his fy 2017 budget to congress . the fy 2017 budget reflected the fy 2017 spending caps established in the budget act and requested $ 583 billion for the dod 's annual budget , including $ 59 billion for oco . the president signed a continuing resolution in september 2016 , which was extended in december 2016 and provided funding for the u.s. government at fy 2016 levels through april 28 , 2017. in march 2017 , the debt ceiling was reached and the treasury department began taking “ extraordinary measures ” to finance the government and avoid a breach of the debt ceiling . on september 8 , 2017 , the debt ceiling was suspended for three months and on december 9 , 2017 , the treasury department again began taking extraordinary - 24 - northrop grumman corporation measures to finance the government . it is expected that the treasury department will run out of the ability to take extraordinary measures to finance the government in the first half of 2018. in may 2017 , the president signed into law the fy 2017 consolidated appropriations act . in total for fy 2017 , congress appropriated $ 524 billion in base discretionary funding for the dod , consistent with the budget act . story_separator_special_tag 2016 - segment operating income for 2016 increased $ 15 million , or 1 percent , as compared with 2015 as a result of higher sales volume , which more than offset the lower segment operating margin rate . segment operating margin rate decreased to 12.0 percent from 12.4 percent in 2015 principally due to a lower segment margin rate at aerospace systems . reconciliation of segment operating income to total operating income - the table below reconciles segment operating income to total operating income by including the impact of the net fas/cas pension adjustment , as well as unallocated corporate expenses ( certain corporate-level expenses , which are not considered allowable or allocable under applicable cas or the far ) . see note 4 to the consolidated financial statements for further information on the net fas/cas pension adjustment and unallocated corporate expenses . replace_table_token_8_th 2017 - the increase in net fas/cas pension adjustment is primarily due to higher cas expense and lower fas expense than in the prior year period . the increase in cas expense relates to the continued phase-in of cas harmonization and the impact of actual demographic experience , partially offset by a change in our mortality assumption as of december 31 , 2016. the reduction in fas expense was principally driven by our year-end 2016 fas pension assumptions , including the noted change in our mortality assumption offset by a lower discount rate . 2016 - the decrease in net fas/cas pension adjustment is primarily due to lower than expected asset returns during 2015 , partially offset by the increase in our fas discount rate assumption as of december 31 , 2015 and the continued phase-in of cas harmonization . 2017 - unallocated corporate expenses increased in 2017 , as compared to 2016 , primarily due to $ 47 million of costs associated with the orbital atk acquisition and $ 41 million of deferred state tax expense resulting from state tax adjustments associated with the filing of our prior year federal tax return and the company 's $ 500 million discretionary pension contribution in december 2017. in addition , the prior year period included a $ 35 million - 28 - northrop grumman corporation benefit recognized for state tax refunds claimed on our prior year tax returns and a $ 25 million benefit recognized for estimated prior year overhead claim recoveries . 2016 - unallocated corporate expenses declined in 2016 , as compared to 2015 . in 2016 , unallocated corporate expenses included a $ 35 million benefit recognized for state tax refunds claimed on our prior year tax returns and a $ 25 million benefit recognized for estimated prior year overhead claim recoveries . in 2015 , unallocated corporate expenses included a $ 45 million expense recognized for deferred state income taxes due to a change in accounting methods approved by the irs that lowered our deductions for domestic production activities and a $ 25 million expense recognized for deferred state income taxes resulting from a discretionary pension contribution . net estimate-at-completion ( eac ) adjustments - we record changes in estimated contract earnings at completion ( net eac adjustments ) using the cumulative catch-up method of accounting . net eac adjustments can have a significant effect on reported sales and operating income and the aggregate amounts are presented in the table below : replace_table_token_9_th net eac adjustments by segment are presented in the table below : replace_table_token_10_th for purposes of the discussion in the remainder of this segment operating results section , references to operating income and operating margin rate reflect segment operating income and segment operating margin rate , respectively . aerospace systems replace_table_token_11_th 2017 - aerospace systems sales for 2017 increased $ 1.1 billion , or 10 percent , as compared with 2016 , primarily due to higher volume on manned aircraft programs . manned aircraft sales were driven by higher restricted sales . autonomous systems sales increased principally due to higher volume for several programs , including triton , partially offset by lower nato alliance ground surveillance ( ags ) volume . space sales increased primarily due to higher restricted sales , partially offset by lower volume on the james webb space telescope ( jwst ) and advanced extremely high frequency ( aehf ) programs . operating income for 2017 increased $ 23 million , or 2 percent , primarily due to higher sales , partially offset by a lower operating margin rate . operating margin rate decreased to 10.5 percent from 11.4 percent principally due to changes in contract mix on manned aircraft programs and a gain of $ 45 million recognized in the prior year associated with the sale of a property , partially offset by the previously discussed $ 56 million favorable eac adjustment largely related to performance incentives . 2016 - aerospace systems sales for 2016 increased $ 888 million , or 9 percent , as compared with 2015 . the increase was due to higher volume on manned aircraft and autonomous systems programs . manned aircraft sales increased primarily due to higher restricted volume , increased f-35 deliveries and production ramp-up on the e-2d program . - 29 - northrop grumman corporation these increases were partially offset by lower b-2 volume and fewer f/a-18 deliveries . autonomous systems sales increased primarily due to higher volume on the triton and global hawk programs , partially offset by ramp-down of the nato ags program . space sales include higher volume on restricted programs , partially offset by lower volume on the aehf program . operating income for 2016 increased $ 31 million , or 3 percent , and includes a gain of $ 45 million associated with the sale of a property . higher sales volume and improved performance on space and autonomous systems programs were more than offset by lower margins on manned aircraft programs , principally due to changes in contract mix and the timing of risk reductions .
| consolidated operating results selected financial highlights are presented in the table below : replace_table_token_6_th sales 2017 – sales increased $ 1.3 billion , or 5 percent , as compared with 2016 , primarily due to higher sales at aerospace systems and mission systems . 2016 – sales increased $ 982 million , or 4 percent , as compared with 2015 , primarily due to higher sales at aerospace systems and mission systems . see “ revenue recognition ” in note 1 to the consolidated financial statements for further information on sales by customer category . see “ segment operating results ” below for further information by segment and “ product and service analysis ” for product and service detail . operating income 2017 – operating income increased $ 106 million , or 3 percent , as compared with 2016 , primarily due to a $ 278 million increase in our net fas/cas pension adjustment and a $ 24 million increase in segment operating income , partially offset by a $ 197 million increase in unallocated corporate expenses , as described in “ segment operating results. ” higher operating costs and expenses as a percentage of sales reduced our operating margin rate to 12.8 percent from 13.0 percent in the prior year period and was driven by the increase in unallocated corporate expenses and a lower segment operating margin rate , as described in “ segment operating results , ” partially offset by the increase in our net fas/cas pension adjustment . g & a as a percentage of sales decreased to 10.3 percent in 2017 from 10.5 percent in 2016 , principally due to higher sales volume .
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we provide a warranty for one year from the shipment or delivery date , which is covered by our vendors pursuant to purchase agreements . any net warranty related expenditures made by us have not historically been material . under our sales return policy , customers may generally return products that are under warranty for repair or replacement . capitalized product development costs asc topic 350 , “ intangibles - goodwill and other ” includes software that is part of a product or process to be sold to a customer and shall be accounted for under subtopic 985-20. our products contain embedded software internally developed by fti which is an integral part of these products because it allows the various components of the products to communicate with each other and the products are clearly unable to function without this coding . 10 the costs of product development that are capitalized once technological feasibility is determined ( noted as technology in progress in the intangible assets table , in note 2 to notes to consolidated financial statements ) include certifications , licenses , payroll , employee benefits , and other headcount-related expenses associated with product development . we determine that technological feasibility for our products is reached after all high-risk development issues have been resolved . once the products are available for general release to our customers , we cease capitalizing the product development costs and any additional costs , if any , are expensed . the capitalized product development costs are amortized on a product-by-product basis using the greater of straight-line amortization or the ratio of the current gross revenues to the current and anticipated future gross revenues . the amortization begins when the products are available for general release to our customers . as of june 30 , 2017 , and june 30 , 2016 , capitalized product development costs in progress were $ 360,248 and $ 157,492 , respectively , and these amounts are included in intangible assets in our consolidated balance sheets . during the year ended june 30 , 2017 , we incurred $ 368,226 in capitalized product development costs , and such amounts are primarily comprised of certifications and licenses . all costs incurred before technological feasibility is reached are expensed and included in our consolidated statements of comprehensive income . income taxes deferred income tax assets and liabilities are recorded for differences between the financial statement and tax basis of the assets and liabilities that will result in taxable or deductible amounts in the future based on enacted laws and rates applicable to the periods in which the differences are expected to affect taxable income . valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized . as of june 30 , 2017 , we have federal net operating loss carryforwards of approximately $ 2.6 million , which expires through 2034 and state net operating loss carryforwards of $ 0. the utilization of net operating loss carryforwards may be subject to limitations under the provisions of internal revenue code section 382 and similar state provisions . under the provision of asc 740 “ application of the uncertain tax position provisions ” related to accounting for uncertain tax positions , which prescribes a recognition threshold and measurement process for recording in the financial statements , uncertain tax positions taken or expected to be taken in a tax return , the impact of an uncertain income tax position on the income tax return must be recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority . tax benefits of an uncertain tax position will not be recognized if it has less than a 50 % likelihood of being sustained based on technical merits . recently issued accounting pronouncements refer to note 2 - summary of significant accounting policies in the consolidated financial statements . story_separator_special_tag 12 the $ 2,707,586 in net cash provided by operating activities for the year ended june 30 , 2016 was primarily due to the increase in accounts payable of $ 5,924,272 , the decrease in prepaid income taxes of $ 1,024,922 as well as our operating results ( net income adjusted for depreciation , amortization and other non-cash charges ) , which were partially offset by the increase in accounts receivable of $ 6,775,723 and the decrease in advance payments from customers of $ 691,416. investing activities – net cash used in investing activities for the years ended june 30 , 2017 and 2016 was $ 499,258 and $ 1,047,603 , respectively . the $ 499,258 in net cash used in investing activities for the year ended june 30 , 2017 was primarily due to the payments for capitalized product development of $ 368,226 and purchases of intangible assets and property and equipment of $ 85,597 and $ 45,435 , respectively . the $ 1,047,603 in net cash used in investing activities for the year ended june 30 , 2016 was primarily due to the payments for capitalized product development of $ 686,291 and purchases of intangible assets and property and equipment of $ 196,112 and $ 173,200 , respectively . financing activities – net cash provided by financing activities for the year ended june 30 , 2017 was $ 104,820 and net cash used in financing activities for the year ended june 30 , 2016 $ 342,444. the $ 104,820 in net cash provided by financing activities for the year ended june 30 , 2017 was due to the cash received from the exercise of stock options . the $ 342,444 in net cash used in financing activities for the year ended june 30 , 2016 was primarily due to the repurchase of 130,000 shares of our common stock from a shareholder and the repayment of short-term borrowings of $ 148,295 , which were partially offset by the cash received from the exercise of stock options of $ 39,851. off-balance sheet arrangements none . story_separator_special_tag we provide a warranty for one year from the shipment or delivery date , which is covered by our vendors pursuant to purchase agreements . any net warranty related expenditures made by us have not historically been material . under our sales return policy , customers may generally return products that are under warranty for repair or replacement . capitalized product development costs asc topic 350 , “ intangibles - goodwill and other ” includes software that is part of a product or process to be sold to a customer and shall be accounted for under subtopic 985-20. our products contain embedded software internally developed by fti which is an integral part of these products because it allows the various components of the products to communicate with each other and the products are clearly unable to function without this coding . 10 the costs of product development that are capitalized once technological feasibility is determined ( noted as technology in progress in the intangible assets table , in note 2 to notes to consolidated financial statements ) include certifications , licenses , payroll , employee benefits , and other headcount-related expenses associated with product development . we determine that technological feasibility for our products is reached after all high-risk development issues have been resolved . once the products are available for general release to our customers , we cease capitalizing the product development costs and any additional costs , if any , are expensed . the capitalized product development costs are amortized on a product-by-product basis using the greater of straight-line amortization or the ratio of the current gross revenues to the current and anticipated future gross revenues . the amortization begins when the products are available for general release to our customers . as of june 30 , 2017 , and june 30 , 2016 , capitalized product development costs in progress were $ 360,248 and $ 157,492 , respectively , and these amounts are included in intangible assets in our consolidated balance sheets . during the year ended june 30 , 2017 , we incurred $ 368,226 in capitalized product development costs , and such amounts are primarily comprised of certifications and licenses . all costs incurred before technological feasibility is reached are expensed and included in our consolidated statements of comprehensive income . income taxes deferred income tax assets and liabilities are recorded for differences between the financial statement and tax basis of the assets and liabilities that will result in taxable or deductible amounts in the future based on enacted laws and rates applicable to the periods in which the differences are expected to affect taxable income . valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized . as of june 30 , 2017 , we have federal net operating loss carryforwards of approximately $ 2.6 million , which expires through 2034 and state net operating loss carryforwards of $ 0. the utilization of net operating loss carryforwards may be subject to limitations under the provisions of internal revenue code section 382 and similar state provisions . under the provision of asc 740 “ application of the uncertain tax position provisions ” related to accounting for uncertain tax positions , which prescribes a recognition threshold and measurement process for recording in the financial statements , uncertain tax positions taken or expected to be taken in a tax return , the impact of an uncertain income tax position on the income tax return must be recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority . tax benefits of an uncertain tax position will not be recognized if it has less than a 50 % likelihood of being sustained based on technical merits . recently issued accounting pronouncements refer to note 2 - summary of significant accounting policies in the consolidated financial statements . story_separator_special_tag 12 the $ 2,707,586 in net cash provided by operating activities for the year ended june 30 , 2016 was primarily due to the increase in accounts payable of $ 5,924,272 , the decrease in prepaid income taxes of $ 1,024,922 as well as our operating results ( net income adjusted for depreciation , amortization and other non-cash charges ) , which were partially offset by the increase in accounts receivable of $ 6,775,723 and the decrease in advance payments from customers of $ 691,416. investing activities – net cash used in investing activities for the years ended june 30 , 2017 and 2016 was $ 499,258 and $ 1,047,603 , respectively . the $ 499,258 in net cash used in investing activities for the year ended june 30 , 2017 was primarily due to the payments for capitalized product development of $ 368,226 and purchases of intangible assets and property and equipment of $ 85,597 and $ 45,435 , respectively . the $ 1,047,603 in net cash used in investing activities for the year ended june 30 , 2016 was primarily due to the payments for capitalized product development of $ 686,291 and purchases of intangible assets and property and equipment of $ 196,112 and $ 173,200 , respectively . financing activities – net cash provided by financing activities for the year ended june 30 , 2017 was $ 104,820 and net cash used in financing activities for the year ended june 30 , 2016 $ 342,444. the $ 104,820 in net cash provided by financing activities for the year ended june 30 , 2017 was due to the cash received from the exercise of stock options . the $ 342,444 in net cash used in financing activities for the year ended june 30 , 2016 was primarily due to the repurchase of 130,000 shares of our common stock from a shareholder and the repayment of short-term borrowings of $ 148,295 , which were partially offset by the cash received from the exercise of stock options of $ 39,851. off-balance sheet arrangements none .
| results of operations the following table sets forth , for the years ended june 30 , 2017 and 2016 , our statements of operations including data expressed as a percentage of sales : replace_table_token_3_th 11 year ended june 30 , 2017 compared to year ended june 30 , 2016 net sales - net sales decreased by $ 11,239,170 , or 18.8 % , to $ 48,565,524 for the year ended june 30 , 2017 from $ 59,804,694 for the corresponding period of 2016. for the year ended june 30 , 2017 , net sales by geographic regions , consisting of the united states , south america and the caribbean , emea ( europe , the middle east and africa ) and asia were $ 47,373,463 ( 97.5 % of net sales ) , $ 252,000 ( 0.5 % of net sales ) , $ 796,795 ( 1.7 % of net sales ) and $ 143,266 ( 0.3 % of net sales ) , respectively . net sales in the united states decreased by $ 4,368,528 , or 8.4 % , to $ 47,373,463 for the year ended june 30 , 2017 , from $ 51,741,991 for the corresponding period of 2016. the decrease in net sales was primarily due to timing of orders placed by a carrier customer , which was partially offset by the launch of a new product with a different carrier customer that took place in the second half of fiscal 2016. net sales in the south american and caribbean regions increased by $ 151,301 , or 150.3 % , to $ 252,000 for the year ended june 30 , 2016 , from $ 100,699 for the corresponding period of 2016. the increase was primarily due to the general nature of sales in these regions , which often fluctuate significantly from period to period due to timing of orders placed by a relatively small number of customers .
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right-of-use lease assets and obligations are recognized at the commencement date based on the present value of remaining lease payments over the lease term . as the company 's leases do not provide an implicit discount rate , the company has used an estimated incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments . the right-of-use lease asset includes any lease payments made prior to commencement and excludes any lease incentives . the lease term may include options to extend or terminate story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read together with our financial statements and related notes appearing elsewhere in this annual report on form 10-k. some of the information contained in this discussion and analysis or set forth elsewhere in this annual report on form 10-k , including information with respect to our plans and strategy for our business and related financing , includes forward-looking statements that involve risks and uncertainties and should be read together with the `` risk factors '' section of this annual report on form 10-k for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . overview we are a science-driven biopharmaceutical company focused on the discovery and development of novel treatment options for retinal diseases with significant unmet medical needs . we are currently developing both therapeutic product candidates for age-related retinal diseases and gene therapy product candidates for orphan inherited retinal diseases , or irds . in april 2019 , we changed our name from ophthotech corporation to iveric bio , inc. as we continued to broaden the focus of our company to include gene therapies . we believe that both therapeutics and gene therapy serve important roles in drug development and providing potential treatment options for patients suffering from retinal diseases . our most advanced therapeutic product candidate is zimura® ( avacincaptad pegol ) , a complement c5 inhibitor . in october 2019 , we announced initial , top-line data from a randomized , controlled clinical trial of zimura in geographic atrophy , or ga , secondary to dry age-related macular degeneration , or amd , which we will refer to as the oph2003 trial . the top-line data confirmed that zimura met the prespecified primary endpoint in the trial in reducing the rate of ga growth in patients with dry amd . the reduction in the mean rate of ga growth over 12 months using the square root transformation was 0.110 mm ( p-value = 0.0072 ) for the zimura 2 mg group as compared to the corresponding sham control group and 0.124 mm ( p-value = 0.0051 ) for the zimura 4 mg group as compared to the corresponding sham control group , indicating an approximate 27 % relative reduction in the mean rate of ga growth over 12 months when compared with sham for both dose groups . these data for both dose groups were statistically significant and we believe demonstrate a clinically relevant reduction in rate of ga growth . based on our review of the safety data to date , zimura was generally well tolerated over 12 months of administration in this clinical trial . over this 12-month period , there were no investigator-reported ocular serious adverse events , no zimura-related adverse events , no cases of zimura-related intraocular inflammation , no cases of zimura-related increased intraocular pressure , no cases of endophthalmitis , and no discontinuations attributed by investigators to zimura . oph2003 was designed to be a phase 2b screening trial , with the potential to qualify as a pivotal trial depending on the magnitude and statistical significance of the potential benefit observed . we believe that the safety and efficacy results from the oph2003 trial could potentially satisfy the u.s. food and drug administration 's , or fda 's , requirements as one of the two pivotal clinical trials typically required for marketing approval of a pharmaceutical product . we are preparing for an international , randomized , double masked , sham controlled , multi-center phase 3 clinical trial of zimura in this indication , which we refer to as the isee2008 trial , with the goal of beginning patient enrollment during the first quarter of 2020. we currently have two gene therapy product candidates in preclinical development and several collaborative gene therapy sponsored research programs ongoing . subject to successful completion of preclinical development and manufacturing under current good manufacturing practices , or gmp , and regulatory review , we plan to initiate a phase 1/2 clinical trial for ic-100 , our lead gene therapy product candidate , during the fourth quarter of 2020. our therapeutics portfolio consists of zimura and our preclinical development program of high temperature requirement a serine peptidase 1 protein , or htra1 , inhibitors . we are targeting the following diseases with zimura : ga , which is the advanced stage of amd , and is characterized by marked thinning or atrophy of retinal tissue , leading to irreversible loss of vision ; and autosomal recessive stargardt disease , or stgd1 , which is characterized by progressive damage to the central portion of the retina , or the macula , and other retinal tissue of young adults , leading to loss of vision . we previously also evaluated zimura in combination with lucentis® ( ranibizumab ) , an anti-vascular endothelial growth factor , or anti-vegf , agent , for the treatment of wet amd , for which we completed a phase 2a clinical trial , which we refer to as the oph2007 trial , during the fourth quarter of 2018. we are developing our htra1 inhibitor program for ga and potentially other age-related retinal diseases . 108 our gene therapy portfolio consists of several ongoing research and preclinical development programs that use adeno-associated virus , or aav , for gene delivery . story_separator_special_tag based on current timelines and subject to successful completion of preclinical development and gmp manufacturing and regulatory review , we plan to initiate a phase 1/2 clinical trial for ic-100 during the fourth quarter of 2020. ic-200 : product candidate for best1-related irds we are pursuing the preclinical development of ic-200 , our novel aav gene therapy product candidate for the treatment of best1 -related irds , including best disease , to which we acquired exclusive development and commercialization rights through an april 2019 license agreement with penn and ufrf . we and penn are conducting preclinical studies of ic-200 and natural history studies of patients with best1 -related irds . in parallel , we have engaged a gene therapy cdmo as the manufacturer for preclinical and phase 1/2 clinical supply of ic-200 . we are planning for phase 1/2 clinical manufacturing and other ind-enabling activities . based on current timelines and subject to successful completion of preclinical development and gmp manufacturing and regulatory review , we expect to initiate a phase 1/2 clinical trial for ic-200 during the first half of 2021. minigene programs aav vectors are generally limited as a delivery vehicle by the size of their genetic cargo , which is restricted to approximately 4,700 base pairs of genetic code . the use of minigenes seeks to deliver a smaller but still functional form of a larger gene packaged into a standard-size aav delivery vector . the goal of minigene therapy is to deliver a gene expressing a protein that , although different from the naturally occurring protein , is nonetheless functional for purposes of treating the associated disease . we are funding several sponsored research programs at umms seeking to use a minigene approach to develop new gene therapies for several orphan irds . the following is a summary of these minigene programs and their status : minicep290 ( lca10 ) : this program , which we refer to as the minicep290 program , is targeting lca10 , which is associated with mutations in the cep290 gene . in july 2019 , we entered into a license agreement with the university of massachusetts , or umass , for exclusive development and commercialization rights to this program . the sponsored research , which is ongoing , has yielded a number of minigene constructs that show encouraging results when tested in a mouse model . umms is continuing to optimize constructs with the goal of identifying a lead construct by the middle of 2020. miniabca4 ( stgd1 ) : this program , which we refer to as the miniabca4 program , is targeting stgd1 , which is associated with mutations in the abca4 gene . umms has generated and is evaluating several abca4 minigene constructs in both in vitro and in vivo experiments . we have received preliminary results and expect to receive additional results from the miniabca4 program during the second half of 2020. miniush2a ( ush2a -related irds ) : this program , which we refer to as the miniush2a program , is targeting irds associated with mutations in the ush2a gene , including usher 2a and ush2a -associated nonsyndromatic autosomal recessive retinitis pigmentosa . we initiated this sponsored research with umms in july 2019 and expect to receive preliminary results during the second half of 2020 . 110 in addition to the license agreement for the minicep290 program , umms has granted us an option to obtain an exclusive license to any patents or patent applications that result from any of these sponsored research programs . business development and financing activities since early 2017 , we have been pursuing a business development strategy to evaluate available technologies to treat ophthalmic diseases , particularly those in the back of the eye , and to explore opportunities to obtain rights to additional products and product candidates employing these technologies . as we evaluated numerous potential opportunities , we have come to believe that gene therapy , in addition to therapeutics , is a promising treatment modality for retina diseases for which there are significant unmet medical needs . our efforts have resulted in the expansion of our research and development pipeline , including in 2018 and 2019 , the addition of several gene therapy product candidates and collaborative sponsored research programs as well as our htra1 inhibitor program . in december 2019 , we completed an underwritten public offering in which we sold approximately 7,750,000 shares of our common stock , which includes shares purchased pursuant to the underwriters ' option to purchase additional shares of our common stock , at a public offering price of $ 4.00 per share . we also sold to certain investors pre-funded warrants to purchase 3,750,000 shares of our common stock at a public offering price of $ 3.999 per share underlying each warrant . we raised approximately $ 42,600,000.0 million in net proceeds from this offering . as we continue the development of our product candidates and programs and evaluate our overall strategic priorities , we will continue to pursue selective business development and financing opportunities that advance us toward our strategic goals . we have been , and plan to continue , exploring options for the future development and potential commercialization of zimura , including potential collaboration and out-licensing opportunities , including for indications for which we previously developed zimura such as wet amd and idiopathic polypoidal choroidal vasculopathy , or ipcv . in addition , we expect to continue to evaluate , on a selective and targeted basis , opportunities to potentially obtain rights to additional product candidates and technologies for retinal diseases . we could also consider business development opportunities that also offer us a financing opportunity . we will continue to pursue capital raising opportunities when they are available on terms that are favorable to us and if the opportunity advances our strategic goals . financial matters as of december 31 , 2019 , we had cash and cash equivalents of $ 125.7 million .
| results of operations comparison of years ended december 31 , 2019 and 2018 replace_table_token_15_th research and development expenses our research and development expenses were $ 39.6 million for the year ended december 31 , 2019 , a decrease of $ 2.1 million compared to $ 41.7 million for the year ended december 31 , 2018 . the decrease in research and development expenses for the year ended december 31 , 2019 was primarily due to a $ 6.4 million decrease in costs associated with our htra1 inhibitor program , a $ 3.9 million decrease in costs associated with our zimura program and a $ 1.6 million decrease in professional services and consulting fees . the decreased costs for our htra1 inhibitor program related to the immediate expensing in 2018 of the in-process research and development costs of our htra1 inhibitor program acquired through our acquisition of inception 4 in 2018. the decreased costs for our zimura programs included lower costs related to a decrease in zimura manufacturing activities and lower clinical trial costs as a result of the completion of the oph2007 trial during the fourth quarter of 2018 and the completion of patient recruitment for the oph2003 trial during the fourth quarter of 2018 and the associated reduction in site initiation costs . the decreased costs for our zimura programs were partially offset by increased costs associated with the continued progress of the oph2005 trial . the overall decrease in research and development expenses was partially offset by a $ 9.4 million increase in costs resulting from the expansion of our gene therapy programs . general and administrative expenses our general and administrative expenses were $ 21.6 million for the year ended december 31 , 2019 , a decrease of $ 2.0 million , compared to $ 23.6 million for the year ended december 31 , 2018 .
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such amounts are adjusted if and when experience changes . when our underwriting agencies utilize one of our insurance company subsidiaries as the policy issuing company , we eliminate in consolidation the fee and commission income against the related insurance company 's policy acquisition costs and defer the policy acquisition costs of the underwriting agencies . goodwill and intangible assets an indicator of impairment of goodwill exists when story_separator_special_tag the following management 's discussion and analysis should be read in conjunction with the selected financial data and the consolidated financial statements and related notes . overview we are a specialty insurance group with offices in the united states , the united kingdom , spain and ireland , transacting business in approximately 180 countries . our shares trade on the new york stock exchange and closed at $ 29.81 on february 17 , 2012 , resulting in market capitalization of $ 3.1 billion . we underwrite a variety of relatively noncorrelated specialty insurance products , including property and casualty , accident and health , surety , credit and aviation product lines . we market our insurance products through a network of independent agents and brokers , managing general agents and directly to consumers . in addition , we assume insurance written by other insurance companies . we manage our businesses through five insurance underwriting segments and our investing segment . our insurance underwriting segments are u.s. property & casualty , professional liability , accident & health , u.s. surety & credit and international . our business philosophy is to maximize underwriting profit while managing risk . we concentrate our insurance writings in selected specialty lines of business in which we believe we can achieve meaningful underwriting profit . we also rely on our experienced underwriting personnel and our access to and expertise in the reinsurance marketplace to limit or reduce risk . our business plan is shaped by our underlying business philosophy . as a result , our primary objective is to maximize net earnings and grow book value per share , rather than to grow gross written premium or our market share . key facts about our consolidated group as of and for the year ended december 31 , 2011 are as follows : we had consolidated shareholders ' equity of $ 3.3 billion , with a book value per share of $ 31.62. we generated net earnings of $ 255.2 million , or $ 2.30 per diluted share . we produced total revenue of $ 2.4 billion , of which 90 % related to net earned premium and 9 % related to net investment income . we recognized gross losses of $ 175.5 million and net losses , after reinsurance and reinstatement premium , of $ 117.9 million from catastrophes in japan , new zealand , the united states , denmark and thailand , mainly in our international segment . our net loss ratio , including the catastrophe losses , was 65.8 % and our combined ratio was 90.8 % . the catastrophe losses increased the net loss ratio by 5.3 percentage points and the combined ratio by 5.4 percentage points . we recorded net adverse loss development of $ 10.1 million . we also recognized $ 37.3 million of losses related to our increase in the ultimate loss ratio for accident year 2011 for the diversified financial products line of business in our professional liability segment . we recognized $ 13.0 million of profit commissions due from reinsurers , related to the u.s. d & o and international d & o lines of business . our debt to capital ratio was 12.7 % at december 31 , 2011. we purchased $ 373.6 million of our common stock at an average cost of $ 29.55 per share . at year-end , we had $ 226.4 million remaining under our current $ 300.0 million share buyback authorization . we increased our dividend for the 15 th consecutive year and paid $ 65.8 million of dividends . the following sections discuss our key operating results . the reason for any significant variations between 2010 and 2009 are the same as those discussed for variations between 2011 and 2010 , unless otherwise noted . amounts in tables are in thousands , except for earnings per share , percentages , ratios and number of employees . 31 story_separator_special_tag ( collectively referred to as loss and loss adjustment expense ) . our net loss ratio is the percentage of our loss and loss adjustment expense divided by our net earned premium in each year . loss development represents an increase or decrease in estimates of ultimate losses related to business written in prior accident years . such increases or decreases are recorded as loss and loss adjustment expense in the current reporting year . a redundancy , also referred to as favorable development , means the original ultimate loss estimate was higher than the current estimate . a deficiency , or adverse development , means the current ultimate loss estimate is higher than the original estimate . 34 the tables below detail , by segment , our net loss and loss adjustment expense , the amount of development included in our net loss and loss adjustment expense , and our net loss ratios . replace_table_token_16_th loss and loss adjustment expense increased 15 % in 2011 and had minimal change from 2009 to 2010. the 2011 increase was driven by $ 103.9 million of catastrophe losses , primarily in the international segment , and the $ 37.3 million increase of reserves for our dfp line of business in the professional liability segment , noted above . we experienced a corresponding increase in our consolidated accident year net loss ratio in 2011. see the segment operations section below for additional discussion of the changes in our loss and loss adjustment expense , development and net loss ratios for each segment . 35 our net paid loss ratio is the percentage of losses paid , net of reinsurance , divided by net earned premium for the year . story_separator_special_tag replace_table_token_18_th 37 replace_table_token_19_th our u.s. property & casualty segment pretax earnings declined 40 % in 2011 , due to : 1 ) lower net earned premium , 2 ) a reduced amount of favorable development in 2011 compared to 2010 , 3 ) $ 6.2 million of catastrophe losses in 2011 , 4 ) higher operating expenses and 5 ) the effect of a $ 5.0 million gain in 2010 related to termination of a derivative contract . the segment 's pretax earnings declined 34 % in 2010 primarily due to lower net earned premium , directly related to pricing competition and the mix of products in this segment , and the year-over-year impact of the $ 5.0 million gain in 2010 and a $ 15.6 million gain in 2009 related to termination of two contracts , discussed below . in 2010 and again in 2011 , we wrote less premium in many of these product lines due to continued competition in the segment 's markets . in particular , our e & o volume declined as we continued to re-underwrite that product , employing more stringent underwriting criteria in reaction to higher losses . premium grouped in other includes numerous types of specialty insurance products . the 2011 increase in other included $ 16.7 million of premium generated by our three new underwriting teams focused on technical property , primary casualty and excess casualty coverages . net written premium increased in aviation , public risk and certain other product lines in 2011 , due to changes in timing and amount of our reinsurance programs . changes in the segment 's loss ratios primarily reflect the amount of favorable development in each year . the segment had net favorable development of $ 3.1 million in 2011 , $ 15.9 million in 2010 and $ 25.9 million in 2009. the 2011 net favorable development primarily related to offsetting favorable and adverse development for products grouped in other . the 2010 favorable development primarily related to an assumed quota share contract that is in runoff , as well as aviation , public risk , and smaller product lines included in other . the 2009 favorable development primarily related to aviation and the quota share contract . in 2011 , aviation experienced higher 2011 accident year losses , and public risk incurred $ 5.0 million of catastrophe losses . in 2010 , e & o experienced higher 2010 accident year losses , as well as adverse development related to the 2006 2009 underwriting years . 38 the segment 's expense ratio was higher in 2011 , primarily due to higher compensation costs and lower segment revenue . the higher expense ratio in 2010 , compared to 2009 , primarily related to lower segment revenue in 2010. we terminated our interest in a derivative contract in 2010 and in a reinsurance contract in 2009 , which generated $ 5.0 million and $ 15.6 million , respectively , of pretax earnings in these years . related to these transactions , we received cash of $ 8.3 million in 2010 and $ 25.0 million in 2009 , which was included in other revenue , and incurred reinsurance and other direct costs of $ 3.0 million in 2010 and $ 9.9 million in 2009 , which were included in other expense . the segment 's remaining other revenue relates to fee and commission income earned by our agencies from third party insurance companies . professional liability segment the following tables summarize the operations of the professional liability segment . replace_table_token_20_th 39 replace_table_token_21_th the professional liability segment pretax earnings declined 72 % in 2011 , compared to 2010 , due to lower net earned premium and adverse loss development , partially offset by increased income related to profit commissions due from reinsurers ( including $ 13.0 million directly related to favorable development in the u.s. d & o and international d & o lines of business in 2011 ) . segment earnings decreased year-over-year in 2010 due to lower net earned premium , reduced profit commissions from reinsurers , and adverse loss development . gross written premium decreased 6 % in 2011 and 7 % in 2010 because we wrote less d & o business in the united states due to pricing competition . net written premium increased in 2011 due to a change in our reinsurance programs . the segment had adverse loss development of $ 47.1 million in 2011 , compared to $ 9.6 million in 2010 and minimal development in 2009. the 2011 and 2010 development primarily related to our dfp line of business ( included in u.s. d & o ) , which provides coverage for private equity partnerships , hedge funds and investment managers . in 2011 , dfp recorded $ 104.2 million of adverse development , as well as $ 37.3 million of additional losses related to our increase in the ultimate loss ratio for accident year 2011. these reserve changes resulted primarily from revised assumptions with regards to the frequency and severity of claims in the 2008 2011 accident years . our u.s. d & o and international d & o lines of business had favorable development of $ 32.2 million and $ 24.9 million , respectively , in 2011 , which partially offset the adverse development from dfp . the favorable d & o development related to lower than expected reported loss development in accident years 2002 2005. the higher 2011 loss ratio for u.s. d & o , shown above , included the impact of dfp 's adverse development , partially offset by the favorable development for the u.s. d & o line of business . the low loss ratio in 2011 for international d & o directly related to the favorable development , discussed above . in 2009 , for our d & o products , we re-estimated our exposure on the 2004 2007 underwriting years . as a result , the international d & o reserves had favorable development , which was substantially offset by adverse development in the u.s. d & o reserves .
| results of operations our results and key metrics for the past three years were as follows : replace_table_token_12_th our 2011 and 2010 results include the impact of catastrophic events around the world . we experienced catastrophe losses primarily from the japan earthquake and tsunami , new zealand earthquakes , united states tornados and hurricane irene , denmark storms and thailand floods in 2011 and the chile earthquake in 2010. we had no significant catastrophe losses in 2009. we reinsured a portion of our exposure to these catastrophic events . in 2011 , we incurred $ 14.0 million of additional cost for net reinstatement premium to continue our reinsurance coverage for future loss events . the following table summarizes our catastrophe losses , as well as the impact on our net earnings and key metrics in 2011 and 2010. replace_table_token_13_th in addition to the catastrophe losses , we increased our loss reserves by $ 47.4 million in 2011 to reflect the impact of net adverse prior year loss development and the additional accident year 2011 losses related to our diversified financial products ( dfp ) line of business . adverse ( favorable ) loss development was $ 10.1 million , $ ( 22.7 ) million and $ ( 53.5 ) million for 2011 , 2010 and 2009 , respectively , and the dfp losses totaled $ 37.3 million . see the segment operations section below for further discussion of the catastrophes , loss development and dfp accident year 2011 losses .
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our mission is to reduce total energy consumption in our customers ' systems with green , practical and compact solutions . we believe that we differentiate ourselves by offering solutions that are more highly integrated , smaller in size , more energy efficient , more accurate with respect to performance specifications and , consequently , more cost-effective than many competing solutions . we plan to continue to introduce new products within our existing product families , as well as in new innovative product categories . we operate in the cyclical semiconductor industry where there is seasonal demand for certain products . we are not immune from current and future industry downturns , but we have targeted product and market areas that we believe have the ability to offer above average industry performance over the long term . we work with third parties to manufacture and assemble our integrated circuits ( “ ics ” ) . this has enabled us to limit our capital expenditures and fixed costs , while focusing our engineering and design resources on our core strengths . following the introduction of a product , our sales cycle generally takes a number of quarters after we receive an initial customer order for a new product to ramp up . typical lead time for orders is fewer than 90 days . these factors , combined with the fact that orders in the semiconductor industry can typically be cancelled or rescheduled without significant penalty to the customer , make the forecasting of our orders and revenue difficult . we derive most of our revenue from sales through distribution arrangements and direct sales to customers in asia , where the products we produce are incorporated into end-user products . for each of the years ended december 31 , 2016 , 2015 and 2014 , 91 % of our revenue was from customers in asia . we derive a majority of our revenue from the sales of our dc to dc converter products which serves the consumer , industrial , computing and storage , and communications markets . we believe our ability to achieve revenue growth will depend , in part , on our ability to develop new products , enter new market segments , gain market share , manage litigation risk , diversify our customer base and successfully secure manufacturing capacity . in july 2014 , we completed the acquisition of sensima technology sa ( “ sensima ” ) , a company located in switzerland that develops magnetic sensors for angle measurements as well as three-dimensional magnetic field sensing . sensima became a subsidiary of mps and changed its name to mps tech switzerland sarl . the acquisition creates new opportunities with customers by offering enhanced solutions in power management for key industries such as automotive , industrial and cloud computing . the purchase consideration consisted of an upfront cash payment of $ 11.7 million and additional consideration that was contingent upon sensima achieving a new product introduction and certain revenue and direct margin goals in 2016 , with a fair value of $ 2.5 million at the date of acquisition . in addition , key employees received $ 1.7 million of time-based restricted stock units and up to $ 8.0 million of performance-based restricted stock units in connection with the transaction . these equity awards are considered arrangements for post-acquisition services and the related compensation expense is recognized over the requisite service period if it is probable that the performance goals will be met . the results of operations of sensima have been included in our consolidated financial statements subsequent to the acquisition date . on december 31 , 2016 , management concluded that no contingent consideration was earned as the actual product revenue in 2016 did not meet the minimum target . critical accounting policies and estimates our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements , which have been prepared in accordance with generally accepted accounting principles in the u.s. the preparation of these financial statements requires us to make estimates and judgments that affect the reported amount of assets , liabilities , revenue and expenses , and related disclosure of contingent assets and liabilities . we evaluate our estimates on an on-going basis , including those related to revenue recognition , stock-based compensation , inventories , income taxes , valuation of goodwill and intangible assets , and contingencies . we base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances , the results of which form the basis for making the judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . estimates and judgments used in the preparation of our financial statements are , by their nature , uncertain and unpredictable , and depend upon , among other things , many factors outside of our control , such as demand for our products and economic conditions . accordingly , our estimates and judgments may prove to be incorrect and actual results may differ , perhaps significantly , from these estimates . 33 we believe the following critical accounting policies reflect our more significant judgments used in the preparation of our consolidated financial statements . revenue recognition we recognize revenue when the following four basic criteria 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 . determination of criteria ( 3 ) and ( 4 ) are based on management 's judgment regarding the fixed nature of the fees charged for products delivered and the collectability of those fees . the application of these criteria has resulted in us generally recognizing revenue upon shipment ( when title and risk of loss have transferred to customers ) , including to most of the distributors , original equipment manufacturers and electronic manufacturing service providers . story_separator_special_tag if we determine that payment of these amounts is unnecessary or if the recorded tax liability is less than our current assessment , we may be required to recognize an income tax benefit or additional income tax expense in our financial statements in the period such determination is made . we have calculated our uncertain tax positions which were attributable to certain estimates and judgments primarily related to transfer pricing , cost sharing and our international tax structure exposure . as of december 31 , 2016 and 2015 , we had a valuation allowance of $ 27.4 million and $ 18.6 million , respectively , attributable to management 's determination that it is more likely than not that most of the deferred tax assets in the u.s. will not be realized . should it be determined that additional amounts of the net deferred tax asset will not be realized in the future , an adjustment to increase the deferred tax asset valuation allowance will be charged to income in the period such determination is made . likewise , in the event we determine that it is more likely than not that we would be able to realize our deferred tax assets in the future in excess of our net recorded amount , an adjustment to the valuation allowance for the deferred tax asset would increase income in the period such determination was made . as a result of the cost sharing arrangements with our international subsidiaries ( cost share arrangements ) , relatively small changes in costs that are not subject to sharing under the cost share arrangements can significantly impact the overall profitability of the u.s. entity . because of the u.s. entity 's inconsistent earnings history and uncertainty of future earnings , we have determined that it is more likely than not that the u.s. deferred tax benefits will not be realized . contingencies we are a party to actions and proceedings in the ordinary course of business , including potential litigation regarding our shareholders and our intellectual property , challenges to the enforceability or validity of our intellectual property , claims that our products infringe on the intellectual property rights of others , and employment matters . the pending proceedings involve complex questions of fact and law and will require the expenditure of significant funds and the diversion of other resources to prosecute and defend . in addition , from time to time , we become aware that we are subject to other contingent liabilities . when this occurs , we will evaluate the appropriate accounting for the potential contingent liabilities to determine whether a contingent liability should be recorded . in making this determination , management may , depending on the nature of the matter , consult with internal and external legal counsel and technical experts . based on the facts and circumstances in each matter , we use our judgment to determine whether it is probable that a contingent loss has occurred and whether the amount of such loss can be estimated . if we determine a loss is probable and estimable , we record a contingent loss . in determining the amount of a contingent loss , we take into account advice received from experts for each specific matter regarding the status of legal proceedings , settlement negotiations , prior case history and other factors . should the judgments and estimates made by management need to be adjusted as additional information becomes available , we may need to record additional contingent losses that could materially and adversely impact our results of operations . alternatively , if the judgments and estimates made by management are adjusted , for example , if a particular contingent loss does not occur , the contingent loss recorded would be reversed which could result in a favorable impact on our results of operations . stock-based compensation we measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award . the fair value of restricted stock units with service conditions or performance conditions is based on the grant date share price . the fair value of restricted stock units with market conditions , as well as restricted stock units with both market conditions and performance conditions , is estimated using a monte carlo simulation model . the fair value of options , shares issued under the employee stock purchase plan and restricted stock units with a purchase price feature is estimated using the black-scholes model . 35 we recognize compensation expense equal to the grant-date fair value for all share-based payment awards that are expected to vest . this expense is recorded on a straight-line basis over the requisite service period of the entire awards , unless the awards are subject to market conditions or performance conditions , in which case we recognize compensation expense over the requisite service period of each separate vesting tranche . for awards with only market conditions , compensation expense is not reversed if the market conditions are not satisfied . for awards with performance conditions , as well as awards with both market conditions and performance conditions , we recognize compensation expense when it becomes probable that the performance criteria set by the board of directors will be achieved . this assessment is performed on a quarterly basis and requires significant assumptions and estimates made by management related to the projected achievement of the performance goals , which can be affected by external factors , such as macroeconomic conditions and the analog industry forecasts , and internal factors , such as our business and operations strategy , product roadmaps and revenue forecasts . changes in the probability assessment of achievement of the performance conditions are accounted for in the period of change by recording a cumulative catch-up adjustment as if the new estimate had been applied since the service inception date .
| results of operations the following table summarizes our results of operations : replace_table_token_6_th 36 revenue the following table summarizes our revenue by market segments : replace_table_token_7_th revenue for the year ended december 31 , 2016 was $ 388.7 million , an increase of $ 55.6 million , or 16.7 % , from $ 333.1 million for the year ended december 31 , 2015. this increase was driven by higher sales in the computing and storage , industrial and consumer segments , as overall unit shipments increased 19 % due to higher market demand with current customers and design wins with new customers , partially offset by a 2 % decrease in average sales prices . revenue from the consumer segment for the year ended december 31 , 2016 increased $ 8.6 million , or 6.0 % , from the same period in 2015. this increase was primarily driven by higher demand in battery management systems , home appliances and other high value consumer products . revenue from the industrial segment for the year ended december 31 , 2016 increased $ 23.3 million , or 35.1 % , from the same period in 2015. this increase was primarily driven by higher sales in automotive applications , security products , smart meters and power sources . revenue from the computing and storage segment for the year ended december 31 , 2016 increased $ 24.0 million , or 42.4 % , from the same period in 2015. this increase was primarily driven by strength in the high-performance notebook , server and solid-state drive storage markets .
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our actual results may differ materially from those described in or implied by any forward-looking statements . factors that could cause or contribute to these differences include those discussed below and elsewhere in this annual report on form 10-k , particularly in the section titled “ risk factors ” . overview of our business zillow group , inc. operates the largest portfolio of real estate and home-related brands on mobile and the web which focus on all stages of the home lifecycle : renting , buying , selling and financing . zillow group is committed to empowering consumers with unparalleled data , inspiration and knowledge around homes and connecting them with great real estate professionals . the zillow group portfolio of consumer brands includes zillow , trulia , mortgage lenders of america , streeteasy , hotpads , naked apartments , realestate.com and out east . beginning in april 2018 , the zillow offers service provides homeowners in select metropolitan areas with the opportunity to receive offers to purchase their homes from zillow . when zillow buys a home , it makes certain repairs and lists the home for resale on the open market . in addition , zillow group provides a comprehensive suite of marketing software and technology solutions to help real estate professionals maximize business opportunities and connect with millions of consumers . zillow group also operates a number of business brands for real estate , rental and mortgage professionals , including mortech , dotloop , bridge interactive and new home feed . reportable segments and revenue overview as of the second quarter of 2018 , zillow group has two reportable segments : the internet , media & technology ( “ imt ” ) segment , our historical operating and reportable segment , and the homes segment . in connection with our imt segment , we generate revenue from the sale of advertising services and our suite of marketing software and technology solutions to businesses and professionals primarily associated with the residential real estate , rental and mortgage industries . these professionals include real estate , rental and mortgage professionals and brand advertisers . our four primary revenue categories within our imt segment are premier agent , rentals , mortgages and other . premier agent revenue is generated by the sale of advertising services , as well as marketing and technology products and services , to help real estate agents and brokers grow and manage their businesses . we offer these products and services through our premier agent and premier broker programs . premier agent and premier broker advertising products are primarily sold on a cost per impression basis . impressions are delivered when a sold advertisement of a premier agent or premier broker appears on pages viewed by users of our mobile applications and websites . rentals revenue primarily includes advertising sold to property managers and other rental professionals on a cost per lead , cost per click or cost per lease generated basis . beginning in 2018 , rentals revenue also includes revenue generated through our rental applications product , whereby potential renters can submit applications to multiple properties over a 30-day period for a flat service fee . mortgages revenue primarily includes advertising sold to mortgage lenders and other mortgage professionals on a cost per lead basis , including our connect ( formerly known as long form ) and custom quote services , as well as revenue generated by mortech , which provides subscription-based mortgage software solutions , including a product and pricing engine and lead management platform . beginning in october 2018 , following our acquisition of mortgage lenders of america , l.l.c . ( “ mloa ” ) , mortgages revenue also includes revenue generated through mortgage originations and the sale of mortgages on the secondary market . on october 31 , 2018 , we completed the acquisition of mloa , a licensed mortgage lender . this acquisition is consistent with our strategy of providing services closer to real estate transactions to create better consumer experiences . the total purchase price for the acquisition of mloa is approximately $ 66.7 million in cash . for additional information about the acquisition of mloa , see note 9 to our consolidated financial statements . other revenue primarily includes revenue generated by new construction and display advertising , as well as revenue from the sale of various other advertising and business technology solutions for real estate professionals , including dotloop . new construction revenue primarily includes advertising services sold to home builders on a cost per residential community basis . display revenue primarily consists of graphical mobile and web advertising sold to advertisers promoting their brands on our mobile applications and websites . 40 in our homes segment , we generate revenue from the resale of homes on the open market through our zillow offers service . we began buying homes through the zillow offers service in april 2018 , and we began selling homes in july 2018 beginning with the quarterly report on form 10-q for the quarterly period ending march 31 , 2019 , zillow group expects to report financial results for three reportable segments : the imt segment , the homes segment and the mortgages segment . the imt segment will include the financial results for the premier agent , rentals and new construction marketplaces , as well as dotloop , display and other advertising and business software solutions . the homes segment will include the financial results from zillow group 's buying and selling of homes directly through the zillow offers service . the mortgages segment will include the financial results for advertising sold to mortgage lenders and other mortgage professionals , mortgage originations through mloa and mortech mortgage software solutions . story_separator_special_tag in october , we announced the “ best of zillow ” program , a data-driven program based on consumer feedback that will highlight real estate agent advertisers who provide exceptional customer service and reward them with additional marketing benefits such as designations as “ best of zillow ” or “ best of trulia ” . for the years ended december 31 , 2018 , 2017 , and 2016 , we generated revenue of $ 1,333.6 million , $ 1,076.8 million and $ 846.6 million , respectively , representing year-over-year growth of 24 % , 27 % and 31 % , respectively . the increases in total revenue were primarily driven by growth in our premier agent program , which generated revenue of $ 898.3 million , $ 761.6 million , and $ 604.3 million , respectively , for the years ended december 31 , 2018 , 2017 and 2016 . we believe we were able to achieve these levels of revenue growth because of user traffic to and engagement with our mobile applications and websites , which create monetization opportunities for us through the sale of advertising and other products and services . the average number of monthly unique users for the three months ended december 31 , 2018 , 2017 and 2016 were 157.2 million , 151.6 million and 140.1 million , respectively , representing year-over-year growth of 4 % , 8 % and 13 % , respectively . visits for the years ended december 31 , 2018 , 2017 and 2016 were 7,182.1 million , 6,314.4 million and 5,323.2 million , respectively , representing year-over-year growth of 14 % , 19 % and 33 % , respectively . this increase in visits increased the number of impressions we could monetize in our premier agent marketplace . premier agent revenue per visit for the years ended december 31 , 2018 , 2017 and 2016 was $ 0.125 , $ 0.121 and $ 0.114 , respectively , representing year-over-year growth of 4 % , 6 % and 1 % , respectively . we believe premier agent revenue was also positively impacted by market forces continuing to take effect within the auction-based pricing method we deployed for our premier agent and premier broker products in 2016 and 2017 , which may have increased demand for our advertising platform . total revenue also increased due to the launch of our zillow offers business in april 2018 , which generated revenue of $ 52.4 million for the year ended december 31 , 2018 due to the sale of 177 homes at an average selling price of $ 295.8 thousand per home . employees as of december 31 , 2018 , we had 4,336 full-time employees compared to 3,181 full-time employees as of december 31 , 2017 . key metrics management has identified unique users and visits as relevant to investors ' and others ' assessment of our financial condition and results of operations . unique users measuring unique users is important to us because much of our premier agent , rentals , mortgages and other advertising revenue depends in part on our ability to enable real estate , rental and mortgage professionals to connect with our consumer users - home buyers and sellers , renters , and individuals with or looking for a mortgage . our display revenue depends in part on the number of impressions delivered to our users , and our homes revenue depends in part on users accessing our mobile applications and websites to engage in the sale and purchase of homes with zillow group . growth in consumer traffic to our mobile applications and websites increases the number of impressions , clicks , leads and other events we can monetize to 42 generate revenue . in addition , our community of users improves the quality of our living database of homes with their contributions , which in turn attracts more users . we count a unique user the first time an individual accesses one of our mobile applications using a mobile device during a calendar month and the first time an individual accesses one of our websites using a web browser during a calendar month . if an individual accesses our mobile applications using different mobile devices within a given month , the first instance of access by each such mobile device is counted as a separate unique user . if an individual accesses more than one of our mobile applications within a given month , the first access to each mobile application is counted as a separate unique user . if an individual accesses our websites using different web browsers within a given month , the first access by each such web browser is counted as a separate unique user . if an individual accesses more than one of our websites in a single month , the first access to each website is counted as a separate unique user since unique users are tracked separately for each domain . zillow , streeteasy , hotpads , naked apartments ( as of march 2016 ) and realestate.com ( as of june 2017 ) measure unique users with google analytics , and trulia measures unique users with adobe analytics ( formerly called omniture analytical tools ) . replace_table_token_3_th visits the number of visits is an important metric because it is an indicator of consumers ' level of engagement with our mobile applications , websites and other services . we believe highly engaged consumers are more likely to be transaction-ready real estate market participants and therefore more sought-after by our real estate professional advertisers or more likely to participate in our zillow offers program . we define a visit as a group of interactions by users with the zillow , trulia , streeteasy ( as of march 2017 ) and realestate.com ( as of june 2017 ) mobile applications and websites , as we monetize our premier agent and premier broker products on these mobile applications and websites .
| segment results of operations the following table presents zillow group 's segment results for the periods presented ( in thousands ) : replace_table_token_11_th imt segment cost of revenue cost of revenue was $ 85.2 million for the year ended december 31 , 2017 compared to $ 69.3 million for the year ended december 31 , 2016 , an increase of $ 15.9 million , or 23 % . the increase in cost of revenue was primarily attributable to a $ 7.9 million increase in revenue share costs , a $ 4.8 million increase in data center and connectivity costs , a $ 1.0 million increase in headcount-related expenses , including share-based compensation expense , a $ 0.8 million increase in credit card and ad serving fees and a $ 1.4 million increase in various miscellaneous expenses . sales and marketing sales and marketing expenses were $ 448.2 million for the year ended december 31 , 2017 compared to $ 382.4 million for the year ended december 31 , 2016 , an increase of $ 65.8 million , or 17 % . the increase in sales and marketing expenses was primarily attributable to increased marketing and advertising expenses of $ 34.2 million , primarily related to advertising spend to attract consumers across online and offline channels , which supports our growth initiatives . in addition to the increases in marketing and advertising , headcount-related expenses increased $ 20.5 million , including share-based compensation expense , due primarily to significant growth in the size of our sales team . the increase in sales and marketing expenses was also attributable to a $ 6.0 million increase in tradeshows and conferences expense and related travel costs , a $ 2.5 million increase in consulting costs to support our advertising initiatives , a $ 1.1 million increase in software , hardware and connectivity costs , and a $ 1.5 million increase in various miscellaneous expenses .
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factors that could cause or contribute to such differences include , but are not limited to , those identified below and those discussed in item 1a “ risk factors ” of this annual report on form 10-k. overview we are a leading united states packaged food company focused on developing , manufacturing , marketing , selling and distributing fresh sweet baked goods coast-to-coast , providing a wide range of snack cakes , donuts , sweet rolls , breakfast pastries , snack pies and related products . as of december 31 , 2018 , we operate six baking facilities and five primary distribution centers . our dtw product distribution system allows us to deliver to our customers ' warehouses . our customers in turn distribute to their retail stores and or distributors . we have two reportable segments : “ sweet baked goods ” and “ in-store bakery ” . sweet baked goods consists of fresh and frozen sweet baked goods and bread products sold under the hostess® , dolly madison® , cloverhill® , and big texas® brands along with store branded products . in-store bakery consists primarily of superior on main® branded eclairs , madeleines , brownies , and iced cookies sold in the bakery section of grocery and club stores . hostess® is the second leading brand by market share within the sbg category , according to nielsen u.s. total universe . for the 52 week period ended december 29 , 2018 our branded sbg products ( which include hostess® , dolly madison® , cloverhill® , and big texas® ) market share was 18.0 % per nielsen 's u.s. sbg category data . principal components of operating results net revenue we generate revenue primarily through selling sweet baked goods and other products under the hostess® group of brands , which includes iconic products such as twinkies® , cupcakes , ding dongs® , zingers® , hohos® and donettes® . we also sell products under the dolly madison® , superior on main® , cloverhill ® and big texas® brands along with store branded products . our product assortment is sold to customers ' warehouses and distribution centers by the case or in display ready corrugate units . retailers display and sell our products to the end consumer in single-serve , multi-pack or club-pack formats . we sell our products primarily to supermarket chains , national mass merchandisers and convenience and drug stores , along with a smaller portion of our product sales going to dollar stores , vending , club , and other retail outlets . our revenues are driven by average net price and total volume of products sold . factors that impact unit pricing and sales volume include product mix , the cost of ingredients , the promotional activities implemented by the company and its competitors , industry capacity , new product initiatives and quality and consumer preferences . we do not keep a significant backlog of finished goods inventory , as our fresh baked products are promptly shipped to our distribution centers after being produced and then distributed to customers . cost of goods sold cost of goods sold consists of ingredients , packaging , labor , energy , other production costs , warehousing and transportation costs including in-bound freight , inter-plant transportation and distribution of our products to customers . the cost of ingredients and packaging represent the majority of our total costs of goods sold . all costs that are incurred at the bakeries , including the depreciation of bakery facilities and equipment , are included in cost of goods sold . we do not allocate any corporate functions into cost of goods sold . 31 our cost of ingredients consists principally of flour , sweeteners , edible oils and cocoa , which are subject to substantial price fluctuations , as is the cost of paper , corrugate , films and plastics used to package our products . the prices for raw materials are influenced by a number of factors , including the weather , crop production , transportation and processing costs , government regulation and policies and worldwide market supply and demand . we also rely on fuel products , such as natural gas , diesel , propane and electricity , to operate our bakeries and produce our products . fluctuations in the prices of the raw materials or fuel products used in the production , packaging or transportation of our products affect the cost of products sold and our product pricing strategy . we utilize forward buying strategies through short-term and long-term advance purchase contracts to lock in prices for certain high-volume raw materials , packaged components and certain fuel inputs . through these initiatives , we believe we are able to obtain competitive pricing . advertising and marketing our advertising and marketing expenses relate to our advertising campaigns , which include social media , print , online advertising , local promotional events and monthly agency fees . we also invest in wire and corrugate displays delivered to customers to display our products off shelf , field marketing and merchandising to reset and check the store inventory on a regular basis in addition to marketing employment costs . selling expense selling expenses primarily include sales management , employment , travel , and related expenses , as well as broker fees . we utilize brokers for sales support , including managing promotional activities and order processing . general and administrative general and administrative expenses primarily include employee and related expenses for the accounting , planning , customer service , legal , human resources , corporate operations , research and development , purchasing , logistics and executive functions . also included are professional service fees related to audit and tax , legal , outsourced information technology functions , transportation planning , and corporate site and insurance costs , as well as the depreciation and amortization of corporate assets . story_separator_special_tag additionally , in connection with the refinancing , we recorded a net gain on a partial extinguishment of debt in the amount of $ 0.8 million . the gain consisted of the write-off of approximately $ 4.0 million of debt premium and deferred financing costs , partially offset by prepayment penalties of $ 3.0 million and the write-off of deferred financing costs of $ 0.2 million . professional and transactional costs for acquisition activity , which has since been abandoned , partially offset by a gain from the settlement in connection with a product recall matter with one of our suppliers of approximately $ 0.8 million . income tax expense ( benefit ) for the 2016 predecessor period , the company was a series of limited liability companies and , therefore , had no tax income expense or benefit , except insignificant amounts for superior , a c corporation . for the 2016 successor period , the income tax benefit was $ 7.8 million . this represented an effective tax rate of 47.8 % which exceeds the statutory rates primarily due to the reversal of a previously recorded valuation allowance . segments the company has two reportable segments : sweet baked goods and in-store bakery . the company 's sweet baked goods segment consists of fresh and frozen baked goods and bread products that are sold under the hostess® , dolly madison® , cloverhill® and big texas® brands . the in-store bakery segment consists of superior on main® branded and store-branded products sold through the in-store bakery section of grocery and club stores . we evaluate performance and allocate resources based on net revenue and gross profit . information regarding the operations of these reportable segments is as follows : replace_table_token_6_th ( 1 ) for all periods presented , capital expenditures consists of purchases of property and equipment and acquisition and development of software assets paid in cash or acquired through accounts payable . sweet baked goods net revenue for the year ended december 31 , 2018 increased $ 74.5 million , or 10.2 % , from the year ended december 31 , 2017. the operations of the recently acquired cloverhill business contributed $ 74.2 million of net revenue . excluding the cloverhill business , the segment 's net revenue grew from the prior period due to higher sales in our small format , grocery and dollar channels partially offset by lower revenue in our mass retail channel . 37 sweet baked goods gross profit for the year ended december 31 , 2018 was 32.0 % of net revenue , compared to 43.2 % of net revenue for the year ended december 31 , 2017. the decline was primarily attributed to the addition of the cloverhill business revenue at negative margins during the transformation of the business as well as higher transportation costs and other inflationary pressures . in-store bakery net revenue for the year ended december 31 , 2018 decreased 0.8 % from the year ended ended december 31 , 2017 due to a shift in product mix resulting from the discontinuance of certain hostess® branded products previously sold in the in-store bakery channel . in-store bakery gross profit for the year ended december 31 , 2018 was 19.7 % of net revenue compared to 23.6 % for the year ended december 31 , 2017. the decrease in gross profit was attributed to lower sales volume and higher overhead absorption . gross profit was further affected by higher transportation and other inflationary costs . sweet baked goods net revenue was $ 595.6 million for the 2016 predecessor period and $ 105.2 million for the 2016 successor period , while in-store bakery had net revenue of $ 19.9 million and $ 6.8 million for the 2016 predecessor and 2016 successor periods respectively . sweet baked goods gross profit for the 2016 predecessor period was $ 260.9 million compared to $ 37.4 million for the 2016 successor period . liquidity and capital resources our primary sources of liquidity are from the cash and cash equivalents on the balance sheet , future cash flow generated from operations , and availability under our revolving credit agreement ( “ revolver ” ) . we believe that cash flows from operations and the current cash and cash equivalents on the balance sheet will be sufficient to satisfy the anticipated cash requirements associated with our existing operations for at least the next 12 months . our ability to generate sufficient cash from our operating activities depends on our future performance , which is subject to general economic , political , financial , competitive and other factors beyond our control . in addition , our future capital expenditures and other cash requirements could be higher than we currently expect as a result of various factors , including any expansion of our business that we undertake , including acquisitions . we consider all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents . we had working capital , excluding cash , as of december 31 , 2018 and 2017 of $ 12.0 million and $ 15.5 million , respectively . we have the ability to borrow under our revolver to meet obligations as they come due . as of december 31 , 2018 , we had approximatel y $ 96.1 million available for borrowing , net of letters of credit , under our revolver . cash flows from operating activities cash flows provided by operating activities for the year ended december 31 , 2018 were $ 143.7 million compared to cash flows for the year ended december 31 , 2017 of $ 163.7 million , $ 13.6 million for the successor period from november 4 , 2016 through december 31 , 2016 and $ 102.2 million for the 2016 predecessor period . the decrease in operating cash flows from 2017 to 2018 were driven by a decrease in operating income from 2017 , countered by the timing of vendor payments as well as lower tax payments .
| factors impacting recent results acquisitions on february 1 , 2018 , we acquired certain u.s. breakfast assets from aryzta , llc ( aryzta ) , which included a bakery , inventory , and the big texas® and cloverhill® brand names ( collectively referred to as the “ cloverhill business ” ) . we acquired these assets to expand our product portfolio and to gain previously outsourced manufacturing capabilities for our existing product portfolio . our consolidated statement of operations includes the operation of these assets from february 1 , 2018 through december 31 , 2018. we evaluated the impact of the acquisition of the cloverhill business on our financial statements and concluded that the impact was not significant and did not require the inclusion of pro forma financial results assuming the acquisition had occurred on january 1 , 2016 . 32 tax receivable agreement buyout on january 26 , 2018 , we entered into a transaction to terminate all future payments under the tax receivable agreement payable to the apollo funds in exchange for a cash payment of $ 34.0 million , which was recognized as a financing outflow on the consolidated statement of cash flow . this transaction did not affect the portion of the rights under the tax receivable agreement payable to the metropoulos entities . we recognized a $ 12.4 million gain in the non-operating section of our consolidated statement of operations , which represented the difference between the $ 46.4 million carrying value of the portion of the tax receivable agreement liability which was terminated and the $ 34.0 million of cash payments . tax reform during the year ended december 31 , 2017 , the tax cuts and jobs act ( “ tax reform ” ) was signed into law . tax reform significantly changed u.s. tax law by lowering the corporate income tax rate permanently from a maximum of 35 % to a flat 21 % rate , effective january 1 , 2018. this impacted the valuation of our tax items and the tax receivable agreement .
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when our equity securities are called for redemption , additional income is allocated to the security to the extent the redemption cost is greater than the related original net issuance proceeds . these allocations are referred to hereinafter as “ eitf d-42 allocations . ” the remaining net income is allocated to each of our equity securities based upon the dividends declared or accumulated during the period , combined with participation rights in undistributed earnings . basic net income per share , basic net income from discontinued operations per share , and basic net income from continuing operations per share are computed using the weighted average common shares outstanding . diluted net income per share , diluted net income story_separator_special_tag the following discussion and analysis should be read in conjunction with our financial statements and notes thereto . critical accounting policies management 's discussion and analysis of financial condition and results of operations ( “ md & a ” ) discusses our financial statements , which have been prepared in accordance with united states ( “ u.s. ” ) generally accepted accounting principles ( “ gaap ” ) . the amounts reported in our financial statements , notes to financial statements and md & a are affected by judgments , assumptions and estimates that we make . the notes to our december 31 , 2012 financial statements , primarily note 2 , summarize our significant accounting policies . we believe the following are our critical accounting policies , because they have a material impact on the portrayal of our financial condition and results , and they require us to make judgments and estimates about matters that are inherently uncertain . income tax expense : we have elected to be treated as a real estate investment trust ( “ reit ” ) , as defined in the internal revenue code . as a reit , we do not incur federal income tax on our reit taxable income ( generally , net rents and gains from real property , dividends , and interest ) that is fully distributed each year ( for this purpose , certain distributions paid in a subsequent year may be considered ) , and if we meet certain organizational and operational rules . we believe we have met these reit requirements for all periods presented herein . accordingly , we have recorded no federal income tax expense related to our reit taxable income . our evaluation that we have met the reit requirements could be incorrect , because compliance with the tax rules requires factual determinations , and circumstances we have not identified could result in noncompliance with the tax requirements in current or prior years . for any taxable year that we fail to qualify as a reit and for which applicable statutory relief provisions did not apply , we would be taxed at the regular corporate rates on all of our taxable income for at least that year and the ensuing four years , we could be subject to penalties and interest , and our net income would be materially different from the amounts estimated in our financial statements . in addition , our taxable reit subsidiaries are taxable as regular corporations . to the extent that amounts paid to us by our taxable reit subsidiaries are determined by the taxing authorities to be in excess of amounts that would be paid under similar arrangements among unrelated parties , we could be subject to a 100 % penalty tax on the excess payments . such a penalty tax could have a material adverse impact on our net income . impairment of long-lived assets : the analysis of impairment of our long-lived assets involves identification of indicators of impairment , projections of future operating cash flows , and determination of fair values , all of which require significant judgment and subjectivity . others could come to materially different conclusions , and we may not have identified all current facts and circumstances that may affect impairment . any unidentified impairment loss , or change in conclusions , could have a material adverse impact on our net income . accruals for operating expenses : certain of our expenses are estimated based upon assumptions regarding past and future trends , such as losses for workers compensation , employee health plans , and estimated claims for our tenant reinsurance program . in certain jurisdictions we do not receive property tax bills for the current fiscal year until after our earnings are finalized , and as a result , we must estimate property tax expense based upon anticipated implementation of regulations and trends . if our related estimates and assumptions are incorrect , our expenses could be misstated . accruals for contingencies : we are subject to business and legal liability risks due to events that have occurred , which could result in future payments . we have not accrued certain of these payments , either because they are not probable or not estimable , or because we are not aware of them . we may have to accrue additional amounts for these payments due to the results of further investigation , the litigation process , or otherwise . such accruals could have a material adverse impact on our net income . 25 recording the fair value of acquired real estate facilities : in recording the acquisition of real estate facilities , we estimate the fair value of the land , buildings and intangible assets acquired . such estimates are based upon many assumptions and judgments , including expected rates of return , land and building replacement costs , as well as future cash flows from the property and the existing tenant base . others could come to materially different conclusions as to the estimated fair values , which would result in different depreciation and amortization expense , gains and losses on sale of real estate assets , and real estate and intangible assets . story_separator_special_tag d ) realized annual rent per occupied square foot is computed by dividing annualized rental income , before late charges and administrative fees , by the weighted average occupied square feet for the period . e ) these measures exclude late charges and administrative fees in order to provide a better measure of our ongoing level of revenue . late charges are dependent upon the level of delinquency and administrative fees are dependent upon the level of move-ins . in addition , the rates charged for late charges and administrative fees can vary independently from rental rates . these measures take into consideration promotional discounts , which reduce rental income . 30 f ) realized annual rent per available square foot ( “ revpaf ” ) is computed by dividing annualized rental income , before late charges and administrative fees , by the total available net rentable square feet for the period . g ) in place annual rent per occupied square foot represents annualized contractual rents per occupied square foot before any reductions for promotional discounts , and excludes late charges and administrative fees . analysis of revenue revenues generated by our same store facilities increased by 4.9 % in 2012 as compared to 2011 due primarily to increased average rental rates charged to our tenants . this increase was due primarily to annual rent increases for tenants that have been renting longer than one year combined with a reduction in promotional discounts given to new tenants from $ 96.5 million in 2011 to $ 87.8 million in 2012. revenues generated by our same store facilities increased by 4.6 % in 2011 as compared to 2010. the increase was due primarily to a 1.6 % increase in weighted average square foot occupancy and a 2.7 % increase in realized rent per occupied square foot , as well as an 11.2 % increase in late charges and administrative fees due primarily to increases in the fee levels charged for late payments . the increase in realized annual rent per occupied square foot includes the impact of more aggressive increases in rents charged to existing tenants in the last two quarters of 2011. our future rental growth will be dependent upon many factors including the level of new supply of self-storage space in the markets in which we operate , demand for self-storage space , our ability to increase rental rates , the level of promotional activities , and our ability to maintain or improve our occupancy levels . we seek to maintain an average occupancy level of at least 90 % throughout the year , which we believe maximizes the realized rent per available foot . we maintain occupancy by regularly adjusting rental rates and promotions offered , in order to generate sufficient move-ins to replace tenants that vacate . demand fluctuates due to various local and regional factors , including the overall economy . demand is higher in the summer months than in the winter months and , as a result , rental rates charged to new tenants are typically higher in the summer months than in the winter months . our same store average occupancy levels increased 0.7 % in 2012 as compared to 2011 , due primarily to a 1.8 % increase in average occupancy in the fourth quarter of 2012 as compared to the same period in 2011. this increase was driven by ( i ) increased move-in volumes , primarily due to more aggressive pricing in the seasonally slow fourth quarter of 2012 combined with ( ii ) reduced levels of tenants moving out , as compared to the same period in 2011. we expect to continue to implement aggressive pricing strategies during the first quarter of 2013 to increase occupancy levels as compared to the same period in 2012. however , we expect occupancy levels in the second , third and fourth quarters of 2013 to be flat as compared to the same periods in 2012 due to more difficult year-over-year comparisons . increasing rental rates to tenants having a tenancy longer than one year is a key part of our rental growth . at each of december 31 , 2012 , 2011 and 2010 , approximately 55 % of our tenants had a tenancy of a year or longer . for these tenants , in place rent per occupied square foot at december 31 , 2012 increased 4.1 % as compared to december 31 , 2011 and 4.3 % at december 30 , 2011 as compared to december 31 , 2010. these increases were due to rate increases passed to these tenants . we expect to pass similar rate increases to long-term tenants in 2013 as we did in 2012. based upon current trends , we expect positive year-over-year growth in rental income to continue throughout 2013 , due to improved occupancy and realized rents during the first quarter of the year and primarily from increases in realized rents during the remainder of 2013 . 31 analysis of cost of operations cost of operations ( excluding depreciation and amortization ) decreased 1.7 % in 2012 as compared to 2011. the decrease was due primarily to reductions in on-site property manager payroll , repairs and maintenance , and media advertising , offset partially by a 3.0 % increase in property tax expense . cost of operations ( excluding depreciation and amortization ) increased by 0.5 % in 2011 as compared to 2010. the increase was due to higher property taxes , supervisory payroll , and utilities , partially offset by reduced media advertising . property tax expense increased 3.0 % in 2012 as compared to 2011 , due primarily to higher assessed values . property tax expense increased 1.9 % in 2011 as compared to 2010 , due primarily to higher tax rates . we expect property tax expense growth of approximately 4.0 % in 2013 , due primarily to higher assessed values .
| results of operations operating results for 2012 as compared to 2011 : for the year ended december 31 , 2012 , net income allocable to our common shareholders was $ 669.7 million or $ 3.90 per diluted common share , compared to $ 561.7 million or $ 3.29 per diluted common share for the same period in 2011 , representing an increase of $ 108.0 million or $ 0.61 per diluted common share . this increase is due to ( i ) improved property operations , ( ii ) a $ 19.6 million reduction in distributions to preferred shareholders due primarily to lower average coupon rates , and ( iii ) a $ 16.2 million increase resulting from foreign currency exchange gains and losses in translating our euro-denominated loan receivable from shurgard europe into u.s. dollars , offset partially by ( iv ) a $ 36.3 million decrease due to the application of eitf d-42 to our , and our equity share of psb 's , redemptions of preferred securities . operating results for 2011 as compared to 2010 : for the year ended december 31 , 2011 , net income allocable to our common shareholders was $ 561.7 million or $ 3.29 per diluted common share , compared to $ 399.2 million or $ 2.35 per diluted common share for the same period in 2010 , representing an increase of $ 162.5 million or $ 0.94 per diluted common share .
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