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page | 47 index potential payments upon a termination or change in control under the terms of their respective employment agreements , mr. leuthner , dr. faleck , mr. saik and mr. middlekauff , our named executive officers as of december 31 , 2018 , are entitled to certain payments and benefits in connection with the termination of their employment with us under specified circumstances . as disclosed above , dr. macdonald received certain payments and benefits in connection with the termination of his employment on may 15 , 2018. generally , the employment agreements story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes appearing elsewhere in this annual report . in addition to historical information , this discussion and analysis contains forward-looking statements that involve risks , uncertainties and assumptions . our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors . we discuss factors that we believe could cause or contribute to these differences below and elsewhere in this annual report , including those set forth under item 1a . “ risk factors ” and under “ forward-looking statements ” in this annual report . the company is a clinical-stage biotechnology company that seeks to discover , develop and commercialize novel therapies capable of transforming treatment paradigms in the management of medical conditions . on march 28 , 2018 , the company announced that a pre-specified interim analysis performed on data from the day 90 visit of the first 210 subjects randomized and treated in the phase 3 multi-center , randomized , double-blind , placebo-controlled newton 2 study of eg-1962 in adults with aneurysmal subarachnoid hemorrhage demonstrated a low probability of achieving a statistically significant difference compared to the standard of care in the study 's primary endpoint , if the study were to be fully enrolled . the independent data monitoring committee ( “ dmc ” ) for the newton 2 study recommended that the study be stopped based on this demonstration . the dmc also reported that there were no safety concerns attributed to eg-1962 . based on the dmc recommendation , the company decided to discontinue the newton 2 study and took steps to notify health authorities and clinical investigators participating in the study . on april 30 , 2018 , the company announced that it was exploring strategic alternatives that might have included , without limitation , an acquisition of another company , acquisitions or in-licensing of products or product candidates , technologies or other assets , the sale of all or substantially all of the assets of the company , a sale of stock , a strategic merger or other business combination transaction or other transaction between the company and a third party . the company retained piper jaffray & co. to serve as the financial advisor to its board of directors in certain aspects of the process . the company has reduced the scope of its operations , including the size of its workforce , in order to preserve its cash resources . after a comprehensive review of strategic alternatives , on november 23 , 2018 , the company , merger sub and pds entered into the merger agreement , pursuant to which , among other things , subject to the satisfaction or waiver of the conditions set forth in the merger agreement , merger sub will merge with and into pds , with pds surviving the merger as the wholly-owned subsidiary of the combined company . pds is a private company with a growing pipeline of clinical-stage immunotherapies that are expected to treat various early-stage cancers , including head and neck cancer , cervical cancer , anal cancer , prostate cancer , breast cancer and other cancers . following the merger , the combined company expects to focus on developing pds 's growing pipeline of next-generation cancer immunotherapies based on the proprietary , multi-functional versamune ® technology platform , the development of pds0101 for the treatment of multiple human papilloma virus ( hpv ) -induced cancers , including cervical , anal and head and neck cancers , and multiple preclinical programs developing versamune ® -based cancer immunotherapies in combination with checkpoint inhibitors for various late-stage cancers . the company has never been profitable and has incurred net losses in each year since inception . the company 's net losses were $ 40.9 million , and $ 50.9 million for the years ended december 31 , 2018 and 2017 respectively . as of december 31 , 2018 , the company had an accumulated deficit of $ 192.8 million . from the company 's inception , it has devoted substantially all of its efforts to business planning , engaging regulatory , manufacturing and other technical consultants , acquiring operating assets , planning and executing clinical trials and raising capital . the company 's future operations are highly dependent on the success of its transaction with pds . the company has ceased research and development on eg-1962 , including the completion of the newton 2 study , and all of its other product candidates . furthermore , the company expects to incur additional costs associated with operating as a public company . accordingly , at least until the company can generate significant revenue from product sales , the company will seek to fund its operations through public or private equity or debt financings or other sources . however , the company may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all . as of december 31 , 2018 , the company had $ 34.6 million in cash and cash equivalents . financial operations overview revenue we have not generated any revenues from commercial product sales and do not expect to generate any such revenue in the near future . we may generate revenue in the future from a combination of research and development payments , license fees and other upfront payments or milestone payments . story_separator_special_tag as a result , the most significant impact on its consolidated financial statements was the reduction of approximately $ 13.6 million for the deferred tax assets related to net operating losses and other assets . such reduction was offset by changes to the company 's valuation allowance as of december 31 , 2017. we previously provided a provisional estimate of the effect of the tax act in our financial statements . in the fourth quarter of 2018 , we completed our analysis to determine there was no additional effect of the tax act as of december 31 , 2018. accrued clinical expenses when preparing our financial statements , we are required to estimate our accrued clinical expenses . this process involves reviewing open contracts and communicating with our 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 . payments under some of the contracts we have with parties depend on factors , such as successful enrollment of certain numbers of patients , site initiation and the completion of clinical trial milestones . when accruing clinical expenses , we estimate the time period over which services will be performed and the level of effort to be expended in each period . if possible , we obtain information regarding unbilled services directly from our service providers . however , we may be required to estimate the cost of these services based only on information available to us . if we underestimate or overestimate the cost associated with a trial or service at a given point in time , adjustments to research and development expenses may be necessary in future periods . historically , our estimated accrued clinical expenses have approximated actual expense incurred . as of december 2018 , we have agreed with our clinical research organization on the final wind-down costs of our eg-1962 study and have recorded the expense in 2018. stock-based compensation we estimate the fair value of our stock-based option awards to employees and non-employees using the black-scholes option-pricing model , which requires the input of assumptions , including : ( 1 ) the expected volatility of our stock , ( 2 ) the expected term of the award , ( 3 ) the risk-free interest rate and ( 4 ) expected dividends . in accordance with fasb asc 505 , we re-measure the fair value of non-employee stock-based compensation as the awards vest , and recognize the resulting value , if any , as expense during the period the related services are rendered . we believe that all stock options issued under our stock option plans meet the criteria of “ plain vanilla ” stock options . the expected term of the options outstanding was determined using the “ simplified ” method as prescribed by staff accounting bulletin , no . 107 , share based payment . the risk-free interest rate is based on u.s. treasury notes with remaining terms similar to the expected term of the option . the volatility was based on a representative group of small publicly traded drug development companies . the dividend yield assumption is zero since we have never paid cash dividends and have no present intention to pay cash dividends . page | 32 index the fair value of options granted for the periods indicated was estimated using the black-scholes option valuation model utilizing the following assumptions : replace_table_token_4_th basic and diluted net loss per share of common stock we compute basic and diluted net loss per share of common stock by dividing net loss attributable to common stockholders by the weighted average common shares outstanding during the period . for all periods presented , common stock underlying the options , unvested rsus and warrants have been excluded from the calculation because their effect would be anti-dilutive . therefore , the weighted average shares outstanding used to calculate both basic and diluted loss per common share are the same . story_separator_special_tag transaction with edge and , if a candidate is identified , focus its attention on negotiating and completing such a transaction with such candidate . ● dissolve and liquidate its assets . if edge is unable , or does not believe that it is able , to find a suitable candidate for another strategic transaction , edge may dissolve and liquidate its assets . in the event of dissolution , edge would be required to pay all of its debts and contractual obligations and to set aside certain reserves for potential future claims . if edge dissolves and liquidates its assets , there can be no assurance as to the amount or timing of available cash that will remain for distribution to edge ' stockholders after paying edge ' debts and other obligations and setting aside funds for its reserves . hercules loan and security agreement on august 1 , 2016 , the company entered into an amended and restated loan and security agreement ( the “ amended loan agreement ” ) with hercules capital , inc. , formerly known as hercules technology growth capital , inc. ( “ hercules ” ) . pursuant to the amended loan agreement , the company was able to borrow up to $ 20,000,000. at closing , the company borrowed $ 15,000,000 of the amount available for draw under the amended loan agreement ( and received proceeds net of the amount then outstanding under the original loan agreement , fees and expenses ) . on may 23 , 2017 , the company elected to draw down the second tranche of $ 5 million . pursuant to the amended loan agreement , in march 2018 , the company made a payment of $ 90,000 , which is equal to 1.5 % of the total amounts funded under the original loan agreement . page | 34 index in june 2018 , the company paid off its entire outstanding debt under the amended loan agreement .
| results of operations comparison of the years ended december 31 , 2018 and 2017 replace_table_token_5_th research and development expenses research and development expenses decreased to $ 16.1 million in the year ended december 31 , 2018 from $ 34.3 million for the same period in 2017. the decrease of $ 18.2 million in 2018 was primarily attributable to a decrease in external expenses for the clinical studies of $ 13.4 million and r & d internal department costs of $ 4.8 million resulting from the discontinuance of the clinical studies and reduction in force . general and administrative expenses general and administrative expenses decreased to $ 14.3 million in the year ended december 31 , 2018 from $ 17.7 million for the same period in 2017. the $ 3.4 million decrease was due primarily to decreases in personnel costs of $ 0.8 million , facilities $ 0.2 million , travel $ 0.2 million , marketing of $ 1.1 million and legal and professional fees of $ 1.1 million . restructuring expenses restructuring expenses amounted to $ 9.9 million for the year ended december 31 , 2018 , related to the previously announced discontinuance of the newton 2 study . the components consisted of $ 4.4 million for severance benefits , $ 2.3 million for financial advisory fees , $ 1.4 million for legal fees and $ 1.8 million for retention compensation . impairment charges the charge in 2018 reflects the impairment charge to the write-down of machinery and equipment no longer needed as a consequence of ceasing research and development on eg-1962 .
| 6,400 |
changes in economic conditions will impact the underlying assumptions in determining retirement benefits costs on a prospective basis . for 2013 , the company 's retirement benefit plans ' assets generated a gain of 20 % , net of investment management and trustee fees , resulting in net earnings and unrealized gains of $ 223 million , compared to net earnings and unrealized gains of $ 134 million for 2012 and net losses and unrealized losses of $ 12 million for 2011. the market value of the retirement benefit plans ' assets for december 31 , 2013 and 2012 were $ 1.4 billion and $ 1.1 billion , respectively . the company intends to make contributions to the qualified pension plan for hei and hawaiian electric equal to the calculated net periodic pension cost for the year . however , if the minimum required contribution determined under the employee retirement income security act of 1974 ( erisa ) , as amended by the pension protection act of 2006 , for the year is greater than the net periodic pension cost , then the company will contribute the minimum required contribution and the 39 utilities ' difference between the minimum required contribution and the net periodic pension cost will increase their regulatory asset . in the next rate case , the regulatory asset will be amortized over five years and used to reduce the cash funding requirement based on net periodic pension cost . the regulatory asset may not be applied against the erisa minimum required contribution . the net periodic pension cost is expected to be higher than the erisa minimum required contribution for 2014. therefore , to satisfy the requirements of the electric utilities ' pension tracking mechanism , net periodic pension cost will be the basis of the cash funding for 2014. based on plan assets as of december 31 , 2013 and various assumptions in note 10 of the consolidated financial statements , the company estimates that the cash contributions to the plans for 2014 will be $ 59 million ( $ 1 million for hei and $ 58 million for the utilities ) . based on various assumptions in note 10 of the consolidated financial statements and assuming no further changes in retirement benefit plan provisions , information regarding consolidated hei 's and consolidated hawaiian electric 's retirement benefits was , or is estimated to be , as follows , and constitutes “ forward-looking statements : ” replace_table_token_22_th based on various assumptions in note 10 of the consolidated financial statements , sensitivities of the projected benefit obligation ( pbo ) and accumulated postretirement benefit obligation ( apbo ) as of december 31 , 2013 , associated with a change in certain actuarial assumptions , were as follows and constitute “ forward-looking statements. ” replace_table_token_23_th the impact on 2014 net income for common stock for changes in actuarial assumptions should be immaterial based on the adoption by the electric utilities of pension and postretirement benefits other than pensions ( opeb ) tracking mechanisms approved by the puc . see note 10 of the consolidated financial statements for further retirement benefits information . other segment . replace_table_token_24_th 1 including writedowns of and net gains and losses from investments . nm not meaningful . the “ other ” business segment includes results of the stand-alone corporate operations of hei and american savings holdings , inc. ( ashi ) , both holding companies ; hei properties , inc. , a company holding passive , venture capital investments ( venture capital investments with a carrying value of $ 0.5 million as of december 31 , 2013 ) ; the old oahu tug service , inc. , a maritime freight transportation company that ceased operations in 1999 ; and pacific energy conservation services , inc. , a contract services company which provided windfarm operational and maintenance services to an affiliated electric utility until the windfarm was dismantled in the fourth quarter of 2010 and dissolved in the second quarter of 2011 ; as well as eliminations of intercompany transactions . 40 hei corporate-level operating , general and administrative expenses were $ 16 million in 2013 compared to $ 16 million in 2012 and $ 15 million in 2011. in 2013 , hei had higher administrative and general expenses , including retirement benefits , partly offset by lower executive compensation . in 2012 , hei had higher executive compensation and employee benefits expenses , including retirement benefits . the “ other ” segment 's interest expenses were $ 16 million in 2013 , $ 16 million in 2012 and $ 22 million in 2011. in 2013 , $ 50 million of long-term debt was refinanced at a lower interest rate . in 2012 , hei had lower average borrowings and interest rates . the “ other ” segment 's income tax benefits were $ 14 million in 2013 , $ 15 million in 2012 and $ 17 million in 2011. effects of inflation . u.s. inflation , as measured by the u.s. consumer price index ( cpi ) , averaged 1.5 % in 2013 , 2.1 % in 2012 and 3.2 % in 2011. hawaii inflation , as measured by the honolulu cpi , was 2.4 % in 2012 , 3.7 % in 2011 and 2.1 % in 2010. dbedt estimates average honolulu cpi to have been 1.7 % in 2013 and forecasts it to be 2.1 % for 2014. inflation continues to have an impact on hei 's operations . inflation increases operating costs and the replacement cost of assets . subsidiaries with significant physical assets , such as the electric utilities , replace assets at much higher costs and must request and obtain rate increases to maintain adequate earnings . story_separator_special_tag in the past , the puc has granted rate increases in part to cover increases in construction costs and operating expenses due to inflation . recent accounting pronouncements . see “ recent accounting pronouncements and interpretations ” in note 1 of the consolidated financial statements . liquidity and capital resources . the company believes that its ability to generate cash , both internally from electric utility and banking operations and externally from issuances of equity and debt securities , commercial paper and bank borrowings , is adequate to maintain sufficient liquidity to fund its contractual obligations and commercial commitments , its forecasted capital expenditures and investments , its expected retirement benefit plan contributions and other cash requirements in the foreseeable future . the company 's total assets were $ 10.3 billion as of december 31 , 2013 and $ 10.1 billion as of december 31 , 2012. the consolidated capital structure of hei ( excluding deposit liabilities and other bank borrowings ) was as follows : replace_table_token_25_th hei 's short-term borrowings and hei 's line of credit facility were as follows : replace_table_token_26_th 1 this table does not include hawaiian electric 's separate commercial paper issuances and line of credit facilities , which are disclosed below under “ electric utility—financial condition—liquidity and capital resources . at february 7 , 2014 , hei 's outstanding commercial paper balance was $ 96 million and its line of credit facility was undrawn . the maximum amount of hei 's short-term borrowings in 2013 was $ 105 million . hei utilizes short-term debt , typically commercial paper , to support normal operations , to refinance commercial paper , to retire long-term debt , to pay dividends and for other temporary requirements . hei also periodically makes short-term loans to hawaiian electric to meet hawaiian electric 's cash requirements , including the funding of loans by hawaiian electric to hawaii electric light and maui electric , but no such short-term loans to hawaiian electric were outstanding as of december 31 , 2013. hei periodically utilizes long-term debt , historically consisting of medium-term notes and other unsecured 41 indebtedness , to fund investments in and loans to its subsidiaries to support their capital improvement or other requirements , to repay long-term and short-term indebtedness and for other corporate purposes . in march 2013 , hei entered into equity forward transactions in which a forward counterparty borrowed 7 million shares of hei 's common stock from third parties and such borrowed shares were sold pursuant to an hei registered public offering . on december 19 , 2013 , hei settled 1.3 million shares under the equity forward for proceeds of $ 32.1 million ( net of the underwriting discount of $ 1.3 million ) , which funds were ultimately used to purchase common stock of hawaiian electric . in november 2011 , hei filed an omnibus registration statement to register an indeterminate amount of debt and equity securities . under securities and exchange commission ( sec ) regulations , this registration statement expires on november 4 , 2014. hei has a line of credit facility of $ 125 million . see note 7 of the consolidated financial statements . the credit agreement , amended in december 2011 , contains provisions for revised pricing in the event of a ratings change . for example , a ratings downgrade of hei 's issuer rating ( e.g. , from bbb/baa2 to bbb-/baa3 by standard & poor 's ( s & p ) and moody 's investors service ( moody 's ) , respectively ) would result in a commitment fee increase of 5 basis points and an interest rate increase of 25 basis points on any drawn amounts . on the other hand , a ratings upgrade ( e.g. , from bbb/baa2 to bbb+/baa1 by s & p or moody 's , respectively ) would result in a commitment fee decrease of 2.5 basis points and an interest rate decrease of 25 basis points on any drawn amounts . in addition to their impact on pricing under hei 's credit agreement , the rating of hei 's commercial paper and debt securities could significantly impact the ability of hei to sell its commercial paper and issue debt securities and or the cost of such debt . the rating agencies use a combination of qualitative measures ( i.e. , assessment of business risk that incorporates an analysis of the qualitative factors such as management , competitive positioning , operations , markets and regulation ) as well as quantitative measures ( e.g. , cash flow , debt , interest coverage and liquidity ratios ) in determining the ratings of hei securities . on january 21 , 2014 , fitch ratings ( fitch ) assigned initial ratings to hei as noted in the table below . the key ratings drivers cited were ( 1 ) ownership of two investment grade subsidiaries , ( 2 ) subordination of cash flows and ( 3 ) moderate degree of parent level debt leverage . as a result of updating it ratings methodology , moody 's placed the ratings of most u.s. regulated utilities and utility holding companies on review for upgrade . hei was included in the list of companies on review for upgrade . subsequently , on january 30 , 2014 , moody 's confirmed hei 's ratings as noted in the table below and indicated that despite their view that hawaiian electric , like many other regulated utilities in the u.s. , received more credit supportive regulatory treatment over the years , hei 's and hawaiian electric 's cash flow to debt ratios are too weak to support an upgrade . hei 's ratings reflect the relatively stable earnings and cash flow historically provided by both the vertically integrated utility businesses at hawaiian electric and the stable banking operations at asb . the ratings also recognize the challenges at hawaiian electric , which have some of the highest retail electric rates in the country
| results of operations . 2013 vs. 2012 ( in millions ) 2013 2012 increase ( decrease ) primary reason ( s ) interest income $ 186 $ 190 $ ( 4 ) the impact of higher average earning asset balances was more than offset by lower yields on earning assets . asb 's average loan portfolio balance for 2013 was $ 221 million higher than 2012 as the average home equity lines of credit ( heloc ) , residential and commercial real estate loan balances increased by $ 95 million , $ 76 million and $ 39 million , respectively . the growth in these loan portfolios was consistent with asb 's portfolio mix targets and loan growth strategy . the loan portfolio yield continued to be impacted by the interest rate environment as new loan production yields were lower than the average portfolio yield . the average investment and mortgage-related securities portfolio balance decreased by $ 35 million as asb sold $ 70 million of agency obligations . asb used excess liquidity to fund the loan growth . noninterest income 72 76 ( 4 ) lower gains on sales of loans as residential loan production has decreased in 2013 compared to 2012 with the upward movement of loan rates and a decrease in debit card fees as a result of being non-exempt from the durbin amendment , partly offset by higherfee income from other financial products and the gain on sale of the credit card portfolio .
| 6,401 |
there were no realized losses recorded in 2014. realized gains are included in interest income , and realized losses are included in interest expense . unrealized gains and losses are included in accumulated other comprehensive income ( loss ) . the cost of securities sold is based on the specific identification method . during the years ended december 31 , 2016 and 2015 , there were no transfers in or out of level 1 , level 2 or level 3 financial instruments . the following table sets forth by fair value hierarchy teradyne 's financial assets and liabilities that were measured at fair value on a recurring basis as of december 31 , 2016 and 2015 : replace_table_token_38_th 63 reported as follows : replace_table_token_39_th replace_table_token_40_th 64 reported as follows : replace_table_token_41_th changes in the fair value of level 3 contingent consideration for the years ended december 31 , 2016 and 2015 were as follows : replace_table_token_42_th ( 1 ) during the year story_separator_special_tag overview we are a leading global supplier of automation equipment for test and industrial applications . we design , develop , manufacture and sell automatic test systems used to test semiconductors , wireless products , data storage and complex electronics systems in the consumer electronics , wireless , automotive , industrial , computing , communications , and aerospace and defense industries . our industrial automation products include collaborative robots used by global manufacturing and light industrial customers to improve quality , increase manufacturing efficiency and decrease manufacturing costs . our automatic test equipment and industrial automation products and services include : semiconductor test ( semiconductor test ) systems ; defense/aerospace ( defense/aerospace ) test instrumentation and systems , storage test ( storage test ) systems , and circuit-board test and inspection ( production board test ) systems ( collectively these products represent system test ) ; industrial automation ( industrial automation ) products ; and wireless test ( wireless test ) systems . we have a broad customer base which includes integrated device manufacturers ( idms ) , outsourced semiconductor assembly and test providers ( osats ) , original equipment manufacturers ( oems ) , wafer foundries , fabless companies that design , but contract with others for the manufacture of integrated circuits ( ics ) , developers of wireless devices and consumer electronics , manufacturers of circuit boards , automotive suppliers , wireless product manufacturers , storage device manufacturers , aerospace and military contractors , and distributors that sell collaborative robots . in 2015 , we acquired universal robots a/s ( universal robots ) , the leading supplier of collaborative robots which are low-cost , easy-to-deploy and simple-to-program robots that work side by side with production workers to improve quality , increase manufacturing efficiency and decrease manufacturing costs . universal robots is a separate operating and reportable segment , industrial automation . the acquisition of universal robots provides a growth engine to our business and complements our existing system test and wireless test segments . the total purchase price for universal robots was approximately $ 315 million , which included cash paid of approximately $ 284 million and $ 32 million in fair value of contingent consideration payable upon achievement of revenue and earnings targets through 2018. contingent consideration paid for 2015 was $ 15 million . the maximum payment for each of the two remaining universal robots earn-outs is $ 25.0 million . in 2014 , we acquired avionics interface technologies , llc ( ait ) , a supplier of equipment for testing state-of-the-art data communication buses . the acquisition of ait complements our defense/aerospace line of bus test instrumentation for commercial and defense avionics systems . ait is included in our system test segment . the total purchase price for ait was approximately $ 21 million , which included cash paid of approximately $ 19 million and $ 2 million in fair value of contingent consideration payable upon achievement of revenue and gross margin targets in 2015 and 2016. the total amount of contingent consideration paid was $ 1.1 million . we believe our recent acquisitions have enhanced our opportunities for growth . we intend to continue to invest in our business , grow market share in our markets and expand further our addressable markets while tightly managing our costs . the sales of our products and services are dependent , to a large degree , on customers who are subject to cyclical trends in the demand for their products . these cyclical periods have had , and will continue to have , a significant effect on our business since our customers often delay or accelerate purchases in reaction to changes in their businesses and to demand fluctuations in the semiconductor and electronics industries . historically , these demand fluctuations have resulted in significant variations in our results of operations . the sharp swings in the semiconductor and electronics industries in recent years have generally affected the semiconductor and electronics test equipment and services industries more significantly than the overall capital equipment sector . 22 in recent years , this cyclical demand has become an even/odd year trend where demand has increased in even years and decreased in odd years due principally to demand swings in the mobility market of our semiconductor test business . we expect the even/odd year demand trend in the mobility market to most likely lessen in the future due to slower smart phone unit growth , along with rising device complexity and the reduced impact of parallel test in our semiconductor test business . on april 16 , 2016 , an earthquake in kumamoto , japan damaged our main building at that location . the building , which was used for engineering , production , and support operations , was damaged beyond repair . with respect to the location , we have $ 10 million of earthquake insurance with a deductible of approximately $ 2.5 million . as a result , we impaired the building and recorded a charge of $ 4.2 million and a charge of $ 1.2 million for other earthquake related expenses . the $ 5.4 story_separator_special_tag translation of non-u.s. currencies the functional currency for all non-u.s. subsidiaries is the u.s. dollar , except for the industrial automation segment for which the local currency is its functional currency . all foreign currency denominated monetary assets and liabilities are remeasured on a monthly basis into the functional currency using exchange rates in effect at the end of the period . all foreign currency denominated non-monetary assets and liabilities are remeasured into the functional currency using historical exchange rates . net foreign exchange gains and losses resulting from remeasurement are included in other ( income ) expense , net . for industrial automation , assets and liabilities are translated into u.s. dollars using exchange rates in effect at the end of the period . revenues and expense amounts are translated using an average of exchange rates in effect during the period . translation adjustments are recorded within accumulated other comprehensive income ( loss ) . retirement and postretirement plans we recognize net actuarial gains and losses and the change in the fair value of the plan assets in our operating results in the year in which they occur or upon any interim remeasurement of the plans . we calculate the expected return on plan assets using the fair value of the plan assets . actuarial gains and losses are generally measured annually as of december 31 and , accordingly , recorded during the fourth quarter of each year or upon any interim remeasurement of the plans . inventories inventories are stated at the lower of cost ( first-in , first-out basis ) or net realizable value . on a quarterly basis , we use consistent methodologies to evaluate all inventories for net realizable value . we record a provision 24 for both excess and obsolete inventory when such write-downs or write-offs are identified through the quarterly review process . the inventory valuation is based upon assumptions about future demand , product mix , and possible alternative uses . equity incentive and stock purchase plans stock-based compensation expense is based on the grant-date fair value estimated in accordance with the provisions of asc 718 , compensationstock compensation . as required by asc 718 , we have made an estimate of expected forfeitures and are recognizing compensation costs only for those stock-based compensation awards expected to vest . income taxes deferred tax assets and liabilities are determined based on differences between financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse . the measurement of deferred tax assets is reduced by a valuation allowance if it is more likely than not that some or all of the deferred tax assets will not be realized . we performed the required assessment of positive and negative evidence regarding the realization of the net deferred tax assets in accordance with asc 740 , accounting for income taxes . this assessment included the evaluation of scheduled reversals of deferred tax liabilities , estimates of projected future taxable income and tax-planning strategies . although realization is not assured , based on our assessment , we concluded that it is more likely than not that such assets , net of the existing valuation allowance , will be realized . u.s. income taxes are not provided for on the earnings of non-u.s. subsidiaries which are expected to be reinvested indefinitely in operations outside the u.s. for intra-period tax allocations , we first utilize non-equity related tax attributes , such as net operating losses and credit carryforwards , and then equity-related tax attributes . we use the with-and-without method for calculating excess stock compensation deductions and do not take into account any indirect impacts of excess stock compensation deductions on our research and development tax credits , domestic production activities deduction , and other differences between financial reporting and tax reporting . investments we account for our investments in debt and equity securities in accordance with the provisions of asc 320-10 , investmentsdebt and equity securities . on a quarterly basis , we review our investments to identify and evaluate those that have an indication of a potential other-than-temporary impairment . factors considered in determining whether a loss is other-than-temporary include : the length of time and the extent to which the market value has been less than cost ; the financial condition and near-term prospects of the issuer ; and the intent and ability to retain the investment in the issuer for a period of time sufficient to allow for any anticipated recovery in market value . goodwill , intangible and long-lived assets we assess goodwill for impairment at least annually in the fourth quarter , as of december 31 , on a reporting unit basis , or more frequently , when events and circumstances occur indicating that the recorded goodwill may be impaired . if the book value of a reporting unit exceeds its fair value , the implied fair value of goodwill is compared with the carrying amount of goodwill . if the carrying amount of goodwill exceeds the implied fair value , an impairment charge is recorded in an amount equal to that excess . in the second quarter of 2016 , the wireless test reporting unit ( which is our wireless test operating and reportable segment ) reduced headcount by 11 % as a result of a sharp decline in projected demand attributable to 25 an estimated smaller future wireless test market . the decrease in projected demand was due to lower forecasted buying from our largest wireless test segment customer ( who has contributed between 51 % and 73 % of annual wireless test sales since the litepoint acquisition in 2011 through 2015 ) as a result of the customer 's numerous operational efficiencies ; slower smartphone growth rates ; and a slowdown of new wireless technology adoption . we considered the headcount reduction and sharp decline in projected demand to be a triggering event for an interim goodwill impairment test .
| results of operations the following table sets forth the percentage of total net revenues included in our consolidated statements of operations : replace_table_token_7_th book to bill ratio book to bill ratio is calculated as net bookings divided by net sales . book to bill ratio by reportable segment was as follows : replace_table_token_8_th 27 revenues revenues for our four reportable segments were as follows : replace_table_token_9_th the increase in semiconductor test revenues of $ 166.7 million , or 14 % , from 2015 to 2016 was driven primarily by system-on-a-chip ( soc ) product volume in the mobile application processor market . the decrease in semiconductor test revenues of $ 99.3 million , or 8 % , from 2014 to 2015 was primarily due to a decrease in soc product volume , driven by smaller microcontroller , power management and radio frequency test markets . the decrease in system test revenues of $ 21.8 million , or 10 % , from 2015 to 2016 was primarily due to lower sales in storage test of 3.5 hard disk drive testers used for testing drives for cloud storage applications . the increase in system test revenues of $ 49.1 million , or 30 % , from 2014 to 2015 was primarily due to higher sales in storage test of 3.5 hard disk drive testers used for testing drives for cloud storage applications . the acquisition of universal robots , which is our industrial automation segment , completed in june 2015 , added $ 99.0 million of revenues in 2016 and $ 41.9 million of revenues in 2015. the decrease in wireless test revenues of $ 88.4 million , or 48 % , from 2015 to 2016 was driven by lower demand for connectivity and cellular test systems primarily from our largest wireless test segment customer . as a result of significant customer concentration in our wireless test segment , revenues in that segment are subject to significant fluctuations based on the segment 's largest customer 's order levels .
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a reconciliation of the beginning and ending amount of potential tax benefits for the periods presented are as follows : replace_table_token_41_th for the fiscal year ended march 31 , 2012 , the company 's reserves for uncertain tax positions decreased primarily as a result of story_separator_special_tag the following discussion and analysis is intended to help the reader understand our business , financial condition , results of operations , and liquidity and capital resources . you should read this discussion in conjunction with item 6. selected financial data , and our consolidated financial statements and the related notes contained elsewhere in this annual report . the statements in this discussion regarding industry outlook , our expectations regarding our future performance , liquidity and capital resources , and other non-historical statements in this discussion are forward-looking statements . these forward-looking statements are subject to numerous risks and uncertainties , including , but not limited to , the risks and uncertainties described in item 1a . risk factors and introductory note cautionary note regarding forward-looking statements . our actual results may differ materially from those contained in or implied by any forward-looking statements . our fiscal year ends march 31 and , unless otherwise noted , references to years or fiscal are for fiscal years ended march 31. see results of operations. overview we are a leading provider of management and technology consulting services to the u.s. government in the defense , intelligence , and civil markets . additionally , we provide management and technology consulting services to major corporations , institutions , and not for profit organizations . as the needs of our clients have grown more complex , we have developed deep expertise in technology , engineering , and analytics . leveraging our 98-year consulting heritage and a talent base of approximately 25,000 people , we deploy our deep domain knowledge , functional expertise , and experience to help our clients achieve their objectives . we serve substantially all of the cabinet-level departments of the u.s. government . our major clients include the department of defense , all branches of the u.s. military , the u.s. intelligence community , and civil agencies such as the department of homeland security , the department of energy , the department of health and human services , the department of the treasury , and the environmental protection agency . we support these clients in addressing complex and pressing challenges such as combating global terrorism , improving cyber capabilities , transforming the healthcare system , improving efficiency and managing change within the government , and protecting the environment . we have a collaborative culture , supported by our operating model , which helps our professionals identify and respond to emerging trends across the markets we serve and deliver enduring results for our clients . 51 financial and other highlights revenue grew 4.8 % from fiscal 2011 to fiscal 2012 while revenue generated by our direct consulting staff labor grew 4.8 % over the same period . direct consulting staff labor represents our consulting staff 's labor under contracts for which we act as the prime contractor or subcontractor . total backlog decreased by 1.1 % to $ 10.8 billion from fiscal 2011 to fiscal 2012. substantially all of our revenue and backlog is derived from services and solutions provided to client organizations across the u.s. government , primarily by our consulting staff and , to a lesser extent , our subcontractors . the mix of revenue generated by consulting staff and subcontractors affects our operating margin , substantially all of which is derived from direct consulting staff labor , as the portion of our operating margin derived from fees we earn on services provided by our subcontractors is not significant . the fiscal 2012 revenue growth occurred across all served markets with the highest growth in areas relating to finance and health consulting services for civil government agencies and classified services to the u.s. intelligence community . operating income grew 21.3 % to $ 387.4 million in fiscal 2012 from $ 319.4 million in fiscal 2011 , which reflects a 90 basis point increase in operating margin to 6.6 % from 5.7 % in the comparable periods . the improvement in operating margin was driven by the continued growth in revenue and increased profitability resulting from decreases in incentive and stock-based compensation costs and lower amortization of our intangible assets . the factors contributing to the increased operating margin were partially offset by increases in business development costs including marketing and bid and proposal activity as well as additional administrative costs associated with delays in deploying certain direct consulting staff labor against funded backlog . in addition , in fiscal 2012 the company recognized approximately $ 11.2 million ( net of revenue ) of charges associated with a restructuring plan to reduce certain personnel and infrastructure costs . cash provided by operations increased $ 63.7 million to $ 360.0 million from $ 296.4 million . the increase in cash provided by operations was a result of overall profitability of our contracts , our ability to invoice and collect from clients in a timely manner , and our effective management of vendor payments . our tax payments increased by approximately $ 81.6 million during fiscal 2012 principally due to the utilization of our entire federal and the majority of our state net operating loss , or nol , carryforward . in the current year , approximately 3.8 million of stock options were exercised resulting in a cash tax benefit of approximately $ 16.5 million . the company reviewed its federal and state tax elections as part of its overall cash tax planning strategy and determined to make a significant prepayment of fiscal 2013 income taxes in the amount of $ 46.8 million . the company anticipates utilizing this prepayment as an offset to its fiscal 2013 cash taxes to be paid . story_separator_special_tag ( d ) fiscal 2011 reflects debt refinancing costs incurred in connection with the refinancing transaction and certain external administrative and other expenses incurred in connection with the initial public offering . fiscal 2010 reflects costs related to the modification of our credit facilities , the establishment of the tranche c term loan facility under our senior secured credit facilities and the related payment of special dividends . ( e ) fiscal 2011 reflects debt refinancing costs and prepayment fees incurred in connection with the refinancing transaction as well as certain external administrative and other expenses incurred in connection with the initial public offering . fiscal 2010 reflects costs related to the modification of our credit facilities , the establishment of the tranche c term loan facility under our senior secured credit facilities and the related payment of special dividends . ( f ) fiscal 2012 reflects the gain on sale of our state and local transportation business , net of the associated tax benefit of $ 1.6 million . ( g ) reflects the release of income tax reserves . ( h ) reflects tax effect of adjustments at an assumed marginal tax rate of 40 % . ( i ) reflects restructuring charges of approximately $ 15.7 million incurred during the three months ended march 31 , 2012 , net of approximately $ 4.5 million of revenue recognized on recoverable expenses , associated with the cost of a restructuring plan to reduce certain personnel and infrastructure costs . recent developments on may 29 , 2012 , our board of directors authorized and declared a regular quarterly cash dividend in the amount of $ 0.09 per share . in addition , the board of directors declared a special cash dividend of $ 1.50 per share . both the quarterly and special dividend are payable on june 29 , 2012 to shareholders of record on june 11 , 2012. the compensation committee , as the administrator of the officers ' rollover stock plan and the amended and restated equity incentive plan , made a determination to adjust the outstanding options under each plan by reducing the exercise price of the rollover options by the amount of the special dividend and by granting the holders of eip options a dividend equivalent equal to the special dividend and payable on june 29 , 2012 or the vesting of the eip option , whichever is later . we intend to continue to pay regular quarterly cash dividends ; however , the actual declaration of any such future dividends and the establishment of the per share amount , record dates , and payment dates for any such future dividends are subject to the discretion of the board of directors taking into account future earnings , cash flows , financial requirements , and other factors . on may 29 , 2012 , our board of directors also authorized the payment of the accrued interest on the dpo as of july 31 , 2012. we expect approximately $ 3.4 million will be paid on that date . factors and trends affecting our results of operations our results of operations have been , and we expect them to continue to be , affected by the following factors , which may cause our future results of operations to differ from our historical results of operations discussed under results of operations. business environment and key trends in our markets we believe that the following trends and developments in the u.s. government services industry and our markets may influence our future results of operations : budget deficits and the growing u.s. national debt increasing pressure on the u.s. government to reduce federal spending across all federal agencies together with associated uncertainty about the size and timing of those reductions ; 55 changes in the relative mix of overall u.s. government spending and areas of spending growth , with lower spending on homeland security , intelligence and defense-related programs as overseas operations end , and continued increased spending on cyber-security , advanced analytics , technology integration and healthcare ; cost cutting and efficiency initiatives and other efforts to streamline the u.s. defense and intelligence infrastructure , including the initiatives implemented by the secretary of defense or reductions in defense budgets resulting from congressional action or automatic sequestration as required under the budget control act of 2011 ; delays in the completion of the u.s. government 's budget process , which has in the past and could in the future delay procurement of the products , services , and solutions we provide ; existing and proposed fiscal constraints by the u.s. government and uncertainty about the size of future budget reductions may cause clients to invest appropriated funds on a less consistent or rapid basis , or not at all , particularly when considering long-term initiatives , not issue task orders in sufficient volume to reach current contract ceilings , and delay requests for new proposals and contract awards , relying on short-term extensions of current contracts instead ; the federal focus on refining the definition of inherently governmental work will continue to drive pockets of insourcing in various agencies , particularly in the intelligence market ; cost cutting and efficiency and effectiveness efforts by the u.s. civilian agencies with a focus on increased use of performance measurement , program integrity efforts to reduce waste , fraud and abuse in entitlement programs , and renewed focus on improving procurement practices for and interagency use of it services , including through the use of cloud based options and data center consolidation ; u.s. government agencies awarding contracts on a technically acceptable/lowest cost basis , which could have a negative impact on our ability to win certain contracts ; restrictions by the u.s. government on the ability of federal agencies to use lead system integrators , in response to cost , schedule and performance problems with large defense acquisition programs where contractors were performing the lead system integrator role ; increasingly complex requirements of the department of defense and the u.s. intelligence community , including cyber-security , managing federal health care cost growth and focus on reforming
| results of operations the following table sets forth items from our consolidated statements of operations for the periods indicated . replace_table_token_16_th fiscal 2012 compared to fiscal 2011 revenue revenue increased to $ 5,859.2 million from $ 5,591.3 million , or a 4.8 % increase . the increase in revenue was primarily driven by improved deployment of direct consulting staff against funded backlog and increased other direct costs . we deployed during fiscal year 2012 approximately 300 net additional consulting staff , before taking into consideration the decrease in consulting staff due to the cost restructuring plan at the end of fiscal year 2012. the increase in net consulting staff during fiscal 2012 was offset by a reduction of personnel as a result of a cost restructuring plan finalized in the fourth quarter of fiscal year 2012 that was intended to reduce 64 personnel and infrastructure costs . we implemented this in response to continued budget constraints and uncertainty in our industry and to provide funds to increase our resources dedicated to growth areas across our markets . as part of this cost restructuring plan , we reduced overall headcount by approximately 2 % . additions to funded backlog during fiscal 2012 totaled $ 6.4 billion , as a result of the conversion of unfunded backlog to funded backlog , the award of new contracts and task orders under which funding was appropriated , and the exercise and subsequent funding of priced options . cost of revenue cost of revenue increased to $ 2,934.4 million from $ 2,837.0 million , or a 3.4 % increase . this increase was primarily due to increases in salaries and salary-related benefits of $ 110.3 million and employer retirement plan contributions of $ 12.7 million .
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the company believes that current financial resources , its line of credit , cash generated from operations and the company 's capacity for debt and or equity financing will be sufficient to fund current and anticipated business operations . the company also believes that its low debt levels and available line of credit make it unlikely that a decrease in demand for the company 's products would impair the company 's ability to fund operations . capital expenditures in 2014 , the company spent $ 434,000 on capital expenditures . capital expenditures in 2014 were mainly for improvements to ams capabilities , mandatory elevator upgrades , two forklifts and two vehicles . during 2013 , the company had $ 763,000 of capital expenditures . the majority of these purchases were made to improve ams capabilities . equipment purchases were also made to upgrade research and development equipment and facilities , including improvements to both dtx equipment and equipment and facilities related to screen printing and ikonics imaging in addition to a vehicle for sales personnel . the company expects capital expenditures in 2015 of approximately $ 900,000. the planned expenditures primarily will be for mandatory elevator upgrades not completed in 2014 , manufacturing equipment necessary for anticipated ams aerospace business , other manufacturing equipment upgrades and vehicles for sales personnel . these commitments are expected to be funded with cash generated from operating activities . the company is also beginning to plan and evaluate a potential building expansion to accommodate its ams operations as the company 's current facilities are nearing full capacity . this expansion , along with the expected 2015 purchase of the ams equipment mentioned above will be dependent on the company 's ams process proving its capabilities and increasing its market acceptance among its customers base . the company does not intend to proceed with the expansion until the demand for its services is more certain . the timing and cost of this expansion have not been finalized , but construction could commence in 2015. any costs associated with this potential expansion are not included in the company 's estimated capital expenditures for 2015 discussed above . international activity the company markets its products in numerous countries in various regions of the world , including north america , europe , latin america , and asia . the company 's 2014 foreign sales of $ 5.3 million were approximately 28.4 % of total sales , compared to the 2013 foreign sales of $ 5.6 million , which were 32.3 % of total sales . ikonics experienced a decrease in foreign sales across all geographic regions in 2014 due to due to poorer general economic conditions and a weaker euro . the company 's foreign transactions are primarily negotiated , invoiced and paid in u.s. dollars , while a portion is transacted in euros . ikonics has not implemented an economic hedging strategy to reduce the risk of foreign currency translation exposures , which management does not believe to be significant based on the scope and geographic diversity of the company 's foreign operations as of december 31 , 2014. furthermore , the impact of foreign exchange on the company 's balance sheet and operating results was not material in either 2014 or 2013. future outlook ikonics has spent on average approximately 4 % of its sales dollars for the past few years in research and development and has made capital expenditures related to its dtx and ams programs . the company plans to maintain its efforts in this area to 13 expedite internal product development as well as to form technological alliances with outside experts to commercialize new product opportunities . the company continues to make progress on its new ams business initiative . the company has entered into agreements with several major aerospace companies to determine the feasibility of using its unique technologies in the production of military and commercial aircraft . the company is currently supplying products to the aerospace industry for use in the construction of new generation commercial aircraft . progress is being made on a number of in-house feasibility projects , and the company believes that several of these could lead to ongoing business . in anticipation of this business , the company is expanding its ams capacity and patent applications . the company is also continuing to make progress on its dtx business initiatives . in addition to its growing inkjet technology business , the company offers a range of products for creating texture surfaces and has introduced a fluid for use in prototyping . the company is currently working with its dtx customers on training , production optimization , and product improvements . the company has been awarded european , japanese and united states patents on its dtx technologies . the company has modified its dtx technology to enter the market for prototyping and 3d printing . domestically , both the domestic chromaline screen print product and its ikonics imaging units remain profitable in mature markets and require aggressive strategies to grow market share . although there will be challenges , the company believes these businesses will continue to grow and prosper . in addition to its traditional emphasis on domestic markets , the company will continue efforts to grow its business internationally by attempting to develop new markets and expanding market share where it has already established a presence . other future activities undertaken to expand the company 's business may include acquisitions , building improvements , equipment additions , new product development and marketing opportunities . off-balance sheet arrangements the company has no off-balance sheet arrangements . recent accounting pronouncements in may 2014 , the financial accounting standards board ( fasb ) issued accounting standards update ( asu ) no . 2014-09 , revenue from contracts with customers . asu 2014-09 supersedes the revenue recognition requirements in revenue recognition ( topic 605 ) , and requires entities to recognize revenue in a way that depicts the transfer of story_separator_special_tag the company believes that current financial resources , its line of credit , cash generated from operations and the company 's capacity for debt and or equity financing will be sufficient to fund current and anticipated business operations . the company also believes that its low debt levels and available line of credit make it unlikely that a decrease in demand for the company 's products would impair the company 's ability to fund operations . capital expenditures in 2014 , the company spent $ 434,000 on capital expenditures . capital expenditures in 2014 were mainly for improvements to ams capabilities , mandatory elevator upgrades , two forklifts and two vehicles . during 2013 , the company had $ 763,000 of capital expenditures . the majority of these purchases were made to improve ams capabilities . equipment purchases were also made to upgrade research and development equipment and facilities , including improvements to both dtx equipment and equipment and facilities related to screen printing and ikonics imaging in addition to a vehicle for sales personnel . the company expects capital expenditures in 2015 of approximately $ 900,000. the planned expenditures primarily will be for mandatory elevator upgrades not completed in 2014 , manufacturing equipment necessary for anticipated ams aerospace business , other manufacturing equipment upgrades and vehicles for sales personnel . these commitments are expected to be funded with cash generated from operating activities . the company is also beginning to plan and evaluate a potential building expansion to accommodate its ams operations as the company 's current facilities are nearing full capacity . this expansion , along with the expected 2015 purchase of the ams equipment mentioned above will be dependent on the company 's ams process proving its capabilities and increasing its market acceptance among its customers base . the company does not intend to proceed with the expansion until the demand for its services is more certain . the timing and cost of this expansion have not been finalized , but construction could commence in 2015. any costs associated with this potential expansion are not included in the company 's estimated capital expenditures for 2015 discussed above . international activity the company markets its products in numerous countries in various regions of the world , including north america , europe , latin america , and asia . the company 's 2014 foreign sales of $ 5.3 million were approximately 28.4 % of total sales , compared to the 2013 foreign sales of $ 5.6 million , which were 32.3 % of total sales . ikonics experienced a decrease in foreign sales across all geographic regions in 2014 due to due to poorer general economic conditions and a weaker euro . the company 's foreign transactions are primarily negotiated , invoiced and paid in u.s. dollars , while a portion is transacted in euros . ikonics has not implemented an economic hedging strategy to reduce the risk of foreign currency translation exposures , which management does not believe to be significant based on the scope and geographic diversity of the company 's foreign operations as of december 31 , 2014. furthermore , the impact of foreign exchange on the company 's balance sheet and operating results was not material in either 2014 or 2013. future outlook ikonics has spent on average approximately 4 % of its sales dollars for the past few years in research and development and has made capital expenditures related to its dtx and ams programs . the company plans to maintain its efforts in this area to 13 expedite internal product development as well as to form technological alliances with outside experts to commercialize new product opportunities . the company continues to make progress on its new ams business initiative . the company has entered into agreements with several major aerospace companies to determine the feasibility of using its unique technologies in the production of military and commercial aircraft . the company is currently supplying products to the aerospace industry for use in the construction of new generation commercial aircraft . progress is being made on a number of in-house feasibility projects , and the company believes that several of these could lead to ongoing business . in anticipation of this business , the company is expanding its ams capacity and patent applications . the company is also continuing to make progress on its dtx business initiatives . in addition to its growing inkjet technology business , the company offers a range of products for creating texture surfaces and has introduced a fluid for use in prototyping . the company is currently working with its dtx customers on training , production optimization , and product improvements . the company has been awarded european , japanese and united states patents on its dtx technologies . the company has modified its dtx technology to enter the market for prototyping and 3d printing . domestically , both the domestic chromaline screen print product and its ikonics imaging units remain profitable in mature markets and require aggressive strategies to grow market share . although there will be challenges , the company believes these businesses will continue to grow and prosper . in addition to its traditional emphasis on domestic markets , the company will continue efforts to grow its business internationally by attempting to develop new markets and expanding market share where it has already established a presence . other future activities undertaken to expand the company 's business may include acquisitions , building improvements , equipment additions , new product development and marketing opportunities . off-balance sheet arrangements the company has no off-balance sheet arrangements . recent accounting pronouncements in may 2014 , the financial accounting standards board ( fasb ) issued accounting standards update ( asu ) no . 2014-09 , revenue from contracts with customers . asu 2014-09 supersedes the revenue recognition requirements in revenue recognition ( topic 605 ) , and requires entities to recognize revenue in a way that depicts the transfer of
| results of operations year ended december 31 , 2014 compared to year ended december 31 , 2013 sales . the company 's net sales increased 5.7 % in 2014 to a record $ 18.5 million compared to net sales of $ 17.5 million in 2013. ikonics imaging sales grew $ 807,000 , or 21.0 % , to $ 4.6 million mainly due to a large initial stocking order from its new distributor , jds industries . the company expects continued sales from jds industries , but not at the volume of the 2014 initial stocking order . ikonics imaging sales have also been positively impacted by improved equipment sales . domestic sales increased 8.1 % in 2014 due to improved emulsion sales as a result of increased customer demand for existing and newly introduced products into the company 's traditional markets . dtx sales also grew from $ 407,000 in 2013 to $ 423,000 in 2014 due to higher film sales . these sales increases were partially offset by a 6.9 % export sales decrease due to lower sales across all geographic regions . asia and europe realized the largest decreases in 2014 compared to the prior year due to poorer general economic conditions and a weaker euro . also unfavorably impacting sales in 2014 was a 5.3 % decrease in ams sales due to loss of a large mask customer . gross profit . gross profit in 2014 was $ 6.7 million , or 36.3 % of sales , compared to $ 6.9 million , or 39.7 % of sales in 2013. gross margins were unfavorably impacted by an increase in ams production costs related to the company 's efforts to improve its 11 production capacity and capabilities . dtx costs also increased in 2014 as the company allocated additional resources , both personnel and equipment , to produce textured prints . some dtx resources used in the production of textured prints were previously utilized in a selling and administrative capacity .
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we specialize in human-generated data , a type of unstructured data that includes an enterprise 's word processing documents , spreadsheets , presentations , audio files , video files , emails , text messages and any other data created by employees . this data contains an enterprise 's financial information , product plans , strategic initiatives , intellectual property and other forms of vital information . our proprietary metadata framework technology enables enterprises to gain actionable insights from their human-generated data by intelligently extracting critical metadata , or data about data , from an organization 's it infrastructure and constructing a map of functional relationships among employees , data objects , content and usage through this contextual information . 31 we have been a pioneer in developing a software platform that allows enterprises to realize the value of their human-generated data in ways that are not resource-intensive and are easy to implement . the revolution in internet search occurred when search engines began to mine internet metadata , such as the links between pages , in addition to page content , thereby making the internet 's content more usable and subsequently valuable . similarly , our metadata framework creates advanced searchable data structures and provides real-time intelligence about an enterprise 's massive volumes of human-generated content , making human-generated data more valuable to the organization . it and business personnel deploy our software for a variety of use cases , including data governance , data security , search , archiving , file synchronization , enhanced mobile data accessibility and information collaboration . we started operations in 2005 with a vision to make enterprise human-generated data more accessible , manageable , secure and actionable . we began offering our flagship product , datadvantage , which provides centralized visibility for all of an enterprise 's human-generated data , in 2006. since then we have continued to invest in innovation and have consistently introduced new products to our customers , including dataprivilege , which was introduced in 2006 , as our self-service web portal for business users . in 2008 , we enhanced our datadvantage offering with datadvantage for unix/linux . in 2009 , we introduced the idu classification framework for sensitive data classification and datadvantage for sharepoint . we further enhanced our datadvantage offering by releasing datadvantage for exchange governance in 2010 which enabled our customers to exercise control over the information being transferred through corporate e-mails . in 2011 , we introduced datadvantage for directory services for increased visibility into active directory . in 2012 , we released the data transport engine for intelligent data migration and archiving and datanywhere for secure hybrid cloud collaboration . more recently , in may 2014 , we introduced datanswers , a secure enterprise search solution for human generated data that delivers highly relevant and secure search results to enterprise employees , greatly improving their productivity . at the core of our technology is our ability to intelligently extract and analyze metadata from an enterprise 's vast , distributed data stores . the broad applicability of our technology has resulted in our customers deploying our platform for numerous use cases for both it and business personnel . we currently have six products ( including datanswers ) , and as of december 31 , 2014 , approximately 42 % of our customers had purchased two or more products , one of which was datadvantage for all of these customers . we believe our existing customer base serves as a strong source of incremental revenues given the broad platform of products we have and the growing volumes and complexity of human-generated data our customers have . our maintenance renewal rate each of the years ended december 31 , 2014 , 2013 and 2012 was over 90 % . our key strategies to maintain our renewal rate include focusing on the quality and reliability of our customer service and support to ensure our customers receive value from our products , providing consistent software upgrades and having more dedicated renewal sales personnel . we sell the vast majority of our products and services to channel partners , including distributors and resellers , which sell to end-user customers , which we refer to in this report as our customers . we believe that our sales model , which combines the leverage of a channel sales model with our highly trained and professional sales force , has and will continue to play a major role in our ability to grow and to successfully deliver our unique value proposition for enterprise human-generated data . we target customers of all sizes , in all industries and all geographies . as of december 31 , 2014 , we had more than 3,300 customers , spanning leading firms in the financial services , public , healthcare , industrial , energy and utilities , technology , consumer and retail , education and media and entertainment sectors . we believe our customer count is a key indicator of our market penetration and the value that our products bring to our customer base . we also believe our existing customers represent significant future revenue opportunities for us . the average spending per customer for each of the years 2014 , 2013 and 2012 was approximately $ 58,000 , $ 61,000 and $ 61,000 , respectively . we believe there is a significant growth opportunity in both domestic and foreign markets , which could include any organization that uses file shares , intranets and email for collaboration , regardless of region . for the year ended december 31 , 2014 , approximately 56 % of our revenues were derived from the united states , while europe , the middle east and africa accounted for approximately 35 % of our revenues . we expect both continued sales growth in the united states and international expansion to be key components of our growth strategy , and we will continue to market our products and services in international markets . we plan to continue to expand our international operations as part of our growth strategy . story_separator_special_tag cost of maintenance and services revenues consists primarily of salaries and benefits , as well as commissions , bonuses and stock-based compensation for our maintenance and services employees , travel expenses and allocated overhead costs for facilities , it and depreciation of equipment . we recognize expenses related to maintenance and services as they are incurred . we expect that our cost of maintenance and services revenues will increase in absolute dollars as we increase our headcount to support revenue growth . gross profit is total revenues less total cost of revenues . gross margin is gross profit expressed as a percentage of total revenues . our gross margin has historically fluctuated slightly from period to period as a result of changes in licenses and maintenance and services mix . operating costs and expenses our operating costs and expenses are classified into three categories : research and development , sales and marketing and general and administrative . for each category , the largest component is personnel costs , which consists of salaries , employee benefits ( including commissions and bonuses ) and stock-based compensation . operating costs and expenses also include allocated overhead costs for depreciation of equipment . allocated costs for facilities primarily consist of rent and office maintenance . operating costs and expenses are generally recognized as incurred . we expect personnel costs to continue to increase in absolute dollars as we hire new employees to continue to grow our business . research and development . research and development expenses primarily consist of personnel costs attributable to our research and development personnel , as well as allocated overhead costs . we expense research and development costs as incurred . we expect that our research and development expenses will continue to increase in absolute dollars as we increase our research and development headcount to further strengthen our technology platform and invest in the development of both existing and new products . sales and marketing . sales and marketing expenses are the largest component of our operating costs and expenses and consist primarily of personnel costs , as well as marketing and business development costs , travel expenses and allocated overhead costs . we expect that sales and marketing expenses will continue to increase in absolute dollars , as we plan to expand our sales and marketing efforts , both domestically and internationally . we expect sales and marketing expenses to be our largest category of operating costs and expenses as we continue to expand our business worldwide . general and administrativ e. general and administrative expenses mostly consist of personnel and facility-related costs for our executive , finance , legal , human resources and administrative personnel . other expenses are comprised of legal , accounting and other consultant fees and other corporate expenses and allocated overhead . we expect that general and administrative expense will increase in absolute dollars as we grow and expand our operations , including internationally , and operate as a public company , including higher legal , corporate insurance and accounting expenses , and the additional costs of achieving and maintaining compliance with the sarbanes-oxley act and related regulations . 34 financial income ( expenses ) , net prior to our ipo , financial income ( expenses ) , net consisted primarily of charges to record outstanding warrants to purchase convertible preferred stock at fair value , interest earned on our cash , cash equivalents and short-term deposits and interest expense associated with our previously outstanding debt , foreign currency forward contract gains and losses , as well as foreign currency exchange gains and losses . following the closing of our ipo during the first quarter of 2014 , our outstanding warrants to purchase convertible preferred stock automatically converted into warrants to purchase shares of common stock and , after such conversion , are no longer classified as a liability on our consolidated balance sheet or included as financial expenses in our consolidated statement of operations . financial income ( expenses ) , net , for the periods post ipo was primarily comprised of foreign exchange losses . income taxes we operate in several tax jurisdictions and are subject to taxes in each country or jurisdiction in which we conduct business . earnings from our non-u.s. activities are subject to local country income tax and may be subject to u.s. income tax . to date , we have incurred accumulated net losses and have not recorded any u.s. federal tax provisions . because of our history of u.s. net operating losses , we have established a full valuation allowance against potential future benefits for deferred tax assets including loss carryforwards . our income tax provision could be significantly impacted by estimates surrounding our uncertain tax positions and changes to our valuation allowance in future periods . we reevaluate the judgments surrounding our estimates and make adjustments as appropriate each reporting period . our israeli subsidiary currently qualifies as a beneficiary enterprise which , upon fulfillment of certain conditions , allows it to qualify for a reduced tax rate based on the beneficiary program guidelines . in addition , we are subject to the continuous examinations of our income tax returns by different tax authorities . we regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes . story_separator_special_tag style= '' margin-top:18pt ; margin-bottom:0pt ; margin-left:4 % ; font-size:10pt ; font-family : times new roman '' > financial expenses , net year ended december 31 , 2013 2012 % change ( in thousands ) financial expenses , net $ 1,274 $ 3,045 ( 58.2 ) % the substantial majority of the decrease in financial expenses , net was due to the revaluation of warrants to purchase convertible preferred stock . income taxes replace_table_token_20_th income taxes for the years ended december 31 , 2013 and 2012 were comprised primarily of foreign income taxes and state taxes .
| results of operations the following tables are a summary of our consolidated statements of operations in dollars and as a percentage of our total revenues . replace_table_token_7_th 35 replace_table_token_8_th comparison of years ended december 31 , 2014 and 2013 revenues replace_table_token_9_th replace_table_token_10_th 36 total revenue growth was achieved due to increased demand for our products and services from new and existing customers , mostly in the domestic market , as well as in international markets . the increase in license revenues was driven by sales to 950 new customers compared to 728 new customers in 2013 , sales to existing customers and sales of new products . as of december 31 , 2014 and 2013 , we had more than 3,300 and approximately 2,400 customers , respectively . the substantial majority of our license revenues was attributable to sales of perpetual licenses . the increase in maintenance and services revenues was primarily due to an increase in the sale of maintenance agreements resulting from the growth of our installed customer base . in each of 2014 and 2013 , our maintenance renewal rate was over 90 % . of the license and first year maintenance and services revenues recognized in the year ended december 31 , 2014 , 64 % was attributable to revenues from new customers , and 36 % was attributable to revenues from existing customers . of the license and first year maintenance and services revenues recognized in the year ended december 31 , 2013 , 66 % was attributable to revenues from new customers , and 34 % was attributable to revenues from existing customers . as of december 31 , 2014 and 2013 , 42 % and 39 % , respectively , of our customers had purchased two or more products .
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references in this report to “ enlink midstream partners , lp , ” the “ partnership , ” “ enlk , ” or like terms refer to enlink midstream partners , lp itself or enlink midstream partners , lp together with its consolidated subsidiaries , including the operating partnership . overview enlc is a delaware limited liability company formed in october 2013 . enlc 's assets consist of equity interests in enlk and , effective january 25 , 2019 , enlc owns all of the outstanding common units of enlk as a result of the closing of the merger described in “ item 8. financial statements and supplementary data— note 1 . ” all of our midstream energy assets are owned and operated by enlk and its subsidiaries . we primarily focus on providing midstream energy services , including : gathering , compressing , treating , processing , transporting , storing , and selling natural gas ; fractionating , transporting , storing , and selling ngls ; and gathering , transporting , stabilizing , storing , trans-loading , and selling crude oil and condensate , in addition to brine disposal services . our midstream energy asset network includes approximately 12,000 miles of pipelines , 21 natural gas processing plants with approximately 5.3 bcf/d of processing capacity , seven fractionators with approximately 290,000 bbls/d of fractionation capacity , barge and rail terminals , product storage facilities , purchasing and marketing capabilities , brine disposal wells , a crude oil trucking fleet , and equity investments in certain joint ventures . we manage and report our activities primarily according to the nature of activity and geography . effective january 1 , 2019 , we changed our reportable operating segments to reflect how we currently make financial decisions and allocate resources . prior to january 1 , 2019 , our reportable operating segments consisted of the following : ( i ) natural gas gathering , processing , transmission , and fractionation operations located in north texas and the permian basin , primarily in west texas , ( ii ) natural gas pipelines , processing plants , storage facilities , ngl pipelines , and fractionation assets in louisiana , ( iii ) natural gas gathering and processing operations located throughout oklahoma , and ( iv ) crude rail , truck , pipeline , and barge facilities in west texas , south texas , louisiana , oklahoma , and orv . effective january 1 , 2019 , we report our financial performance in five segments : permian segment . the permian segment includes our natural gas gathering , processing , and transmission activities and our crude oil operations in the midland and delaware basins in west texas and eastern new mexico and our crude operations in south texas ; north texas segment . the north texas segment includes our natural gas gathering , processing , and transmission activities in north texas ; oklahoma segment . the oklahoma segment includes our natural gas gathering , processing , and transmission activities , and our crude oil operations in the cana-woodford , arkoma-woodford , northern oklahoma woodford , stack , and cnow shale areas ; louisiana segment . the louisiana segment includes our natural gas pipelines , natural gas processing plants , storage facilities , fractionation facilities , and ngl assets located in louisiana and our crude oil operations in orv ; and corporate segment . the corporate segment includes our unconsolidated affiliate investments in the cedar cove jv in oklahoma , our ownership interest in gcf in south texas , our derivative activity , and our general corporate assets and expenses . 61 we have recast the segment information for the years ended december 31 , 2018 and december 31 , 2017 to conform to the current period presentation . we manage our operations by focusing on gross operating margin because our business is generally to gather , process , transport , or market natural gas , ngls , crude oil , and condensate using our assets for a fee . we earn our fees through various fee-based contractual arrangements , which include stated fee-only contract arrangements or arrangements with fee-based components where we purchase and resell commodities in connection with providing the related service and earn a net margin as our fee . we earn our net margin under our purchase and resell contract arrangements primarily as a result of stated service-related fees that are deducted from the price of the commodity purchase . while our transactions vary in form , the essential element of most of our transactions is the use of our assets to transport a product or provide a processed product to an end-user or marketer at the tailgate of the plant , pipeline , or barge , truck , or rail terminal . we define gross operating margin as operating revenue minus cost of sales . gross operating margin is a non-gaap financial measure and is explained in greater detail under “ non-gaap financial measures ” below . approximately 90 % of our gross operating margin was derived from fee-based contractual arrangements with minimal direct commodity price exposure for the year ended december 31 , 2019 . we reflect revenue as “ product sales ” and “ midstream services ” on the consolidated statements of operations . devon is one of our primary customers . for the years ended december 31 , 2019 and 2018 , approximately 29.9 % and 36.4 % of our gross operating margin , respectively , was attributable to commercial contracts with devon . for additional information about our significant customers , refer to “ item 1. business—credit risks and significant customers. ” our revenues and gross operating margins are generated from volumes related to eight primary sources : gathering and transporting natural gas , ngls , and crude oil on the pipeline systems we own ; processing natural gas at our processing plants ; fractionating and marketing recovered ngls ; providing compression services ; providing crude oil and condensate transportation and terminal services ; providing condensate stabilization services ; providing brine disposal services ; and providing natural gas , crude oil , and ngl storage . story_separator_special_tag in june 2019 , we commenced operations on our thunderbird plant , which expands our central oklahoma gas processing capacity by an additional 200 mmcf/d , bringing our total processing capacity at our central oklahoma facilities to 1.2 bcf/d . cajun-sibon pipeline . in april 2019 , we completed the expansion of our cajun-sibon ngl pipeline capacity , which connects the mont belvieu ngl hub to our fractionation facilities in louisiana . this is the third phase of our cajun-sibon system referred to as cajun sibon iii , which increases throughput capacity from 130,000 bbls/d to 185,000 bbls/d . lobo natural gas gathering and processing facilities . in early april 2019 , we completed construction of a 100 mmcf/d expansion to our lobo iii cryogenic gas processing plant , bringing the total operational processing capacity at our lobo facilities to 375 mmcf/d . avenger crude oil gathering system . avenger is a crude oil gathering system in the northern delaware basin supported by a long-term contract with devon on dedicated acreage in their todd and potato basin development areas in eddy and lea counties in new mexico . we commenced initial operations on avenger during the third quarter of 2018 and began full-service operations during the second quarter of 2019 . 63 debt issuances and redemption issuance and repayment of senior unsecured notes . on april 9 , 2019 , enlc issued $ 500.0 million in aggregate principal amount of enlc 's 5.375 % senior unsecured notes due june 1 , 2029 ( the “ 2029 notes ” ) at a price to the public of 100 % of their face value . interest payments on the 2029 notes are payable on june 1 and december 1 of each year . the 2029 notes are fully and unconditionally guaranteed by enlk . net proceeds of approximately $ 496.5 million were used to repay outstanding borrowings under the consolidated credit facility , including borrowings incurred on april 1 , 2019 to repay at maturity all of the $ 400.0 million outstanding aggregate principal amount of enlk 's 2.70 % senior unsecured notes due 2019 , and for general limited liability company purposes . see “ item 8. financial statements and supplementary data— note 6 ” for more information regarding this transaction . consolidated credit facility . on december 11 , 2018 , enlc entered into the consolidated credit facility , which we were able to borrow under upon the closing of the merger . enlk is a guarantor of the consolidated credit facility . see “ item 8. financial statements and supplementary data— note 6 ” for more information regarding this transaction . term loan . on december 11 , 2018 , enlk entered into a three-year $ 850.0 million unsecured term loan . upon closing of the merger , enlc assumed enlk 's obligations under the term loan , and enlk guaranteed enlc 's obligations thereunder . see “ item 8. financial statements and supplementary data— note 6 ” for more information regarding this transaction . gip transaction and organic growth in 2018 on july 18 , 2018 , subsidiaries of devon closed a transaction to sell all of their equity interests in enlk , enlc , and the managing member to gip . see “ item 8. financial statements and supplementary data— note 1 ” for more information regarding the gip transaction . during the second quarter of 2018 , we completed construction of an expansion to our lobo ii cryogenic gas processing plant , which brought total operational processing capacity at our lobo facilities to 175 mmcf/d . we further expanded our natural gas processing capacity at our lobo facilities through the construction of the lobo iii cryogenic gas processing plant , which was completed during the fourth quarter of 2018 and provided an additional 100 mmcf/d of operational capacity . in late march 2018 , we completed construction of black coyote . in addition , we further expanded our crude oil gathering operations in the stack through the construction of redbud , which is supported by a contract with marathon oil company . we commenced initial operations on redbud during the third quarter of 2018. non-gaap financial measures to assist management in assessing our business , we use the following non-gaap financial measure s : adjusted earnings before interest , taxes , and depreciation and amortization ( “ adjusted ebitda ” ) , distributable cash flow available to common unitholders ( “ distributable cash flow ” ) , and gross operating margin . adjusted ebitda we define adjusted ebitda as net income ( loss ) plus interest expense , net of interest income ; income tax expense ( benefit ) ; depreciation and amortization ; impairments ; loss on secured term loan receivable ; distributions from unconsolidated affiliate investments ; ( gain ) loss on disposition of assets ; unit-based compensation ; transaction costs ; ( income ) loss from unconsolidated affiliate investments ; ( gain ) loss on non-cash derivatives ; and accretion expense associated with asset retirement obligations ; less non-cash revenue from contract restructuring ; gain on extinguishment of debt ; payments under onerous performance obligation ; non-cash rent ; and non-controlling interest . adjusted ebitda is a primary metric used in our short-term incentive program for compensating employees . in addition , adjusted ebitda is used as a supplemental liquidity and performance measure by our management and by external users of our financial statements , such as investors , commercial banks , research analysts , and others , to assess : the financial performance of our assets without regard to financing methods , capital structure , or historical cost basis ; the ability of our assets to generate cash sufficient to pay interest costs , support our indebtedness , and make cash distributions to our unitholders ; 64 our operating performance and return on capital as compared to those of other companies in the midstream energy sector , without regard to financing methods or capital structure ; and the viability of acquisitions and capital expenditure projects and the overall rates of return on alternative investment opportunities .
| results of operations the table below sets forth certain financial and operating data for the periods indicated . we manage our operations by focusing on gross operating margin , which we define as revenue less cost of sales as reflected in the table below ( in millions , except volumes ) : replace_table_token_11_th 69 year ended december 31 , 2019 compared to year ended december 31 , 2018 gross operating margin . gross operating margin was $ 1,660.4 million for the year ended december 31 , 2019 compared to $ 1,691.0 million for the year ended december 31 , 2018 , a decrease of $ 30.6 million , or 1.8 % , due to the following : permian segment . gross operating margin in the permian segment increased $ 36.4 million , which was primarily due to a $ 43.4 million increase in gross operating margin due to higher volumes on our permian gas assets from continued development by our customers , including $ 26.7 million from our delaware basin assets , and $ 16.7 million from our midland basin assets . this increase was partially offset by a $ 7.0 million decrease in gross operating margin from our permian crude assets , which was due to a $ 5.4 million decrease in gross operating margin from our south texas assets due to an mvc expiration in july 2019 and a $ 4.5 million decrease in gross operating margin associated with our physical crude marketing arrangements partially offset by a $ 2.9 million increase in gross operating margin from our midland and delaware basins crude assets . we manage our exposure to crude price fluctuations in our physical crude marketing arrangements through various derivative arrangements , which primarily relate to our permian segment .
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the company does not incur material costs between the completion of the working model and story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this annual report on form 10-k. in addition to historical consolidated financial information , the following discussion contains forward-looking statements that reflect our plans , estimates and beliefs . our actual results could differ materially from those discussed in the forward-looking statements . see “ special note regarding forward-looking statements. ” factors that could cause or contribute to these differences include those discussed below and elsewhere in this annual report on form 10-k , particularly in “ risk factors. ” overview we are a life sciences company that has developed next generation , ultra-sensitive digital immunoassay platforms that advance precision health for life sciences research and diagnostics . our platforms are based on our proprietary digital “ simoa ” detection technology . our simoa bead-based and planar array platforms enable customers to reliably detect protein biomarkers in extremely low concentrations in blood , serum and other fluids that , in many cases , are undetectable using conventional , analog immunoassay technologies , and also allow researchers to define and validate the function of novel protein biomarkers that are only present in very low concentrations and have been discovered using technologies such as mass spectrometry . these capabilities provide our customers with insight into the role of protein biomarkers in human health that has not been possible with other existing technologies and enable researchers to unlock unique insights into the continuum between health and disease . we believe this greater insight will enable the development of novel therapies and diagnostics and facilitate a paradigm shift in healthcare from an emphasis on treatment to a focus on earlier detection , monitoring , prognosis and , ultimately , prevention . we are currently focusing on protein detection , which we believe is an area of significant unmet need and where we have significant competitive advantages . however , in addition to enabling new applications and insights in protein analysis , our simoa platforms have also demonstrated applicability across other testing applications , including detection of nucleic acids and small molecules . we currently sell most of our products for life science research , primarily to laboratories associated with academic and governmental research institutions , as well as pharmaceutical , biotechnology and contract research companies , through a direct sales force and support organizations in north america and europe , and through distributors or sales agents in other select markets , including australia , brazil , china , czech republic , india , israel , japan , lebanon , mexico , qatar , saudi arabia , singapore , south korea and taiwan . our instruments are designed to be used either with assays fully developed by us , including all antibodies and supplies required to run the tests , or with “ homebrew ” kits where we supply some of the components required for testing , and the customer supplies the remaining required elements . accordingly , our installed instruments generate a recurring revenue stream . we believe that our recurring consumable revenue is driven by our customers ' ability to extract more valuable data using our platform and to process a large number of samples quickly with little hands-on preparation . we commercially launched our first immunoassay platform , the simoa hd-1 , in january 2014. the hd-1 is based on our bead-based technology , and assays run on the hd-1 are fully automated . we initiated commercial launch of the sr-x instrument in december 2017. the sr-x utilizes the same simoa bead-based technology and assay kits as the hd-1 in a compact benchtop form with a lower price point , more flexible assay preparation , and a wider range of applications . in july 2019 , we launched the simoa hd-x , an upgraded version of the simoa hd-1 , which replaces the hd-1 . the hd-x has been designed to deliver significant productivity and operational efficiency improvements , as well as greater user flexibility . we began shipping and installing hd-x instruments at customer locations in 2019. as the installed base of the simoa instruments increases , total consumables revenue overall is expected to increase . we believe that consumables revenue should be subject to less period-to-period fluctuation than our instrument sales revenue , and will become an increasingly important contributor to our overall revenue . 76 on january 30 , 2018 , we acquired aushon for $ 3.2 million in cash , with an additional payment of $ 0.8 million made in july 2018 , six months after the acquisition date . with the acquisition of aushon , we acquired a clia certified laboratory , as well as aushon 's proprietary sensitive planar array detection technology . leveraging our proprietary sophisticated simoa image analysis and data analysis algorithms , we further refined this planar array technology to develop the sp-x instrument to provide the same simoa sensitivity found in our simoa bead-based platform . we initiated an early-access program for the sp-x instrument in january 2019 , with the full commercial launch commenced in april 2019 . on august 1 , 2019 , we completed our acquisition of uman for an aggregate purchase price of $ 21.2 million , comprised of ( i ) $ 15.7 million in cash plus ( ii ) 191,152 shares of our common stock ( representing $ 5.5 million based on the closing prices of our common stock on the nasdaq global market on july 1 , 2019 and august 1 , 2019 , the dates of issuance ) . story_separator_special_tag 78 financial operations overview revenue under financial accounting standards board ( fasb ) accounting standards codification ( asc ) topic 606 - revenue from contracts with customers ( asc 606 ) , an entity recognizes revenue when its customer obtains control of promised goods or services , in an amount that reflects the consideration that the entity expects to receive in exchange for those goods or services . to determine revenue recognition for arrangements that an entity determines are within the scope of asc 606 , the entity performs the following five steps : ( i ) identify the contract ( s ) with a customer ; ( ii ) identify the performance obligations in the contract ; ( iii ) determine the transaction price , including variable consideration , if any ; ( iv ) allocate the transaction price to the performance obligations in the contract ; and ( v ) recognize revenue when ( or as ) the entity satisfies a performance obligation . we only apply the five-step model to contracts when it is probable that the entity will collect the consideration to which it is entitled in exchange for the goods or services it transfers to the customer . once a contract is determined to be within the scope of asc 606 , we assess the goods or services promised within each contract and determine those that are performance obligations . arrangements that include rights to additional goods or services that are exercisable at a customer 's discretion are generally considered options . we assess if these options provide a material right to the customer and if so , they are considered performance obligations . the identification of material rights requires judgments related to the determination of the value of the underlying license relative to the option exercise price , including assumptions about technical feasibility and the probability of developing a candidate that would be subject to the option rights . the exercise of a material right is accounted for as a contract modification for accounting purposes . the transaction price is then determined and allocated to the identified performance obligations in proportion to their standalone selling prices ( ssp ) on a relative ssp basis . ssp is determined at contract inception and is not updated to reflect changes between contract inception and when the performance obligations are satisfied . determining the ssp for performance obligations requires significant judgment . in developing the ssp for a performance obligation , we consider applicable market conditions and relevant entity-specific factors , including factors that were contemplated in negotiating the agreement with the customer and estimated costs . we validate the ssp for performance obligations by evaluating whether changes in the key assumptions used to determine the ssp will have a significant effect on the allocation of arrangement consideration between multiple performance obligations . we generate product revenue primarily from sales of our hd-x , hd-1 , sr-x , and sp-x instruments and related reagents and other consumables . we currently sell our products for ruo applications and our customers are primarily laboratories associated with academic and governmental research institutions , as well as pharmaceutical , biotechnology and contract research companies . sales of our consumables have consistently increased due to an increasing number of instruments being installed in the field , all of which require certain of our consumables to run customers ' specific tests . consumable revenue consists of sales of complete assays which are developed internally by us , plus sales of “ homebrew ” kits which contain all the elements necessary to run tests with the exception of the specific antibodies utilized which are separately provided by the customer . service and other revenue consists of testing services provided by us in our accelerator laboratory on behalf of certain research customers , in addition to warranty and other service-based revenue . services provided in our accelerator laboratory include sample testing , homebrew assay development and custom assay development . collaboration and license revenue consists of revenue associated with licensing our technology to third parties and for related services . grants received by us that do not require the transfer of goods or services to a customer are accounted for by analogy to international accounting standards ( ias ) 20 , accounting for government grants and disclosure of government assistance ( ias 20 ) . under ias 20 , we recognize revenue as the matching expense or asset is incurred or capitalized . 79 cost of products , services and collaboration revenue cost of goods sold for products consists of hd-x , hd-1 , and sr-x instrument costs from the manufacturer . cost of goods sold for sp-x consists of costs based on the internal assembly of this item . raw material part costs , associated freight , shipping and handling costs , contract manufacturer costs , salaries , personnel costs , royalties , stock-based compensation , overhead and other direct costs related to those sales are classified as cost of goods sold for products . cost of goods sold for services consists of salaries and other personnel costs , royalties , stock-based compensation and facility costs associated with operating the accelerator laboratory on behalf of customers , in addition to costs related to warranties and other costs of servicing equipment at customer sites . additionally , we incur costs related to cost of goods sold under the nih radx program . cost of collaboration revenue consists of royalty expense due to third parties from revenue generated by collaboration or license deals . research and development expenses research and development expenses consist of salaries and other personnel costs , stock-based compensation , research supplies , third-party development costs for new products , materials for prototypes , and allocated overhead costs that include facility and other overhead costs . we have made substantial investments in research and development since our inception , and plan to continue to make substantial investments in the future .
| results of operations comparison of the years ended december 31 , 2020 and december 31 , 2019 ( dollars in thousands ) : replace_table_token_7_th revenue revenue increased by $ 29.6 million , or 52 % , to $ 86.4 million for the year ended december 31 , 2020 as compared to $ 56.7 million for the year ended december 31 , 2019. product revenue consisted of sales of instruments totaling $ 16.6 million and sales of consumables and other products of $ 27.4 million for the year ended december 31 , 2020. product revenue consisted of sales of instruments totaling $ 14.9 million and sales of consumables and other products totaling $ 25.6 million for the year ended december 31 , 2019. average sales prices of instruments and consumables did not change materially for the year ended december 31 , 2020 as compared with the year ended december 31 , 2019. the increase in product revenue of $ 3.5 million was due to the sale of more instruments for the year ended december 31 , 2020 and increased sales of consumables . the installed base of instruments increased from december 31 , 2019 to december 31 , 2020 , and as these additional instruments were used by customers , the consumables sales increased . the increase in service and other revenue of $ 8.1 million was primarily due to increased services performed in our accelerator laboratory ; more customers use these services , and existing customers use these services more frequently . in addition , an increase in purchased warranties contributed to the service and other revenue increase . collaboration and license revenue for the year ended december 31 , 2020 of $ 11.8 million was related to entering into 86 the abbott license agreement , and from existing contracts related to licensing technology and intellectual property .
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on october 1 , 2017 , we converted the operating company from a delaware limited liability company to a delaware limited partnership . we are , through a wholly owned subsidiary , the sole managing general partner and owned , as of december 31 , 2017 , approximately 58.6 % of the operating company . the operating company directly or indirectly owns equity interests in : ( 1 ) five point land , llc ( “ fpl ” ) , which owns the newhall land & farming company , a california limited partnership , the entity that is developing newhall ranch ; ( 2 ) the shipyard communities , llc ( the “ san francisco venture ” ) , which is developing the san francisco shipyard and candlestick point ; ( 3 ) heritage fields llc ( the “ great park venture ” ) , which is developing great park neighborhoods ; ( 4 ) five point communities , lp and five point communities management , inc. ( together , the “ management company ” ) , which have historically managed the development of great park neighborhoods and newhall ranch ; and ( 5 ) five point office venture holdings i , llc ( the “ gateway commercial venture ” ) , which owns the five point gateway campus . the operating company consolidates and controls the management of all of these entities except for the great park venture and the gateway commercial venture . the operating company owns a 37.5 % percentage interest in the great park venture , and a 75 % interest in the gateway commercial venture and accounts for its interest using the equity method . the management company performs development management services for the great park venture and property management services for the gateway commercial venture . formation transactions on may 2 , 2016 , we completed the formation transactions , in which we acquired controlling interests in the san francisco venture and the management company and a 37.5 % percentage interest in the great park venture . we have identified five point holdings , llc as our predecessor for accounting purposes . prior to the formation transactions , five point holdings , llc had a controlling interest in the operating company , which owns fpl . our acquired businesses were not under common control prior to the formation transactions , despite having commonality of several owners . in determining five point holdings , llc as our predecessor , we considered many factors , including , but not limited to , five point holdings , llc being considered the accounting acquirer in the formation transactions , the extent of historical operations at the companies , the relative size of each business acquired and our organizational and governance structure subsequent to the formation transactions . initial public offering on may 15 , 2017 , we completed an initial public offering ( “ ipo ” ) resulting in net proceeds of $ 319.7 million after paying underwriting discounts and commissions but before deducting offering expenses . we 42 contributed the net proceeds of the ipo to the operating company in exchange for class a units of the operating company . concurrent with the ipo , we completed a private placement with an affiliate of lennar in which the operating company sold 7,142,857 of its class a units at a price of $ 14.00 per unit and we sold an equal number of our class b common shares at a price of $ 0.00633 per share . there were no underwriting fees , discounts or commissions , and aggregate proceeds from the private placement were $ 100.0 million . we contributed our proceeds from the private placement of class b common shares to the operating company in exchange for class b units of the operating company . gateway commercial venture on august 4 , 2017 , one of our wholly owned subsidiaries entered into the gateway commercial venture with two other members . through our subsidiary , we contributed $ 106.5 million to the gateway commercial venture in exchange for a 75 % interest . on august 10 , 2017 , the gateway commercial venture acquired from a subsidiary of broadcom limited approximately 73 acres of commercial land in the great park neighborhoods on which four buildings had been recently constructed or were nearing completion ( the “ five point gateway campus ” ) . the purchase price of approximately $ 443.0 million was paid through a combination of capital contributions and borrowings obtained by subsidiaries of the gateway commercial venture . senior notes offering in november 2017 , the operating company issued in aggregate $ 500.0 million of 7.875 % unsecured senior notes due 2025 ( the “ senior notes ” ) . we intend to use the net proceeds of the offering for general corporate purposes , which may include funding development activities at our communities . tax act primarily as a result of the tax cuts and jobs act of 2017 reduction in the corporate tax rate , the payable pursuant to the tax receivable agreement was reduced by $ 105.6 million , resulting in an increase to net income for the year ended december 31 , 2017. additionally , deferred tax assets and liabilities were re-measured in december 2017 to reflect the reduced corporate tax rate . our business we stage the development process to optimize the pace of land sales and land values within our communities . as a result , we are often in multiple phases of the development lifecycle within each of our communities . the development lifecycle of our mixed-use , master-planned communities can be broken down into several phases . first , we obtain title , or the contractual right to acquire title , to the undeveloped land . second , we obtain the necessary primary entitlements from governmental agencies for the community , which typically include zoning and general plan approvals and certification of an environmental impact report under the california environmental quality act ( “ ceqa ” ) , as well as any state or federal permits required for development . story_separator_special_tag because our revenue is influenced by the prices that homebuyers and commercial buyers are willing to pay for homes or commercial buildings in our region , our results of operations may be influenced by , among other things , the overall supply and demand for housing and commercial properties , the prevailing interest rates for mortgages , and the availability of mortgage financing for residential and commercial developers and residential and commercial buyers . timing of obtaining the necessary approvals to begin development as a developer of real property in california , we are subject to numerous land use and environmental laws and regulations . before we can begin developing our communities , we must obtain entitlements , permits and approvals . depending upon the type of the approval being sought , we may also need to complete an environmental impact report , remediate environmental impacts or agree to finance or develop public infrastructure within the community , each of which would impose additional costs on us . in the event that we materially modify any of our existing entitlements , approvals or permits , we may also need to go through a discretionary approval process before the relevant governmental authority or go through an additional or supplemental environmental review and certification process . in addition , laws and regulations governing the approval processes provide third parties with the opportunity to challenge our entitlements , permits and approvals . the prospect of these third-party challenges creates additional uncertainty . third-party challenges in the form of litigation can adversely affect the length of time or the cost required to obtain the necessary governmental approvals to develop , or result in the denial of our right to develop the particular community or development area in accordance with our current development plans . furthermore , adverse decisions arising from any litigation can increase the cost or length of time to obtain ultimate approval of a project , if such approval is obtained at all , and can adversely affect the design , scope , plans and profitability of a project , which can negatively affect our financial condition and results of operations . in september 2017 , we reached a settlement ( the “ newhall settlement ” ) with key national and state environmental and native american organizations that were petitioners ( the “ settling petitioners ” ) in various legal challenges of newhall ranch 's entitlement approvals and permits . the settling petitioners have agreed to ( a ) dismiss all pending claims regarding regulatory approvals and permits , ( b ) not oppose pending and certain future regulatory approvals , and ( c ) not seek protections for certain species of plants and animals under federal and state endangered species acts for specified time periods . we have agreed to fund certain environmental and cultural investments and protections at the newhall ranch project and surrounding region , including construction of a native american cultural facility and museum , establishment of conservation programs to protect the san fernando valley spineflower , and establishment of an endowment to conserve endangered , threatened , and sensitive species that occur within the santa clara river watershed . we further agreed to ( a ) refrain from developing certain areas within newhall ranch and portions of our ventura county landholdings , and ( b ) provide construction monitoring programs and archaeological surveys designed to identify and preserve native american cultural sites within newhall ranch . we have also agreed to implement , with certain additional requirements and enhancements , our development plans previously approved by los angeles county and the california department of fish and wildlife ( “ cdfw ” ) to achieve net zero greenhouse gas emissions at newhall ranch . two local environmental organizations ( the “ non-settling petitioners ” ) that have pending challenges to certain approvals for newhall ranch did not 45 participate in the newhall settlement and have objected to cdfw 's june 2017 reapproval actions . the non-settling petitioners also filed a new action challenging los angeles county 's july 2017 reapproval actions . see “ item 3. legal proceedings. ” financial information as a result of the formation transactions , our consolidated results of operations after may 2 , 2016 are not comparable to our consolidated results of operations prior to that date because our results of operations prior to may 2 , 2016 did not include either the financial condition and results of operations of the san francisco venture and the management company or our investment in the great park venture . consequently , our results of operations for the year ended december 31 , 2016 include eight months of results attributable to the san francisco venture and the management company and to our investment in the great park venture , but our results of operations for the year ended december 31 , 2015 do not include any results attributable to the san francisco venture , the management company or our investment in the great park venture . segments our four reportable segments are newhall , san francisco , great park and commercial : our newhall segment includes operating results for the newhall ranch community , as well as results attributable to other land historically owned by fpl , including 16,000 acres in ventura county , the tournament players club at valencia golf course ( which was sold in january 2018 ) , 500 acres of remnant commercial , residential and open space land in los angeles county and land in sacramento , california . our san francisco segment includes operating results for the san francisco shipyard and candlestick point community , as well as results attributable to the development management services that we provide to lennar with respect to the treasure island community in the city of san francisco and the concord community in the san francisco bay area . our great park segment includes operating results for the great park neighborhoods community and development management services provided by the management company for the great park venture .
| results of operations the company the following table summarizes our consolidated historical results of operations for the years ended december 31 , 2017 , 2016 and 2015 . replace_table_token_3_th years ended december 31 , 2017 and 2016 revenues . revenues increased by $ 100.1 million , or 254.2 % , to $ 139.4 million for the year ended december 31 , 2017 , from $ 39.4 million for the year ended december 31 , 2016 . the increase in revenue was primarily due to a land sale , to a related party , at our san francisco segment . additionally , the increase was also driven in part by revenues from development management services provided to related parties at our san francisco and great park segments . prior to the formation transactions , our predecessor did not provide development management services . 47 cost of land sales . cost of land sales increased by $ 84.3 million to $ 84.7 million for the year ended december 31 , 2017 , from $ 0.4 million for the year ended december 31 , 2016 . the increase was primarily due to the land sale at our san francisco segment . selling , general , and administrative . selling , general , and administrative expenses increased by $ 1.6 million , or 1.3 % , to $ 122.3 million for the year ended december 31 , 2017 , from $ 120.7 million for the year ended december 31 , 2016 .
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the company assesses the likelihood that deferred tax assets will be realized and recognizes a valuation allowance if it is more likely than not that some portion of the deferred tax assets will not be realized . this assessment requires judgment as to the likelihood and amounts of future taxable income by tax jurisdiction . to date , the company has provided a full valuation allowance against its deferred tax assets as it believes the objective and verifiable evidence of its historical pretax net losses outweighs any positive evidence of its forecasted future results . although the company believes that its tax estimates are reasonable , the ultimate tax determination involves significant judgment that is subject to audit by tax authorities in the ordinary course of story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this annual report on form 10-k. in addition to historical consolidated financial information , the following discussion contains forward-looking statements that reflect our plans , estimates and beliefs . our actual results could differ materially from those discussed in the forward-looking statements . factors that could cause or contribute to these differences include those discussed below and elsewhere in this annual report on form 10-k , particularly in the section titled “ risk factors. ” overview we are a leading provider of secure , cloud-based digital banking solutions . we enable regional and community financial institutions , or rcfis , to deliver a robust suite of integrated digital banking services to more effectively engage with their consumer and commercial account holders who expect to bank anytime , anywhere and on any device . our solutions are often the most frequent point of interaction between our rcfi customers and their account holders . as such , we purpose build our solutions to deliver a compelling , consistent user experience across digital channels and drive the success of our customers by extending their local brands , enabling improved account holder retention and creating incremental sales opportunities . the effective delivery and management of secure and advanced digital banking solutions in the complex and heavily-regulated financial services industry requires significant resources , personnel and expertise . we provide digital banking solutions that are designed to be highly configurable , scalable and adaptable to the specific needs of our rcfi customers . our solutions deliver to account holders a unified digital banking experience across online , mobile and voice channels by leveraging a common platform that integrates our solutions with each other and with our customers ' other internal and third-party systems . in addition , we design our solutions and our data center infrastructure to comply with stringent security and technical regulations applicable to financial institutions and to safeguard our customers and their account holders through features such as real-time risk and fraud analytics . we deliver our solutions to the substantial majority of our customers using a software-as-a-service , or saas , model under which our customers pay subscription fees for the use of our solutions . a small portion of our customers host our solutions in their own data centers under term license and maintenance agreements . our customers have numerous account holders , and those account holders can represent one or more registered users on our solutions . we generally price our solutions based on the number of solutions purchased by our customers and the number of registered users utilizing our solutions . we earn additional revenues based on the number of bill-pay and certain other transactions that registered users perform on our digital banking solutions in excess of the levels included in our standard subscription fee . as a result , our revenues grow as our customers buy more solutions from us and increase the number of registered users utilizing our solutions and as those users increase their number of transactions on our solutions . we have achieved significant growth since our inception . during each of the past six years , our average number of registered users per installed customer has grown , and we have been able to sell additional solutions to existing customers . our revenues per installed customer and per registered user vary period-to-period based on the length and timing of customer implementations , changes in the average number of registered users per customer , sales of additional solutions to existing customers , changes in the number of transactions on our solutions by registered users and variations among existing customers and new customers with respect to the mix of purchased solutions and related pricing . we believe we have a significant opportunity to continue to grow our business , and we intend to invest across our organization to increase our revenues and improve our operating efficiencies . these investments will increase our costs on an absolute dollar basis , but the timing and amount of these investments will vary based on the rate at which we expect to add new customers , the implementation and support needs of our customers , our software development plans , our technology infrastructure requirements and the internal needs of our organization . many of these investments will occur in advance of our realizing any resultant benefit which may make it difficult to determine if we are effectively allocating our resources . if we are successful in growing our revenues by increasing the number and scope of our customer relationships , we anticipate that greater economies of scale and increased operating leverage will improve our margins over the long term . we also anticipate that increases in the number of registered users for existing customers will improve our margins . however , we do not have any control or influence over whether account holders elect to become registered users of our customers ' digital banking services . we sell our solutions primarily through our professional sales organization . our target market of rcfis is well-defined as a result of applicable governmental regulations . story_separator_special_tag other companies in our industry may calculate revenue retention rate differently , which reduces its usefulness as a comparative measure . our revenue retention rate was 122 % for each of the years ended december 31 , 2016 , 2015 and 2014 . churn we utilize churn to monitor the satisfaction of our customers and evaluate the effectiveness of our business strategies . we define churn as the amount of any monthly recurring revenue losses due to installed customer cancellations and downgrades , net of upgrades and additions of new solutions , during a year , divided by our monthly recurring revenue at the beginning of the year . cancellations refer to installed customers that have either stopped using our services completely or remained a customer but terminated a particular service . downgrades are a result of customers taking less of a particular service or renewing their contract for identical services at a lower price . our annual churn has ranged from 5.1 % to 3.5 % over the last five years , and we had annual churn of 5.1 % , 3.5 % and 4.8 % for the years ended december 31 , 2016 , 2015 and 2014 , respectively . our use of churn has limitations as an analytical tool , and investors should not consider it in isolation . other companies in our industry may calculate churn differently , which reduces its usefulness as a comparative measure . adjusted ebitda we define adjusted ebitda as net loss before depreciation , amortization , loss from discontinued operations , stock-based compensation , certain costs related to our recent acquisitions , unoccupied lease charges , provision for income taxes , and total other expense , net . we believe that adjusted ebitda provides useful information to investors and others in understanding and evaluating our operating results for the following reasons : adjusted ebitda is widely used by investors and securities analysts to measure a company 's operating performance without regard to items that can vary substantially from company to company depending upon their financing , capital structures and the method by which assets were acquired ; our management uses adjusted ebitda in conjunction with gaap financial measures for planning purposes , in the preparation of our annual operating budget , as a measure of our operating performance , to assess the effectiveness of our business strategies and to communicate with our board of directors concerning our financial performance ; adjusted ebitda provides more consistency and comparability with our past financial performance , facilitates period-to-period comparisons of our operations and also facilitates comparisons with other companies , many of which use similar non-gaap financial measures to supplement their gaap results ; and our investor and analyst presentations include adjusted ebitda as a supplemental measure of our overall operating performance . adjusted ebitda should not be considered as an alternative to net loss or any other measure of financial performance calculated and presented in accordance with gaap . the use of adjusted ebitda as an analytical tool has limitations such as : depreciation and amortization are non-cash charges , and the assets being depreciated or amortized will often have to be replaced in the future and adjusted ebitda does not reflect cash requirements for such replacements ; adjusted ebitda may not reflect changes in , or cash requirements for , our working capital needs or contractual commitments ; adjusted ebitda does not reflect the potentially dilutive impact of stock-based compensation ; adjusted ebitda does not reflect interest or tax payments that could reduce cash available for use ; and other companies , including companies in our industry , might calculate adjusted ebitda or similarly titled measures differently , which reduces their usefulness as comparative measures . 42 because of these and other limitations , you should consider adjusted ebitda together with our gaap financial measures including cash flow from operations and net loss . the following table presents a reconciliation of net loss to adjusted ebitda for each of the periods indicated ( in thousands ) : replace_table_token_7_th components of operating results revenues all of our revenue-generating activities directly relate to the sale , implementation and support of our solutions within a single operating segment . we derive the substantial majority of our revenues from subscription fees for the use of our solutions hosted in our data centers as well as revenues for implementation and customer support services related to our solutions . a small portion of our customers host our solutions in their own data centers under term license and maintenance agreements , and we recognize the corresponding revenues over the term of those customer agreements . subscription fees are based on the number of solutions purchased by our customers , the number of registered users and the number of bill-pay and certain other transactions those users conduct using our solutions in excess of the levels included in our standard subscription fee . subscription fees are billed and recognized monthly over the term of our customer agreements . the initial term of our customer agreements averages over five years , although it varies by customer . we begin recognizing subscription fees on the date a solution is implemented and made available to the customer . the timing of our implementations varies period-to-period based on our implementation capacity , the number of solutions purchased by our customers , the size and unique needs of our customers and the readiness of our customers to implement our solutions . we recognize any related implementation services revenues ratably over the initial agreement term beginning on the date we commence recognizing subscription fees . amounts that have been invoiced but not paid are recorded in accounts receivable and in revenues or deferred revenues , depending on whether our revenue recognition criteria have been met . we consider subscription fees to be fixed or determinable unless the fees are subject to refund or adjustment or are not payable within our standard payment terms .
| results of operations consolidated statements of operations data the following table sets forth our consolidated statements of operations data for each of the periods indicated ( in thousands ) : replace_table_token_8_th ( 1 ) includes amortization of acquired technology of $ 3.2 million , $ 0.7 million and zero for the years ended december 31 , 2016 , 2015 and 2014 , respectively . ( 2 ) includes stock-based compensation expenses as follows ( in thousands ) : replace_table_token_9_th ( 3 ) unoccupied lease charges include costs related to our early exit from our previous lincoln , nebraska facility . 49 the following table sets forth our consolidated statements of operations data as a percentage of revenues for each of the periods indicated : replace_table_token_10_th _ ( 1 ) includes amortization of acquired technology of 2.1 % , 0.6 % and zero for the years ended december 31 , 2016 , 2015 and 2014 , respectively . ( 2 ) includes stock-based compensation expenses as follows : replace_table_token_11_th ( 3 ) unoccupied lease charges include costs related to our early exit from our previous lincoln , nebraska facility . due to rounding , totals may not equal the sum of the line items in the tables above . 50 comparison of year ended december 31 , 2016 and 2015 , and the year ended december 31 , 2015 and 2014 revenues the following table presents our revenues for each of the periods indicated ( dollars in thousands ) : replace_table_token_12_th year ended december 31 , 2016 compared to the year ended december 31 , 2015 . revenues increased by $ 41.4 million , or 38.0 % , from $ 108.9 million for the year ended december 31 , 2015 to $ 150.2 million for the year ended december 31 , 2016 .
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the company incurred additional depreciation expense of approximately $ 4.0 million during the year ended december 31 , story_separator_special_tag you should read the following discussion in conjunction with the sections of this annual report on form 10-k entitled risk factors , forward-looking statements , business and our audited consolidated financial statements and the related notes thereto included elsewhere in this annual report on form 10-k. this discussion contains forward-looking statements reflecting current expectations that involve risks and uncertainties . actual results and the timing of events may differ materially from those contained in these forward-looking statements due to a number of factors , including those discussed in the section entitled risk factors and elsewhere in this annual report on form 10-k. overview we acquire , own and operate industrial real estate in six major coastal u.s. markets : los angeles ; northern new jersey/new york city ; san francisco bay area ; seattle ; miami ; and washington , d.c./baltimore . we invest in several types of industrial real estate , including warehouse/distribution ( approximately 92.2 % of our total portfolio square footage as of december 31 , 2015 ) , flex ( including light industrial and r & d ) ( approximately 6.3 % ) and trans-shipment ( approximately 1.5 % ) . we target functional buildings in infill locations that may be shared by multiple tenants and that cater to customer demand within the various submarkets in which we operate . as of december 31 , 2015 , we owned 148 buildings ( including one building held for sale ) aggregating approximately 11.1 million square feet , one redevelopment property expected to contain approximately 0.2 million square feet and two improved land parcels consisting of 3.5 acres , which we purchased for an aggregate purchase price of approximately $ 1.1 billion . as of december 31 , 2015 , our properties were approximately 91.5 % leased to 352 customers , the largest of which accounted for approximately 4.4 % of our total annualized base rent . we are an internally managed maryland corporation and elected to be taxed as a reit under sections 856 through 860 of the code , commencing with our taxable year ended december 31 , 2010. our investment strategy we acquire , own and operate in industrial properties in six major coastal u.s. markets : los angeles ; northern new jersey/new york city ; san francisco bay area ; seattle ; miami ; and washington , d.c./baltimore . we invest in several types of industrial real estate , including warehouse/distribution , flex ( including light industrial and r & d ) and trans-shipment . we target functional buildings in infill locations that may be shared by multiple tenants and that cater to customer demand within the various submarkets in which we operate . we selected our target markets by drawing upon the experience of our executive management investing and operating in over 50 global industrial markets located in north america , europe and asia , the fundamentals of supply and demand , and in anticipation of trends in logistics patterns resulting from population changes , regulatory and physical constraints , changes in technology , potential long term increases in carbon prices and other factors . we believe that our target markets have attractive long term investment attributes . we target assets with characteristics that include , but are not limited to , the following : located in high population coastal markets ; close proximity to transportation infrastructure ( such as sea ports , airports , highways and railways ) ; 38 situated in supply-constrained submarkets with barriers to new industrial development , as a result of physical and or regulatory constraints ; functional and flexible layout that can be modified to accommodate single and multiple tenants ; acquisition price at a discount to the replacement cost of the property ; potential for enhanced return through re-tenanting or operational and physical improvements ; and opportunity for higher and better use of the property over time . in general , we prefer to utilize local third party property managers for day-to-day property management and as a source of acquisition opportunities . we believe outsourcing property management is cost effective and provides us with operational flexibility . we currently manage one of our properties directly and may directly manage other properties in the future if we determine such direct property management is in our best interest . we have no current intention to acquire undeveloped industrial land or to pursue ground up development . however , we may pursue redevelopment and expansion opportunities of properties that we own or acquire adjacent land to expand our existing facilities . we expect that we will continue to acquire the significant majority of our investments as equity interests in individual properties , portfolios of properties or acquired improved industrial land parcels which may be rented without a building in place . we may also acquire industrial properties through the acquisition of other corporations or entities that own industrial real estate . we will opportunistically target investments in debt secured by industrial real estate that would otherwise meet our investment criteria with the intention of ultimately acquiring the underlying real estate . we currently do not intend to target specific percentages of holdings of particular types of industrial properties . this expectation is based upon prevailing market conditions and may change over time in response to different prevailing market conditions . the properties we acquire may be stabilized ( fully leased ) or unstabilized ( have near term lease expirations or be partially or fully vacant ) . during the period from february 16 , 2010 to december 31 , 2015 , we acquired 48 unstabilized properties of which 33 have been stabilized . we sell properties from time to time when we believe the prospective total return from a property is particularly low relative to its market value and or the market value of the property is significantly greater than its estimated replacement cost . story_separator_special_tag this new development will slow potential rent growth from what it would be without such new development . over the intermediate term of the next four to five years , we expect to grow our portfolio to approximately $ 3 billion of assets up from approximately $ 1.2 billion today . this will utilize approximately $ 2 billion of equity up from approximately $ 1 billion today . we expect this to optimize our operating efficiency , increase our shareholder liquidity and maintain our recently acquired investment grade credit rating . we remain mindful , however , that it is per share , rather than aggregate , results that matter . we believe in the long-term operating prospects of our functional , extremely infill coastal assets . we believe in sound balance sheet management . we believe in the benefits of our market-leading corporate governance and exceptionally aligned executive management compensation . as a result , we are enthusiastic about the future and our ability to produce superior results for our shareholders over time . the primary source of our operating revenues and earnings is rents received from tenants under operating leases at our properties , including reimbursements from tenants for certain operating costs . we seek long-term earnings growth primarily through increasing rents and operating income at existing properties and acquiring properties in our six target markets . we intend to seek to grow our portfolio by utilizing one or more of cash on hand , future borrowings under our credit facility , future sales of common or preferred equity and future placements of secured or unsecured debt . inflation although the u.s. economy has been experiencing relatively modest inflation rates recently , and a wide variety of industries and sectors are affected differently by changing commodity prices , inflation has not had a significant impact on us in our markets of operation . most of our leases require the tenants to pay their share of operating expenses , including common area maintenance , real estate taxes and insurance , thereby reducing our exposure to increases in costs and operating expenses resulting from inflation . in addition , approximately 69.3 % of our total rentable square feet expire within five years which enables us to seek to replace existing leases with new leases at the then-existing market rate . story_separator_special_tag size= '' 2 '' style= '' font-family : times new roman '' > interest and other income . interest and other income increased approximately $ 17,000 for the year ended december 31 , 2015 compared to the same period from the prior year due primarily to increased average cash and cash equivalent holdings . interest expense , including amortization . interest expense increased approximately $ 3.0 million for the year ended december 31 , 2015 compared to the prior year due primarily to an increase in our average outstanding borrowings including $ 100.0 million of senior unsecured notes issued in 2015. the analysis of our results below for the years ended december 31 , 2014 and 2013 includes the changes attributable to same store properties . the same store pool for the comparison of the 2014 and 2013 fiscal years includes all properties that were owned and in operation as of december 31 , 2014 and since january 1 , 2013 and excludes properties that were either disposed of prior to or held for sale to a third party as of december 31 , 2014. as of december 31 , 2014 , the same store pool consisted of 65 buildings aggregating approximately 4.8 million square feet representing 51.8 % of our total square feet owned . as of december 31 , 2014 , the non-same store properties , which we acquired or sold during 2013 and 2014 or were held for sale as of december 31 , 2014 , consisted of 61 buildings aggregating approximately 4.5 million square feet . as of december 31 , 2014 and 2013 , the consolidated same store pool occupancy was approximately 97.1 % and 96.3 % , respectively . 45 comparison of the year ended december 31 , 2014 to the year ended december 31 , 2013 : replace_table_token_14_th 1 includes 2013 and 2014 acquisitions and one property held for sale to a third party with a gross book value of approximately $ 6.9 million and accumulated depreciation and amortization of approximately $ 0.6 million as of december 31 , 2014 . 2 includes straight-line rents and amortization of lease intangibles . see non-gaap financial measures in this annual report on form 10-k for a reconciliation of net operating income and same store net operating income from net income and a discussion of why we believe net operating income and same store net operating income are useful supplemental measures of our operating performance . revenues . total revenues increased approximately $ 23.3 million for the year ended december 31 , 2014 compared to the prior year due primarily to property acquisitions during 2013 and 2014 and increased occupancy in the same store pool portfolio . the increase in same store revenues is primarily related to same store consolidated occupancy at year end increasing to 97.1 % as of december 31 , 2014 as compared to 96.3 % as of 46 december 31 , 2013. in addition , rent changes on new and renewed leases commenced during the year ended december 31 , 2014 were approximately 8.0 % higher as compared with the previous rental rates in that same space . for the quarter and year ended december 31 , 2014 , approximately $ 0.3 million and $ 1.5 million , respectively , was recorded in straight-line rental revenues related to contractual rent abatements given to certain tenants . property operating expenses . total property operating expenses increased approximately $ 6.4 million during the year ended december 31 , 2014 compared to the prior year due primarily to property acquisitions during 2013 and 2014. total same store property operating expenses increased during the year ended december 31 , 2014 compared to the prior year primarily due to an increase in snow removal expenses .
| financial condition and results of operations we derive substantially all of our revenues from rents received from tenants under existing leases on each of our properties . these revenues include fixed base rents and recoveries of certain property operating expenses that we have incurred and that we pass through to the individual tenants . approximately 86.0 % of our leased space includes fixed rental increases or consumer price index-based rental increases . lease terms typically range from three to ten years . 42 our primary cash expenses consist of our property operating expenses , which include : real estate taxes , repairs and maintenance , management expenses , insurance , utilities , general and administrative expenses , which include compensation costs , office expenses , professional fees and other administrative expenses , acquisition costs , which include third-party costs paid to brokers and consultants , and interest expense , primarily on mortgage loans and our credit facility and senior unsecured notes . our consolidated results of operations often are not comparable from period to period due to the impact of property acquisitions at various times during the course of such periods . the results of operations of any acquired property are included in our financial statements as of the date of its acquisition . the analysis of our results below for the years ended december 31 , 2015 and 2014 includes the changes attributable to same store properties .
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based on the company 's assessment of its cash flow projections , a balance of approximately $ 2.2 billion in cash , cash equivalents and short-term investments and the fact that the company continues to generate positive cash flow from operations on a quarterly basis , the company does not anticipate having to sell these securities below par value and does not have the intent to sell these auction rate securities until recovery . thus , the company considers the impairment to be temporary and recorded the unrealized loss to accumulated other comprehensive income , a component of shareholders ' equity . the contractual maturities of available-for-sale securities at january 28 , 2012 and january 29 , 2011 are presented in story_separator_special_tag the following discussion of our financial condition and results of operations should be read in conjunction with the financial statements and related notes included in this annual report on form 10-k. this discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties including those discussed under part i , item 1a , risk factors. these risks and uncertainties may cause actual results to differ materially from those discussed in the forward-looking statements . overview we are a leading global semiconductor provider of high-performance application-specific standard products . our core strength of expertise is the development of complex soc devices leveraging our extensive portfolio of technology intellectual property in the areas of analog , mixed-signal , digital signal processing and embedded arm-based microprocessor integrated circuits . we also develop platforms that we define as integrated hardware along with software that incorporates digital computing technologies designed and configured to provide an optimized computing solution compared to individual components . our broad product portfolio includes devices for data storage , enterprise-class ethernet data switching , ethernet phy , mobile handsets and other consumer electronics , wireless networking , personal area networking , ethernet-based pc connectivity , control plane communications controllers , video-image processing and power management solutions . our products serve diverse applications used in carrier , metropolitan , enterprise and pc-client data communications and storage systems . additionally , we serve the consumer electronics market for the convergence of voice , video and data applications . we are a fabless integrated circuit company , which means that we rely on independent , third party contractors to perform manufacturing , assembly and test functions . this approach allows us to focus on designing , developing and marketing our products and significantly reduces the amount of capital we need to invest in manufacturing products . historically , a small number of customers have accounted for a significant portion of our net revenue . one customer , western digital , accounted for more than 10 % of our net revenue in fiscal 2012 , and two customers represented more than 10 % of our net revenue in fiscal 2011 and 2010. western digital represented 19 % , 21 % , and 24 % of our net revenue in fiscal 2012 , 2011 and 2010 , respectively . research in motion represented 14 % of net revenue in fiscal 2011. toshiba represented 15 % of net revenue in fiscal 2010. subsequent to our fiscal 2012 , western digital acquired hitachi 's hdd unit . if this acquisition had occurred at the beginning of fiscal 2012 , western digital would have represented 24 % of net revenue . during fiscal 2012 , seagate acquired the hdd operations of samsung . if this acquisition had occurred at the beginning of fiscal 2012 , seagate would have represented 11 % of total revenue . also , in fiscal 2012 , one distributor accounted for more than 10 % of our net revenue . in fiscal 2011 and 2010 , no distributor accounted for more than 10 % of our net revenue . we expect to continue to experience significant customer concentration in future periods . in addition , most of our sales are made to customers located outside of the united states , primarily in asia . sales to customers in asia represented approximately 88 % , 81 % and 89 % of our net revenue for fiscal 2012 , 2011 and 2010 , respectively . because many manufacturers and manufacturing subcontractors of our customers are located in asia , we expect that most of our net revenue will continue to be represented by sales to our customers in that region . all of our sales to date have been denominated in u.s. dollars . an increasing number of our products are being incorporated into consumer electronics products , including gaming devices , which are subject to significant seasonality and fluctuations in demand . due to holiday and back to school buying trends , these seasonal demand patterns generally will negatively impact our results in the first and fourth quarter and positively impact our results in the second and third quarter of our fiscal years . a relatively large portion of our sales have historically been made on the basis of purchase orders rather than long-term agreements . in addition , the sales cycle for our products is long , which may cause us to experience a delay between the time we incur expenses and the time revenue is generated from these 39 expenditures . we anticipate that the rate of new orders may vary significantly from quarter to quarter . consequently , if anticipated sales and shipments in any quarter do not occur when expected , expenses and inventory levels could be disproportionately high , and our operating results for that quarter and future quarters may be adversely affected . our fiscal year is the 52- or 53-week period ending on the saturday closest to january 31. in a 52-week year , each fiscal quarter consists of 13 weeks . the additional week in a 53-week year is added to the fourth quarter , making such quarter consist of 14 weeks . fiscal 2012 , 2011 and 2010 were comprised of 52-week periods . fiscal 2013 will be comprised of a 53-week period . story_separator_special_tag if the actual forfeiture rate is higher than the estimated forfeiture rate , then an adjustment will be made to increase the estimated forfeiture rate , which will result in a decrease to the expense recognized in the financial statements . if the actual forfeiture rate is lower than the estimated forfeiture rate , then an adjustment will be made to lower the estimated forfeiture rate , which will result in an increase to the expense recognized in the financial statements . the expense we recognize in future periods could be affected by changes in the estimated forfeiture rate and may differ significantly from amounts recognized in the current period and or our forecasts . additionally , for certain of our performance-based awards , we must make subjective assumptions regarding the likelihood that the related performance metrics will be met . these assumptions are based on various revenue and operating performance criteria . changes in our actual performance could cause a significant adjustment in future periods for these performance-based awards . accounting for income taxes . to prepare our consolidated financial statements , we estimate our income taxes in each of the jurisdictions in which we operate . this process involves estimating our actual tax exposure together with assessing temporary differences resulting from the differing treatment of certain items for tax and accounting purposes . these differences result in deferred tax assets and liabilities , which are included within our consolidated balance sheets . in accordance with accounting standards codification ( asc ) topic 740 , income taxes ( asc 740 ) , we recognize income taxes using an asset and liability approach . this approach requires the recognition of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in our consolidated financial statements or tax returns . the measurement of current and deferred taxes is based on provisions of the enacted tax law and the effects of future changes in tax laws or rates are not anticipated . 41 evaluating the need for an amount of a valuation allowance for deferred tax assets often requires judgment and analysis of all the positive and negative evidence available to determine whether all or some portion of the deferred tax assets will not be realized . a valuation allowance must be established for deferred tax assets when it is more likely than not that they will not be realized . based on the available evidence and judgment , we have determined that it is more likely than not that u.s. research credits and certain acquired net operating losses will not be realized and therefore we have provided a full valuation allowance against these credits . if there is a change in our ability to realize our deferred tax assets , then our tax provision may decrease in the period in which we determine that realization is more likely than not . as a multinational corporation , we conduct our business in many countries and are subject to taxation in many jurisdictions . the taxation of our business is subject to the application of various and sometimes conflicting tax laws and regulations as well as multinational tax conventions . our effective tax rate is highly dependent upon the geographic distribution of our worldwide earnings or losses , the tax regulations and tax holidays in each geographic region , the availability of tax credits and carryforwards , and the effectiveness of our tax planning strategies . the application of tax laws and regulations is subject to legal and factual interpretation , judgment and uncertainty . tax laws themselves are subject to change as a result of changes in fiscal policy , changes in legislation , and the evolution of regulations and court rulings . consequently , taxing authorities may impose tax assessments or judgments against us that could materially impact our tax liability and or our effective income tax rate . we are subject to income tax audits by the respective tax authorities in all of the jurisdictions in which we operate . we recognize the effect of income tax positions only if these positions are more likely than not of being sustained . recognized income tax positions are measured at the largest amount that is more than 50 % likely of being realized . changes in recognition or measurement are reflected in the period in which the change in judgment occurs . we record interest and penalties related to unrecognized tax benefits in income tax expense . the calculation of our tax liabilities involves the inherent uncertainty associated with the application of u.s. gaap and complex tax laws . we believe we have adequately provided in our financial statements for additional taxes that we estimate may be required to be paid as a result of such examinations . while we believe that we have adequately provided for all tax positions , amounts asserted by tax authorities could be greater or less than our accrued position . these tax liabilities , including the interest and penalties , are released pursuant to a settlement with tax authorities , completion of audit or expiration of various statutes of limitation . the material jurisdictions in which we may be subject to potential examination by tax authorities throughout the world include china , israel , singapore , switzerland and the united states . the recognition and measurement of current taxes payable or refundable and deferred tax assets and liabilities require that we make certain estimates and judgments . changes to these estimates or a change in judgment may have a material impact on our tax provision in a future period . inventories . we value our inventory at the lower of cost or market , cost being determined under the first-in , first-out method . we regularly review inventory quantities on hand and record a provision for excess and obsolete inventory based primarily on our estimated forecast of product demand and production requirements . the valuation of inventory requires us to estimate the future demand for our products .
| results of operations despite the challenges we faced during fiscal 2012 , we finished the year with net income of $ 615 million , or $ 0.99 per share , and generated $ 771 million in cash from operations . we finished the year with more than $ 2.2 billion in cash , cash equivalents and short-term investments , even after repurchasing $ 1.34 billion of our common shares during the year . net revenue declined by 6 % in fiscal 2012 compared to fiscal 2011 , from $ 3.61 billion to $ 3.39 billion . the supply chain for our hdd products faced both the effects of a major earthquake in japan early in the year , and 43 significant flooding in thailand later in the year . in addition , one of our major cellular customers faced product transitions and significant competitive headwinds . we believe these combined factors impacted our net revenue by approximately 10 % . somewhat offsetting these impacts , we saw good growth in several new products and initiatives , including our products for the td-scdma market for smartphones in china . we currently have a significant market share in this market , and we believe the market will continue to grow as users transition to smartphones in china . in addition , our net revenue for the ssd market more than doubled during the year , and we remain well-positioned to benefit from the growth in popularity of ssd . in addition to the decline in net revenue , our gross margins declined during the year , from 59.2 % in fiscal 2011 , to 56.8 % in fiscal 2012. although the average selling price of semiconductor products normally declines over time , the decline in average selling prices of our products in fiscal 2012 outpaced the cost reductions received from our manufacturing partners .
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these factors include trends in the economy in our primary lending areas , concentration in large-balance loans and other relevant factors . an accrual for off-balance sheet credit risk is included in other liabilities in the consolidated balance sheets . the appropriateness of the accrual is determined in the same manner as the allowance for loan losses . a provision for credit losses is charged against or credited to earnings in amounts necessary to maintain an appropriate allowance for credit losses . recoveries of loans previously charged off are added to the allowance when received . real estate and other repossessed assets real estate and other repossessed assets are acquired in partial or total story_separator_special_tag replace_table_token_4_th 18 replace_table_token_5_th 1 includes nonaccruing loans , renegotiated loans and assets acquired in satisfaction of loans . excludes loans past due 90 days or more and still accruing . 2 risk-based capital ratios for 2018 , 2017 , 2016 and 2015 calculated under revised regulatory capital rules issued july 2013 and effective for the company on january 1 , 2015. previous risk-based ratios presented are calculated in accordance with then current regulatory capital rules . 3 includes allowance for loan losses and accrual for off-balance sheet credit risk . 4 excludes residential mortgage loans guaranteed by agencies of the u.s. government . 5 non-gaap measure to net interchange charges from prior years between transaction card revenue and data processing and communications expense as a result of the recent revenue recognition standard . this measure has no effect on net income or earnings per share . management 's assessment of operations and financial condition overview the following discussion is management 's analysis to assist in the understanding and evaluation of the financial condition and results of operations of bok financial corporation ( `` bok financial '' or `` the company '' ) . this discussion should be read in conjunction with the consolidated financial statements and footnotes and selected financial data presented elsewhere in this report . for 2018 , the u.s. economy continued to grow , supported by declining unemployment , continued payroll growth and modest inflation . gdp increased 3.5 % through the third quarter of 2018 and is expected to remain in the range of 2 to 3 percent in 2019. the national unemployment rate fell to 3.1 % at december of 2018 from 4.1 % in december of 2017. inflation also remained low around 2 % for 2018. the minutes of the federal open market committee ( `` fomc '' ) of the federal reserve for december indicated continued strengthening of labor market conditions and unchanged longer-run inflation expectations . the federal reserve increased the target range for the federal funds rate by 25 basis points four times during 2018. the 10-year u.s. treasury note finished the year yielding 2.69 % versus 2.40 % at december 31 , 2017. we expect rates to continue to rise in 2019. global quantitative easing and lack of inflation , combined with continued gradual federal funds rate increases by the federal reserve are contributing to a flattening of the yield curve ; however , a yield curve inversion is not expected . higher long-term interest rates are likely in 2019 . 19 story_separator_special_tag december 31 , 2017 , the tier 1 capital ratio was 12.05 % , the total capital ratio was 13.54 % and the leverage ratio was 9.31 % . the company repurchased 615,840 shares at an average price of $ 86.82 per share during 2018 and 80,000 shares at an average price of $ 92.54 during 2017 . the company paid cash dividends of $ 1.90 per common share during 2018 and $ 1.77 per common share in 2017 . 20 net income for the fourth quarter of 2018 totaled $ 108 million or $ 1.50 per diluted share , up from $ 72.5 million or $ 1.11 per diluted share for the fourth quarter of 2017 . the fourth quarter earnings per share included a $ 0.15 per share reduction as a result of cobiz closing and integration costs of $ 14.5 million . the highlights below exclude this amount . income tax expense was $ 20.1 million or 15.7 % of net income before taxes for the fourth quarter of 2018 and $ 54.3 million or 42.9 % of net income before taxes for the fourth quarter of 2017 . the tax reform act enacted in 2017 added $ 11.7 million of expense to the fourth quarter of 2017 largely due to the revaluation of net deferred taxes . the 2017 tax returns were finalized in the fourth quarter of 2018. this resolved several uncertainties caused by last year 's tax cuts and jobs act . resolution of these uncertainties and other routine adjustments reduced tax expense for the quarter by $ 8.6 million . highlights of the fourth quarter of 2018 included : net interest revenue totaled $ 285.7 million for the fourth quarter of 2018 , up $ 68.8 million over the fourth quarter of 2017 . cobiz added $ 43.1 million to net interest revenue in the fourth quarter of 2018 . net interest margin was 3.40 % for the fourth quarter of 2018 , up from 2.97 % for the fourth quarter of 2017 . net interest revenue increased primarily due to four 25 basis point increases in the federal funds rate by the federal reserve during 2018 and growth in average loan balances . fees and commissions revenue totaled $ 160.1 million , up $ 2.2 million over the fourth quarter of 2017 . increases in trust fees and commissions , service charges , and other revenue were partially offset by decreases in brokerage and trading and mortgage banking revenue . this amount does not include hedge-related net interest revenue of $ 695 thousand . the loss in the fair value of mortgage servicing rights , net of economic hedges , was $ 12.4 million in the fourth quarter of 2018 compared to $ 1.4 million in the fourth quarter of 2017 . story_separator_special_tag examples of these factors include changes in commodity prices or engineering imprecision , which may affect the value of reserves that secure our energy loan portfolio , construction risk that may affect commercial real estate loans , changes in regulations and public policy that may disproportionately impact health care loans and changes in loan product types . nonspecific allowances are maintained for risks beyond factors specific to a particular portfolio segment or loan class . these factors include trends in the economy in our primary lending areas , concentrations in loans with large balances and other relevant factors . 22 fair value measurement certain assets and liabilities are recorded at fair value in the consolidated financial statements . fair value is defined by applicable accounting guidance as the price to sell an asset or transfer a liability in an orderly transaction between market participants in the principal markets for the given asset or liability at the measurement date based on market conditions at that date . an orderly transaction assumes exposure to the market for a customary period for marketing activities prior to the measurement date and not a forced liquidation or distressed sale . a hierarchy for fair value has been established that prioritizes the inputs of valuation techniques used to measure fair value into three broad categories : unadjusted quoted prices in active markets for identical assets or liabilities ( level 1 ) , other observable inputs that can be observed either directly or indirectly ( level 2 ) and unobservable inputs for assets or liabilities ( level 3 ) . fair value may be recorded for certain assets and liabilities every reporting period on a recurring basis or under certain circumstances on a non-recurring basis . fair value adjustments of significant assets or liabilities that are based on unobservable inputs ( level 3 ) are considered critical accounting policies and estimates . additional discussion of fair value measurement and disclosure is included in notes 7 and 19 of the consolidated financial statements . mortgage servicing rights we have a significant investment in mortgage servicing rights . our mortgage servicing rights are primarily retained from sales in the secondary market of residential mortgage loans we have originated or purchased from correspondent lenders . occasionally , mortgage servicing rights may be purchased from other lenders . both originated and purchased mortgage servicing rights are initially recognized at fair value . we carry all mortgage servicing rights at fair value . changes in fair value are recognized in earnings as they occur . mortgage servicing rights are not traded in active markets . the fair value of mortgage servicing rights is determined by discounting the projected cash flows . certain significant assumptions and estimates used in valuing mortgage servicing rights are based on current market sources including projected prepayment speeds , assumed servicing costs , earnings on escrow deposits , ancillary income and discount rates . assumptions used to value our mortgage servicing rights are considered significant unobservable inputs and represent our best estimate of assumptions that market participants would use to value this asset . a separate third party model is used to estimate prepayment speeds based on interest rates , housing turnover rates , estimated loan curtailment , anticipated defaults and other relevant factors . the prepayment model is updated periodically for changes in market conditions and adjusted to better correlate with actual performance of our servicing portfolio . the discount rate is based on benchmark rates for mortgage loans plus a market spread expected by investors in servicing rights . significant assumptions used to determine the fair value of our mortgage servicing rights are presented in note 7 to the consolidated financial statements . at least annually , we request estimates of fair value from outside sources to corroborate the results of the valuation model . the assumptions used in this model are primarily based on mortgage interest rates . evaluation of the effect of a change in one assumption without considering the effect of that change on other assumptions is not meaningful . considering all related assumptions , we expect a 50 basis point increase in primary mortgage interest rates to increase the fair value of our servicing rights by $ 19 million . we expect a $ 27 million decrease in the fair value of our mortgage servicing rights from a 50 basis point decrease in primary mortgage interest rates . valuation of impaired loans and real estate and other repossessed assets the fair value of collateral for certain impaired loans and real estate and other repossessed assets is measured on a non-recurring basis . the fair value of real estate is generally based on unadjusted third-party appraisals derived principally from or corroborated by observable market data . fair value measurements based on these appraisals are considered to be based on level 2 inputs . fair value measurements based on appraisals that are not based on observable inputs or that require significant adjustments by us or fair value measurements that are not based on third-party appraisals are considered to be based on level 3 inputs . significant unobservable inputs include listing prices for comparable assets , uncorroborated expert opinions or management 's knowledge of the collateral or industry . 23 the fair value of mineral rights is generally determined by our internal staff of engineers based on projected cash flows from proven oil and gas reserves under existing economic and operating conditions . proven oil and gas reserves are estimated quantities that geological and engineering data demonstrate , with reasonable certainty , to be recoverable in future years from known reservoirs using existing prices and costs . projected cash flows incorporate assumptions related to a number of factors including production , sales prices , operating expenses , severance , ad valorem taxes , capital costs and appropriate discount rate . fair values determined through this process are considered to be based on level 3 inputs .
| performance summary net income for the year ended december 31 , 2018 totaled $ 445.6 million or $ 6.63 per diluted share compared with net income of $ 334.6 million or $ 5.11 per diluted share for the year ended december 31 , 2017 . on october 1 , 2018 , the company acquired cobiz financial , inc. ( `` cobiz '' ) . cobiz is headquartered in denver with a presence in colorado and arizona . the company paid total consideration of $ 944 million , which included $ 243 million in cash along with the issuance of 7.2 million shares of bok financial stock valued at $ 701 million , in exchange for all outstanding shares of cobiz stock . we anticipate a full bank consolidation in the first quarter of 2019. we incurred $ 16.6 million of closing and integration costs , which resulted in an $ 0.18 per share reduction in 2018 . a fee earned through the sale of client assets of $ 15.4 million was recognized in 2018 accounting for a $ 0.17 per share addition . the fluctuation discussion in the highlights below exclude the impact of these items . highlights of 2018 included : net interest revenue totaled $ 984.9 million for 2018 , up from $ 841.7 million for 2017 . cobiz added $ 43.1 million to net interest revenue . the remaining increase was driven by both widening spreads and growth in average assets . net interest margin was 3.20 % for 2018 compared to 2.92 % for 2017 . average earning assets were $ 31.0 billion for 2018 , up $ 1.4 billion over 2017 with $ 950 million due to cobiz . fees and commissions revenue was $ 643.6 million for 2018 , a decrease of $ 14.1 million compared to 2017 .
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furthermore , any taxes paid to the foreign governments on these earnings may be used , in whole or in part , as credits against the u.s. tax on any dividends distributed from such earnings . the following table summarizes the differences between the statutory u.s. federal and effective income tax rates on continuing operations : replace_table_token_45_th lp and its domestic subsidiaries are subject to u.s. federal income tax as well as income taxes of multiple state jurisdictions . its foreign story_separator_special_tag overview general our products are used primarily in new home construction , repair and remodeling , and manufactured housing . we also market and sell our products in light industrial and commercial construction and we have a modest export business . our manufacturing facilities are primarily located in the u.s. and canada , but we also operate two facilities in chile and one facility in brazil . to serve these markets , we operate in four segments : north america oriented strand board ( osb ) ; siding ; engineered wood products ( ewp ) ; and south america . osb is the most significant segment , accounting for 47 % of continuing sales in 2012 , 40 % in 2011 and 44 % in 2010 . osb is sold as a commodity for which sales prices fluctuate daily based on market factors over which we have little or no control . we can not predict whether the prices of our products will remain at current levels , increase or decrease in the future . during 2012 , we experienced an increase in demand for all of our products as the overall housing market continued to improve from the severe weakness experienced in prior years . factors affecting our results revenues and operating costs . we derive our revenues from sales of our products . the unit volumes of products sold and the prices at which sales are made determine the amount of our revenues . these volumes and prices are affected by the overall level of demand for , and supply of , products of the type we sell and comparable or substitute products , and by competitive conditions . our operating results reflect the relationship between the amount of our revenues and our costs of production and other operating costs and expenses . our costs of production are affected by , among other factors , costs of raw materials ( primarily wood fiber and various petroleum-based resins ) and energy costs , which in turn are affected by the overall market supply of and demand for these manufacturing inputs . demand for building products demand for our products correlates to a significant degree to the level of residential construction activity in north america , which historically has been characterized by significant cyclicality . this activity can be further delineated into three areas : ( 1 ) new home construction ; ( 2 ) repair and remodeling ; and ( 3 ) manufactured housing . new home construction . demand for our products correlates to a significant degree to the level of new home construction activity in north america , which historically has been characterized by significant cyclicality . the u.s. census bureau reported that actual single and multi-family housing starts in 2012 were about 29 % higher than 2011 , which were about 4 % higher than such housing starts in 2010. however when comparing 2012 housing starts to the average of the last ten years as reported by the u.s. census bureau , 2012 housing starts were about 43 % lower than that average . we believe that the reduced level of building is due to the continued high levels of unemployment , delayed household formations due to the sluggish economy , foreclosure activity and a more restrictive mortgage market . while near term residential construction is constrained in the u.s. , positive long-term fundamentals exist . increased immigration , the changing age distribution of the population , the high number of adults living with their parents and historically low interest rates are expected to lead to more household formations . the chart below , which is based on data published by u.s. census bureau , provides a graphical summary of new housing starts for single and multi-family in the u.s. showing actual and rolling five and ten year averages for housing starts in thousands . 20 repair and remodeling . demand for building materials to support home improvement projects is largely tied to the size and age of the existing housing stock in north america and consumer confidence . in this regard , the 1970s and 1980s had some of the highest levels of building activity . this puts these homes at an age of approximately 30-40 years , which has been shown to be consistent with the highest per home expenditure rate on repair and remodeling . with the rise in the number and scale of home improvement stores in north america , individuals now have ready and convenient access to obtain the building materials needed for repair and remodeling , as well as increased access to installation services . although this market weakened in 2010 and 2011 due to reduced home sales and reduced financing to fund repair and remodeling expenditures , it did not decline as significantly as new home construction activity . manufactured housing . over the last several years , manufactured housing has suffered . there are several factors that have led to the decline in the number of manufactured housing units produced , including a lack of available financing , increased ability of potential customers to purchase site-built starter homes and financial difficulties at some of the larger manufactured housing producers . supply of building products osb is a commodity product , and it is , along with all of our products , subject to competition from manufacturers worldwide . product supply is influenced primarily by fluctuations in available manufacturing capacity and imports . story_separator_special_tag we review the long-lived assets held and used by us ( primarily property , plant and equipment and timber and timberlands ) for impairment when events or changes in circumstances indicate that the carrying amount of assets may not be recoverable . we consider the necessity of undertaking such a review at least quarterly , and also when certain events or changes in circumstances occur . events and changes in circumstances that may necessitate such a review include , but are not limited to : a significant decrease in the market price of a long-lived asset or group of long-lived assets ; a significant adverse change in the extent or manner in which a long-lived asset or group of long-lived assets is being used or in its physical condition ; a significant adverse change in legal factors or in the business climate that could affect the value of a long-lived asset or group of long-lived assets , including an adverse action or assessment by a regulator ; an accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a long-lived asset or group of long-lived assets ; current-period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset or group of long-lived assets ; and current expectation that , more likely than not , a long-lived asset or group of long-lived assets will be sold or otherwise disposed of significantly before the end of its previously estimated useful life . identifying these events and changes in circumstances , and assessing their impact on the appropriate valuation of the affected assets under accounting principles generally accepted in the u.s. , requires us to make judgments , assumptions and estimates . 24 in general , for assets held and used in our operations , impairments are recognized when the carrying amount of the long-lived asset or groups of long-lived assets is not recoverable and exceeds the fair value of the asset or group of assets . the carrying amount of a long-lived asset or groups of long-lived assets is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the assets or group of assets . the key assumptions in estimating these cash flows relate to future production volumes , pricing of commodity or specialty products and future estimates of expenses to be incurred as reflected in our long-range internal planning models . our assumptions regarding pricing are based upon the average pricing over the commodity cycle ( generally five years ) due to the inherent volatility of commodity product pricing , and reflect our assessment of information gathered from industry research firms , research reports published by investment analysts and other published forecasts . our assumptions regarding expenses reflect our expectation that we will continue to reduce production costs to offset inflationary impacts . when impairment is indicated for assets held and used in our operations , the book values of the affected assets are written down to their estimated fair value , which is generally based upon discounted future cash flows associated with the affected assets . when impairment is indicated for assets to be disposed of , the book values of the affected assets are written down to their estimated fair value , less estimated selling costs . consequently , a determination to dispose of particular assets can require us to estimate the net sales proceeds expected to be realized upon such disposition , which may be less than the estimated undiscounted future net cash flows associated with such assets prior to such determination , and thus require an impairment charge . in situations where we have experience in selling assets of a similar nature , we may estimate net sales proceeds on the basis of that experience . in other situations , we hire independent appraisers to estimate net sales proceeds . due to the numerous variables associated with our judgments and assumptions relating to the valuation of assets in these circumstances , and the effects of changes in circumstances affecting these valuations , both the precision and reliability of the resulting estimates of the related impairment charges are subject to substantial uncertainties and , as additional information becomes known , we may change our estimates significantly . income taxes . the determination of the provision for income taxes , and the resulting current and deferred tax assets and liabilities , involves significant management judgment , and is based upon information and estimates available to management at the time of such determination . the final income tax liability to any taxing jurisdiction with respect to any calendar year will ultimately be determined long after our financial statements have been published for that year . we maintain reserves for known estimated tax exposures in federal , state and international jurisdictions ; however , actual results may differ materially from our estimates . judgment is also applied in determining whether deferred tax assets will be realized in full or in part . when we consider it to be more likely than not that all or some portion of a deferred tax asset will not be realized , a valuation allowance is established for the amount of the deferred tax asset that is estimated not to be realizable . as of december 31 , 2012 , we had established valuation allowances against certain deferred tax assets , primarily related to state and foreign carryovers of net operating losses , credits and capital losses . we have not established valuation allowances against other deferred tax assets based upon tax strategies implemented or deferred tax liabilities which we anticipate to reverse within the carry forward period . accordingly , changes in facts or circumstances affecting the likelihood of realizing a deferred tax asset could result in the need to record additional valuation allowances . pension plans .
| results of operations we reported net income attributable to lp of $ 28.8 million ( $ 0.20 per diluted share ) in 2012 , which was comprised of income from continuing operations attributed to lp of $ 32.1 million ( $ 0.22 per diluted share ) and a loss from discontinued operations of $ 3.3 million ( $ 0.02 per diluted share ) . this compares to a net loss attributable to lp of $ 181.3 million ( $ 1.36 per diluted share ) in 2011 , which was comprised of a loss from continuing operations attributed to lp of $ 172.1 million ( $ 1.29 per diluted share ) and a loss from discontinued operations of $ 9.2 million ( $ 0.07 per diluted share ) . we reported a net loss attributable to lp of $ 39.0 million ( $ 0.30 per diluted share ) in 2010 , which was comprised of loss from continuing operations attributed to lp of $ 32.6 million ( $ 0.25 per diluted share ) and a loss from discontinued operations of $ 6.4 million ( $ 0.05 per diluted share ) . net sales in 2012 were $ 1.7 billion , an increase of 26 % from 2011 net sales of $ 1.4 billion . net sales in 2011 as compared to 2010 were lower by 2 % . sales in 2012 were positively impacted by increases in osb selling prices relative to 2011 and 2010. our results of operations for each of our segments are discussed below , as are results of operations for the “ other ” category which comprises other products that are not individually significant . see note 24 of the notes to the financial statements included in item 8 of this report for further information regarding our segments . osb our osb segment manufactures and distributes osb structural panel products in north america and certain export markets .
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the primary change for the company would be the availability of 100 % bonus depreciation on assets placed in service story_separator_special_tag overview the company is a leading provider of analytics and insights that facilitate measurement and improvement of the patient and employee experience while also increasing patient engagement and customer loyalty for healthcare providers , payers and other healthcare organizations . the company 's solutions enable its clients to understand the voice of the customer with greater clarity , immediacy and depth . nrc health 's heritage , proprietary methods , and holistic approach enable our partners to better understand the people they care for and design experiences that inspire loyalty and trust , while also facilitating regulatory compliance and the shift to population-based health management . the company 's ability to measure what matters most and systematically capture , analyze and deliver insights based on self-reported information from patients , families and consumers is critical in today 's healthcare market . nrc health believes that access to and analysis of its extensive consumer-driven information is becoming more valuable as healthcare providers increasingly need to more deeply understand and engage patients and consumers in an effort towards effective population-based health management . the company 's portfolio of subscription-based solutions provide actionable information and analysis to healthcare organizations and payers across a range of mission-critical , constituent-related elements , including patient experience and satisfaction , community population health risks , workforce engagement , community perceptions , and physician engagement . nrc health partners with clients across the continuum of healthcare services . the company 's clients range from integrated health systems and post-acute providers , such as home health , long term care and hospice , to numerous payer organizations . the company believes this cross-continuum positioning is a unique and an increasingly important capability as evolving payment models drive healthcare providers and payers towards a more collaborative and integrated service model . investment s the company makes equity investments to promote business and strategic objectives . for investments that do not have a readily determinable fair value , the company applies either cost or equity method of accounting depending on the nature of its investment and its ability to exercise significant influence . investments are periodically analyzed to determine whether or not there are any indicators of impairment and written down to fair value if the investment has incurred an other than temporary impairment . during 2017 , the company acquired a $ 1.3 million investment in convertible preferred stock of practicingexcellence.com , inc. , a privately-held delaware corporation ( “ px ” ) , which is carried at cost and included in other non-current assets . the company has a seat on px 's board of directors and the company 's investment , which is not considered to be in-substance common stock , represents approximately 15.7 % of the issued and outstanding equity interests in px . divestitures on december 21 , 2015 , the company completed the sale of selected assets and liabilities related to the clinical workflow product of the former predictive analytics operating segment , for a net cash amount of approximately $ 1.6 million . the company recorded a gain of approximately $ 1.1 million from the sale in the fourth quarter of 2015 , which is included in other income on the consolidated statement of income . an additional gain was recorded in december 2016 , when $ 223,000 was received from proceeds placed in escrow at the time of sale . 18 critical accounting policies and estimates the preparation of financial statements requires management to make estimates and assumptions that affect amounts reported therein . the most significant of these areas involving difficult or complex judgments made by management with respect to the preparation of the company 's consolidated financial statements for 2017 include : ● revenue recognition ; ● valuation of goodwill and identifiable intangible assets ; and ● income taxes . revenue recognition the company derives a majority of its operating revenue from its annually renewable services , which include performance measurement and improvement services , healthcare analytics and governance education services . the company provides these services to its clients under annual client service contracts , although such contracts are generally cancelable on short notice without penalty . however , the company is entitled to payment for services through the cancellation date . services are provided under subscription-based service agreements . the company recognizes subscription-based service revenue over the period of time the service is provided . generally , the subscription periods are for twelve months and revenue is recognized equally over the subscription period . certain contracts , excluding subscription-based service agreements , are fixed-fee arrangements with a portion of the project fee billed in advance and the remainder billed periodically over the duration of the project . revenue and direct expenses for services provided under these contracts are recognized under the proportional performance method . under the proportional performance method , the company recognizes revenue based on output measures or key milestones such as survey set-up , survey mailings , survey returns and reporting . the company measures its progress based on the level of completion of these output measures and recognizes revenue accordingly . management judgments and estimates must be made and used in connection with revenue recognized using the proportional performance method . if management made different judgments and estimates , then the amount and timing of revenue for any period could differ materially from the reported revenue . the company 's revenue arrangements with a client may include combinations of performance measurement and improvement services , healthcare analytics or governance education services which may be executed at the same time , or within close proximity of one another ( referred to as a multiple-element arrangement ) . story_separator_special_tag such judgments include , but are not limited to , the likelihood we would realize the benefits of net operating loss carryforwards , the adequacy of valuation allowances , the election to capitalize or expense costs incurred , and the probability of outcomes of uncertain tax positions . it is possible that the various taxing authorities could challenge those judgments or positions and reach conclusions that would cause us to incur tax liabilities in excess of , or realize benefits less than , those currently recorded . in addition , changes in the geographical mix or estimated amount of annual pretax income could impact our overall effective tax rate . 20 on december 22 , 2017 , the u.s. government enacted comprehensive tax legislation commonly referred to as the tax cut and jobs act ( the “ tax act ” ) . the tax act makes broad and complex changes to the u.s. tax code that affects 2017 , including , but not limited to , a federal corporate tax rate decrease from 35 % to 21 % for tax years beginning after december 31 , 2017 , the transition of u.s international taxation from a worldwide tax system to a territorial system , a one-time transition tax on the mandatory deemed repatriation of foreign earnings and accelerated depreciation that will allow for full expensing of qualified property . on december 22 , 2017 , the staff of the united states securities and exchange commission issued staff accounting bulletin no . 118 ( “ sab 118 ” ) , which provides guidance on accounting for the tax effects of the tax act . sab 118 provides a measurement period that should not extend beyond one year from the tax act enactment date for companies to complete the accounting under asc 740 , income taxes . in accordance with sab 118 , a company must reflect the income tax effects of those aspects of the tax act for which the accounting under asc 740 is complete . to the extent that a company 's accounting for certain income tax effects of the tax act is incomplete but it is able to determine a reasonable estimate , it must record and provisional estimate in the financial statements . story_separator_special_tag year ended december 31 , 2016 , compared to year ended december 31 , 2015 revenue . revenue in 2016 increased 6.9 % to $ 109.4 million , compared to $ 102.3 million in 2015 , which was driven primarily by a combination of continued gains in market share and vertical growth in our existing client base . revenue from subscription-based agreements comprised 88.0 % of the total revenue in 2016 , compared to 86.6 % of total revenue in 2015. direct expenses . direct expenses increased 2.2 % to $ 45.6 million in 2016 , compared to $ 44.6 million in 2015. variable expenses increased by $ 327,000 due to higher survey volumes and increased contracted survey costs , partially offset by decreased survey operations expenses due to a reduction in postage fees and changes in survey methodologies . fixed expenses increased $ 641,000 as a result of higher salary and benefit costs in the client service area , increased travel expenses and increased software license amortization . direct expenses decreased as a percentage of revenue to 41.7 % in 2016 from 43.6 % in 2015 as expenses increased by 2.2 % while revenue for the same period increased by 6.9 % . selling , general and administrative expenses . selling , general and administrative expenses increased 4.4 % to $ 28.4 million in 2016 compared to $ 27.2 million in 2015 , primarily due to increased salary and benefits of $ 991,000 ( mainly from increased incentives and share based compensation expense ) , increased marketing expenses of $ 510,000 , higher annual incentive trip expenses of $ 348,000 , securities and exchange commission registration fees expensed in 2016 of $ 177,000 , and increased professional development costs for associates of $ 172,000. these were partially offset by a reduction of $ 238,000 in repairs and maintenance on the company 's headquarters building and the $ 657,000 write off of a purchase option in 2015 when the company chose not to exercise the option and it expired . selling , general , and administrative expenses decreased as a percentage of revenue to 25.9 % in 2016 , from 26.6 % for the same period in 2015 as expenses increased by 4.4 % while revenue increased by 6.9 % during the same period . depreciation and amortization . depreciation and amortization expenses increased 2.8 % to $ 4.2 million in 2016 compared to $ 4.1 million in 2015 primarily due to increased depreciation and amortization from increased computer software investments and computer software license expense being included in depreciation and amortization in 2016 , resulting from the adoption of accounting standards update ( “ asu ” ) 2015-05 , intangibles - goodwill and other - internal-use software ( subtopic 350-40 ) : customer 's accounting for fees paid in a cloud computing arrangement . these increases were offset by decreased amortization as a result of the sale of the clinical workflow product of the former predictive analytics operating segment in 2015 and other intangibles becoming fully amortized . depreciation and amortization expenses as a percentage of revenue decreased to 3.9 % in 2016 from 4.0 % during in 2015. other income ( expense ) . other income ( expense ) decreased to $ 159,000 in 2016 compared to $ 913,000 in 2015. this was primarily due to the $ 1.1 million gain on the sale of selected assets and liabilities related to the clinical workflow product of the former predictive analytics operating segment in 2015. in december 2016 , an additional gain of $ 223,000 was recorded due to receipt of funds placed in escrow at the time of the sale . 23 provision for income taxes .
| results of operations the following table and graphs set forth , for the periods indicated , selected financial information derived from the company 's consolidated financial statements , including amounts expressed as a percentage of total revenue and the percentage change in such items versus the prior comparable period ( please note that all columns may not add up to 100 % due to rounding ) . the trends illustrated in the following table and graphs may not necessarily be indicative of future results . the discussion that follows the information should be read in conjunction with the company 's consolidated financial statements . replace_table_token_5_th 21 year ended december 31 , 201 7 , compared to year ended december 31 , 2016 revenue . revenue in 2017 increased 7.5 % to $ 117.6 million , compared to $ 109.4 million in 2016 , which was driven primarily by a combination of continued gains in market share and vertical growth in our existing client base . revenue from subscription-based agreements comprised 89.3 % of the total revenue in 2017 , compared to 88.0 % of total revenue in 2016. direct expenses . direct expenses increased 7.7 % to $ 49.1 million in 2017 , compared to $ 45.6 million in 2016. this was due to an increase in variable expenses of $ 555,000 and fixed expenses of $ 2.9 million . variable expense increased mainly due to increased costs to support the larger revenue and higher contracted voice recognition technology , phone costs , and labor costs , partially offset by decreased postage , printing and paper costs due to a reduction in postage fees and changes in survey methodologies . conference expenses also decreased over the same period in 2016. fixed expenses increased primarily as a result of increased salary and benefit costs in the customer service area , partially offset by decreased contracted service costs .
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, by measuring the excess of the estimated fair value of the reporting segment , as determined in step 1 , over the aggregate estimated fair values of the individual assets , liabilities , and identifiable intangibles , as if the reporting segment were being acquired in a business combination at the impairment test date . if the implied fair value of goodwill exceeds the carrying amount of goodwill assigned to the reporting segment , there is no impairment . if the carrying amount of goodwill assigned to a reporting segment story_separator_special_tag for the purpose of this discussion and analysis , the words we , us , our , and the company are used to refer to new york community bancorp , inc. and our consolidated subsidiaries , including new york community bank ( the community bank ) and new york commercial bank ( the commercial bank ) ( collectively , the banks ) . executive summary new york community bancorp , inc. is the holding company for new york community bank , a thrift , with 243 branches in metro new york , new jersey , ohio , florida , and arizona ; and new york commercial bank , with 30 branches in metro new york . with assets of $ 46.7 billion at december 31 , 2013 , we rank among the 20 largest bank holding companies in the nation and , with deposits of $ 25.7 billion at that date , we rank among its 25 largest depositories . both of our banks are new york state-chartered and both are subject to regulation by the fdic , the consumer financial protection bureau , and the new york state department of financial services . in addition , the holding company is subject to regulation by the federal reserve board , and to the requirements of the new york stock exchange , where shares of our common stock are traded under the symbol nycb . with the enactment of the dodd-frank wall street reform and consumer protection act ( the dodd-frank act ) in 2010 and its subsequent implementation , the company and the banks have been subject to heightened regulation and scrutiny . as a publicly traded company , our mission is to provide our shareholders with a solid return on their investment by producing a strong financial performance , maintaining a solid capital position , and engaging in corporate strategies that enhance the value of their shares . in support of this mission , we maintain a business model that has been consistent over the course of decades , as described below : we originate multi-family loans on non-luxury apartment buildings in new york city that are subject to rent regulation and feature below-market rents ; we underwrite our loans in accordance with conservative credit standards in order to maintain a high level of asset quality ; we operate at a high level of efficiency ; and we grow through accretive acquisitions of other financial institutions , branches , and or deposits . the merits of this time-tested business model are reflected in the following achievements : we are the leading producer of multi-family loans for portfolio in new york city ; we have produced a consistent record of above-average asset quality ; we consistently rank among the nation 's most efficient bank holding companies ; and we have generated solid earnings and maintained a consistent position of capital strength . in january 2010 , we added a fifth component to our business model : originating one-to-four family mortgage loans through nycb mortgage company , llc , our mortgage banking subsidiary , and selling the vast majority of those loans , servicing retained , to government-sponsored enterprises ( gses ) . with $ 35.0 billion of one-to-four family loans produced since the inception of this business , we typically have ranked among the nation 's top 20 aggregators of one-to-four family mortgage loans . among the external factors that tend to influence our performance , the interest rate environment is key . just as short-term interest rates affect the cost of our deposits and that of the funds we borrow , market interest rates affect the yields on the loans we produce for investment and the securities in which we invest . in 2013 , the average five-year constant maturity treasury rate ( the cmt ) rose to 1.17 % from 0.76 % in 2012. the highs in the respective years were 1.85 % and 1.22 % and the lows were 0.65 % and 0.56 % . in addition , residential market interest rates impact the volume of one-to-four family mortgage loans we originate in any given quarter , in view of their impact on new home purchases and refinancing activity . accordingly , when residential mortgage interest rates are low , refinancing activity typically increases ; as residential mortgage interest rates begin to rise , the refinancing of one-to-four family mortgage loans typically declines . in 2013 , residential mortgage interest rates rose from the year-earlier level and our production of one-to-four family loans consequently declined . 43 the impact of market interest rates on our multi-family and commercial real estate lending is far less overt than the impact on our production of one-to-four family mortgage loans . because the multi-family and commercial real estate loans we produce generate prepayment penalty income when they repay , the impact of repayment activity can be especially meaningful . while prepayment penalty income reached $ 120.4 million in 2012 , then establishing a record , that volume was exceeded in 2013. in the twelve months ended december 31 , 2013 , prepayment penalty income contributed $ 136.8 million to interest income , exceeding the year-earlier level by $ 16.5 million . also less overt , but nonetheless having an impact on our operations , if not performance , has been the significant increase in regulation and supervision required under the dodd-frank act . story_separator_special_tag the allowance for losses on non-covered loans is established based on our evaluation of the probable inherent losses in our portfolio in accordance with gaap , and is comprised of both specific valuation allowances and general valuation allowances . specific valuation allowances are established based on management 's analyses of individual loans that are considered impaired . if a non-covered loan is deemed to be impaired , management measures the extent of the impairment and establishes a specific valuation allowance for that amount . a non-covered loan is classified as impaired when , based on current information and events , it is probable that we will be unable to collect both the principal and interest due under the contractual terms of the loan agreement . we apply this classification as necessary to non-covered loans individually evaluated for impairment in our portfolios of multi-family ; commercial real estate ; acquisition , development , and construction ; and commercial and industrial loans . smaller-balance homogenous loans and loans carried at the lower of cost or fair value are evaluated for impairment on a collective , rather than individual , basis . we generally measure impairment on an individual loan and determine the extent to which a specific valuation allowance is necessary by comparing the loan 's outstanding balance to either the fair value of the collateral , less the estimated cost to sell , or the present value of expected cash flows , discounted at the loan 's effective interest rate . a specific valuation allowance is established when the fair value of the collateral , net of the estimated costs to sell , or the present value of the expected cash flows is less than the recorded investment in the loan . we also follow a process to assign general valuation allowances to non-covered loan categories . general valuation allowances are established by applying our loan loss provisioning methodology , and reflect the inherent risk in outstanding held-for-investment loans . this loan loss provisioning methodology considers various factors in determining the appropriate quantified risk factors to use to determine the general valuation allowances . the factors assessed begin with the historical loan loss experience for each of the major loan categories maintained . our historical loan loss experience is then adjusted by considering qualitative or environmental factors that are likely to cause estimated credit losses associated with the existing portfolio to differ from historical loss experience , including , but not limited to : changes in lending policies and procedures , including changes in underwriting standards and collection , charge-off , and recovery practices ; changes in international , national , regional , and local economic and business conditions and developments that affect the collectability of the portfolio , including the condition of various market segments ; changes in the nature and volume of the portfolio and in the terms of loans ; changes in the volume and severity of past due loans , the volume of non-accrual loans , and the volume and severity of adversely classified or graded loans ; changes in the quality of our loan review system ; changes in the value of the underlying collateral for collateral-dependent loans ; the existence and effect of any concentrations of credit , and changes in the level of such concentrations ; changes in the experience , ability , and depth of lending management and other relevant staff ; and the effect of other external factors , such as competition and legal and regulatory requirements , on the level of estimated credit losses in the existing portfolio . by considering the factors discussed above , we determine quantifiable risk factors that are applied to each non-impaired loan or loan type in the loan portfolio to determine the general valuation allowances . the time periods considered for historical loss experience continue to be the last three years and the current period . we also evaluate the sufficiency of the overall allocations used for the allowance for losses on non-covered loans by considering the loss experience in the current and prior calendar year . 46 the process of establishing the allowance for losses on non-covered loans also involves : periodic inspections of the loan collateral by qualified in-house and external property appraisers/inspectors , as applicable ; regular meetings of executive management with the pertinent board committee , during which observable trends in the local economy and or the real estate market are discussed ; assessment of the aforementioned factors by the pertinent members of the boards of directors and management when making a business judgment regarding the impact of anticipated changes on the future level of loan losses ; and analysis of the portfolio in the aggregate , as well as on an individual loan basis , taking into consideration payment history , underwriting analyses , and internal risk ratings . in order to determine their overall adequacy , each of the respective non-covered loan loss allowances is reviewed quarterly by management and by the mortgage and real estate committee of the community bank 's board of directors ( the mortgage committee ) or the credit committee of the board of directors of the commercial bank ( the credit committee ) , as applicable . we charge off loans , or portions of loans , in the period that such loans , or portions thereof , are deemed uncollectible . the collectability of individual loans is determined through an assessment of the financial condition and repayment capacity of the borrower and or through an estimate of the fair value of any underlying collateral . generally , the time period in which this assessment is made is within the same quarter that the loan is considered impaired and quarterly thereafter .
| balance sheet summary at december 31 , 2013 , we recorded total assets of $ 46.7 billion , reflecting a $ 2.5 billion , or 5.8 % , increase from the year-earlier amount . the growth of our assets was primarily attributable to the deployment of our cash flows into interest-earning assets , with loans rising $ 1.2 billion year-over-year , to $ 32.9 billion , and total securities rising $ 3.0 billion during this time to $ 8.0 billion . deposits grew $ 783.5 million year-over-year , to $ 25.7 billion , representing 55.0 % of total assets at december 31 , 2013. while now and money market accounts and savings accounts together rose $ 3.5 billion , the increase was largely tempered by a $ 2.2 billion decrease in certificates of deposit ( cds ) and a lesser decrease in non-interest-bearing accounts to $ 2.3 billion . borrowed funds rose $ 1.7 billion year-over-year , to $ 15.1 billion , driven by a like increase in wholesale borrowings to $ 14.7 billion . stockholders ' equity rose $ 79.4 million year-over-year to $ 5.7 billion , representing 12.29 % of total assets and a book value per share of $ 13.01. tangible stockholders ' equity rose $ 95.2 million during this time , to $ 3.3 billion , representing 7.42 % of tangible assets and a tangible book value per share of $ 7.45 . ( please see the discussion and reconciliations of stockholders ' equity and tangible stockholders ' equity , total assets and tangible assets , and the related capital measures that appear on the last page of this discussion and analysis of financial condition and results of operations . ) loans total loans grew $ 1.2 billion year-over-year , to $ 32.9 billion , representing 70.5 % of total assets at december 31 , 2013. covered loans represented $ 2.8 billion , or 8.5 % , of the year-end 2013 balance , and non-covered loans accounted for the remaining $ 30.1 billion , or 91.5 % .
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the accompanying consolidated financial statements include the story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read together with “ item 1 – business , ” the consolidated financial statements and the related notes thereto in item 8 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 materially from those anticipated in these forward-looking statements as a result of many factors , including those set forth under “ item 1a - risk factors. ” overview we are a leading global designer and manufacturer of a wide range of energy technology solutions . the company provides power generation equipment , energy storage systems , grid services solutions , and other power products serving the residential , light commercial and industrial markets . power generation and storage is a key focus of the company , which differentiates us from our competitors who also have broad operations outside of the power equipment market . as the only significant market participant with a primary focus on these products , we maintain one of the leading market positions in the power equipment market in north america and an expanding presence internationally . we believe we have one of the widest ranges of products in the marketplace , including residential , commercial and industrial standby generators ; as well as portable and mobile generators used in a variety of applications . a key strategic focus for the company in recent years has been leveraging our leading position in the growing market for cleaner burning , more cost-effective natural gas fueled generators to expand into applications beyond standby power , allowing us to participate in distributed generation projects . the company in recent years has been evolving its business model to also focus on clean energy products , solutions , and services . in 2019 , we began providing energy storage systems as a clean energy solution for residential use that capture and store electricity from solar panels or other power sources and help reduce home energy costs while also protecting homes from shorter-duration power outages . during 2020 , we entered the market for grid services involving distributed energy optimization and control software that helps support the operational stability of the world 's power grids . we have also been focused on connecting the equipment we manufacture to the users of that equipment , helping to drive additional value to our customers and our distribution partners over the product lifecycle . the strategic focus on expanding the connectivity of our products will broaden our monitoring capabilities and also enable the increasing utilization of this equipment as distributed energy resources as the nascent market for grid-services expands over the next several years . overall , as the traditional centralized utility model evolves over time , we believe that a cleaner , more decentralized grid infrastructure will build-out , and generac 's energy technology solutions are strategically positioned to participate in this future `` grid 2.0 '' . in addition to power generation and storage solutions , other products that we design and manufacture include light towers which provide temporary lighting for various end markets , and a broad and growing product line of outdoor power equipment for residential and commercial use . 18 impact of covid-19 on our business the global outbreak of covid-19 was declared a pandemic by the world health organization in march 2020 and has negatively affected the global economy , disrupted global supply chains and created significant market volatility and uncertainty . our management team has been very proactive in addressing the impact of covid-19 on our business . the situation continues to evolve , and we are working to ensure employee safety , monitor customer demand , proactively address supply chain or production challenges , and support our communities during this challenging time . we manufacture and provide essential products and services to a variety of critical infrastructure customers around the globe , and as a result , substantially all of our operations and production activities have , to-date , been operational . we have implemented changes in our work practices , maintaining a safe working environment for production and office employees at our facilities , while enabling other employees to productively work from home . the further extent of the impact of covid-19 on our business is dependent on future developments , including the duration of the pandemic , our ability to operate during the pandemic , actions taken by domestic and foreign governments to contain the spread of the virus , and the related length of its impact on the global economy and our customers . demand the covid-19 pandemic has created significant uncertainty within various global markets that we serve . several areas of our business have been and may continue to be negatively impacted , in particular our commercial and industrial ( c & i ) products around the world . the decline in oil prices has impacted our c & i mobile products demand significantly as national rental customers are deferring their capital spending . c & i stationary product shipments through our north american distributor channel and our telecom customers have slowed during 2020 due to declines in quoting activity . additionally , the covid-19 pandemic has caused a broad-based sharp drop in global demand for our c & i products in our international segment , which magnified the slower economic growth and geopolitical headwinds that were already being experienced by our international business . given the magnitude of the downturn in demand for c & i products , we initiated a number of meaningful cost-cutting actions for this part of our business during the second quarter of 2020 to better align our cost structure with customer demand . we are continuing to monitor these negative impacts on our c & i product demand closely and may implement additional measures in response . story_separator_special_tag the decision to purchase backup power for many light-commercial buildings such as convenience stores , restaurants and gas stations is more return-on-investment driven and , as a result , these applications have relatively lower penetration rates as compared to buildings used in code-driven or mission critical applications such as hospitals , wastewater treatment facilities , 911 call centers , data centers and certain industrial locations . the emergence of lower cost , cleaner burning natural gas fueled generators has helped to increase the penetration of standby generators over the past decade in the light-commercial market . in addition , the installed base of backup power for telecommunications infrastructure is still increasing due to a variety of factors , including the impending rollout of next-generation 5g wireless networks enabling new technologies and the growing importance for critical communications being transmitted over wireless networks . we believe by expanding our distribution network , continuing to develop our product lines , and targeting our marketing efforts , we can continue to build awareness and increase penetration for our standby generators for residential , commercial and industrial purposes . effect of large scale and baseline power disruptions . power disruptions are an important driver of customer awareness for back-up power and have historically influenced demand for generators , both in the united states and internationally . increased frequency and duration of major power outage events , that have a broader impact beyond a localized level , increases product awareness and may drive consumers to accelerate their purchase of a standby or portable generator during the immediate and subsequent period , which we believe may last for six to twelve months following a major power outage event for standby generators . for example , there have been a number of major outage events that occurred over the past decade that drove strong demand for portable and home standby generators , and the increased awareness of these products contributed to strong revenue growth in both the year they occurred along with the following subsequent year . major power disruptions are unpredictable by nature and , as a result , our sales levels and profitability may fluctuate from period to period . in addition , there are smaller , more localized power outages that occur frequently across the united states that drive the baseline level of demand for back-up power solutions . the level of baseline power outage activity occurring across the united states can also fluctuate , and may cause our financial results to fluctuate from year to year . energy storage and monitoring markets developing quickly . during 2019 , we entered the rapidly developing energy storage , monitoring and management markets with the acquisitions of pika energy and neurio technologies , along with the subsequent introduction of complete energy storage systems - marketed under the names pwrcell and pwrview . we believe the electric utility landscape will undergo significant changes in the decade ahead as a result of rising utility rates , grid instability and power quality issues , environmental concerns , and the continuing performance and cost improvements in renewable energy and batteries . on-site power generation from solar , wind , geothermal , and natural gas generators is projected to become more prevalent as will the need to monitor , manage , and store this power – potentially developing into a significant market opportunity . the capabilities provided by pika and neurio have enabled us to bring an efficient and intelligent energy-savings solution to the energy storage and monitoring markets , which enabled us to quickly ramp shipments for these clean energy solutions during 2020 , and we believe will position generac as a key participant going forward . although different from the emergency backup power space , we believe this market will develop similarly as the home standby generator market has over the past two decades given both products can provide power resiliency to homeowners . we expect to further advance our growing capabilities for energy storage systems including product development , sourcing , distribution , and marketing , as we leverage our significant competencies in the residential standby generator market to accelerate our market position in the emerging residential energy storage , monitoring and management markets . california market for backup power increasing . over the past two years , utilities in the state of california have executed a number of public safety power shutoff ( psps ) events in large portions of their service areas . these events were pro-active measures to prevent their equipment from potentially causing catastrophic wildfires during the dry and windy season of the year . the occurrence of these events , along with the utilities warning these actions could continue in the future as they upgrade their transmission and distribution infrastructure , have resulted in significant awareness and increased demand for our generators in california , where penetration rates of home standby generators still stand at only approximately 1 % . we have a significant focus on expanding distribution in california and are working together with local regulators , inspectors , and gas utilities to increase their bandwidth and sense of urgency around approving and providing the infrastructure necessary for home standby and other backup power products . our efforts in this part of the country will also be helpful in developing the market for energy storage and monitoring where the installed base of solar and other renewable sources of electricity are some of the highest in the u.s. , and the regulatory environment is increasingly mandating renewable energy on new construction applications . 20 impact of residential investment cycle . the market for residential generators and energy storage systems is also affected by the residential investment cycle and overall consumer confidence and sentiment . when homeowners are confident of their household income , the value of their home and overall net worth , they are more likely to invest in their home . these trends can have an impact on demand for residential generators and energy storage systems .
| results of o perations a detailed discussion of the year-over-year changes from the company 's fiscal 2018 to fiscal 2019 can be found in the management 's discussion and analysis section of the company 's fiscal 2019 annual report on form 10-k filed february 25 , 2020. year ended december 31 , 2020 compared to year ended december 31 , 2019 the following table sets forth our consolidated statement of operations data for the periods indicated : replace_table_token_3_th 23 the following sets forth our reportable segment information for the periods indicated : replace_table_token_4_th replace_table_token_5_th the following table sets forth our product class information for the periods indicated : replace_table_token_6_th net sales . the increase in domestic segment sales for the year ended december 31 , 2020 was primarily due to strong growth in shipments of home standby generators and portable generators as elevated outage activity and nationwide stay-at-home orders heightened consumer awareness of power reliability concerns . chore products sold directly to consumers were also strong during the current year as homeowners increased outdoor project activity . in addition , shipments of the pwrcell energy storage system had a strong impact on growth as we expanded our presence in the rapidly developing solar-plus-storage market . this broad-based residential products growth was partially offset by continued weakness in sales of c & i mobile products due to the ongoing impacts from the covid-19 pandemic , as well as lower shipments of c & i products to national telecom customers as compared to a strong prior year comparison . the decrease in international segment sales for the year ended december 31 , 2020 was primarily driven by a broad-based sharp drop in global demand caused by the covid-19 pandemic and its impact on the c & i power generation market in certain key regions of the world , which magnified the slower economic growth and geopolitical headwinds already being experienced prior to the pandemic .
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revenue , net of related discounts story_separator_special_tag overview we are a global provider of catalysts , specialty materials and chemicals , and services with leading supply positions across our portfolio . we compete in the global specialty chemicals and materials industry where we seek to focus on attractive , high-growth applications . our products and services provide critical performance to our customers ' products and we are able to offer many of our customers regionally sourced materials to reduce costs and improve delivery logistics . we provide our customers with a combination of product technology and applications knowledge , global supply chain capabilities , and local production and logistical support . we conduct operations through two reporting segments : ( 1 ) environmental catalysts and services , and ( 2 ) performance materials and chemicals . our environmental catalysts and services business is a leading global innovator and producer of catalysts for the refinery , emission control , and petrochemical industries and is also a leading provider of catalyst recycling services to the north american refining industry . we believe our products are critical for our customers in these growing applications and impart essential functionality in chemical and refining production processes and in emission control for engines . our environmental catalysts and services business consists of three product groups : silica catalysts , zeolite catalysts , and refining services . our performance materials and chemicals business is a silicates and specialty materials producer with leading supply positions for the majority of our products sold in north america , europe , south america , australia and asia ( excluding china ) serving diverse and growing end uses such as personal and industrial cleaning products , fuel efficient tires ( “ green tires ” ) , surface coatings , and food and beverage . our products are essential additives , ingredients , and precursors that are critical to the performance characteristics of our customers ' products , yet typically represent only a small portion of our customers ' overall end-product costs . our performance materials and chemicals business consists of two product groups : performance chemicals and performance materials . in 2017 , we served over 4,000 customers globally across many end uses and , as of december 31 , 2017 , operated out of 72 manufacturing facilities , which are strategically located across six continents . basis of presentation in accordance with gaap , legacy eco was the accounting acquirer in the business combination and , as such , legacy eco is treated as our predecessor . investment funds affiliated with ccmp held a controlling interest in legacy eco and a non-controlling interest in legacy pq prior to the business combination . the following table summarizes , for each of the periods specified below and for which financial information is included for pq group holdings in this form 10-k , the portion , if any , of the financial results of legacy pq and legacy eco that is included in the financial results for such periods presented in accordance with gaap . years ended december 31 , 2017 2016 2015 operations of legacy eco included included included operations of legacy pq included partially included ( may 4 to december 31 ) not included our zeolite catalysts product group operates through our zeolyst joint venture , which we account for as an equity method investment in accordance with gaap . we do not record sales by our zeolyst joint venture as revenue and such sales are not consolidated within our results of operations . however , adjusted ebitda reflects our share of the earnings of our zeolyst joint venture that have been recorded as equity in net income from affiliated companies in our consolidated statements of operations and includes zeolyst joint venture adjustments on a proportionate basis based on our 50 % ownership interest . key performance indicators adjusted ebitda and adjusted net income adjusted ebitda and adjusted net income are non-gaap financial measures that we use to evaluate our operating performance , for business planning purposes and to measure our performance relative to that of our competitors . adjusted ebitda and adjusted net income are presented as key performance indicators as we believe these financial measures will enhance a prospective investor 's understanding of our results of operations and financial condition . ebitda consists of net income ( loss ) attributable to pq group holdings before interest , taxes , depreciation and amortization . adjusted ebitda consists of ebitda adjusted for ( i ) non-operating income or expense , ( ii ) the impact of certain non-cash , nonrecurring or other items included in net income ( loss ) and ebitda that we do not consider indicative of our ongoing operating performance , and ( iii ) depreciation , amortization and interest of our 50 % share of the zeolyst joint 48 venture . adjusted net income consists of net income ( loss ) attributable to pq group holdings adjusted for ( i ) non-operating income or expense and ( ii ) the impact of certain non-cash , nonrecurring or other items included in net income ( loss ) that we do not consider indicative of our ongoing operating performance . we believe that these non-gaap financial measures provide investors with useful financial metrics to assess our operating performance from period-to-period by excluding certain items that we believe are not representative of our core business . you should not consider adjusted ebitda and adjusted net income in isolation or as alternatives to the presentation of our financial results in accordance with gaap . the presentation of our adjusted ebitda and adjusted net income financial measures may differ from similar measures reported by other companies and may not be comparable to other similarly titled measures . in evaluating adjusted ebitda and adjusted net income , you should be aware that we are likely to incur expenses similar to those eliminated in this presentation in the future and that certain of these items could be considered recurring in nature . story_separator_special_tag as a result , our working capital requirements tend to be higher in the first and fourth quarters of the year , which can adversely affect our liquidity and cash flows . because of this seasonality associated with certain of our product groups , results for any one quarter are not necessarily indicative of the results that may be achieved for any other quarter or for the full year . inflation inflationary pressures may have an adverse effect on us , impacting raw material costs and other operating costs , as well as resulting in higher fixed asset replacement costs . we attempt to manage these impacts with cost control , productivity improvements and contractual arrangements , as well as price increases to customers . foreign currency as a global business , we are subject to the impact of gains and losses on currency translations , which occur when the financial statements of foreign operations are translated into u.s. dollars . we operate a geographically diverse business with approximately 41 % and 34 % of our sales for the years ended december 31 , 2017 and 2016 , respectively , in currencies other than the u.s. dollar . because our consolidated financial results are reported in u.s. dollars , sales or earnings generated in currencies other than the u.s. dollar can result in a significant increase or decrease in the amount of those sales and earnings when translated to u.s. dollars . the foreign currencies to which we have the most significant exchange rate exposure include the euro , british pound , canadian dollar , brazilian real and the mexican peso . pro forma results of operations in addition to the analysis of historical results of operations , we have prepared unaudited supplemental pro forma results of operations for the years ended december 31 , 2016 and 2015 . the unaudited pro forma statements of operations reflect pro forma adjustments to the results of pq group holdings to give effect to the business combination and the related financing transactions as if they had occurred on january 1 , 2015. the unaudited pro forma adjustments include : elimination of intercompany sales between legacy pq and legacy eco ; adjustments to depreciation expense related to the step-up in fair value of property , plant and equipment ; adjustments to amortization expense related to the step-up in fair value of definite-lived intangible assets ; removal of non-recurring adjustments related to the step-up in the fair value of inventory ; adjustments to stock compensation expense to reflect charges as they relate to our new capital structure ; adjustments related to the amortization of the step-up in fair value of property , plant , equipment and definite-lived intangible assets related to our zeolyst joint venture ; adjustments to interest expense related to the senior secured term loan facility ; adjustments related to the write-off of existing deferred financing fees , original issue discounts and prepayment penalties ; and the tax effect of the aforementioned adjustments , including the effect related to the change in tax status of eco from a limited liability company to a c-corporation . the unaudited pro forma statements of operations have been prepared in accordance with article 11 of regulation s-x by combining the historical results of operations of legacy eco and legacy pq for the periods prior to may 4 , 2016 and should be read in conjunction with our historical consolidated financial statements and related notes thereto included elsewhere in this form 10-k. 50 the unaudited pro forma statements of operations have been prepared for illustrative purposes only and are not necessarily indicative of the combined results of operations that would have been realized had the pro forma transactions been completed as of the dates indicated , nor are they meant to be indicative of any anticipated future results of operations . the unaudited pro forma adjustments are based upon available information and assumptions we believe are factually supportable , directly attributable to the business combination and the related financing transactions , and with respect to the statement of operations , expected to have a continuing impact on our business , and that we believe are reasonable under the circumstances . in addition , the unaudited pro forma statements of operations do not include any pro forma adjustments to reflect expected cost savings or restructuring actions which may be achievable or the impact of any non-recurring activity and transaction-related costs . we believe that the unaudited pro forma statements of operations are a useful presentation of our results of operations as they provide comparative information , period-over-period , on a more comparable basis . 51 results of operations historical and pro forma—year ended december 31 , 2017 compared to the year ended december 31 , 2016 ( the pro forma discussion compares the historical year ended december 31 , 2017 to the pro forma year ended december 31 , 2016 ) story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > $ 1,001.8 million in our results of operations for the year ended december 31 , 2017 as compared to legacy pq sales of $ 639.0 million in our results of operations for the period of may 4 , 2016 through december 31 , 2016 . the increase in sales within our environmental catalysts and services segment was due to the inclusion of legacy pq sales of $ 75.3 million in our results of operations for the year ended december 31 , 2017 as compared to $ 53.0 million of legacy pq sales in our results of operations for the period of may 4 , 2016 through december 31 , 2016 and an increase of $ 24.7 million in our refining services product group . the increase in our refining services product group was primarily driven by increased higher average selling price of $ 20.8 million and increased volumes of $ 3.9 million .
| highlights the following is a summary of our financial performance for the year ended december 31 , 2017 compared with the year ended december 31 , 2016 . sales historical : net sales increased $ 407.9 million to $ 1,472.1 million . the increase in sales was primarily due to the inclusion of $ 1,073.8 million of legacy pq sales in our results of operations for the year ended december 31 , 2017 as compared to $ 690.5 million of legacy pq sales included in our results of operations for the period of may 4 , 2016 through december 31 , 2016 . pro forma : net sales increased $ 69.1 million to $ 1,472.1 million . the increase in sales was primarily due to the inclusion of $ 26.3 million of sales related to the sovitec acquisition , increased volumes and higher average customer prices and favorable mix for the year ended december 31 , 2017 . gross profit historical : gross profit increased $ 122.7 million to $ 376.8 million . our increase in gross profit was primarily due to the inclusion of $ 247.5 million of legacy pq gross profit in our results of operations for the year ended december 31 , 2017 as compared to $ 142.6 million of legacy pq gross profit included in our results of operations for the period of may 4 , 2016 through december 31 , 2016 . pro forma : gross profit increased $ 10.9 million to $ 376.8 million . our increase in gross profit was primarily due to higher pricing , increased volumes and the earnings contributed by the sovitec acquisition , which was partially offset by increased depreciation and higher manufacturing costs for the year ended december 31 , 2017 . operating income historical : operating income increased by $ 83.3 million to $ 167.5 million .
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risk factors , forward-looking statements and item 15. consolidated financial statements and the accompanying notes and other data , all of which appear elsewhere in this annual report on form 10-k. management 's discussion and analysis below generally discusses 2020 and 2019 items and year-to-year comparisons between 2020 and 2019. discussions of 2018 items and year-to-year comparisons between 2019 and 2018 that are not included in this 21 form 10-k can be found in “ management 's discussion and analysis of financial condition and results or operations ” in the company 's annual report on form 10-k for the fiscal year ended december 31 , 2019 filed with the sec on march 5 , 2020 and such information is incorporated herein by reference . business overview we provide total talent management services , including strategic workforce solutions , contingent staffing , permanent placement , and consultative services for healthcare customers . we recruit and place highly qualified healthcare professionals in virtually every specialty and area of expertise . our diverse customer base includes both public and private acute care and non-acute care hospitals , outpatient clinics , ambulatory care facilities , single and multi-specialty physician practices , rehabilitation facilities , urgent care centers , public and charter schools , correctional facilities , government facilities , pharmacies , and many other healthcare providers . through our national staffing teams and network of office locations , we offer our workforce solutions and we can place clinicians on travel and per diem assignments , local short-term contracts , and permanent positions . our workforce solutions include msps , irp , rpo , and other outsourcing and consultative services as described in item 1. business . by utilizing our various solutions , customers can better plan their personnel needs , talent acquisition and management processes , strategically flex and balance their workforce , access quality healthcare personnel , and provide continuity of care for improved patient outcomes . we have a longstanding history of investing in our diversity , equality , and inclusion strategic initiatives as a key component of the organization 's overall corporate social responsibility program which is closely aligned with its core values to create a better future for our people , communities , the planet , and our shareholders . we manage and segment our business based on the nature of the services we offer to our customers . as a result , we report three business segments – nurse and allied staffing , physician staffing , and search . ● nurse and allied staffing – for the year ended december 31 , 2020 , nurse and allied staffing represented approximately 91 % of our total revenue . the nurse and allied staffing segment provides workforce solutions and traditional staffing , including temporary and permanent placement of travel nurses and allied professionals , as well as per diem and contract nurses and allied personnel . we also provide clinical and non-clinical professionals on long-term assignments to clients such as public and charter schools , correctional facilities , skilled nursing facilities , and other non-acute settings . we provide flexible workforce solutions to our healthcare customers through diversified offerings designed to meet their unique needs , including : msp , ows , irp and consulting services . ● physician staffing – for the year ended december 31 , 2020 , physician staffing represented approximately 8 % of our total revenue . physician staffing provides physicians in many specialties , as well as crnas , nps , and pas as independent contractors on temporary assignments throughout the u.s. ● search – for the year ended december 31 , 2020 , search represented approximately 1 % of our total revenue . search includes retained and contingent search services for physicians , healthcare executives , and other healthcare professionals , as well as rpo . summary of operations for the year ended december 31 , 2020 , revenue from services increased 1.7 % year-over-year to $ 836.4 million , driven by growth in our largest segment , nurse and allied staffing , due to continued acceleration in demand primarily as a result of a high volume of covid-19 assignments , as well as our support of two labor disruptions . as a result of the rise in demand and a tight labor market , our average travel bill rates increased due to the increases in pay rates required to attract healthcare professionals . throughout the pandemic , we have worked with our clients to adjust bill rates , both increasing and decreasing rates as necessary , to provide critical healthcare professionals . revenue from physician staffing and search decreased year-over-year by 8.9 % and 28.8 % , respectively , for the year ended december 31 , 2020 , as both segments continued to experience an adverse impact from covid-19 . within physician staffing , revenue from advanced practices increased , offset by declines in other physician specialties . net loss attributable to common shareholders for the year ended december 31 , 2020 was $ 13.0 million as compared to a net loss of $ 57.7 million in the prior year . profitability in the current year was impacted by $ 6.1 million of restructuring costs and $ 16.2 million of impairment charges . profitability in the year ended december 31 , 2019 was impacted by $ 3.6 million of restructuring costs , $ 16.3 million of impairment charges , $ 1.6 million of legal settlement charges , $ 2.0 million loss on early extinguishment of debt , and $ 1.3 million loss on derivative . for the year ended december 31 , 2020 , we generated cash flow from operating activities of $ 27.2 million and repaid a net of $ 17.6 million on our senior-secured asset-based credit facility ( abl ) . story_separator_special_tag as a percentage of revenue , depreciation and amortization expense was 1.5 % for the year ended december 31 , 2020 and 1.7 % for the year ended december 31 , 2019. restructuring costs restructuring costs for the years ended december 31 , 2020 and 2019 were primarily comprised of employee termination costs and ongoing lease costs related to the company 's strategic reduction of its real estate footprint , as well as reorganization costs as part of our planned costs savings initiatives for the year ended december 31 , 2020. restructuring costs totaled $ 6.1 million and $ 3.6 million for the years ended december 31 , 2020 and 2019 , respectively . legal settlement charges here were no legal settlement charges for the year ended december 31 , 2020. legal settlement charges totaled $ 1.6 million for the year ended december 31 , 2019 related to the resolution of a medical malpractice lawsuit in excess of carrier limits , as well as a 2019 california wage and hour class action settlement agreement . t impairment charges impairment charges totaled $ 16.2 million for the year ended december 31 , 2020. these were comprised of $ 10.7 million of impairment , primarily related to goodwill and other intangible assets of our search and nurse and allied businesses , and $ 5.5 million related to right-of-use assets and related property and equipment in connection with leases that were vacated during the year . during the year ended december 31 , 2019 , in connection with our restructuring activities , we ceased using leased space which resulted in impairment charges related to our right-of-use assets of $ 1.2 million and $ 0.6 million of impairment related to property and equipment . in addition , as part of evolving our go-to-market strategy , in the second quarter of 2019 , we eliminated certain brands across all of our segments as part of our rebranding initiatives and , as a result , $ 14.5 million of indefinite-lived trade names related to nurse and allied staffing were written off as impairment charges . see note 5 - goodwill , trade names , and other intangible assets and note 10 - leases to our consolidated financial statements . interest expense interest expense totaled $ 2.9 million for the year ended december 31 , 2020 and $ 5.3 million for the year ended december 31 , 2019 , due to lower average borrowings and a lower effective interest rate . the effective interest rate on our borrowings was 3.5 % and 5.1 % for the years ended december 31 , 2020 and 2019 , respectively . loss on derivative there were no charges related to loss on derivative for the year ended december 31 , 2020. we incurred a loss on derivative of $ 1.3 million for the year ended december 31 , 2019 which was paid to terminate an interest rate hedge related to our term loan that was subsequently refinanced in october 2019. see note 8 - debt and note 9 - derivative to our consolidated financial statements . loss on early extinguishment of debt there were no charges related to loss on early extinguishment of debt for the year ended december 31 , 2020. loss on early extinguishment of debt totaled $ 2.0 million for the year ended december 31 , 2019. the loss related to write-off and extinguishment costs of $ 1.5 million related to the refinancing of our debt in the fourth quarter of 2019 , and the write-off of debt issuance costs of $ 0.5 million in the prior quarters related to optional prepayments on our term loan made in the first and second quarters as well as optional reductions in borrowing capacity under our prior revolving credit facility . see note 8 - debt to our consolidated financial statements . 26 i ncome tax ( benefit ) expense income tax benefit totaled $ 0.2 million for the year ended december 31 , 2020 , compared to income tax expense of $ 31.7 million for the year ended december 31 , 2019. the effective tax rate was 1.5 % and negative 131.1 % , including the impact of discrete items , for the years ended december 31 , 2020 and 2019 , respectively . the effective tax rate in 2020 was impacted by the additional valuation allowance on deferred tax assets , impairment of indefinite-lived intangibles , and international and state taxes . the effective tax rate in 2019 was impacted by the initial establishment of a valuation allowance on the majority of our deferred tax assets , impairment of indefinite-lived intangibles , and international and state taxes . see note 14 - income taxes to our consolidated financial statements . 27 story_separator_special_tag settlements on uncertain tax positions , and future principal payments on our abl credit facility . although there is uncertainty related to the anticipated impact of covid-19 on our future results , we expect to meet our future needs from a combination of cash on hand , operating cash flows , and funds available through the abl . see debt discussion which follows . 29 cash flow comparisons year ended december 31 , 2020 compared to year ended december 31 , 2019 net cash provided by operating activities during the year ended december 31 , 2020 was $ 27.2 million compared to $ 5.5 million during the year ended december 31 , 2019 , primarily due to stronger collections and the timing of disbursements . net cash used in investing activities during the year ended december 31 , 2020 was $ 4.6 million compared to $ 2.9 million in the year ended december 31 , 2019. net cash used in both periods was for capital expenditures , primarily related to the project to replace our applicant tracking system .
| segment results information on operating segments and a reconciliation to loss from operations for the periods indicated are as follows : replace_table_token_2_th in 2019 , as part of our rebranding efforts , we merged our permanent search recruitment brands . as a result , for the year ended december 31 , 2018 $ 1.7 million of revenue and $ 0.2 million of contribution income were reclassified from nurse and allied staffing to search to conform to the current period presentation . see note 18 - segment data . certain statistical data for our business segments for the periods indicated are as follows : replace_table_token_3_th see definition of business measurements under the operating metrics section of our management 's discussion and analysis . segment comparison - year ended december 31 , 2020 compared to the year ended december 31 , 2019 nurse and allied staffing revenue increased $ 25.1 million , or 3.4 % to $ 757.9 million for the year ended december 31 , 2020 , from $ 732.8 million for the year ended december 31 , 2019 . 28 contribution income for the year ended december 31 , 2020 , increased $ 10.9 million or 17.0 % , to $ 75.3 million from $ 64.4 million in year ended december 31 , 2019. as a percentage of segment revenue , contribution income margin increased to 9.9 % for the year ended december 31 , 2020 from 8.8 % for the year ended december 31 , 2019. the average number of ftes on contract during the year ended december 31 , 2020 decreased 15.1 % from the year ended december 31 , 2019. average revenue per fte per day increased approximately 21.6 % in the year ended december 31 , 2020 compared to the year ended december 31 , 2019. physician staffing revenue decreased $ 6.7 million , or 8.9 % to $ 67.9 million for the year ended december 31 , 2020 , compared to $ 74.6 million for the year ended december 31 , 2019. contribution income for the
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factors that could cause or contribute to our actual results differing materially from those anticipated include those discussed in risk factors and elsewhere in this annual report on form 10-k. overview we provide management , technology , and policy consulting and implementation services to government and commercial clients . we help our clients conceive , develop , implement , and improve solutions that address complex natural resource , social , and public safety issues . our services primarily address three key markets : energy , environment , and infrastructure ; health , social programs , and consumer/financial ; and public safety and defense . we believe that demand for our services will continue to grow as government , industry , and other stakeholders seek to address critical long-term societal and natural resource issues in these market areas due to heightened concerns about clean energy and energy efficiency ; health promotion , treatment , and cost control ; and ever-present homeland security threats . in the first quarter of 2012 , we modified the names of each of our key markets . energy , environment , and transportation is now energy , environment , and infrastructure ; health , education , and social programs is now health , social programs , and consumer/financial ; and homeland security and defense is now public safety and defense . we made these modifications because of new acquisitions and growth that allow us to reach new customers with a broader array of services in these markets . we have also made changes to the allocation of revenue to each of these markets , and reflected these changes in both the current and prior-year periods . we provide services across these three markets that deliver value throughout the entire life cycle of a policy , program , project , or initiative , from concept analysis and design through implementation and evaluation and improvement . our clients utilize our services because we combine diverse institutional knowledge and experience in their activities with the deep subject-matter expertise of our highly educated staff , which we deploy in multi-disciplinary teams . in the second quarter of 2012 , we modified our key client classifications to reflect our current business and growth . previously , four client classifications were provided , which included u.s. federal government , u.s. state and local government , u.s. commercial , and non-u.s. clients . these previous client types have been re-categorized into two broader client classifications , government and commercial . within the government classification , we present three client sub-classifications : u.s. federal , u.s. state and local , and non-u.s. clients . within the commercial classification , there are no sub-classifications ; it includes both u.s. and non-u.s. based clients . with the implementation of our international growth strategy and our recent acquisitions , providing one consolidated commercial category is a more appropriate reflection of our business because our commercial business utilizes both u.s. and non-u.s. employees to support commercial clients , many of which have a global presence . we have made these changes in both the current and prior-year periods . our federal government clients have included every cabinet-level department , including hhs , dod , dos , epa , dhs , usda , hud , department of transportation ( dot ) , department of interior ( doi ) , doj , doe , national science foundation ( nsf ) , and department of education ( ed ) . u.s. federal government clients generated approximately 60 % , 66 % , and 70 % of our revenue in 2012 , 2011 , and 2010 , respectively . state and local government clients generated approximately 10 % of our revenue in each year from 2010 through 2012. non-u.s. government clients generated approximately 3 % , 1 % , and 2 % of our revenue in 2012 , 2011 , and 2010 , respectively . we also serve a variety of commercial clients , primarily in aviation , energy , health , and financial services industries , including airlines , airports , electric and gas utilities , oil companies , hospitals and health-related companies , banks and other financial services companies , and law firms . our commercial clients , which include clients outside the united states , generated approximately 27 % , 23 % , and 18 % of our revenue in 2012 , 2011 , and 2010 , respectively . we have successfully worked with many of our clients for decades , with the result that we have a unique and knowledgeable perspective on their needs . 28 we report operating results and financial data as a single segment based on the information used by our chief operating decision-makers in evaluating the performance of our business and allocating resources . our single segment represents our core businessprofessional services for government and commercial clients . although we describe our multiple service offerings to three markets to provide a better understanding of our business , we do not manage our business or allocate our resources based on those service offerings or markets . critical accounting policies the preparation of our financial statements in accordance with accounting principles generally accepted in the united states of america requires that we make estimates and judgments that affect the reported amount of assets , liabilities , revenue , and expenses , as well as the disclosure of contingent assets and liabilities . if any of these estimates or judgments prove to be incorrect , our reported results could be materially affected . actual results may differ significantly from our estimates under different assumptions or conditions . we believe that the estimates , assumptions , and judgments involved in the accounting practices described below have the greatest potential impact on our financial statements and therefore consider them to be critical accounting policies . revenue recognition we recognize revenue when persuasive evidence of an arrangement exists , services have been rendered , the contract price is fixed or determinable , and collectability is reasonably assured . we enter into contracts that are time-and-materials , cost-based , fixed-price . time-and-materials contracts . story_separator_special_tag based upon management 's most recent review , our estimated fair value well exceeded our carrying amount , and we have therefore determined there was no indication of impairment as of september 30 , 2012. historically , we have recorded no goodwill impairment charges . we are required to review long-lived assets and certain identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset might not be recoverable . recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset . if such assets are considered to be impaired , the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair value . assets to be disposed of are reported at the lower of the carrying amount or fair value , less cost to sell . new accounting standards we adopted no new accounting standards in 2012. revenue we earn revenue from services that we provide to clients in three key markets : energy , environment , and infrastructure ; health , social programs , and consumer/financial ; and public safety and defense . the following table shows our revenue from each of our three markets as a percentage of total revenue for the periods indicated . for each client , we have attributed all revenue from that client to the market we consider to be the client 's primary market , even if a portion of that revenue relates to a different market . certain amounts in the prior year have been reclassified to conform to current year presentation . replace_table_token_11_th 30 the increase in health , social programs and consumer/financial revenue as a percent of total revenue , for the year ended december 31 , 2012 , compared to the year ended december 31 , 2011 , is primarily attributable to the acquisitions of ironworks and ghk . our primary clients are the agencies and departments of the u.s. federal and commercial clients . the following table shows our revenue by type of client as a percentage of total revenue for the periods indicated . certain amounts in the prior year have been reclassified to conform to current year presentation . replace_table_token_12_th the decrease in u.s. federal government revenue and the increase in commercial and non-u.s. government revenue as a percent of total revenue , for the year ended december 31 , 2012 , compared to the year ended december 31 , 2011 , is primarily attributable to the acquisitions of ironworks and ghk . most of our revenue is from contracts on which we are the prime contractor , which we believe provides us strong client relationships . in 2012 , 2011 , and 2010 , approximately 87 % , 86 % , and 85 % , of our revenue , respectively , was from prime contracts . contract mix our contracts with clients include time-and-materials contracts , fixed-price contracts , and cost-based contracts ( including cost-based fixed fee , cost-based award fee , and cost-based incentive fee , as well as grants and cooperative agreements ) . our contract mix varies from year to year due to numerous factors , including our business strategies and the procurement activities of our clients . unless the context requires otherwise , we use the term contracts to refer to contracts and any task orders or delivery orders issued under a contract . the following table shows the approximate percentage of our revenue from each of these types of contracts for the periods indicated . replace_table_token_13_th time-and-materials contracts . under time-and-materials contracts , we are paid for labor at fixed hourly rates and generally reimbursed separately for allowable materials , other direct costs , and out-of-pocket expenses . our actual labor costs may vary from the expected costs that formed the basis for our negotiated hourly rates if we utilize different employees than anticipated , need to hire additional employees at higher wages , increase the compensation paid to existing employees , or are able to hire employees at lower-than-expected rates . our non-labor costs , such as fringe benefits , overhead , and general and administrative costs , also may be higher or lower than we anticipated . to the extent that our actual labor and non-labor costs under a time-and-materials contract vary significantly from our expected costs or the negotiated hourly rates , we can generate more or less than the targeted amount of profit or , perhaps , incur a loss . fixed-price contracts . under fixed-price contracts , we perform specific tasks for a pre-determined price . compared to time-and-materials and cost-based contracts , fixed-price contracts involve greater financial risk because we bear the full impact of labor and non-labor costs that exceed our estimates , in terms of costs per hour , number of hours , and all other costs of performance , in return for the full benefit of any cost savings . we therefore may generate more or less than the targeted amount of profit or , perhaps , incur a loss . cost-based contracts . under cost-based contracts , we are paid based on the allowable costs we incur , and usually receive a fee . all of our cost-based contracts reimburse us for our direct labor and fringe-benefit costs that are allowable under the contract ; however , certain contracts limit the amount of overhead and general and administrative costs we can recover , which may be less 31 than our actual overhead and general and administrative costs . in addition , our fees are constrained by fee ceilings and , in certain cases , such as with grants and cooperative agreements , we may receive no fee . because of these limitations , our cost-based contracts , on average , are our least profitable type of contract , and we may generate less than the expected profit , or perhaps , incur a loss . cost-based fixed-fee contracts specify the fee to be paid .
| results of operations the following table sets forth certain items from our consolidated statements of operations as an approximate percentage of revenue for the periods indicated . consolidated statement of earnings years ended december 31 , 2012 , 2011 , and 2010 ( dollars in thousands ) replace_table_token_14_th year ended december 31 , 2012 , compared to year ended december 31 , 2011 gross revenue . revenue for the year ended december 31 , 2012 , was $ 937.1 million , compared to $ 840.8 million for the year ended december 31 , 2011 , representing an increase of $ 96.4 million , or 11.5 % . the acquisitions of ironworks and ghk increased revenue by $ 89.6 million compared to the prior year , accounting for approximately 92.9 % of the revenue growth . revenue compared to the prior year period increased approximately 29.4 % from our commercial clients and approximately 6.1 % from our government clients . we achieved revenue growth in each of our markets compared to the prior year ; health , social programs , and consumer/financial increased approximately 20 % ; energy , environment , and infrastructure increased approximately 6 % ; and public safety and defense increased approximately 2 % . we anticipate the growth rate of our revenue from commercial clients will continue to exceed the revenue growth rate from our government clients . direct costs . direct costs for the year ended december 31 , 2012 , were $ 583.2 million , compared to $ 520.5 million for the year ended december 31 , 2011 , an increase of $ 62.7 million , or 12.0 % . the increase in direct costs is primarily attributable to an increase in direct labor expense and subcontractor expense , resulting from the acquisitions of ironworks and ghk . direct costs as a percent of revenue increased slightly to 62.2 % for the year ended december 31 , 2012 , compared to 61.9 % for the year ended december 31 , 2011. indirect and selling expenses .
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our company we are a diversified industrial growth company with well-established , scalable platforms and domain expertise across three segments : industrial products ; coatings , sealants and adhesives ; and specialty chemicals . our broad portfolio of leading products provides performance optimizing solutions to our customers . cswi delivers products and systems that help contractors do their jobs better , faster and easier ; make buildings safer and more aesthetically pleasing ; protect valuable assets from corrosion ; and improve the reliability of mission critical equipment . our products include mechanical products for heating , ventilation and air conditioning ( “ hvac ” ) and refrigeration applications , coatings and sealants and high performance specialty lubricants . markets that we serve include hvac , industrial , rail , plumbing , architecturally-specified building products , energy , mining and other general industrial markets . our operations are concentrated in the u.s. , and we have operations in australia , canada and the united kingdom . our products are also sold directly or through designated channels both domestically and internationally . many of our products are used to protect the capital assets of our customers that are expensive to repair or replace and are critical to their operations . the maintenance , repair and overhaul and consumable nature of many of our products is a source of recurring revenue for us . we also provide some custom and semi-custom products , which enhance our customer relationships . the reputation of our product portfolio is built on more than 100 well-respected brand names , such as rectorseal no . 5 , kopr kote , jet-lube extreme , smoke guard , safe-t-switch , mighty bracket , balco , whitmore , strathmore , american coatings , air sentry , oil safe , deacon , ac leak freeze and kats coatings . prior to the share distribution , our operating companies operated as separate businesses . the consolidated financial statements included in this annual report include all revenues , costs , assets and liabilities directly attributable to the businesses discussed above . however , the combined financial statements for periods prior to the share distribution may not include all of the expenses that would have been incurred had the businesses been operating as separate publicly traded ( “ standalone ” ) companies during those periods . we expect to incur capital costs in the next few years to further integrate our operations , including the further consolidation of some of our manufacturing facilities and operational improvement initiatives . as a result of these efforts , we expect to generate sales synergies through greater cross-selling opportunities and expansion of product line applications and generate cost synergies through operating more efficiently and effectively . we also expect to incur additional costs as a result of being a public company , such as additional employee-related costs , costs to build out certain standalone corporate functions , information systems costs and other organizational-related costs . we believe that our broad portfolio of products and markets served and our brand recognition will continue to provide opportunities ; however , we face ongoing challenges affecting many companies , such as environmental and other regulatory compliance and overall global economic uncertainty . during the year ended march 31 , 2017 , we experienced headwinds caused by spending declines at many of our customers in the energy , mining and rail end markets as they adjusted to weakened demand in response to lower market prices for crude oil , gas , coal and other natural resources . these headwinds also indirectly impacted general industrial end markets that we serve . we expect that the current energy environment will persist into the next fiscal year . we continued to experience strong sales growth in other key end markets such as hvac , where our innovative chemical and mechanical products have increased market penetration , and architecturally specified building products , where our innovative smoke curtain products have increased market penetration and where we are currently benefiting from a robust commercial construction cycle . our markets the following discussion should be read in conjunction with the “ outlook for fiscal year 2018 ” section included below . 22 hvac the hvac market is our largest market served and it represented approximately 27 % and 24 % of our net sales in the fiscal years ended march 31 , 2017 and 2016 , respectively . we provide an extensive array of products for repair and maintenance of hvac systems that includes our largest product family , consisting of condensate switches , as well as condensate pans , air diffusers , condensate pumps , refrigerant caps , line set covers and other chemical and mechanical products . the industry is driven by new construction projects , as well as replacement and repair of existing hvac systems . new hvac systems are heavily influenced by macro trends in building construction . the hvac market tends to be seasonal with the peak sales season beginning in march and continuing through august . construction and repair is typically performed by contractors , and we utilize our global distribution network to drive sales of our brands to such contractors . for the fiscal year ending march 31 , 2018 , we anticipate growth in the hvac market to be stronger than the gross domestic product , but lower than recent historical growth due to the installation of new hvac units in the u.s. growing at a slower rate than prior years . architecturally-specified building products architecturally-specified building products represented approximately 22 % and 18 % of our net sales in the fiscal years ended march 31 , 2017 and 2016 , respectively . we manufacture and sell products such as expansion joints , stair nosings , engineered railings and smoke and fire protection systems for large commercial buildings and parking garages . sales of these products are driven by architectural specifications and safety codes , and the sales process is typically long as these are multi-year construction projects . story_separator_special_tag other income and expense interest expense , net for the fiscal year ended march 31 , 2017 decreased $ 0.3 million as compared with the fiscal year ended march 31 , 2016 , primarily due to an overall reduction in average outstanding debt under our revolving credit facility ( described in note 7 to our consolidated financial statements included in item 8 included in this annual report ) . interest expense , net for the fiscal year ended march 31 , 2016 increased $ 2.4 million as compared with the fiscal year ended march 31 , 2015 , primarily due to interest expense recognized on the loan related to the acquisition of strathmore and interest expense recognized on our revolving credit facility . other income ( expense ) , net increased by $ 2.0 million for the fiscal year ended march 31 , 2017 to income of $ 1.8 million as compared with the fiscal year ended march 31 , 2016 . the improvement was primarily due to an increase in gains arising from transaction in currencies other than our sites ' functional currencies . other income ( expense ) , net decreased by $ 1.7 million for the fiscal year ended march 31 , 2016 to expense of $ 0.2 million as compared with the fiscal year ended march 31 , 2015. the decline was primarily due to a $ 0.9 million gain on the sale of real estate in the prior year that did not recur . provision for income taxes and effective tax rate the provision for income taxes for the fiscal year ended march 31 , 2017 was $ 10.5 million , representing an effective tax rate of 48.6 % , as compared with the provision of $ 18.8 million , representing an effective tax rate of 42.4 % , for the fiscal year ended march 31 , 2016 and the provision of $ 15.2 million , representing an effective tax rate of 33.9 % , for the fiscal year ended march 31 , 2015 . as compared with the statutory rate , for the fiscal year ended march 31 , 2017 , the provision for income taxes was primarily impacted by an increase in the reserve for uncertain tax positions , which increased the provision by $ 1.6 million and the effective tax rate by 7.4 % , as well as a deferred tax true-up adjustment , which increased the provision by $ 1.0 million and the effective tax rate by 4.8 % . other items impacting the effective tax rate include foreign operations activity in countries with lower statutory rates and domestic operations activity in states with higher statutory rates . we accrue interest and penalties on uncertain tax positions as a component of our provision for income taxes . we accrued interest and penalties on uncertain tax positions of $ 0.2 million and $ 0.2 million , respectively , for the fiscal year ended march 31 , 2017 . we accrued interest and penalties on uncertain tax positions of $ 0.2 million and $ 0.2 million , respectively , for the fiscal year ended march 31 , 2016 . we did not recognize any interest and penalties for uncertain tax positions for the fiscal year ended march 31 , 2015. as of march 31 , 2017 and 2016 , we had $ 0.6 million and $ 0.2 million , respectively , in tax effected net operating loss carryforwards . net operating loss carryforwards will expire in periods beyond the next five years . business segments we conduct our operations through three business segments based on type of product and how we manage the business . we evaluate segment performance and allocate resources based on each segment 's operating income . the key operating results for our three business segments are discussed below . industrial products segment results industrial products includes specialty mechanical products , fire and smoke protection products , architecturally-specified building products and storage , filtration and application equipment for use with our specialty chemicals and other products for general industrial application . replace_table_token_7_th net revenues for the fiscal year ended march 31 , 2017 increased $ 20.1 million , or 14.5 % , as compared with the fiscal year ended march 31 , 2016 , including $ 1.2 million related to acquisitions . excluding the impact of acquisitions , sales volumes increased 26 in both existing products and new products , particularly into the hvac ( $ 11.8 million ) , architecturally-specified building products ( $ 8.1 million ) and plumbing ( $ 2.3 million ) markets and were slightly offset by a decline in sales of rail lubricators . net revenues for the fiscal year ended march 31 , 2016 increased $ 20.2 million or 17.0 % , as compared with the fiscal year ended march 31 , 2015. the increase was primarily attributable to increased volumes , as well as a slight improvement in pricing and $ 2.9 million attributable to acquisitions . excluding the impact of acquisitions , increases in sales volumes and prices accounted for approximately 94 % and 6 % , respectively , of the increase in net revenues , and the increase in sales volumes resulted mainly from increased sales of existing products ( $ 13.0 million ) , reflecting greater demand in the hvac and the architecturally-specified building products markets , and sales of fire and smoke prevention products related to projects that were expected to begin in the prior fiscal year , but were started or completed in the first quarter because of customer delays ( $ 2.5 million ) . operating income for the fiscal year ended march 31 , 2017 increased $ 1.8 million , or 5.9 % , as compared with the fiscal year ended march 31 , 2016 . the increase was primarily attributable to increased net revenues , partially offset by a pension plan curtailment benefit in the prior year that did not recur ( $ 3.2 million ) , restructuring and realignment costs ( $ 0.6 million ) and implementation costs related to design of our internal controls framework ( $ 0.4
| results of operations the following discussion provides an analysis of our consolidated results of operations and results for each of our segments . the acquisitions listed below impact comparability : acquisition effective date segment greco february 28 , 2017 industrial products leak freeze december 16 , 2015 specialty chemicals deacon october 1 , 2015 coatings , sealants & adhesives strathmore april 2 , 2015 coatings , sealants & adhesives the operations of each acquired business have been included in the applicable segment since the effective date of the acquisition . all acquisitions are described in note 2 to our consolidated financial statements included in item 8 of this annual report . throughout this discussion , we refer to costs incurred related to “ restructuring and realignment. ” these costs represent both restructuring and non-restructuring charges incurred as a result of manufacturing footprint optimization activities , including those activities described in note 1 to our consolidated financial statements included in item 8 of this annual report . net revenues replace_table_token_3_th net revenues for the fiscal year ended march 31 , 2017 increased $ 7.3 million , or 2.3 % , as compared with the fiscal year ended march 31 , 2016 , including $ 5.1 million related to acquisitions . excluding the impact of acquisitions , increased sales volumes of both existing products and new products , particularly into the hvac ( $ 11.8 million ) , architecturally-specified building products ( $ 8.1 million ) and plumbing ( $ 2.3 million ) markets , were mostly offset by decreased sales into the energy and rail ( combined $ 17.2 million ) and mining ( $ 2.4 million ) markets . net revenues for the fiscal year ended march 31 , 2016 increased $ 58.0 million , or 22.2 % , as compared with the fiscal year ended march 31 , 2015 , including $ 58.9 million related to acquisitions .
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3.3 ( 6 ) certificate of amendment of amended and restated certificate of incorporation 3.4 ( 7 ) amended and restated bylaws . 10.1 * ( 8 ) amended and restated 1996 incentive and nonqualified stock option plan . 10.2 * ( 9 ) form of cardo medical , llc ( nka tiger x medical , llc ) nonstatutory option agreement . 10.3 ( 9 ) form of indemnification agreement for officers and directors . 10.4 ( 10 ) form of registration rights agreement , dated october 27 , 2009 , by and among cardo medical , inc. ( nka tiger x medical , inc. ) and the several purchasers signatory thereto . 10.5 * ( 11 ) cardo medical , inc. ( nka tiger x medical , inc. ) 2010 equity incentive plan 10.6 ( 12 ) secured promissory note by the company in favor of jon brooks , dated november 2 , 2010 . 10.7 ( 12 ) security agreement between the company and jon brooks , dated november 2 , 2010 . 10.8 ( 12 ) secured promissory note by the company in favor of earl brien , dated november 4 , 2010 . 10.9 ( 12 ) security agreement between the company and earl brien , dated november 4 , 2010 . 10.10 ( 2 ) secured promissory note by cardo medical , inc. ( nka tiger x medical , inc. ) and cardo medical , llc ( nka tiger x medical , llc ) in favor of arthrex , inc. dated march 18 , 2011 . 35 21.1 ( 9 ) subsidiaries of tiger x medical , inc. 31.1 # certification of chief executive officer 31.2 # certification of chief financial officer 32.1 # certification of chief executive officer pursuant to rule 13a-14 ( b ) and section 906 of the sarbanes-oxley act of 2002 ( subsections ( a ) and ( b ) of section 1350 , title 18 , united states code ) 32.2 # certification of chief financial officer pursuant to rule 13a-14 ( b ) and section 906 of the sarbanes-oxley act of 2002 ( subsections ( a ) and ( b ) of section 1350 , title 18 , united states code ) 101.ins # xbrl instance document 101.sch # xbrl taxonomy extension schema 101.cal # xbrl taxonomy extension calculation linkbase 101.def # xbrl taxonomy extension definition linkbase 101.lab # xbrl taxonomy extension label linkbase 101.pre # xbrl taxonomy extension presentation linkbase # filed herewith . * management compensation plan or agreement . ( 1 ) previously filed as an exhibit to the current report on form 8-k filed by us on january 27 , 2011 . ( 2 ) previously filed as an exhibit to the current report on form 8-k filed by us on march 24 , 2011 . ( 3 ) previously filed as an exhibit to the current report on form 8-k filed by us on april 8 , 2011 . ( 4 ) previously filed as an exhibit to the current report on form 8-k filed by us on march 18 , 2008 . ( 5 ) previously filed as an annex to the information statement on schedule 14c filed by us on september 30 , 2008 . ( 6 ) previously filed as an exhibit to the current report on form 8-k filed by us on june 16 , 2011 . ( 7 ) previously filed as an exhibit to the current report on form 8-k filed by us on february 1 , 2008 . ( 8 ) previously filed as an exhibit to the annual report on form 10-ksb filed by us on september 28 , 1998 . ( 9 ) previously filed as an exhibit to the current report on form 8-k filed by us on september 9 , 2008 . ( 10 ) previously filed as an exhibit to the current report on form 8-k filed by us on october 29 , 2009 . ( 11 ) previously filed as an exhibit to the quarterly report on form 10-q filed by us on august 12 , 2010 . ( 12 ) previously filed as an exhibit to the current report on form 8-k filed by us on november 8 , 2010 . 36 signatures pursuant to the requirements of section 13 or 15 ( d ) of the securities and exchange act of 1934 , the registrant has duly caused this report to be signed on its behalf by the undersigned , thereunto duly authorized . tiger x medical , inc. dated : march 24 , 2014 andrew a. brooks andrew a. brooks chief executive officer pursuant to the requirements of the securities and exchange act of 1934 , this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated . signature title date andrew a. brooks chairman of the board and chief executive officer march 24 , 2014 andrew a. brooks and interim chief financial officer ( principal executive officer ) ( principal financial and accounting officer ) jonathan brooks director march 24 , 2014 jonathan brooks stephen liu director march 24 , 2014 stephen liu thomas h. morgan director march 24 , 2014 thomas h. morgan ronald n. richards director march 24 , 2014 ronald n. richards steven d. rubin director march 24 , 2014 steven d. rubin subbarao uppaluri director march 24 , 2014 subbarao uppaluri 37 story_separator_special_tag the discussion and analysis of our financial condition and results of operations are based on our financial statements , which we have prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements , as well as the reported revenues and expenses during the reporting periods story_separator_special_tag 3.3 ( 6 ) certificate of amendment of amended and restated certificate of incorporation 3.4 ( 7 ) amended and restated bylaws . 10.1 * ( 8 ) amended and restated 1996 incentive and nonqualified stock option plan . 10.2 * ( 9 ) form of cardo medical , llc ( nka tiger x medical , llc ) nonstatutory option agreement . 10.3 ( 9 ) form of indemnification agreement for officers and directors . 10.4 ( 10 ) form of registration rights agreement , dated october 27 , 2009 , by and among cardo medical , inc. ( nka tiger x medical , inc. ) and the several purchasers signatory thereto . 10.5 * ( 11 ) cardo medical , inc. ( nka tiger x medical , inc. ) 2010 equity incentive plan 10.6 ( 12 ) secured promissory note by the company in favor of jon brooks , dated november 2 , 2010 . 10.7 ( 12 ) security agreement between the company and jon brooks , dated november 2 , 2010 . 10.8 ( 12 ) secured promissory note by the company in favor of earl brien , dated november 4 , 2010 . 10.9 ( 12 ) security agreement between the company and earl brien , dated november 4 , 2010 . 10.10 ( 2 ) secured promissory note by cardo medical , inc. ( nka tiger x medical , inc. ) and cardo medical , llc ( nka tiger x medical , llc ) in favor of arthrex , inc. dated march 18 , 2011 . 35 21.1 ( 9 ) subsidiaries of tiger x medical , inc. 31.1 # certification of chief executive officer 31.2 # certification of chief financial officer 32.1 # certification of chief executive officer pursuant to rule 13a-14 ( b ) and section 906 of the sarbanes-oxley act of 2002 ( subsections ( a ) and ( b ) of section 1350 , title 18 , united states code ) 32.2 # certification of chief financial officer pursuant to rule 13a-14 ( b ) and section 906 of the sarbanes-oxley act of 2002 ( subsections ( a ) and ( b ) of section 1350 , title 18 , united states code ) 101.ins # xbrl instance document 101.sch # xbrl taxonomy extension schema 101.cal # xbrl taxonomy extension calculation linkbase 101.def # xbrl taxonomy extension definition linkbase 101.lab # xbrl taxonomy extension label linkbase 101.pre # xbrl taxonomy extension presentation linkbase # filed herewith . * management compensation plan or agreement . ( 1 ) previously filed as an exhibit to the current report on form 8-k filed by us on january 27 , 2011 . ( 2 ) previously filed as an exhibit to the current report on form 8-k filed by us on march 24 , 2011 . ( 3 ) previously filed as an exhibit to the current report on form 8-k filed by us on april 8 , 2011 . ( 4 ) previously filed as an exhibit to the current report on form 8-k filed by us on march 18 , 2008 . ( 5 ) previously filed as an annex to the information statement on schedule 14c filed by us on september 30 , 2008 . ( 6 ) previously filed as an exhibit to the current report on form 8-k filed by us on june 16 , 2011 . ( 7 ) previously filed as an exhibit to the current report on form 8-k filed by us on february 1 , 2008 . ( 8 ) previously filed as an exhibit to the annual report on form 10-ksb filed by us on september 28 , 1998 . ( 9 ) previously filed as an exhibit to the current report on form 8-k filed by us on september 9 , 2008 . ( 10 ) previously filed as an exhibit to the current report on form 8-k filed by us on october 29 , 2009 . ( 11 ) previously filed as an exhibit to the quarterly report on form 10-q filed by us on august 12 , 2010 . ( 12 ) previously filed as an exhibit to the current report on form 8-k filed by us on november 8 , 2010 . 36 signatures pursuant to the requirements of section 13 or 15 ( d ) of the securities and exchange act of 1934 , the registrant has duly caused this report to be signed on its behalf by the undersigned , thereunto duly authorized . tiger x medical , inc. dated : march 24 , 2014 andrew a. brooks andrew a. brooks chief executive officer pursuant to the requirements of the securities and exchange act of 1934 , this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated . signature title date andrew a. brooks chairman of the board and chief executive officer march 24 , 2014 andrew a. brooks and interim chief financial officer ( principal executive officer ) ( principal financial and accounting officer ) jonathan brooks director march 24 , 2014 jonathan brooks stephen liu director march 24 , 2014 stephen liu thomas h. morgan director march 24 , 2014 thomas h. morgan ronald n. richards director march 24 , 2014 ronald n. richards steven d. rubin director march 24 , 2014 steven d. rubin subbarao uppaluri director march 24 , 2014 subbarao uppaluri 37 story_separator_special_tag the discussion and analysis of our financial condition and results of operations are based on our financial statements , which we have prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements , as well as the reported revenues and expenses during the reporting periods
| overview tiger x medical , inc. ( `` tiger x '' or the `` company '' ) , formerly known as cardo medical , inc. , previously operated as an orthopedic medical device company specializing in designing , developing and marketing high performance reconstructive joint devices and spinal surgical devices . as discussed below , in 2011 we entered into an asset purchase agreement to sell substantially all of our assets in the reconstructive division to arthrex , inc. ( `` arthrex '' ) . additionally , we completed the sale of substantially all of the assets in the spine division in 2011. our continuing operations include the collection and management of our royalty income earned in connection with the asset purchase agreement with arthrex , as well as continuing to promote our former products sold to arthrex and seek a joint venture partner or buyer for the remaining intellectual property owned by the company . the company will also be evaluating future investment opportunities and uses for its cash . we are headquartered in los angeles , california . our common stock is quoted on the national association of securities dealers , inc. 's , over-the-counter bulletin board , or the otc bulletin board with a trading symbol of cdom.ob . critical accounting policies and estimates our significant accounting policies are more fully described in the notes to our consolidated financial statements . those material accounting estimates that we believe are the most critical to an investor 's understanding of our financial results and condition are discussed immediately below and are particularly important to the portrayal of our financial position and results of operations and require the application of significant judgment by our management to determine the appropriate assumptions to be used in the determination of certain estimates .
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j2 global undertakes no obligation to revise or publicly release the results of any revision to these forward-looking statements . readers should carefully review the risk factors described in this document as well as in other documents we file from time to time with the sec , including the quarterly reports on form 10-q and any current reports on form 8-k filed or to be filed by us in 2012. overview j2 global , inc. , formerly named j2 global communications , inc. ( “ j2 global ” , “ our ” , “ us ” or “ we ” ) , is a delaware corporation and was founded in 1995. we provide cloud services to businesses of all sizes , from individuals to enterprises . these services , which we provide through the internet to our customers ' computers , mobile devices and telephones , deliver our customers increased sales and greater efficiency , flexibility , mobility , business continuity and security . we offer online fax , virtual phone systems , hosted email , email marketing , online backup , customer relationship management and bundled suites of these services . we market our services principally under the brand names efax® , evoice® , fusemail® , campaigner® , keepitsafe tm , landslidecrm tm and onebox® . we generate substantially all of our revenues from customer subscription and usage fees . subscription fees are referred to as “ fixed ” revenues , while usage fees are referred to as “ variable ” revenues . we also generate revenues from patent licensing and sales , advertising and revenue share from our customers ' use of premium rate telephone numbers ( direct inward-dial numbers or “ dids ” ) . as of december 31 , 2011 , we had approximately 2.0 million paying subscribers , with additional dids in inventory . we operate in one reportable segment : cloud services for business . during the past three years , we have derived a substantial portion of our revenues from did-based services , including efax® , onebox® and evoice® . as a result , we believe that paying dids and the revenues associated therewith are an important metric for understanding a substantial portion of our business . we market our services to a broad spectrum of prospective business customers including individuals , small to medium-sized businesses and large enterprises and government organizations . our marketing efforts include enhancing brand awareness ; utilizing online advertising , search engines and affiliate programs ; selling through both a telesales and direct sales force and cross-selling . we continuously seek to extend the number of distribution channels through which we acquire paying customers and improve the cost and volume of customers obtained through our current channels . in addition to growing our business organically , we have used acquisitions to grow our customer base , expand service offerings , enhance our technology and acquire skilled personnel . since fiscal year 2000 , and including the three acquisitions closed thus far in 2012 , we have completed 37 acquisitions in the cloud services for business industry . for additional information on our acquisitions , see note 3 – business acquisitions and note 18 - subsequent events . through a combination of internal technology development and acquisitions , we have built a portfolio of numerous u.s. and foreign patents and multiple pending u.s. and foreign patent applications . we generate licensing revenues from some of these patents . we are currently engaged in litigation to enforce several of our patents . for a more detailed description of the lawsuits in which we are involved , see item 3. legal proceedings . we intend to continue to invest in patents , to aggressively protect our patent assets from unauthorized use and to continue to generate patent licensing revenues from authorized users . the following table sets forth our key operating metrics as of or for the years ended december 31 , 2011 , 2010 and 2009 ( in thousands except for percentages ) : replace_table_token_5_th - 22 - replace_table_token_6_th ( 1 ) the amounts above reflect the change in estimate relating to the remaining service obligations to annual efax® subscribers ( see note 2 – basis of presentation and summary of significant accounting policies ) , which reduced subscriber revenues for the year ended december 31 , 2011 by $ 10.3 million critical accounting policies and estimates in the ordinary course of business , we make a number of estimates and assumptions relating to the reporting of results of operations and financial condition in the preparation of our financial statements in conformity with u.s. generally accepted accounting principles ( “ gaap ” ) . actual results could differ significantly from those estimates under different assumptions and conditions . we believe that the following discussion addresses our most critical accounting policies , which are those that are most important to the portrayal of our financial condition and results and require management 's most difficult , subjective and complex judgments , often as a result of the need to make estimates about the effect of matters that are inherently uncertain . revenues . our subscriber revenues substantially consist of monthly recurring subscription and usage-based fees , which are primarily paid in advance by credit card . in accordance with gaap , the company defers the portions of monthly , quarterly , semi-annually and annually recurring subscription and usage-based fees collected in advance and recognizes them in the period earned . additionally , we defer and recognize subscriber activation fees and related direct incremental costs over a subscriber 's estimated useful life . our patent revenues ( included in “ other revenues ” ) consist of patent license revenues generated under license agreements that provide for the payment of contractually determined fully paid-up or royalty-bearing license fees to j2 global in exchange for the grant of non-exclusive , retroactive and future licenses to our patented technology . patent revenues also consist of revenues generated from the sale of patents . story_separator_special_tag any such changes could materially impact our results of operations in the period in which the changes are made and in periods thereafter . we elected to adopt the alternative transition method for calculating the tax effects of share-based compensation and continue to use the simplified method in developing the expected term used for our valuation of share-based compensation in accordance with asc 718. long-lived and intangible assets . we account for long-lived assets in accordance with the provisions of fasb asc topic no . 360 , property , plant , and equipment ( “ asc 360 ” ) , which addresses financial accounting and reporting for the impairment or disposal of long-lived assets . we assess the impairment of identifiable intangibles and long-lived assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable . factors we consider important which could individually or in combination trigger an impairment review include the following : significant underperformance relative to expected historical or projected future operating results ; significant changes in the manner of our use of the acquired assets or the strategy for our overall business ; significant negative industry or economic trends ; significant decline in our stock price for a sustained period ; and our market capitalization relative to net book value . - 24 - if we determined that the carrying value of intangibles and long-lived assets may not be recoverable based upon the existence of one or more of the above indicators of impairment , we would record an impairment equal to the excess of the carrying amount of the asset over its estimated fair value . we have assessed whether events or changes in circumstances have occurred that potentially indicate the carrying value of long-lived assets may not be recoverable . during the fourth quarter of 2009 , we determined based upon our current and future business needs that the rights to certain external administrative software would not provide any future benefit . accordingly , we recorded a disposal in the amount of $ 2.4 million to the consolidated statement of operations representing the capitalized cost as of december 31 , 2009. total disposals of long-lived assets for the year ended december 31 , 2011 , 2010 and 2009 was approximately $ 0.3 million , $ 0.2 million and $ 2.5 million , respectively . goodwill and purchased intangible assets . we evaluate our goodwill and intangible assets for impairment pursuant to fasb asc topic no . 350 , intangibles – goodwill and other ( “ asc 350 ” ) , which provides that goodwill and other intangible assets with indefinite lives are not amortized but tested for impairment annually or more frequently if circumstances indicate potential impairment . in connection with the annual impairment test for goodwill , we have the option to perform a qualitative assessment in determining whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount . if we determine that it was more likely than not that the fair value of the reporting unit is less than its carrying amount , then we perform the impairment test upon goodwill . intangible assets with indefinite lives are tested for impairment annually or more frequently if circumstances indicate potential impairment . the impairment test is comprised of two steps : ( 1 ) a reporting unit 's fair value is compared to its carrying value ; if the fair value is less than its carrying value , impairment is indicated ; and ( 2 ) if impairment is indicated in the first step , it is measured by comparing the implied fair value of goodwill and intangible assets to their carrying value at the reporting unit level . we completed the required impairment review at the end of 2011 , 2010 and 2009 and noted no impairment . consequently , no impairment charges were recorded . income taxes . we account for income taxes in accordance with fasb asc topic no . 740 , income taxes ( “ asc 740 ” ) , which requires that deferred tax assets and liabilities be recognized using enacted tax rates for the effect of temporary differences between the book and tax basis of recorded assets and liabilities . asc 740 also requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some or all of the net deferred tax assets will not be realized . our valuation allowance is reviewed quarterly based upon the facts and circumstances known at the time . in assessing this valuation allowance , we review historical and future expected operating results and other factors to determine whether it is more likely than not that deferred tax assets are realizable . income tax contingencies . we calculate current and deferred tax provisions based on estimates and assumptions that could differ from the actual results reflected in income tax returns filed during the following year . adjustments based on filed returns are recorded when identified in the subsequent year . effective january 1 , 2007 , the fasb issued new accounting guidance regarding uncertain income tax positions . this guidance found under asc 740 provides guidance on the minimum threshold that an uncertain income tax position is required to meet before it can be recognized in the financial statements and applies to all tax positions taken by a company . asc 740 contains a two-step approach to recognizing and measuring uncertain income tax positions . the first step is to evaluate the income tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit , including resolution of related appeals or litigation processes , if any . the second step is to measure the tax benefit as the largest amount that is more than 50 % likely of being realized upon settlement .
| results of operations years ended december 31 , 2011 , 2010 and 2009 the following table sets forth , for the years ended december 31 , 2011 , 2010 and 2009 , information derived from our statements of operations as a percentage of revenues . this information should be read in conjunction with the accompanying financial statements and the notes to consolidated financial statements included elsewhere in this annual report on form 10-k. replace_table_token_7_th revenues subscriber revenues . replace_table_token_8_th subscriber revenues consist of both a fixed monthly recurring subscription component and a variable component that is driven by the actual usage of our service offerings . over the past three years , the fixed portion of our subscriber revenues was 81 % , 81 % and 82 % for 2011 , 2010 and 2009 , respectively . the increase in subscriber revenues over this three-year period was due primarily to an increase in our subscriber base offset by the impact of our first quarter 2011 change in estimate relating to remaining service obligations to efax® annual subscribers ( see note 2 – basis of presentation and summary of significant accounting policies ) , which reduced subscriber revenues for the year ended december 31 , 2011 by $ 10.3 million . the increase in our subscriber base resulted from new subscribers due to direct marketing costs for acquisition of paying subscribers and international sales , business acquisitions and subscribers coming directly to our websites , corporate , enterprise and government sales , and free-to-paid subscriber upgrades , in each case net of cancellations . other revenues . replace_table_token_9_th other revenues consist primarily of patent licensing revenues , patent sale-related revenues and advertising revenues generated by delivering email messages to our free customers on behalf of advertisers . the decrease in other revenues from 2010 to 2011 resulted primarily from the planned reduction in advertising to our free customers .
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an audit also includes examining , on a test basis , evidence supporting the amounts and disclosures in the financial statements , assessing the accounting principles used and significant estimates made by management , as well as evaluating the overall financial statement presentation . we believe that our audits provide a reasonable basis for our opinion . in our opinion , the consolidated financial statements referred to above present fairly , in all material respects , the financial position of china jo-jo drugstores , inc. at 2016 and 2015 , and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the united states of america . bdo china shu lun pan certified accountants llp shanghai , people 's republic of china june 28 , 2016 f- 1 part i - financial information item 1. financial statements china jo-jo drugstores , inc. and subsidiaries consolidated balance sheets replace_table_token_18_th the accompanying notes are an integral part of these consolidated financial statements . f- 2 china jo-jo drugstores , inc. and subsidiaries consolidated statements of operations and comprehensive income ( loss ) replace_table_token_19_th the accompanying notes are an integral part of these consolidated financial statements . f- 3 china jo-jo drugstores , inc. and subsidiaries consolidated statements of changes in equity replace_table_token_20_th the accompanying notes are an integral part of these consolidated financial statements . f- 4 china jo-jo drugstores , inc. and subsidiaries consolidated statements of cash flows replace_table_token_21_th the accompanying notes are an integral part of these consolidated financial statements . f- 5 note 1 – description of business and organization china jo-jo drugstores , inc. ( “ jo-jo drugstores ” or the “ company ” ) , was incorporated in nevada on december 19 , 2006 , originally under the name “ kerrisdale mining corporation ” . on september 24 , 2009 , the company changed its name to “ china jo-jo drugstores , inc. ” in connection with a share exchange transaction as described below . on september 17 , 2009 , the company completed a share exchange transaction with renovation investment ( hong kong ) co. , ltd. ( “ renovation ” ) , whereby 7,900,000 shares of common stock were issued to the stockholders of renovation in exchange for 100 % of the capital stock of renovation . the completion of the share exchange transaction resulted in a change of control . the share exchange transaction was accounted for as a reverse acquisition and recapitalization and , as a result , the consolidated financial statements of the company ( the legal acquirer ) are , in substance , those of renovation ( the accounting acquirer ) , with the assets and liabilities , and revenues and expenses , of the company being included effective from the date of the share exchange transaction . renovation has no substantive operations of its own except for its holdings of zhejiang jiuxin investment management co. , story_separator_special_tag the following discussion and analysis of our results of operations and financial condition for the fiscal years ended march 31 , 2016 and 2015 should be read in conjunction with our financial statements and the notes to those financial statements that are included elsewhere in this report . our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties , such as our plans , objectives , expectations and intentions . actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors , including those set forth under the “ risk factors , ” “ cautionary notice regarding forward-looking statements ” and “ description of business ” sections and elsewhere in this report . we use words such as “ anticipate , ” “ estimate , ” “ plan , ” “ project , ” “ continuing , ” “ ongoing , ” “ expect , ” “ believe , ” “ intend , ” “ may , ” “ will , ” “ should , ” “ could , ” “ predict ” and similar expressions to identify forward-looking statements . although we believe the expectations expressed in these forward-looking statements are based on reasonable assumptions within the bound of our knowledge of our business , our actual results could differ materially from those discussed in these statements . factors that could contribute to such differences include , but are not limited to , those discussed in the “ risk factors ” section of this report . we undertake no obligation to update publicly any forward-looking statements for any reason even if new information becomes available or other events occur in the future . our financial statements are prepared in united states dollars ( “ $ ” , “ u.s . dollars ” or “ usd ” ) and in accordance with accounting principles generally accepted in the united states . see “ exchange rates ” below for information concerning the exchanges rates at which renminbi , the currency of the prc ( “ renminbi ” or “ rmb ” ) was translated into usd at various pertinent dates and for pertinent periods . overview we currently operate in four business segments in china : ( 1 ) retail drugstores , ( 2 ) online pharmacy , ( 3 ) wholesale of products similar to those that we carry in our pharmacies , and ( 4 ) farming and selling herbs used for traditional chinese medicine ( “ tcm ” ) . our drugstores offer customers a wide variety of pharmaceutical products , including prescription and over-the-counter ( “ otc ” ) drugs , nutritional supplements , tcm , personal and family care products , and medical devices , as well as convenience products , including consumable , seasonal , and promotional items . story_separator_special_tag wholesale gross margin varied , depends on different products we carried and sold to certain pharmaceutical vendors . although we tried to market our products to major local hospitals and other pharmacies , we had not been able to make significant progress . until we are able to obtain status as provincial or national exclusive sale agent for certain popular drugs or have sales access to large local hospitals , we may have to keep low profit margin in order to drive sales . selling and marketing expenses selling and marketing expenses increased by $ 1,944,421 , or 18.7 % , during the year ended march 31 , 2016 , as compared to the previous fiscal year . the increase in absolute dollars is primarily attributable to the operating and labor cost related to our online pharmacy , such as increase in courier expense of approximately $ 0.50 million , increase in service fee for our own online pharmacy website of approximately $ 0.78 million and increase in labor cost of approximately $ 0.42 million . as a result , such expenses as a percentage of our revenue increased to 13.9 % , from 13.5 % for the same period a year ago . we expect future sales and marketing expenses to grow as our business continue to expand . 39 general and administrative expenses general and administrative expenses increased by $ 4,862,086 , or 1,551.4 % , during the year ended march 31 , 2016 , as compared to the previous fiscal year . the increase was a net effect of a reversal of approximately $ 1.1 million of reserve for advances to suppliers , which is due to collection of goods or cash against the aged account during the year ended march 31 , 2016 and a reversal of an approximately $ 0.8 million of reserve for accounts receivable , which is attributable to our continuing collection efforts in the year ended march 31 , 2016 , as compared to a reversal of approximately $ 5.4 million of reserve for advances to suppliers and a reversal of an approximately $ 2.2 million of reserve for accounts receivable during the year ended march 31 , 2015. additionally , we no longer carried heath club business in fiscal 2016 , while in fiscal 2015 , we incurred labor cost of approximately $ 0.5 million . after excluding such net effects , general and administrative expense decreased by $ 0.4 million primarily due to our stricter budget control . income ( loss ) from operations income from operations decreased by $ 1,732,950 during the year ended march 31 , 2016 , as compared to the previous fiscal year , resulting in an operating loss of $ 24,766 for the year ended march 31 , 2016 , as compared to an operating income of $ 1,708,184 for the fiscal year ended march 31 , 2015 as a result of increase in general and administration expense . operating margin for the fiscal years ended march 31 , 2016 and 2015 was ( 0.00 ) % and 2.2 % , respectively . impairment of long-lived assets we recorded an impairment of long-lived assets of $ 1,053,765 for the obsolete fixed assets in jiuyingtang , a health club which has been closed in the year ended march 31 , 2015. such impairment was made after we estimated that the implied fair value of long-lived assets was lower than the carrying value . change in fair value of purchase option and warrants liability as of march 31 , 2016 , warrants liability consists of a warrant to a financial adviser , a warrant to an investor and a warrant to an investment bank ( see note 19 ) . gain from the change in fair value of purchase option and warrants liability is $ 612,198 , as compared to a loss of $ 36,411 , primarily as a result of decrease in warrants value based on black-sholes model due to stock price decline in fiscal 2016. income taxes income tax expense increased by $ 39,343 during the year ended march 31 , 2016 , as compared to the previous fiscal year . net income as a result of the foregoing , net income decreased by $ 408,472 in the year ended march 31 , 2016 from net income of $ 856,557 in the year ended march 31 , 2015 period over period . 40 accounts receivable accounts receivable , which are unsecured , are stated at the amount we expect to collect . we continuously monitor collections and payments from our customers ( our distributors ) and maintain a provision for estimated credit losses based upon historical experience and any specific customer collection issues that have been identified . in the year ended march 31 , 2016 , we collected certain aged accounts receivables from certain wholesale customers that we ceased doing business with . to prepare for potential loss in such accounts , we made corresponding reserves . our accounts receivable aging was as follows for the periods described below : replace_table_token_5_th accounts receivable from our retail drugstores business mainly consist of reimbursements from government health insurance bureaus and commercial health insurance programs . in the year ended march 31 , 2016 , we wrote off an approximately $ 166,102 of uncollectible amounts from provincial and hangzhou city government insurance , as such amount has been determined by the health insurance bureaus to be unqualified for reimbursement . accounts receivable from our online pharmacy business mainly consist of collectible from third-party platforms such as tmall and jd.com where we sell products . usually the third-party platforms will collect from customers ordering on their platforms and then reimburse us in ranging from several days to a month after orders are placed . accounts receivable from our drug wholesale business and herb farming business consist of receivables from our customers such as pharmaceutical distributors .
| results of operations comparison of years ended march 31 , 2016 and 2015 the following table summarizes our results of operations for the years ended march 31 , 2016 and 2015 : replace_table_token_2_th revenue due to the expansion of our retail drugstores and online pharmacy business , revenue increased by $ 12,169,848 or 15.8 % for the year ended march 31 , 2016 , as compared to the previous fiscal year , partially offset by a decrease in our wholesale business . the following table breaks down the revenue for our four business segments for the years ended march 31 , 2016 and 2015 : replace_table_token_3_th retail drugstores sales , which accounted for approximately 57.5 % of total revenue for the year ended march 31 , 2016 , increased by $ 2,405,908 , or 4.9 % , to $ 51,205,644. same-store sales increased by approximately $ 1.7 million , or 3.5 % . excluding rmb depreciation effect , the same store sales increased by approximately 6.4 % year over year . in order to promote our same-store sales growth , we implemented certain operational strategies such as increasing product adaptability to community demand , providing access to mobile payments , close monitoring of chronicle disease customers , launching in-pharmacy virtual doctor clinics and close cooperation with certain large reputable vendors to promote sales of their brand name products . however , due to government insurance budget control , our same stores sales growth has been impeded in 2016. in the long run , the same store sales are expected to grow due to the increasing healthcare products demand in china . our store count decreased to 58 as of march 31 , 2016 , compared to 59 stores as of march 31 , 2015 , as an effect of closing a store that is not qualified for the qualification of social health insurance ( `` shi '' ) , initially acquired from our purchase of sanhao pharmacy .
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13. license agreements in august 2014 , the company entered into a royalty-bearing license agreement with novamedica llc ( “ novamedica ” ) . under this agreement , the company granted to novamedica the right to use the company 's intellectual property to develop and commercialize the intended products ( the “ covered story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations in conjunction with the consolidated financial statements and the related notes to those statements included later in this annual report . in addition to historical financial information , the following discussion contains forward‑looking statements that reflect our plans , estimates , beliefs and expectations that involve risks and uncertainties . our actual results and the timing of events could differ materially from those discussed in these forward‑looking statements . factors that could cause or contribute to these differences include those discussed below and elsewhere in this annual report , particularly in “ item 1a . risk factors ” and “ special note regarding forward‑looking statements. ” overview we are a late-stage clinical biopharmaceutical company developing first-in-class drug therapies to treat blinding diseases of the eye . our current product candidates focus on treatments for diseases affecting the retina and choroid , especially diseases associated with macular edema , and are injected into the suprachoroidal space , or scs , using our proprietary scs microinjector . with the suprachoroidal injection procedure , our product candidates are more directly administered to the retina and choroid as compared to other ocular drug administration techniques such as intravitreal injections . we believe treatment of eye disease via suprachoroidal injection may provide a number of benefits , including lower frequency of necessary administration and faster onset of therapeutic effect . we hold the exclusive rights to develop and commercialize drugs for treatment via injection into the scs . our most advanced product candidates are based on commonly used ophthalmic drugs , which we believe will allow us to more efficiently and predictably pursue the regulatory approval of these product candidates under section 505 ( b ) ( 2 ) of the federal food , drug , and cosmetic act . we are developing cls-ta , our proprietary , preservative-free formulation of the corticosteroid triamcinolone acetonide , or ta , specifically designed to be administered suprachoroidally for the treatment of patients with non-infectious uveitis . we are currently enrolling patients with macular edema associated with non-infectious uveitis in a pivotal phase 3 clinical trial . we expect to enroll approximately 150 patients in this trial and to report data in early 2018. we believe , based on our end-of-phase 2 review meeting with the food and drug administration , or fda , in may 2015 , that only one clearside-sponsored , phase 3 clinical trial will be required to support the filing of a new drug application , or nda , to the fda . we are also developing cls-ta along with an anti-vegf agent for the treatment of macular edema associated with retinal vein occlusion , or rvo , a sight-threatening disorder resulting from the blockage of a retinal vein . we are exploring whether suprachoroidal injection of cls-ta together with an intravitreal injection of eylea , an inhibitor of vascular endothelial growth factor , or vegf , can provide improved visual acuity , reduced macular edema and reduced injection frequency , as compared to administration of intravitreal eylea alone . we have completed a phase 2 clinical trial in 46 patients with macular edema associated with rvo . in this trial , 23 patients in the active arm initially received a concomitant suprachoroidal injection of cls-ta and an intravitreal injection of eylea and 23 patients in the control arm initially received only an intravitreal injection of eylea . the objective of the trial was to determine whether patients receiving cls-ta together with eylea could sustain this improved visual acuity over the three months of the clinical trial while requiring fewer additional eylea treatments than patients receiving intravitreal eylea alone . patients in each arm were evaluated at months one , two and three after the initial treatment using pre-specified criteria to determine if they continued to experience macular edema or reductions in visual acuity and therefore required additional eylea treatments . the primary objective of the trial was met , with patients in the active arm requiring an aggregate of 60 % fewer additional eylea treatments than patients in the control arm over three months , a result that was statistically significant ( p=0.013 ) . in addition , 18 of the 23 patients , or 78 % , in the active arm of the trial did not require additional treatments during the three-month trial compared to 7 of the 23 patients , or 30 % , in the control arm , a result that was also statistically significant ( p=0.003 ) . in the same phase 2 trial , patients in the active arm experienced greater improvement in visual acuity than those in the control arm , with patients in the active arm experiencing mean bcva improvements at months one , two and three of 16 , 20 and 19 letters , respectively , compared to improvements of 11 , 12 and 11 letters , respectively , in the control arm at the same time points . based on the results of this trial and after incorporating feedback from an end-of-phase 2 meeting with the fda held in late 2016 , we initiated a phase 3 clinical program in the first quarter of 2017. we have recently expanded our cls-ta development programs to include another retinal vascular condition , diabetic macular edema , or dme . in november 2016 , we began enrolling patients with dme in a multi-center , open-label phase 1/2 clinical trial to obtain safety data , and to observe efficacy outcomes from administering a combination of intravitreal eylea and suprachoroidal cls-ta , as well as suprachoroidal cls-ta alone , over a six-month evaluation period . story_separator_special_tag 66 critical accounting policies and significant judgments and estimates our management 's discussion and analysis of our financial condition and results of operations is based on our financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america , or u.s. gaap . the preparation of these financial statements requires us to make estimates , judgments and assumptions that affect the reported amounts of assets and liabilities , disclosure of contingent assets and liabilities as of the dates of the balance sheets and the reported amounts of expenses during the reporting periods . in accordance with u.s gaap , we evaluate our estimates and judgments on an ongoing basis . significant estimates include assumptions used in the determination of share-based compensation and some of our research and development expenses . we base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . we define our critical accounting policies as those accounting principles generally accepted in the united states of america that require us to make subjective estimates and judgments about matters that are uncertain and are likely to have a material impact on our financial condition and results of operations , as well as the specific manner in which we apply those principles . while our significant accounting policies are more fully described in note 2 to our financial statements appearing elsewhere in this annual report , we believe the following are the critical accounting policies used in the preparation of our financial statements that require significant estimates and judgments . accrued expenses as part of the process of preparing our financial statements , we are required to estimate accrued expenses . this process involves reviewing open contracts and purchase orders , communicating with applicable vendor 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 . we make estimates of our accrued expenses as of each balance sheet date in our financial statements based on facts and circumstances known to us . we periodically confirm the accuracy of our estimates with the service providers and make adjustments if necessary . examples of estimated accrued expenses include fees paid to cros and investigative sites in connection with clinical trials . we accrue our expenses related to clinical trials based on our estimates of the services received and efforts expended pursuant to contracts with multiple research institutions and cros that conduct research activities or manage clinical trials on our behalf . the financial terms of these agreements are subject to negotiation , vary from contract to contract and may result in uneven payment flows . 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 level of effort varies from our estimate , we will adjust the accrual accordingly . if we underestimate or overestimate the level of services performed or the costs of these services , our actual expenses could differ from our estimates . although we do not currently anticipate the future settlement of existing accruals to differ materially from our estimates , our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and could result in us reporting amounts that are too high or too low for any period . there have been no material changes in estimates for the periods presented in our financial statements . fair value measurements we record some of our financial assets and liabilities at fair value in accordance with the provisions of accounting standards codification , or asc , topic 820 on fair value measurements . as defined in the guidance , fair value , defined as an exit price , represents the amount that would be received to sell an asset or pay to transfer a liability in an orderly transaction between market participants . as a result , fair value is a market-based approach that should be determined based on assumptions that market participants would use in pricing an asset or a liability . as a basis for considering these assumptions , the guidance defines a three-tier value hierarchy that prioritizes the inputs used in the valuation methodologies in measuring fair value . level 1—unadjusted quoted prices in active , accessible markets for identical assets or liabilities . level 2—other inputs that are directly or indirectly observable in the marketplace . level 3—unobservable inputs that are supported by little or no market activity . the fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value . 67 our material financial instruments at dec ember 31 , 2016 and 2015 consisted primarily of cash and cash equivalents , short-term investments , long-term debt and stock purchase warrant liabilities . the fair value of cash and cash equivalents , other current assets and accounts payable approximate thei r respective carrying values due to the short term nature of these instruments . the fair value of long-term debt approximates the carrying value due to variable interest rates that correspond to market rates . we have determined our cash and cash equivalent s and government bonds to be level 1 in the fair value hierarchy .
| components of operating results revenue we have not generated any revenue from the sale of any drugs , and we do not expect to generate any revenue unless or until we obtain regulatory approval of and commercialize our product candidates . the only revenue we have derived , consisting primarily of $ 0.5 million in the first quarter of 2016 , has been from up-front payments in connection with out-licensing our proprietary microinjection technology for scs drug administration to third-party strategic collaborators . in 2014 , we executed a license agreement with novamedica llc , or novamedica , and in 2015 , we executed a license agreement with spark therapeutics , inc. , or spark . in connection with these agreements , we received up-front payments of $ 200,000 from novamedica and $ 500,000 from spark . we deferred recognizing these payments through 2015. in the first quarter of 2016 , we began recognizing revenue related to the novamedica payment and we recognized the entire payment from spark . 64 re search and development since our inception , we have focused on our development programs . research and development expenses consist primarily of costs incurred for the research and development of our preclinical and clinical product candidates , which include : employee-related expenses , including salaries , benefits , travel and share-based compensation expense for research and development personnel ; expenses incurred under agreements with contract research organizations , or cros , as well as contract manufacturing organizations and consultants that conduct clinical trials and preclinical studies ; costs associated with preclinical activities and development activities ; costs associated with technology and intellectual property licenses ; costs for our research and development facility ; and depreciation expense for assets used in research and development activities . we expense research and development costs to operations as incurred .
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overview we are the leader in virtualization infrastructure solutions utilized by organizations to help transform the way they build , deliver and consume information technology ( “ it ” ) resources . our primary source of revenues is from the licensing and support of these solutions to organizations of all sizes and across numerous industries . the benefits of our solutions to our customers include substantially lower it costs , cost-effective high availability across a wide range of applications and a more automated and resilient systems infrastructure capable of responding dynamically to variable business demands . we pioneered the development and application of virtualization technologies with x86 server-based computing , separating application software from the underlying hardware . since then , we have introduced a broad and proven suite of virtualization technologies that address a range of complex it problems that include cost and operational inefficiencies , facilitating access to cloud computing capacity , business continuity , and corporate end-user computing device management . in 2012 , we articulated a vision for the software-defined data center ( “ sddc ” ) , where increasingly infrastructure is virtualized and delivered as a service , and the control of this data center is entirely automated by software . to further this vision , in the third quarter of 2012 , we released the vmware vcloud suite , which is the first integrated solution designed to meet the requirements of the sddc by pooling industry-standard hardware and running compute , networking , storage and management functions in the data center as software-defined services . our solutions are based upon our core virtualization technology and are organized into two main product groups : cloud infrastructure and management and end-user computing . the cloud infrastructure and management product group is based upon our flagship virtualization platform , vmware vsphere . vmware vsphere not only decouples the entire software environment from its underlying hardware infrastructure but also enables the aggregation of multiple servers , storage infrastructures and networks into shared pools of resources that can be delivered dynamically , securely and reliably to applications as needed . the cloud infrastructure and management group also encompasses the vmware vcloud suite and various cloud management solutions that are optimized to work with vsphere environments and are designed to simplify and automate management of dynamic cloud infrastructures that enable enterprises to build , manage and automate their own private clouds . our end-user computing product group has solutions designed to enable a user-centric approach to personal computing , ensuring secure access to applications and data from a variety of devices and locations , and addresses the needs of it departments by delivering existing end-user assets as a managed service . we also offer cloud application platform solutions to help organizations build , run and manage enterprise applications in public , private or hybrid clouds optimized for vsphere . in december 2012 , we launched the pivotal initiative with emc corporation ( “ emc ” ) , our majority stockholder , pursuant to which both companies plan to commit technology , people and programs . the pivotal initiative is focused on big data and cloud application platforms . big data , which is a primary contributor to the pace of overall data growth , refers to the large repositories of corporate and external data , including unstructured information created by new applications , social media and other web repositories . we have developed a multi-channel distribution model to expand our presence and reach various segments of the market . we derive a significant majority of our sales from our indirect sales channel , which includes distributors , resellers , system vendors and systems integrators . sales to our channel partners often involve three tiers of distribution : a distributor , a reseller and an end-user customer . our sales force works collaboratively with our channel partners to introduce them to end-user customer accounts and new sales opportunities . as we expand geographically , we expect to continue to add additional channel partners . we expect to grow our business by building long-term relationships with our customers through the adoption of enterprise license agreements ( “ elas ” ) . elas are comprehensive volume license offerings offered both directly by us and through certain channel partners that provide for multi-year maintenance and support at discounted prices . under a typical ela , a portion of the revenues is attributed to the license revenues and the remainder is primarily attributed to software maintenance revenues . in addition , the initial maintenance period is typically longer for elas than for other types of license sales . elas enable us to build long-term relationships with our customers as they commit to our virtual infrastructure solutions in their data centers . elas also provide a base from which to sell additional products , such as our application platform products , our end-user computing products and our cloud infrastructure and management products . elas comprised between one-quarter and one-third of our overall sales during 2012 and 2011 , with the balance represented by our non-ela , or transactional business . in 2012 , our overall sales growth rate declined compared to 2011 , with the growth rate in transactional sales lower than the growth rate in elas . in 2013 , we intend to also focus our selling and marketing efforts to improve the growth rate of our transactional business . 41 in january 2013 , we announced a realignment of our strategy to refocus our resources and investments in support of three growth priorities that focus on our core opportunities as a provider of virtualization technologies that simplify it infrastructure : the software-defined data center , the hybrid cloud and end-user computing . for the sddc , we plan to continue to invest in the development and delivery of innovations in networking , security , storage and management as we continue to roll out and enhance the features of our vcloud suite . story_separator_special_tag unearned software maintenance revenues are attributable to our maintenance contracts and are recognized ratably , typically over terms from one to five years with a weighted-average remaining term at december 31 , 2012 of approximately 1.9 years . unearned professional services revenues result primarily from prepaid professional services , including training , and are recognized as the services are delivered . we believe that our overall unearned revenue balance improves predictability of future revenues and that it is a key indicator of the health and growth of our business . operating expenses information about our operating expenses for the years ended 2012 , 2011 and 2010 is as follows : replace_table_token_6_th 44 replace_table_token_7_th replace_table_token_8_th ( 1 ) core operating expenses is a non-gaap financial measure that excludes stock-based compensation , the net effect of the amortization and capitalization of software development costs and certain other expenses from our total operating expenses calculated in accordance with gaap . the other operating expenses excluded are amortization of acquired intangible assets , employer payroll taxes on employee stock transactions and acquisition-related items . our core operating expenses reflect our business in a manner that allows meaningful period-to-period comparisons . our core operating expenses are reconciled to the most comparable gaap measure , “ total operating expenses , ” in the table above . see “ non-gaap financial measures ” for further information . our operating margin on total operating expenses decreased to 18.9 % in 2012 from 19.5 % in 2011 . the decrease in our operating margin in 2012 compared with 2011 primarily related to the year-over-year decrease in capitalized software development costs , partially offset by the year-over-year increase in our revenues , which outpaced the increase in our core operating expenses . our operating margin on total operating expenses increased to 19.5 % in 2011 from 15.0 % in 2010 . the increase in our operating margin in 2011 compared with 2010 primarily related to the increase in our revenues , which outpaced the increases in our expenses . core operating expenses the following discussion of our core operating expenses and the components comprising our core operating expenses highlights the factors that we focus on when evaluating our operating margin and operating expenses . the increases or decreases in operating expenses discussed in this section do not include changes relating to stock-based compensation , the net effect of the amortization and capitalization of software development costs and certain other expenses , which consist of amortization of acquired intangible assets , employer payroll taxes on employee stock transactions and acquisition-related items . core operating expenses increased by $ 513.4 or 20 % in 2012 compared with 2011 and increased by $ 556.4 or 27 % in 2011 compared with 2010 . as quantified below , these increase s were primarily due to increases in employee-related expenses , which include salaries and benefits , bonuses , commissions , and recruiting and training , and which increased largely as a result of increases in headcount . our headcount as of december 31 , 2012 was approximately 13,800 , compared with approximately 11,200 as of december 31 , 2011 and compared with approximately 9,000 as of december 31 , 2010. these increases in headcount were driven by strategic hiring , business growth and business acquisitions . a portion of our core operating expenses , primarily the cost of personnel to deliver technical support on our products and professional services , marketing , and research 45 and development , are denominated in foreign currencies and are thus exposed to foreign exchange rate fluctuations . core operating expenses benefited by $ 53.6 in 2012 and were negatively impacted by $ 48.2 in 2011 as compared with their respective prior years due to the effect of fluctuations in the exchange rates between the u.s. dollar and other currencies . cost of license revenues our core operating expenses for cost of license revenues principally consist of the cost of fulfillment of our software and royalty costs in connection with technology licensed from third-party providers . the cost of fulfillment of our software includes it development efforts , personnel costs , product packaging and related overhead associated with the physical and electronic delivery of our software products . core operating expenses for cost of license revenues increased by $ 17.8 or 24 % in 2012 compared with 2011 and by $ 22.4 or 43 % in 2011 compared with 2010 . the increase s were due to increases of $ 8.0 and $ 7.6 in 2012 and 2011 , respectively , for it development costs . additionally , cost of license revenues increased by $ 4.8 and $ 11.3 in 2012 and 2011 , respectively , primarily related to royalty and licensing costs for technology licensed from third-party providers that is used in our products . cost of services revenues our core operating expenses for cost of services revenues primarily include the costs of personnel and related overhead to deliver technical support for our products and to provide our professional services . core operating expenses for cost of services revenues increased by $ 65.8 or 17 % in 2012 compared with 2011 , and by $ 92.5 or 32 % in 2011 compared with 2010 . the increase in 2012 was primarily due to growth in employee-related expenses and travel and entertainment expenses of $ 61.4 , which was largely driven by incremental growth in headcount to support increased revenues . additionally , our third-party professional services costs increased by $ 17.0 to provide technical support and professional services primarily in connection with increased demand for services .
| results of operations as we operate our business in one operating segment , our revenues and operating expenses are presented and discussed at the consolidated level . we classify our revenues into two categories , i.e . license revenues and services revenues . see “ critical accounting policies ” for further information regarding the accounting for our revenues . our current financial focus is on long-term revenue growth to generate free cash flows to fund our expansion of industry segment share and to evolve our virtualization-based products for data centers , end-user devices and cloud computing through a combination of internal development and acquisitions . see “ non-gaap financial measures ” for further information on free cash flows . in evaluating our results , we also focus on operating margin excluding certain expenses which are included in our total operating expenses calculated in accordance with gaap . the expenses excluded are stock-based compensation , the net effect of the amortization and capitalization of software development costs and certain other expenses consisting of amortization of acquired intangible assets , employer payroll taxes on employee stock transactions and acquisition-related items . we believe these measures reflect our ongoing business in a manner that allows meaningful period-to-period comparisons . we are not currently focused on short-term operating margin expansion , but rather on investing at appropriate rates to support our growth and priorities in what may be a substantially more competitive environment . 42 revenues our revenues in the years ended 2012 , 2011 and 2010 were as follows : replace_table_token_4_th in both 2012 and 2011 , we saw growth in license and services revenues , and growth in the united states and internationally , as compared with their respective prior years . license revenues license revenues in both 2012 and 2011 increased due to continued demand for our product offerings .
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the information in this section has been derived from the consolidated financial statements and footnotes thereto that appear in item 8 of this form 10-k. the information contained in this section should be read in conjunction with these consolidated financial statements and footnotes and the business and financial information provided in this form 10-k. unless otherwise indicated , the financial information presented in this section reflects the consolidated financial condition and results of operations of first financial northwest and its subsidiaries . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > our noninterest expenses consist primarily of salaries and employee benefits , professional fees , regulatory assessments , occupancy and equipment , and other general and administrative expenses . salaries and employee benefits consist primarily of the 55 salaries and wages paid to our employees , payroll taxes , expenses for retirement , and other employee benefits . oreo-related expenses consist primarily of maintenance and costs of utilities for the oreo inventory , market valuation adjustments , build-out expenses , gains and losses from oreo sales , legal fees , real estate taxes , and insurance related to the properties included in the oreo inventory . professional fees include legal services , auditing and accounting services , computer support services , and other professional services in support of strategic plans . occupancy and equipment expenses , which are the fixed and variable costs of buildings and equipment , consist primarily of real estate taxes , depreciation expenses , maintenance , and costs of utilities . also included in noninterest expense are changes to the company 's unfunded commitment reserve which are reflected in general and administrative expenses . this unfunded commitment reserve expense can vary significantly each quarter , based on the amount believed by management to be sufficient to absorb estimated probable losses related to unfunded credit facilities , and reflects changes in the amounts that the company has committed to fund but has not yet disbursed . our noninterest expenses increased $ 3.0 million during the year ended december 31 , 2016 as compared to 2015. the increase was primarily attributable to a $ 1.4 million increase in salary and employee benefits expenses , a $ 544,000 increase in occupancy and equipment expenses , and a $ 778,000 increase in oreo-related expenses in 2016 as compared to 2015 , which included a $ 526,000 gain on sale of oreo properties . net income for the year ended december 31 , 2016 was $ 8.9 million or $ 0.74 per diluted share , compared to $ 9.2 million , or $ 0.67 per diluted share for the year ended december 31 , 2015. the decrease in net income for the year ended december 31 , 2016 was primarily the result of a $ 3.0 million increase in noninterest expense , combined with the $ 1.3 million provision for loan losses in 2016 as compared to a $ 2.2 million recapture in 2015 , partially offset by a $ 3.8 million increase in net interest income due to the increase in net loans receivable , a $ 1.4 million increase in noninterest income and a $ 1.2 million decrease in federal income tax provision . business strategy our long-term business strategy is to operate and grow first financial northwest bank as a well-capitalized and profitable community bank , offering one-to-four family residential , commercial and multifamily , construction/land , consumer and business loans along with a diversified array of deposit and other products and services to individuals and businesses in our market areas . we intend to accomplish this strategy by leveraging our established name and franchise , capital strength , and loan production capability by : capitalizing on our intimate knowledge of our local communities to serve the convenience and needs of customers , and delivering a consistent , high-quality level of professional service ; offering competitive deposit rates and developing customer relationships to expand our core deposits , diversifying the deposit mix , growing lower cost deposits , attracting new customers , and expanding our footprint in the geographical area we serve ; utilizing wholesale funding sources , including but not limited to fhlb advances and acquiring deposits in the national brokered certificate of deposit market , to assist with funding needs and interest rate risk management efforts , as needed ; managing our loan portfolio to minimize concentration risk and diversify the types of loans within the portfolio ; managing credit risk to minimize the risk of loss and interest rate risk to optimize our net interest margin ; and improving profitability through disciplined pricing , expense control and balance sheet management , while continuing to provide excellent customer service . critical accounting policies critical accounting policies are those that involve significant judgments and assumptions by management and that have , or could have , a material impact on our income or the carrying value of our assets . the following are our critical accounting policies . allowance for loan losses . management recognizes that loan losses may occur over the life of a loan and that the alll must be maintained at a level necessary to absorb specific losses on impaired loans and probable losses inherent in the loan portfolio . our methodology for analyzing the alll consists of two components : general and specific allowances . the general allowance is determined by applying factors to our various groups of loans . management considers factors such as charge-off history , the current and expected economic conditions , borrower 's ability to repay , the regulatory environment , competition , geographic and loan type concentrations , policy and underwriting standards , nature and volume of the loan portfolio , management 's experience level , our loan review and grading systems , the value of underlying collateral , and the level of problem loans in assessing the alll . specific allowances result when management performs an impairment analysis on a loan when it determines it is probable that all contractual amounts of principal and interest will not be paid as scheduled . story_separator_special_tag the degree of judgment utilized in measuring the fair value of financial instruments generally correlates to the level of pricing observability . financial instruments with readily available active quoted prices or for which fair value can be measured from actively quoted prices generally 57 will have a higher degree of pricing observability and a lesser degree of judgment utilized in measuring fair value . conversely , financial instruments rarely traded or not quoted will generally have little or no pricing observability and a higher degree of judgment utilized in measuring fair value . pricing observability is impacted by a number of factors , including the type of financial instrument , whether the financial instrument is new to the market and not yet established and the characteristics specific to the transaction . see note 6 of the notes to consolidated financial statements contained in item 8 for additional information about the level of pricing transparency associated with financial instruments carried at fair value . derivatives and hedge accounting . the bank recognizes its interest rate swap as a cash flow hedge derivative instrument , and as such , reports the fair value as an asset or liability . fair value is based on dealer quotes , pricing models , discounted cash flow methodologies or similar techniques for which the determination of fair value may require significant management judgment or estimation . the derivative is marked to its fair value through other comprehensive income . any ineffectiveness is recognized in earnings . the gain or loss on the derivative is removed from equity and recognized in noninterest income in the same period the corresponding loss or gain on the hedged cash flow is recognized in earnings . comparison of financial condition at december 31 , 2016 and december 31 , 2015 assets . the following table details the changes in the composition of our assets at december 31 , 2016 from december 31 , 2015 . replace_table_token_32_th during 2016 , total assets surpassed $ 1.0 billion with a $ 57.7 million increase in total assets during the year . the increase was primarily a result of redirecting $ 74.4 million from lower-yielding interest-earning deposits , consisting primarily of funds held at the federal reserve bank of san francisco , to partially fund the $ 130.0 million growth in higher-yielding loans receivable . investments . our investments available-for-sale remained stable during 2016 with a $ 305,000 or 0.2 % decrease to $ 129.3 million at december 31 , 2016 from $ 129.6 million at december 31 , 2015. during 2016 , we continued to restructure our available‑for‑sale investment portfolio to transition our investment portfolio to securities with longer maturity periods , higher yields , and primarily fixed rates in order to enhance our interest income . during the year , we purchased $ 44.6 million of securities with an expected yield of 2.99 % , partially funded by sales of $ 25.9 million with an average yield of 1.68 % . restructuring of our investment portfolio during 2016 and 2015 resulted in an increase in average yield of our available-for-sale investments to 2.31 % in 2016 from 1.84 % in 2015. the purchases included $ 31.9 million in fixed rate and $ 12.0 million in variable rate securities . these consisted of $ 28.2 million in mortgage-backed securities , $ 10.0 million in corporate bonds , consisting of two subordinated debt instruments issued by well capitalized financial institutions located in southern california in the amounts of $ 5.0 million each , $ 4.0 million in u.s. government agency bonds a nd $ 1.7 million in municipal bonds . the sales of investments available-for-sale generated a net gain of $ 50,000 for the year ended december 31 , 2016. we also received calls or partial calls of $ 438,000 of u.s. government agency and municipal securities . in addition to the purchase and call activity , we received principal repayments of $ 15.9 million on our investments available-for-sale during the 2016. the effective duration of our portfolio increased to 4.00 % at december 31 , 2016 as compared to 3.20 % at december 31 , 2015. effective duration is a measure that attempts to quantify the anticipated percentage change in the value of an investment 58 ( or portfolio ) in the event of a 100 basis point change in market yields . since the bank 's portfolio includes securities with embedded options ( including call options on bonds and prepayment options on mortgage-backed securities ) , management believes that effective duration is an appropriate metric to use as a tool when analyzing the bank 's investment securities portfolio , as effective duration incorporates assumptions relating to such embedded options , including changes in cash flow assumptions as interest rates change . loans receivable . net loans receivable increased by $ 129.9 million during 2016 to $ 815.0 million primarily due to increases of $ 74.8 million , or 120.5 % in our net construction/land loans and $ 59.5 million or 24.4 % in our commercial real estate loans . these increases were partially offset by a decrease of $ 4.3 million in our one-to-four family residential loans . commercial real estate and one-to-four family residential loans continue to be the largest concentrations in our loan portfolio at 33.7 % and 27.7 % , respectively , of total loans . our construction/land loans increased to 23.2 % of our total loan portfolio in 2016 from 15.5 % in 2015 as we continue to originate more of these shorter term , higher yielding loans . during 2016 , we supplemented our loan originations by purchasing $ 61.1 million in performing residential and non-residential commercial real estate and multifamily loans from other financial institutions . the loans were purchased at a 1.8 % - 3.0 % premium and are intended to be held to maturity . included in these real estate loan purchases were $ 20.9 million of real estate loans secured by properties located in washington .
| overview first financial northwest bank is a wholly-owned subsidiary of first financial northwest and , as such , comprises substantially all of the activity for first financial northwest . first financial northwest bank was a community-based savings bank until february 4 , 2016 , when the bank converted to a washington chartered commercial bank reflecting the commercial banking services it now provides to its customers . the bank primarily serves king and to a lesser extent , snohomish , pierce , and kitsap counties , washington through our full-service banking office located in renton , washington . additional branches opened in mill creek , washington in september 2015 , edmonds , washington in march 2016 , and the landing in renton , washington in july 2016. first financial northwest bank 's business consists predominantly of attracting deposits from the general public , combined with borrowing from the federal home loan bank of des moines ( “ fhlb ” ) and raising funds in the wholesale market , then 54 utilizing these funds to originate or purchase one-to-four family residential , multifamily , commercial real estate , construction/land , business , and consumer loans . our current business strategy emphasizes commercial real estate , construction/land , one-to-four family residential , and multifamily lending . recently , improvements in the economy , employment rates , stronger real estate prices , and a general lack of new housing inventory in certain areas in the puget sound region have led to our significantly increasing originations of construction loans for properties located in our market area . we anticipate that construction/land lending will continue to be a strong element of our total loan portfolio in future periods . we will continue to take a disciplined approach in our construction/land lending by concentrating our efforts on one-to-four residential loans to builders known to us . on a limited basis , we also will provide multifamily loans to developers with proven success in this type of construction .
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the net asset value is classified within level 2 of the valuation hierarchy as set forth in the accounting guidance for fair value measurements because the net asset value price is quoted on an inactive private market although the underlying investments are traded on an active market . 77 the company 's investment strategy focuses on total return on invested assets ( capital appreciation plus dividend and interest income ) . the primary objective in the investment management of assets is to achieve long-term growth of principal while avoiding excessive risk . risk is managed through diversification of investments within and among asset classes , as well as by choosing securities that have an established trading and underlying operating history . the company makes various assumptions when determining defined benefit plan costs including , but not limited to , the current discount rate and the expected long-term return on plan assets . discount rates are determined annually and 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 , 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 2015 , 2014 and 2013 were 54,826,000 , 56,867,000 and 56,552,000 , respectively . the increase in the weighted average number of common shares outstanding for 2014 compared with 2013 primarily reflects the issuance of restricted stock and the exercise of stock options , partially offset by common stock repurchases in the 2014 fourth quarter . the decrease in the weighted average number of common shares outstanding for 2015 compared with 2014 primarily reflects common stock repurchases in the 2014 fourth quarter and 2015 , partially offset by the issuance of restricted stock and the exercise of stock options . 34 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 , 2015 , the company operated a fleet of 898 inland tank barges with 17.9 million barrels of capacity , and operated an average of 248 inland towboats during 2015. the company 's coastal fleet consisted of 70 tank barges with 6.0 million barrels of capacity and 73 coastal tugboats . the company also owns and operates six offshore dry-bulk cargo barges and seven offshore tugboats transporting dry-bulk commodities in united states coastal trade . through its diesel engine services segment , the company provides after-market services for medium-speed and high-speed diesel engines , reduction gears and ancillary products for marine and power generation applications , distributes and services high-speed diesel engines , transmissions and pumps , and manufactures and remanufactures oilfield service equipment , including pressure pumping units , for the land-based oilfield service and oil and gas operator and producer markets . for 2015 , net earnings attributable to kirby were $ 226,684,000 , or $ 4.11 per share , on revenues of $ 2,147,532,000 , compared with 2014 net earnings attributable to kirby of $ 282,006,000 , or $ 4.93 per share , on revenues of $ 2,566,318,000. marine transportation for 2015 , 77 % 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 . the company 's marine transportation segment 's revenues for 2015 decreased 6 % compared with 2014. the decrease was primarily due to a 37 % decline in the average cost of marine diesel fuel in 2015 , which is largely passed through to the customer . story_separator_special_tag diesel engine services during 2015 , the diesel engine services segment generated 23 % of the company 's revenues , of which 52 % was generated from overhauls and service , 28 % from direct parts sales and 20 % from manufacturing . the results of the diesel engine services segment are largely influenced by the economic cycles of the marine and power generation markets and the land-based oilfield service and oil and gas operator and producer markets . diesel engine services revenues for 2015 decreased 39 % and operating income decreased 68 % compared with 2014. the lower revenues in 2015 compared to 2014 were primarily due to the lack of demand for the manufacture and remanufacture of pressure pumping units and other oilfield service equipment in the land-based market and decreased demand for service and distribution of parts , engines and transmissions due to the impact of the decline in the price of crude oil and decreased drilling activity . with the reduction in activity levels , oilfield service customers in the land-based market continued to delay new orders and postpone delivery of existing orders for new pressure pumping units and other oilfield service equipment . the marine diesel engine services market declined modestly , due primarily to weakness in the gulf of mexico oilfield services market . the power generation market was stable , benefiting from major generator set upgrades and parts sales for both domestic and international power generation customers . the 2015 first quarter results included $ 1,111,000 of severance charges in response to the reduced activity in manufacturing in the land-based market . the 2015 third quarter results included $ 702,000 of severance charges primarily in response to the reduced activity in the gulf of mexico oilfield services market . 36 the diesel engine services operating margin for 2015 was 3.9 % compared with 7.5 % for 2014. the operating margin for 2015 reflected weakness in the land-based market due to the negative impact of the reduced oilfield service activity levels , weakness in the gulf of mexico oilfield services market , as well as the $ 1,111,000 first quarter 2015 and $ 702,000 third quarter 2015 severance charges . cash flow and capital expenditures the company continued to generate strong operating cash flow during 2015 with net cash provided by operating activities of $ 521,305,000 compared with $ 438,909,000 of net cash provided by operating activities for 2014. the 19 % increase was primarily from a $ 128,306,000 net increase in cash flows from changes in operating assets and liabilities , a $ 22,928,000 increase in depreciation and amortization expense and a $ 5,717,000 increase in amortization of major maintenance costs , partially offset by a $ 15,221,000 decrease in provision for deferred income taxes and $ 56,638,000 of lower net earnings . in addition , during 2015 and 2014 , the company generated cash of $ 3,712,000 and $ 7,519,000 , respectively , from the exercise of stock options and $ 24,429,000 and $ 10,393,000 , respectively , from proceeds from the disposition of assets . for 2015 , cash generated and borrowings under the company 's revolving credit facility were used for capital expenditures of $ 345,475,000 , including $ 70,956,000 for inland tank barge and towboat construction , $ 74,442,000 for progress payments on the construction of two 185,000 barrel coastal articulated tank barge and 10000 horsepower tugboat units , one of which was placed in service in late 2015 and the second scheduled to be placed in service in mid-2016 , $ 33,030,000 for progress payments on the construction of two 155,000 barrel coastal articulated tank barge and 6000 horsepower tugboat units , one scheduled to be placed in service in the second half of 2016 and one in the 2017 first half , $ 8,468,000 for progress payments on the construction of two 4900 horsepower coastal tugboats , $ 1,600,000 for progress payments on the construction of a 35,000 barrel coastal petrochemical tank barge scheduled to be placed in service in early 2017 , and $ 156,979,000 primarily for upgrading existing marine equipment , and marine transportation and diesel engine services facilities . the company purchased six inland pressure tank barges for $ 41,250,000 in february 2015. cash generated and borrowings under the company 's revolving credit facility in 2015 were also used for the repurchase of 3,316,000 shares of the company 's common stock for $ 241,105,000 and to refinance the $ 100,000,000 outstanding under its term loan agreement . the company 's debt-to-capitalization ratio increased to 25.5 % at december 31 , 2015 from 24.0 % at december 31 , 2014. the increase was primarily due to an increase of $ 62,134,000 in outstanding debt and an increase in total equity of $ 14,283,000. the increase in total equity was primarily due to net earnings attributable to kirby for 2015 of $ 226,684,000 , exercises of stock options and the amortization of unearned equity compensation , partially offset by treasury stock purchases of $ 241,105,000. as of december 31 , 2015 , the company had $ 278,834,000 outstanding under its revolving credit facility and $ 500,000,000 of senior notes outstanding . during 2015 , the company 's inland marine transportation operations took delivery of 36 new inland tank barges with a total capacity of approximately 489,000 barrels , acquired six inland pressure tank barges with a total capacity of approximately 97,000 barrels and retired 18 inland tank barges , returned eight leased inland tank barges and transferred two tank barges into the coastal fleet , reducing its capacity by approximately 421,000 barrels . as a result , during 2015 , the company added a net 14 inland tank barges and approximately 165,000 barrels of capacity . the company projects that capital expenditures for 2016 will be in the $ 220,000,000 to $ 240,000,000 range .
| results of operations the company reported 2015 net earnings attributable to kirby of $ 226,684,000 , or $ 4.11 per share , on revenues of $ 2,147,532,000 , compared with 2014 net earnings attributable to kirby of $ 282,006,000 , or $ 4.93 per share , on revenues of $ 2,566,318,000 , and 2013 net earnings attributable to kirby of $ 253,061,000 , or $ 4.44 per share , on revenues of $ 2,242,195,000. marine transportation revenues for 2015 were $ 1,663,090,000 , or 77 % of total revenues , compared with $ 1,770,684,000 , or 69 % of total revenues for 2014 , and $ 1,713,167,000 , or 76 % of total revenues for 2013. diesel engine services revenues for 2015 were $ 484,442,000 , or 23 % of total revenues , compared with $ 795,634,000 , or 31 % of total revenues for 2014 , and $ 529,028,000 , or 24 % of total revenues for 2013. marine transportation the company , through its marine transportation segment , is a provider of marine transportation services , operating tank barges and towing vessels 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 , 2015 , the company operated 898 inland tank barges , including 31 leased barges , with a total capacity of 17.9 million barrels . this compares with 884 inland tank barges operated as of december 31 , 2014 , including 39 leased barges , with a total capacity of 17.8 million barrels . the company operated an average of 248 inland towboats during 2015 , of which an average of 84 were chartered , compared with 251 during 2014 , of which an average of 79 were chartered .
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% , in fiscal 2010. higher costs for major commodities ( $ 827 ) and employee benefits ( $ 849 ) were partially off-set by lower depreciation ( $ 271 ) on plant equipment and higher unit volumes lowered per unit overhead costs . the realignment of the company 's distribution system to remote geographic areas significantly lowered freight costs ( $ 405 ) . cost of products sold and gross margin–frozen food products segment cost of products sold in the frozen food products segment in fiscal 2010 decreased $ 54 ( 0.2 % ) compared to the prior year . lower flour commodity costs in fiscal 2010 were the primary contributing factor causing this decrease . favorable changes in product mix also contributed to the decline in cost of sales . the gross margin in the frozen food products segment decreased from 42.0 % in fiscal 2009 to 41.3 % in fiscal 2010. the cost of purchased flour declined approximately $ 381 in fiscal 2010 compared to the prior year , partially off-setting the overhead cost increases related primarily to employee benefits . cost of products sold and gross margin–refrigerated and snack food products segment cost of products sold in the refrigerated and snack food products segment in fiscal 2010 decreased $ 2,129 ( 5.0 % ) compared to the prior year . lower sales of refrigerated and snack food products was the primary factor causing this change . freight costs decreased significantly compared to the prior fiscal year . the gross margin in the refrigerated and snack food products segment decreased from 39.1 % in fiscal 2009 to 38.9 % in fiscal 2010. the cost of major meat commodities increased approximately $ 1,208 in fiscal 2010 compared to the prior year . higher costs for employee benefits were more than off-set by lower depreciation on plant equipment and higher unit volumes lowered per unit overhead costs significantly . 12 selling , general and administrative expenses-consolidated selling , general and administrative expenses in fiscal 2010 decreased $ 982 ( 2.3 % ) when compared to the prior year . the decrease in this category did not directly correspond to the change in sales . the table below summarizes the primary expense variances in this category : replace_table_token_8_th employee headcount declined in the 2010 fiscal year compared to the prior year which decreased wages . lower profitability levels decreased profit sharing expenses . the company 's self-insured healthcare benefit expense was negatively impacted in the period due to adverse plan experience resulting in higher claim payments . headcount decreases were insufficient to overcome negative trends in healthcare plan experience . the increase in fuel expense was driven by per gallon fuel price increases compared to the prior year as a result of negative trends in petroleum markets . the company released a significant portion of the allowance for doubtful accounts during the fourth quarter of fiscal 2010 due to favorable trends in the accounts receivable aging . the gain in cash surrender value resulted from changes in the underlying markets that support them . the increase in outside consultants resulted from increased investment in information system data management . depreciation and overall capital spending has declined in recent years as we carefully scrutinize capital investments for short term pay-back . selling , general and administrative expenses-frozen food products segment selling , general and administrative expenses in the frozen food products segment in fiscal 2010 remained essentially flat compared to the prior year . increases in this category were as a result of increased profit sharing expenses as a result of higher segment profitability . the allocation of corporate support costs also increased due to higher segment revenues . expenses related to advertising decreased compared to the prior year . in addition , a significant portion of the bad debt reserve was released and helped to offset increases in this category . selling , general and administrative expenses-refrigerated and snack food products segment selling , general and administrative expenses in the refrigerated and snack food segment in fiscal 2010 decreased $ 941 ( 3.7 % ) compared to the prior year . this decrease was primarily caused by lower sales and a significant reduction in the bad debt reserve . 13 story_separator_special_tag 1.25 '' > we have remained free of interest-bearing debt for twenty-four consecutive years . we maintain a line of credit with bank of america that expires on april 30 , 2011. under the terms of this line of credit , we may borrow up to $ 2,000 at an interest rate equal to the bank 's prime rate , unless we elect an optional interest rate . the borrowing agreement contains various covenants , the more significant of which require us to maintain certain levels of shareholders ' equity and working capital . we are currently in compliance with all provisions of the agreement . there were no borrowings under this line of credit during the 2010 fiscal year . management believes that our strong financial position and our capital resources are sufficient to provide for our operating needs and capital expenditures for fiscal 2011. impact of inflation our operating results are heavily dependent upon the prices paid for raw materials . the marketing of our value-added products does not lend itself to instantaneous changes in selling prices . changes in selling prices are relatively infrequent and do not compare with the volatility of commodity markets . while fluctuations in significant cost structure components , such as ingredient commodities and fuel prices , have had a significant impact on profitability over the last two fiscal years , the impact of general price inflation on our financial position and results of operations has not been significant . however , future volatility of general price inflation or deflation and raw material cost and availability could adversely affect our financial results . 15 off-balance sheet arrangements we do not currently have any off balance sheet arrangements within the meaning of item story_separator_special_tag % , in fiscal 2010. higher costs for major commodities ( $ 827 ) and employee benefits ( $ 849 ) were partially off-set by lower depreciation ( $ 271 ) on plant equipment and higher unit volumes lowered per unit overhead costs . the realignment of the company 's distribution system to remote geographic areas significantly lowered freight costs ( $ 405 ) . cost of products sold and gross margin–frozen food products segment cost of products sold in the frozen food products segment in fiscal 2010 decreased $ 54 ( 0.2 % ) compared to the prior year . lower flour commodity costs in fiscal 2010 were the primary contributing factor causing this decrease . favorable changes in product mix also contributed to the decline in cost of sales . the gross margin in the frozen food products segment decreased from 42.0 % in fiscal 2009 to 41.3 % in fiscal 2010. the cost of purchased flour declined approximately $ 381 in fiscal 2010 compared to the prior year , partially off-setting the overhead cost increases related primarily to employee benefits . cost of products sold and gross margin–refrigerated and snack food products segment cost of products sold in the refrigerated and snack food products segment in fiscal 2010 decreased $ 2,129 ( 5.0 % ) compared to the prior year . lower sales of refrigerated and snack food products was the primary factor causing this change . freight costs decreased significantly compared to the prior fiscal year . the gross margin in the refrigerated and snack food products segment decreased from 39.1 % in fiscal 2009 to 38.9 % in fiscal 2010. the cost of major meat commodities increased approximately $ 1,208 in fiscal 2010 compared to the prior year . higher costs for employee benefits were more than off-set by lower depreciation on plant equipment and higher unit volumes lowered per unit overhead costs significantly . 12 selling , general and administrative expenses-consolidated selling , general and administrative expenses in fiscal 2010 decreased $ 982 ( 2.3 % ) when compared to the prior year . the decrease in this category did not directly correspond to the change in sales . the table below summarizes the primary expense variances in this category : replace_table_token_8_th employee headcount declined in the 2010 fiscal year compared to the prior year which decreased wages . lower profitability levels decreased profit sharing expenses . the company 's self-insured healthcare benefit expense was negatively impacted in the period due to adverse plan experience resulting in higher claim payments . headcount decreases were insufficient to overcome negative trends in healthcare plan experience . the increase in fuel expense was driven by per gallon fuel price increases compared to the prior year as a result of negative trends in petroleum markets . the company released a significant portion of the allowance for doubtful accounts during the fourth quarter of fiscal 2010 due to favorable trends in the accounts receivable aging . the gain in cash surrender value resulted from changes in the underlying markets that support them . the increase in outside consultants resulted from increased investment in information system data management . depreciation and overall capital spending has declined in recent years as we carefully scrutinize capital investments for short term pay-back . selling , general and administrative expenses-frozen food products segment selling , general and administrative expenses in the frozen food products segment in fiscal 2010 remained essentially flat compared to the prior year . increases in this category were as a result of increased profit sharing expenses as a result of higher segment profitability . the allocation of corporate support costs also increased due to higher segment revenues . expenses related to advertising decreased compared to the prior year . in addition , a significant portion of the bad debt reserve was released and helped to offset increases in this category . selling , general and administrative expenses-refrigerated and snack food products segment selling , general and administrative expenses in the refrigerated and snack food segment in fiscal 2010 decreased $ 941 ( 3.7 % ) compared to the prior year . this decrease was primarily caused by lower sales and a significant reduction in the bad debt reserve . 13 story_separator_special_tag 1.25 '' > we have remained free of interest-bearing debt for twenty-four consecutive years . we maintain a line of credit with bank of america that expires on april 30 , 2011. under the terms of this line of credit , we may borrow up to $ 2,000 at an interest rate equal to the bank 's prime rate , unless we elect an optional interest rate . the borrowing agreement contains various covenants , the more significant of which require us to maintain certain levels of shareholders ' equity and working capital . we are currently in compliance with all provisions of the agreement . there were no borrowings under this line of credit during the 2010 fiscal year . management believes that our strong financial position and our capital resources are sufficient to provide for our operating needs and capital expenditures for fiscal 2011. impact of inflation our operating results are heavily dependent upon the prices paid for raw materials . the marketing of our value-added products does not lend itself to instantaneous changes in selling prices . changes in selling prices are relatively infrequent and do not compare with the volatility of commodity markets . while fluctuations in significant cost structure components , such as ingredient commodities and fuel prices , have had a significant impact on profitability over the last two fiscal years , the impact of general price inflation on our financial position and results of operations has not been significant . however , future volatility of general price inflation or deflation and raw material cost and availability could adversely affect our financial results . 15 off-balance sheet arrangements we do not currently have any off balance sheet arrangements within the meaning of item
| income taxes the effective income tax rate was 21.8 % and 3.6 % in fiscal years 2010 and 2009 , respectively . in fiscal year 2010 , the effective income tax rate differed from the applicable mixed statutory rate of approximately 39.6 % primarily due to recording a full valuation allowance on our deferred tax assets of $ 8,049 ( refer to note 4 ) . the 2010 provision for taxes on income of $ 1,204 consists of minimum federal and state income taxes . in fiscal year 2009 , the effective income tax rate differed from the applicable mixed statutory rate of approximately 38.0 % primarily due to recording a full valuation allowance on our deferred tax assets . the 2009 provision for taxes on income of $ 255 consists of minimum federal and state income taxes . liquidity and capital resources ( in thousands except share and per share amounts ) our need for operations growth , capital expenses and share repurchases are expected to be met with cash flows provided by operating activities . cash flows from operating activities : replace_table_token_9_th for fiscal year 2010 , net cash provided by operating activities was $ 4,714. we funded additions to property , plant and equipment in the amount of $ 1,769 and share repurchases of $ 277 from cash balances . for fiscal year 2009 , net cash provided by operating activities was $ 9,436 , which enabled us to fund additions to property , plant and equipment in the amount of $ 1,303 and share repurchases of $ 638. the available cash balance increased by $ 1,775 during the 2010 fiscal year compared to an increase of $ 7,819 during the 2010 firscal year .
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deferred income tax assets are reduced by a valuation allowance when , in the opinion of management , it is more likely than not that some portion or all of the deferred income tax assets will not be story_separator_special_tag story_separator_special_tag style= '' margin-left : 36pt '' > in recent years , the company 's operating strategy has also included strategies designed to enhance profitability by increasing sources of noninterest income and improving operating efficiency while managing its capital and limiting its credit risk and interest rate risk exposures . to accomplish these objectives , the company has focused on the following : · monitoring asset quality and credit risk in the loan and investment portfolios , with an emphasis on reducing nonperforming assets and originating high-quality commercial and consumer loans . · being active in the local community , particularly through our efforts with local schools , to uphold our high standing in our community and marketing to our next generation of customers . · improving profitability by expanding our product offerings to customers and investing in technology to increase the productivity and efficiency of our staff . · continuing to emphasize commercial real estate and other commercial business lending as well as consumer lending . the bank will also continue to focus on increasing secondary market lending as a source of noninterest income . · growing commercial and personal demand deposit accounts which provide a low-cost funding source . · evaluating vendor contracts for potential cost savings and efficiencies . · continuing our capital management strategy to enhance shareholder value through the repurchase of company stock and the payment of dividends . · evaluating growth opportunities to expand the bank 's market area and market share through acquisitions of other financial institutions or branches of other institutions . · ensuring that the company attracts and retains talented personnel and that an optimal level of performance and customer service is promoted at all levels of the company . 42 critical accounting policies and estimates the accounting and reporting policies of the company comply with accounting principles generally accepted in the united states of america and conform to general practices within the banking industry . the preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions . the financial position and results of operations can be affected by these estimates and assumptions , which are integral to understanding reported results . critical accounting policies are those policies that require management to make assumptions about matters that are highly uncertain at the time an accounting estimate is made ; and different estimates that the company reasonably could have used in the current period , or changes in the accounting estimate that are reasonably likely to occur from period to period , would have a material impact on the company 's financial condition , changes in financial condition or results of operations . most accounting policies are not considered by management to be critical accounting policies . several factors are considered in determining whether or not a policy is critical in the preparation of financial statements . these factors include , among other things , whether the estimates are significant to the financial statements , the nature of the estimates , the ability to readily validate the estimates with other information including third parties or available prices , and sensitivity of the estimates to changes in economic conditions and whether alternative accounting methods may be utilized under generally accepted accounting principles . significant accounting policies , including the impact of recent accounting pronouncements , are discussed in note 1 of the accompanying notes to consolidated financial statements , which is incorporated herein by reference . those policies considered to be critical accounting policies are described below . allowances for loan losses . the allowance for loan losses is the amount estimated by management as necessary to cover losses inherent in the loan portfolio at the balance sheet date . the allowance is established through the provision for loan losses , which is charged to income . determining the amount of the allowance for loan losses necessarily involves a high degree of judgment . among the material estimates required to establish the allowance are : loss exposure at default ; the amount and timing of future cash flows on impacted loans ; value of collateral ; and determination of loss factors to be applied to the various elements of the portfolio . all of these estimates are susceptible to significant change . management reviews the level of the allowance at least quarterly and establishes the provision for loan losses based upon an evaluation of the portfolio , past loss experience , current economic conditions and other factors related to the collectability of the loan portfolio . although we believe that we use the best information available to establish the allowance for loan losses , future adjustments to the allowance may be necessary if economic or other conditions differ substantially from the assumptions used in making the evaluation . in addition , the occ , as an integral part of its examination process , periodically reviews our allowance for loan losses and may require us to recognize adjustments to the allowance based on its judgments about information available to it at the time of its examination . a large loss could deplete the allowance and require increased provisions to replenish the allowance , which would adversely affect earnings . note 1 and note 4 of the accompanying notes to consolidated financial statements , which are incorporated herein by reference , describe the methodology used to determine the allowance for loan losses as well as changes to the methodology for determining the allowance for loan losses during the year ended december 31 , 2014. valuation methodologies . in the ordinary course of business , management applies various valuation methodologies to assets and liabilities that often involve a significant degree of judgment , particularly when active markets do not exist for the items being valued . story_separator_special_tag 44 provisions for loan losses are charges to earnings to maintain the total allowance for loan losses at a level considered reasonable by management to provide for probable known and inherent loan losses based on management 's evaluation of the collectability of the loan portfolio , including the nature of the portfolio , credit concentrations , trends in historical loss experience , specified impaired loans and economic conditions . although management uses the best information available , future adjustments to the allowance may be necessary due to changes in economic , operating , regulatory and other conditions that may be beyond the bank 's control . while the bank maintains the allowance for loan losses at a level that it considers adequate to provide for estimated losses , there can be no assurance that further additions will not be made to the allowance for loan losses and that actual losses will not exceed the estimated amounts . noninterest income . noninterest income increased $ 296,000 to $ 4.9 million for 2014 compared to $ 4.6 million for 2013. commission income and other income increased by $ 191,000 and $ 145,000 , respectively , when comparing the two periods . commission income increased for 2014 compared to the prior year primarily due to an expansion of the products offered by the bank 's investment services division . the increase in other income was primarily due to a gain on life insurance of $ 129,000 recognized in 2014. these increases were partially offset by a $ 129,000 decrease in gains on the sale of loans primarily due to a decrease in loans sold during 2014 as a result of higher interest rates . noninterest expense . noninterest expense increased $ 751,000 , or 5.6 % , to $ 14.1 million for 2014 compared to $ 13.3 million for 2013. the increase was primarily due to an increase of $ 518,000 in compensation and benefits expenses . this increase was primarily due to normal increases in salaries and benefits and the addition of staff in the commercial and residential lending areas . data processing expenses also increased $ 133,000 when comparing the two periods primarily due to higher costs associated with alternative customer delivery channels and in increase in atm processing fees . income tax expense . the company recognized income tax expense of $ 2.3 million for both 2014 and 2013. the effective tax rate decreased from 30.7 % for 2013 to 29.2 % for 2014 primarily due to an increase in tax exempt income as a percentage of total income . 45 average balances and yields . the following table sets forth certain information for the periods indicated regarding average balances of assets and liabilities , as well as the total dollar amounts of interest income from average interest-earnings assets and interest expense on average interest-bearing liabilities and average yields and costs . such yields and costs for the periods indicated are derived by dividing income or expense by the average historical cost balances of assets or liabilities , respectively , for the periods presented and do not give effect to changes in fair value that are included as a separate component of stockholders ' equity . average balances are derived from daily balances . tax-exempt income on loans and investment securities has been adjusted to a tax equivalent basis using the federal marginal tax rate of 34 % . replace_table_token_19_th ( 1 ) interest income on loans includes fee income of $ 707,000 , $ 754,000 and $ 654,000 for the years ended december 31 , 2014 , 2013 , and 2012 , respectively . ( 2 ) average loan balances include loans held for sale and nonperforming loans . ( 3 ) includes taxable debt and equity securities and federal home loan bank stock . ( 4 ) stockholders ' equity attributable to first capital , inc. 46 rate/volume analysis . the following table sets forth the effects of changing rates and volumes on net interest income and interest expense computed on a tax-equivalent basis . information is provided with respect to ( i ) effects on interest income attributable to changes in volume ( changes in volume multiplied by prior rate ) ; ( ii ) effects attributable to changes in rate ( changes in rate multiplied by prior volume ) ; and ( iii ) effects attributable to changes in rate and volume ( change in rate multiplied by changes in volume ) . tax exempt income on loans and investment securities has been adjusted to a tax-equivalent basis using the federal marginal tax rate of 34 % . replace_table_token_20_th 47 comparison of financial condition at december 31 , 2014 and 2013 total assets increased 6.4 % from $ 444.4 million at december 31 , 2013 to $ 472.8 million at december 31 , 2014 primarily due to increases in net loans receivable and cash and cash equivalents partially offset by a decrease in securities available for sale . net loans increased 4.2 % from $ 288.5 million at december 31 , 2013 to $ 300.6 million at december 31 , 2014. the primary contributing factor to the increase in net loans was an increase of $ 6.3 million in commercial business loans . the bank also increased home equity and second mortgage loans , commercial real estate loans and other consumer loans by $ 2.7 million , $ 1.8 million and $ 1.2 million , respectively during 2014. residential mortgage loans decreased $ 350,000 during 2014 as the bank continued to sell the majority of newly originated residential mortgage loans in the secondary market . the bank originated $ 29.1 million in new residential mortgages for sale in the secondary market during 2014 compared to $ 36.7 million in 2013. these loans were originated and funded by the bank and sold in the secondary market . of this total , $ 5.5 million paid off existing loans in the bank 's portfolio .
| general as the holding company for the bank , the company conducts its business primarily through the bank . the bank 's results of operations depend primarily on net interest income , which is the difference between the income earned on its interest-earning assets , such as loans and investments , and the cost of its interest-bearing liabilities , consisting primarily of deposits , retail repurchase agreements and borrowings from the federal home loan bank of indianapolis . the bank 's net income is also affected by , among other things , fee income , provisions for loan losses , operating expenses and income tax provisions . the bank 's results of operations are also significantly affected by general economic and competitive conditions , particularly changes in market interest rates , government legislation and policies concerning monetary and fiscal affairs , housing and financial institutions and the intended actions of the regulatory authorities . management uses various indicators to evaluate the company 's financial condition and results of operations , almost all of which show positive trends and improvement , including the following : · net income and earnings per share – net income attributable to the company was $ 5.6 million , or $ 2.03 per share for 2014 compared to $ 5.1 million , or $ 1.82 per share for 2013 . · return on average assets and return on average equity – return on average assets for 2014 was 1.22 % compared to 1.11 % for 2013 , and return on average equity for 2014 was 10.09 % compared to 9.56 % for 2013 . · efficiency ratio – the company 's efficiency ratio ( defined as noninterest expenses divided by net interest income plus noninterest income ) was 63.5 % for 2014 compared to 62.3 % for 2013. this increase was due in part to an increase in personnel as the bank increased staff in residential mortgage and commercial lending .
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the allowance is based on two basic principles of accounting : ( i ) sfas 5 , accounting for contingencies , which requires that losses be accrued when they are probable of occurring and estimatable and ( ii ) sfas 114 , accounting by creditors for impairment of a loan , which requires that losses be accrued based on the differences between the value of collateral , present value of future cash flows or values that are observable in the secondary market and the loan balance . the use of these values is inherently subjective and our actual losses could be greater or less than the estimates . the allowance for loan losses is increased by charges to income and decreased by charge-offs ( net of recoveries ) . management 's periodic evaluation of the adequacy of the allowance is based on past loan loss experience , known and inherent risks in the portfolio , adverse situations that may affect the borrower 's ability to repay , the estimated value of any underlying collateral , and current economic conditions . overview the corporation 's strategic plan is directed toward the enhancement of its franchise value and operating profitability by increasing its asset size and expanding its customer base . the corporation operates eight full service offices mainly between its headquarters in tappahannock , virginia and along the u. s. 360 corridor to the richmond , virginia metropolitan market . management believes that its most significant profitable growth opportunities will continue to be within one hour of tappahannock . ( see part i , item 1. business , general for further explanation on the corporation 's strategic plan . ) year 2007 compared to year 2006 on december 31 , 2007 , the corporation had total assets of $ 302.431 million , total loans $ 221.549 million , total deposits of $ 244.593 million and total stockholder 's equity of $ 30.109 million . boe had net income of $ 2.608 million in 2007 , a decrease of 16.5 % , or $ 515,000 , from net income of $ 3.123 million in 2006. this resulted in fully diluted earnings per common share of $ 2.15 in 2007 compared to $ 2.58 per common share for the year 2006. return on average equity was 9.03 % in 2007 compared to 11.47 % in 2006. return on average assets was 0.90 % in 2007 compared to 1.15 % in 2006 . 13 year 2006 compared to year 2005 on december 31 , 2006 , the corporation had total assets of $ 281.378 million , total loans of $ 196.891 million , total deposits of $ 230.865 million and total stockholder 's equity of $ 28.047 million . boe had net income of $ 3.123 million in 2006 , a $ 22,000 , or 0.7 % increase from $ 3.101 million in net income in 2005. fully diluted earnings per common share were $ 2.58 in both 2006 and 2005. return on average equity of 11.47 % in 2006 compared to 12.18 % in 2005. return on average assets in 2006 was 1.15 % , compared to 1.24 % in 2005. boe 's total loans increased 7.9 % , or $ 14.435 million , in 2006 over 2005. story_separator_special_tag in 2005. net interest margin is calculated by dividing the corporation 's net interest income on a tax equivalent basis by the average earning assets . volume increases in loans , coupled with higher rate and volume increases on interest-bearing liabilities resulted in a decrease in the interest spread . the corporation 's net interest spread decreased 39 basis points from 4.17 % in 2005 to 3.78 % in 2006. boe 's net interest margin is affected by changes in the amount and mix of earning assets and interest-bearing liabilities , referred to as a volume change. it is also affected by changes in yields earned on earning assets and rates paid on interest-bearing deposits and other borrowed funds , referred to as a rate change. the following table sets forth for each category of earning assets and interest-bearing liabilities , 15 the average amounts outstanding , the interest earned or incurred on such amounts and the average rate earned or incurred for the years ended december 31 , 2007 , 2006 and 2005. the table also sets forth the average rate earned on total earning assets , the average rate paid on total interest-bearing liabilities , and the net interest margin on average total earning assets for the same periods . average balances , interest income and expenses , and average yields and rates years ended december 31 , ( dollars in thousands ) replace_table_token_5_th ( 1 ) income and yields are reported on a tax-equivalent basis assuming a federal tax rate of 34 % . net interest income is affected by both ( 1 ) changes in the interest rate spread ( the difference between the weighted average yield on interest earning assets and the weighted average cost of interest-bearing liabilities ) and ( 2 ) changes in volume ( average balances of interest earning assets and interest-bearing liabilities ) . for each category of interest-earning assets and interest-bearing liabilities , information is provided regarding changes attributable to ( 1 ) changes in volume of balances outstanding ( changes in volume multiplied by prior period interest rate ) , ( 2 ) changes in the interest earned or paid on the balances ( changes in rate multiplied by prior period volume ) and ( 3 ) a combination of changes in volume and rate allocated pro rata . 16 rate and volume analysis ( dollars in thousands ) replace_table_token_6_th 17 interest rate sensitivity an important component of both earnings performance and liquidity is management of interest rate sensitivity . story_separator_special_tag employee benefits and costs decreased $ 37,000 , or 3.2 % , from $ 1.135 million in 2006 to $ 1.098 million in 2007. non-interest expense was $ 7.893 million in 2006 , a $ 631,000 , or 8.7 % increase , over non-interest expense of $ 7.262 million in 2005. salaries were $ 3.247 million in 2006 and were the largest component of this increase , $ 193,000 , or 6.3 % , over salaries of $ 3.054 million in 2005. employee benefits were up $ 152,000 , or 15.5 % higher than employee benefits in 2005 of $ 982,000. this increase was due to continued increases in health industry costs provided to employees . data processing expense of $ 555,000 in 2006 was 4.7 % , or $ 25,000 , higher than data processing expense of $ 530,000 in 2005. other operating expenses of $ 1.499 million were $ 62,000 , or 4.3 % , higher than other operating expenses of $ 1.437 million in 2005. bank franchise tax increased $ 16,000 , or 7.3 % , in 2006 and was $ 238,000 compared to $ 222,000 in 2005. stationary and printing expenses increased $ 34,000 , or 24.6 % , and were $ 138,000 in 2005 compared to $ 172,000 in 2006. furniture and equipment related expenses were $ 449,000 in 2006 compared to $ 415,000 in 2005 , an increase of $ 34,000 , or 8.2 % . postage expense increased $ 22,000 , or 14.3 % , and was $ 175,000 in 2006 compared to $ 153,000 in 2005. occupancy expenses increased $ 93,000 , or 28.0 % and were $ 423,000 in 2006 compared to $ 330,000 in 2005 . 19 analysis of financial condition loan portfolio the loan portfolio is the largest category of the corporation 's earning assets and is comprised of commercial loans , agricultural loans , real estate loans , home equity loans , construction loans , consumer loans , and participation loans with other financial institutions . the primary markets in which the corporation makes loans include the counties of essex , king and queen , king william , hanover , northumberland , henrico and the city of richmond . the mix of the loan portfolio is weighted toward loans secured by real estate and commercial loans . in management 's opinion , there are no significant concentrations of credit with particular borrowers engaged in similar activities . boe 's total loans increased 12.7 % , or $ 24.659 million , in 2007 over 2006. total loans were $ 221.549 million at december 31 , 2007 compared to $ 196.891 million at december 31 , 2006. loan increases came from primarily loans secured by real estate , including loans secured by 1 4 family properties and commercial construction lending . this is due to continued growth in and around the corridor surrounding richmond , virginia , including the area in and around essex county . at december 31 , 2007 , the ratio of non-performing assets to total assets was 0.70 % compared to 0.62 % at december 31 , 2006. net recoveries to average loans were 0.09 % in 2007 and 0.01 % in 2006. loans past due 90 days or more and still accruing interest at december 31 , 2007 were $ 18,000 and $ 102,000 at december 31 , 2006. the corporation 's allowance for loan losses to period end loans at december 31 , 2007 was 1.17 % compared to 1.22 % at december 31 , 2006. boe 's total loans increased 7.9 % , or $ 14.435 million , in 2006 over 2005. total loans were $ 196.891 million at december 31 , 2006 compared to $ 182.456 million at december 31 , 2005. loan increases came from loans secured by real estate , including loans secured by 1 4 family properties and commercial lending . this is due to continued growth in and around the corridor surrounding richmond , virginia , including the area in and around essex county . at december 31 , 2006 , the ratio of non-performing assets to total assets was 0.62 % compared to 0.72 % at december 31 , 2005. net recoveries to average loans were 0.01 % in 2006 compared to net charge offs of 0.05 % in 2005. loans past due 90 days or more and still accruing interest at december 31 , 2006 were $ 102,000 and $ 260,000 at december 31 , 2005. the corporation 's allowance for loan losses to period end loans at december 31 , 2006 was 1.22 % compared to 1.23 % at december 31 , 2005. net loans consist of total loans minus the allowance for loan losses , unearned discounts and deferred loan fees . the corporation 's net loans were $ 218.954 million at december 31 , 2007 , representing an increase of 12.6 % , or $ 24.463 million more than net loans of $ 194.491 million at december 31 , 2006. the average balance of loans as a percentage of average earning assets was 78.3 % in 2007 , up slightly from 76.4 % in 2006. in the normal course of business , the corporation makes various commitments and incurs certain contingent liabilities , which are disclosed but not reflected in the consolidated financial statements contained in this annual report , including standby letters of credit and commitments to extend credit . at december 31 , 2007 , commitments for standby letters of credit totaled $ 3.867 million and commitments to extend credit totaled $ 58.573 million . commitments for standby letters of credit totaled $ 4.971 million at december 31 , 2006 and commitments to extend credit totaled $ 45.251 million .
| results of operations net income year 2007 compared to year 2006 boe 's net income was $ 2.608 million in 2007 compared to $ 3.123 million in 2006. this represents a decrease in net income of $ 515,000 , or 16.5 % . diluted earnings per share in 2007 were $ 2.15 per share compared to $ 2.58 in 2006. these earnings per share are based on average shares outstanding of 1,214,944 in 2007 and 1,210,922 in 2006. this decrease in earnings was primarily the result of an increase of $ 871,000 , or 11.0 % , in noninterest expenses . salaries was the largest component of this increase , $ 432,000 , which increased primarily from the addition of staff that was hired and trained in 2007 to operate two new full service offices of bank of essex in northumberland county , virginia . additionally , 2007 was the first full year of operations for the corporate headquarters and branch banking facility that opened in june 2006 , accounting for the majority of increases in occupancy expenses and furniture and equipment expenses of $ 159,000. gain/ ( loss ) on sale of other properties decreased $ 472,000 from 2006 to 2007 due to the sale of bank property in 2006 of a former branch banking facility . additionally , legal and professional fees increased $ 236,000 in 2007 compared to 2006 as a result of the company 's due diligence and legal review process prior to announcing a merger agreement dated december 14 , 2007 with community bankers acquisition corporation .
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international revenue increased by $ 1.2 billion , or 4 % , on significant strength in the middle east & asia , despite considerable headwinds in the face of activity challenges , geopolitical unrest , falling oil prices and international sanctions elsewhere . oil markets remained relatively well-balanced during 2014 as increasing global production capacity almost matched increasing demand . yet , after more than three years of remarkable stability , oil prices declined dramatically by more than 40 % late in the year to end at their lowest levels since 2009. however , unlike the 2009 decline which was triggered by a global economic recession , the 2014 decline resulted from a higher market supply of oil that became increasingly evident as north american tight oil production continued to grow and opec shifted focus from protecting oil prices to protecting market share . at the same time , production recovered in countries that had suffered degrees of geopolitical disturbance , and the us dollar strengthened to further weaken overall commodity prices . in natural gas markets , us prices reached multiyear highs in february 2014 on exceptionally cold weather and risks of local supply shortages . storage , however , returned to historical average levels at the end of 2014 as sustained production growth in the marcellus play and increasing associated gas production in us tight oil plays more than offset the impact of low activity levels in other unconventional plays . overall , these increasing supplies more than met growing demand . internationally , natural gas prices eased broadly in 2014 on mild temperatures in europe , lng capacity additions in the pacific region , and the impact of weaker oil prices on oil-indexed natural gas pricing formulas . against this background , schlumberger 's performance in 2014 was led by north america , where revenue grew by 16 % on robust land activity , increased service intensity , market share gains and new technology penetration . offshore operations , however , suffered from a number of operational delays that particularly affected drilling and exploration activity . the 4 % growth in international revenue was led by activity in a number of key markets , both on land and offshore . middle east & asia revenue grew by 10 % , driven by saudi arabia , australia , the united arab emirates and oman . revenue in europe/cis/africa improved by 1 % , led by the sub-saharan region on strong exploration and development activities in the central west africa , angola and continental europe geomarkets . norway also showed strong growth through market share gains and higher rig-related services for a number of customers . in latin america , however , revenue slipped by 1 % as strong activity in venezuela and ecuador was unable to compensate for lower activity and pricing in both brazil and mexico . from a group perspective , performance was led by the drilling group , mainly as result of robust demand for drilling & measurements services and m-i swaco technologies as activity strengthened in north america and middle east & asia . rig revenue from the may 2014 acquisition of saxon also contributed to drilling group growth . the production group benefitted from strong results in well services , where pressure pumping activity increased through market share gains , operational efficiency improvements and the introduction of new technology . schlumberger production management grew as projects in latin america , particularly in ecuador , continued to progress ahead of plan . production group activity was also boosted by expansion in the artificial lift business as a number of regional acquisitions were added to the portfolio , both in operations and in equipment design and production . however , strength in the drilling and production groups was offset by a slight fall in reservoir characterization group revenue . while testing activity expanded on higher exploration work and software sales increased in all areas , weakness in the seismic market lowered marine vessel utilization and reduced multiclient seismic data license sales . as schlumberger enters a challenging 2015 , the reduction in commodity prices , which have resulted from the higher marketed supply of oil , raises short-term uncertainty as it relates to the spending and activity levels of our customers . however , schlumberger believes that the oil markets are , in fact , relatively well-balanced and that increasing global production capacity is in line with the overall growth in demand resulting from the continuing global economic recovery . in the longer term , decline rates will impact production capacity , and weaker exploration will delay supply additions , the combination of which ultimately will lead to tighter market conditions and consequently drive increasing investment . in this uncertain environment , schlumberger continues to focus on the things it can control and has already restructured and resized the business to match the reduced activity levels it expects as 2015 develops . these actions resulted in certain charges , which are described in detail in note 3 to the reduced consolidated financial statements , being recorded during the fourth quarter of 2014 . 14 story_separator_special_tag style= '' font-size:85 % ; vertical-align : top '' > ( 2 ) excludes interest income included in the segments ' income ( 2014 : $ 20 million ; 2013 : $ 11 million ) . ( 3 ) excludes interest expense included in the segments ' income ( 2014 : $ 22 million ; 2013 : $ 22 million ) . ( 4 ) charges and credits are described in detail in note 3 to the consolidated financial statements . full-year 2014 revenue of $ 48.6 billion grew $ 3.3 billion , or 7 % , versus the same period last year with international revenue of $ 32.1 billion increasing $ 1.2 billion , or 4 % , and north america revenue of $ 16.2 billion growing $ 2.3 billion , or 16 % . internationally , higher activities in a number of geomarkets , both offshore and in key land markets , contributed to the increase . story_separator_special_tag north america growth was driven by increased offshore revenue as a result of higher drilling and exploration activities . this increase was largely offset by a decline in land as a result of a reduction in rig count and pricing weakness in the areas of drilling , stimulation and wireline , although the downward pricing trend slowed during the second and third quarters . full-year 2013 pretax operating income of $ 9.3 billion increased 15 % versus the same period last year as international pretax operating income of $ 6.88 billion increased 24 % , while north america pretax operating income of $ 2.7 billion was flat . pretax operating margin of 20.6 % increased 119 bps , as international pretax operating margin expanded 225 bps to 22.2 % , while north america pretax operating margin declined 55 bps to 19.7 % . the expansion in international margins was due to increased high-margin exploration , seismic and deepwater activities , while the north american margin contraction was due to continued pricing pressure . reservoir characterization group full-year revenue of $ 12.5 billion was 10 % higher than the same period last year led by testing services , westerngeco , wireline and sis technologies , primarily due to market share gains and higher exploration activity in both offshore and key international land markets . pretax operating margin increased 226 bps to 29.4 % largely due to the higher-margin exploration activities that benefited testing services and wireline technologies . drilling group full-year revenue of $ 17.1 billion was 9 % higher than the previous year primarily due to the robust demand for drilling & measurements services as offshore drilling activity strengthened in the us gulf of mexico , sub-sahara africa , russia and the middle east & asia area and rig count increases in key international land markets , namely in saudi arabia , china and australia . drilling tools & remedial and m-i swaco technologies expanded across all areas and ipm increased on projects in iraq , australia and argentina . pretax operating margin increased 156 bps to 19.3 % primarily due to drilling & measurements , which benefited from higher-margin exploration activities both in north america offshore and in the international markets . production group full-year revenue of $ 15.9 billion increased 8 % year-on-year on increased well intervention activity and strong international sales of completion and artificial lift products and well services technologies . spm also posted strong growth . while north america land rig count declined , well and stage counts increased through drilling efficiency . despite the efficiency-driven activity increase , well services revenue in north america declined due to pricing weakness . pretax operating margin increased slightly by 72 bps to 16.4 % . margin expanded as a result of improved profitability in spm , completions and artificial lift , partially offset by a margin decline in well services technologies , primarily in north america , as a result of pricing pressure and cost inflation . interest and other income interest and other income consisted of the following : replace_table_token_11_th 20 the increase in earnings of equity method investments in 2014 as compared to 2013 primarily reflects the strong performance of a drilling service company in which schlumberger has an investment , as well as the impact of the first full year of results from the onesubsea joint venture . interest expense interest expense of $ 369 million in 2014 decreased by $ 22 million compared to 2013 primarily as the effect of an increase in the weighted average debt balance of approximately $ 1.1 billion was more than offset by a 0.4 % decrease in the weighted average borrowing rates from 3.2 % in 2013 to 2.8 % in 2014. interest expense of $ 391 million in 2013 increased by $ 51 million compared to 2012 primarily due to an increase in the weighted average debt balance of approximately $ 1.2 billion combined with a 0.1 % increase in the weighted average borrowing rates from 3.1 % in 2012 to 3.2 % in 2013. other research & engineering and general & administrative expenses , as a percentage of revenue , were as follows : replace_table_token_12_th income taxes the schlumberger effective tax rate was 25.2 % in 2014 , 21.3 % in 2013 , and 24.4 % in 2012. the schlumberger effective tax rate is sensitive to the geographic mix of earnings . when the percentage of pretax earnings generated outside of north america increases , the schlumberger effective tax rate will generally decrease . conversely , when the percentage of pretax earnings generated outside of north america decreases , the schlumberger effective tax rate will generally increase . the effective tax rate for both 2014 and 2013 was significantly impacted by the charges and credits described in note 3 to the consolidated financial statements . excluding the impact of these charges and credits , the effective tax rate in 2014 was 21.9 % compared to 22.9 % in 2013. the decrease in the effective tax rate , excluding the impact of charges and credits , was primarily attributable to the change in the geographic mix of earnings and the favorable resolution of tax examinations in certain jurisdictions . the charges and credits recorded in both 2014 and 2013 had a significant impact on the effective tax rate because , for the most part , they were not tax effective . however , the charges and credits in 2012 did not have a significant impact on the effective tax rate . the decrease in the effective tax rate in 2013 as compared to 2012 , excluding the impact of charges and credits , was primarily attributable to the fact that schlumberger generated a smaller proportion of its pretax earnings in north america in 2013 as compared to 2012. charges and credits schlumberger recorded significant charges and credits in continuing operations during 2014 , 2013 and 2012. these charges and credits , which are summarized below , are more fully described in note 3 to the consolidated financial statements .
| fourth quarter 2014 results product groups replace_table_token_5_th geographic areas replace_table_token_6_th ( 1 ) comprised principally of certain corporate expenses not allocated to the segments , interest on postretirement medical benefits , stock-based compensation costs , amortization expense associated with certain intangible assets and other nonoperating items . ( 2 ) excludes interest income included in the segments ' income ( fourth quarter 2014 : $ 5 million ; third quarter 2014 : $ 5 million ) . ( 3 ) excludes interest expense included in the segments ' income ( fourth quarter 2014 : $ 7 million ; third quarter 2014 : $ 6 million ) . ( 4 ) charges and credits are described in detail in note 3 to the consolidated financial statements . fourth-quarter revenue of $ 12.6 billion was flat sequentially . north america revenue of $ 4.3 billion increased $ 69 million , or 2 % , sequentially . international revenue of $ 8.2 billion decreased $ 98 million , or 1 % , sequentially . sequentially , reservoir characterization group revenue decreased 3 % , to $ 3.1 billion , and drilling group revenue decreased 3 % , to $ 4.7 billion . production group revenue increased 5 % sequentially to $ 5.0 billion . the decrease in reservoir characterization group revenue was primarily due to the seasonal drop in marine seismic activity in the north sea and eastern canada . wireline revenue also decreased on lower exploration activity in angola and seasonal activity and currency declines in russia . these sequential decreases were partially offset by year-end multiclient license and software sales . drilling group revenue decreased primarily on unfavorable currency effects and activity declines in russia for drilling & measurements and m-i swaco technologies . in mexico , lower 15 integrated project management ( ipm ) activity , due to budgetary constraints , also contributed to the decrease . the increase in production group revenue reflected stronger activity in western canada , higher uptake of technology , continued efficiency improvements , and improved pressure pumping logistics in north america land .
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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. overview we are a global provider of industrial iot solutions , including network connectivity , devices , device management and web reporting applications . these solutions enable optimal business efficiencies , increased asset utilization and reduced asset write-offs , helping customers realize benefits on a worldwide basis . our industrial iot products and services are designed to track , monitor , control and enhance security for a variety of assets , such as trailers , trucks , rail cars , sea containers , power generators , fluid tanks , marine vessels , diesel or gensets , oil and gas wells , pipeline monitoring equipment , irrigation control systems , and utility meters , in the transportation and supply chain , heavy equipment , fixed asset monitoring and maritime industries , as well as for governments . additionally , we provide satellite ais data services to assist in vessel navigation and to improve maritime safety for government and commercial customers worldwide . we also have vehicle fleet management , as well as in-cab and vehicle fleet solutions in our transportation solution portfolio . we provide our services using multiple network platforms , including our own constellation of low-earth orbit satellites and our accompanying ground infrastructure , as well as terrestrial-based cellular communication services obtained through reseller agreements with major cellular ( tier one ) wireless providers . we also offer customer solutions utilizing additional satellite network service options that we obtain through service agreements we have entered into with third-party mobile satellite providers . our satellite-based customer solution offerings use small , low power , mobile satellite subscriber communicators for remote asset connectivity , and our terrestrial-based solutions utilize cellular data modems with sims . we also resell service using the two-way inmarsat satellite network to provide higher bandwidth , low-latency satellite products and services , leveraging our idp technology . our customer solutions provide access to data gathered over these systems through connections to other public or private networks , including the internet . we are dedicated to providing what we believe are the most versatile , leading-edge industrial iot solutions in our markets that enable our customers to run their businesses more efficiently . 2020 strategic transactions during 2020 , we completed the following strategic transactions that had an impact and will continue to have an impact on our results of operations : credit agreement on december 2 , 2020 , we and certain of our subsidiaries entered into the credit agreement with jpmorgan chase , as administrative agent and collateral agent , and with the other lenders thereto , in connection with the refinancing of our senior secured notes . pursuant to the credit agreement , the lenders provided a revolving facility in an aggregate amount of up to $ 50.0 million and a term facility in the aggregate amount of $ 200.0 million . the proceeds of the facilities , along with cash on hand , were used to redeem all $ 220.0 million outstanding principal amount of our 8.0 % senior secured notes due 2024 , at a price equal to ( a ) 104 % of the principal amount of securities being redeemed plus ( b ) accrued and unpaid interest , resulting in a call premium payment of $ 8.8 million and an additional expense associated with the remaining unamortized debt issuance cost of $ 2.9 million . shelf registration we have an effective shelf registration statement filed with the sec , registering up to $ 100.0 million of debt and or equity securities that we may offer in one or more offerings on terms to be determined at the time of sale . the shelf registration statement is due to expire on march 23 , 2023 and replaces our previous shelf registration statement described below under “ 2018 strategic transactions — shelf registration. ” 2019 strategic transactions during 2019 , we completed the following strategic transactions that had an impact and will continue to have an impact on our results of operations : stock repurchase program on august 5 , 2019 , our board of directors authorized a stock repurchase program under which we could repurchase up to $ 25.0 million of our outstanding shares of common stock through open market transactions and privately negotiated transactions , until august 5 , 2020. in addition , open market repurchases of common stock could be made pursuant to applicable securities laws and 39 regulations , including rule 10b-18 , as well as rule 10b5-1 under the exchange act . in mid-march 2020 , the company suspended purchases under the repurchase program given the economic uncertainty arising from the covid-19 pandemic . 2018 strategic transactions during 2018 , we completed the following strategic transactions that had an impact and will continue to have an impact on our results of operations : public offering on april 10 , 2018 , we completed a public offering of 3,450,000 shares of our common stock , including 450,000 shares sold upon exercise in full of the underwriters ' option to purchase additional shares , at a price of $ 8.60 per share . we received net proceeds of approximately $ 28.0 million after deducting underwriters ' discounts and commissions and offering costs . shelf registration on april 13 , 2018 , we filed a shelf registration statement with the sec , registering an unspecified amount of debt and or equity securities that we may offer in one or more offerings on terms to be determined at the time of sale . story_separator_special_tag separately , at year-end 2019 , we deactivated approximately 85,000 non-revenue generating communicators that were not actively transmitting data or were in a suspend/test mode . this action was performed in connection with our platform convergence project . subsequent to these adjustments , we had approximately 2,144,000 billable subscriber communicators as of december 31 , 2019. from december 31 , 2019 through december 31 , 2020 , we added approximately 171,000 billable subscriber communicators , 41 offset , partially , by deactivations of approximately 90 ,000 units related in part to decreases in active subscriber devices of oil and gas and heavy equipment customers and our platform convergence projec t . our program with maersk , through our contract with at & t , expired on december 31 , 2019. the remaining deferred revenue of approximately $ 1.9 million associated with this contract was recognized during the year ended december 31 , 2020 as an immaterial prior period adjustment . the contract was assumed as part of the wam technologies , llc acquisition in 2015. service revenue growth can be impacted by the customary lag between subscriber communicator activations and recognition of service revenues from these units . product sales year ended december 31 , change ( in thousands ) 2020 2019 dollars % product sales $ 90,647 $ 111,419 $ ( 20,772 ) ( 18.6 ) % the decrease in product sales for the year ended december 31 , 2020 , compared to the prior year period , was primarily due to timing of shipments impacted by the covid-19 pandemic and the downturn in the oil and gas industry . cost of revenues , exclusive of depreciation and amortization replace_table_token_5_th cost of services is comprised of expenses to operate our network , such as payroll and related costs , including stock-based compensation , installation costs , and usage fees to third-party networks , but exclude depreciation and amortization discussed below . the decrease in cost of services for the year ended december 31 , 2020 , compared to the prior year period , was primarily due to our cost reduction initiatives implemented throughout the company . cost of product sales includes the purchase price of subscriber communicators and sims sold , costs of warranty obligations , shipping charges and operational costs to fulfill customer orders , including costs for employees and inventory management . the decrease in cost of product sales for the year ended december 31 , 2020 , compared to the prior year period , was primarily due to the decreases in product sales and the lower costs associated with new product offerings and the mix of product shipments , as well as other non-recurring benefits related to warranties and purchase price variances . selling , general and administrative expenses year ended december 31 , change ( in thousands ) 2020 2019 dollars % selling , general and administrative expenses $ 70,176 $ 69,590 $ 586 0.8 % selling , general and administrative expenses ( “ sg & a ” ) relate primarily to expenses for general management , sales and marketing , finance , audit and legal fees and general operating expenses . the increase in sg & a expenses for the year ended december 31 , 2020 , compared to the prior year period , was primarily due to reductions in contingent liabilities in 2019 which did not recur in 2020 and an increase in bad debt expense in 2020 , offset by cost reductions in salary and wages , travel and entertainment , and professional services . product development expenses year ended december 31 , change ( in thousands ) 2020 2019 dollars % product development $ 12,720 $ 14,720 $ ( 2,000 ) ( 13.6 ) % 42 product development expenses consist primarily of the expenses associated with our engineering efforts to establish technical feasibility , and the cost of third parties and internal staff to support our current applications . product development expenses for the year ended december 31 , 2020 , compared to the prior year period , reflects lower employee costs , reduced consulting services , as well as reduced travel and entertainment costs , as a result of travel restrictions due to the covid-19 pandemic . depreciation and amortization year ended december 31 , change ( in thousands ) 2020 2019 dollars % depreciation and amortization $ 50,736 $ 50,702 $ 34 0.1 % the increase in depreciation and amortization for the year ended december 31 , 2020 , compared to the prior year period , was primarily due to higher depreciation associated with our capitalized costs attributable to the design , development and enhancements of our products and services sold to our customers and our internally developed software . acquisition-related and integration costs replace_table_token_6_th acquisition-related and integration costs include professional services expenses and identifiable integration costs directly attributable to our acquisitions . the decrease in acquisition-related and integration costs reflected lower acquisition and integration activity for the year ended december 31 , 2020 , compared to the prior year period . other income ( expense ) other income ( expense ) is comprised primarily of interest expense , foreign exchange gains and losses and interest income related to capital leases and from our cash and cash equivalents , which can consist of u.s. treasuries and interest-bearing instruments . replace_table_token_7_th the increase in other expense for the year ended december 31 , 2020 , compared to the prior year , was primarily due to a loss on debt call premium and debt extinguishment related to the redemption of our senior secured notes , as well as an increase in other expense in 2020 , related to foreign currency losses , offset , in part , by lower interest expense due to the lower debt balance for the fourth quarter of 2020. we believe our foreign exchange exposure is limited as a majority of our revenue is collected in u.s. dollars .
| overview our liquidity requirements arise from our working capital needs , our obligation to make scheduled payments of interest on our indebtedness and our need to fund growth initiatives and make capital expenditures to support our current operations and to facilitate growth and expansion . we have financed our operations and expansion with cash flows from operating activities , bank debt , sales of our common stock through public offerings and private placements of debt . at december 31 , 2020 , we had an accumulated deficit of $ 244.9 million . our primary sources of liquidity consist of cash and cash equivalents totaling $ 40.4 million and $ 30.0 million remaining under our revolving facility under the credit agreement , available for use for working capital and general business purposes , which we believe will be sufficient to provide working capital , make interest payments and make capital expenditures to support operations and facilitate growth and expansion for the next twelve months . as previously reported , during the quarter ended june 30 , 2020 , we received proceeds from a loan in the amount of $ 7.6 million ( the “ ppp loan ” ) from jpmorgan chase , as lender , pursuant to the paycheck protection program ( the “ ppp ” ) of the coronavirus aid , relief , and economic security act ( the “ cares act ” ) . we believe that we qualified to apply for and receive the ppp loan pursuant to the ppp under the provisions of the cares act and the small business administration ( “ sba ” ) guidance in effect at that time .
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risk factors. and elsewhere in this annual report on form 10-k. overview rgp is a multinational consulting firm that provides consulting and business initiative support services to its global client base in the areas of accounting ; finance ; corporate governance , risk and compliance management ; corporate advisory , strategic communications and restructuring ; information management ; human capital ; supply chain management ; and legal and regulatory . we assist our clients with projects requiring specialized expertise in : finance and accounting services including process transformation and improvement ; financial reporting and analysis ; technical and operational accounting ; merger and acquisition due diligence ; audit response ; implementation of new accounting standards such as the new requirements for revenue recognition ; and remediation support information management services including strategy development ; program and project management ; business and technology integration ; data strategy , including data security and privacy ; and business performance management corporate advisory , strategic communications and restructuring services corporate governance , risk and compliance management services including contract and regulatory compliance efforts under , for example , the dodd-frank wall street reform and consumer protection act and the sarbanes oxley act of 2002 ( sarbanes ) ; enterprise risk management ; internal controls management ; and operation and it audits supply chain management services including supply chain strategy development ; procurement and supplier management ; logistics and materials management ; supply chain planning and forecasting ; and unique device identification compliance human capital services including change management ; organization development and effectiveness ; and optimization of human resources technology and operations legal and regulatory services with projects , secondments or tactical needs including commercial transactions ; compliance initiatives ; law department operations and business strategy ; and litigation support we were founded in june 1996 by a team at deloitte , led by our chairman , donald b. murray , who was then a senior partner with deloitte . our founders created resources connection to capitalize on the increasing demand for high quality outsourced professional services . we operated as a part of deloitte until april 1999. in april 1999 , we completed a management-led buyout in partnership with several investors . in december 2000 , we completed our initial public offering of common stock and began trading on the nasdaq stock market . we currently trade on the nasdaq global select market . we operate under the acronym rgp , branding for our operating entity name of resources global professionals . we operated solely in the united states until fiscal year 2000 , when we opened our first three international offices and began to expand geographically to meet the demand for project consulting services across the world . as of may 28 , 2016 , we served clients from offices in 20 countries , including 23 international offices and 45 offices in the united states . our global footprint allows the company to support the global initiatives of our multinational client base . we expect to continue opportunistic domestic and multinational expansion while also investing in complementary professional services lines that we believe will augment our service offerings . we primarily charge our clients on an hourly basis for the professional services of our consultants . we recognize revenue once services have been rendered and invoice the majority of our clients in the united states on a weekly basis . some of our clients 33 served by our international offices are billed on a monthly basis . our clients are contractually obligated to pay us for all hours billed . to a much lesser extent , we also earn revenue if a client hires one of our consultants . this type of contractually non-refundable revenue is recognized at the time our client completes the hiring process and represented 0.5 % of our revenue for each of the years ended may 28 , 2016 , may 30 , 2015 and may 31 , 2014. we periodically review our outstanding accounts receivable balance and determine an estimate of the amount of those receivables we believe may prove uncollectible . our provision for bad debts , if any , is included in our selling , general and administrative expenses . the costs to pay our professional consultants and all related benefit and incentive costs , including provisions for paid time off and other employee benefits , are included in direct cost of services . we pay most of our consultants on an hourly basis for all hours worked on client engagements and , therefore , direct cost of services tends to vary directly with the volume of revenue we earn . we expense the benefits we pay to our consultants as they are earned . these benefits include paid time off and holidays ; a discretionary bonus plan ; subsidized group health , dental and life insurance programs ; a matching 401 ( k ) retirement plan ; the ability to participate in the company 's employee stock purchase plan ( espp ) ; and professional development and career training . in addition , we pay the related costs of employment , including state and federal payroll taxes , workers ' compensation insurance , unemployment insurance and other costs . typically , a consultant must work a threshold number of hours to be eligible for all of the benefits . we recognize direct cost of services when incurred . selling , general and administrative expenses include the payroll and related costs of our internal management as well as general and administrative , marketing and recruiting costs . our sales and marketing efforts are led by our management team who are salaried employees and earn bonuses based on operating results for the company as a whole and each individual 's performance . the company 's fiscal year consists of 52 or 53 weeks , ending on the saturday in may closest to may 31. fiscal years 2016 and 2015 consisted of four 13 week quarters and a total of 52 weeks of activity for the fiscal year . story_separator_special_tag the risk-free interest rate assumption is based upon observed interest rates appropriate for the term of our employee stock options . the impact of expected dividends ( $ 0.10 per share for each quarter during fiscal 2016 and $ 0.08 per share for each quarter of fiscal 2015 ) is also incorporated in determining the estimated value per share of employee stock option grants . such dividends are subject to quarterly board of director approval . the company 's expected life of stock option grants is 5.6 years for non-officers and 7.7 years for officers . the company uses its historical volatility over the expected life of the stock option award to estimate the expected volatility of the price of its common stock . the company reviews the underlying assumptions related to stock-based compensation at least annually . 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 value of assets and liabilities . actual results may differ from these estimates under different assumptions or conditions . 35 results of operations the following tables set forth , for the periods indicated , our consolidated statements of operations data . these historical results are not necessarily indicative of future results . replace_table_token_7_th our operating results for the periods indicated are expressed as a percentage of revenue below . replace_table_token_8_th 36 we also assess the results of our operations using ebitda , adjusted ebitda and adjusted ebitda margin . ebitda is defined as our earnings before interest , taxes , depreciation and amortization . we define adjusted ebitda as ebitda plus stock-based compensation expense . adjusted ebitda margin is calculated by dividing adjusted ebitda by revenue . these measures assist management in assessing our core operating performance . the following table presents ebitda , adjusted ebitda and adjusted ebitda margin for the periods indicated and includes a reconciliation of such measures to net income , the most directly comparable gaap financial measure : replace_table_token_9_th the financial measures and key performance indicators we use to assess our financial and operating performance above are not defined by , or calculated in accordance with , gaap . a non-gaap financial measure is defined as a numerical measure of a company 's financial performance that ( i ) excludes amounts , or is subject to adjustments that have the effect of excluding amounts , that are included in the comparable measure calculated and presented in accordance with gaap in the consolidated statement of operations ; or ( ii ) includes amounts , or is subject to adjustments that have the effect of including amounts , that are excluded from the comparable measure so calculated and presented . ebitda , adjusted ebitda and adjusted ebitda margin are non-gaap financial measures . we believe that ebitda , adjusted ebitda and adjusted ebitda margin provide useful information to our investors because they are financial measures used by management to assess the core performance of the company . ebitda , adjusted ebitda and adjusted ebitda margin are not measurements of financial performance or liquidity under gaap and should not be considered in isolation or construed as substitutes for net income or other cash flow data prepared in accordance with gaap for purposes of analyzing our profitability or liquidity . these measures should be considered in addition to , and not as a substitute for , net income , earnings per share , cash flows or other measures of financial performance prepared in conformity with gaap . further , ebitda , adjusted ebitda and adjusted ebitda margin have the following limitations : although depreciation and amortization are non-cash charges , the assets being depreciated and amortized will often have to be replaced in the future and ebitda and adjusted ebitda do not reflect any cash requirements for such replacements ; equity based compensation is an element of our long-term incentive compensation program , although we exclude it as an expense from adjusted ebitda when evaluating our ongoing operating performance for a particular period ; and other companies in our industry may calculate adjusted ebitda and adjusted ebitda margin differently than we do , limiting their usefulness as a comparative measure . because of these limitations , ebitda , adjusted ebitda and adjusted ebitda margin should not be considered a substitute for performance measures calculated in accordance with gaap . 37 year ended may 28 , 2016 compared to year ended may 30 , 2015 percentage change computations are based upon amounts in thousands . revenue . revenue increased $ 7.9 million , or 1.3 % , to $ 598.5 million for the year ended may 28 , 2016 from $ 590.6 million for the year ended may 30 , 2015. we deliver our services to clients , whether multi-national or locally based , in a similar fashion across the globe . in fiscal 2016 , revenue increased in north america and asia pacific but declined in europe as compared to fiscal 2015 as noted in the table below . bill rates increased 0.8 % on average in fiscal 2016 compared to fiscal 2015 , while hours worked increased 1.4 % over the same period . during fiscal 2016 , revenue declined with certain clients in the energy services industries due to the on-going turmoil in the energy market , primarily in the u.s. the timing of stabilization with clients in this industry is uncertain . the number of consultants on assignment at the end of fiscal 2016 was 2,511 compared to the 2,516 consultants engaged at the end of fiscal 2015 ( the average number of consultants assigned was 2,503 in fiscal 2016 compared to 2,487 in fiscal 2015 ) . we operated 68 offices ( 23 abroad ) at both may 28 , 2016 and may 30 , 2015. our clients do not sign long-term contracts with us .
| quarterly results the following table sets forth our unaudited quarterly consolidated statements of operations data for each of the eight quarters in the two-year period ended may 28 , 2016. in the opinion of management , this data has been prepared on a basis substantially consistent with our audited consolidated financial statements appearing elsewhere in this document , and includes all adjustments , consisting of normal recurring adjustments , necessary for a fair presentation of the data . the quarterly data should be read together with our consolidated financial statements and related notes appearing elsewhere in this document . the operating results are not necessarily indicative of the results to be expected in any future period . replace_table_token_12_th 43 ( 1 ) net income per common share calculations for each of the quarters were based upon the weighted average number of shares outstanding for each period , and the sum of the quarters may not necessarily be equal to the full year net income per common share amount . our quarterly results have fluctuated in the past and we believe they will continue to do so in the future . certain factors that could affect our quarterly operating results are described in part i item 1a . risk factors. due to these and other factors , we believe that quarter-to-quarter comparisons of our results of operations are not meaningful indicators of future performance . liquidity and capital resources our primary source of liquidity is cash provided by our operations and , historically , to a lesser extent , stock option exercises . we have generated positive cash flows annually from operations since inception , and we continued to do so during the year ended may 28 , 2016. our ability to continue to increase positive cash flow from operations in the future will be , at least in part , dependent on improvement in global economic conditions .
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these benefits were offset by $ 4.0 billion of incremental costs related to the covid-19 pandemic and a $ 0.4 billion business restructuring charge in the walmart u.s. segment recorded in the second quarter of fiscal 2021. for fiscal 2020 , operating expenses as a percentage of net sales decreased 8 basis points compared to the previous fiscal year due to our focus on expense management combined with our growth in comparable store sales . these improvements were partially offset by $ 0.9 billion in business restructuring charges consisting primarily of non-cash impairment charges for certain trade names , acquired developed technology , and other business restructuring charges due to strategic decisions that resulted in the write down of certain assets in the walmart u.s. and walmart international segments . 35 strategic capital allocation our strategy includes improving our customer-facing initiatives in stores and clubs and creating a seamless omni-channel experience for our customers . as such , we are allocating more capital to ecommerce , technology , supply chain , and store remodels and less to new store and club openings . total fiscal 2021 capital expenditures decreased slightly compared to the prior year . the following table provides additional detail : replace_table_token_9_th returns as we execute our financial framework , we believe our return on capital will improve over time . we measure return on capital with our return on assets , return on investment and free cash flow metrics . we also provide returns in the form of share repurchases and dividends , which are discussed in the liquidity and capital resources section . return on assets and return on investment we include return on assets ( `` roa '' ) , the most directly comparable measure based on our financial statements presented in accordance with generally accepted accounting principles in the u.s. ( `` gaap '' ) , and return on investment ( `` roi '' ) as metrics to assess returns on assets . while roi is considered a non-gaap financial measure , management believes roi is a meaningful metric to share with investors because it helps investors assess how effectively walmart is deploying its assets . trends in roi can fluctuate over time as management balances long-term strategic initiatives with possible short-term impacts . roa was 5.6 % and 6.7 % for fiscal 2021 and 2020 , respectively . the decrease in roa was primarily due to the losses on certain international operations held for sale or sold , partially offset by the fair value change in our equity investments as well as the increase in operating income . roi was 14.0 % and 13.4 % for fiscal 2021 and 2020 , respectively . the increase in roi was primarily due to the increase in operating income . we define roi as adjusted operating income ( operating income plus interest income , depreciation and amortization , and rent expense ) for the trailing twelve months divided by average invested capital during that period . we consider average invested capital to be the average of our beginning and ending total assets , plus average accumulated depreciation and average amortization , less average accounts payable and average accrued liabilities for that period . for fiscal 2020 , lease related assets and associated accumulated amortization are included in the denominator at their carrying amount as of that balance sheet date , rather than averaged , because they are not directly comparable to the prior year calculation which included rent for the trailing 12 months multiplied by a factor of 8. a two-point average was used for leased assets beginning in fiscal 2021 , after one full year from the date of adoption of asu 2016-02 , leases ( topic 842 ) ( `` asu 2016-02 '' ) . our calculation of roi is considered a non-gaap financial measure because we calculate roi using financial measures that exclude and include amounts that are included and excluded in the most directly comparable gaap financial measure . for example , we exclude the impact of depreciation and amortization from our reported operating income in calculating the numerator of our calculation of roi . as mentioned above , we consider roa to be the financial measure computed in accordance with generally accepted accounting principles most directly comparable to our calculation of roi . roi differs from roa ( which is consolidated net income for the period divided by average total assets for the period ) because roi : adjusts operating income to exclude certain expense items and adds interest income ; adjusts total assets for the impact of accumulated depreciation and amortization , accounts payable and accrued liabilities to arrive at total invested capital . because of the adjustments mentioned above , we believe roi more accurately measures how we are deploying our key assets and is more meaningful to investors than roa . although roi is a standard financial measure , numerous methods exist for calculating a company 's roi . as a result , the method used by management to calculate our roi may differ from the methods used by other companies to calculate their roi . 36 the calculation of roa and roi , along with a reconciliation of roi to the calculation of roa , the most comparable gaap financial measure , is as follows : replace_table_token_10_th replace_table_token_11_th ( 1 ) the average is based on the addition of the account balance at the end of the current period to the account balance at the end of the corresponding prior period and dividing by 2. average total assets as used in roa includes the average impact of the adoption of asu 2016-02 . story_separator_special_tag ( 2 ) for fiscal 2020 , as a result of adopting asu 2016-02 , average total assets is based on the average of total assets without leased assets , net plus leased assets , net as of january 31 , 2020. average accumulated depreciation and amortization is based on the average of accumulated depreciation and amortization , without leased assets plus accumulated amortization on leased assets as of january 31 , 2020. np = not provided . free cash flow free cash flow is considered a non-gaap financial measure . management believes , however , that free cash flow , which measures our ability to generate additional cash from our business operations , is an important financial measure for use in evaluating the company 's financial performance . free cash flow should be considered in addition to , rather than as a substitute for , consolidated net income as a measure of our performance and net cash provided by operating activities as a measure of our liquidity . see `` liquidity and capital resources `` for discussions of gaap metrics including net cash provided by operating activities , net cash used in investing activities and net cash used in financing activities . we define free cash flow as net cash provided by operating activities in a period minus payments for property and equipment made in that period . we had net cash provided by operating activities of $ 36.1 billion , $ 25.3 billion and $ 27.8 billion for fiscal 2021 , 2020 and 2019 , respectively . we generated free cash flow of $ 25.8 billion , $ 14.6 billion and $ 17.4 billion for fiscal 2021 , 2020 and 2019 , respectively . net cash provided by operating activities for fiscal 2021 increased when compared to fiscal 2020 primarily due to the impact of the global health crisis which accelerated inventory sell-through , as well as the timing and payment of inventory purchases , incremental covid-19 related expenses and certain benefit payments . free cash flow for fiscal 2021 increased when compared to fiscal 2020 due to the same reasons as the increase in net cash provided by operating activities , as well as $ 0.4 billion in decreased capital expenditures . net cash provided by operating activities for fiscal 2020 declined when compared to fiscal 2019 was primarily due to the contribution to the asda pension plan in anticipation of its 37 future settlement , the inclusion of a full year of flipkart operations , and the timing of vendor payments . free cash flow for fiscal 2020 declined when compared to fiscal 2019 due to the same reasons as the decline in net cash provided by operating activities , as well as $ 0.4 billion in increased capital expenditures . walmart 's definition of free cash flow is limited in that it does not represent residual cash flows available for discretionary expenditures due to the fact that the measure does not deduct the payments required for debt service and other contractual obligations or payments made for business acquisitions . therefore , we believe it is important to view free cash flow as a measure that provides supplemental information to our consolidated statements of cash flows . although other companies report their free cash flow , numerous methods may exist for calculating a company 's free cash flow . as a result , the method used by management to calculate our free cash flow may differ from the methods used by other companies to calculate their free cash flow . the following table sets forth a reconciliation of free cash flow , a non-gaap financial measure , to net cash provided by operating activities , which we believe to be the gaap financial measure most directly comparable to free cash flow , as well as information regarding net cash used in investing activities and net cash used in financing activities . replace_table_token_12_th ( 1 ) `` net cash used in investing activities '' includes payments for property and equipment , which is also included in our computation of free cash flow . results of operations story_separator_special_tag our customers . gross profit rate was flat and decreased 14 basis points for fiscal 2021 and 2020 , respectively , when compared to the previous fiscal year . while fiscal 2021 gross profit rate was flat , it benefited from strategic sourcing initiatives and fewer markdowns , offset by a change in merchandise mix , the carryover effect of prior year price investment and the temporary closure of our auto care and vision centers in response to the covid-19 pandemic . for fiscal 2020 , the decrease was primarily the result of continued price investments which were partially offset by better merchandise mix , including strength in private brands , and less pressure from transportation costs . 39 operating expenses as a percentage of segment net sales decreased 15 and 4 basis points for fiscal 2021 and 2020 , respectively , when compared to the previous fiscal year . we leveraged operating expenses in fiscal 2021 primarily as a result of strong sales , which were partially offset by $ 3.2 billion of incremental costs related to the covid-19 pandemic including special bonuses , expanded sick and emergency leave pay , costs associated with outfitting our stores and associates with masks , gloves and sanitizer , and expanded cleaning practices . fiscal 2021 operating expenses as a percentage of net sales was also slightly aided by lapping the $ 0.5 billion business restructuring charges from the prior year described below , offset by a $ 0.4 billion business restructuring charge recorded in the second quarter of fiscal 2021 resulting from changes to walmart u.s. support teams to better support its omni-channel strategy . the decrease in fiscal 2020 was primarily due to strong sales and productivity improvements which were mostly offset by business restructuring charges of $ 0.5 billion consisting primarily of non-cash impairment charges for certain trade names
| consolidated results of operations replace_table_token_13_th ( 1 ) unit counts and associated retail square feet are presented for stores and clubs generally open as of period end , and includes stores associated with operations classified as held for sale as of january 31 , 2021. permanently closed locations are not included . our total revenues , which includes net sales and membership and other income , increased $ 35.2 billion or 6.7 % and $ 9.6 billion or 1.9 % for fiscal 2021 and 2020 , respectively , when compared to the previous fiscal year . these increases in revenues were due to increases in net sales , which increased $ 35.3 billion or 6.8 % and $ 9.6 billion or 1.9 % for fiscal 2021 and 2020 , respectively , when compared to the previous fiscal year . for fiscal 2021 , the increase was primarily due to strong positive comparable sales for the walmart u.s. and sam 's club segments as well as positive comparable sales in the majority of our international markets resulting from increased demand stemming from the covid-19 pandemic . overall net sales growth was strong despite certain operating limitations in several international markets in the second quarter of fiscal 2021 due to government regulations and precautionary measures taken as a result of the covid-19 pandemic . the net sales increase was partially offset by negative fluctuations in currency exchange rates of $ 5.0 billion . for fiscal 2020 , net sales were positively impacted by overall positive comparable sales for walmart u.s. and sam 's club segments , along with the addition of net sales from flipkart , which we acquired in august 2018 , and positive comparable sales in the majority of our international markets .
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we expect to continue to incur net losses and negative cash flow from operating activities for at least the next year primarily as a result of our efforts to commercialize zohydro er , the clinical development for zx008 and relday , required post-market testing for zohydro er , additional development activities with respect to zohydro er , including the development of the zx007 , an abuse deterrent formulation of zohydro er , using technology licensed from altus formulation inc. , or altus , and the cost of the sales and marketing expenses associated with zohydro er and the cost of contract manufacturing of sumavel dosepro . as of december 31 , 2014 , we had cash and cash equivalents of $ 42.2 million . in november 2014 , we entered into a controlled equity offering sales agreement with cantor fitzgerald & co. , as sales agent , under which we can issue and sell shares of our common stock having an aggregate offering price of up to $ 25.0 million . we did not sell any shares in 2014 in connection with this agreement . in december 2014 , we entered into a loan and security agreement with oxford finance llc , or oxford , and silicon valley bank , or svb , consisting of term loans totaling $ 20.0 million , and a revolving credit facility of up to $ 4.0 million . we received net proceeds of $ 19.7 million related to the term loan and drew down $ 1.5 million on the revolving credit facility in 2014. although it is difficult to predict future liquidity requirements , we believe that our cash and cash equivalents as of december 31 , 2014 , and our projected product revenues from zohydro er , contract revenues from sumavel dosepro , service fee revenue , release of restricted cash in conjunction with the sale of our sumavel dosepro business , the receipt of second $ 5.0 million installment payment due from purdue pharma l.p. , or purdue , and funds available under our revolving line of credit will be sufficient to fund our operations through the third quarter of 2015. we will need to obtain additional funds to finance our operations beyond that point , or possibly earlier . we intend to raise additional capital , if necessary , through public or private equity offerings , debt financings , receivables financings or through collaborations or partnerships with other companies . if we are unsuccessful in raising additional required funds , we may be required to significantly delay , reduce the scope of or eliminate one or more of our development programs or our commercialization efforts , or cease operating as a going concern . we also may be required to relinquish , license or otherwise dispose of rights to product candidates or products that we would otherwise seek to develop or commercialize ourselves on terms that are less favorable than might otherwise be available . in its report on our consolidated financial statements for the year ended december 31 , 2014 , our independent registered public accounting firm included an explanatory paragraph expressing substantial doubt regarding our ability to continue as a going concern . recent developments on march 10 , 2015 , we entered into the asset purchase agreement with pernix , pursuant to which , and on the terms and subject to the conditions thereof , among other things , we agreed to sell our zohydro er business to pernix , including the registered patents and trademarks , certain contracts , the nda and other regulatory approvals , documentation and authorizations , the books and records , marketing materials and product data relating to zohydro er . under the terms of the asset purchase agreement , pernix will pay us $ 30.0 million in cash upon the closing , or the closing , of the transaction , $ 3.0 million of which will be deposited into escrow to fund potential indemnification claims for a period of 12 months , or the escrow period . at the closing , we will also receive $ 50.0 million in the form of a secured promissory note , or the note , and $ 20.0 million in common stock consideration from pernix ( based on the $ 11.89 per share closing price of pernix therapeutics ' common stock on the trading day immediately preceding the execution date ) . the note will mature four months after the closing , which maturity date may be extended in pernix 's sole discretion by up to an 78 additional two months and , in the event of certain intellectual property matters , by up to an additional four months , for an aggregate extension of the maturity date to ten months from the closing . the note is subject to customary events of default , including cross-defaults to certain defaults under pernix 's debt facilities , and will be secured by substantially all of the purchased assets . upon repayment of the note , an additional $ 7.0 million of the $ 50.0 million payable thereunder will be deposited into escrow to fund potential indemnification claims through the escrow period . in addition , we have agreed to indemnify pernix for certain intellectual property matters up to an aggregate amount of $ 5.0 million . in addition to the upfront cash payment , we are eligible to receive cash payments of up to $ 283.5 million based on the achievement of pre-determined milestones , including a $ 12.5 million payment upon approval by the fda of an abuse-deterrent extended-release hydrocodone tablet ( currently in development in collaboration with altus ) and up to $ 271.0 million in potential sales milestone payments . pursuant to the asset purchase agreement , pernix has agreed to use commercially reasonable efforts ( as defined in the asset purchase agreement ) to meet such milestones . furthermore , pernix will assume responsibility for our obligations under the purchased contracts and regulatory approvals , as well as other liabilities associated with the zohydro er business arising after the closing date . story_separator_special_tag under the agreement , altus is responsible for the development of abuse deterrent formulations of hydrocodone using altus ' intellitab drug delivery platform and will be reimbursed by us for its development efforts on the product . we are responsible for the conduct of the clinical development of the product . we paid a non-refundable upfront fee to altus of $ 0.8 million in 2013 and we are also obligated to pay altus up to $ 3.5 million in total future milestone payments upon the achievement of various development and regulatory milestones . the term of the development agreement will end upon expiration of the earlier of ( 1 ) the date upon which an nda or similar application for regulatory approval is submitted by us for an altus abuse deterrent formulation of hydrocodone , or ( 2 ) november 1 , 2016. pursuant to the agreement , we were granted an option to obtain an exclusive , royalty-bearing license , with the right to sublicense , to certain altus intellectual property rights to make , have made , use , sell , have sold , offer for sale and import an abuse deterrent formulation of hydrocodone for the treatment or relief of pain in the united states . if we exercise this option , altus will be eligible to receive additional regulatory and sales milestones and a royalty based on net sales of the licensed product . valeant co-promotion agreement in june 2013 , we entered into a co-promotion agreement , or the valeant agreement , with valeant pharmaceuticals north america llc , or valeant . under the terms of the valeant agreement , we were granted the exclusive right ( with valeant or any of its affiliates ) to promote migranal® ( dihydroergotamine mesylate ) nasal spray , or migranal , to a prescriber audience of physicians and other health care practitioners in the united states . our sales team began promoting migranal to prescribers in august 2013. the term of the valeant agreement will run through december 31 , 2015 ( unless otherwise terminated ) , and can be extended by mutual agreement of the parties in additional twelve-month increments . valeant remains responsible for the manufacture , supply and distribution of migranal for sale in the united states . in addition , valeant will supply us with a specified amount of product samples every six months , and we will reimburse valeant for the cost of additional samples and any promotional materials ordered by us . the cost of any additional samples and any promotional materials ordered by us will be recognized as selling , general and administrative expenses . in partial consideration of our sales efforts , valeant pays us a co-promotion fee on a quarterly basis that represents specified percentages of net sales generated by us over defined baseline amounts of net sales , or the baseline forecast and adjusted baseline forecast . in addition , upon completion of the co-promotion term , and only if the valeant agreement is not terminated by valeant due to a bankruptcy event ( as defined in the valeant agreement ) or a material failure by us to comply with our material obligations under the valeant agreement , valeant will be required to pay us an additional tail payment calculated as a fixed percentage of our net sales over the baseline forecast ( or adjusted baseline forecast ) during the first full six months following the last day of the term . for the year ended december 31 , 2014 and 2013 , we recognized service revenue of $ 3.4 million and $ 1.1 million under the valeant agreement , respectively . astellas pharma us , inc. co-promotion agreement in july 2009 , we entered into a co-promotion agreement , or the astellas co-promotion agreement , with astellas pharma u.s. , inc. , or astellas . under the terms of the astellas co-promotion agreement , we granted astellas the co-exclusive right , with us , to market and sell sumavel dosepro in the united states ( excluding puerto rico and the other territories and possessions of the united states ) until june 30 , 2013. under the astellas co-promotion agreement , both astellas and we were obligated to collaborate and fund the marketing of sumavel dosepro and to provide annual minimum levels of sales effort directed at 80 sumavel dosepro during the term . in december 2011 , we entered into an amendment to the astellas co-promotion agreement , or the amended astellas co-promotion agreement , whereby the agreement terminated on march 31 , 2012. in connection with the execution of the astellas co-promotion agreement , astellas made a non-refundable up-front payment of $ 2.0 million and made additional payments of $ 18.0 million to us upon the achievement of a series of milestones . in consideration for astellas ' performance of its commercial efforts , we paid astellas a service fee on a quarterly basis that represented a fixed percentage of between 45 % and 55 % of sumavel dosepro net sales to primary care physicians , ob/gyns , emergency medicine physicians , and urologists in the united states , or the astellas segment . in accordance with accounting guidance for revenue arrangements with multiple deliverables , we initially recorded the $ 20.0 million in upfront and milestone payments received from astellas as deferred revenue . beginning with the launch of sumavel dosepro in january 2010 , we began amortizing the upfront and milestone payments as contract revenue in the consolidated statement of operations and comprehensive income ( loss ) over the term of the agreement . upon termination of the astellas co-promotion agreement , we concluded that the remaining deferred revenue balance should be recognized ratably through the amended term of the agreement , and consequently , all deferred contract revenues were recognized through march 31 , 2012. we recognized $ 8.5 million of contract revenue for the year ended december 31 , 2012 , and no revenue subsequently .
| and results of operations the following discussion and analysis of our financial condition and results of operations should be read in conjunction with “ selected financial data ” and our consolidated financial statements and related notes appearing elsewhere in this annual report on form 10-k. in addition to historical information , this discussion and analysis contains forward-looking statements that involve risks , uncertainties and assumptions . our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors , including , but not limited , to those set forth under “ item 1a — risk factors ” and elsewhere in this annual report on form 10-k. overview background we are a pharmaceutical company committed to developing and commercializing therapies to address specific clinical needs for people living with central nervous system , or cns , disorders who need innovative treatment alternatives to help them return to normal daily functioning . our current areas of focus are pain , epilepsy and schizophrenia . we received marketing approval in october 2013 , from the u.s. food and drug administration , or fda , for zohydro® er ( hydrocodone bitartrate ) extended-release capsules , cii , an opioid agonist , extended-release oral formulation of hydrocodone without acetaminophen , for the management of pain severe enough to require daily , around-the-clock , long-term opioid treatment and for which alternative treatment options are inadequate . we launched zohydro er in march 2014 with our own sales force and had double-digit quarter-over-quarter growth during the launch year . total revenues for zohydro er for the first ten months of launch ending december 31 , 2014 were $ 11.6 million .
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if the qualitative assessment is not conclusive and it is necessary to calculate the fair value of a reporting unit , then the impairment f-10 seaworld entertainment , inc. and subsidiaries notes to consolidated financial statements ( story_separator_special_tag the following discussion contains management 's discussion and analysis of our financial condition and results of operations and should be read together with selected financial data and the historical consolidated financial statements and the notes thereto included in financial statements and supplementary data . this discussion contains forward-looking statements that reflect our plans , estimates and beliefs and involve numerous risks and uncertainties , including but not limited to those described in the risk factors section of this annual report on form 10-k. actual results may differ materially from those contained in any forward-looking statements . you should carefully read special note regarding forward-looking statements and risk factors. business overview we are a leading theme park and entertainment company delivering personal , interactive and educational experiences that blend imagination with nature and enable our customers to celebrate , connect with and care for the natural world we share . we own or license a portfolio of globally recognized brands , including seaworld , shamu and busch gardens . over our more than 50 year history , we have built a diversified portfolio of 11 destination and regional theme parks that are grouped in key markets across the united states , many of which showcase our one-of-a-kind zoological collection of approximately 89,000 marine and terrestrial animals . our theme parks feature a diverse array of rides , shows and other attractions with broad demographic appeal which deliver memorable experiences and a strong value proposition for our guests . during the year ended december 31 , 2014 , we hosted approximately 22.4 million guests , including approximately 3.6 million international guests . in the year ended december 31 , 2014 , we had total revenues of $ 1.38 billion and net income of $ 49.9 million . revision of prior period financial statements during the third quarter of 2014 , we identified and corrected immaterial errors in our financial statements related to accounting for certain debt transactions in 2013 , 2012 and 2011. for further details , refer to note 11long-term debt in our notes to the consolidated financial statements . accordingly , we have revised previously issued financial statements contained in this annual report on form 10-k to correct the effect of these errors for the corresponding periods . management 's discussion and analysis included herein is based on the revised financial results for the years ended december 31 , 2013 and 2012. key business metrics evaluated by management attendance we define attendance as the number of guest visits to our theme parks . increased attendance drives increased admissions revenue to our theme parks as well as total in-park spending . the level of attendance at our 43 theme parks is a function of many factors , including the opening of new attractions and shows , weather , global and regional economic conditions , competitive offerings and overall consumer confidence in the economy . total revenue per capita total revenue per capita , defined as total revenue divided by total attendance , consists of admission per capita and in-park per capita spending : admission per capita . we calculate admission per capita for any period as total admissions revenue divided by total attendance . theme park admissions accounted for approximately 62 % of our total revenue for the year ended december 31 , 2014. over the same time period , we reported $ 38.37 in admission per capita , representing a decrease of 2.6 % from $ 39.37 for the year ended december 31 , 2013. admission per capita is driven by ticket pricing , the admissions product mix and the park attendance mix . the admissions product mix is defined as the mix of tickets purchased such as single day , multi-day or annual passes and the park attendance mix is defined as the mix of attendance by theme parks visited . in-park per capita spending . we calculate in-park per capita spending for any period as total food , merchandise and other revenue divided by total attendance . for the year ended december 31 , 2014 , food , merchandise and other revenue accounted for approximately 38 % of our total revenue . over the same time period , we reported $ 23.14 of in-park per capita spending , representing a slight increase of 0.4 % from $ 23.05 for the year ended december 31 , 2013. in-park per capita spending is driven by pricing changes , penetration levels ( percentage of guests purchasing ) , new product offerings , the mix of guests and the mix of in-park spending . trends affecting our results of operations we have experienced negative attendance trends in 2014 which we believe resulted from a combination of factors affecting our business and our destination parks in particular . we believe negative media attention in california and a challenging competitive environment in florida are the key factors which contributed to the decline in attendance and resulting decrease in admissions revenue . to address our near term challenges , we are adjusting our attraction and marketing plans while also executing a cost savings plan which is expected to deliver approximately $ 50.0 million of annual cost savings by the end of 2015 , as compared to our cost structure in fiscal 2014. we believe that these cost savings will be largely offset by annual inflationary pressures and increased spending on marketing and advertising initiatives . as part of this cost savings plan , in december 2014 , we implemented a restructuring program ( the restructuring program ) which involved the elimination of approximately 300 positions in an effort to centralize certain operations and reduce duplication of functions to increase efficiencies . our ability to attract and retain customers depends , in part , upon the external perceptions of our brands and reputation . story_separator_special_tag the fair value of the products or services is recognized into admissions revenue and related expenses at the time of the exchange and approximates the estimated fair value of the goods or services received or provided , whichever is more readily determinable . story_separator_special_tag ended december 31 , 2013 , primarily reflecting the effects of the redemption of $ 140.0 million of our senior notes and the repayment of $ 37.0 million in term loan under our senior secured credit facilities in april 2013 with a portion of the net proceeds from our initial public offering as well as the impact of amendment no . 5 to our senior secured credit facilities , which reduced the interest rate applicable to borrowings under our senior secured credit facilities . loss on early extinguishment of debt and write-off of discounts and deferred financing costs . loss on early extinguishment of debt and write-off of discounts and deferred financing costs of $ 0.5 million for the year ended december 31 , 2014 relates to a write-off in discounts and deferred financing costs related to the voluntary prepayment of $ 31.5 million on our senior secured credit facilities during the third quarter of 2014. loss on early extinguishment of debt and write-off of discounts and deferred financing costs of $ 29.9 million for the year ended december 31 , 2013 primarily relates to a $ 15.4 million premium paid for the early redemption of $ 140.0 million of our senior notes with a portion of the net proceeds from our initial public offering in april 2013 , along with a write-off of approximately $ 5.5 million in related discounts and deferred financing costs and the write-off of approximately $ 8.1 million of certain debt issuance costs in connection with amendment no . 5 to our senior secured credit facilities . provision for income taxes . the provision for income taxes for the year ended december 31 , 2014 was $ 28.9 million compared to $ 25.7 million in the year ended december 31 , 2013. the increase primarily results from an increase in pretax income in 2014 compared to 2013 , along with an increase in our effective income tax rate ( from 33.1 % to 36.6 % ) . our effective income tax rate increased primarily due to a valuation allowance recorded on charitable contribution carryforwards expiring in 2015 , a change in the income mix of the affiliated entities , as well as the impact of non-deductible costs , including certain officer compensation and certain equity compensation awards , which was offset in part by the benefit of a prior year adjustment and tax credits . 49 comparison of the years ended december 31 , 2013 and 2012 the following table presents key operating and financial information for the years ended december 31 , 2013 and 2012 : replace_table_token_8_th admissions revenue . admissions revenue for the year ended december 31 , 2013 increased $ 36.6 million ( 4.1 % ) to $ 921.0 million as compared to $ 884.4 million for the year ended december 31 , 2012. the increase in revenue was a result of an 8.6 % increase in admission per capita from $ 36.26 in 2012 to $ 39.37 in 2013 offset by a 4.1 % decrease in total attendance . the improvement in admission per capita was primarily a result of higher ticket pricing and yield management strategies implemented at the beginning of 2013. attendance for 2013 declined primarily due to the anticipated impact of these new pricing and yield management strategies , which increased revenue but reduced low yielding and free attendance . also contributing to the decline was unexpected adverse weather conditions , particularly during the second quarter and in july of 2013. the unfavorable timing of easter on march 31 in 2013 also contributed to the attendance decline as it caused an overlap with the spring break holiday period for schools in many of our key markets . food , merchandise and other revenue . food , merchandise and other revenue for the year ended december 31 , 2013 decreased slightly by $ 0.1 million ( less than 0.1 % ) to $ 539.2 million as compared to $ 539.3 million for the year ended december 31 , 2012. this decrease was a result of the decrease in attendance offset by a 4.3 % increase in in-park per capita spending from $ 22.11 in 2012 to $ 23.05 in 2013. the increase in 50 in-park per capita spending was primarily due to targeted price increases and increased in-park offerings reflecting our continued efforts to provide incremental and enhanced service offerings . costs of food , merchandise and other revenues . costs of food , merchandise and other revenues for the year ended december 31 , 2013 decreased $ 4.4 million ( 3.7 % ) to $ 114.2 million as compared to $ 118.6 million for the year ended december 31 , 2012 , due primarily to improved culinary margins from leveraged purchasing efforts and operational efficiencies . these costs represent 21.2 % of related revenue earned for the year ended december 31 , 2013 and 21.9 % of related revenue earned for the year ended december 31 , 2012. operating expenses . operating expenses for the year ended december 31 , 2013 increased by $ 12.7 million ( 1.7 % ) to $ 743.3 million as compared to $ 730.6 million for the year ended december 31 , 2012. the increase was primarily a result of increased direct labor costs , additional operating costs to support new attractions and our new aquatica san diego park which opened in 2013 , partially offset by decreased miscellaneous asset write-offs and successful expense reductions implemented during the year . operating expenses reflected 50.9 % of total revenues for the year ended december 31 , 2013 and 51.3 % for the year ended december 31 , 2012. selling , general and administrative . selling , general and administrative expenses for the year ended december 31 , 2013 increased by $ 2.4 million ( 1.3 % ) to $ 187.3
| results of operations the following discussion provides an analysis of our consolidated financial data for the years ended december 31 , 2014 , 2013 and 2012. this data should be read in conjunction with our consolidated financial statements and the notes thereto included in financial statements and supplementary data. 46 comparison of the years ended december 31 , 2014 and 2013 the following table presents key operating and financial information for the years ended december 31 , 2014 and 2013 : replace_table_token_7_th admissions revenue . admissions revenue for the year ended december 31 , 2014 decreased $ 61.6 million ( 6.7 % ) to $ 859.4 million as compared to $ 921.0 million for the year ended december 31 , 2013. the decrease in revenue was a result of a 4.2 % decline in attendance combined with a decrease of 2.6 % in admission per capita from $ 39.37 in 2013 to $ 38.37 in 2014. attendance for 2014 declined as the negative trends we experienced in the second quarter of 2014 primarily at our destination parks in california and florida extended into our third quarter , with attendance for the third quarter of 2014 down 5.2 % compared to the third quarter of 2013. these trends showed some improvement in the fourth quarter of 2014 with attendance down 2.2 % compared to the fourth quarter of 2013 , due in part to the success of our seasonal events . we believe the overall decline in attendance for 2014 results from a combination of factors , including negative media attention in california , along with a challenging competitive environment , particularly in florida . part of the challenges in florida relate to significant new attraction offerings at competitor destination parks and a delay in the opening of one of our new rides at our busch gardens tampa park .
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templeton santa barbara , llc the four real estate development parcels within the templeton santa barbara , llc project ( “ templeton project ” ) are story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with “ selected financial data ” and our consolidated financial statements and notes thereto that appear elsewhere in this annual report . this discussion and analysis contains forward-looking statements that involve risks , uncertainties , and assumptions . actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors , including , but not limited to , those presented under “ risk factors ” included in item 1a and elsewhere in this annual report . overview limoneira company was incorporated in delaware in 1990 as the successor to several businesses with operations in california since 1893. we are an agribusiness and real estate development company founded and based in santa paula , california , committed to responsibly using and managing our approximately 8,246 acres of land , water resources and other assets to maximize long-term stockholder value . our current operations consist of fruit production , sales and marketing , real estate development and capital investment activities . we are one of california 's oldest citrus growers . according to sunkist , we are one of the largest growers of lemons in the united states and , according to the california avocado commission , one of the largest growers of avocados in the united states . in addition to growing lemons and avocados , we grow oranges and a variety of other specialty citrus and other crops . we have agricultural plantings throughout ventura and tulare counties in california , which plantings consist of approximately 2,060 acres of lemons , 1,169 acres of avocados , 1,654 acres of oranges and 773 acres of specialty citrus and other crops . we also operate our own packinghouse in santa paula , california , where we process and pack lemons that we grow , as well as lemons grown by others . our water resources include water rights , usage rights and pumping rights to the water in aquifers under , and canals that run through , the land we own . water for our farming operations is sourced from the existing water resources associated with our land , which includes rights to water in the adjudicated santa paula basin ( aquifer ) and the un-adjudicated fillmore , santa barbara and paso robles basins ( aquifers ) . we also use ground water and water from local water districts in tulare county , which is in the san joaquin valley . for more than 100 years , we have been making strategic investments in california agribusiness and real estate development . we currently have five active real estate development projects in california . these projects include multi-family housing and single-family homes comprised of approximately 200 completed units and another approximately 2,000 units in various stages of development . we have three business segments : agribusiness , rental operations and real estate development . our agribusiness segment currently generates the majority of our revenue from its farming and lemon packing and sales operations ; our rental operations segment generates revenue from our housing , organic recycling and commercial and leased land operations ; and our real estate development segment primarily generates revenues from the sale of real estate development projects . from a general view , we see the company as a land and farming company that generates annual cash flows to support its progress into diversified real estate development activities . as real estate developments are monetized , our agriculture business will then be able to expand more rapidly into new regions and markets . 32 recent developments effective november 1 , 2011 , we amended the interest rate on one of the term loans we have with farm credit west to a fixed rate of 3.65 % for three years . the interest rate for this loan had been 6.73 % until october 31 , 2011 and would have converted to a variable rate on november 1 , 2011. the balance of the term loan is approximately $ 8.7 million at october 31 , 2012 and it requires monthly principal and interest installments until october 2035. on november 14 , 2011 , we amended certain terms of our rabobank credit facility . the maturity date was extended to june 30 , 2018 from june 30 , 2013 , and the borrowing capacity was increased to $ 100.0 million from $ 80.0 million , subject to underlying collateral value . the interest rate for the amended line of credit will be the london interbank offer rate ( “ libor ” ) plus 1.80 % beginning july 1 , 2013 until the maturity date . currently , the interest rate on the line of credit is libor plus 1.50 % and the principal balance is approximately $ 61.3 million at october 31 , 2012. additionally , on november 14 , 2011 we entered into a forward interest rate swap to manage the variable interest rate risk associated with the rabobank credit facility . the forward interest rate swap establishes a fixed interest rate of 4.30 % on $ 40.0 million of outstanding line of credit borrowings beginning july 1 , 2013 until june 30 , 2018. we currently have an interest rate swap which locks in the interest rate on $ 42.0 million of outstanding line of credit borrowings at 5.13 % until june 30 , 2013. in january 2012 , we entered into six operating leases for the sheldon ranch . each of the leases is for a ten-year term and provides for four five-year renewal options with an aggregate base rent of approximately $ 500,000 per year . the leases also contain profit share arrangements with the landowners as additional rent on each of the properties and a provision for the potential purchase of the properties by us in the future . story_separator_special_tag during fiscal years 2012 and 2011 , orange sales were $ 4.1 million and $ 3.8 million , respectively , on 423,000 and 414,000 field boxes of oranges sold at average per field box prices of $ 9.69 and $ 9.18 , respectively . · specialty citrus and other crops : the increase in fiscal year 2012 was primarily due to the sheldon ranch other crop revenues from peaches , plums and olives totaling $ 0.5 million in fiscal year 2012. there were no such revenues in fiscal year 2011. partially offsetting these increases , we removed approximately 22 acres of cherries as part of our fiscal year 2012 orchard redevelopment plan , resulting in a $ 0.3 million decrease in other crop revenue . the 22 acres were replanted with lemons . rental operations revenue of $ 4.0 million in fiscal year 2012 was comparable to $ 3.9 million in fiscal year 2011. real estate development revenue was $ 0.3 million in fiscal year 2012 compared to $ 2.5 million in fiscal year 2011. fiscal year 2011 revenue included the sale of a luxury home in paradise valley , arizona ( “ donna circle ” ) at a sales price of $ 2.3 million . there were no real estate project sales in fiscal year 2012 . 35 costs and expenses total costs and expenses for fiscal year 2012 were $ 61.3 million compared to $ 51.5 million for fiscal year 2011. this 19 % increase of $ 9.8 million was primarily attributable to increases in our agribusiness costs and selling , general and administrative expenses of $ 12.1 million and $ 1.2 million , respectively , offset by decreases in real estate development expenses , including impairment charges , of $ 3.7 million . costs associated with our agribusiness segment include packing costs , harvest costs , growing costs , costs related to the lemons we process and sell for third-party growers and depreciation expense . the significant variances are discussed below : replace_table_token_7_th · packing costs : the increase in fiscal year 2012 primarily resulted from 0.6 million more cartons of fresh lemons packed and sold compared to fiscal year 2011 . · harvest costs : the increase in fiscal year 2012 primarily resulted from 7.7 million more pounds of avocados harvested compared to fiscal year 2011. additionally , we incurred $ 0.2 million of harvest expenses related to peaches , plums and olives at the sheldon ranch . · growing costs : growing costs , also referred to as cultural costs , consist of orchard maintenance costs such as cultivation , fertilization and soil amendments , pest control , pruning and irrigation . the increase in fiscal year 2012 is primarily due to the addition of the sheldon ranch . during fiscal year 2012 , we incurred net lease expenses of $ 0.5 million and $ 0.6 million of other growing costs related to the sheldon ranch . additionally , in fiscal year 2012 we removed approximately 22 acres of cherries as part of our fiscal year 2012 orchard redevelopment plan , resulting in a charge of $ 0.2 million . the 22 acres were replanted with lemons . · third-party grower costs : we sell lemons that we grow and lemons that we procure from other growers . the cost of procuring lemons from other growers is referred to as third-party grower costs . the increase in fiscal year 2012 is primarily attributable to a higher percentage of third-party grower lemons relative to the total volume of cartons sold . of the 2.4 million and 1.8 million cartons sold during fiscal years 2012 and 2011 , respectively , 1.1 million ( 46 % ) and 0.6 million ( 33 % ) were procured from third-party growers at average per carton prices of $ 13.34 and $ 11.73 , respectively . real estate development expenses consist of costs incurred for our various real estate projects , impairment charges and depreciation expense . real estate development expenses for fiscal year 2012 were $ 1.0 million compared to $ 4.7 million for fiscal year 2011. this 78 % decrease of $ 3.7 million was primarily attributable to the following : · in fiscal year 2011 , we incurred $ 2.3 million costs of sales associated with the sale of donna circle . there were no sales of real estate projects in fiscal year 2012 . · we incurred $ 1.2 million of impairment charges during fiscal year 2011 associated with our real estate projects . there were no impairment charges in fiscal year 2012. selling , general and administrative expenses for fiscal year 2012 were $ 10.5 million compared to $ 9.3 million for fiscal year 2011. this 13 % increase of $ 1.2 million is primarily attributable to the following : · employee incentive expenses for fiscal year 2012 were $ 1.0 million compared to zero for fiscal year 2011 . · fiscal year 2012 selling expenses were $ 1.1 million compared to $ 0.9 million in fiscal year 2011 primarily due to an increase of 0.6 million fresh lemon cartons sold in fiscal year 2012 . 36 other income ( expense ) other income ( expense ) for fiscal year 2012 was $ 0.4 million of income compared to $ 1.2 million of income for fiscal year 2011. the $ 0.8 million decrease in income is primarily the result of : · $ 1.4 million gain on the sale of ranch refugio/caldwell ranch in fiscal year 2011 , · $ 0.8 million decrease in interest expense in fiscal year 2012 primarily as a result of a larger amount of capitalized interest , · $ 0.3 million of notes receivable written off in fiscal year 2012 and · $ 0.2 million increase in fair value adjustments on one of our interest rate swaps in fiscal year 2012. income taxes we recorded an income tax provision of $ 2.0 million for fiscal year 2012 on pre-tax income of $ 5.1 million compared to an income tax provision of $ 0.7 million for fiscal year 2011 on
| segment results of operations we evaluate the performance of our agribusiness , rental operations and real estate development segments separately to monitor the different factors affecting financial results . each segment is subject to review and evaluations related to current market conditions , market opportunities and available resources . the following table shows each segment 's results of operations for : replace_table_token_10_th fiscal year 2012 compared to fiscal year 2011 the following analysis should be read in conjunction with the previous section “ results of operations. ” agribusiness for fiscal year 2012 our agribusiness segment revenue was $ 61.6 million compared to $ 46.1 million for fiscal year 2011. the 34 % increase of $ 15.5 million primarily reflected higher lemon and avocado revenues for fiscal year 2012 compared to fiscal year 2011. the increase in agribusiness revenue primarily consists of the following : · lemon revenue for fiscal year 2012 was $ 12.9 million higher than fiscal year 2011 . · avocado revenue for fiscal year 2012 was $ 2.0 million higher than fiscal year 2011 . · navel and valencia orange revenue in fiscal year 2012 was $ 0.3 million higher than in fiscal year 2011 . · specialty citrus and other crop revenue for fiscal year 2012 was $ 0.3 million higher than fiscal year 2011. costs associated with our agribusiness segment include packing costs , harvest costs , growing costs , costs related to the lemons we process and sell for third-party growers , and depreciation expense . for fiscal year 2012 , our agribusiness costs and expenses were $ 47.3 million compared to $ 35.2 million for fiscal year 2011. the 34 % increase of $ 12.1 million primarily consists of the following : · packing costs for fiscal year 2012 were $ 2.2 million higher than fiscal year 2011 .
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a variable interest holder that consolidates the vie is called the primary beneficiary . upon story_separator_special_tag 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 impacting the company includes lower corporate tax rates , repealing the domestic production deduction , disallowance of immediate expensing for regulated utility property and modifying or repealing many other business deductions and credits . during the fourth quarter of 2017 , the company performed a one-time revaluation of the net deferred tax liabilities to account for the reduction in the corporate tax rate from 35 percent to 21 percent , as discussed in item 8 - note 11 . the company is currently reviewing the components of the tcja and evaluating the impact on the company for 2018 and thereafter . for information pertinent to the specific impacts or trends identified by the company 's business segments , see business segment financial and operating data . story_separator_special_tag served and competition from other energy providers and fuels . the construction of any new electric generating facilities , transmission lines and other service facilities is subject to increasing cost and lead time , extensive permitting procedures , and federal and state legislative and regulatory initiatives , which will necessitate increases in electric energy prices . revenues are impacted by both customer growth and usage , the latter of which is primarily impacted by weather . very cold winters increase demand for natural gas and to a lesser extent , electricity , while warmer than normal summers increase demand for electricity , especially among residential and commercial customers . average consumption among natural gas customers has tended to decline as more efficient 32 mdu resources group , inc. form 10-k part ii appliances and furnaces are installed , and as the company has implemented conservation programs . decoupling mechanisms in certain jurisdictions have been implemented to largely mitigate the effect that would otherwise be caused by variations in volumes sold to these customers due to weather and changing consumption patterns . earnings overview - electric the following information summarizes the performance of the electric segment . replace_table_token_14_th 2017 compared to 2016 electric earnings increased $ 7.2 million ( 17 percent ) compared to the prior year . the increase resulted from : increased electric retail sales margins from the recovery of additional investment in a miso multivalue project , approved rate recovery in all jurisdictions and 2 percent higher retail sales volumes to commercial and residential customers lower depreciation , depletion and amortization expense of $ 1.5 million ( after tax ) from lower depreciation rates implemented in conjunction with regulatory recovery activity partially offsetting the increase were : higher operation and maintenance expense of $ 3.0 million ( after tax ) largely from higher payroll-related costs , material costs and contract services income tax expense of $ 2.1 million for the revaluation of nonutility net deferred tax assets , as discussed in item 8 - note 11 2016 compared to 2015 electric earnings increased $ 6.3 million ( 18 percent ) compared to the prior year due to : increased electric retail sales margins , largely due to approved final and interim rate increases reduced in part by decreased electric sales volumes of 2 percent , largely from decreased residential customer volumes favorable income tax changes , which includes $ 10.1 million due to higher production tax credits partially offsetting these increases were : higher operation and maintenance expense of $ 17.1 million ( after tax ) primarily due to higher contract services and higher payroll-related costs higher depreciation , depletion and amortization expense of $ 7.8 million ( after tax ) due to increased property , plant and equipment balances lower other income , which includes $ 7.1 million ( after tax ) primarily related to afudc higher interest expense , which includes $ 4.4 million ( after tax ) largely the result of higher long-term debt certain of the higher operation and maintenance expense , higher depreciation , depletion and amortization expense and higher production tax credits in 2016 , due to increased capital investments , are potentially recoverable and or refundable through the rate recovery process . the previous table also reflects lower average cost of electric fuel and purchased power per kwh due to no electric fuel and purchased power costs associated with the thunder spirit wind farm in 2016 as compared to 2015. mdu resources group , inc. form 10-k 33 part ii earnings overview - natural gas distribution the following information summarizes the performance of the natural gas distribution segment . replace_table_token_15_th * degree days are a measure of the daily temperature-related demand for energy for heating . 2017 compared to 2016 the natural gas distribution business experienced an increase in earnings of $ 5.1 million ( 19 percent ) compared to the prior year because of increased natural gas retail sales margins . story_separator_special_tag the segment focuses on the continual safety and reliability of its systems , which entails building and maintaining safe natural gas pipelines and facilities . the segment continues to evaluate growth opportunities including the expansion of existing storage , gathering and transmission facilities ; incremental pipeline projects which expand pipeline capacity ; and expansion of energy-related services in the region leveraging on core competencies . the segment is exposed to energy price volatility which is impacted by the fluctuations in pricing , production and basis differentials of the energy market 's commodities . legislative and regulatory initiatives to increase pipeline safety regulations and reduce methane emissions could also impact the price and demand for natural gas . the pipeline and midstream segment is subject to extensive regulation including certain operational , system integrity and environmental regulations as well as various permit terms and operational compliance conditions . the segment is charged with the ongoing process of reviewing existing permits and easements as well as securing new permits and easements as necessary to meet current demand and future mdu resources group , inc. form 10-k 35 part ii growth opportunities . exposure to pipeline opposition groups could also cause negative impacts on the segment with increased costs and potential delays to project completion . the segment focuses on the recruitment and retention of a skilled workforce to remain competitive and provide services to its customers . the industry in which it operates relies on a skilled workforce to construct energy infrastructure and operate existing infrastructure in a safe manner . a shortage of skilled personnel can create a competitive labor market which could increase costs incurred by the segment . competition from other pipeline and midstream companies can also have a negative impact on the segment . earnings overview - pipeline and midstream the following information summarizes the performance of the pipeline and midstream segment . replace_table_token_16_th 2017 compared to 2016 pipeline and midstream earnings decreased $ 2.9 million ( 13 percent ) compared to the prior year largely resulting from lower gathering and processing revenues of $ 14.0 million ( after tax ) . the decrease in revenues resulted from lower volumes from the sale of the pronghorn assets in january 2017 , as discussed in item 8 - note 2 . also included in the decrease in earnings was income tax expense of $ 200,000 for the tcja revaluation , as discussed in item 8 - note 11 . partially offsetting the decrease were : lower depreciation , depletion and amortization expense of $ 5.0 million ( after tax ) resulting from the absence of the pronghorn assets , as previously discussed lower operation and maintenance expense , which includes $ 2.2 million ( after tax ) primarily from the absence of pronghorn , as previously discussed , as well as the absence in 2017 of a $ 1.4 million ( after tax ) fair value impairment in 2016 associated with the pronghorn sale lower interest expense due to lower debt balances higher transportation revenues of $ 1.0 million largely resulting from increased off-system transportation volumes due to recently completed organic growth projects 2016 compared to 2015 pipeline and midstream earnings increased $ 10.1 million ( 77 percent ) largely due to : lower operation and maintenance expense , which includes $ 13.6 million ( after tax ) largely due to the absence in 2016 of impairments of natural gas gathering assets of $ 10.6 million ( after tax ) , as discussed in item 8 - notes 1 and 5 , lower payroll-related costs and lower material costs partially offset by a fair value impairment in 2016 of $ 1.4 million ( after tax ) associated with the sale of pronghorn , as previously discussed lower depreciation , depletion and amortization of $ 1.9 million ( after tax ) , largely due to the sale of certain non-strategic natural gas gathering assets in the fourth quarter of 2015 higher storage services earnings , primarily due to higher average interruptible storage balances lower interest expense of $ 1.2 million ( after tax ) , primarily the result of lower debt interest rates and balances partially offsetting the earnings increase was lower gathering and processing revenues of $ 8.0 million ( after tax ) resulting from lower natural gas gathering volumes , primarily due to the sale of certain non-strategic natural gas gathering assets , as previously discussed , and lower oil gathering volumes , partially offset by higher oil gathering rates at pronghorn . 36 mdu resources group , inc. form 10-k part ii outlook the company has continued to feel the effects of natural gas production at record levels which keeps downward pressure on natural gas prices in the near term . the company continues to focus on growth and improving existing operations through organic projects in all areas in which it operates . the following describes recent growth projects . the company 's valley expansion project , a 38-mile pipeline that will deliver natural gas supply to eastern north dakota and far western minnesota , is expected to be complete in the fourth quarter of 2018. the project , which is designed to transport 40 million cubic feet of natural gas per day , is under the jurisdiction of the ferc . in february 2018 , the company received an order issuing a certificate of public convenience and necessity from the ferc . construction is expected to begin as soon as the conditions of the certificate have been met , including the receipt of outstanding permits . in june 2017 , the company announced plans to complete a line section 27 expansion project in the bakken area of northwestern north dakota . the project will include approximately 13 miles of new pipeline and associated facilities . the project , as designed , will increase capacity by over 200 million cubic feet per day and bring total capacity of the line section 27 to over 600 million cubic feet per day .
| consolidated earnings overview the following table summarizes the contribution to consolidated earnings ( loss ) by each of the company 's business segments . replace_table_token_13_th 2017 compared to 2016 the company recognized consolidated earnings of $ 280.4 million in 2017 , compared to consolidated earnings of $ 63.7 million in 2016. this increase was the result of : discontinued operations which reflect the absence in 2017 of a loss associated with the sale of the refining business in june 2016 an income tax benefit of $ 39.5 million primarily for the revaluation of the company 's net deferred tax liabilities , as discussed in item 8 - note 11 higher inside and outside specialty contracting margins at the construction services business higher natural gas retail sales margins at the natural gas distribution business higher electric retail sales margins at the electric business these increases were partially offset by : lower asphalt product margins and lower construction margins at the construction materials and contracting business mdu resources group , inc. form 10-k 31 part ii lower gathering and processing revenues at the pipeline and midstream business 2016 compared to 2015 the company recognized consolidated earnings of $ 63.7 million in 2016 , compared to a consolidated loss of $ 623.1 million in 2015 .
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maximum loan-to-value ratios range from 65 % to 80 % depending upon the type of real estate collateral , while the desired minimum debt coverage ratio is 1.20x . amortization periods for commercial real estate loans are generally limited to twenty years . the company 's commercial real estate portfolio is well story_separator_special_tag the following discussion and analysis is intended to provide a better understanding of the consolidated financial condition and results of operations of the company and its subsidiaries years ended december 31 , 2019 , 2018 and 2017 . this discussion and analysis should be read in conjunction with the consolidated financial statements , related notes and selected financial data appearing elsewhere in this report . forward-looking statements this report may contain certain forward-looking statements , such as discussions of the company 's pricing and fee trends , credit quality and outlook , liquidity , new business results , expansion plans , anticipated expenses and planned schedules . the company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the private securities litigation reform act of 1955. forward-looking statements , which are based on certain assumptions and describe future plans , strategies and expectations of the company , are identified by use of the words “ believe , ” ” expect , ” ” intend , ” ” anticipate , ” ” estimate , ” ” project , ” or similar expressions . actual results could differ materially from the results indicated by these statements because the realization of those results is subject to many risks and uncertainties , including those described in item 1a . “ risk factors ” and other sections of the company 's annual report on form 10-k and the company 's other filings with the sec , and changes in interest rates , general economic conditions and those in the company 's market area , legislative/regulatory changes , monetary and fiscal policies of the u.s. government , including policies of the u.s. treasury and the federal reserve board , the quality or composition of the loan or investment portfolios and the valuation of the investment portfolio , the company 's success in raising capital , demand for loan products , deposit flows , competition , demand for financial services in the company 's market area and accounting principles , policies and guidelines . furthermore , forward-looking statements speak only as of the date they are made . except as required under the federal securities laws or the rules and regulations of the sec , we do not undertake any obligation to update or review any forward-looking information , whether as a result of new information , future events or otherwise . for the years ended december 31 , 2019 , 2018 and 2017 overview this overview of management 's discussion and analysis highlights selected information in this document and may not contain all of the information that is important to you . for a more complete understanding of trends , events , commitments , uncertainties , liquidity , capital resources , and critical accounting estimates , you should carefully read this entire document . these have an impact on the company 's financial condition and results of operations . net income was $ 47.9 million , $ 36.6 million , and $ 26.7 million and diluted earnings per share were $ 2.87 , $ 2.52 , and $ 2.13 for the years ended december 31 , 2019 , 2018 and 2017 , respectively . the following table shows the company 's annualized performance ratios for the years ended december 31 , 2019 , 2018 and 2017 : replace_table_token_1_th total assets at december 31 , 2019 , 2018 and 2017 were $ 3.84 billion , $ 3.84 billion , and $ 2.84 billion , respectively . net loan balances increased to $ 2.67 billion at december 31 , 2019 , from $ 2.62 billion at december 31 , 2018 , from $ 1.92 billion at december 31 , 2017 . the increase in 2019 was primarily due to increases in commercial real estate and construction and land development . the increase in 2018 was primarily due to loans acquired in the acquisition of first bank and soy capital bank . total deposit balances decreased to $ 2.92 billion at december 31 , 2019 from $ 2.99 billion at december 31 , 2018 and increased from $ 2.27 billion at december 31 , 2017 . the decrease in 2019 was primarily due to decreases in money market accounts and interest bearing deposits . the increase in 2018 was primarily due to deposits acquired in the acquisitions of first bank and soy capital bank . net interest margin ( tax effected ) , defined as net interest income divided by average interest-earning assets , was 3.64 % for 2019 , 3.79 % for 2018 and 3.70 % for 2017 . in 2019 the decrease was primarily due to less accretion income and higher funding costs . in 2018 the increase was primarily due to an increase in earnings assets , increases in average rates on earnings assets and accretion income from the acquisitions . net interest income increased to $ 125.7 million in 2019 from $ 111.7 million in 2018 and $ 93.1 million in 2017 . during 2019 , the increase in net interest income was primarily due to growth in earnings assets as a result of loans and investment securities acquired from first bank & scb partially offset by an increase in cost of deposits and borrowings . during 2018 , net interest income increased primarily due to earning assets acquired from first bank and soy capital bank , increases in rates on earnings assets and net accretion income from all acquisitions . non-interest income increased to $ 56.0 million in 2019 compared to $ 35.4 million in 2018 and $ 30.3 million in 2017 . insurance commissions increased $ 10.4 million or 186.6 % compared to last year primarily due to additional revenues from the acquisition of scb . story_separator_special_tag generally , the allowance assigned to nonimpaired loans is determined by applying historical loss rates to existing loans with similar risk characteristics , adjusted for qualitative factors including the volume and severity of identified classified loans , changes in economic conditions , changes in credit policies or underwriting standards , and changes in the level of credit risk associated with specific industries and markets . because the economic and business climate in any given industry or market , and its impact on any given borrower , can change rapidly , the risk profile of the loan portfolio is continually assessed and adjusted when appropriate . notwithstanding these procedures , there still exists the possibility that the assessment could prove to be significantly incorrect and that an immediate adjustment to the allowance for loan losses would be required . other real estate owned . other real estate owned acquired through loan foreclosure is initially recorded at fair value less costs to sell when acquired , establishing a new cost basis . the adjustment at the time of foreclosure is recorded through the allowance for loan losses . due to the subjective nature of establishing the fair value when the asset is acquired , the actual fair value of the other real estate owned or foreclosed asset could differ from the original estimate . if it is determined that fair value temporarily declines subsequent to foreclosure , a valuation allowance is recorded through noninterest expense . operating costs associated with the assets after acquisition are also recorded as noninterest expense . gains and losses on the disposition of other real estate owned and foreclosed assets are netted and posted to other noninterest expense . mortgage servicing rights . the company has elected to measure mortgage servicing rights under the amortization method . using this method , servicing rights are amortized in portion to and over the period of estimated net servicing income . the amortized assets are assessed for impairment based on fair value at each reporting date . impairment is determined by stratifying rights into tranches based on predominant characteristics , such as interest rate , loan type and investor type . impairment is recognized through valuation reserve , to the extent that fair value is less than the carrying amount of servicing assets . fair value in excess of the carrying amount of servicing assets is not recognized . investment in debt securities . the company classifies its investments in debt securities as either held-to-maturity or available-for-sale in accordance with statement of financial accounting standards ( sfas ) no . 115 , “ accounting for certain investments in debt and equity securities , ” which was codified into asc 320. securities classified as held-to-maturity are recorded at cost or amortized cost . available-for-sale securities are carried at fair value . fair value calculations are based on quoted market prices when such prices are available . if quoted market prices are not available , estimates of fair value are computed using a variety of techniques , including extrapolation from the quoted prices of similar instruments or recent trades for thinly traded securities , fundamental analysis , or through obtaining purchase quotes . due to the subjective nature of the valuation process , it is possible that the actual fair values of these investments could differ from the estimated amounts , thereby affecting the financial position , results of operations and cash flows of the company . if the estimated value of investments is less than the cost or amortized cost , the company evaluates whether an event or change in circumstances has occurred that may have a significant adverse effect on the fair value of the investment . if such an event or change has occurred and the company determines that the impairment is other-than-temporary , a further determination is made as to the portion of impairment that is related to credit loss . the impairment of the investment that is related to the credit loss is expensed in the period in which the event or change occurred . the remainder of the impairment is recorded in other comprehensive income . deferred income tax assets/liabilities . the company 's net deferred income tax asset arises from differences in the dates that items of income and expense enter into our reported income and taxable income . deferred tax assets and liabilities are established for these items as they arise . from an accounting standpoint , deferred tax assets are reviewed to determine if they are realizable based on the historical level of taxable income , estimates of future taxable income and the reversals of deferred tax liabilities . in most cases , the realization of the deferred tax asset is based on future profitability . if the company were to experience net operating losses for tax purposes in a future period , the realization of deferred tax assets would be evaluated for a potential valuation reserve . additionally , the company reviews its uncertain tax positions annually under fasb interpretation no . 48 ( fin no . 48 ) , “ accounting for uncertainty in income taxes , ” codified within asc 740. an uncertain tax position is recognized as a benefit only if it is `` more likely than not '' that the tax position would be sustained in a tax examination , with a tax examination being presumed to occur . the amount actually recognized is the largest amount of tax benefit that is greater than 50 % likely to be recognized on examination . for tax positions not meeting the `` more likely than not '' test , no tax benefit is recorded . a significant amount of judgment is applied to determine both whether the tax position meets the `` more likely than not '' test as well as to determine the largest amount of tax benefit that is greater than 50 % likely to be recognized .
| results of operations net interest income the largest source of operating revenue for the company is net interest income . net interest income represents the difference between total interest income earned on earning assets and total interest expense paid on interest-bearing liabilities . the amount of interest income is dependent upon many factors , including the volume and mix of earning assets , the general level of interest rates and the dynamics of changes in interest rates . the cost of funds necessary to support earning assets varies with the volume and mix of interest-bearing liabilities and the rates paid to attract and retain such funds . net interest income is the excess of interest received from earning assets over interest paid on interest-bearing liabilities . for analytical purposes , net interest income is presented on a full tax equivalent ( te ) basis in the table that follows . the federal statutory rate in effect of 21 % was used for 2019 and 2018 and 35 % was used for 2017. the te analysis portrays the income tax benefits associated with the tax-exemptassets .
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we are a rapidly growing personal lines independent insurance agency , reinventing the traditional approach to distributing personal lines products and services throughout the united states . we were founded with one vision in mind—to provide consumers with superior insurance coverage at the best available price and in a timely manner . by leveraging our differentiated business model and innovative technology platform , we are able to deliver to consumers a superior insurance experience . the following discussion contains references to the years ended december 31 , 2018 and december 31 , 2017 . financial highlights for 2018 : total revenue increased 41 % from 2017 to $ 60.1 million commissions and agency fee revenues increased 36 % from 2017 to $ 36.7 million franchise revenues increased 49 % from 2017 to $ 23.0 million net income decreased by 315 % from 2017 to a loss of $ 18.7 million adjusted ebitda * , a non-gaap measure , increased 38 % from 2017 to $ 14.8 million , or 25 % of total revenues corporate channel adjusted ebitda increased 18 % from 2017 to $ 7.5 million , or 22 % of corporate channel revenues franchise channel adjusted ebitda increased 84 % from 2017 to $ 8.6 million , or 33 % of franchise channel revenues basic earnings per share was $ ( 0.66 ) and adjusted eps * , a non-gaap measure , was $ 0.20 for the year ended december 31 , 2018 policies in force increased 47 % from december 31 , 2017 to 334 thousand at december 31 , 2018 corporate sales headcount increased 50 % from december 31 , 2017 to 167 at december 31 , 2018 ◦ as of december 31 , 2018 , 90 of these corporate sales agents had less than one year of tenure and 77 had greater than one year of tenure operating franchises increased 57 % from december 31 , 2017 to 457 at december 31 , 2018 ◦ in texas as of december 31 , 2018 , 36 operating franchisees had less than one year of tenure and 166 operating franchisees had greater than one year of tenure . ◦ outside of texas as of december 31 , 2018 , 168 operating franchisees had less than one year of tenure and 87 had greater than one year of tenure . * adjusted ebitda and adjusted eps are non-gaap measures . reconciliation of adjusted ebitda to net income ( loss ) and adjusted eps to eps , the most directly comparable financial measures presented in accordance with 41 gaap , are set forth in the `` key performance indicators '' section of management 's discussion and analysis of financial condition and results of operations of this form 10-k. factors affecting our results of operations we believe that the most significant factors affecting our results of operations include : investment in growth . we continue to invest in expanding our national footprint , increasing our revenue producing headcount , and increasing the level of support provided to our salespeople . our ability to attract and retain top corporate channel sales agents and franchise owners , ramp up new agent productivity , and retain existing and future policies in force are key to continued profitable growth . investment in technology . we continue to develop and invest in our technology platform to drive scalability , adaptability , and efficiency in both the corporate channel and franchise channel . we believe our significant proprietary investment in our technology is a key competitive advantage that supports our growth rate and operating margins . continued expansion of franchise channel into new markets . we will be expanding our franchise marketing efforts to 9 new states in 2019 , representing an approximate 20 % increase in the population where we are actively marketing our franchise offering . we will continue to market actively for new franchises in our established markets and these new markets . we are now licensed with the necessary state departments of commerce and insurance and registered as a franchisor in all of the lower 48 states in the u.s. making our franchise offering available to more agents across the u.s. will allow us to continue to recruit an increasing number of talented agents into our system . continued retention of existing book of business . we have made significant progress in recent years in client retention metrics , and maintaining these high levels of client retention is key to future profitability . a key lever in driving client retention is selling multiple lines of business to clients at the point of initial sale . in our corporate channel , we have made significant progress in recent years in this area . we expect to continue to maintain our high levels of cross-selling in the corporate channel , and we expect to see improvement in our franchise channel as we bring best demonstrated practices to our field of franchisees . increase in margins as business shifts from new to renewal . because we are entitled to a higher percentage of revenue after the first term of a policy and the higher level of back-office support needed during the first term of an insurance policy , the company begins to see higher levels of profitability on renewal revenue . we will focus simultaneously on converting new business revenue to renewal revenue through our retention efforts , and on continuing to grow new business revenue that will convert and allow us to expand our margins in future periods . strength of the insurance market or particular lines of business . we generate the majority of our revenues through commissions , which are calculated as a percentage of the total insurance policy premium . a softening of the insurance market or the particular lines of business that are our focus , characterized by a period of declining premium rates , could negatively impact our profitability . seasonality and cyclicality of housing market conditions . the majority of our new accounts are sourced by referral sources tied to home closing transactions . story_separator_special_tag premium by line of business we are a distributor of insurance policies in a range of lines of business including homeowner 's insurance , automotive , dwelling property insurance , flood , wind and earthquake insurance , excess liability or umbrella insurance , specialty lines insurance ( motorcycle , recreational vehicle , and other insurance ) , commercial lines insurance ( general liability , property and auto insurance for small businesses ) and life insurance . the following table sets forth our total written premium placed by line of business by amount and as a percentage of our total written premium for the periods indicated ( in thousands ) : 44 replace_table_token_7_th key performance indicators our key operating metrics are discussed below : total written premium total written premium represents for any reported period , the total amount of current ( non-cancelled ) gross premium that is placed with goosehead 's portfolio of carriers . we believe that total written premium is an appropriate measure of operating performance because it reflects growth of our business relative to other insurance agencies . for the year ended december 31 , 2018 , we had $ 509.0 million in total written premium , representing a 49 % increase , compared to $ 342.3 million for the year ended december 31 , 2017 . the following table shows total written premium by channel for the years ended 2018 and 2017 ( in thousands ) . replace_table_token_8_th policies in force policies in force means as of any reported date , the total count of current ( non-cancelled ) policies placed with goosehead 's portfolio of carriers . we believe that policies in force is an appropriate measure of operating performance because it reflects growth of our business relative to other insurance agencies . as of december 31 , 2018 , we had 334 thousand in policies in force compared to 228 thousand as of december 31 , 2017 , representing a 47 % increase . nps net promoter score ( nps ) is calculated based on a single question : “ how likely are you to refer goosehead insurance to a friend , family member or colleague ? ” clients that respond with a 6 or below are detractors , a score of 7 or 8 are called passives , and a 9 or 10 are promoters . nps is calculated by subtracting the percentage of detractors from the percentage of promoters . for example , if 50 % of respondents were promoters and 10 % were detractors , nps is a 40. nps is a useful gauge of the loyalty of client relationships and can be compared across companies and industries . nps has increased to 89 as of december 31 , 2018 from 86 as of december 31 , 2017 , primarily driven by the service team 's continued focus on delivering highly differentiated service levels . client retention client retention is calculated by comparing the number of all clients that had at least one policy in force twelve months prior to the date of measurement and still have at least one policy in force at the date of measurement . we believe client retention is useful as a measure of how well goosehead retains clients year-over-year and minimizes defections . 45 client retention has remained steady at 88 % at december 31 , 2018 when compared to december 31 , 2017 , again driven by the service team 's continued focus on delivering highly differentiated service levels . our premium retention rate is higher than our client retention rate as a result of both premiums increasing year over year and additional coverages sold by our sales and service teams . new business revenue new business revenue is commissions received from the carrier , agency fees received from clients , and royalty fees relating to policies in their first term . for the year ended december 31 , 2018 , new business revenue grew 54 % to $ 19.4 million , from $ 12.6 million for the year ended december 31 , 2017 . growth in new business revenue is driven by an increase in corporate channel sales agent headcount of 50 % and growth in franchises in the franchise channel of 57 % . renewal revenue renewal revenue is commissions received from the carrier and royalty fees after the first term of a policy . for the year ended december 31 , 2018 , renewal revenue grew 33 % to $ 30.5 million , from $ 22.9 million for the year ended december 31 , 2017 . growth in renewal revenue was driven by client retention of 88 % at december 31 , 2018 . as our agent force matures on both the corporate channel and the franchise channel , the policies they wrote in prior years begins to convert from new business revenue to more profitable renewal revenue . non-gaap financial measures adjusted ebitda , adjusted ebitda margin , and adjusted eps are not measures of financial performance under gaap and should not be considered substitutes for net income or earnings per share , which we consider to be the most directly comparable gaap measure . we refer to these measures as `` non-gaap financial measures . '' we consider these non-gaap financial measures to be useful metrics for management and investors to facilitate operating performance comparisons from period to period by excluding potential differences caused by variations in capital structures , tax position , depreciation , amortization and certain other items that we believe are not representative of our core business . adjusted ebitda , adjusted ebitda margin , and adjusted eps have limitations as analytical tools , and when assessing our operating performance , you should not consider adjusted ebitda , adjusted ebitda margin , or adjusted eps in isolation or as substitutes for net income , earnings per share or other consolidated income statement data prepared in accordance with gaap . other companies may calculate adjusted ebitda , adjusted ebitda margin , and adjusted eps differently than we do , limiting their usefulness as comparative measures .
| consolidated results of operations the following is a discussion of our consolidated results of operations for each of the years ended december 31 , 2018 and december 31 , 2017 . this information is derived from our accompanying consolidated financial statements prepared in accordance with gaap . 48 year ended december 31 , 2018 compared to year ended december 31 , 2017 the following table summarizes our results of operations for the years ended december 31 , 2018 and 2017 : replace_table_token_11_th revenues in 2018 , revenue increased by 41 % to $ 60.1 million from $ 42.7 million in 2017 . commissions and agency fees commissions and agency fees consist of new business commissions , renewal commissions , agency fees , and contingent commissions generated from the corporate channel , as well as contingent commissions generated from the franchise channel . the following table sets forth our commissions and agency fees by amount and as a percentage of our revenues for the periods indicated ( in thousands ) : replace_table_token_12_th 49 new business revenue ( corporate ) increased by $ 3.6 million , or 62 % , to $ 9.3 million for the year ended december 31 , 2018 from $ 5.8 million for the year ended december 31 , 2017 . revenue from agency fees increased by $ 1.7 million , or 50 % , to $ 5.2 million for the year ended december 31 , 2018 from $ 3.4 million for the year ended december 31 , 2017 . these increases were primarily attributable to an increase in total sales agent head count to 167 at december 31 , 2018 , from 111 at december 31 , 2017 , a 50 % increase .
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our actual results and the timing of events could differ materially from those anticipated in our forward-looking statements due to various important factors , including those set forth under factors that may affect our performance and elsewhere in this form 10-k. the following discussion and analysis should be read together with the selected financial data and consolidated financial statements , including the related notes included elsewhere in this form 10-k. overview our company , bofi holding , inc. , is the holding company for bank of internet , a consumer-focused , nationwide savings bank operating primarily over the internet . the bank generates retail deposits in all 50 states and originates loans for our customers directly through our websites , including www.bankofinternet.com , www.ufbdirect.com and www.apartmentbank.com . bofi is a unitary savings and loan holding company subject to primary federal regulation by the fed board . net income for the fiscal year ended june 30 , 2011 was $ 20.6 million compared to $ 21.1 million and $ 7.1 million for the fiscal years ended june 30 , 2010 and 2009 , respectively . net income attributable to common stockholders for the fiscal year ended june 30 , 2011 was $ 20.3 million , or $ 1.87 per diluted share compared to $ 20.5 million , or $ 2.22 per diluted share and $ 6.5 million , or $ 0.77 per diluted share for the years ended june 30 , 2010 and 2009 , respectively . growth in our interest earning assets , particularly the loan portfolio , was the primary driver of the increase in our net income between fiscal 2009 and fiscal 2011. net income declined $ 0.5 million for the year ended june 30 , 2011 compared to the year ended june 30 , 2010 , primarily due to a decrease on net gains of sales of securities which were $ 2.4 million pretax for fiscal 2011 , down from $ 13.0 million pretax for fiscal 2010. excluding the impact of realized and unrealized gains and losses associated with our securities portfolio , net income would have been $ 19.7 million for the fiscal year ended june 30 , 2011 , $ 17.6 million and $ 12.2 million for fiscal years 2010 and 2009 , respectively . we categorize net income without the after-tax impact of realized and unrealized securities gain and losses as core earnings which increased 11.93 % in fiscal 2011 and 44.26 % in fiscal 2010. gains and losses on investment securities , net of tax are excluded from earnings to provide useful information about the bank 's operating performance . excluded was realized gains , of $ 2.4 million , $ 13.0 million , and losses of $ 5.1 million as of june 30 , 2011 , 2010 and 2009 , respectively , and unrealized losses of $ 0.9 million , $ 7.1 million and $ 3.5 million , respectively . net interest income for the year ended june 30 , 2011 was $ 58.5 million compared to $ 50.6 million and $ 36.4 million for the years ended june 30 , 2010 and 2009 , respectively . the increase was primarily due to growth in our loan portfolio from fiscal years 2009 through 2011. provision for loan losses for the years ended june 30 , 2011 and 2010 was $ 5.8 million , respectively , and $ 4.7 million for the year ended june 30 , 2009. the increase of $ 1.1 million for fiscal year 2010 is primarily due to higher rv write-offs . mortgage banking income was $ 4.7 million compared to $ 1.7 million and $ 1.4 million for the years ended june 30 , 2011 , 2010 , and 2009. the increase was a result of higher loan originations for sale of $ 216.9 million compared to $ 114.9 and $ 83.7 million for the years ended june 30 , 2011 , 2010 , and 2009 , respectively . net gains on sales of securities decreased $ 10.6 million as fewer securities were sold during the year , as a result , non interest income declined to $ 8.0 million from $ 8.3 million . non interest expense for the years ended june 30 , 2011 was $ 26.5 million compared to $ 17.3 million and $ 12.9 for the year ended june 30 , 2009 , respectively . the increase was primarily due to additional staffing , which rose to 173 full-time equivalents compared to 90 and 57 at june 30 , 2011 , 2010 , and 2009 , respectively . total assets were $ 1,940.1 million at june 30 , 2011 compared to $ 1,421.1 million at june 30 , 2010 and $ 1,302.2 million at june 30 , 2009. assets grew $ 519.0 million or 36.52 % during the last fiscal year primarily due to an increase in the origination of single family and multifamily mortgage loans . these loans were funded with growth in deposits . assets grew $ 118.9 million or 9.1 % during fiscal 2010 primarily due to the purchase of mortgage-backed securities and mortgage loan pools . these investments were funded with growth in deposits . our future performance will depend on many factors , including changes in interest rates , competition for deposits and quality loans , the credit performance of our assets , regulatory actions and our ability to improve operating efficiencies . ( see factors that may affect our performance. ) critical accounting policies the following discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements and the notes thereto , which have been prepared in accordance with accounting 28 principles generally accepted in the united states of america . the preparation of these consolidated financial statements requires us to make a number of estimates and assumptions that affect the reported amounts and disclosures in the consolidated financial statements . on an ongoing basis , we evaluate our estimates and assumptions based upon historical experience and various factors and circumstances . story_separator_special_tag management determines the adequacy of the allowance based on reviews of individual loans and pools of loans , recent loss experience , current economic conditions , the risk characteristics of the various categories of loans and other pertinent factors . this evaluation is inherently subjective and requires estimates that are susceptible to significant revision as more information becomes available . the allowance is increased by the provision for loan losses , which is charged against current period operating results and recoveries of loans previously charged-off . the allowance is decreased by the amount of charge-offs of loans deemed uncollectible . the allowance for loan loss includes specific and general reserves . specific reserves are provided for impaired loans considered tdrs . all other impaired loans are written down through charge-offs to their realizable value and no specific or general reserve is provided . a loan is measured for impairment generally two different ways . if the loan is primarily dependent upon the borrower to make payments , then impairment is calculated by comparing the present value of the expected future payments discounted at the effective loan rate to the carrying value of the loan . if the loan is collateral dependent , the net proceeds from the sale of the collateral is compared to the carrying value of the loan . if the calculated amount is less than the carrying value of the loan , the loan has impairment . a general reserve is included in the allowance for loan loss and is determined by adding the results of a quantitative and a qualitative analysis to all other loans not measured for impairment at the reporting date . the quantitative analysis determines the bank 's actual annual historic charge-off rates and applies the average historic rates to the outstanding loan balances in each pool , the product of which is the general reserve amount . the qualitative analysis considers one or more of the following factors : changes in lending policies and procedures , changes in economic conditions , changes in the content of the portfolio , changes in lending management , changes in the volume of delinquency rates , changes to the scope of the loan review system , changes in the underlying collateral of the loans , changes in credit concentrations and any changes in the requirements to the credit loss calculations . a loss rate is estimated and applied to those loans affected by the qualitative factors . 30 average balances , net interest income , yields earned and rates paid the following tables set forth , for the periods indicated , information regarding ( i ) average balances ; ( ii ) the total amount of interest income from interest-earning assets and the weighted average yields on such assets ; ( iii ) the total amount of interest expense on interest-bearing liabilities and the weighted average rates paid on such liabilities ; ( iv ) net interest income ; ( v ) interest rate spread ; and ( vi ) net interest margin : replace_table_token_20_th 1 average balances are obtained from daily data . 2 loans include loans held for sale , loan premiums and unearned fees . 3 interest income includes reductions for amortization of loan and investment securities premiums and earnings from accretion of discounts and loan fees . loan fee income is not significant . 4 includes $ 5.5 million of investment securities which are taxed at a reduced rate . 5 interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average rate paid on interest-bearing liabilities . 6 net interest margin represents net interest income as a percentage of average interest-earning assets . 31 story_separator_special_tag width= '' 100 % '' / > non-interest expense . the following table sets forth information regarding our non-interest expense for the periods shown : replace_table_token_23_th non-interest expense totaled $ 26.5 million for the fiscal year ended june 30 , 2011 , an increase of $ 9.3 million compared to fiscal 2010. salaries , employee benefits and stock-based compensation increased $ 7.2 million in fiscal 2011 due to increased staffing . we grew to 173 employees at june 30 , 2011 , up from 90 at the end of fiscal 2010 , primarily due to growth in our lending businesses . professional services , which include accounting and legal fees , increased $ 0.6 million in fiscal 2011 compared to 2010. the increase in professional services was primarily due to contract underwriters , legal fees on loan collection and foreclosure matters . advertising and promotion expense increased $ 0.6 million , primarily due to increased reliance on third party efforts connected to the single family mortgages and an increase in multifamily advertising . fdic and ots regulatory fees increased by $ 0.5 million in fiscal 2011 , primarily due to the growth in deposits . real estate owned , repossessed rv losses and collection expenses decreased by $ 1.1 million due to the management and disposition of loan collateral . other general and administrative costs increased $ 0.7 million in fiscal 2011 relative to the increase in deposit and loan activity as well as the number of staff . income tax expense . income tax expense was $ 13.6 million for the fiscal year ended june 30 , 2011 compared to $ 14.8 million for fiscal 2010. our effective tax rates were 39.78 % and 41.11 % for the fiscal year ended june 30 , 2011 and 2010 , respectively . 34 comparison of the fiscal year ended june 30 , 2010 and june 30 , 2009 net interest income . net interest income totaled $ 50.6 million for the fiscal year ended june 30 , 2010 compared to $ 36.4 million for the fiscal year ended june 30 , 2009. the following table sets forth the effects of changing rates and volumes on our net interest income .
| results of operations our results of operations depend on our net interest income , which is the difference between interest income on interest-earning assets and interest expense on interest-bearing liabilities . our net interest income has increased as a result of the growth in our assets and increases in our net interest margin . our net interest income is reduced by our estimate of loss provisions for our impaired loans . we also earn non-interest income primarily from mortgage banking activities , prepayment fee income from multifamily borrowers who repay their loans before maturity and from gains on sales of investment securities . losses on investment securities reduce non-interest income . the largest component of non-interest expense is salary and benefits , which is a function of the number of personnel , which increased from 90 full time employees at june 30 , 2010 to 173 full time equivalent employees at june 30 , 2011. we are subject to federal and state income taxes , and our effective tax rates were 39.78 % , 41.11 % and 40.72 % for the fiscal years ended june 30 , 2011 , 2010 , and 2009 , respectively . other factors that affect our results of operations include expenses relating to occupancy , data processing and other miscellaneous expenses . comparison of the fiscal year ended june 30 , 2011 and june 30 , 2010 net interest income . net interest income totaled $ 58.5 million for the fiscal year ended june 30 , 2011 compared to $ 50.6 million for the fiscal year ended june 30 , 2010. the following table sets forth the effects of changing rates and volumes on our net interest income .
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asu 2018-07 specifies that topic 718 applies to all share-based payment transactions in which the grantor acquires goods and services to be used or consumed in its own operations by issuing share-based payment awards . asu 2018-07 also clarifies that topic 718 does not apply to share-based story_separator_special_tag you should read the following discussion of the financial condition and results of our operations in conjunction with our consolidated financial statements and the notes to those statements included elsewhere in this annual report . our consolidated financial statements contained in this annual report are prepared in accordance with u.s. gaap . overview we are a designer , developer and global supplier of a broad portfolio of power semiconductors . our portfolio of power semiconductors includes approximately 1,900 products , and has grown significantly with the introduction of 200 new products during the fiscal year of 2018 , and over 80 and 90 new products in each of the fiscal years ended june 30 , 2017 and 2016 , respectively . our teams of scientists and engineers have developed extensive intellectual properties and technical knowledge that encompass major aspects of power semiconductors , which we believe enables us to introduce and develop innovative products to address the increasingly complex power requirements of advanced electronics . we have an extensive patent portfolio that consists of 722 patents and 108 patent applications in the united states as of june 30 , 2018 . we differentiate ourselves by integrating our expertise in technology , design and advanced manufacturing and packaging to optimize product performance and cost . our portfolio of products targets high-volume applications , including personal computers , flat panel tvs , led lighting , smart phones , battery packs , consumer and industrial motor controls and power supplies for tvs , computers , servers and telecommunications equipment . our business model leverages global resources , including research and development and manufacturing in the united states and asia . our sales and technical support teams are localized in several growing markets . we operate a 8-inch wafer fabrication facility located in hillsboro , oregon , or the oregon fab , which is critical for us to accelerate proprietary technology development , new product introduction and improve our financial performance in the long run . to meet the market demand for the more mature high volume products , we also utilize the wafer manufacturing capacity of selected third party foundries . for assembly and test , we primarily rely upon our in-house facilities in china . in addition , we utilize subcontracting partners for industry standard packages . we believe our in-house packaging and testing capability provides us with a competitive advantage in proprietary packaging technology , product quality , cost and sales cycle time . on march 29 , 2016 , we entered into a joint venture contract ( the “ jv agreement ” ) with two investment funds owned by the municipality of chongqing ( the “ chongqing funds ” ) , pursuant to which we and the chongqing funds formed a joint venture , ( the “ jv company ” ) , for the purpose of constructing a power semiconductor packaging , testing and wafer fabrication facility in the liangjiang new area of chongqing , china ( the “ jv transaction ” ) . the total initial capitalization of the jv company is $ 330.0 million ( the “ initial capitalization ” ) . as of june 30 , 2018 , the chongqing funds contributed a total of $ 162.0 million of initial capital in cash and we contributed $ 10.0 million in cash and certain intangible assets , as well as certain packaging equipment as required by the jv agreement by transferring the legal titles of such equipment to the jv company . as of june 30 , 2018 , we own 51 % , and the chongqing funds own 49 % , of the equity interest in the jv company . if both parties agree that the termination of the jv company is the best interest of each party or the jv company is bankrupt or insolvent where either party may terminate early , after paying the debts of the jv company , the remaining assets of the jv company shall be paid to the chongqing funds to cover the principal of its total paid-in contributions plus interest at 10 % simple annual rate prior to distributing the balance of the jv company 's assets to us . we substantially completed our assembly and testing and 12-inch wafer fab facilities during the quarter ended june 30 , 2018. we expect to commence limited mass production for assembly and testing in the second half of calendar year 2018 , and trial production at the 12-inch wafer fabrication facility toward the end of calendar year 2018. during fiscal years 2018 , 2017 and 2016 , we recorded $ 9.3 million , $ 4.6 million and $ 0.1 million in net loss attributable to noncontrolling interest , respectively , representing 49 % of the net loss incurred in the jv company . in the long-term , we expect the joint venture to deliver significant cost savings , and enhance our market positions in china , and drive meaningful improvements in working capital and capital expenditures . as part of the jv transaction , the jv company entered into an engineering , procurement and construction contract ( the “ epc contract ” ) with the it electronics eleventh design & research institute scientific and technological engineering corporation limited ( the “ contractor ” ) , effective as of january 10 , 2017 ( the `` effective date '' ) , pursuant which the contractor was engaged to construct the manufacturing facility contemplated under the jv agreement . story_separator_special_tag we substantially completed our assembly and testing and 12-inch wafer fab facilities during the quarter ended june 30 , 2018. we expect to commence limited mass production for assembly and testing in the second half of calendar year 2018 , and trial production at our 12-inch wafer fabrication facility toward the end of calendar year 2018. the pre-production costs include costs relating to the installation of equipment ; performance of the qualification process ; increased demand for electrical power and other utilities ; increased headcount as a result of hiring of additional personnel , staff and operators ; and establishment of administrative and management functions and systems . in addition , a portion of these pre-production expenses and production ramp-up costs can not be capitalized under u.s. gaap accounting , therefore such costs impact our profitability . furthermore , we are in the process of developing our digital power business following the execution of the stmicro license agreement in september 2017 , which will allow us to design and distribute a full suite of advanced low-voltage power ic products . we have incurred and expect to continue to incur additional costs , including costs relating to hiring and compensation of qualified engineers and technical staff and other research and development and management activities , as we are building this new business . in the short term , we will not be able to generate sufficient amount of revenue from either of these two business initiatives to offset the increase costs , which will likely negatively impact our results of operations . 43 manufacturing costs : our gross margin may be affected by our manufacturing costs , including utilization of our manufacturing facilities , pricing of wafers from third party foundries and semiconductor raw materials , which may fluctuate from time to time largely due to the market demand and supply . capacity utilization affects our gross margin because we have certain fixed costs associated with our packaging and testing facilities and our oregon fab and our chongqing fabrication facility . if we are unable to utilize our manufacturing facilities at a desired level , our gross margin may be adversely affected . in addition , we expect that in the long term our joint venture agreement with the chongqing funds will reduce our costs of manufacturing . furthermore , from time to time , we may experience wafer capacity constraints , particularly at third party foundries , that may prevent us from fully meeting the demand of our customers . while we can mitigate such constraints by increasing and re-allocating capacity at our own fab , we may not be able to do so quickly or at sufficient level , which could adversely affect our financial conditions and results of operations . erosion of average selling price : erosion of average selling prices of established products is typical in our industry . consistent with this historical trend , we expect our average selling prices of existing products to decline in the future . however , in the normal course of business , we seek to offset the effect of declining average selling price by introducing new and higher value products , expanding existing products for new applications and new customers and reducing the manufacturing cost of existing products . the global , regional economic and pc market conditions : because our products primarily serve consumer electronic applications , a deterioration of the global and regional economic conditions could materially affect our revenue and results of operations . for example , because a significant amount of our revenue is derived from sales of products in the personal computing ( `` pc '' ) markets , such as notebooks , motherboards and notebook battery packs , a significant decline or downturn in the pc market can have a material adverse effect on our revenue and results of operations . our revenue from the pc markets accounted for approximately 41.6 % , 39.1 % and 38.5 % of our total revenue for the years ended june 30 , 2018 , 2017 and 2016 , respectively . in the past , we have experienced a significant global decline in the pc markets due to continued growth of demand in tablets and smart phones , worldwide economic conditions and the industry inventory correction which had and may continue to have a material negative impact on the demand for our products , revenue , factory utilization , gross margin , our ability to resell excess inventory , and other performance measures . we have executed and continue to execute strategies to diversify our product portfolio , penetrate into other market segments , including the consumer , communications and industrial markets , and improve gross margins and profit by implementing cost control measures . while making progress in reducing our reliance on the computing market , we continue to support our computing business and capitalize on the opportunities in this market with a more focused and competitive pc product strategy . product introductions and customers ' product requirements : our success depends on our ability to introduce products on a timely basis that meet or are compatible with our customers ' specifications and performance requirements . both factors , timeliness of product introductions and conformance to customers ' requirements , are equally important in securing design wins with our customers . as we accelerate the development of new technology platforms , we expect to increase the pace at which we introduce new products and obtain design wins . our failure to introduce new products on a timely basis that meet customers ' specifications and performance requirements , particularly those products with major oem customers , and our inability to continue to expand our serviceable markets , could adversely affect our financial performance , including loss of market share . we believe that the jv transaction will increase and diversify our customer base , particularly in china , in the long term .
| operating results the following tables set forth our results of operations and as a percentage of revenue for the fiscal years ended june 30 , 2018 , 2017 and 2016 . our historical results of operations are not necessarily indicative of the results for any future period . replace_table_token_4_th ( 1 ) includes share-based compensation expense as follows : replace_table_token_5_th revenue 47 the following is a summary of revenue by product type : replace_table_token_6_th fiscal 2018 vs 2017 total revenue was $ 421.6 million for fiscal year 2018 , an increase of $ 38.2 million , or 10.0 % , as compared to $ 383.3 million for fiscal year 2017 . the increase was primarily due to an increase of $ 53.4 million in sales of power discrete products , partially offset by a decrease of $ 15.3 million in sales of power ic products . the net increase in product sales was primarily due to a 2.1 % increase in unit shipments , as well as an 8.1 % increase in average selling price as compared to last fiscal year due to a shift in product mix . the increase in revenue of packaging and testing services for fiscal year 2018 as compared to last fiscal year was primarily due to increased demand . during fiscal year 2018 , we accelerated the development of new technology platforms which allowed us to introduce 43 medium and high voltage mosfet products , targeting primarily the industrial markets , as well as 37 low voltage mosfet products primarily for the computing and communication markets . in addition , we introduced 66 power ic new products for consumer , computing applications and communication markets .
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closed store liabilities the company continually reviews the operating performance of its existing story_separator_special_tag the following discussion and analysis of financial condition and results of operations should be read in conjunction with `` selected consolidated financial data , '' our consolidated historical financial statements and the notes to those statements that appear elsewhere in this report . our discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties , such as our plans , objectives , expectations and intentions . actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors , including those set forth under the sections entitled “ forward-looking statements ” and `` risk factors '' elsewhere in this report . our fiscal year ends on the saturday nearest december 31st of each year , which results in an extra week every several years ( the next 53 week fiscal year is 2014 ) . our first quarter consists of 16 weeks , and the other three quarters consist of 12 weeks . introduction we are a leading specialty retailer of automotive aftermarket parts , accessories , batteries and maintenance items primarily operating within the united states . our stores carry an extensive product line for cars , vans , sport utility vehicles and light trucks . we serve both diy and commercial customers . our commercial customers consist primarily of delivery customers for whom we deliver product from our store locations to our commercial customers ' places of business , including independent garages , service stations and auto dealers . at december 29 , 2012 , we operated 3,794 stores throughout 39 states , puerto rico and the virgin islands . we operate in two reportable segments : advance auto parts , or aap , and autopart international , or ai . the aap segment is comprised of our store operations within the northeastern , mid-atlantic , southeastern and midwestern ( inclusive of south central ) regions of the united states , puerto rico and the virgin islands . these stores operate under the trade name “ advance auto parts ” except for certain stores in the state of florida , which operate under the “ advance discount auto parts ” trade name . at december 29 , 2012 , we operated 3,576 stores in the aap segment . our aap stores offer a broad selection of brand name and proprietary automotive replacement parts , accessories and maintenance items for domestic and imported cars and light trucks . through our integrated operating approach , we serve our diy and commercial customers from our store locations and online at www.advanceautoparts.com . our online website allows our diy customers to pick up merchandise at a conveniently located store or have their purchases shipped directly to their home or business . our commercial customers can conveniently place their orders online . at december 29 , 2012 , we operated 218 stores in the ai segment under the “ autopart international ” trade name . ai 's business serves the commercial market from its store locations primarily in the northeastern , mid-atlantic and southeastern regions of the united states . management overview we generated earnings per diluted share , or diluted eps , of $ 5.22 during fiscal 2012 compared to $ 5.11 for fiscal 2011 . the increase in our diluted eps was driven by a lower average share count during fiscal 2012 , partially offset by a decrease in operating income . throughout most of fiscal 2012 , our sales remained constrained , particularly in our colder weather markets , driven by the unseasonably warmer temperatures which has decreased the demand for failure and maintenance parts . the uncertainty in the u.s. economy also impacted our sales consistent with many other retailers , including our peer companies in the automotive aftermarket industry , as consumers faced high unemployment , fluctuating gas prices and low consumer confidence . in response to the difficult sales environment , we focused on providing better service to our commercial customers and improving weekend staffing to better serve our diy customers . despite our lower performance in fiscal 2012 , we remain encouraged by ( i ) the long-term dynamics of the automotive aftermarket industry , ( ii ) initiatives that are underway in support of our strategies and ( iii ) our growth potential in the more fragmented and faster growing commercial market . while our operating income in fiscal 2012 declined from the comparable period of last year , we generated a significant amount of operating cash flow to enable us to invest in capital projects and initiatives to support our strategies . as discussed later in the `` business and industry update , '' we remain committed to investing in our two key strategies – superior availability and service leadership . 21 fiscal 2012 highlights a high-level summary of our financial results and other highlights from our fiscal 2012 include : financial total sales during fiscal 2012 increased 0.6 % to $ 6,205.0 million as compared to fiscal 2011 , primarily driven by the addition of 132 net new stores partially offset by a 0.8 % decrease in comparable store sales . our operating income for fiscal 2012 was $ 657.3 million , a decrease of $ 7.3 million from the comparable period in fiscal 2011 . as a percentage of total sales , operating income was 10.6 % , a decrease of 18 basis points , due to the deleverage of our sg & a rate partially offset by a slightly higher gross profit rate . our inventory balance as of december 29 , 2012 increased $ 265.5 million , or 13.0 % , over the prior year driven primarily by our inventory availability initiatives , including store upgrades , the opening of our new distribution center , continued expansion of our hub network and new store growth . story_separator_special_tag number of registered vehicles and increase in average vehicle age we believe that the total number of vehicles ( excluding medium and heavy duty trucks ) on the road and the average age of vehicles on the road also heavily influence the demand for products sold within the automotive aftermarket industry . there were 241 million vehicles on the road in 2011 which is 15 % higher than in 2001. while recent industry data reported by the automotive aftermarket industry association ( “ aaia ” ) indicates that the growth in number of vehicles on the road has decelerated and new vehicle registrations are increasing , the average age of vehicle continues to increase . the average age of vehicles has gradually increased over the last five years from 10.3 years in 2008 to 11.3 years in 2012. we believe that the average age of vehicles continues to increase due to relatively constant scrappage rates , a rate of new car sales well under the 10-year trend and an increase in overall quality of vehicles . as the average age of a vehicle increases , a larger percentage of the 23 miles driven are outside of the manufacturer warranty period . these out-of-warranty , older vehicles generate a stronger demand for automotive aftermarket products due to routine maintenance cycles and more frequent mechanical failures . we believe that consumers will continue to keep their vehicles even longer as the economy slowly recovers contributing to the trend of an aging vehicle population . store development by segment the following table sets forth the total number of new , closed and relocated stores and stores with commercial delivery programs during fiscal 2012 , 2011 and 2010 by segment . we lease 78 % of our aap stores . we lease 100 % of our ai stores . all of our ai stores have commercial delivery programs . replace_table_token_12_th during fiscal 2013 , we anticipate opening 155 to 165 aap stores and 10 to 15 ai stores ( excludes 124 bwp stores acquired on december 31 , 2012 ) . components of statement of operations net sales net sales consist primarily of merchandise sales from our retail store locations to both our diy and commercial customers and sales from our e-commerce website . our total sales growth is comprised of both comparable store sales and new store sales . we calculate comparable store sales based on the change in store sales starting once a store has been open for 13 complete accounting periods ( approximately one year ) and by including e-commerce sales . we include sales from relocated stores in comparable store sales from the original date of opening . cost of sales our cost of sales consists of merchandise costs , net of incentives under vendor programs ; inventory shrinkage , defective merchandise and warranty costs ; and warehouse and distribution expenses . gross profit as a percentage of net sales may be affected by ( i ) variations in our product mix , ( ii ) price changes in response to competitive factors and fluctuations in merchandise costs , ( iii ) vendor programs , ( iv ) inventory shrinkage , ( v ) defective merchandise and warranty costs and ( vi ) warehouse and distribution costs . we seek to minimize fluctuations in merchandise costs and instability of supply by entering into long-term purchasing agreements , without minimum purchase volume commitments , when we believe it is advantageous . our gross profit may not be comparable to those of our competitors due to differences in industry practice regarding the classification of certain costs . see note 2 to our consolidated financial statements elsewhere in this report for additional discussion of these costs . 24 selling , general and administrative expenses sg & a expenses consist of store payroll , store occupancy ( including rent and depreciation ) , advertising expenses , commercial delivery expenses , other store expenses and general and administrative expenses , including salaries and related benefits of store support center team members , share-based compensation expense , store support center administrative office expenses , data processing , professional expenses , self-insurance costs , closed store expense , impairment charges , if any , and other related expenses . see note 2 to our consolidated financial statements for additional discussion of these costs . consolidated results of operations the following table sets forth certain of our operating data expressed as a percentage of net sales for the periods indicated . replace_table_token_13_th fiscal 2012 compared to fiscal 2011 net sales net sales for fiscal 2012 were $ 6,205.0 million , an increase of $ 34.5 million , or 0.6 % , over net sales for fiscal 2011 . this growth was primarily due to sales from aap and ai stores added within the last year partially offset by a decrease in comparable store sales . aap segment sales were $ 5,914.9 million , an increase of $ 30.0 million , or 0.5 % , over fiscal 2011 . this growth was primarily a result of sales from the net addition of 116 new stores over the past year partially offset by a comparable store sales decrease of 0.9 % . the comparable store sales decrease was driven by a decrease in transaction count partially offset by an increase in transaction value despite more promotional activity in response to lower customer demand . the increase in transaction value is primarily due to ( i ) the gradual increase in cost and complexity of automotive parts and commodity prices and ( ii ) and the positive impact from a higher mix of commercial sales . ai segment sales were $ 306.1 million , an increase of $ 5.1 million , or 1.7 % , over fiscal 2011 . replace_table_token_14_th gross profit gross profit for fiscal 2012 was $ 3,098.0 million , or 49.9 % of net sales , as compared to $ 3,069.3 million , or 49.7 % of net sales , in fiscal 2011 , an increase of 19 basis points .
| results of operations , available cash and cash equivalents , and available borrowings under our revolving credit facility will be sufficient to fund our primary obligations for the next fiscal year . at december 29 , 2012 , our cash and cash equivalents balance was $ 598.1 million , an increase of $ 540.2 million compared to december 31 , 2011 ( the end of fiscal 2011 ) . this increase in cash was primarily a result of cash generated from operations and the issuance of senior unsecured notes partially offset by investments in property and equipment and net payments on our credit facilities . additional discussion of our cash flow results , including the comparison of fiscal 2012 activity to fiscal 2011 , is set forth in the analysis of cash flows section . at december 29 , 2012 , our outstanding indebtedness was $ 605.1 million , or $ 189.1 million higher when compared to december 31 , 2011 , and consisted of borrowings of $ 598.9 million under our senior unsecured notes and $ 6.2 million outstanding on economic development notes . additionally , we had $ 78.8 million in letters of credit outstanding , which reduced the total availability under our revolving credit facility to $ 671.2 million . subsequent to year end , we used $ 188.2 million of cash on hand to fund the purchase price and related expenses for our acquisition of bwp as discussed earlier in this management 's discussion and analysis and more fully in note 22 to our consolidated financial statements . capital expenditures our primary capital requirements have been the funding of our continued new store openings , maintenance of existing stores , the construction and upgrading of distribution centers , and the development of both proprietary and purchased information systems .
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key strategies campbell 's long-term goal is to drive profitable net sales growth as a means to deliver attractive , sustainable total shareowner returns . to grow net sales , the company is focused on expanding its brand and product platforms in three core categories -- simple meals , healthy beverages and baked snacks . its plans are designed to tap into segments and adjacencies with high-growth profiles and strong prospects for growth within these categories . three strategies guide this effort : stabilize and then profitably grow the company 's north america soup and simple meals business . expand the company 's international presence . continue to drive growth in the company 's healthy beverages and baked snacks businesses . by reducing less profitable promotional support and increasing consumer brand building in 2012 , campbell took steps towards stabilizing the profitability of its soup and simple meals business in north america . in 2013 , the company is increasing its pipeline of consumer-driven innovation by expanding its product platforms and packaging formats to reach new consumers and new usage occasions . to this end , the company will introduce more than 50 new products in 2013 -- ranging from new varieties of chunky ready-to-eat soups and campbell 's condensed soups to new products under the campbell 's go platform and new sauces under the campbell 's skillet sauces brand . in addition to its innovation offerings , the company plans to increase its focus on other important growth drivers , such as product positioning , taste , availability , merchandising and price , to strengthen and grow its core soup and simple meals business portfolio in north america . campbell plans to expand its presence in international markets by extending product platforms in its current businesses , pursuing growth opportunities in faster-growing emerging markets , and expanding its export businesses in both existing and new geographies . the company 's strategy for emerging market growth is likely to be centered on external development , ranging from acquisitions to strategic alliances such as joint ventures and other strategic partnerships . investments in its business in the people 's republic of china , where the company has a majority stake in a joint venture with swire pacific limited , are expected to continue in 2013. in campbell 's healthy beverages business , the company will continue the u.s. expansion of its v8 v-fusion beverages into faster growing segments and channels , such as sparkling and energy beverages , teas and juice boxes . it will invest to revitalize the v8 100 % vegetable juice franchise in the u.s. by reengaging both current and lapsed users with a new advertising campaign and new varieties . in the international beverage business , the company expects to attract new users in its asia pacific business through product improvements , such as the conversion from glass to pet packaging , and to further accelerate beverage growth in its latin american business . 14 in campbell 's baked snacks portfolio , the company is increasing its focus on innovation while further enhancing collaboration between its pepperidge farm and arnott 's divisions to leverage new product ideas between these powerful brands . pepperidge farm will continue to drive growth in its very successful goldfish brand , along with its savory cracker , cookie and bakery products . at arnott 's in australia , the focus remains on innovation in sweet and savory biscuits , along with further development of products designed to address the “ light lunch ” eating occasion . the bolthouse farms acquisition provides the company with a new growth platform within its portfolio . as previously discussed , bolthouse farms is a vertically integrated food and beverage company focused on developing , manufacturing and marketing fresh carrots and proprietary , high value-added natural , healthy products . bolthouse farms ' u.s. and canadian market-leading super-premium refrigerated beverages complement the company 's successful v8 beverage business , and bolthouse farms ' leading u.s. and canadian market position in fresh carrots anchors its business and provides significant cash flow . in addition , bolthouse farms ' prominent position in the high-growth packaged fresh category augments the company 's existing chilled soup business in north america , and offers opportunities for expansion into adjacent packaged fresh segments that respond directly to significant consumer trends . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; color : # 000000 ; text-decoration : none ; '' > decreased 1 % . u.s. soup declined 2 % as lower volumes were partially offset by higher selling prices , reflecting a continued cautious consumer environment . further details of u.s. soup include : sales of campbell 's condensed soups increased 1 % due to gains in eating varieties as cooking varieties were comparable to a year ago . sales of ready-to-serve soups decreased 7 % . ready-to-serve soup volumes were impacted by the company 's shift to improve price realization through higher selling prices and reduced promotional spending . the introduction of campbell 's slow kettle soups in july 2011 positively impacted sales performance . broth sales increased 3 % primarily due to volume gains and the introduction of swanson flavor boost concentrated broth , which launched in july 2011. u.s. sauces sales increased slightly as gains in prego pasta sauces were mostly offset by declines in sales of pace mexican sauces and other simple meal products . sales of pace mexican sauces were negatively impacted by increased private label competitive activity . in u.s. sauces , promotional spending was increased to improve marketplace performance . in 2011 , u.s. simple meals sales decreased 6 % . u.s. soup sales decreased 6 % reflecting an overall weak economy ; a challenging competitive environment in the u.s. food industry ; changes in buying patterns among u.s. shoppers , particularly in “ stock up ” purchase behavior ; and lower levels of product innovation . in this retail environment , the company 's high levels of promotional support during the first half of the year did not deliver anticipated volume gains . story_separator_special_tag research and development expenses research and development expenses decreased $ 4 million or 3 % in 2012 from 2011 . the decrease was primarily due to cost savings initiatives and other factors ( approximately 6 percentage points ) , partially offset by higher costs associated with product innovation in north america and the asia pacific region ( approximately 2 percentage points ) , and inflation ( approximately 1 percentage point ) . research and development expenses increased $ 6 million or 5 % in 2011 from 2010 . the increase was primarily due to costs associated with an ongoing initiative to simplify the soup-making process and product innovation in north america ( approximately 2 percentage points ) ; costs associated with a global baked snacks initiative ( approximately 2 percentage points ) , and the impact of currency ( approximately 2 percentage points ) , partly offset by cost savings initiatives ( approximately 1 percentage point ) . other expenses/ ( income ) other expense in 2012 included a $ 3 million impairment charge associated with the blå band trademark used in the international simple meals and beverages segment . the charge was recorded as a result of the company 's annual review of intangible assets . see note 4 to the consolidated financial statements . other expense in 2012 also included $ 5 million of transaction costs associated with the acquisition of bolthouse farms . see note 19 to the consolidated financial statements . other expense in 2011 included a $ 3 million impairment charge associated with the heisse tasse trademark used in the international simple meals and beverages segment . the charge was recorded as a result of the company 's annual review of intangible assets . see note 4 to the consolidated financial statements . operating earnings segment operating earnings decreased 8 % in 2012 from 2011 and decreased 1 % in 2011 from 2010 . an analysis of operating earnings by segment follows : replace_table_token_11_th ( 1 ) see note 6 to the consolidated financial statements for additional information on restructuring charges . earnings from u.s. simple meals in 2012 and 2011 were comparable , as earnings gains in u.s. soup were mostly offset by declines in u.s. sauces . for the segment , higher selling prices , productivity improvements and lower promotional spending were mostly offset by lower volumes and cost inflation . earnings from u.s. simple meals decreased 11 % in 2011 versus 2010 . the decline was primarily due to lower sales and a reduced gross margin percentage , partially offset by lower marketing and selling expenses . in the first half of 2011 , in response to the overall competitive environment , the company maintained higher levels of promotional support , which did not deliver anticipated volume gains . 19 earnings from global baking and snacking decreased 11 % in 2012 versus 2011 primarily due to cost inflation , increased promotional spending and higher advertising expense , partly offset by higher selling prices and productivity improvements . promotional spending was increased to support the businesses . earnings from global baking and snacking increased 10 % in 2011 versus 2010 . the increase was primarily due to the impact of currency and volume-driven growth in both pepperidge farm and arnott 's . earnings from international simple meals and beverages decreased 17 % in 2012 versus 2011 . the decrease in operating earnings was primarily due to lower earnings in the asia pacific region and canada , and increased costs associated with the company 's market expansion in china . earnings from international simple meals and beverages increased 15 % in 2011 versus 2010 . the increase was primarily due to growth in the asia pacific region , the impact of currency and reduced investment in russia . earnings from u.s. beverages decreased 26 % primarily due to cost inflation , increased promotional spending and advertising expense , partly offset by productivity improvements . earnings from u.s. beverages decreased 12 % in 2011 versus 2010 primarily due to increased promotional spending . earnings from north america foodservice increased 4 % due to higher selling prices and productivity improvements , partially offset by cost inflation . earnings from north america foodservice increased to $ 82 million in 2011 from $ 55 million in 2010 primarily due to reduced promotional spending , productivity improvements in excess of inflation , and lower administrative expense . interest expense/income interest expense decreased to $ 114 million in 2012 from $ 122 million in 2011 , primarily due to lower interest rates on fixed-rate debt . interest income decreased to $ 8 million in 2012 from $ 11 million in 2011 primarily due to lower levels of cash and cash equivalents . interest expense increased to $ 122 million in 2011 from $ 112 million in 2010 primarily due to an increase in fixed-rate debt and higher debt levels . interest income increased to $ 11 million in 2011 from $ 6 million in 2010 primarily due to higher levels of cash and cash equivalents . taxes on earnings the effective tax rate was 30.9 % in 2012 , 31.3 % in 2011 , and 32.0 % in 2010 . the reduction in the effective tax rate in 2012 from 2011 was primarily due to lower tax expense associated with the repatriation of foreign earnings in 2012. the reduction in the effective tax rate in 2011 from 2010 was primarily due to $ 10 million of deferred tax expense recognized in 2010 as a result of the enactment of u.s. health care legislation . the law changed the tax treatment of subsidies to companies that provide prescription drug benefits to retirees . the company recorded the adjustment to reduce the value of the deferred tax asset associated with the subsidy . restructuring charges 2011 initiatives on june 28 , 2011 , the company announced a series of initiatives to improve supply chain efficiency and reduce overhead costs across the organization to help fund plans to drive the growth of the business . the company also announced its intent to exit the russian market .
| executive summary this executive summary provides significant highlights from the discussion and analysis that follows . net sales were $ 7.707 billion in 2012 , comparable to a year ago . gross profit , as a percent of sales , decreased to 38.8 % from 40.2 % a year ago . net earnings per share were $ 2.41 in 2012 , compared to $ 2.42 in 2011 . the current year included $ .03 per share of expense from items that impacted comparability . the prior year included $ .12 per share of expense from items that impacted comparability , as discussed below . net earnings attributable to campbell soup company - 2012 compared with 2011 the following items impacted the comparability of net earnings and earnings per share : in 2011 , the company announced a series of initiatives to improve supply chain efficiency and reduce overhead costs across the organization to help fund plans to drive the growth of the business . the company also announced its intent to exit the russian market . in 2012 , the company recorded pre-tax restructuring charges of $ 10 million ( $ 6 million after tax or $ .02 per share ) related to the initiatives . in the fourth quarter of 2011 , the company recorded a restructuring charge of $ 63 million ( $ 41 million after tax or $ .12 per share ) related to the initiatives . see note 6 to the consolidated financial statements and `` restructuring charges '' for additional information ; and in 2012 , the company recorded pre-tax transaction costs of $ 5 million ( $ 3 million after tax or $ .01 per share ) related to the acquisition of bolthouse farms . the items impacting comparability are summarized below : replace_table_token_6_th net earnings were $ 774 million ( $ 2.41 per share ) in 2012 , compared to $ 805 million ( $ 2.42 per share ) in 2011 .
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f-4 commonwealth reit consolidated statements of comprehensive ( loss ) income ( amounts story_separator_special_tag the following discussion should be read in conjunction with our consolidated financial statements and accompanying notes included elsewhere in this annual report . overview the majority of the properties owned by us ( excluding sir ) , or our wholly owned properties , are office buildings in cbd and suburban locations throughout the united states . our wholly owned property portfolio also includes 8.8 million square feet of industrial and other space and 1.8 million square feet of office and industrial buildings located in australia . our consolidated subsidiary , sir , owns 24.6 million square feet of primarily net leased , single tenant office and industrial properties , including 17.8 million square feet of primarily leasable industrial and commercial lands located in oahu , hi . sir was formerly our 100 % owned subsidiary . on march 12 , 2012 , sir completed the sir ipo , in which it issued 9,200,000 of its common shares ( including 1,200,000 common shares sold pursuant to the underwriters ' option to purchase additional shares ) for net proceeds ( after deducting underwriters ' discounts and estimated expenses ) of $ 180.8 million . in december 2012 , sir issued an additional 8,050,000 of its common shares ( including 1,050,000 common shares sold pursuant to the underwriters ' option to purchase additional shares ) in a public offering , raising net proceeds of $ 182.8 million ( after deducting underwriters ' discounts and estimated expenses ) . we are sir 's largest shareholder and , as of the date of this report , we own 22,000,000 common shares of sir , which represent approximately 56.0 % of sir 's outstanding common shares . gov was formerly our 100 % owned subsidiary . in june 2009 , gov completed its initial public offering and became a publicly held company with shares listed on the nyse . in october 2012 , gov issued 7,500,000 common shares in a public offering for $ 23.25 per common share , raising net proceeds ( after deducting underwriters ' discounts and estimated expenses ) of approximately $ 166.7 million . we recognized a gain on this sale by an equity investee of $ 7.2 million as a result of the per share sales price of this transaction being above our per share carrying value . gov is no longer one of our consolidated subsidiaries and we use the equity method to account for our continuing ownership of gov . our ownership percentage of gov was reduced to 18.2 % after gov 's october 2012 equity issuance . references to our properties in this `` management 's discussion and analysis of financial condition and results of operations '' include our consolidated properties , including sir 's properties , unless the context otherwise provides . property operations as of december 31 , 2012 , 90.0 % of our total square feet was leased , compared to 89.6 % leased as of december 31 , 2011. these results reflect a 0.2 % increase in occupancy at properties we owned 57 continuously since january 1 , 2011 and increases from our property acquisitions completed during 2012. occupancy data for 2012 and 2011 is as follows ( square feet in thousands ) : replace_table_token_6_th ( 1 ) excludes properties classified in discontinued operations . ( 2 ) based on properties owned continuously since january 1 , 2011 and excludes properties classified in discontinued operations . ( 3 ) excludes 94 properties with a total of approximately 6,674 square feet which were reclassified to discontinued operations from continuing operations as of december 31 , 2012. excludes properties sold in 2012 . ( 4 ) percent leased includes ( i ) space being fitted out for occupancy pursuant to existing leases and ( ii ) space which is leased but is not occupied or is being offered for sublease by tenants . as of december 31 , 2012 , we had 37 office properties and 57 industrial properties with a combined 6,673,851 square feet classified as held for sale . results of operations for properties sold during 2012 , or held for sale as of december 31 , 2012 , are included in discontinued operations in our consolidated statements of operations . these properties and their operating results are excluded from the data in the preceding paragraph and , except as noted from the balance of this management 's discussion and analysis of financial condition and results of operations . the average effective rental rate per square foot , as defined below , for our properties for the years ended december 31 , 2012 and 2011 are as follows : replace_table_token_7_th ( 1 ) average effective rental rate per square foot represents total rental income during the period specified adjusted for tenant concessions , including free rent and tenant reimbursements , divided by the average rentable square feet leased during the period specified . data presented excludes properties classified in discontinued operations . during the year ended december 31 , 2012 , we renewed leases for 4,824,000 square feet and entered into new leases for 2,609,000 square feet , at weighted average rental rates that were approximately 0.4 % below rents previously charged for the same space . the average lease term for leases entered into during 2012 was 7.6 years . commitments for tenant improvements , leasing commissions , tenant concessions , including free rent and tenant reimbursements , for leases entered into during 2012 totaled $ 143.3 million , or $ 19.28 per square foot on average ( approximately $ 2.54 per square foot per year of the lease term ) . 58 during the past twelve months , leasing market conditions in the majority of our markets appear to be stabilizing but remain weak . required tenant concessions , including tenant improvements , leasing brokerage commissions , tenant reimbursements and free rent , have increased in certain markets since 2008 , and may continue to increase there or in other markets , depending on market and competitive conditions . story_separator_special_tag we occasionally also consider selling properties which are performing to our desired expectations if such sales meet our strategic objective of becoming a cbd focused office reit and if such sales can be achieved for valuations which are reasonable . since the date of the sir ipo , sir has acquired 18 properties with a combined 3,773,788 square feet for an aggregate purchase price of $ 543.0 million , including the assumption of $ 26.0 million of mortgage debt and excluding closing costs . at the time of acquisition , these properties were nearly 100 % leased for a weighted average ( by rents ) term of 12.7 years and generated property noi which yielded approximately 9.2 % of the aggregate gross purchase price , based on estimated gaap rental income , excluding adjustments for above and below market lease value amortization , less property operating expenses , on the date of closing . as of february 21 , 2013 , sir has entered into agreements to acquire three properties with a combined 225,211 square feet for an aggregate purchase price of $ 53.3 million , excluding closing costs . sir 's pending agreements to acquire additional properties are subject to conditions typical of commercial real estate transactions , including completion of due diligence ; accordingly , there can be no assurance that sir will acquire all or any of these properties . for more information regarding these transactions , please see note 3 to the notes to consolidated financial statements of this annual report . financing activities in january 2012 , we prepaid at par all $ 150.7 million of our 6.95 % unsecured senior notes due 2012 , and in july 2012 , we prepaid at par all $ 191.0 million of our 6.50 % unsecured senior notes due 2013. both of these prepayments were made using cash on hand and borrowings under our revolving credit facility . we also repaid at maturity $ 57.0 million of our unsecured term loan using borrowings under our revolving credit facility in december 2012. furthermore , we repaid at maturity $ 5.4 million of 7.31 % mortgage debt in february 2012 , we prepaid at par $ 12.7 million of 6.06 % mortgage debt in may 2012 , and we repaid at maturity $ 4.5 million of 6.00 % mortgage debt in october 2012. these mortgage payments were made using cash on hand . in connection with all of our prepayments of debt , we recorded a combined loss on early extinguishment of debt totaling $ 1.9 million from the write off of unamortized discounts and deferred financing fees . in march 2012 , sir entered into a $ 500.0 million revolving credit facility that is available to sir for general business purposes , including acquisitions . the sir revolving credit facility is scheduled to mature on march 11 , 2016 and , subject to sir 's payment of an extension fee and meeting certain other conditions , sir has the option to extend the stated maturity date by one year . borrowings under the sir revolving credit facility bear interest at libor plus a premium . sir also pays a per annum facility fee on the total amount of lending commitments under the sir revolving credit facility . both the 61 interest rate premium and the facility fee are subject to adjustment based upon changes to sir 's debt leverage or credit ratings ( sir is not currently rated ) . in july 2012 , sir amended the sir revolving credit facility . as a result of this amendment , the pledge agreement that sir and certain of its subsidiaries had previously entered into was terminated , and the equity of sir 's subsidiaries that had been pledged pursuant to that pledge agreement as collateral for sir 's and sir 's subsidiary guarantors ' obligations under the sir revolving credit facility was released . in february 2013 , the available borrowing amount under the sir revolving credit facility was increased from $ 500.0 million to $ 750.0 million . in july 2012 , we issued $ 175.0 million of 5.75 % unsecured senior notes due 2042 in a public offering , raising net proceeds of approximately $ 169.0 million after expenses . we used the net proceeds from these notes to redeem in august 2012 all 6,000,000 shares of our 7 1 / 8 % series c preferred stock at par plus accrued and unpaid distributions ( approximately $ 150.0 million ) , and used the excess proceeds to partially fund certain acquisitions . also in july 2012 , sir entered into a five year $ 350.0 million unsecured term loan . the sir term loan matures on july 11 , 2017 and is prepayable without penalty at any time . in addition , the sir term loan includes a feature under which maximum borrowings may be increased to up to $ 700.0 million in certain circumstances . the sir term loan bears interest at a rate of libor plus a premium , which was 155 basis points as of december 31 , 2012. the interest rate spread is subject to adjustment based upon changes to sir 's leverage or credit ratings . sir used the net proceeds of the sir term loan to repay amounts outstanding under the sir revolving credit facility and for general business activities , including acquisitions . as of december 31 , 2012 , the interest rate for the amount outstanding under the sir term loan was 1.8 % . during 2012 , we ( including sir ) assumed mortgage debt in connection with certain of our property acquisitions . for more information on these mortgage assumptions , please see `` management 's discussion and analysis of financial condition and results of operationsinvestment activities '' and note 11 to the notes to consolidated financial statements of this annual report .
| results of operations year ended december 31 , 2011 , compared to year ended december 31 , 2010 replace_table_token_12_th ( 1 ) comparable properties consist of 356 properties we owned continuously from january 1 , 2010 to december 31 , 2011 , excluding properties classified as held for sale . ( 2 ) acquired properties consist of 63 and 41 ( which 41 are included in the 63 ) properties we owned on december 31 , 2011 and 2010 , respectively , and which we acquired during the period from january 1 , 2010 to december 31 , 2011. other properties include 15 properties we sold to gov during 2010. rental income of $ 23,625 and operating expenses of $ 11,064 in 2010 from properties sold to gov are not classified in discontinued operations because of our continuing ownership of gov . 68 calculation of ffo and normalized ffo replace_table_token_13_th we refer to the 356 properties we owned continuously from january 1 , 2010 to december 31 , 2011 , excluding properties classified as held for sale , as comparable properties . we refer to the 63 and 41 ( which 41 are included in the 63 ) properties that we owned as of december 31 , 2011 and 2010 , respectively , which we acquired during the period from january 1 , 2010 to december 31 , 2011 , as acquired properties .
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for intangible assets used in operations story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations in conjunction with the consolidated financial statements and the related notes to those statements included in item 8 to this annual report on form 10-k. in addition to historical financial information , the following discussion contains forward-looking statements that reflect our plans , estimates , beliefs , and expectations and that involve risks and uncertainties . our actual results and the timing of events could differ materially from those discussed in these forward-looking statements . factors that could cause or contribute to these differences include those discussed below and elsewhere in this annual report on form 10-k , particularly in `` item 1a . risk factors '' and the `` special note about forward-looking statements . '' overview and trends see `` item 1. business '' for an overview of our business , the industry in which we operate , and important industry and business trends . 2020 channel trends sellers use our technology to monetize their content across all digital channels , including ctv , mobile and desktop , and each of these channels will continue to represent a meaningful portion of our revenue in future periods . we track the breakdown of revenue across channels to better understand how our clients are transacting on our platform , which informs decisions as to business strategy and the allocation of resources and capital . the following table presents revenue by channel and as a percentage of total revenue for the years ended december 31 , 2020 , 2019 , and 2018. replace_table_token_3_th each of these digital channels has its own industry growth rate , with ctv and mobile projected to continue to grow steadily , while desktop growth flattens . magna 's october 2020 programmatic market forecast has estimated compound annual growth rates from 2020 to 2024 for mobile and desktop at 18 % and down 1 % , respectively , and over the same period , emarketer projected ctv to grow at a 23 % compound annual growth rate . we believe that ctv will be our biggest growth driver in future periods , and following the spotx acquisition we expect ctv revenue to represent a significantly higher percentage of our overall revenue . we expect our mobile business to grow at a higher rate than desktop , consistent with industry trends and our historical results . our mobile business consists of two components , mobile web and mobile applications . initially our mobile business consisted primarily of mobile web , which is similar to our desktop business , but our mobile application business has been the growth driver behind our mobile business , and prior to the covid-19 pandemic showed growth rates in excess of industry projections . we therefore expect our growth within mobile to come largely from our mobile applications business and , in particular , mobile video . lower industry growth rates in desktop will make growing desktop revenue more challenging ; however , in future periods we believe we will be able to grow our desktop business in excess of industry projections by capturing market share through spo and expansion of publisher relationships . we expect our desktop business to decline as an overall percentage of our revenue in future periods . however , we expect that it will continue to represent a significant part of our revenue in the near term . therefore , the mix of our desktop business will continue to have a negative effect on our overall growth rate . telaria merger on april 1 , 2020 , we completed the stock-for-stock merger with telaria , inc. , a leading provider of ctv technology , which created a combined company offering a single partner for transacting ctv , desktop display , video , audio , and mobile inventory across all geographies and auction types . the combination of magnite 's programmatic scale and expertise with telaria 's leadership in ctv technology and premium partnerships created what we believe to be the world 's largest independent sell-side advertising platform , with scale , capabilities , and solutions exceeding those offered by competitors . as ctv viewership is growing rapidly and the pace of adoption is accelerating the shift of advertising budgets from linear television to ctv , the telaria merger 46 table of contents strategically positioned us to take advantage of this growth trend , and we believe that ctv will be our biggest growth driver in future periods . telaria merger costs synergies and other expense reduction initiatives in connection with the merger , we restructured certain areas of our operations during 2020. as part of those efforts , we achieved annual run rate cost synergies of over $ 20.0 million , mainly related to duplicative public company costs , vendor rationalization , overlapping general and administrative costs , and other operational streamlining . employees of the merged company were functionally aligned under a unified leadership team and we reduced our headcount by approximately 8 % of our combined workforce during 2020. given the significant impact resulting from the covid-19 pandemic , we instituted certain additional short-term actions during the second quarter , including compensation reductions , a hiring freeze , and deferment of certain capital expenditures . when we experienced a recovery in revenue in the third quarter , we reinstated compensation and removed certain of these temporary cost-cutting initiatives during the fourth quarter . spotx acquisition on february 4 , 2021 , we entered into a stock purchase agreement ( the `` spotx purchase agreement '' ) with rtl to acquire 100 % of the issued and outstanding shares of capital stock of spotx , inc. , a delaware corporation ( `` spotx '' ) , for a purchase price equal to $ 560 million in cash plus 14 million shares of the company 's common stock ( the `` spotx acquisition '' ) . spotx is one of the leading platforms shaping ctv and video advertising globally . story_separator_special_tag general and administrative expenses also include amortization of internal use software development costs and acquired intangible assets from our business acquisitions over their estimated useful lives that relate to general and administrative functions . merger and restructuring costs . our merger and restructuring costs consist primarily of professional service fees associated with the merger and acquisition activities , including cash-based employee termination costs , stock-based compensation charges associated with the merger , and other restructuring activities , including facility closures , relocation costs , and contract termination costs . other ( income ) expense interest ( income ) expense , net . interest income consists of interest earned on our cash equivalents and marketable securities . interest expense is mainly related to our credit facility . other income . other income consists primarily of rental income from commercial office space we hold under lease and have sublet to other tenants . foreign currency exchange ( gain ) loss , net . foreign currency exchange ( gain ) loss , net consists primarily of gains and losses on foreign currency transactions . we have foreign currency exposure related to our accounts receivable and accounts payable that are denominated in currencies other than the u.s. dollar , principally the british pound , australian dollar , canadian dollar , and euro . provision ( benefit ) for income taxes we are subject to income taxes in the u.s. ( federal and state ) and numerous foreign jurisdictions . tax laws , regulations , administrative practices , principles , and interpretations in various jurisdictions may be subject to significant change , with or without notice , due to economic , political , and other conditions , and significant judgment is required in evaluating and estimating our provision and accruals for these taxes . there are many transactions that occur during the ordinary course of business for which the ultimate tax determination is uncertain . our effective tax rates could be affected by numerous factors , such as changes in our business operations , acquisitions , investments , entry into new businesses and geographies , intercompany transactions , the relative amount of our foreign earnings , including earnings being lower than anticipated in jurisdictions where we have lower statutory rates and higher than anticipated in jurisdictions where we have higher statutory rates , losses incurred in jurisdictions for which we are not able to realize related tax benefits , the applicability of special tax regimes , changes in foreign currency exchange rates , changes in our stock price , changes in our deferred tax assets and liabilities and their valuation , changes in the laws , regulations , administrative practices , principles , and interpretations related to tax , including changes to the global tax framework , competition , and other laws and accounting rules in various jurisdictions . 48 table of contents story_separator_special_tag offset by a decrease in expenses of $ 2.4 million related to travel and industry events due to the impact of the covid-19 pandemic . sales and marketing expenses stayed flat for the year ended december 31 , 2019 compared to the year ended december 31 , 2018 primarily due to the benefit of the prior year 's cost control initiatives . we expect sales and marketing expenses to increase in 2021 compared to 2020 in absolute dollars primarily due to a full year of additional headcount costs and amortization of acquired intangible assets as a result of the merger and increased travel and entertainment expenses post covid-19 . sales and marketing expenses may fluctuate quarter to quarter and period to period , on an absolute dollar basis and as a percentage of revenue , based on revenue levels , the timing of our investments and seasonality in our industry and business . technology and development technology and development expenses increased by $ 11.3 million , or 28 % , for the year ended december 31 , 2020 compared to the prior year , primarily due to an increase of $ 11.6 million in personnel costs as a result of the increased headcount associated with the merger . technology and development expenses increased by $ 2.4 million , or 6 % , for the year ended december 31 , 2019 compared to the year ended december 31 , 2018 , primarily due to an increase of $ 3.0 million in personnel costs as a result of strategic headcount additions to focus on the engineering aspect of our new developments , including demand manager and other initiatives . we expect technology and development expenses to continue to increase in 2021 compared to 2020 in absolute dollars , primarily due to the additional headcount investment in our key growth opportunities . the timing and amount of our capitalized development and enhancement projects may affect the amount of development costs expensed in any given period . as a percentage of revenue , technology and development expense may fluctuate from quarter to quarter and period to period based on revenue levels , the timing and amounts of technology and development efforts , the timing and the rate of the amortization of capitalized projects and the timing and amounts of future capitalized internal use software development costs . general and administrative general and administrative expenses increased by $ 13.2 million , or 33 % , for the year ended december 31 , 2020 compared to the prior year , primarily due to increases of $ 7.1 million in personnel expenses and $ 4.0 million in facilities related expenses , both primarily associated with the merger . in addition , professional services increased by $ 3.0 million in professional services mainly attributed to the growth of the overall business as a result of the merger . these increases were partially offset by a decrease in bad debt expense of $ 1.3 million .
| results of operations the following table sets forth our consolidated results of operations : replace_table_token_4_th replace_table_token_5_th replace_table_token_6_th 49 table of contents the following table sets forth our consolidated results of operations for the specified periods as a percentage of our revenue for those periods presented : replace_table_token_7_th comparison of the years ended december 31 , 2020 , 2019 , and 2018 revenue revenue increased $ 65.2 million , or 42 % , for the year ended december 31 , 2020 compared to the prior year . our revenue growth was driven primarily by the merger , completed on april 1 , 2020 , which contributed $ 60.1 million in revenue during the year ended december 31 , 2020. on a per channel basis , ctv revenue increased $ 34.3 million , compared to the prior year ( all as a result of the merger ) , while mobile revenue increased $ 20.2 million , or a 23 % , compared to the prior year , and desktop revenue increased $ 10.7 million , or 16 % , compared to the prior year . excluding the impact of the merger , our revenue increased 3 % year-over-year . despite some recovery in our revenue trends , beginning in the third quarter of 2020 , our overall annual revenue growth was significantly negatively affected by the impact of the covid-19 pandemic . revenue increased $ 31.7 million , or 25 % , for the year ended december 31 , 2019 compared to the year ended december 31 , 2018. our revenue growth was driven primarily by ongoing increases in advertising spend transacted on our platform , particularly video and mobile advertising spend . we expect revenue to increase in 2021 compared to 2020 , with ctv as our primary growth driver .
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we pay interest on any borrowings under the bank of america credit agreement at libor plus 1.25 percent ( 3.73 percent as of december 31 , 2018 ) , and an annual commitment fee of 0.2 percent on the unused portion of the commitment . we are required to settle our net borrowings under the bank of america credit agreement only upon maturity , and as a result , have classified our outstanding borrowings as non-current on our consolidated story_separator_special_tag the following discussion highlights the principal factors that have affected our financial condition , results of operations , liquidity and capital resources for the periods described . this discussion should be read in conjunction with our consolidated financial statements and the related notes in item 8 of this report . this discussion contains forward-looking statements . please see “ cautionary note regarding forward-looking statements ” for the risks , uncertainties and assumptions associated with these forward-looking statements . overview our business , industry and target market we are a natural health and wellness company primarily engaged in the manufacturing and direct selling of nutritional and personal care products . we have four business segments that are divided based on the different characteristics of their distributor and customer bases , distributor compensation plans and product formulations , as well as the internal organization of its officers and their responsibilities and business operations . three business segments operate under the nature 's sunshine products brand ( nsp americas ; nsp russia , central and eastern europe ; and nsp china ) , and one business segment operates under the synergy® worldwide brand . in the fourth quarter of 2017 , we moved the reporting of our wholesale business , in which we sell our products to a locally managed entity independent of our company that has distribution rights for the market , from the nsp china segment to the nsp russia , central and eastern europe segment . the net sales and contribution margin for the year ended december 31 , 2016 was recast to reflect that change . 25 our independent distributors market and sell our products to customers and sponsor other independent distributors who also market our products to customers . our sales are highly dependent upon the number and productivity of our independent distributors . growth in sales volume generally requires an increase in the productivity of our independent distributors and or growth in the total number of independent distributors . we seek to motivate and provide incentives to our independent distributors by offering high quality products and providing independent distributors with product support , training seminars , sales conventions , travel programs and financial incentives . in 2018 , we experienced an increase in our consolidated net sales of 6.7 percent ( an increase of 5.5 percent in local currencies ) compared to 2017 . nsp russia , central and eastern europe net sales increased approximately 19.9 percent compared to 2017 . synergy worldwide net sales increased approximately 13.9 percent compared to 2017 ( or 11.1 percent in local currencies ) . nsp americas net sales decreased approximately 6.0 percent compared to 2017 ( or 5.8 percent in local currencies ) . nsp china net sales increased approximately 45.5 percent compared to 2017 . in absolute terms , selling , general and administrative expenses increased $ 8.8 million during 2018 , and as a percentage of net sales were 37.9 percent and 37.9 percent for 2018 and 2017 , respectively . we distribute our products to consumers through an independent sales force comprised of independent managers and distributors , many of whom also consume our products . typically a person who joins our independent sales force begins as a distributor . an independent distributor may earn manager status by attaining certain product sales levels . on a worldwide basis , active independent managers were approximately 12,600 and 13,000 and active independent distributors and customers were approximately 224,900 and 230,900 at december 31 , 2018 and 2017 , respectively . as an international business , we have significant sales and costs denominated in currencies other than the u.s. dollar . sales in international markets denominated in foreign currencies are expected to continue to represent a substantial portion of our sales . likewise , we expect foreign markets with functional currencies other than the u.s. dollar will continue to represent a substantial portion of our overall sales and related operating expenses . accordingly , changes in foreign currency exchange rates could materially affect sales and costs or the comparability of sales and costs from period to period as a result of translating foreign markets financial statements into our reporting currency . critical accounting policies and estimates our consolidated financial statements have been prepared in accordance with u.s. gaap and form the basis for the following discussion and analysis on critical accounting policies and estimates . the preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosure of contingent assets and liabilities . on a regular basis , we evaluate our estimates and assumptions . 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 . actual results could differ from these estimates and those differences could have a material effect on our financial position and results of operations . we have discussed the development , selection and disclosure of these estimates with the board of directors and our audit committee . a summary of our significant accounting policies is provided in note 1 of the notes to consolidated financial statements in item 8 of this report . we believe the critical accounting policies and estimates described below reflect our more significant estimates and assumptions used in the preparation of the consolidated financial statements . story_separator_special_tag as of december 31 , 2018 and 2017 , we had recorded valuation allowances of $ 20.3 million and $ 24.0 million , respectively , as offsets to deferred tax assets . at december 31 , 2018 , foreign subsidiaries had unused operating loss carryovers for tax purposes of approximately $ 7.7 million . the net operating losses will expire at various dates from 2019 through 2028 , with the exception of those in some foreign jurisdictions where there is no expiration . as of december 31 , 2018 , we had approximately $ 13.3 million of foreign tax and withholding credits . of the $ 13.3 million credits , $ 12.9 million are foreign tax credits , most of which expire in 2024 and all of which are fully offset by valuation allowances . the tax cuts and jobs act ( tax reform act ) which was signed into law on december 22 , 2017 , has continued to impact income tax expense and deferred tax assets and liabilities throughout 2018. future changes in tax laws and rates could likewise affect recorded deferred tax assets and liabilities in later periods . we are not aware of any such additional changes that would have a material effect on our results of operations , cash flows or financial position . the calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in a multitude of jurisdictions across our global operations . income tax positions must meet a more-likely-than-not recognition threshold to be recognized . share-based compensation we recognize all share-based payments to the board of directors and employees , including grants of stock options and restricted stock units , in the statement of operations based on their grant-date fair values . we record compensation expense over the vesting period of the stock options based on the fair value of the stock options on the date of grant . presentation net sales represents gross sales including shipping and handling offset by volume rebates given to independent managers , distributors and customers . volume rebates as a percentage of retail sales may vary by country , depending upon regulatory restrictions that limit or otherwise restrict rebates . we also offer reduced volume rebates with respect to certain products and promotions worldwide . our gross profit consists of net sales less cost of sales , which represents our manufacturing costs , the price we pay to raw material suppliers and manufacturers of our products , and duties and tariffs , as well as shipping and handling costs related to product shipments and distribution to our independent managers , distributors and customers . volume incentives are a significant part of our direct sales marketing program , and represent commission payments made to our independent managers and distributors . these payments are designed to provide incentives for reaching higher sales levels through their own sales and the sales of independent distributors in their sales organization . volume incentives vary slightly , on a percentage basis , by product due to our pricing policies and commission plans in place in various operations . selling , general and administrative expenses represent operating expenses , components of which include labor and benefits , sales events , professional fees , travel and entertainment , distributor marketing , occupancy costs , communication costs , bank fees , independent service fees paid to independent service providers in china , depreciation and amortization , and other miscellaneous operating expenses . most of our sales to independent distributors outside the united states are made in the respective local currencies . in preparing our financial statements , sales are translated into u.s. dollars using average exchange rates . additionally , the majority of our purchases from suppliers are generally made in u.s. dollars . consequently , a strengthening of the u.s. dollar versus a foreign currency can have a negative impact on our reported sales and contribution margins and can generate transaction losses on intercompany transactions . 28 story_separator_special_tag 2017 , respectively . active independent distributors and customers within synergy worldwide totaled approximately 51,700 and 55,400 at december 31 , 2018 and 2017 , respectively . notable activity in the following markets contributed to the results of synergy worldwide : in south korea , net sales increased approximately $ 20.2 million , or 38.8 percent , for the year ended december 31 , 2018 , compared to 2017 . in local currency , net sales increased 34.9 percent compared to 2017 . the increase in local currency net sales was the result of an increased distributor involvement and focus on core products for the market as well as an easing of geopolitical tension and an improvement in economic conditions that unfavorably impacted the prior year . in japan , net sales increased approximately $ 0.4 million , or 1.9 percent , for the year ended december 31 , 2018 , compared to 2017 . fluctuations in foreign exchange rates had $ 0.4 million favorable impact on net sales for the year ended december 31 , 2018 . in local currency , net sales increased 0.3 percent for the year ended december 31 , 2018 , compared to 2017 . we attribute the increase in net sales in japan primarily to the introduction of new products and the implementation of programs intended to stimulate activity which had a positive impact on market sales volume in the year ended december 31 , 2018 . in europe , net sales decreased approximately $ 3.2 million , or 13.6 percent , for the year ended december 31 , 2018 , compared to 2017 . fluctuations in foreign exchange rates , had a $ 0.9 million favorable impact on net sales for the year ended december 31 , 2018 . in local currency , net sales decreased 17.4 percent for the year ended december 31 , 2018 , compared to 2017 . the decrease in net sales is primarily due to market saturation in certain european countries and a reduction in sales activity in the market 's scandinavian countries .
| results of operations the following table summarizes our consolidated net income ( loss ) from continuing operations results as a percentage of net sales for the periods indicated : replace_table_token_11_th net sales international operations have provided , and are expected to continue to provide , a significant portion of our total net sales . as a result , total net sales will continue to be affected by fluctuations in the u.s. dollar against foreign currencies . in order to provide a framework for assessing how our underlying businesses performed excluding the effect of foreign currency fluctuations , in addition to comparing the percent change in net sales from one period to another in u.s. dollars , we present net sales excluding the impact of foreign exchange fluctuations . we compare the percentage change in net sales from one period to another period by excluding the effects of foreign currency exchange as shown below . net sales excluding the impact of foreign exchange fluctuations is not a u.s. gaap financial measure and removes from net sales in u.s. dollars the impact of changes in exchange rates between the u.s. dollar and the functional currencies of our foreign subsidiaries , by translating the current period net sales into u.s. dollars using the same foreign currency exchange rates that were used to translate the net sales for the previous comparable period . we believe presenting the impact of foreign currency fluctuations is useful to investors because it allows a more meaningful comparison of net sales of our foreign operations from period to period . however , net sales excluding the impact of foreign currency fluctuations should not be considered in isolation or as an alternative to net sales in u.s. dollar measures that reflect current period exchange rates , or to other financial measures calculated and presented in accordance with u.s. gaap .
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in august 2016 , the fasb issued asu no . 2016 - 15 , statement of cash flows ( topic 230 ) : classification of certain cash receipts and cash payments ( a consensus of the emerging issues task force ) . this asu requires changes in the presentation of certain items including , but not limited to , debt prepayment or debt extinguishment costs ; contingent consideration payments made after a business combination ; proceeds from the settlement of insurance claims story_separator_special_tag overview h.b . fuller company is a global formulator , manufacturer and marketer of adhesives and other specialty chemical products . we have five reportable segments : americas adhesives , eimea , asia pacific , construction adhesives and engineering adhesives . the americas adhesives , eimea and asia pacific operating segments manufacture and supply adhesives products in the assembly , packaging , converting , nonwoven and hygiene , performance wood , insulating glass , flooring , textile , flexible packaging , graphic arts and envelope markets . the construction adhesives operating segment provides floor preparation , grouts and mortars for tile setting , and adhesives for soft flooring , and pressure-sensitive adhesives , tapes and sealants for the commercial roofing industry as well as sealants and related products for heating , ventilation and air conditioning installations . the engineering adhesives operating segment provides high-performance adhesives to the transportation , electronics , medical , clean energy , aerospace and defense , appliance and heavy machinery markets . total company when reviewing our financial statements , it is important to understand how certain external factors impact us . these factors include : ● changes in the prices of our raw materials that are primarily derived from refining crude oil and natural gas , ● global supply of and demand for raw materials , ● economic growth rates , and ● currency exchange rates compared to the u.s. dollar we purchase thousands of raw materials , the majority of which are petroleum/natural gas derivatives . the price of these derivatives impacts the cost of our raw materials . however , the supply of and demand for key raw materials has a greater impact on our costs . as demand increases in high-growth areas , the supply of key raw materials may tighten , resulting in certain materials being put on allocation . natural disasters , such as hurricanes , also can have an impact as key raw material producers are shut down for extended periods of time . we continually monitor capacity utilization figures , market supply and demand conditions , feedstock costs and inventory levels , as well as derivative and intermediate prices , which affect our raw materials . with approximately 75 percent of our cost of sales accounted for by raw materials , our financial results are extremely sensitive to changing costs in this area . the pace of economic growth directly impacts certain industries to which we supply products . for example , adhesives-related revenues from durable goods customers in areas such as appliances , furniture and other woodworking applications tend to fluctuate with the overall economic activity . in business components such as construction adhesives and insulating glass , revenues tend to move with more specific economic indicators such as housing starts and other construction-related activity . the movement of foreign currency exchange rates as compared to the u.s. dollar impacts the translation of the foreign entities ' financial statements into u.s. dollars . as foreign currencies weaken against the u.s. dollar , our revenues and costs decrease as the foreign currency-denominated financial statements translate into fewer u.s. dollars . the fluctuations of the euro and the chinese renminbi against the u.s. dollar have the largest impact on our financial results as compared to all other currencies . in 2019 , currency fluctuations had a negative impact on net revenue of approximately $ 100.0 million as compared to 2018. key financial results and transactions for 2019 included the following : ● net revenue decreased 4.7 percent from 2018 primarily driven by a 3.3 percent decrease due to currency fluctuations , a 2.1 percent decrease in sales volume and a 0.3 percent decrease due to the divestiture of our surfactants and thickeners business . negative drivers of growth were partially offset by a 1.0 percent increase in product pricing . ● gross profit margin increased to 27.9 percent from 27.2 percent in 2018 primarily due to favorable product pricing and lower raw material costs . positive drivers of growth were partially offset by lower sales volumes . 17 ● cash flow generated by operating activities was $ 269.2 million in 2019 as compared to $ 253.3 million in 2018 and $ 166.3 million in 2017. our total year organic sales growth , which we define as the combined variances from sales volume and product pricing , decreased 1.1 percent for 2019 compared to 2018. in 2019 , our diluted earnings per share was $ 2.52 compared to $ 3.29 in 2018 and $ 1.15 in 2017. the lower earnings per share in 2019 compared to 2018 was due to lower net revenue and higher income tax expense , which were partially offset by lower operating costs and the gain on the sale of our surfactants and thickeners business . the higher earnings per share in 2018 compared to 2017 was due to higher net revenue , lower transaction costs related to acquisitions , and one time discrete items related to u.s. tax reform , which were partially offset by higher operating expenses mainly due to the impact of acquired businesses and higher interest expense due to higher u.s. debt balances at higher interest rates from the issuance of new debt in 2017. changes in accounting principles in the fourth quarter of 2018 , we elected to change our method of accounting for certain inventories in the united states within the company 's americas adhesives and construction adhesives segments from the last-in , first-out method ( “ lifo ” ) to weighted-average cost . story_separator_special_tag the approach identifies a broad population of corporate bonds that meet the quality and size criteria for the particular plan . we use this approach rather than a specific index that has a certain set of bonds that may or may not be representative of the characteristics of our particular plan . a higher discount rate reduces the present value of the pension obligations . the discount rate for the u.s. pension plan was 3.19 percent at november 30 , 2019 , as compared to 4.51 percent at december 1 , 2018 and 3.73 percent at december 2 , 2017. net periodic pension cost for a given fiscal year is based on assumptions developed at the end of the previous fiscal year . a discount rate change of 0.5 percentage points at november 30 , 2019 would impact u.s. pension and other postretirement plan ( income ) expense by approximately $ 0.2 million ( pre-tax ) in fiscal 2020. discount rates for non-u.s. plans are determined in a manner consistent with the u.s. plans . the expected long-term rate of return on plan assets assumption for the u.s. pension plan was 7.50 percent in 2019 and 7.75 in 2018 and 2017. our expected long-term rate of return on u.s. plan assets was based on our target asset allocation assumption of 60 percent equities and 40 percent fixed-income . management , in conjunction with our external financial advisors , determines the expected long-term rate of return on plan assets by considering the expected future returns and volatility levels for each asset class that are based on historical returns and forward looking observations . for 2019 , the expected long-term rate of return on the target equities allocation was 8.00 percent and the expected long-term rate of return on the target fixed-income allocation was 4.45 percent . the total plan rate of return assumption included an estimate of the effect of diversification and the plan expense . for 2020 , the expected long-term rate of return on assets will be 7.50 percent with an expected long-term rate of return on the target equities allocation of 8.00 percent and an expected long-term rate of return on target fixed-income allocation of 4.45 percent . a change of 0.5 percentage points for the expected return on assets assumption would impact u.s. net pension and other postretirement plan expense by approximately $ 2.4 million ( pre-tax ) . 19 management , in conjunction with our external financial advisors , uses the actual historical rates of return of the asset categories to assess the reasonableness of the expected long-term rate of return on plan assets . the most recent 10-year and 20-year historical equity returns are shown in the table below . our expected rate of return on our total portfolio is consistent with the historical patterns observed over longer time frames . replace_table_token_5_th * beginning in 2006 , our target allocation migrated from 100 percent equities to our current allocation of 60 percent equities and 40 percent fixed-income . the historical actual rate of return for the fixed income of 8.2 percent is since inception ( 13 years , 11 months ) . the expected long-term rate of return on plan assets assumption for non-u.s. pension plans was a weighted-average of 6.21 percent in 2019 compared to 6.20 percent in 2018 and 6.21 percent in 2017. the expected long-term rate of return on plan assets assumption used in each non-u.s. plan is determined on a plan-by-plan basis for each local jurisdiction and is based on expected future returns for the investment mix of assets currently in the portfolio for that plan . management , in conjunction with our external financial advisors , develops expected rates of return for each plan , considers expected long-term returns for each asset category in the plan , reviews expectations for inflation for each local jurisdiction , and estimates the effect of active management of the plan 's assets . our largest non-u.s. pension plans are in the united kingdom and germany . the expected long-term rate of return on plan assets for the united kingdom was 6.75 percent and the expected long-term rate of return on plan assets for germany was 5.75 percent . management , in conjunction with our external financial advisors , uses actual historical returns of the asset portfolio to assess the reasonableness of the expected rate of return for each plan . the projected salary increase assumption is based on historic trends and comparisons to the external market . higher rates of increase result in higher pension expenses . as this rate is also a long-term expected rate , it is less likely to change on an annual basis . in the u.s. , we have used the rate of 4.50 percent for 2019 , 2018 and 2017. benefits under the u.s. pension plan were locked-in as of may 31 , 2011 and no longer include compensation increases . the 4.50 percent rate is for the supplemental executive retirement plan only . projected salary increase assumptions for non-u.s. plans are determined in a manner consistent with the u.s. plans . goodwill goodwill is the excess of cost of an acquired entity over the amounts assigned to assets acquired and liabilities assumed in a purchase business combination . goodwill is allocated to our reporting units , which are our operating segments or one level below our operating segments ( the component level ) . reporting units are determined by the discrete financial information available for the component and whether it is regularly reviewed by segment management . components are aggregated into a single reporting unit if they share similar economic characteristics . our reporting units are as follows : americas adhesives , eimea , asia pacific , flooring , roofing , specialty construction , engineering adhesives and tonsan . we evaluate our goodwill for impairment annually during the fourth quarter or earlier upon the occurrence of substantive unfavorable changes in economic conditions , industry trends , costs , cash flows , or ongoing declines in market capitalization .
| summary of cash flows cash flows from operating activities ( $ in millions ) 2019 2018 2017 net cash provided by operating activities $ 269.2 $ 253.3 $ 166.3 net income including non-controlling interest was $ 130.8 million in 2019 , $ 171.2 million in 2018 and $ 59.5 million in 2017. depreciation and amortization expense totaled $ 141.2 million in 2019 compared to $ 145.1 million in 2018 and $ 87.3 million in 2017. the higher depreciation and amortization expense in 2019 and 2018 was directly related to the assets acquired in our business acquisitions . changes in net working capital ( trade receivables , inventory and trade payables ) accounted for a source of cash of $ 5.5 million , a use of cash of $ 31.1 million and a source of cash of $ 8.9 million in 2019 , 2018 and 2017 , respectively . following is an assessment of each of the net working capital components : ● trade receivables , net – changes in trade receivables resulted in a $ 25.6 million use of cash in 2019 compared to a $ 39.4 million and $ 26.8 million use of cash in 2018 and 2017 , respectively . the lower use of cash in 2019 compared to 2018 was related to lower net revenue and lower trade receivables compared to the prior year . the higher use of cash in 2018 was related to higher net revenue and an increase in trade receivables compared to 2017. the dso was 59 days at november 30 , 2019 , 56 days at december 1 , 2018 and 61 days at december 2 , 2017 . ● inventory – changes in inventory resulted in a $ 19.6 million source of cash in 2019 compared to a $ 17.1 million and an $ 8.7 million use of cash in 2018 and 2017 , respectively .
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the compensation committee has not set a base salary for the ceo at any fixed level as against comparable positions , but instead considers the ceo 's compensation each year based on all of the factors discussed in this cda , including , but not limited to , the individual officers ' performance , the officer 's potential to enhance long-term shareholder value , and overall company performance . base salary for our named executive officers , other than the ceo , were primarily determined based upon the general knowledge of the ceo with input and recommendations from the vice president of human resources , and base salaries paid to similarly positioned company executives within the company , the terms of any contractual arrangements , salaries paid historically , tax and accounting issues and , when appropriate , personal performance as assessed by the compensation committee and the ceo . no formulaic base salary adjustments were provided to the named executive officers in fiscal story_separator_special_tag story_separator_special_tag included fees related to the restatement and associated investigations of $ 42.9 million and recognition of previously deferred software systems revenues and costs , net of current period deferrals , of $ 19.1 million . without these items we would have had operating income of $ 16.4 million and a non-gaap operating loss of $ 1.9 million . operating income in fiscal 2011 of $ 19.8 million included fees related to the restatement and associated investigations of $ 49.2 million and recognition of previously deferred software systems revenues and costs , net of current period deferrals , of $ 62.3 million . without these items we would have had operating income of $ 6.7 million and non-gaap operating income of $ 23.2 million . operating results and non-gaap operating results were lower in fiscal 2012 than fiscal 2011 primarily due to the above reasons and a decrease in computer systems results of approximately $ 12.8 million due to lower transaction volumes , pricing and maintenance levels with relatively fixed costs of revenue and investment in developing our directory assistance software platform into full-featured call center software and a decrease in staffing services non-gaap results of approximately $ 12.6 million due to lower traditional staffing margins on higher revenues and efforts to expand our higher margin retail business . other income ( expense ) , net : other expense remained relatively flat at $ 3.8 million in fiscal 2012 and $ 4.5 million in fiscal 2011. income tax provision ( benefit ) : income tax provision in fiscal 2012 amounted to $ 2.4 million primarily related to locations outside of the united states , compared to a benefit of $ 0.3 million in fiscal 2011. results of operations by segments ( fiscal 2012 vs. fiscal 2011 ) staffing services net revenue : the segment 's net revenue in fiscal 2012 increased $ 69.7 million to $ 2,027.6 million from $ 1,957.9 million in fiscal 2011 , and non-gaap net revenue increased by $ 34.7 million , or 1.8 % , to $ 2,009.2 million from $ 1,974.5 in fiscal 2011. this increase is primarily due to more contingent staff on assignments , an increase in call center , games testing and other project-based staffing services revenues and recognition of $ 34.9 million of previously deferred revenue , net of current period deferrals . on average , approximately 32,000 u.s. staffing employees were on assignment throughout fiscal 2012 , compared to approximately 31,600 in 2011 . 28 direct cost of staffing services revenue : the segment 's direct cost of staffing services revenue in fiscal 2012 increased $ 40.2 million , or 2.4 % , to $ 1,738.9 million from $ 1,698.7 million in fiscal 2011. this increase is primarily a result of increased contingent staff on assignment at slightly lower margins and a decrease of $ 3.9 million in the hire act payroll tax benefits offset by slightly higher project-based margins compared to fiscal 2011. direct margin of staffing services revenue as a percent of staffing revenue and non-gaap staffing revenue in fiscal 2012 was 14.2 % and 13.2 % from 13.3 % and 14.0 % in fiscal 2011 , respectively . the gaap percentage increase was primarily due to the change in net deferrals and recognition of staffing revenues . the non-gaap percentage decrease was primarily due to the lower payroll tax benefits . selling , administrative and other operating costs : the segment 's selling , administrative and other operating costs in fiscal 2012 increased $ 7.1 million , or 2.9 % , to $ 251.4 million from $ 244.3 million in fiscal 2011. the increase was primarily the result of efforts to expand our higher-margin retail business resulting in hiring more sales , delivery and support employees while revenues lag these costs during the sales cycle ramp-up , although at full ramp-up these costs remain proportionately higher than our larger national accounts business . segment operating income : the segment 's operating income in fiscal 2012 increased $ 22.4 million to $ 37.2 million from $ 14.8 million in fiscal 2011 , and non-gaap operating income decreased by $ 12.5 million or 40.0 % to $ 18.9 million from $ 31.4 million in fiscal 2011. the change in operating income is primarily due to a change in net deferral of staffing revenues of $ 34.9 million . in addition , non-gaap operating income was lower in fiscal 2012 than fiscal 2011 due to lower traditional staffing margins on the increased revenues , lower hire act payroll tax benefits , and our efforts to expand our higher margin retail business . story_separator_special_tag direct cost of staffing services revenue : direct cost of staffing services revenue in the first nine months of fiscal 2012 increased $ 34.1 million , or 2.7 % , to $ 1,298.3 million from $ 1,264.2 million in fiscal 2011. this increase is primarily a result of increased contingent staff on assignment at slightly lower margins offset by slightly higher project based margins compared to fiscal 2011. direct margin of staffing services revenue as a percent of staffing revenue and non-gaap staffing revenue in fiscal 2012 was 13.9 % and 13.0 % from 13.1 % and 13.7 % in fiscal 2011 , respectively . the gaap percentage increase was primarily due to the change in net deferral and recognition of staffing revenues . the non-gaap percentage decrease was primarily due to slightly lower margins on traditional staffing revenues . 31 cost of other revenue : cost of other revenue in the first nine months of fiscal 2012 increased $ 4.5 million , or 3.7 % , to $ 124.5 million from $ 120.0 million in fiscal 2011. this increase was primarily a result of computer systems costs that did not decrease proportionally with the decrease in computer systems revenue due to our ongoing investment in developing our directory assistance software platform into full featured call center software and relatively fixed data acquisition cost , increased costs related to higher it maintenance revenues offset by decreased costs for the telecommunications business primarily from the result of exiting certain unprofitable business lines . selling , administrative and other operating costs : selling , administrative and other operating costs in the first nine months of fiscal 2012 increased $ 1.7 million , or 0.8 % , to $ 221.0 from $ 219.3 million in fiscal 2011 , generally in line with the similar revenues in each period . fees related to restatement and associated investigations : fees related to our restatement and associated investigations are comprised of legal , consulting and accounting expenses and amounted to $ 28.0 million and $ 37.8 million in the first nine months of fiscal 2012 and fiscal 2011 , respectively . the decreased costs were a result of the decreased level of effort of outside consultants as fiscal 2011 focused on data gathering which had largely been completed by that year end and fiscal 2012 was focused on completing accounting and control assessments and auditing . operating income ( loss ) : operating loss in the first nine months of fiscal 2012 of $ 6.9 million included fees related to the restatement and associated investigations of $ 28.0 million and recognition of previously deferred software systems revenues and costs , net of current period deferrals , of $ 19.9 million . without these items we would have had operating income of $ 1.2 million and a non-gaap operating loss of $ 14.8 million . operating income in the first nine months of fiscal 2011 of $ 1.6 million included fees related to the restatement and associated investigations of $ 37.8 million and recognition of previously deferred software systems revenues and costs , net of current period deferrals , of $ 42.5 million . without these items we would have had an operating loss of $ 3.1 million and non-gaap operating income of $ 6.9 million . operating results and non-gaap operating results were lower in fiscal 2012 than fiscal 2011 primarily due to the above reasons and a decrease in staffing services non-gaap results of approximately $ 9.2 million due to lower traditional staffing margins on higher revenues and efforts to expand our higher margin retail business offset by a decrease in computer systems results of approximately $ 10.6 million due to lower transaction volumes , pricing and maintenance levels with relatively fixed costs of revenue and investment in developing our directory assistance software platform into full-featured call center software . other income ( expense ) , net : other expense in the first nine months of fiscal 2012 decreased $ 1.7 million , or 40.7 % , to $ 2.4 million from $ 4.1 million in fiscal 2011 primarily related to foreign exchange gains and losses . income tax provision ( benefit ) : income tax provision in the first nine months of fiscal 2012 amounted to $ 2.3 million primarily related to locations outside of the united states , compared to a benefit of $ 2.2 million in fiscal 2011. results of operations by segments ( q3 2012 ytd vs. q3 2011 ytd ) staffing services net revenue : the segment 's net revenue in the first nine months of fiscal 2012 increased $ 54.2 million to $ 1,508.6 million from $ 1,454.4 million in fiscal 2011 , and non-gaap net revenue increased by $ 28.1 million or 1.9 % to $ 1,492.6 million from $ 1,464.5 million in fiscal 2011. this increase is primarily due to increased contingent staffing , although at lower average bill rates , an increase in call center , games testing and other project-based staffing services revenue from increased volume in all practice areas , and recognition of $ 26.0 million of previously deferred revenue , net of current period deferrals . on average , approximately 31,600 u.s. staffing employees were on assignment in the first nine months of fiscal 2012 , compared to approximately 31,500 in fiscal 2011 . 32 direct cost of staffing services revenue : the segment 's direct cost of staffing services revenue in the first nine months of fiscal 2012 increased $ 34.1 million , or 2.7 % , to $ 1,298.3 million from $ 1,264.2 million in fiscal 2011. this increase is primarily a result of increased contingent staff on assignment at slightly lower margins offset by slightly higher project based margins compared to fiscal 2011. direct margin of staffing services revenue as a percent of staffing revenue and non-gaap staffing revenue in fiscal 2012 was 13.9 % and 13.0 % from 13.1 % and 13.7 % in fiscal 2011 , respectively .
| overview the demand for our services in all segments , both domestically and in our foreign operations , is dependent upon general economic conditions . our business suffers during economic downturns . since late fiscal 2008 , the slowing of the economy adversely affected our revenue . although unemployment rates in the united states remained high during 2011 and 2012 , throughout fiscal 2011 and 2012 the domestic u.s. economic growth resulted in increased demand for our staffing and consulting services . the overall job growth in the economy has shown a gradual upward trend from 2011. while we experienced modest growth in our staffing business in fiscal 2011 and 2012 , our revenues remain lower than pre-2008 recession levels . our staffing services segment 's revenue and operating income are typically lowest in our first fiscal quarter due to the thanksgiving , christmas and new year holidays , certain customer facilities closures during the holidays for one to two weeks , and closures caused by severe winter weather conditions . the demand for our staffing services typically increases during the third and fourth quarters of the fiscal year when annual payroll tax contribution maximums for higher salaried employees have been met , and customers increase the use of our administrative and industrial labor during the summer vacation period . our computer systems segment has seen a decline in the volume of directory assistance transactions and lower data pricing , along with reduced directory assistance project revenue , as consumers increasingly utilize free listings offered by alternative sources such as listings available on the internet , as well as from consolidation in the telecommunications industry . as a result , telecommunications companies are no longer starting large new systems development projects , and the amortization of previously deferred revenue net of deferred costs is declining as the previous large implementations reach the end of the maintenance periods over which the projects were being amortized .
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the company generates almost all of its revenues from the bank , which was chartered as a national bank under the laws of the united states on may 30 , 1864. the bank , which has sixteen offices along coastal and eastern maine , emphasizes personal service to the communities it serves , concentrating primarily on small businesses and individuals . the bank offers a wide variety of traditional banking services and derives the majority of its revenues from net interest income – the spread between what it earns on loans and investments and what it pays for deposits and borrowed funds . while net interest income typically increases as earning assets grow , the spread can vary up or down depending on the level and direction of movements in interest rates . management believes the bank has modest exposure to changes in interest rates , as discussed in `` interest rate risk management '' elsewhere in management 's discussion . the banking business in the bank 's market area historically has been seasonal with lower deposits in the winter and spring and higher deposits in the summer and fall . this seasonal swing is fairly predictable and has not had a materially adverse effect on the bank . non-interest income is the bank 's secondary source of revenue and includes fees and service charges on deposit accounts , income from the sale and servicing of mortgage loans , and income from investment management and private banking services through first advisors , a division of the bank . forward-looking statements this report contains statements that are `` forward-looking statements . '' we may also make written or oral forward-looking statements in other documents we file with the sec , in our annual reports to shareholders , in press releases and other written materials , and in oral statements made by our officers , directors or employees . you can identify forward-looking statements by the use of the words `` believe '' , `` expect '' , `` anticipate '' , `` intend '' , `` estimate '' , `` assume '' , `` outlook '' , `` will '' , `` should '' , `` may '' , `` might , `` could '' , and other expressions that predict or indicate future events or trends and which do not relate to historical matters . you should not rely on forward-looking statements , because they involve known and unknown risks , uncertainties and other factors , some of which are beyond the control of the company . these risks , uncertainties and other factors may cause the actual results , performance or achievements of the company to be materially different from the anticipated future results , performance or achievements expressed or implied by the forward-looking statements . some of the factors that might cause these differences include the following : changes in general national , regional or international economic conditions or conditions affecting the banking or financial services industries or financial capital markets , volatility and disruption in national and international financial markets , government intervention in the u.s. financial system , reductions in net interest income resulting from interest rate volatility as well as changes in the balance and mix of loans and deposits , reductions in the market value of wealth management assets under administration , changes in the value of securities and other assets , reductions in loan demand , changes in loan collectibility , default and charge-off rates , changes in the size and nature of the company 's competition , changes in legislation or regulation and accounting principles , policies and guidelines , and changes in the assumptions used in making such forward-looking statements . in addition , the factors described under `` risk factors '' in item 1a of this annual report on form 10-k , may result in these differences . you should carefully review all of these factors , and you should be aware that there may be other factors that could cause these differences . these forward-looking statements were based on information , plans and estimates at the date of this annual report , and we assume no obligation to update any forward-looking statements to reflect changes in underlying assumptions or factors , new information , future events or other changes . although the company believes that the expectations reflected in such forward-looking statements are reasonable , actual results may differ materially from the results discussed in these forward-looking statements . readers are cautioned not to place undue reliance on these forward-looking statements , which speak only as of the date hereof . the company undertakes no obligation to republish revised forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events . readers are also urged to carefully review and consider the various disclosures made by the company , which attempt to advise interested parties of the factors that affect the company 's business . the first bancorp - 2012 form 10-k - page 27 critical accounting policies management 's discussion and analysis of the company 's financial condition and results of operation is based on the consolidated financial statements which are prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of such financial statements requires management to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenues and expenses and related disclosure of contingent assets and liabilities . on an ongoing basis , management evaluates its estimates , including those related to the allowance for loan losses , goodwill , the valuation of mortgage servicing rights , and other-than-temporary impairment on securities . management bases its 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 in making judgments about the carrying values of assets that are not readily apparent from other sources . actual results could differ from the amounts derived from management 's estimates and assumptions under different assumptions or conditions . story_separator_special_tag an amount equal to the tax benefit derived from this tax exempt income has been added back to the interest income total , which adjustments increased net interest income accordingly . management believes the disclosure of tax-equivalent net interest income information improves the clarity of financial analysis , and is particularly useful to investors in understanding and evaluating the changes and trends in the company 's results of operations . other financial institutions commonly present net interest income on a tax-equivalent basis . this adjustment is considered helpful in the comparison of one financial institution 's net interest income to that of another institution , as each will have a different proportion of tax-exempt interest from its earning assets . moreover , net interest income is a component of a second financial measure commonly used by financial institutions , net interest margin , which is the ratio of net interest income to average earning assets . for purposes of this measure as well , other financial institutions generally use tax-equivalent net interest income to provide a better basis of comparison from institution to institution . the company follows these practices . the following table provides a reconciliation of tax-equivalent financial information to the company 's consolidated financial statements , which have been prepared in accordance with gaap . a 35.0 % tax rate was used in 2012 , 2011 and 2010. replace_table_token_4_th the company presents its efficiency ratio using non-gaap information . the gaap-based efficiency ratio is noninterest expenses divided by net interest income plus noninterest income from the consolidated statements of income and comprehensive income . the non-gaap efficiency ratio excludes securities losses and other-than-temporary impairment charges from noninterest expenses , excludes securities gains from noninterest income , and adds the tax-equivalent adjustment to net interest income . the following table provides a reconciliation between the gaap and non-gaap efficiency ratio : replace_table_token_5_th the first bancorp - 2012 form 10-k - page 29 the company presents certain information based upon average tangible common shareholders ' equity instead of total average shareholders ' equity . the difference between these two measures is the company 's intangible assets , specifically goodwill from prior acquisitions , and preferred stock . management , banking regulators and many stock analysts use the tangible common equity ratio and the tangible book value per common share in conjunction with more traditional bank capital ratios to compare the capital adequacy of banking organizations with significant amounts of goodwill or other intangible assets , typically stemming from the use of the purchase accounting method in accounting for mergers and acquisitions . the following table provides a reconciliation of tangible average shareholders ' equity to the company 's consolidated financial statements , which have been prepared in accordance with gaap : replace_table_token_6_th story_separator_special_tag for loan losses was $ 7.8 million in 2012 compared to $ 10.5 million in 2011. this was 0.55 % of average assets in 2012 , compared to 0.30 % of average assets for our peer group . the allowance for loan losses stood at 1.44 % of total loans as of december 31 , 2012 , compared to 1.50 % a year ago . given the number of economic uncertainties at this time , management believes it is prudent to continue to provide for loan losses and that the current level is directionally consistent with the credit quality seen in the portfolio . a further discussion of asset and credit quality can be found in `` assets and asset quality '' . credit quality improved significantly in 2012 which enabled the company to provision less in 2012 than in 2011. net loan chargeoffs were $ 8.3 million or 0.95 % of average loans , down $ 2.6 million from net chargeoffs of $ 10.9 million or 1.23 % of average loans in 2011. non-performing assets stood at 1.89 % of total assets as of december 31 , 2012 compared to 2.32 % of total assets at december 31 , 2011. past-due loans were 2.67 % of total loans as of december 31 , 2012 , the lowest year-end total in the past five years and well below 3.07 % of total loans as of december 31 , 2011. net income net income for 2012 was $ 12.7 million , up 2.6 % or $ 324,000 from net income of $ 12.4 million that was posted in 2011. earnings per share on a fully diluted basis were $ 1.22 , up $ 0.08 or 7.0 % from the $ 1.14 reported for the year ended december 31 , 2011. key ratios return on average assets in 2012 was 0.89 % , up from the 0.87 % and equal to the 0.89 % posted in 2011 and 2010 respectively . return on average tangible common equity was 10.40 % in 2012 , compared to 10.80 % in 2011 and 10.97 % in 2010. in 2012 , the company 's dividend payout ratio ( dividends declared per share divided by earnings per share ) was 63.93 % , compared to 68.42 % in 2011 and 70.91 % in 2010. the company 's efficiency ratio – a benchmark measure of the amount spent to generate a dollar of income – was 51.01 % in 2012 compared to 66.37 % for the bank 's peer group , on average . in 2011 , the company 's efficiency ratio was 49.75 % compared to 66.26 % for the bank 's peer group , on average . investment management and fiduciary activities as of december 31 , 2012 , first advisors , the bank 's private banking and investment management division , had assets under management with a market value of $ 651.3 million , consisting of 834 trust accounts , estate accounts , agency accounts , and self-directed individual retirement accounts . this compares to december 31 , 2011 , when 730 accounts with a market value of $ 619.3 million were under management .
| executive summary net income for the year ended december 31 , 2012 was $ 12.7 million , up $ 324,000 or 2.6 % from the $ 12.4 million posted for the year ended december 31 , 2011. earnings per common share on a fully diluted basis were $ 1.22 for the year ended december 31 , 2012 , up $ 0.08 or 7.0 % from the $ 1.14 posted for the year ended december 31 , 2011. net interest income on a tax-equivalent basis declined $ 1.7 million or 3.9 % for the year ended december 31 , 2012 compared to the year ended december 31 , 2011. this decrease was attributable to margin compression due to the unprecedented low interest rate environment now entering its fifth straight year . as a result , our net interest margin slipped from 3.27 % in 2011 to 3.14 % in 2012. this year-over-year decline in net interest income was offset by a lower provision for loan losses . during 2012 , total assets increased $ 42.1 million or 3.1 % . the loan portfolio was up $ 4.3 million or 0.5 % . the investment portfolio was up $ 25.1 million or 5.9 % for the year . on the liability side of the balance sheet , low-cost deposits have increased $ 59.7 million or 19.1 % for the year . we continue to see an inflow of low-cost deposits due to the low interest rate environment and had a $ 25 million lift in low-cost deposits in the fourth quarter due to the acquisition of the former bank of america branch in rockland . local certificates of deposit decreased $ 874,000 or 4.0 % .
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ralston 's report on the financial statements for the years ended june 30 , 2014 , and 2013 , contained no adverse opinion or disclaimer of opinion and was not qualified or modified as to audit scope or accounting , except that the report contained an explanatory paragraph stating that there was substantial doubt about the company 's ability to continue as a going concern . our board of directors participated in and approved the decision to change independent accountants . through the period covered by the financial review of financial statements of the quarterly period june 30 , 2014 , there have been no disagreements with ralston on any matter of accounting principles or practices , financial statement disclosure , or auditing scope or procedure , which disagreements , if not resolved to the satisfaction of ralston , would have caused them to make reference thereto in their report on the financial statements . through the interim period august 8 , 2014 ( the date of resignation of the former accountant ) , there have been no disagreements with ralston on any matter of accounting principles or practices , financial statement disclosure , or auditing scope or procedure , which disagreements if not resolved to the satisfaction of ralston would have caused them to make reference thereto in their report on the financial statements . on january 15 , 2015 the company engaged weinberg & baer certified public accountants ( “ weinberg ” ) as our independent accountants for the period ending september 30 , 2014. the board made the decision to engage weinberg acting under authority delegated to it and the board of directors approved the same on january 14 , 2015. during the years ended june 30 , 2014 and 2013 , and prior to january 15 , 2015 ( the date of the new engagement ) , we did not consult with weinberg regarding ( i ) the application of accounting principles to a specified transaction , ( ii ) the type of audit opinion that might be rendered on the company 's financial statements by weinberg , in either case where written or oral advice provided by weinberg would be an important factor considered by us in reaching a decision as to any accounting , auditing or financial reporting issues or ( iii ) any other matter that was the subject of a disagreement between us and our former auditor or was a reportable event ( as described in items 304 ( a ) ( 1 ) ( iv ) or item 304 ( a ) ( 1 ) ( v ) of regulation s-k , respectively . on may 4 , 2015 , weinberg was dismissed as the company 's independent accountant . weinberg has no issued a report on the financial statements for the years ended june 30 , 2014 and 2013. these year ends were audited by ralston and contained no adverse opinion or disclaimer of opinion and was not qualified or modified as to audit scope or accounting , except that the report contained an explanatory paragraph stating that there was substantial doubt about the company 's ability to continue as a going concern . our board of directors participated in and approved the decision to change independent accountants . through the period covered by the financial review of financial statements of the quarterly period december 31 , 2014 , there have been no disagreements with weinberg on any matter of accounting principles or practices , financial statement disclosure , or auditing scope or procedure , which disagreements , if not resolved to the satisfaction of weinberg , would have caused them to make reference thereto in their report on the financial statements . through the interim period may 4 , 2015 ( the date of dismissal of the former accountant ) , there have been no disagreements with weinberg on any matter of accounting principles or practices , financial statement disclosure , or auditing scope or procedure , which disagreements if not resolved to the satisfaction of weinberg would have caused them to make reference thereto in their report on the financial statements . on may 4 , 2015 the company engaged green & company , cpas ( “ green ” ) of tampa , florida , as its new registered independent public accountant . during the years ended june 30 , 2014 and 2013 , and prior to may 4 , 2015 ( the date of the new engagement ) , we did not consult with green regarding ( i ) the application of accounting principles to a specified transaction , ( ii ) the type of audit opinion that might be rendered on the company 's financial statements by green , in either case where written or oral advice provided by green would be an important factor considered by us in reaching a decision as to any accounting , auditing or financial reporting issues or ( iii ) any other matter that was the subject of a disagreement between us and our former auditor or was a reportable event ( as described in items 304 ( a ) ( 1 ) ( iv ) or item 304 ( a ) ( 1 ) ( v ) of regulation s-k , respectively ) . item 9a . controls and procedures . management 's annual report on internal control over financial reporting management of the company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in rule 13a-15 ( f ) and 15d-15 ( f ) under the exchange act . story_separator_special_tag upon conversion or exercise of a derivative instrument , the instrument is marked to fair value at the conversion date and then that fair value is reclassified to equity . equity instruments that are initially classified as equity that become subject to reclassification under this accounting standard are reclassified to liability at the fair value of the instrument on the reclassification date . impairment of long-lived assets . the company accounts for long-lived assets in accordance with the provisions of statement of financial accounting standards asc 360-10 , “ accounting for the impairment or disposal of long-lived assets ” . this statement requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable . recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset . if such assets are considered to be impaired , the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets . assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell . fair value of financial instruments and fair value measurements . the company measures their financial assets and liabilities in accordance with generally accepted accounting principles . for certain of our financial instruments , including cash , accounts payable , accrued expenses escrow liability and short-term loans the carrying amounts approximate fair value due to their short maturities . we have adopted accounting guidance for financial and non-financial assets and liabilities . the adoption did not have a material impact on our results of operations , financial position or liquidity . this standard defines fair value , provides guidance for measuring fair value and requires certain disclosures . this standard does not require any new fair value measurements , but rather applies to all other accounting pronouncements that require or permit fair value measurements . this guidance does not apply to measurements related to share-based payments . this guidance discusses valuation techniques , such as the market approach ( comparable market prices ) , the income approach ( present value of future income or cash flow ) , and the cost approach ( cost to replace the service capacity of an asset or replacement cost ) . the guidance utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels . the following is a brief description of those three levels : 14 level 1 : observable inputs such as quoted prices ( unadjusted ) in active markets for identical assets or liabilities . level 2 : inputs other than quoted prices that are observable , either directly or indirectly . these include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active . level 3 : unobservable inputs in which little or no market data exists , therefore developed using estimates and assumptions developed by us , which reflect those that a market participant would use . revenue recognition . the company recognizes revenue for our services in accordance with asc 605-10 , `` revenue recognition in financial statements . '' under these guidelines , revenue is recognized on transactions when all of the following exist : persuasive evidence of an arrangement did exist , delivery of service has occurred , the sales price to the buyer is fixed or determinable and collectability is reasonably assured . the company has five primary revenue streams as follows : consulting services . advertising services . branding , marketing and selling products for companies . educational seminars . selling branded products . stock-based compensation . the company accounts for stock-based instruments issued to employees in accordance with asc topic 718. asc topic 718 requires companies to recognize in the statement of operations the grant-date fair value of stock options and other equity based compensation issued to employees . the company accounts for non-employee share-based awards in accordance with asc topic 505-50. the value of the portion of an award that is ultimately expected to vest is recognized as an expense over the requisite service periods using the straight-line attribution method . the company estimates the fair value of each stock option at the grant date by using the black-scholes option-pricing model . the company estimates the fair value of each stock option at the grant date by using the black-scholes option-pricing model . non-gaap financial measures adjusted net earnings in addition to reporting net loss from operations as defined under generally accepted accounting principles ( “ gaap ” ) , the company presents adjusted net earnings from operations ( adjusted net earnings ) , which is a non-gaap performance measure . adjusted net earnings consist of net loss from operations after adjustment for those items shown in the table below . adjusted net earnings does not represent , and should not be considered an alternative to , gaap measurements such as net loss from operations ( its most comparable gaap financial measure ) , and the company 's calculations thereof may not be comparable to similarly titled measures reported by other companies . by eliminating the items shown below , the company believes that the measure is useful to investors because similar measures are frequently used by securities analysts , investors , and other interested parties in their evaluation of companies . the company 's management does not view adjusted net earnings in isolation and also uses other measurements , such as net loss from operation and revenues to measure operating performance . the following table provides a reconciliation of net loss from operations , the most directly comparable gaap measure , to
| results of operations revenue . for the year ended june 30 , 2016 , our revenue was $ 118,473 , compared to $ 48,674 for the same period in 2015. this increase in revenue was attributable to increased sales related to increased magazine subscriptions and licensing fees . operating expenses : direct costs of revenue . for the year ended june 30 , 2016 , direct costs of revenue were $ 132,381 compared to $ 213,604 for the same period in 2015. as a percent of revenue , direct costs of revenue were 111.7 % and 438.8 % , respectively , for 2016 and 2015. general and administrative expenses . for the year ended june 30 , 2016 , general and administrative expenses were $ 2,685,025 compared to $ 768,938 for the same period in 2015. the increase was due to the increase in operations and stock-based compensation ( $ 2,258,863 compared to $ 12,500 for the years ended june 30 , 2016 and 2015 , respectively ) . net loss . we generated net losses of $ 3,011,220 for the year ended june 30 , 2016 , compared to $ 999,118 for the same period in 2015. liquidity and capital resources general . at june 30 , 2016 , we had cash and cash equivalents of $ 1,758. we have historically met our cash needs through a combination of cash flows from operating activities and proceeds from private placements of our securities and loans . our cash requirements are generally for selling , general and administrative activities . we believe that our cash balance is not sufficient to finance our cash requirements for expected operational activities , capital improvements , and partial repayment of debt through the next 12 months .
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the income approach uses a discounted cash flow methodology to determine fair value . this methodology recognizes value based on the expected receipt of future economic benefits . key assumptions in the income approach include a free cash flow projection , an estimated discount rate , a long-term growth rate and a terminal value . these assumptions are based upon the company 's historical experience , current market trends and future expectations . the company performed step one of the two-step impairment test for the duff-norton reporting unit . based on the results of the two-step impairment test , the company determined that the duff-norton reporting unit 's fair value was not less than its applicable carrying value . future impairment indicators , such as declines in forecasted cash flows , may cause story_separator_special_tag this section should be read in conjunction with our consolidated financial statements included elsewhere in this annual report . comments on the results of operations and financial condition below refer to our continuing operations , except in the section entitled “ discontinued operations. ” executive overview we are a leading worldwide designer , manufacturer and marketer of material handling products , systems and services which efficiently and safely move , lift , position and secure material . key products include hoists , actuators , cranes and rigging tools . the company is focused on serving commercial and industrial applications that require the safety and quality provided by the company 's superior design and engineering know-how . founded in 1875 , we have grown to our current size and leadership position through organic growth and acquisitions . we developed our leading market position over our 139-year history by emphasizing technological innovation , manufacturing excellence and superior after-sale service . in addition , acquisitions significantly broadened our product lines and services and expanded our geographic reach , end-user markets and customer base . ongoing initiatives include improving our productivity and increasing penetration of the asian , latin american and european marketplaces . in accordance with our strategy , we have been investing in our sales and marketing activities , new product development and “ lean ” efforts across the company . shareholder value will be enhanced through continued emphasis on market expansion , customer satisfaction , new product development , manufacturing efficiency , cost containment , and efficient capital investment . over the course of our history , we have managed through many business cycles and our solid cash flow profile has helped us grow and expand globally . we stand with a capital structure which includes sufficient cash reserves , significant revolver availability with an expiration of october 31 , 2017 , fixed-rate long-term debt which expires in 2019 and a solid cash flow business profile . additionally , our revenue base is geographically diverse with approximately 43 % derived from customers outside the u.s. for the year ended march 31 , 2014. we believe this will help balance the impact of changes that will occur in local economies as well as benefit the company from growth in emerging markets . as in the past , we monitor both u.s. and eurozone industrial capacity utilization statistics as indicators of anticipated demand for our products . since their june 2009 trough , these statistics have generally improved over the last several years . in addition , we continue to monitor the potential impact of other global and u.s. trends including industrial production , energy costs , steel price fluctuations , interest rates , foreign currency exchange rates and activity of end-user markets around the globe . from a strategic perspective , we are investing in global markets and new products as we focus on our greatest opportunities for growth . we maintain a strong north american market share with significant leading market positions in hoists , load chain , forged fittings and actuators . we seek to maintain and enhance our market share by focusing our sales and marketing activities toward select north american and global market sectors including energy , general industrial , entertainment , and mining . regardless of the economic climate and point in the economic cycle , we constantly explore ways to increase our operating margins as well as further improve our productivity and competitiveness . we have specific initiatives related to improved workplace safety , customer satisfaction , reduced defects , shortened lead times , improved inventory turns and on-time deliveries , reduced warranty costs , and improved working capital utilization . the initiatives are being driven by the continued implementation of our “ lean ” efforts which are fundamentally changing our manufacturing and business processes to be more responsive to customer demand and improving on-time delivery and productivity . in addition to “ lean , ” we are working to achieve these strategic initiatives through product simplification , the creation of centers of excellence , and improved supply chain management . we continuously monitor market prices of steel . we purchase approximately $ 30,000,000 to $ 40,000,000 of steel annually in a variety of forms including rod , wire , bar , structural and others . generally , as we experience fluctuations in our costs , we reflect them as price increases to our customers with the goal of being margin neutral . we are also looking for opportunities for growth via strategic acquisitions or joint ventures . the focus of our acquisition strategy centers on product line expansion in alignment with our existing core product offering and opportunities for non-u.s. market penetration . we operate in a highly competitive and global business environment . we face a variety of opportunities in those markets and geographies , including trends toward increased utilization of the global labor force and the expansion of market opportunities in asia and other emerging markets . while we continue to execute our long-term growth strategy , we are supported by our solid capital structure , including our cash position and flexible cost base . we are also aggressively pursuing cost reduction opportunities to enhance future margins . story_separator_special_tag interest on an outstanding borrowing used against the revolver is payable at varying rates depending on the type of outstanding borrowing and its associated interest rate plus its associated applicable rate . the two potential interest rates used are either a base rate ( equivalent to a fluctuating rate per annum equal to the higher of ( a ) the federal funds rate plus 1/2 of 1 % , ( b ) the rate of interest in effect for such day as publicly announced from time to time by bank of america as its “ prime rate. ” , or ( c ) libor plus 100 basis points ) or a eurocurrency rate ( equivalent to libor plus a mandatory cost ) . 27 the applicable rate is determined based on the pricing grid in the new revolving credit facility which varies based on the company 's total leverage ratio and borrowing type at march 31 , 2014. the mandatory cost is intended to compensate the lenders for the cost of european banking requirements . the corresponding credit agreement associated with the new revolving credit facility places certain debt covenant restrictions on the company , including certain financial requirements and restrictions on dividend payments , with which the company was in compliance as of march 31 , 2014. key financial covenants include a minimum fixed charge coverage ratio of 1.25x , a maximum total leverage ratio of 3.50x and maximum annual capital expenditures of $ 30,000,000. our actual fixed charges coverage ratio and total leverage ratio , as calculated per the terms of our new revolving credit facility , were 3.99x and 0.64x , respectively , at march 31 , 2014. in connection with the execution of the new revolving credit facility , it was determined that the borrowing capacity of each lender participating in this new agreement exceeded their borrowing capacities prior to the amendment . as a result , unamortized deferred financing costs associated with the agreement prior to its amendment remain deferred and are being amortized over the term of the new revolving credit facility . fees and other costs paid to execute the new revolving credit facility totaling $ 684,000 were recorded as additional deferred financing costs and are being amortized over the term of the new revolving credit facility . at march 31 , 2012 , the company had entered into an amended , restated and expanded revolving credit facility dated december 31 , 2009. the revolving credit facility provided availability up to a maximum of $ 85,000,000 and had an initial term ending december 31 , 2013. the revolving credit facility was replaced by the new revolving credit facility on october 19 , 2012. during the fourth quarter of fiscal year 2011 , the company refinanced its 8 7/8 % notes through the issuance of $ 150,000,000 principal amount of 7 7/8 % senior subordinated notes due 2019 in a private placement pursuant to rule 144a under the securities act of 1933 , as amended ( “ unregistered 7 7/8 % notes ” ) . the proceeds from the sale of the unregistered 7 7/8 % notes were used to repurchase or redeem all of the outstanding 8 7/8 % notes amounting to $ 124,855,000 and to fund working capital and other corporate activities . the offering price of the unregistered 7 7/8 % notes was 98.545 % after adjustment for the original issue discount . provisions of the unregistered 7 7/8 % notes include , without limitation , restrictions on indebtedness , asset sales , and dividends and other restrictive payments . on or after february 1 , 2015 , the unregistered 7 7/8 % notes are redeemable at the option of the company , in whole or in part , at a redemption price of 103.938 % , reducing to 100 % on february 1 , 2017. in the event of a change of control ( as defined in the indenture for such notes ) , each holder of the unregistered 7 7/8 % notes may require us to repurchase all or a portion of such holder 's unregistered 7 7/8 % notes at a purchase price equal to 101 % of the principal amount thereof . the unregistered 7 7/8 % notes are guaranteed by certain existing and future u.s. subsidiaries and are not subject to any sinking fund requirements . during the first quarter of fiscal year 2012 , the company exchanged its $ 150,000,000 outstanding unregistered 7 7/8 % notes for a like principal amount of 7 7/8 % senior subordinated notes due 2019 registered under the securities act of 1933 , as amended ( “ 7 7/8 % notes ” ) . all of the unregistered 7 7/8 % notes were exchanged in the transaction . the 7 7/8 % notes contain identical terms and provisions as the unregistered 7 7/8 % notes . the gross balances of deferred financing costs were $ 4,133,000 and $ 4,133,000 as of march 31 , 2014 and 2013 , respectively . the accumulated amortization balances were $ 1,531,000 and $ 934,000 as of march 31 , 2014 and 2013 , respectively . our capital lease obligations related to property and equipment leases amounted to $ 3,608,000 at march 31 , 2014. capital lease obligations are included in senior debt in the consolidated balance sheets . unsecured and uncommitted lines of credit are available to meet short-term working capital needs for certain of our subsidiaries operating outside of the u.s. the lines of credit are available on an offering basis , meaning that transactions under the line of credit will be on such terms and conditions , including interest rate , maturity , representations , covenants and events of default , as mutually agreed between our subsidiaries and the local bank at the time of each specific transaction . as of march 31 , 2014 , significant unsecured credit lines totaled approximately $ 7,160,000 , of which $ 0 was drawn .
| results of operations fiscal 2014 compared to 2013 fiscal 2014 sales were $ 583,290,000 , down 2.3 % , or $ 13,973,000 compared with fiscal 2013 sales of $ 597,263,000 . sales for the year were positively impacted by $ 10,218,000 by price increases , $ 4,983,000 by additional shipping days , and $ 470,000 due to net acquisition activity . sales for the year were negatively impacted $ 30,203,000 due to a decrease in sales volume . the decline in sales volume was due to weakness in our european business resulting from the impact of the recession and declines in our crane business servicing the heavy oem vertical market . favorable foreign currency translation impacted sales by $ 558,000. our gross profit was $ 181,048,000 and $ 174,231,000 or 31.0 % and 29.2 % of net sales in fiscal 2014 and 2013 , respectively . the fiscal 2014 increase in gross profit of $ 6,817,000 or 3.9 % is the result of $ 10,218,000 in price increases , $ 3,198,000 in increased productivity , and $ 2,554,000 due to net acquisition and divestiture activity , partially offset by $ 6,561,000 in decreased volume , $ 1,536,000 in material inflation , and $ 1,067,000 in increased product liability costs . foreign currency translation had an favorable impact on gross profit of $ 11,000. selling expenses were $ 68,963,000 and $ 65,608,000 or 11.8 % and 11.0 % of net sales in fiscal years 2014 and 2013 , respectively . the incremental increase in selling expenses relates to our recent acquisitions of hebetechnik and unified resulting in $ 1,464,000 of additional selling expenses as well as additional investments to grow our business in europe and latin america . additionally , foreign currency translation had a $ 378,000 favorable impact on selling expenses .
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diluted eps reflects the potential dilution that could occur if securities or other contracts story_separator_special_tag this discussion contains forward-looking statements that involve risks and uncertainties . our actual results could differ materially from those projected , forecasted or expected in these forward-looking statements as a result of various factors , including those which are discussed below and elsewhere in this information statement . the following discussion and analysis should be read in conjunction with the accompanying consolidated financial statements , related notes included thereto and “ item 1.a. , risk factors ” , appearing elsewhere in this annual report on form 10-k. overview fcpt is a publicly-traded reit that owns , acquires and leases restaurant and other retail properties on a primarily triple-net basis . our primary goal is to create long-term shareholder value through the payment of consistent cash dividends and the growth of our cash flow and asset base . to achieve this goal , our business strategy focuses on opportunistic acquisitions and asset and tenant diversification . on november 9 , 2015 , in connection with the separation and spin-off of fcpt from darden , darden contributed to us 100 % of the equity interest in entities that held 418 properties in which darden operates restaurants , representing five of their brands ( the “ four corners properties ” ) , and six longhorn steakhouse® restaurants located in the san antonio , texas area ( the “ kerrow restaurant operating business ” ) and the underlying properties or interests therein associated with the kerrow restaurant operating business . in exchange , we issued shares of our common stock which darden distributed to its shareholders . currently , we generate revenues primarily by leasing properties to darden and to other third-party tenants through triple-net lease arrangements under which the tenant is primarily responsible for ongoing costs relating to the properties , including utilities , property taxes , insurance , common area maintenance charges , and maintenance and repair costs ( “ triple-net ” ) . we also generate revenues by operating the kerrow restaurant operating business pursuant to franchise agreements with darden . as of december 31 , 2016 , our undepreciated gross investment in real estate totaled approximately $ 1.5 billion . we have elected to be taxed as a reit for federal income tax purposes commencing with the taxable year beginning january 1 , 2016. fcpt initiated acquisition activities in the second quarter of 2016 , and between july and december 2016 acquired 59 restaurants for a total investment of $ 94.1 million in 13 separate transactions , representing 13 additional brands , at a blended acquisition cap rate of 6.6 % . in addition , during the same period fcpt sold two properties for $ 24.8 million at a 4.75 % cap rate . the proceeds from the sales were used for a subsequent acquisition in the 1031 exchange market . as of december 31 , 2016 , fcpt owns 475 properties in its lease portfolio which are 100 % unencumbered and represent an aggregate leasable area of approximately 3.4 million square feet . the portfolio is 100 % occupied under leases with an average lease term of 13.7 years and has no assets under development . in addition to managing its existing properties , fcpt 's strategy in 2017 includes investing in additional restaurant and food service real estate properties to gro w and diversify its portfolio . the company intends to purchase properties that are well located and occupied by durable restaurant concepts with creditworthy tenants with investment grade ratings , whose operating cash flow are expected to meaningfully exceed their lease payments to fcpt . 32 story_separator_special_tag roman ; font-size:10pt ; color : # 000000 ; '' > food and beverage costs decreased approximately $ 0.1 million , or 0.7 % of revenues from 2015 to 2016 , due to a focus on inventory management and a decrease in beef prices during 2016. restaurant labor costs increased $ 0.7 million , or 3.7 % of revenues in 2016 compared to 2015 , due to an increase in hourly wages due to staffing challenges , increased management overhead , and a change in incentive compensation structure . other restaurant expenses ( which include utilities , common area maintenance charges , repairs and maintenance , credit card fees , lease expense , property tax , workers ' compensation , other restaurant-level operating expenses and administrative costs ) increased approximately $ 0.6 million , or 3.4 % of revenues in 2016 compared to 2015 , mainly due to the addition of franchise fees , brand fund expenses , rising utility costs , an increase in building/equipment maintenance , and one-time spin expenses . 34 year ended december 31 , 2015 versus year ended december 31 , 2014 restaurant revenues increased $ 0.6 million , or 3.5 % , in 2015 compared to 2014 , driven primarily by a 4.3 % increase in the average check as well as a 0.8 % increase in average guest counts . average annual revenue per restaurant was $ 3.06 million in 2015 compared to $ 2.9 million in 2014. total restaurant expenses increased appr oximately $ 0.05 million , but lower by 2.9 % of revenues due to favorable sales leverage . as a percent of revenues , total restaurant expenses decreased from 95.7 % in 2014 to 92.8 % in 2015. food and beverage costs increased approximately $ 0.2 million , but lower by 0.4 % of revenues from 2014 to 2015 , due to increased food costs , primarily beef during the year . restaurant labor costs increased approximately $ 0.05 million , but lower by 0.6 % of revenues from 2014 to 2015 primarily as a result of favorable sales leverage . other restaurant expenses decreased by approximately $ 0.2 million or 1.9 % of revenues 2015 compared to 2014 , primarily as a result of higher workers ' compensation costs , utilities , repairs and maintenance and media costs , partially offset by favorable sales leverage . story_separator_special_tag below market lease intangibles are generally amortized as an increase to rental revenue over the remaining initial term of the respective leases , but may be amortized over the renewal periods if the company believes it is likely the tenant will exercise the renewal option . should a lease terminate early , the unamortized portion of any related lease intangible is immediately recognized in impairment loss in the company 's consolidated and combined statements of operations . impairment of long-lived assets land , buildings and equipment and certain other assets , including definite-lived intangible assets , are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable . recoverability of assets to be held and used is measured by a comparison of the carrying amount of the assets to the future undiscounted net cash flows expected to be generated by the assets . identifiable cash flows are measured at the lowest level for which they are largely independent of the cash flows of other groups of assets and liabilities , generally at the restaurant level . if these assets are determined to be impaired , the amount of impairment recognized is measured by the amount by which the carrying amount of the assets exceeds their fair value . fair value is generally determined by appraisals or sales prices of comparable assets . the judgments we make related to the expected useful lives of long-lived assets and our ability to realize undiscounted cash flows in excess of the carrying amounts of these assets are affected by factors such as the ongoing maintenance and improvements of the assets , changes in economic conditions , changes in usage or operating performance , desirability of the restaurant sites and other factors , such as our ability to sell our assets held for sale . as we assess the ongoing expected cash flows and carrying amounts of our long-lived assets , significant adverse changes in these factors could cause us to realize a material impairment loss . 36 restaurant sites and certain other assets to be disposed of are reported at the lower of their carrying amount or fair value , less estimated costs to sell . restaurant sites and certain other assets to be disposed of are included in assets held for sale when certain criteria are met . these criteria include the requirement that the likelihood of disposing of these assets within one year is probable . assets whose disposal is not probable within one year remain in land , buildings and equipment until their disposal within one year is probable . disposals of assets that have a major effect on our operations and financial results or that represent a strategic shift in our operating businesses are reviewed to determine whether those assets would also meet the requirements to be reported as discontinued operations . exit or disposal activities include the cost of disposing of the assets and are generally expensed as incurred . upon disposal of the assets , any gain or loss is recorded in the same caption within our statements of comprehensive income as the original impairment . derivative instruments and hedging activities we enter into derivative instruments for risk management purposes only , including derivatives designated as hedging instruments as required by fasb asc topic 815 , derivatives and hedging , and those utilized as economic hedges . our use of derivative instruments is currently limited to interest rate hedges . these instruments are generally structured as hedges of the variability of cash flows related to forecasted transactions ( cash flow hedges ) . we do not enter into derivative instruments for trading or speculative purposes , where changes in the cash flows of the derivative are not expected to offset changes in cash flows of the hedged item . all derivatives are recognized on the balance sheet at fair value . for those derivative instruments for which we intend to elect hedge accounting , at the time the derivative contract is entered into , we document all relationships between hedging instruments and hedged items , as well as our risk-management objective and strategy for undertaking the various hedge transactions . this process includes linking all derivatives designated as cash flow hedges to specific assets and liabilities on the consolidated balance sheet or to specific forecasted transactions . we also formally assess , both at the hedge 's inception and on an ongoing basis , whether the derivatives used in hedging transactions are highly effective in offsetting changes in cash flows of hedged items . to the extent our derivatives are effective in offsetting the variability of the hedged cash flows , and otherwise meet the cash flow hedge accounting criteria in accordance with gaap , changes in the derivatives ' fair value are not included in current earnings but are included in accumulated other comprehensive income ( loss ) , net of tax . these changes in fair value will be reclassified into earnings at the time of the forecasted transaction . ineffectiveness measured in the hedging relationship is recorded currently in earnings in the period in which it occurs . revenue recognition for those triple-net leases that provide for periodic and determinable increases in base rent , base rental revenue is recognized on a straight-line basis over the applicable lease term when collectability is reasonably assured . recognizing rental income on a straight-line basis generally results in recognized revenues during the first half of a lease term exceeding the cash amounts contractually due from our tenants , creating a straight-line rent receivable . income from rent , lease termination fees and all other income is recognized when all of the following criteria are met in accordance with sec staff accounting bulletin 104 : ( i ) the applicable agreement has been fully executed and delivered ; ( ii ) services have been rendered ; ( iii ) the amount is fixed or determinable ; and ( iv ) collectability is reasonable assured .
| results of operations the results of operations for the accompanying consolidated and combined financial statements discussed below are derived from our consolidated statements of comprehensive income found elsewhere in this annual report on form 10-k. the following discussion includes the results of our continuing operations as summarized in the table below . replace_table_token_8_th we operate in two segments , real estate operations and restaurant operations . our real estate operations began on november 9 , 2015 , accordingly , comparisons to prior periods with respect to this segment are not meaningful . our real estate operations generate rental income associated with leases which we recognize on a straight-line basis to include the effects of base rent escalators . rental revenue was $ 105.6 million , driven principally by recognizing a full year of rental revenue from the initial darden portfolio . in addition , we acquired 59 properties in 2016 and sold 2 properties in 2016. the net addition to rental income from acquired properties less the impact of sold properties was $ 1.0 million . general and administrative expense comprises costs associated with staff , office rent , legal , accounting , information technology and other professional services and other administrative services in association with our lease operations and our reit structure and reporting requirements . depreciation and amortization expense represents the depreciation on real estate investments and the intangible lease assets recognized upon the acquisition of leased properties . depreciation and amortization increased for 2016 by approximately $ 16.8 million or 448 % principally as a result of the company having real estate operations for a full 12 month period in 2016 when compared to results for only the period from november 9 through december 31 in 2015. in the fourth quarter of 2016 , we sold two properties and realized a gain of $ 16.6 million .
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the following discussion and analysis of our financial condition and results of operations should be read in conjunction with the accompanying consolidated financial statements and notes thereto contained in item 8 , financial statements and supplementary data , to provide an understanding of our results of operations , financial condition and cash flows . this discussion and analysis contains forward-looking statements that involve risks , uncertainties and assumptions . the actual results may differ from those anticipated in these forward-looking statements as a result of many factors , including but not limited to those set forth under item 1a risk factors , the cautionary statement regarding forward-looking statements at the beginning of part i and elsewhere in this form 10-k. overview we are a leading atrial fibrillation ( afib ) solutions partner providing innovative products , professional education and support for clinical science to reduce the economic and social burden of afib . our synergy ablation system ( synergy system ) is the first and only device approved by the united states food and drug administration ( fda ) for the surgical treatment of persistent and long-standing persistent forms of afib in patients undergoing certain open concomitant procedures . we have three primary product lines for the ablation of cardiac tissue . our primary product line for the ablation of cardiac tissue is our synergy system , a bipolar ablation clamp system and related radio frequency ( rf ) ablation devices . we also offer a cryoablation product line , which features reusable and disposable cryoablation devices . additionally , we offer the atriclip gillinov-cosgrove left atrial appendage ( laa ) system ( atriclip system ) , which is designed to safely and effectively exclude the left atrial appendage and is the most widely implanted device for laa management worldwide . cardiothoracic surgeons have adopted our rf ablation and cryoablation systems to treat afib in an estimated 147,000 patients since january 2003 , and we believe that we are currently the market leader in the surgical treatment of afib . our products are utilized by cardiothoracic surgeons during concomitant open-heart surgical procedures and also during sole-therapy minimally invasive cardiac ablation procedures . during a concomitant open procedure , the surgeon ablates cardiac tissue and or excludes the left atrial appendage , secondary , or concomitant , to a primary cardiac procedure such as a valve or coronary bypass . additionally , although our products are not fda-approved for this specific use , cardiothoracic surgeons have adopted our products as a treatment alternative for afib patients who may be candidates for sole-therapy minimally invasive surgical procedures . our synergy system , which includes our isolator ® synergy clamps , an rf generator and related switchbox , is approved by the fda for the treatment of patients with persistent and long-standing persistent afib during open-heart concomitant coronary artery bypass grafting and or valve replacement or repair procedures . to date , none of our other products have been approved or cleared by the fda for the treatment of other forms of afib or for other uses for the treatment of afib . additionally , the fda has not cleared or approved our products for a reduction in the risk of stroke . we anticipate that substantially all of our revenue for the foreseeable future will relate to products we currently sell , or are in the process of developing , which surgeons generally use to ablate cardiac tissue for the treatment of afib or for the exclusion of the left atrial appendage . we sell our products to medical centers in the u.s. through our direct sales force . atricure europe , b.v. , our wholly-owned subsidiary incorporated and based in the netherlands , markets and sells our products throughout europe and the middle east primarily through distributors , while in certain markets , such as germany , france and the benelux region , we sell directly to medical centers . we also sell our products to other international distributors , primarily in asia , south america and canada . our business is primarily transacted in u.s. dollars with the exception of transactions with our european subsidiary which are substantially transacted in euros . the december 2011 approval of our synergy system included the requirement to implement a 350-patient post-approval study ( pas ) . the trial is designed to evaluate the long-term treatment effect of our synergy 43 system in persistent and long-standing persistent af patients undergoing open-heart procedures . we submitted protocol for the pas to the fda in february 2012 , and it was approved in september 2012. as of february 28 , 2014 , 259 patients have been enrolled in the trial . the fda approval also included the requirement to implement a physician training and education program for existing and new users . we are also conducting a staged deep clinical trial . we submitted a staged deep af trial protocol to the fda in february 2012. the trial evaluates the effectiveness of a staged approach , where a minimally invasive ablation procedure is performed initially and the catheter and mapping optimization procedure is performed on a different day during the same hospitalization . final fda approval was received in june 2012. enrollment in the staged deep trial was initiated during the third quarter of 2012 and is complete with 30 patients enrolled at six medical centers . we are also in the initial start-up of a stroke feasibility clinical trial with the atriclip . the stroke feasibility trial protocol was initially approved by the fda in december 2011. an amendment to the protocol was submitted to the fda and approved in october 2013. the trial evaluates the initial procedural safety and efficacy of the atriclip for stroke prophylaxis ( i.e . prevention of stroke ) in patients with non-valvular atrial fibrillation in whom long term oral anticoagulation therapy is medically contraindicated . we have approval to enroll up to 30 patients at seven medical centers during the course of the trial . enrollment is expected to begin in the first quarter of 2014. story_separator_special_tag our loan and security agreement with silicon valley bank ( svb ) , as amended , restated , and modified ( the agreement ) provides for a term loan and a revolving credit facility under which we may borrow a maximum of $ 20,000. as of december 31 , 2013 we had no borrowings under the revolving credit facility , and we had borrowing availability of $ 8,299. the applicable borrowing rate on the revolving facility is the prime rate during a streamline period and prime plus 1.25 % during a non-streamline period , and the revolving credit facility expires on april 30 , 2014. also , as of december 31 , 2013 , $ 6,333 was outstanding under the term loan , which included $ 2,000 classified as current maturities of long-term debt . the term loan has a five year term , and principal payments in the amount of $ 167 , together with accrued interest , are due and payable monthly . the term loan accrues interest at a fixed rate of 4.75 % and matures in february 2017. the agreement contains covenants that include , among others , covenants that limit our ability to dispose of assets , enter into mergers or acquisitions , incur indebtedness , incur liens , pay dividends or make distributions on our capital stock , make investments or loans , and enter into certain affiliate transactions , in each case subject to customary exceptions for a credit facility of this size and type . additional covenants apply when we have outstanding borrowings under the revolving loan facility or when we achieve specific covenant milestones . financial covenants include a limitation on capital expenditures and a minimum liquidity ratio . further , a minimum fixed charge ratio and a minimum ebitda apply when specific events occur . the occurrence of an event of default could result in an increase to the applicable interest rate by 3.0 % , an acceleration of all obligations under the agreement , an obligation to repay all obligations in full , and a right by svb to exercise all remedies available to it under the agreement and related agreements including the guaranty and security agreement . as of and for the period ended december 31 , 2013 we were in compliance with all of the financial covenants of our amended and modified credit facility . in addition , if the guarantee by the export-import bank of the united states ceases to be in full force and effect , we must repay all loans under the export-import agreement . 48 the effective interest rate on borrowings under the modified term loan , including debt issuance costs , is 6.5 % . we have an outstanding letter of credit of 75 issued to our european subsidiary 's corporate credit card provider which will expire on june 30 , 2015. uses of liquidity and capital resources . our future capital requirements depend on a number of factors , including the rate of market acceptance of our current and future products , the resources we devote to developing and supporting our products , future expenses to expand and support our sales and marketing efforts , costs relating to changes in regulatory policies or laws that affect our operations and costs of filing , costs associated with clinical trials and securing regulatory approval for new products , costs associated with integrating acquired businesses , costs associated with prosecuting , defending and enforcing our intellectual property rights and possible acquisitions and joint ventures . global economic turmoil may adversely impact our revenue , access to the capital markets or future demand for our products . in july 2011 we filed a shelf registration statement with the sec which allows us to sell any combination of senior or subordinated debt securities , common stock , preferred stock , warrants , depositary shares and units in one or more offerings should we choose to do so in the future . in january 2013 we sold approximately 3,996,250 shares of common stock under the shelf registration which resulted in net proceeds of approximately $ 26,872. the unissued and unsold securities remaining on this registration statement were removed and withdrawn from registration in february 2014. in january 2014 we filed a shelf registration statement with the sec which allows us to sell any combination of senior or subordinated debt securities , common stock , preferred stock , warrants , depositary shares and units in one or more offerings should we choose to do so in the future . in february 2014 we sold 3,660,525 shares of common stock under the shelf registration which resulted in net proceeds of approximately $ 65,937. we believe that our current cash , cash equivalents and investments , along with the cash we expect to generate or use for operations or access via our revolving credit facility , will be sufficient to meet our anticipated cash needs for working capital and capital expenditures for at least the next twelve months . significant cash needs over the next twelve months include debt service of approximately $ 2,261 ( $ 167 per month plus interest ) on our outstanding term loan and payments under our settlement agreement with the doj and relator of $ 1,125. if our sources of cash are insufficient to satisfy our liquidity requirements , we may seek to sell additional equity or debt securities or obtain a revised or additional credit facility . the sale of additional equity or convertible debt securities could result in dilution to our stockholders . if additional funds are raised through the issuance of debt securities , these securities could have rights senior to those associated with our common stock and could contain covenants that would restrict our operations . if we seek a revised or additional credit facility , we may find that additional financing may not be available at all , or in amounts or terms acceptable to us .
| results of operations year ended december 31 , 2013 compared to december 31 , 2012 the following table sets forth , for the periods indicated , our results of operations expressed as dollar amounts and as percentages of total revenue : replace_table_token_5_th revenue . total revenue increased 16.6 % ( 16.1 % on a constant currency basis ) , from $ 70,247 in 2012 to $ 81,889 in 2013. constant currency basis amounts are calculated by applying previous period foreign currency exchange rates to each of the comparable periods . revenue from sales to customers in the united states increased $ 9,695 , or 18.4 % , and revenue from sales to international customers increased $ 1,947 , or 11.0 % ( 9.1 % on a constant currency basis ) . the increase in sales to customers in the united states was primarily due to increased sales of ablation-related open-heart products of $ 4,963 and increased sales of the atriclip system of $ 3,817. the increase in international revenue was primarily due to an increase in sales in europe and asia . cost of revenue and gross margin . cost of revenue increased $ 2,093 , from $ 20,233 in 2012 to $ 22,326 in 2013. as a percentage of revenue , cost of revenue decreased from 28.8 % for the year ended december 31 , 2012 to 27.3 % for the year ended december 31 , 2013. gross margin for 2013 and 2012 was 72.7 % and 71.2 % , respectively . the increase in gross margin was primarily due to volume-driven leverage of manufacturing overhead expenses , a higher mix of domestic sales , lower sales of capital equipment and the strong performance of our atriclip pro product which was launched during the end of 2012. research and development expenses .
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severance and change in story_separator_special_tag and results of operations the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and related notes appearing elsewhere in this annual report on form 10-k. in addition to historical information , this discussion and analysis contains forward-looking statements that involve risks , uncertainties and assumptions . our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors , including , but not limited , to those set forth under item 1a risk factors and elsewhere in this annual report on form 10-k. on october 31 , 2013 , ignyta , then known as ignyta operating , inc. , merged with and into igas acquisition corp. , a wholly-owned subsidiary of ignyta , inc. , or parent , a nevada corporation previously named infinity oil & gas company and formerly a shell company under applicable rules of the securities and exchange commission . we survived the merger as a wholly owned subsidiary of parent . in the merger , parent acquired our business and continued our business operations . the merger is accounted for as a reverse merger and recapitalization , with ignyta as the acquirer and parent as the acquired company for financial reporting purposes . as a result , the assets and liabilities and the operations that are reflected in the historical financial statements prior to the merger are those of ignyta and are recorded at the historical cost basis of ignyta , and the financial statements after completion of the merger will include the assets and liabilities of ignyta and parent , the historical operations of ignyta and the operations of the combined enterprise of ignyta and parent from and after the closing date of the merger . as a result of the accounting treatment of the merger and the change in ignyta 's business and operations from a shell company to a precision oncology biotechnology company , a discussion of the past financial results of the shell company is not pertinent or material , and the following discussion and analysis of our financial condition and results of operations are based on ignyta 's financial statements . on june 12 , 2014 , parent merged with and into ignyta , with ignyta surviving the merger and changing its name to ignyta , inc. unless the context indicates or otherwise requires , the terms we , us , our and our company refer to ( i ) ignyta for discussions relating to periods before and through the closing of the october 2013 merger , ( ii ) parent and its consolidated subsidiary , ignyta operating , for discussions relating to periods after the closing of the october 2013 merger and before the closing of the june 2014 merger , and ( iii ) ignyta for discussions relating to periods after the closing of the june 2014 merger . overview we are a biotechnology company focused on precision medicine in oncology . our goal is not just to shrink tumors , but to eradicate residual disease the source of cancer relapse and recurrence in precisely defined patient populations . we are pursuing an integrated therapeutic , or rx , and companion diagnostic , or dx , strategy for treating patients with cancer . our rx efforts are focused on in-licensing or acquiring , then developing and commercializing molecularly targeted therapies that , sequentially or in combination , are foundational for eradicating residual disease . our dx efforts aim to pair these product candidates with biomarker-based companion diagnostics that are designed to precisely identify , at the molecular level , the patients who are most likely to benefit from the therapies we develop . our current pipeline includes the following compounds : entrectinib , formerly called rxdx-101 , an orally bioavailable , cns-active , small molecule tyrosine kinase inhibitor directed to the trk ( tropomyosin receptor kinase ) family tyrosine kinase receptors ( trka , trkb and trkc ) , ros1 and alk ( anaplastic lymphoma kinase ) proteins , which is in a phase 2 clinical study and two phase 1 clinical studies in molecularly defined adult patient populations for the treatment of solid tumors , and a phase 1/1b clinical study in pediatric patients with advanced solid tumor malignancies ; rxdx-105 , an orally bioavailable , vegfr-sparing , small molecule tyrosine kinase inhibitor of ret , that has achieved clinical proof-of-concept and is in an ongoing phase 1b clinical trial ; taladegib , an orally bioavailable , small molecule hedgehog/smoothened antagonist that has achieved clinical proof-of-concept and a recommended phase 2 dose in a phase 1 dose escalation trial ; and rxdx-106 , a pseudo-irreversible , small molecule inhibitor of tyro3 , axl and mer , or collectively tam , and c-met that is in late preclinical development . we acquired exclusive global development and commercialization rights to entrectinib under a license agreement with nerviano medical sciences s.r.l. , or nms , that became effective in november 2013 ; we acquired exclusive , global development and commercialization rights to taladegib under a license agreement with eli lilly and company , or lilly , in november 2015 ; and we 58 acquired our rxdx-105 and rxdx-106 development programs in an asset purchase transaction with cephalon , inc. , an indirect wholly-owned subsidiary of teva pharmaceutical industries ltd. , or teva , in march 2015. in may 2016 , we determined to prioritize our resources and development efforts on our lead product candidate , entrectinib . in connection with this , we determined to discontinue our spark discovery-stage program and are in discussions with lilly regarding the optimal path forward for taladegib in the context of our pipeline priorities . story_separator_special_tag a change in the outcome of any of these variables with respect to the development of any of our product candidates would significantly change the costs , timing and likelihood of success associated with the development of that product candidate . general and administrative expenses general and administrative expenses consist primarily of salaries and other related costs , including stock-based compensation , for personnel in executive , finance , accounting , business development , legal , commercial and human resources functions . other significant costs include facility costs not otherwise included in research and development expenses , legal fees relating to patent and corporate matters and fees for accounting and consulting services . we anticipate that our general and administrative expenses will increase in the future to support continued research and development activities , potential commercialization of our product candidates and increased costs of operating as a public company . these increases will likely include increased costs related to facilities expansion , the hiring of additional personnel and increased fees to outside consultants , lawyers and accountants , among other expenses . additionally , increased costs associated with operating as a public company are expected to include expenses related to services associated with maintaining compliance with requirements of the sec , insurance and investor relations costs . critical accounting policies and estimates our discussion and analysis of our financial condition and results of operations are based on our financial statements , which we have prepared in accordance with united states generally accepted accounting principles . the preparation of these financial statements requires us to make estimates , judgments and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements , as well as the reported amounts of expenses during the reporting periods . we base our estimates on historical experience and on various other factors and assumptions that we believe are reasonable under the circumstances at the time the estimates are made , the results of which form the basis for making judgments about the book value of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . we periodically evaluate our estimates and judgments , including those described in greater detail below , in light of changes in circumstances , facts and experience . our critical accounting policies are those accounting principles generally accepted in the united states that require us to make subjective estimates and judgments about matters that are uncertain and are likely to have a material impact on our financial condition and results of operations , as well as the specific manner in which we apply those principles . our significant accounting policies are described in more detail in the notes to our financial statements included in this annual report on form 10-k. we believe the critical accounting policies used in the preparation of our financial statements that require significant estimates and judgments are as follows : 60 research and development expenses costs incurred in connection with research and development activities are expensed as incurred . research and development expenses consist of ( i ) external research and development expenses incurred under arrangements with third parties , such as contract research organizations , investigational sites and consultants ; ( ii ) employee-related expenses , including salaries , benefits , travel and stock compensation expense ; ( iii ) the cost of acquiring , developing and manufacturing clinical study materials ; ( iv ) facilities and other expenses , which include direct and allocated expenses for rent and maintenance of facilities and laboratory and other supplies , and ( v ) license fees and other expenses relating to the acquisition of rights to development programs . we enter into consulting , research and other agreements with commercial firms , researchers , universities and others for the provision of goods and services . under such agreements , we may pay for services on a monthly , quarterly , project or other basis . such arrangements are generally cancellable upon reasonable notice and payment of costs incurred . costs are considered incurred based on an evaluation of the progress to completion of specific tasks under each contract using information and data provided to us by our clinical sites and vendors and other information . these costs consist of direct and indirect costs associated with specific projects , as well as fees paid to various entities that perform certain research on our behalf . in certain circumstances , we are required to make advance payments to vendors for goods or services that will be received in the future for use in research and development activities . in such circumstances , the advance payments are deferred and are expensed when the activity has been performed or when the goods have been received . clinical trial accruals we make estimates of accrued expenses as of each balance sheet date in our financial statements based on the facts and circumstances known to us at that time . accrued expenses for clinical trials and pre-clinical studies are based on estimates of costs incurred and fees that may be associated with services provided by cros , clinical trial investigational sites , and other related vendors . payments under certain contracts with such parties depend on factors such as successful enrollment of patients , site initiation and the completion of milestones . in accruing service fees , management estimates the time-period over which services will be performed and the level of effort to be expended in each period . if possible , we obtain information regarding unbilled services directly from these service providers . however , we may be required to estimate these services based on other information available to us . if we underestimate or overestimate the activity or fees associated with a study or service at a given point in time , adjustments to research and development expenses may be necessary in future periods .
| results of operations comparison of years ended december 31 , 2016 and 2015 the following table summarizes our results of operations for 2016 and 2015 , together with the changes in those items in dollars and as a percentage ( in thousands , except percentage changes ) : replace_table_token_5_th research and development expense . research and development , or r & d , expenses increased by $ 3.4 million during 2016 as compared to 2015 , an increase of 5 % . during 2015 , we incurred total costs of $ 28.2 million in connection with our acquisition of rights to development programs from teva and lilly , consisting of the combined $ 25.3 million value of our common stock issued and combined upfront payments totaling $ 2.9 million made to teva and lilly in connection with these transactions . excluding these costs , r & d costs increased by $ 31.6 million , or 70 % , during 2016 as compared to the same period in 2015. this increase was due to the $ 20.7 million increase in the chemistry , manufacturing , and control and external clinical development costs associated with entrectinib and our other product candidates , and increased facilities costs due to an expansion of our leased facilities space . additionally , we incurred increased personnel costs , including additional stock compensation costs of $ 0.9 million , due to an increase in r & d personnel . general and administrative expense . general and administrative expenses increased by $ 6.7 million during 2016 as compared to 2015 , an increase of 39 % . the increase in general and administrative expenses was primarily attributable to increases in personnel costs , including additional stock compensation costs of $ 1.5 million . as noted above , we also incurred higher facilities expenses as well as increased consulting fees , outside services costs and depreciation expense .
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factors that could cause or contribute to these differences include those discussed below and elsewhere in this annual report , particularly in “ item 1a . risk factors ” and “ special note regarding forward‑looking statements. ” overview we are a dermatologist-led biopharmaceutical company focused on identifying , developing and commercializing innovative and differentiated therapies to address significant unmet needs in medical and aesthetic dermatology . our lead product eskata ( hydrogen peroxide ) topical solution , 40 % ( w/w ) , or eskata , is a proprietary formulation of high-concentration hydrogen peroxide topical solution that has been approved by the u.s. food and drug administration , or fda , as a prescription treatment for raised seborrheic keratosis , or sk , a common non-malignant skin tumor . the fda approved our new drug application , or nda , for eskata for the treatment of raised sks in december 2017. w e also submitted a marketing authorization application , or maa , for eskata in the european union in july 2017. we are also developing another high-concentration formulation of hydrogen peroxide , a-101 45 % topical solution , as a prescription treatment for common warts , also known as verruca vulgaris . additionally , in 2015 , we in-licensed exclusive , worldwide rights to certain inhibitors of the janus kinase , or jak , family of enzymes , for specified dermatological conditions , including alopecia areata , or aa , vitiligo and androgenetic alopecia , or aga , also known as male or female pattern baldness . in 2016 , we acquired additional intellectual property rights for the development and commercialization of certain jak inhibitors for specified dermatological conditions . we intend to continue to in-license or acquire additional drug candidates and technologies to build a fully integrated dermatology company . in august 2017 , we acquired confluence life sciences , inc. or confluence . the acquisition of confluence adds small molecule drug discovery and preclinical development capabilities which has allowed us to bring early-stage research and development activities in-house that we previously outsourced to third parties . through the acquisition of confluence , we also acquired several preclinical product candidates , including inhibitors of the mk-2 signaling pathway , additional jak inhibitors known as “ soft ” jak inhibitors , and inhibitors of interleukin-2-inducible t cell kinase , or itk . since our inception in july 2012 , we have devoted substantially all of our resources to organizing and staffing our company , business planning , raising capital , developing eskata for the treatment of raised sks , building our intellectual property portfolio , developing our supply chain and engaging in other discovery and clinical activities in dermatology . we have financed our operations with sales of our convertible preferred stock , as well as net proceeds from our initial public offering , or ipo , in october 2015 , a private placement of our common stock in june 2016 , public offerings of our common stock in november 2016 and august 2017 , and an at-the-market facility with cowen and company llc , or cowen , that we entered into in november 2016. since our inception , we have incurred significant operating losses . our net loss was $ 68.5 million for the year ended december 31 , 2017 and $ 48.1 million for the year ended december 31 , 2016. as of december 31 , 2017 , we had an accumulated deficit of $ 159.4 million . we expect to incur significant expenses and operating losses related to product manufacturing , marketing , sales and distribution over the next several years as we begin to commercialize eskata . in addition , eskata and our other drug candidates , if approved , may not achieve commercial success . though eskata has been approved by the fda , we do not expect to generate substantial revenue from sales of eskata in the near term , if at all . we also expect to incur significant expenses and operating losses for the foreseeable future as we advance our other drug candidates from discovery through preclinical development and clinical trials . in addition , if we obtain marketing approval for any of our other drug candidates , we expect to incur significant commercialization expenses related to product manufacturing , marketing , sales and distribution . we may also incur expenses in connection with the in-license or acquisition of additional drug candidates . furthermore , we have incurred and expect to continue to incur significant costs associated with operating as a public company , including legal , accounting , investor relations and other expenses . as a result , we will need substantial additional funding to support our continuing operations and pursue our growth strategy . until such time as we can generate significant revenue from product sales , if ever , we expect to finance our operations through the sale of equity , debt financings or other capital sources , including potential collaborations with other companies or other strategic transactions . we may be unable to raise additional funds or enter into such other agreements 70 or arrangements when needed on commercially acceptable terms , or at all . if we fail to raise capital or enter into such agreements as , and when , needed , we may have to significantly delay , scale back or discontinue the development and commercialization of one or more of our drug candidates or delay our pursuit of potential in-licenses or acquisitions . license agreement with rigel in august 2015 , we entered into an exclusive , worldwide license and collaboration agreement with rigel pharmaceuticals , inc. , or rigel , for the development and commercialization of products containing two specified jak inhibitors . under this agreement , we intend to develop these jak inhibitors for the treatment of alopecia areata , or aa , and potentially for other dermatological conditions . story_separator_special_tag if we sublicense any of columbia 's patent rights and know-how acquired pursuant to the license agreement , we will be obligated to pay columbia a portion of any consideration received from such sublicenses in specified circumstances . the royalties , as determined on a country-by-country and product-by-product basis , are payable until the date that all of the patent rights for that product have expired , the expiration of any market exclusivity period granted by a regulatory body or , in specified circumstances , ten years from the first commercial sale of such product . the license agreement terminates on the date of expiration of all royalty obligations thereunder unless earlier terminated by either party for a material breach , subject to a specified cure period . we may also terminate the license agreement without cause at any time upon advance written notice to columbia . we accounted for the transaction with vixen as an asset acquisition as the arrangement did not meet the definition of a business pursuant to the guidance prescribed in accounting standards codification topic 805 , business combinations . we concluded the transaction with vixen did not meet the definition of a business because the transaction principally resulted in the acquisition of the license agreement . we did not acquire tangible assets , processes , protocols or operating systems . in addition , at the time of the transaction , there were no activities being conducted related to the licensed patents . we expensed the acquired intellectual property as of the acquisition date on the basis that the cost of intangible assets purchased from others for use in research and development activities , and that have no alternative future uses , are expensed at the time the costs are incurred . accordingly , we recorded the $ 0.6 million upfront payment , the fair value of the shares of common stock issued of $ 2.4 million , and the present value of the six non-contingent annual payments as research and development expense in the year ended december 31 , 2016. additionally , we will record as expense any contingent milestone payments or royalties in the period in which such liabilities are incurred . 72 agreement and plan of merger with confluence in august 2017 , we entered into an agreement and plan of merger with confluence , aclaris life sciences , inc. , our wholly-owned subsidiary , or merger sub , and fortis advisors llc , as representative of the holders of confluence equity , or the agreement and plan of merger . pursuant to the terms of the agreement and plan of merger , the merger sub merged with and into confluence , with confluence surviving as our wholly-owned subsidiary . pursuant to the terms of the agreement and plan of merger , we paid $ 10.3 million in cash and issued 349,527 shares of our common stock with a value of $ 9.7 million . we also agreed to pay the confluence equity holders aggregate contingent consideration of up to $ 80.0 million , based upon the achievement of certain development , regulatory and commercial milestones set forth in the agreement and plan of merger . of the contingent consideration , $ 2.5 million may be paid in shares of our common stock upon the achievement of a specified development milestone . in addition , we have agreed to pay the confluence equity holders specified future royalty payments calculated as a low single-digit percentage of annual net sales , subject to specified reductions , limitations and other adjustments , until the date that all of the patent rights for that product have expired , as determined on a country-by-country and product-by-product basis or , in specified circumstances , ten years from the first commercial sale of such product . in addition , if we sell , license or transfer any of the intellectual property acquired from confluence pursuant to the agreement and plan of merger to a third party , we will be obligated to pay the confluence equity holders a portion of any incremental consideration ( in excess of the development and milestone payments described above ) that we receive from such sale , license or transfer in specified circumstances . other third-party agreements under an assignment agreement , pursuant to which we acquired intellectual property , we have agreed to pay royalties on sales of eskata , or other related products , at rates ranging in low single-digit percentages of net sales , as defined in the agreement . under this assignment agreement , we have paid aggregate milestone payments of $ 0.2 million and there are no remaining milestone payment obligations . in connection with the assignment agreement , we also entered into a finder 's services agreement under which we have paid aggregate milestone payments of $ 1.5 million upon the achievement of specified pre-commercialization milestones , such as clinical trials and regulatory approvals , as described in the agreement . we have also agreed to make aggregate payments of up to $ 4.5 million upon the achievement of specified commercial milestones . in addition , we have agreed to pay royalties on sales of eskata , or other related products , at a low single-digit percentage of net sales , as defined in the agreement . components of our results of operations revenue we earn revenue from the provision of laboratory services to clients through confluence , our wholly-owned subsidiary . laboratory service revenue is generally evidenced by contracts with clients which are on an agreed upon fixed-price , fee-for-service basis and are generally billed on a monthly basis in arrears for services rendered . revenue related to these contracts is generally recognized as the laboratory services are performed , based upon the rates specified in the contracts . we also receive revenue from grants under the small business innovation research program of the national institutes of health , or nih . through our confluence subsidiary , we currently have two active grants from nih which are related to early-stage research .
| results of operations comparison of years ended december 31 , 2017 and 2016 replace_table_token_5_th revenue revenue was $ 1.7 million for the year ended december 31 , 2017 , and was comprised primarily of fees earned from the provision of laboratory services to clients through confluence , which we acquired in august 2017. we did not generate any revenue in the year ended december 31 , 2016. cost of revenue cost of revenue was $ 1.2 million for the year ended december 31 , 2017 , and was comprised entirely of costs incurred to provide laboratory services to our clients through confluence , which we acquired in august 2017. we did not incur any cost of revenue in the year ended december 31 , 2016. research and development expenses research and development expenses were $ 39.8 million for the year ended december 31 , 2017 , compared to $ 33.5 million for the year ended december 31 , 2016. the increase of $ 6.3 million was primarily driven by an increase of $ 3.4 million of expenses related to our phase 2 clinical trials of a-101 45 % topical solution , an increase of $ 4.5 million in preclinical and clinical trial development expenses related to our jak inhibitor technology , an increase of $ 2.4 million in payroll-related expenses due to higher headcount , an increase of $ 3.2 million in stock-based compensation expense , and a $ 2.9 million increase in expenses related to medical affairs activities .
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-111- amicus therapeutics , inc. notes to consolidated financial statements ( continued ) asu 2017-04 should be applied on a prospective basis . the nature of and reason for the change in accounting principle should be disclosed upon transition . a public business entity that is a u.s. sec filer should adopt asu 2017-04 for its annual or any interim goodwill impairment tests in fiscal years beginning after december 15 , 2019. early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after january 1 , 2017. the company is currently assessing the impact that this standard will have on its consolidated financial statements . in january 2017 , the fasb issued asu 2017-01 , business combinations ( topic 805 ) : clarifying the definition of a business . this accounting story_separator_special_tag overview we are a global patient-centric biotechnology company engaged in the discovery , development and commercialization of a diverse set of novel high-quality treatments for patients living with rare metabolic diseases . the cornerstone of the amicus portfolio is migalastat hcl , an oral precision medicine for people living with fabry disease who have amenable genetic mutations . migalastat is currently approved under the trade name galafold in the european union , with additional approvals granted and pending in several geographies . for fabry patients with non-amenable genetic mutations , a novel proprietary enzyme replacement therapy ( `` ert '' ) co-formulated with migalastat hcl is currently in late preclinical development . the future value driver of the amicus pipeline is atb200/at2221 , a novel , late-stage , potential best-in-class treatment paradigm for pompe disease . atb200/at2221 leverages our chaperone-advanced replacement therapy ( `` chart® '' ) platform technology to develop novel ert products for pompe disease , fabry disease , and potentially other lysosomal storage disorders ( `` lsds '' ) . we are also investigating preclinical and discovery programs in other rare diseases including cyclin-dependent kinase-like 5 ( `` cdkl5 '' ) deficiency . we believe that our platform technologies and our product pipeline uniquely position us and drive our commitment to advancing and expanding a robust pipeline of cutting-edge , first- or best-in-class medicines for rare metabolic diseases . we were previously developing sd-101 in a phase 3 study as a potential first-to-market therapy for the chronic , rare connective tissue disorder eb . on september 13 , 2017 , we reported that top-line data from a randomized , double-blind , placebo-controlled phase 3 clinical study ( `` essence '' or `` sd-005 '' ) to assess the efficacy and safety of the novel topical wound-healing agent sd-101 did not meet the primary endpoints or secondary endpoints in participants with eb . we plan to further analyze and share the phase 3 essence results with key stakeholders in the eb community including physicians , patient organizations and regulators . in the interim , in consultation with their physicians , participants in the ongoing extension studies ( sd-004 and -006 ) will have the opportunity to continue being treated with sd-101 . based on the top-line data , we have no current plans to invest in any additional clinical studies or commercial preparation activities for sd-101 . this event led to the need to assess the carrying amount of the program 's tangible and intangible assets against their respective fair values . based on the assessment , we recognized in the consolidated statements of operations , a loss on impairment of intangible assets in the amount of $ 463.7 million and $ 1.7 million in fixed assets recorded within loss on impairment of assets . since the study did not meet the primary and secondary endpoints , we concluded that we will not make the potential milestone payments indicated in the asset purchase agreement to the former scioderm holders . accordingly , we recognized a gain of $ 254.7 million in changes in fair value of contingent consideration payable in the consolidated statements of operations in the third quarter of 2017. we also recognized in the third quarter of 2017 , $ 0.4 million in selling , general and administrative costs and $ 8.1 million in research and development expenses related to the wind-down of operations for the phase 3 essence study and ongoing extension studies sd-004 and sd-006 , as well as income tax benefit of $ 164.7 million due to the reduction of the deferred tax liability related to scioderm ipr & d , in the consolidated statements of operations . in july 2017 , we entered into an underwriting agreement ( the `` underwriting agreement '' ) with j.p. morgan securities llc and goldman sachs & co. llc , as representatives of the several underwriters set forth on schedule 1 thereto , relating to an underwritten public offering of the our common stock ( the `` offering '' ) . under the terms of this agreement , we issued and sold 21,122,449 shares at a price to the public of $ 12.25 per share , resulting in gross proceeds of $ 258.8 million , before deducting underwriting discounts and commissions and offering expenses payable by the company . the -79- offering closed on july 18 , 2017 and we received net proceeds from the offering , after deducting underwriting discounts and commissions and offering expenses payable by us , of $ 243.0 million . on february 15 , 2018 , we announced the pricing of an underwritten offering of 19,354,839 shares of its common stock at $ 15.50 per shares , resulting in gross proceeds of $ 300.0 million , before deducting underwriting discounts and commissions and offering expenses payable by us . the offering closed on february 21 , 2018 and we received net proceeds of $ 282.0 million from the offering , after deducting underwriting discounts and commissions and offering expenses payable by us . j.p. morgan securities llc and goldman sachs & co. llc were acting as joint lead book-running managers , cowen and leerink partners were acting as co-book-running managers , and bofa merrill lynch was acting as lead co-manager for the offering . story_separator_special_tag ( 2 ) other costs include facility , supply , overhead , and licensing costs that support multiple projects . the successful development of our product candidates is highly uncertain . at this time , we can not reasonably estimate or know the nature , timing , and costs of the efforts that will be necessary to complete the remainder of the development of our product candidates . as a result , we are not able to reasonably estimate the period , if any , in which material net cash inflows may commence from our product candidates , including migalastat or any of our other preclinical product candidates . this uncertainty is due to the numerous risks and uncertainties associated with the conduct , duration , and cost of clinical trials , which vary significantly over the life of a project as a result of evolving events during clinical development , including : the number of clinical sites included in the trials ; the length of time required to enroll suitable patients ; the number of patients that ultimately participate in the trials ; the results of our clinical trials ; and any mandate by the fda or other regulatory authority to conduct clinical trials beyond those currently anticipated . our expenditures are subject to additional uncertainties , including the terms and timing of regulatory approvals , and the expense of filing , prosecuting , defending , and enforcing any patent claims or other intellectual property rights . we may obtain unexpected results from our clinical trials . we may elect to discontinue , delay , or modify clinical trials of some product candidates or focus on others . a change in the outcome of any of the foregoing variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development , regulatory approval , and commercialization of that product candidate . for example , if the fda or other regulatory authorities were to require us to conduct clinical trials beyond those which we currently anticipate , or if we experience significant delays in enrollment in any of our clinical trials , we -82- could be required to expend significant additional financial resources and time on the completion of clinical development . drug development takes several years and millions of dollars in development costs . stock option grants in accordance with the applicable guidance , we estimate the fair value of each equity award granted . we chose the `` straight-line '' attribution method for allocating compensation costs and recognized the fair value of each stock option on a straight-line basis over the vesting period of the related awards . the company uses the black-scholes option pricing model when estimating the grant date fair value for stock-based awards . use of a valuation model requires management to make certain assumptions with respect to selected model inputs . expected volatility was based on our historical volatility since our initial public offering in may 2007. beginning in the third quarter of 2017 , the average expected life was determined using our actual historical data versus a `` simplified '' method used in prior quarters . the `` simplified '' method of estimating the expected exercise term uses the mid-point between the vesting date and the end of the contractual term . in earlier quarters , we did not have sufficient reliable exercise data to justify a change from the use of the `` simplified '' method of estimating the expected exercise term of employee stock option grants . the impact from this change was not material . the risk-free interest rate is based on u.s. treasury , zero-coupon issues with a remaining term equal to the expected life assumed at the date of grant . forfeitures are estimated based on historical analysis of actual option forfeitures . the weighted average assumptions used in the black-scholes option pricing model are as follows : replace_table_token_8_th restricted stock units ( `` rsus '' ) and performance-based restricted stock units the rsus awarded are generally subject to graded vesting and are contingent on an employee 's continued service on such date . rsus are generally subject to forfeiture if employment terminates prior to the release of vesting restrictions . we expense the cost of the rsus , which is determined to be the fair market value of the shares of common stock underlying the rsus at the date of grant , ratably over the period during which the vesting restrictions lapse . on december 30 , 2016 , the compensation committee approved a form of performance-based restricted stock unit award agreement ( the `` performance-based rsu agreement '' ) , to be used for performance-based rsus granted to participants under the amended and restated amicus therapeutics , inc. 2007 equity incentive plan , including named executive officers . certain awards under the form of performance-based rsu agreement were granted in january 2017. the award includes 401,413 market performance-based restricted stock units ( `` mprsus '' ) granted to executives . vesting of these awards is contingent upon the company meeting certain total shareholder return ( `` tsr '' ) levels as compared to a select peer group over the next three years . the mprsus cliff vest at the end of the three-year period and have a maximum potential to vest at 200 % ( 802,826 shares ) based on tsr performance . the related share-based compensation expense is determined based on the estimated fair value of the underlying shares on the date of grant and is recognized straight-line over the vesting term -83- the awards also includes 401,413 performance based awards that will vest over the next three years based on the company achieving certain clinical milestones . warrants in october 2015 , we entered into the october 2015 purchase agreement with redmile , who beneficially owned approximately 6.7 % of the common stock as of december 31 , 2015 , as set forth in the october 2015 purchase agreement , whereby we sold , on a private placement basis , ( a ) $ 50.0
| results of operations year ended december 31 , 2017 compared to year ended december 31 , 2016 revenue . net product sales were $ 36.9 million for galafold for the year ended december 31 , 2017 as compared to $ 5.0 million for the year ended december 31 , 2016. galafold was approved for sale in the eu in may 2016 and has been approved for pricing and reimbursement in 18 countries , as well as in select other european markets through reimbursed eaps . we began to recognize revenue in the third quarter of 2016. cost of goods sold . cost of goods sold includes manufacturing costs as well as royalties associated with sales of our product . cost of goods sold as a percentage of net sales was 16.9 % for the year ended december 31 , 2017 as compared to 16.8 % for the year ended december 31 , 2016. research and development expense . research and development expense was $ 149.3 million in 2017 , representing an increase of $ 44.5 million or 42.5 % from $ 104.8 million in 2016. the increase in research and development costs was primarily due to increases in clinical research and manufacturing costs of $ 25.9 million , due to the advancement and enrollment of clinical studies and investments in manufacturing , for pompe of $ 29.4 million and eb of $ 5.9 million . other increases were in personnel costs of $ 13.5 million . selling , general and administrative expense . selling , general and administrative expense was $ 88.7 million in 2017 , an increase of $ 17.5 million or 24.6 % from $ 71.2 million in 2016. the increase in 2017 was primarily from efforts to support the ongoing commercial launch of galafold . changes in fair value of contingent consideration payable .
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this annual report on form 10-k and certain information incorporated herein by reference contain forward-looking statements within the meaning of section 21e of the securities exchange act of 1934 , as amended ( the “ exchange act ” ) , and section 27a of the securities act of 1933 , as amended ( the “ securities act ” ) , and the private securities litigation reform act of 1995 and , as such , may involve risks and uncertainties . all statements included or incorporated by reference in this report , other than statements that are purely historical , are forward-looking statements . forward-looking statements generally can be identified by the use of forward-looking terminology such as “ may , ” “ will , ” “ expect , ” “ intend , ” “ estimate , ” “ anticipate , ” “ believe , ” “ could , ” “ potential , ” “ continue ” or similar terminology . these statements are based on the beliefs and assumptions of the management of the company based on information currently available to management . forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties that could cause actual results to differ materially from the results contemplated by the forward-looking statements . the forward-looking statements included or incorporated by reference in this report are subject to additional risks and uncertainties further discussed under item 1a . “ risk factors ” and are based on information available to us on the filing date of this report . readers are cautioned not to place undue reliance on forward-looking statements , 35 which speak only as of the date of this report . new risks and uncertainties arise from time to time , and we can not predict those events or how they may affect us . we assume no obligation to update any forward-looking statements . the company undertakes no obligation to update any forward-looking statements , whether as a result of new information , future events or otherwise , except as required by law . in addition , forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from the company 's historical experience and our present expectations or projections . these risks and uncertainties include , but are not limited to risks and uncertainties relating to the spin-off , including whether the spin-off and the related transactions will result in any tax liability , the operational and financial profile of the company after giving effect to the spin-off , and the ability of the company to operate as an independent entity ; economic , political and social conditions in the countries in which we conduct our businesses ; changes in u.s. or international government defense budgets ; protests of new awards ; our ability to submit proposals for and or win all potential opportunities in our pipeline ; government regulations and compliance therewith , including changes to the department of defense procurement process ; changes in technology ; intellectual property matters ; governmental investigations , reviews , audits and cost adjustments ; contingencies related to actual or alleged environmental contamination , claims and concerns ; delays in completion of the u.s. government 's budget ; our success in expanding our geographic footprint or broadening or customer base ; our ability to realize the full amounts reflected in our backlog and to retain and renew our existing contracts ; impairment of goodwill ; misconduct of our employees , subcontractors , agents and business partners ; our ability to control costs ; our level of indebtedness ; subcontractor performance ; economic and capital markets conditions ; our ability to retain and recruit qualified personnel ; security breaches and other disruptions to our information technology and operation ; changes in our tax provisions or exposure to additional income tax liabilities ; changes in u.s. generally accepted accounting principles ( gaap ) ; and other factors described in item 1a , “ risk factors , ” and elsewhere in this report and described from time to time in our future reports filed with the securities and exchange commission ( sec ) . use of non-gaap financial information certain matters discussed in this report , including the information presented in part ii under “ item 7. management 's discussion and analysis of financial condition and results of operations , ” include measures not derived in accordance with gaap . these measures should not be considered in isolation or as a substitute for any measure derived in accordance with gaap , and also may be inconsistent with similar measures presented by other companies . in part ii under “ item 7. management 's discussion and analysis of financial condition and results of operations , ” the reasons for the company 's use of these measures are presented under the heading , “ key performance and non-gaap measures , ” and reconciliations of these measures to the most closely comparable gaap measures are presented under the heading “ discussion of financial results. ” overview vectrus is a leading provider of services to the u.s. government worldwide . we operate in a single segment and offer services in three major capability areas : infrastructure asset management , logistics and supply chain management , and information technology and network communication . our infrastructure asset management services support the u.s. army , air force and navy and include infrastructure services , security , warehouse management and distribution , ammunition management , military base maintenance and operations , communications , emergency services , transportation , and life support activities at a number of critical global military installations . our logistics and supply chain management services support and maintain the vehicle and equipment stocks of the u.s. army and marine corps . our information technology and network communication services consist of sustainment of communications systems , network security , systems installation and full life cycle management of information technology systems for the u.s. army , air force and navy . story_separator_special_tag the contract value is approximately $ 458 million and has a seven-year duration . the contract transition began in january of 2015 and full performance will start in march of 2015 . 37 economic opportunities , challenges and risks the u.s. government 's investment in services and capabilities in response to evolving security challenges creates a complex and evolving business environment for vectrus and other firms in this market segment . however , the dod budget remains the largest in the world and management estimates our addressable portion of the dod budget exceeds $ 25.0 billion . further , we expect the u.s. government will continue to place a high priority on national security and will continue to invest in affordable solutions for its facilities , logistics , equipment and communication needs , which aligns with our core capabilities and strengths . in addition , we plan to address a larger portion of the u.s. government budget and expand our focus to other sectors of the u.s. government , such as the intelligence community and other civilian agencies . management believes there is an opportunity to capture a larger share of this approximately $ 100.0 billion addressable market . the enacted total fiscal year 2015 dod budget is $ 560.4 billion , 3.6 % lower in comparison to the fiscal year 2014 dod budget . the total dod budget includes the dod 's base budget and oversees contingency operations ( oco ) budget . the enacted fiscal year dod base budget provided $ 496.1 billion , which is essentially flat with fiscal year 2014. the enacted fiscal year 2015 dod oco budget is $ 64.3 billion , 24.5 % lower in comparison to the fiscal year 2014 dod oco budget . the total fiscal year 2016 dod budget request is $ 585.3 billion , 4.4 % higher in comparison to the enacted total fiscal year 2015 dod budget . the fiscal year 2016 dod base budget request is $ 534.3 billion , 7.7 % higher in comparison to the enacted fiscal year 2015 base budget . however , the fiscal 2016 base budget request is $ 36 billion above the limitations mandated by the budget control act . the fiscal year 2016 dod oco budget request is $ 50.9 billion , 20.8 % lower in comparison to the enacted fiscal year 2015 dod oco budget . the president 's fiscal year 2016 total budget request for dod o & m increased $ 3.7 billion to $ 250.0 billion versus the 2015 enacted amount of $ 246.3 billion . the president 's fiscal year 2016 base budget request for dod o & m , which is above the limit of the budget control act , increased $ 14.5 billion to $ 209.8 billion versus the 2015 enacted amount of $ 195.4 billion . the president 's fiscal year 2016 oco budget request for dod o & m reduces the 2015 enacted amount from $ 51.0 billion to $ 40.2 billion . although we anticipate reductions to certain programs in which we participate or for which we expect to compete , we believe spending on o & m of defense assets , as well as civilian agency infrastructure and equipment , will continue to be a u.s. government priority . we expect our portfolio of capabilities aligns well with u.s. government cost-saving initiatives that demand that users utilize existing equipment and infrastructure rather than executing new purchases and new infrastructure construction . vectrus ' focus is on sustaining existing base and installed equipment , which we believe aligns with our customers ' intent . many of the core functions vectrus performs are mission-essential . the following are examples of a few of these core functions : ( i ) keeping communication networks operational ; ( ii ) operating and repairing utilities such as electricity , gas and steam ; and ( iii ) providing firefighting services . while customers may reduce the level of service required from our company , we believe that the complete elimination of these services is unlikely . our programs generally face declining revenue streams going forward , in particular with programs related to the support of ongoing operations in afghanistan . programs related specifically to the support of ongoing operations in afghanistan are subject to changes in the level of u.s. commitment . in may 2014 , the obama administration announced its plan to steadily withdraw u.s. forces in afghanistan by 2016. it is expected that the u.s. military will maintain a presence after the subsequent transition to the afghan government . this expectation is reflected in our strategic business plan as well as in our efforts to win new business . we believe we are well positioned to address emerging opportunities in the united states and the middle east and north africa region . the future scope of these activities and pace of u.s. military drawdowns remain uncertain , pending disclosure of the u.s. government 's full drawdown plan . there has been particular uncertainty around the obama administration 's statements and intentions regarding the future footprint in afghanistan . the pace and depth of u.s. government acquisition reform and cost savings initiatives , combined with increased industry competitiveness to win long-term positions on key programs , could add pressure to revenue levels and profit margins going forward . the information provided above does not represent a complete list of trends and uncertainties that could impact our business in either the near or long-term . it should , however , be considered along with the risk 38 factors identified under the caption “ risk factors ” identified in part 1 , item 1a in this annual report on form 10-k and the matters identified under the caption “ forward-looking and cautionary statements '' herein . key performance and non-gaap measures the primary financial performance measures vectrus uses to manage its businesses and monitor results of operations are revenue trends and operating income trends . management believes that these financial performance measures are the primary drivers for vectrus ' earnings and net cash from operating activities .
| discussion of financial results year ended december 31 , 2014 , compared to year ended december 31 , 2013 selected financial highlights are presented in the table below : replace_table_token_6_th revenue revenue for the year ended december 31 , 2014 , was $ 1.2 billion reflecting a decrease of $ 308.4 million , or 20.4 % , as compared to the year ended december 31 , 2013 . the decline in revenue was attributable mainly to lower activity for our afghanistan based contracts . programs with contract activity in afghanistan experienced declines of approximately $ 243.0 million as maintenance responsibility was transferred to local afghans on certain contracts and facility service levels were reduced to align to changing u.s. government priorities in afghanistan . middle east based programs experienced revenue declines of $ 85.7 million as the u.s. government continued to reduce troop levels , close bases and consolidate contracting activity in the middle east . the u.s. government also placed equipment in storage due to reduced equipment requirements in-theater which reduced maintenance requirements . the decrease in revenue was offset by a $ 12.3 million increase in domestic programs due to increased level of effort for construction projects in 2014 and a new navy contract awarded in september 2013 with performance beginning in november 2013. cost of revenue the decrease in cost of revenue of $ 212.6 million , or 16.4 % , for the year ended december 31 , 2014 , as compared to the year ended december 31 , 2013 , was primarily due to lower revenue as described above . the cost of revenue as a percentage of revenue increased due to the declining leverage of certain program costs as a result of lower revenue in our afghanistan based programs .
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story_separator_special_tag safe harbor statement under the private securities litigation reform act of 1995 . the statements that are not historical facts contained in this report are forward looking statements that involve a number of known and unknown risks , uncertainties and other factors , all of which are difficult or impossible to predict and many of which are beyond our control , which may cause our actual results , performance or achievements to be materially different from any future results , performance or achievements expressed or implied by such forward looking statements . these risks are detailed in risk section of this form 10-k. the words “ believe ” , “ anticipate , ” “ expect ” , “ confident ” , “ project ” , “ provide ” , “ plan ” , “ likely ” , “ future ” , “ ongoing ” , “ intend ” , may ” , should ” , would ” , “ could ” , “ guidance ” and similar expressions identify forward-looking statements . overview on september 29 , 2011 ( the “ closing date ” ) , the company acquired the isaac mizrahi business in connection with the merger and the short form merger ( collectively , the “ transaction ” ) . the company engages in the design , licensing , and marketing of the isaac mizrahi brand with a focus on a variety of product categories featuring the isaac mizrahi brand . the company operates in a “ working capital light ” business model , licensing the isaac mizrahi brands through its wholly-owned subsidiary im brands and generating royalty and design revenues through licensing and other agreements with wholesale manufacturers , sourcing and design companies , and retailers . prior to our acquisition of the isaac mizrahi business , the business was a division of im ready . the following discussion should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this form 10-k. critical accounting policies and estimates the consolidated financial statements and related notes included elsewhere in this form 10-k are as of , or for , one of two periods , the company ( the “ successor ” ) that consists of the period following the closing date of the transaction ( the “ closing date ” ) ( september 29 , 2011 ) and of the isaac mizrahi business ( the “ predecessor ” ) for the periods prior to the closing date . all statements related to calendar year 2010 are considered predecessor periods . for calendar year 2011 the consolidated statements of operations , consolidated statements of cash flows and statement of stockholders equity are presented for the predecessor period prior to the closing date ( january 1 , 2011 to september 28 , 2011 ) , and for the successor period including and following the closing date ( september 29 , 2011 to december 31 , 2011 ) . the preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the u.s. requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period . we review all significant estimates affecting the financial statements on a recurring basis and record the effect of any adjustments when necessary . 22 in connection with our licensing model , we have entered into various trademark license agreements that provide revenues based on minimum royalties and additional revenues based on a percentage of defined sales . minimum royalty revenue is recognized on a straight-line basis over each period , as defined , in each license agreement . royalties exceeding the defined minimum amounts are recognized as income during the period corresponding to the licensee 's sales . design service fees are recorded and recognized in accordance with the terms and conditions of each design fee contract , including the isaac mizrahi business meeting its obligations and providing the relevant services under each contract . generally this is recording on a straight line basis each base fee as stated in each design fee service agreement for the covered period and , if applicable recognizing additional payments in the period that it applies to . the rationale for recording design service fee income on the straight-line is based on annual even fixed payments . the company accounts for stock-based compensation in accordance with asc topic 718 by recognizing the fair value of stock-based compensation in the consolidated statement of operations . the fair value of the company 's stock option awards are estimated using a black-scholes option valuation model . this model requires the input of highly subjective assumptions and elections including expected stock price volatility and the estimated life of each award . in addition , the calculation of compensation costs requires that the company estimate the number of awards that will be forfeited during the vesting period . the fair value of stock-based awards is amortized over the vesting period of the awards . for stock-based awards that vest based on performance conditions ( e.g . achievement of certain milestones ) , expense is recognized when it is probable that the condition will be met . other significant accounting policies are summarized in note 2 of notes to consolidated financial statements . story_separator_special_tag 0 ; text-align : justify '' > provision for income taxes . story_separator_special_tag following the acquisition of the isaac mizrahi brand by the company , new license agreements became effective for the isaac mizrahi brand , which are expected to increase overall revenues . in addition , the company is looking to expand product offerings and increase licensed royalty revenue by adding new product categories and entering into new license agreements . as the company adds new licenses it will reduce the qvc license revenue concentration . the company expects royalty revenues to increase based on the new licenses that have been signed in 2011 , the ones that have been signed in 2012 and the prospects of new categories and new licensees . the company expects its new licensees to begin to sell product by the fall of 2012 or the spring of 2013. currently , the company has recognized only guaranteed minimum payments from its new licensees . as consideration for the termination and replacement of a previous design agreement between im ready and lc , the isaac mizrahi business received a one-time fee of $ 9,000,000 , which was recorded as a deferred royalty payment . this amount was being amortized by the isaac mizrahi business on a straight line basis over the life of the lcny agreement . included in revenues for the period from january 1 , 2011 to december 31 , 2011 and year ended 2010 is amortized revenue of $ 1.7 million and $ 2.3 million , respectively . following the acquisition of the isaac mizrahi business , the company is not receiving the benefits of the one-time payment and will not record any deferred royalty payment as a result of the one-time payment . the company 's operating expense will have a different structure than the predecessor operated under . the earthbound service fee is replaced by an in-house design and management team . the termination of the earthbound agreement is expected to have minimal effect on direct expenses and operating margins for the short term . based on the current level of revenues , the company 's first year projected wages and salaries , including the salaries payable to our executive officers , are expected to be slightly less than im ready 's historical wages and salaries and the service provided from earthbound . direct expense savings will be realized by the company as license royalty revenues increase and the incremental direct costs are expected to be minimal compared with the fee structure under the earthbound agreement . under xcel 's operating structure , xcel expects total expenses to decrease as a percentage of revenue as revenues increase . the company is obligated to pay additional consideration to im ready upon meeting certain revenue target amounts over the four years following the acquisition . the amount is payable by the company in stock so long as the loan is outstanding , otherwise cash or stock at the sole discretion of the company . the company has recorded a contingent obligation based on the discounted projected earn-out payments . the revenue that determines the annual earn-out consideration is based solely on the isaac mizrahi business . if revenues from the isaac mizrahi business increase and constitute at least 76 % of the net royalty income targets described below , im ready will be eligible to earn the earn-out value each year for four consecutive years after the closing date , with the number of shares to be issued based upon the greater of ( i ) $ 4.50 and ( ii ) average stock price for the last twenty days in such period . the earn-out value is payable solely in stock . 26 replace_table_token_12_th im ready will receive a percentage of the earn-out value based upon the percentage of the actual net royalty income of the isaac mizrahi business to the royalty target as set forth below . replace_table_token_13_th the earn-out value for the acquisition was determined to be $ 15,000,000 ( the “ earn-out obligation ” ) . this amount was based on projected royalties during the royalty target periods and the aggregate amount of earn-out consideration due for each royalty target period . the earn-out obligation balance at december 31 , 2011 is $ 15,000,000. im ready will also be eligible to earn up to $ 2,765,500 , payable in cash or common stock , at the company 's option , contingent upon the isaac mizrahi business receiving net royalty income of at least $ 2,500,000 from qvc in the twelve month period ending on the four year anniversary of the closing date with such stock based upon the greater of ( x ) $ 4.50 and ( y ) fair market value of the common stock at the time of such issuance ( the “ qvc earn-out ” ) . management will assess no less frequent than each reporting period the status of these contingent obligations . any change in the expected obligation will result in an expense or income in the period in which it is determined fair market value of the carrying value has changed . other factors we continue to seek to expand and diversify the types of licensed products being produced under our the isaac mizrahi brand , as well as diversify the distribution channels within which licensed products are sold , in an effort to reduce dependence on any particular retailer , consumer or market sector . the success of our company , however , will still remain largely dependent on our ability to build and maintain brand awareness and contract with and retain key licensees and on our licensees ' ability to accurately predict upcoming fashion trends within their respective customer bases and fulfill the product requirements of their particular retail channels within the global marketplace . unanticipated changes in consumer fashion preferences , slowdowns in the u.s. economy , changes in the prices of supplies , consolidation of retail establishments , and other factors noted in “ risk factors , ” could adversely affect our licensees ' ability to meet and or exceed their contractual commitments to us and thereby adversely affect our future operating results .
| summary of operating results our discussion and analysis of our financial condition and result of operations is based on the consolidated financial statements a nd related notes included elsewhere in this form 10-k , consisting of the company ( the “ successor ” ) for the period including and following the closing date ( september 29 , 2011 ) and of the isaac mizrahi business ( the “ predecessor ” ) for the periods prior to the closing date . all references to calendar year 2010 and the period january 1 , 2011 to september 28 , 2011are considered predecessor periods . the period september 29 , 2011 to december 31 , 2011 are considered successor periods . · the company had a net loss of $ 0.869 million for the period from september 29 , 2011 to december 31 , 2011. the predecessor had net income $ 4.173 million and $ 4.627 million for the period january 1 , 2011 to september 28 , 2011 and the year ended december 31 , 2010 , respectively . · the company had an operating loss of $ 0.513 million for the period from september 29 , 2011 to december 31 , 2011. the predecessor had operating income of $ 4.348 million and $ 4.847 million for the period january 1 , 2011 to september 28 , 2011 and the year ended december 31 , 2010 , respectively . an additional discussion is presented for the comparison of results from operations of 2011 unaudited pro-forma and results from operations of 2010 unaudited pro-forma for the year ended december 31 , 2010 . · the company presents pro-forma net income of $ 1.172 million and $ 1.418 million for the years ended december 31 , 2011 and december 31 , 2010 , respectively . · the company presents pro-forma operating income of $ 3.939 million and $ 4.318 million the years ended december 31 , 2011 and december 31 , 2010 , respectively .
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the company distributes electronic components to oems and cms through its global components business segment and provides enterprise computing solutions to vars through its global ecs business segment . for 2014 , approximately 63 % of the company 's sales were from the global components business segment and approximately 37 % of the company 's sales were from the global ecs business segment . the company 's financial objectives are to grow sales faster than the market , increase the markets served , grow profits faster than sales , and increase return on invested capital . to achieve its objectives , the company seeks to capture significant opportunities to grow across products , markets , and geographies . to supplement its organic growth strategy , the company continually evaluates strategic acquisitions to broaden its product and value-added service offerings , increase its market penetration , and or expand its geographic reach . in february 2015 , the company acquired rdc , a wholly owned subsidiary of computacenter uk ltd. , for a purchase price of approximately £58.0 million ( approximately $ 87.0 million ) . rdc is a leading technology returns and asset management company with operations within the emea region . in january 2015 , the company announced a cash tender offer to acquire all of the outstanding shares of data modul ag for approximately 94.0 million ( approximately $ 105.0 million ) . the acquisition is expected to close in early 2015. during 2014 , the company completed five acquisitions . during 2013 , the company completed five acquisitions , including the acquisition of css computer security solutions holding gmbh , doing business as computerlinks ag . during 2012 , the company completed seven acquisitions . refer to note 2 , `` acquisitions , '' of the notes to the consolidated financial statements for further discussion of the company 's recent acquisition activity . during the third quarter of 2012 , the company prospectively revised its presentation of sales related to certain fulfillment contracts to present these revenues on an agency basis as net fees , as compared to presenting gross sales and costs of sales in prior periods . management concluded that the impact of the revised presentation was not material and , therefore , prior periods have not been adjusted . on a gross basis , these contracts contributed approximately $ 280.6 million to the company 's sales for 2012 , which negatively impacted consolidated sales growth for 2013 by approximately 1.4 % when compared with 2012 . this revised presentation had no impact on the company 's consolidated balance sheet or statement of cash flows . within the company 's consolidated statement of operations , this revised presentation had no impact on gross profit dollars , operating income dollars , net income dollars , or earnings per share , but positively impacted the gross profit margin by approximately 10 basis points , while operating income margin remained relatively flat for 2013 . additionally , returns on capital , which are key metrics used to evaluate the company 's performance , were also not impacted by this prospective revision . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; color : # 000000 ; text-decoration : none ; '' > 2014 , compared with the year-earlier period . in the global components business segment , sales for 2014 increased 6.1 % , compared with the year-earlier period primarily due to an increase in demand for products worldwide and the impact of recently acquired businesses . adjusted for the impact of changes in foreign currencies and acquisitions , the company 's global components business segment sales increased by 4.2 % in 2014 , compared with the year-earlier period . in the global ecs business segment , sales for 2014 increased 7.6 % primarily driven by growth in software , services , storage and industry standard servers , offset , in part , by a decrease in demand for proprietary servers in the north america and emea regions . adjusted for the impact of changes in foreign currencies and acquisitions , the company 's global ecs business segment sales were flat in 2014 , compared with the year-earlier period . following is an analysis of net sales by business segment for the years ended december 31 ( in millions ) : replace_table_token_6_th consolidated sales for 2013 increased by $ 952.2 million , or 4.7 % , compared with the year-earlier period . the increase in 2013 was driven by an increase in global components business segment sales of $ 134.6 million , or 1.0 % , and an increase in global ecs business segment sales of $ 817.5 million , or 11.6 % , compared with the year-earlier period . the translation of the company 's international financial statements into u.s. dollars resulted in an increase in consolidated sales of 0.8 % in 2013 , compared with the year-earlier period , due to a weaker u.s. dollar . adjusted for the impact of changes in foreign currencies and acquisitions , and the aforementioned change in presentation of sales , the company 's consolidated sales increased by 3.0 % in 2013 , compared with the year-earlier period . in the global components business segment , sales for 2013 increased 1.0 % compared with the year-earlier period primarily due to an increase in demand for products in the asia pacific region , the impact of recently acquired businesses , and the impact of a weaker u.s. dollar on the translation of the company 's international financial statements offset , in part , by a decline in demand for products in both the americas and emea regions . adjusted for the impact of changes in foreign currencies and acquisitions , and the aforementioned change in presentation of sales , the company 's global components business segment sales increased by 1.4 % in 2013 , compared with the year-earlier period . story_separator_special_tag also included in the restructuring , integration , and other charges for 2014 is a charge of $ 1.1 million related to restructuring and integration actions taken in prior periods and acquisition-related expenses of $ 0.4 million . the restructuring and integration charge of $ 38.3 million in 2014 includes personnel costs of $ 29.3 million , facilities costs of $ 5.6 million , and other costs of $ 3.5 million . these restructuring initiatives are due to the company 's continued efforts to lower cost and drive operational efficiency . integration costs are primarily related to the integration of acquired businesses within the company 's pre-existing business and the consolidation of certain operations . 2013 charges in 2013 , the company recorded restructuring , integration , and other charges of $ 92.7 million ( $ 65.6 million net of related taxes or $ .64 and $ .63 per share on a basic and diluted basis , respectively ) . included in the restructuring , integration , and other charges for 2013 is a restructuring and integration charge of $ 79.9 million related to initiatives taken by the company to improve operating efficiencies . also included in the restructuring , integration , and other charges for 2013 is a charge of $ .8 million related to restructuring and integration actions taken in prior periods and acquisition-related expenses of $ 11.9 million . the restructuring and integration charge of $ 79.9 million in 2013 includes personnel costs of $ 66.2 million , facilities costs of $ 12.6 million , and other costs of $ 1.1 million . these restructuring initiatives are due to the company 's continued efforts to lower cost and drive operational efficiency . integration costs are primarily related to the integration of acquired businesses within the company 's pre-existing business and the consolidation of certain operations . 2012 charges in 2012 , the company recorded restructuring , integration , and other charges of $ 47.4 million ( $ 30.7 million net of related taxes or $ .28 per share on both a basic and diluted basis ) . included in the restructuring , integration , and other charges for 2012 is a restructuring and integration charge of $ 43.3 million related to initiatives taken by the company to improve operating efficiencies . also included in the restructuring , integration , and other charges for 2012 is a charge of $ 1.4 million related to restructuring and integration actions taken in prior periods and acquisition-related expenses of $ 2.7 million . the restructuring and integration charge of $ 43.3 million in 2012 includes personnel costs of $ 31.3 million , facilities costs of $ 5.4 million , and asset write-downs of $ 6.6 million . these restructuring initiatives are due to the company 's continued efforts to lower cost and drive operational efficiency . integration costs are primarily related to the integration of acquired businesses within the company 's pre-existing business and the consolidation of certain operations . the asset write-downs resulted from the company 's decision to exit certain business activities which caused these assets to become redundant and have no future benefit . as of december 31 , 2014 , the company does not anticipate there will be any material adjustments relating to the aforementioned restructuring plans . refer to note 9 , `` restructuring , integration , and other charges , '' of the notes to the consolidated financial statements for further discussion of the company 's restructuring and integration activities . trade name impairment charge the company tests goodwill and other indefinite-lived intangible assets for impairment annually as of the first day of the fourth quarter , or more frequently if indicators of potential impairment exist . during the fourth quarter of 2014 , in connection with the company 's global re-branding initiative to brand certain of its businesses under the arrow name , the company made the decision to discontinue the use of a trade name of one of its businesses within the global ecs business segment . as no future cash flows will be attributed to the impacted trade name , the entire book value was written-off , resulting in a non-cash impairment charge of $ 78.0 million ( $ 47.9 million net of related taxes or $ .49 and $ .48 per share on a basic and diluted basis , respectively ) as of december 31 , 2014 in the company 's consolidated statements of operations . fair value was determined using unobservable ( level 3 ) inputs . the impairment charge did not impact the company 's consolidated cash flows , liquidity , capital resources , and covenants under its existing revolving credit facility , asset securitization program , and other outstanding borrowings . no impairment existed as of december 31 , 2014 with respect to the company 's other identifiable intangible assets . 26 settlement of legal matters 2012 in connection with the purchase of wyle in august 2000 , the company acquired certain of the then outstanding obligations of wyle , including wyle 's indemnification obligations to the purchasers of its wyle laboratories division for environmental clean-up costs associated with any then existing contamination or violation of environmental regulations . under the terms of the company 's purchase of wyle from the sellers , the sellers agreed to indemnify the company for certain costs associated with the wyle environmental obligations , among other things . during 2012 , the company entered into a settlement agreement with the sellers pursuant to which the sellers paid $ 110 million and the company released the sellers from their indemnification obligation . in connection with this settlement , the company recorded a gain on the settlement of legal matters of $ 79.2 million ( $ 48.6 million net of related taxes or $ .45 and $ .44 per share on a basic and diluted basis , respectively ) representing the difference between the settlement amount and the amount receivable from the sellers for reimbursement of costs incurred by the company .
| executive summary consolidated sales for 2014 increased by 6.6 % , compared with the year-earlier period , due to a 6.1 % increase in the global components business segment sales and a 7.6 % increase in the global ecs business segment sales . net income attributable to shareholders increased to $ 498.0 million in 2014 , compared with net income attributable to shareholders of $ 399.4 million in the year-earlier period . the following items impacted the comparability of the company 's results for the years ended december 31 , 2014 and 2013 : a non-cash impairment charge associated with discontinuing the use of a trade name of $ 78.0 million ( $ 47.9 million net of related taxes ) in 2014 ; restructuring , integration , and other charges of $ 39.8 million ( $ 29.3 million net of related taxes ) in 2014 and $ 92.7 million ( $ 65.6 million net of related taxes ) in 2013 ; identifiable intangible asset amortization of $ 44.1 million ( $ 36.0 million net of related taxes ) in 2014 and $ 36.8 million ( $ 29.3 million net of related taxes ) in 2013 ; a gain on sale of investment of $ 29.7 million ( $ 18.3 million net of related taxes ) in 2014 ; a loss on prepayment of debt of $ 4.3 million ( $ 2.6 million net of related taxes ) in 2013 ; and 21 an increase in the provision for income taxes of $ 20.8 million and interest expense of $ 1.6 million ( $ 1.2 million net of related taxes ) relating to the settlement of certain international tax matters in 2013. excluding the aforementioned items , the increase in net income attributable to shareholders for 2014 was primarily due to an increase in sales in the global components and global ecs segments , and the impact of recent acquisitions .
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-73- replace_table_token_44_th replace_table_token_45_th other comprehensive income ( loss ) in our statements of comprehensive income includes net unrealized gains ( losses ) of $ 138,771 , $ 479,401 and ( $ 32,129 ) for 2012 , 2011 and 2010 , respectively , representing our story_separator_special_tag overview donegal mutual insurance company ( donegal mutual ) organized us as an insurance holding company on august 26 , 1986. see business - history and organizational structure for more information . our insurance subsidiaries , atlantic states insurance company ( atlantic states ) , southern insurance company of virginia ( southern ) , le mars insurance company ( le mars ) , the peninsula insurance company and peninsula indemnity company ( collectively , peninsula group ) , sheboygan falls insurance company ( sheboygan falls ) and michigan insurance company ( mico ) write personal and commercial lines of property and casualty coverages exclusively through a network of independent insurance agents in certain mid-atlantic , midwest , new england and southern states . we acquired mico on december 1 , 2010 and we have included mico 's results of operations in our consolidated results of operations from that date . the personal lines products of our insurance subsidiaries consist primarily of homeowners and private passenger automobile policies . the commercial lines products of our insurance subsidiaries consist primarily of commercial automobile , commercial multi-peril and workers ' compensation policies . we also own 48.2 % of the outstanding stock of donegal financial services corporation ( dfsc ) , a grandfathered unitary savings and loan holding company . donegal mutual owns the remaining 51.8 % of the outstanding stock of dfsc . at december 31 , 2012 , donegal mutual held approximately 39 % of our outstanding class a common stock and approximately 76 % of our outstanding class b common stock . this ownership provides donegal mutual with approximately 66 % of the aggregate voting power of our outstanding shares of class a common stock and our outstanding shares of class b common stock . donegal mutual and atlantic states entered into a proportional reinsurance agreement , or pooling agreement , effective october 1 , 1986. under this pooling agreement , donegal mutual and atlantic states pool and then share proportionately substantially all of their respective premiums , losses and expenses . atlantic states ' participation in the pool has been 80 % since march 1 , 2008. the operations of our insurance subsidiaries and donegal mutual are interrelated due to the pooling agreement and other factors . while maintaining the separate corporate existence of each company , our insurance subsidiaries and donegal mutual conduct business together as the donegal insurance group . as such , donegal mutual and our insurance subsidiaries share the same business philosophy , the same management , the same employees and the same facilities and offer the same types of insurance products . see business - history and organizational structure for more information regarding the pooling agreement and other transactions with our affiliates . our results of operations and financial condition have been impacted by two recent transactions : in december 2010 , we acquired mico , which had been a majority owned subsidiary of west bend mutual insurance company ( west bend ) , for approximately $ 42.3 million in cash . mico writes various lines of property and casualty insurance and had direct written premiums of $ 105.4 million and net written premiums of $ 27.1 million for the year ended december 31 , 2010. effective on december 1 , 2010 , mico entered into a 50 % quota-share agreement with third-party reinsurers and a 25 % quota-share reinsurance agreement with donegal mutual to replace the 75 % quota-share reinsurance agreement mico had maintained with west bend through november 30 , 2010. in may 2011 , dfsc and union national financial corporation ( unnf ) merged , with dfsc as the surviving company in the merger . under the merger agreement , province bank fsb , which dfsc owned , and union national community bank , which unnf owned , also merged and began doing business as union community bank fsb ( ucb ) . ucb is a federal savings bank with 13 branch offices in lancaster county , pennsylvania , and $ 509.8 million in assets at december 31 , 2012. donegal mutual contributed $ 22.1 million and we contributed $ 20.6 million to dfsc as additional capital to facilitate the mergers . we use the equity method of accounting for our investment in dfsc . under the equity method , we record our investment at cost , with adjustments for our share of dfsc 's earnings and losses as well as changes in dfsc 's equity due to dfsc 's unrealized gains and losses . in february 2009 , our board of directors authorized a share repurchase program , pursuant to which we may purchase up to 300,000 shares of our class a common stock at market prices prevailing from time to time in the open market subject to the provisions of securities and exchange commission rule 10b-18 and in privately negotiated transactions . we purchased 135,064 and 119,257 shares of our class a common stock under this program during 2012 and 2011 , respectively . at december 31 , 2012 , we had the authority remaining to purchase 28,308 shares under this program . -38- critical accounting policies and estimates we combine our financial statements with those of our insurance subsidiaries and present them on a consolidated basis in accordance with gaap . our insurance subsidiaries make estimates and assumptions that can have a significant effect on amounts and disclosures we report in our financial statements . the most significant estimates relate to the reserves of our insurance subsidiaries for property and casualty insurance unpaid losses and loss expenses , valuation of investments and determination of other-than-temporary impairments and the policy acquisition costs of our insurance subsidiaries . while we believe our estimates and the estimates of our insurance subsidiaries are appropriate , the ultimate amounts may differ from the estimates we provided . story_separator_special_tag the 2012 development represented 3.1 % of the december 31 , 2011 net carried reserves and resulted primarily from higher-than-expected severity in the private passenger automobile liability and workers ' compensation lines of business in accident years prior to 2012. excluding the impact of weather events , our insurance subsidiaries have noted stable amounts in the number of claims incurred and a slight downward trend in the number of claims outstanding at period ends relative to their premium base in recent years across most of their lines of business . however , the amount of the average claim outstanding has increased gradually over the past several years as the united states property and casualty insurance industry has experienced increased litigation trends and economic conditions that have extended the estimated length of disabilities and contributed to increased medical loss costs . we have also experienced a general slowing of settlement rates in litigated claims . our insurance subsidiaries could have to make further adjustments to their estimates in the future . however , on the basis of our insurance subsidiaries ' internal procedures , which analyze , among other things , their prior assumptions , their experience with similar cases and historical trends such as reserving patterns , loss payments , pending levels of unpaid claims and product mix , as well as court decisions , economic conditions and public attitudes , we believe that our insurance subsidiaries have made adequate provision for their liability for losses and loss expenses . atlantic states ' participation in the pool with donegal mutual exposes it to adverse loss development on the business of donegal mutual that is included in the pool . however , pooled business represents the predominant percentage of the net underwriting activity of both companies , and donegal mutual and atlantic states proportionately share any adverse risk development of the pooled business . the business in the pool is homogeneous and each company has a pro-rata share of the entire pool . since substantially all of the business of atlantic states and donegal mutual is pooled and the results shared by each company according to its participation level under the terms of the pooling agreement , the intent of the underwriting pool is to produce a more uniform and stable underwriting result from year to year for each company than they would experience individually and to spread the risk of loss between the companies . -40- our insurance subsidiaries ' liability for losses and loss expenses by major line of business at december 31 , 2012 and 2011 consisted of the following : replace_table_token_14_th we have evaluated the effect on our insurance subsidiaries ' loss and loss expense reserves and our stockholders ' equity in the event of reasonably likely changes in the variables we consider in establishing loss and loss expense reserves . we established the range of reasonably likely changes based on a review of changes in accident year development by line of business and applied it to our insurance subsidiaries ' loss reserves as a whole . the selected range does not necessarily indicate what could be the potential best or worst case or likely scenario . the following table sets forth the effect on our insurance subsidiaries ' loss and loss expense reserves and our stockholders ' equity in the event of reasonably likely changes in the variables considered in establishing loss and loss expense reserves : replace_table_token_15_th ( 1 ) net of income tax effect . our insurance subsidiaries base their reserves for unpaid losses and loss expenses on current trends in loss and loss expense development and reflect their best estimates for future amounts needed to pay losses and loss expenses with respect to incurred events currently known to them plus incurred but not reported ( ibnr ) claims . our insurance subsidiaries develop their reserve estimates based on an assessment of known facts and circumstances , review of historical loss settlement patterns , estimates of trends in claims severity , frequency , legal and regulatory changes and other assumptions . our insurance subsidiaries consistently apply actuarial loss reserving techniques and assumptions , which rely on historical information as adjusted to reflect current conditions , including consideration of recent case reserve activity . our insurance subsidiaries use the most-likely number as determined by their actuaries . -41- for the year ended december 31 , 2012 , the actuaries developed a range from a low of $ 228.7 million to a high of $ 275.3 million and with a most-likely number of $ 250.9 million . the actuaries ' range of estimates for commercial lines in 2012 was $ 130.9 million to $ 157.4 million , and they selected the most-likely number of $ 143.5 million . the actuaries ' range of estimates for personal lines in 2012 was $ 97.8 million to $ 117.9 million , and they selected the most-likely number of $ 107.4 million . for the year ended december 31 , 2011 , the actuaries developed a range from a low of $ 227.0 million to a high of $ 260.2 million and with a most-likely number of $ 243.0 million . the actuaries ' range of estimates for commercial lines in 2011 was $ 122.6 million to $ 140.4 million , and they selected the most-likely number of $ 131.2 million . the actuaries ' range of estimates for personal lines in 2011 was $ 104.4 million to $ 119.8 million , and they selected the most-likely number of $ 111.8 million . our insurance subsidiaries seek to enhance their underwriting results by carefully selecting the product lines they underwrite . for personal lines products , our insurance subsidiaries insure standard and preferred risks in private passenger automobile and homeowners lines . for commercial lines products , the commercial risks that our insurance subsidiaries primarily insure are business offices , wholesalers , service providers , contractors , artisans and light manufacturing operations . our insurance subsidiaries have limited exposure to asbestos and other environmental liabilities . our insurance subsidiaries write no medical malpractice liability risks .
| results of operations year ended december 31 , 2012 compared to year ended december 31 , 2011 net premiums written our insurance subsidiaries ' 2012 net premiums written increased 9.3 % to $ 496.4 million , compared to $ 454.1 million for 2011. we primarily attribute the increase to a change in mico 's quota-share reinsurance , the impact of premium rate increases and an increase in the writing of commercial lines of insurance . effective january 1 , 2012 , mico reduced its external quota-share reinsurance percentage from 50 % to 40 % . commercial lines net premiums written increased $ 26.7 million , or 16.5 % , for 2012 compared to 2011. the increase includes $ 5.3 million related to the reduction in the amount of premium mico reinsured in 2012 , with the remainder attributable to increased writings of new accounts in the commercial automobile , commercial multi-peril and workers ' compensation lines of business . personal lines net premiums written increased $ 15.7 million , or 5.4 % , for 2012 compared to 2011. the increase includes $ 4.6 million resulting from the reduction in the amount of premium mico reinsured in 2012 , with the remainder primarily attributable to premium rate increases our subsidiaries implemented throughout 2011 and 2012 and reduced reinsurance reinstatement premiums . net premiums earned our insurance subsidiaries ' net premiums earned increased to $ 475.0 million for 2012 , an increase of $ 43.5 million , or 10.1 % , over 2011 , reflecting increases in net premiums written during 2011 and 2012. our insurance subsidiaries earn premiums and recognize them as income over the terms of the policies they issue . such terms are generally one year or less in duration . therefore , increases or decreases in net premiums earned generally reflect increases or decreases in net premiums written in the preceding twelve-month period compared to the same period one year earlier .
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the acs retirement plan 's accumulated benefit obligation is the actuarial present value , as of the company 's december 31 , 2011 measurement date story_separator_special_tag the following discussion and analysis should be read in conjunction with the consolidated financial statements and related notes and the other financial information included elsewhere in this form 10-k. 30 overview the sections that follow provide information about important aspects of our operations and investments and include discussions of our results of operations , financial condition and sources and uses of cash . in addition , we have highlighted key trends and uncertainties to the extent practicable . the content and organization of the financial and non-financial data presented in these sections are consistent with information we use in evaluating our own performance and allocating our resources . we also monitor the state of the economy in general . in doing so , we compare alaskan economic activity with broader economic conditions . in general , we believe that the alaskan telecommunications market , as well as general economic activity in alaska , is affected by certain economic factors , which include : activity in the oil and gas markets ; tourism levels ; military activity ; the cost of long-haul telecommunications bandwidth ; local customer preferences ; average usage of internet technology : unemployment levels ; and housing activity . we have observed variances in the factors affecting the alaskan economy as compared to the u.s. as a whole . some factors , particularly the price of oil and gas , may have the opposite effect on the alaskan economy than the u.s. economy as a whole . in forecasting the local economic conditions that affect us , we take particular note of these factors . strategy in 2011 , our results of operations , financial position and sources and uses of cash in 2011 reflect our historical strategy of focus on the following imperatives : grow enterprise revenue serve business , government and carrier customers by providing or contracting to provide redundant , scalable and managed high bandwidth data connections , data hosting , it and cloud-based services throughout alaska and to the contiguous states and beyond . protect and grow our wireless subscribers while our wireless business faced strong competition , we believe that marketing and sales initiatives and providing competitive smart phone devices on android ® and other platforms allowed us to realize growth in the wireless business during the second half of 2011. enhance our customers ' experience our reputation for customer service is critical to our success . our renewed focus on our customers was a key to protecting and growing our business . enhance our people relations our business relies on our highly skilled workforce of 855 employees . with a motivated , engaged and stable workforce , combined with greater engagement in the communities in which we serve , we more successfully faced the challenges and risks to our business . reduce our costs of doing business while focusing resources on revenue growth and market share gains , we continually challenged our management team and employees at all levels of the organization to lower expenses . enhance our systems/process capabilities we continued to invest in technology-assisted process improvements . we expect efforts such as deploying enhanced self-service tools to customers on our web site contributed to our improved cost structure and improvement in operating income margins . 31 beginning in 2012 , based on external events associated with verizon 's entry into the alaskan market and changes to usf funding , we expanded our strategy and now expect our results of operations , financial position and sources and uses of cash in the current and future periods to reflect our focus on being the most successful broadband solutions company in alaska by delivering the best customer experience in the markets we choose to serve . we seek to do this by : develop our workforce to build our sales and service capabilities we believe an engaged workforce is critical to our success . provide a delightful customer experience every time we believe the economics of retaining a customer always prevails over those of adding a customer . we will invest in training , process and systems improvements to continuously improve the customer experience we create . simplify how we do business we believe we must reduce waste and non-value-added activities . we plan to accelerate our investments in technology and process improvement and expect these efforts to meaningfully impact margins in the next two to three years . offer broadband solutions to our customers whether wireline or wireless products or to consumer or business customers we will build on strength in designing , building and operating quality networks and provide new products and solutions to our customers . revenue sources by segment wireline revenue from our wireline business services is generated from enterprise , retail and wholesale customer segments as well as from the provision of network access services to interexchange and wireless carriers . enterprise we generate enterprise revenue from : multi-site business customers and state and federal governments by providing connectivity , hosting and collocation services ; and advanced network services ; and other carriers by providing capacity and transport services ; and local and long distance private line and data services . retail we generate revenue from retail residential and business customers primarily from : basic local telephone service including features to customers within our service areas ; isp services including dsl and dial up ; long distance services ; and cpe sales to business customers . 32 the number of local telephone customers we serve continues to steadily decline . we expect this trend to continue . story_separator_special_tag 37 year ended december 31 , 2010 compared to the year ended december 31 , 2009 operating revenues wireline enterprise : enterprise revenue increased $ 3.2 million or 7.1 % in 2010 , primarily due to an increase of $ 6.6 million in data sales which was offset , in part , by a $ 1.8 million decline in revenue from an expired capacity swap and a $ 1.6 million decline in carrier voice revenue . retail : declines in retail switched access lines in service during 2010 were concentrated in the residential market which we believe continued to be impacted by wireless substitution . retail revenue decreased $ 2.8 million , or 3.3 % , year over year primarily due to a $ 2.1 million decline in local exchange revenue associated with residential line losses , a $ 1.0 million decline in long distance sales and a $ 1.0 million net decrease in revenue for the release of company liabilities for commercial developer deposits . these losses were offset , in part , by a $ 1.3 million increase in revenue from our existing isp subscriber base . wholesale : wholesale revenues decreased by $ 2.0 million , or 17.8 % , over the prior year due to continued decline in line counts . we believe this decline was primarily attributable to the ongoing migration of lines by our key competitor to its propriety cable telephony plant and the decision of another competitor , and wholesale customer , to exit the market . access : access revenue declined $ 2.4 million , or 3.9 % , primarily due to higher out of period settlements in 2009. wireless wireless revenue decreased slightly to $ 140.6 million in 2010 as compared to $ 141.0 in 2009. voice revenue decreased $ 9.3 million consistent with the 12.3 % decline in subscribers from 137,365 to 120,413 , due in part to limited access to certain data centric handsets . additionally , equipment and accessory revenue declined $ 1.1 million . offsetting these decreases were increases of $ 7.3 million in roaming revenue from non-alaska communications customers , $ 2.6 million in data revenue due to the rapid adoption of smart phones and the growing popularity of data rich features . operating expense wireline wireline operations include local telephone , internet , interexchange and cable systems operating costs . cost of services and sales : wireline cost of services and sales decreased $ 6.9 million to $ 75.6 million in 2010 primarily due to a $ 6.2 million decrease in labor expense resulting from an overall reduction in our workforce and lower cash and stock compensation incentive payments . additionally , we experienced decreases of $ 1.4 million in maintenance contracts , $ 0.7 million in paystation expenses , $ 0.5 million in land and building related charges and $ 0.2 million in isp access and leased circuits . these decreases were partially offset by increases of $ 1.3 million in advanced network services expense and $ 0.8 million in long distance cogs . selling , general and administrative costs : wireline sg & a expenses decreased $ 1.8 million to $ 65.5 million in 2010. these decreases include a $ 2.1 million reduction in bad debt expense in 2010 driven by a $ 1.2 million out of period true up to our allowance for uncollectible accounts in 2009 , and improved collection processes in 2010 and a $ 1.1 million decrease in labor costs resulting from the overall reduction in our general work force . additionally , the prior year was affected by a $ 1.0 million charge related to the repudiation of a contract commitment from a bankrupt vendor . offsetting these decreases were increases of $ 1.6 million in advertising expense and $ 0.6 million in legal and it consulting in 2010 and the non-recurrence of a $ 0.4 million favorable property tax settlement in 2009. wireless cost of services and sales : wireless cost of services and sales increased $ 1.6 million to $ 55.3 million in 2010 driven primarily by increases of $ 2.2 million in handset , accessory and data content expenses partially offset by a $ 0.9 million decrease in network costs . selling , general and administrative : wireless sg & a expenses decreased $ 1.2 million in 2010 driven by a shift in advertising expense from our wireless segment to our wireline segment with more brand versus product advertising . 38 depreciation and amortization depreciation and amortization expense decreased 11.4 % in 2010 to $ 72.1 million as compared to $ 81.4 million in 2009. the decrease from the same period in the prior year was primarily due to a number of pooled asset classes reaching their maximum depreciable lives and a reduction in depreciable value in the assets purchased from crest resulting from the reallocation of purchase price from fixed assets to deferred tax assets under purchase accounting . these declines were partially offset by the acceleration of depreciation on certain wireless assets and other additions to our asset base . loss on disposal of assets the loss on disposal of certain property was $ 2.8 million in 2010 and $ 4.3 million in 2009. impairment charges for certain it projects were the primary driver in both years . other income and expense other income and expense in 2010 was a net expense of $ 48.0 million as compared to a net expense of $ 38.3 million in 2009. the net increase of $ 9.7 million over the prior year is primarily due to the early termination of out-of-the-money interest rate swaps and the extinguishment of our 2005 senior credit facility which resulted in a $ 13.3 million loss on extinguishment of debt . offsetting this increase was a net decrease in interest expense following the expiration of certain out-of-the-money swaps .
| results of operations the following table summarizes our results of operations for the years ended december 31 , 2011 , 2010 and 2009. net income for the year ended december 31 , 2011 was affected by $ 13.4 million in extinguishment of debt expenses arising from the repurchase of $ 98.3 principal amount of our 5.75 % notes utilizing proceeds from the sale of our 6.25 % notes . net income for the year ended december 31 , 2010 was affected by $ 29.7 million additional income tax expense for the effects of the on-going crest irs audit , and $ 13.3 million in extinguishment of debt expenses arising from the extinguishment of our 2005 credit facility and related interest rate swaps . net income for the year ended december 31 , 2009 was affected by a $ 37.3 million extraordinary gain related to the write-off of jurisdictional assets and liabilities required by the discontinuance of regulatory accounting . replace_table_token_8_th 35 year ended december 31 , 2011 compared to the year ended december 31 , 2010 operating revenues wireline enterprise : enterprise revenue increased $ 3.5 million or 7.2 % in 2011 , due to higher data revenue of $ 4.5 million offset , in part , by a $ 1.0 million decrease in carrier voice revenues . we expect enterprise revenues to continue to increase as customers increasingly demand higher amounts of bandwidth , as well as gains in market share of carrier , federal and commercial customers . carrier voice revenues represent less than 10 % of total enterprise revenues and are expected to continue to decline as a percentage of total revenues . retail : retail revenues were impacted by a 5.9 % decline in retail switched access lines in service during 2011 compared to the prior year . the majority of the line losses were concentrated in the residential market which we believe continues to be impacted by wireless substitution .
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an audit also includes assessing the accounting principles used and significant estimates made by management , as well as evaluating the overall financial statement story_separator_special_tag the following discussion should be read in conjunction with the consolidated and combined financial statements and notes thereto that are included in this annual report on form 10-k. capitalized terms not defined in this item 7 shall have the definitions ascribed to those terms in items 1-6 of this annual report on form 10-k. overview—basis of presentation wpg inc. is an indiana corporation that operates as a self‑administered and self‑managed reit , under the code . reits will generally not be liable for federal corporate income taxes as long as they continue to distribute not less than 100 % of their taxable income and satisfy certain other requirements . wpg l.p. is wpg inc. 's majority‑owned limited partnership subsidiary that owns , develops and manages , through its affiliates , all of wpg inc. 's real estate properties and other assets . wpg inc. is the sole general partner of wpg l.p. on may 28 , 2014 , wpg separated from spg through the distribution of 100 % of the outstanding units of wpg l.p. to the owners of spg l.p. and 100 % of the outstanding shares of wpg inc. to the spg common shareholders in a tax-free distribution . prior to the separation , wpg inc. and wpg l.p. were wholly owned subsidiaries of the spg businesses . as of december 31 , 2016 , our assets consisted of material interests in 114 shopping centers in the united states , consisting of community centers and enclosed retail properties , comprised of approximately 63 million square feet of gla . the consolidated and combined financial statements are prepared in accordance with gaap . the consolidated balance sheets as of december 31 , 2016 and december 31 , 2015 include the accounts of wpg inc. and wpg l.p. , as well as their wholly-owned subsidiaries . the consolidated and combined statements of operations include the consolidated accounts of the company and the combined accounts of the spg businesses . accordingly , the results presented for the year ended december 31 , 2014 reflect the aggregate operations and changes in cash flows and equity on a carve-out basis of the spg businesses for the period from january 1 , 2014 through may 27 , 2014 and on a consolidated basis of the company subsequent to may 27 , 2014. all intercompany transactions have been eliminated in consolidation and combination . wpg l.p. has filed a trademark application with the united states trademark and patent office for the name `` washington prime group . '' the combined financial statements prior to the separation include the allocation of certain assets and liabilities that had historically been held at the spg corporate level but which are specifically identifiable or allocable to the spg businesses . cash and cash equivalents , short-term investments and restricted funds held by spg were not allocated to the spg businesses unless the cash or investments were held by an entity that was transferred to wpg . long-term unsecured debt and short-term borrowings were not allocated to the spg businesses as none of the debt recorded by spg is directly attributable to or guaranteed by the spg businesses . all intercompany transactions and accounts have been eliminated . the total net effect of the settlement of these intercompany transactions is reflected in the consolidated and combined statements of cash flow as a financing activity . the combined historical financial statements prior to the separation do not necessarily include all of the expenses that would have been incurred had we been operating as a separate , stand-alone entity and may not necessarily reflect our results of operations , financial position and cash flows had we been a stand-alone company during the periods presented prior to the separation . our combined historical financial statements include charges related to certain spg corporate functions , including senior management , property management , legal , leasing , development , marketing , human resources , finance , public reporting , tax and information technology costs . these expenses have been charged based on direct usage or benefit where identifiable , with the remainder charged on a pro rata basis of revenues , headcount , square footage , number of transactions or other measures . we consider the expense allocation methodology and results to be reasonable for all periods presented . however , the charges may not be indicative of the actual expenses that would have been incurred had wpg operated as an independent , publicly traded company for the periods presented prior to the separation . prior to the separation , wpg inc. entered into agreements with spg under which spg provided various services to us relating primarily to the legacy spg businesses , including accounting , asset management , development , human resources , information technology , leasing , legal , marketing , public reporting and tax . the charges for the services were based on an hourly or per transaction fee arrangement and pass-through of out-of-pocket costs . the underlying agreements expired effective may 31 , 2016. in connection with the separation , we incurred $ 38.9 million of expenses , including investment banking , legal , accounting , tax and other professional fees , which are included in spin-off costs for the year ended december 31 , 2014 in the consolidated and combined statements of operations and comprehensive income ( loss ) . 42 the merger on january 15 , 2015 , the company acquired grt as part of the merger . in the merger , grt 's common shareholders received , for each grt common share , $ 14.02 consisting of $ 10.40 in cash and 0.1989 of a share of the wpg inc. 's common stock valued at $ 3.62 per grt common share , based on the closing price of the wpg inc. 's common stock on the merger closing date . story_separator_special_tag in connection with and as part of the aforementioned management changes , the company recorded aggregate charges of $ 29.6 million during the year ended december 31 , 2016 , of which $ 25.5 million related to severance and restructuring-related costs , including $ 9.5 million of non-cash stock compensation for accelerated vesting of equity incentive awards , and $ 4.1 million related to fees and expenses incurred in connection with the company 's investigation of various strategic alternatives , which costs are included in merger , restructuring and transaction costs in the consolidated and combined statements of operations and comprehensive income ( loss ) . during wpg inc. 's annual meeting of shareholders on august 30 , 2016 , the common shareholders approved a proposal to change wpg inc. 's name back to washington prime group inc. conveyance of glimcher domain name and rights to mr. michael p. glimcher in connection with the resignation of mr. michael p. glimcher as the company 's chief executive officer and vice chairman of the board , the company agreed to assign to mr. glimcher our right , title and interest to the glimcher.com internet domain name , the glimcher logo , and irrevocably consent to mr. glimcher 's use of the “ glimcher ” name in any future trade name or business endeavor . this agreement was effective on august 30 , 2016 , the date we received shareholder approval of the corporate name change from wp glimcher inc. to washington prime group inc. mr. glimcher consented to the company 's use of the “ glimcher ” name and glimcher logo with respect to our subsidiaries and properties for a period of 12 months following the executive separation date . the o'connor joint venture on june 1 , 2015 , we completed a joint venture transaction with o'connor mall partners , l.p. ( `` o'connor '' ) , an unaffiliated third party , with respect to the ownership and operation of five of the company 's enclosed retail properties and certain related out-parcels ( the `` o'connor joint venture '' ) acquired in the merger , which were valued at approximately $ 1.625 billion . we retained a 51 % non-controlling interest in the o'connor joint venture . the transaction generated net proceeds , after taking into consideration the assumption of debt ( including the new loans on pearlridge center and scottsdale quarter ) and costs associated with the transaction , of approximately $ 432 million ( including $ 28.7 million for the partial reimbursement of the scottsdale quarter development costs ) , which was used to repay a portion of the bridge loan ( for definition , see `` financing and debt '' below ) . we deconsolidated the properties in the o'connor joint venture ( the `` o'connor properties '' ) and recorded a gain related to this sale of $ 4.2 million , which is included in gain upon acquisition of controlling interests and on sale of interests in properties for the year ended december 31 , 2015 within the consolidated and combined statements of operations and comprehensive income ( loss ) . we retained day-to-day management and leasing responsibilities for the o'connor properties . during the year ended december 31 , 2016 , the o'connor joint venture sold its 25 % indirect ownership interest in crescent-sdq iii venture , llc to unaffiliated third parties . the company received a cash distribution from the joint venture at closing of $ 4.4 million and recorded $ 0.3 million as our share of the joint venture 's gain , based on our pro-rata ownership interest in the o'connor joint venture , which is recorded in ( loss ) income from unconsolidated entities on the consolidated and combined statements of operations and comprehensive income ( loss ) . on november 2 , 2016 , affiliates of the company entered into a definitive agreement providing for an additional joint venture with o'connor with respect to the ownership and operation of seven of the company 's retail properties , which were valued at approximately $ 608 million , consisting of the following : the arboretum , located in austin , texas ; arbor hills , located in ann arbor , michigan ; classen curve and the triangle at classen curve , each located in oklahoma city , oklahoma and nichols hills plaza , located in nichols hills , oklahoma ( the `` oklahoma city properties , '' collectively ) ; gateway center , located in austin , texas ; malibu lumber yard , located in malibu , california ; palms crossing i and ii , located in mcallen , texas and the shops at arbor walk , located in austin , texas . under the terms of the agreement , the company will retain a non-controlling 51 % interest and sell 49 % to o'connor for net proceeds of approximately $ 350 million , including the placement of new mortgage debt , which will be used to reduce the company 's debt , as well as for general corporate purposes . the company will retain management and leasing responsibilities of the properties . on november 18 , 2016 , o'connor completed its due diligence and the escrow deposit of $ 18.7 million became non-refundable . subject to the satisfaction or waiver of certain closing conditions , the transaction is anticipated to close in the second quarter of 2017 . 44 impairment during the year ended december 31 , 2016 , the company made continued progress to dispose of its remaining noncore properties . on november 10 , 2016 , the company sold richmond town square , located in cleveland , ohio .
| summary of financing our consolidated debt and the effective weighted average interest rates as of december 31 , 2016 and 2015 consisted of the following ( dollars in thousands ) : replace_table_token_22_th contractual obligations the following table summarizes the material aspects of the company 's future obligations for consolidated entities as of december 31 , 2016 , assuming the obligations remain outstanding through maturities noted below ( in thousands ) : replace_table_token_23_th ( 1 ) represents principal maturities only and therefore excludes net fair value adjustments of $ 12,661 , debt issuance costs of $ ( 14,639 ) and bond discount of $ ( 47 ) as of december 31 , 2016 . in addition , the principal maturities reflect any available extension options within the control of the company . ( 2 ) variable rate interest payments are estimated based on the libor rate at december 31 , 2016 . ( 3 ) since there is no required redemption , distributions on the series h preferred shares/units , series i preferred shares/units and series i-1 preferred units may be paid in perpetuity ; for purposes of this table , such distributions were included through the optional redemption dates of august 10 , 2017 , march 27 , 2018 and march 27 , 2018 , respectively . ( 4 ) represents minimum future lease payments due through the end of the initial lease term . ( 5 ) includes amounts due under executed leases and commitments to vendors for development and other matters . 57 the following table summarizes the material aspects of the company 's proportionate share of future obligations for unconsolidated entities as of december 31 , 2016 , assuming the obligations remain outstanding through initial maturities ( in thousands ) : replace_table_token_24_th ( 1 ) represents principal maturities only and therefore excludes net fair value adjustments of $ 7,718 and debt issuance costs of $ ( 1,710 ) as of december 31 , 2016 . in addition , the principal maturities reflect any available extension options .
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we provide end-to-end sterilization as well as microbiological and analytical lab testing and advisory services to help ensure that medical , pharmaceutical and food products are safe for healthcare practitioners , patients and consumers in the united states and around the world . our customers include more than 40 of the top 50 medical device companies and eight of the top ten global pharmaceutical companies ( based on revenue ) . our services are an essential aspect of our customers ' manufacturing process and supply chains , helping to ensure sterilized medical products reach healthcare practitioners and patients . most of these services are necessary for our customers to satisfy applicable government requirements . we give our customers confidence that their products meet regulatory , safety and effectiveness requirements . with a combined tenure across our businesses of nearly 200 years and our industry-recognized scientific and technological expertise , we help to ensure the safety of millions of patients and healthcare practitioners around the 52 world every year . across our 64 facilities worldwide , we have nearly 3,000 employees who are dedicated to safety and quality . we are a trusted partner to more than 5,800 customers in over 50 countries . we serve our customers throughout their product lifecycles , from product design to manufacturing and delivery , helping to ensure the sterility , effectiveness and safety of their products for the end user . we operate across two core businesses : sterilization services and lab services . each of our businesses has a longstanding record and is a leader in its respective market , supported and connected by our core capabilities including deep end market , regulatory , technical and logistics expertise . the combination of sterigenics , our terminal sterilization business , and nordion , our co-60 supply business , makes us the only vertically integrated global gamma sterilization provider in the sterilization industry . this provides us with additional insights and allows us to better serve our customers . for financial reporting purposes , our sterilization services business consists of two reportable segments , sterigenics and nordion , and our lab services business consists of one reportable segment , nelson labs . for the year ended december 31 , 2020 , we recorded net revenues of $ 818.2 million , net loss of $ 37.5 million , adjusted net income of $ 99.1 million and adjusted ebitda of $ 419.9 million . for the definition of adjusted net income and adjusted ebitda and the reconciliation of these non-gaap measures from net income ( loss ) , please see “ non-gaap financial measures. ” more than 90 % of our sterilization services revenues for year ended december 31 , 2020 were from customers under multi-year contracts . trends and key factors affecting our results of operations we expect that our performance and financial condition will continue to be driven by the key trends impacting our industries , customers and their end markets as outlined in item 1 , “ business ” . in addition , we believe the following trends and key factors have underpinned our recent operating results and may continue to affect our performance and financial condition in future periods . continue to drive organic growth . we drive organic growth through increasing utilization of our existing capacity and expanding our capacity and service offerings . in our sterigenics business , we are investing in additional capacity at existing facilities and building new facilities . in our nordion business , we are developing further supply relationships and expanding our capabilities to source co-60 from additional reactors . in our nelson labs business , we are investing to expand our geographic reach , technical expertise and regulatory know-how to stay ahead of the dynamic and increasingly stringent regulatory landscape in the healthcare industry , and drive growth in our advisory services offering . disciplined and strategic m & a activity . we have completed several strategic transactions that have expanded our addressable market and enhanced our global capabilities and footprint . in 2017 , we acquired toxikon europe nv ( now known as nelson laboratories europe ) , a lab services business with extractable and leachables testing services . in 2018 , we acquired gibraltar laboratories , inc. ( now known as nelson laboratories fairfield , inc. ) ( “ nelson fairfield ” ) , a provider of microbiological and analytical chemistry testing . in july 2020 , we acquired iotron industries canada , inc. ( “ iotron ” ) , an e-beam processing services and equipment provider . in march 2021 , we acquired bioscience laboratories , llc based in bozeman , montana , for approximately $ 15 million , bringing expertise in antimicrobial and virology testing to our nelson labs segment . we also completed the sale of our former medical isotopes business to a subsidiary of bwx technologies , inc. in 2018 to monetize a noncore asset , the proceeds from which we reinvested in our core businesses . we are continuing to pursue strategic acquisitions to grow our footprint and expand our capabilities . business optimization and cost savings initiatives . we have conducted several business optimization and cost savings projects in connection with the integrations of nordion and nelson labs and the creation of the sotera health “ one company ” platform . these projects included consolidation of certain back office functions into a shared service model , optimization and harmonization of certain systems , insurance lines and benefits programs and rebranding the company under the name sotera health . additionally , we have realigned our operating structure and made enhancements to certain processes . these projects have resulted in more efficient operations , working capital improvement and a more integrated and robust control and governance environment . for the years ended december 31 , 2020 and 2019 we incurred $ 2.5 million and $ 4.2 million , respectively , in connection with implementing these projects . story_separator_special_tag the legislation significantly changed u.s. tax law by , among other things , lowering corporate income tax rates to 21 % , implementing an inclusion item for global intangible low-taxed income ( “ gilti ” ) and limiting interest expense deductions to 30 % of u.s. adjusted taxable income . the cares act was signed into law on march 27 , 2020 and temporarily increases the interest expense deduction limitation to 50 % of u.s. adjusted taxable income for both 2019 and 2020. on july 23 , 2020 , 951a final regulations were published that exempt income subject to a high rate of foreign tax from inclusion under gilti for tax years beginning after december 31 , 2017. in 2020 and 2019 , we recognized gilti current tax expense of $ 2.6 million and $ 10.3 million , respectively , as a result of final 951a regulations . the tcja limits the deductibility of interest expense in any given year and any amounts not currently deductible may be carried forward indefinitely . at december 31 , 2020 and 2019 , we had $ 68.0 million and $ 41.5 million , respectively , of deferred tax assets relating to interest expense from 2020 and prior years that was not deductible in the originating period . although the cares act provides for an increased interest expense deductibility limitation , the reduction in adjusted taxable income ( “ ati ” ) realized as a result of the final 951a regulations resulted 54 in a $ 43.8 million valuation allowance recorded in the year ended december 31 , 2020 compared to $ 23.0 million for the year ended december 31 , 2019. we do not expect to fully realize the benefit of interest expense incurred in future periods and therefore may recognize a valuation allowance on any related deferred tax assets generated in those future periods that will impact our annual effective income tax rate . foreign currency exchange rates . as a result of our global operations , we generate a significant portion of our revenue and incur a significant portion of our expenses in currencies other than the u.s. dollar . we translate the assets , liabilities , net revenues and expenses of all of our operations into u.s. dollars at applicable exchange rates , and therefore we experience gains and losses related to exchange rate fluctuations . see item 7a . “ quantitative and qualitative disclosures about market risk—foreign currency risk. ” from time to time , as and when we determine it is appropriate and advisable to do so , we may seek to mitigate the cash effect of exchange rate fluctuations through the use of derivative financial instruments . in the fourth quarter of 2020 we entered into foreign currency forward contracts to manage foreign currency exchange rate risk of our intercompany loans in certain of our european and canadian subsidiaries . the foreign currency forward contracts expired ratably on a monthly basis . the fair value of the outstanding foreign currency forward contracts was zero as of december 31 , 2020 or 2019. impact of covid-19 pandemic . the global impact of the covid-19 pandemic , including the governmental responses , has affected our operations beginning in the first quarter of 2020. there has been an increase in deferred elective procedures , which has negatively impacted demand for some of our products and services as a result of a decrease in the need for sterilized medical devices used in these procedures . there has also been reduced demand for some of our lab testing services and impacts to sterigenics processing volumes where employee availability has been temporarily reduced . although our operations are considered “ essential ” in all locations where we operate , we have experienced , and may experience in the future , temporary facility closures while awaiting appropriate government approvals in certain jurisdictions or delays in delivering products or services to customers . we have experienced delayed deliveries , primarily in our nordion business , at certain locations as a result of governmental travel restrictions enacted in response to the covid-19 pandemic . the extent to which our operations will continue to be impacted by the pandemic will largely depend on future developments , which are highly uncertain and can not be predicted . components of our results of operations net revenues service revenues consist of revenue generated from contract sterilization and lab testing and advisory services within our sterigenics and nelson labs segments , respectively . service revenues also consist of co-60 installation and disposal revenues and production irradiator refurbishments and installation services within our nordion segment . product revenues consist of revenues generated from sales of co-60 radiation sources and production irradiators . provisions for discounts , rebates to customers , and other adjustments are provided for as reductions in net revenues . refunds , returns , warranties and other related obligations are not material to any of our business units , nor do we incur material incremental costs to secure customer contracts . cost of revenues our cost of revenues consists primarily of direct materials , utilities , labor and related benefit costs , and depreciation and amortization . although the cost of utilities and direct materials can fluctuate , the remaining components of cost of revenues are generally more stable . direct material costs relating to service revenues primarily includes eo gas , nitrogen gas and co-60 . the physical decay of co-60 assets is included within depreciation expense as a cost of revenue . direct material costs relating to product revenues also include the costs associated with acquiring co-60 in finished or semi-finished form , acquiring co-59 in a form ready for insertion into reactors for conversion into co-60 , the reactor time and associated services to convert co-59 into co-60 , and parts and equipment associated with building and maintaining production irradiators .
| segment results of operations we have three reportable segments : sterigenics , nordion and nelson labs . our chief operating decision maker evaluates performance and allocates resources within our business based on segment income , which excludes certain items which are included in income ( loss ) before tax as determined in our consolidated statement of operations and comprehensive income ( loss ) . the accounting policies for our reportable segments are the same as those for the consolidated company . our segments sterigenics our sterigenics business provides outsourced terminal sterilization and irradiation services for the medical device , pharmaceutical , food safety and advanced applications markets using three major technologies : gamma irradiation , eo processing and e-beam irradiation . nordion our nordion business is a global provider of co-60 and gamma irradiators , which are the key components to the gamma sterilization process . as a result of the time required to meet regulatory and logistics requirements for delivery of radioactive products , combined with accommodations made to our customers to minimize disruptions to their operations during the installation of co-60 , nordion sales patterns can often vary significantly from one quarter to the next . however , timing-related impacts on our sales performance tend to be resolved within several quarters , resulting in more consistent performance over longer periods of time . in addition , sales of production irradiators occur infrequently and tend to be for larger amounts . results for our nordion segment are also impacted by co-60 mix , harvest schedules and product and service mix . nelson labs our nelson labs business provides outsourced microbiological and analytical chemistry testing and advisory services for the medical device and pharmaceutical industries . for more information regarding our reportable segments please refer to item 1 . “ business ” and note 22 , “ segment and geographic information ” to our consolidated financial statements .
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on september 20 , 2006 , we acquired the louisville ramada riverfront inn , which has been through an extensive renovation and which we re-opened in may 2008 as the sheraton riverside louisville . on august 8 , 2007 , through our joint venture with carlyle , we acquired a 25.0 % indirect non-controlling interest in the crowne plaza hollywood beach resort , a newly renovated 311-room hotel in hollywood , florida . on october 29 , 2007 , we acquired a hotel in tampa , florida , formerly known as the tampa clarion hotel , which has been through an extensive renovation and which we re-opened in march 2009 as the crowne plaza tampa westshore . on april 24 , 2008 , we acquired the hampton marina hotel in hampton , virginia , which has been renovated and was converted to the crowne plaza hampton marina in october 2008. our hotel portfolio currently consists of nine full-service , upper upscale and mid-scale hotels . these hotels are 100 % owned by subsidiaries of our operating partnership . we also own a 25.0 % indirect non-controlling interest in the crowne plaza hollywood beach resort and we have leasehold interests in a resort condominium facility in wrightsville beach , north carolina . as of december 31 , 2009 , we owned the following nine hotel properties : replace_table_token_8_th we conduct substantially all our business through our operating partnership , mhi hospitality , l.p. we are the sole general partner of our operating partnership and we own an approximate 71.0 % interest in our operating partnership , with the remaining interest being held by limited partners who were contributors of our original hotel properties and related assets . to qualify as a reit , we can not operate hotels . therefore , our operating partnership leases our hotel properties to our trs lessee . our trs lessee has engaged mhi hotels services to manage our hotels . our trs lessee and its parent , mhi hospitality trs holding , inc. , are consolidated into our financial statements for accounting purposes . the earnings of mhi hospitality trs holding , inc. are subject to taxation similar to other c corporations . 39 key operating metrics in the hotel industry , most categories of operating costs , with the exception of franchise , management , and credit card fees and the costs of the food and beverages served , do not vary directly with revenues . this aspect of our operating costs creates operating leverage , whereby changes in sales volume disproportionately impact operating results . room revenue is the most important category of revenue and drives other revenue categories such as food and beverage 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 the room revenue divided by the total number of available room nights . story_separator_special_tag $ 8.4 million compared to depreciation and amortization expense of approximately $ 6.3 million for the year ended december 31 , 2008. the increase in depreciation and amortization was attributable to the crowne plaza tampa westshore , which opened in march 2009 , as well as a full-year of depreciation on renovations placed in service during in 2008 at the hilton savannah desoto and the sheraton louisville riverside , as well as the acquisition and renovation of the crowne plaza hampton marina . corporate general and administrative . corporate general and administrative expenses for the year ended december 31 , 2009 increased approximately $ 0.3 million or 7.8 % to approximately $ 3.2 million compared to corporate general and administrative expenses of approximately $ 2.9 million for the year ended december 31 , 2008. interest expense . interest expense for the year ended december 31 , 2009 increased approximately $ 2.9 million or 41.8 % to approximately $ 9.7 million ( net of capitalized interest of approximately $ 0.3 million ) compared to approximately $ 6.8 million of interest expense ( net of capitalized interest of approximately $ 1.6 million ) for the year ended december 31 , 2008. higher interest expense relates to borrowings on the credit facility used to fund the acquisition and renovation of the crowne plaza tampa westshore ; interest expense for a full year on the borrowings on the credit facility associated with the sheraton louisville riverside subsequent to its re-opening and completion of its renovations ; borrowings on the mortgage on the hilton savannah desoto for completion of the renovations at that property , as well as borrowings associated with the purchase of the property in hampton , virginia . the additional interest expense related to these borrowings , as well as the interest expense related to the increase in the interest-rate spread on our revolving line of credit which was raised by 1.125 % upon execution of the third amendment , was offset by a significant decrease in the level of interest rates from 2008 to 2009. equity loss in joint venture . equity loss in the joint venture was approximately $ 0.25 million for the year ended december 31 , 2009 compared to an equity income in the joint venture of approximately $ 0.05 million for the year ended december 31 , 2008 and represents our 25.0 % share of the net income of the crowne plaza hollywood beach resort . during the year ended december 31 , 2008 , the joint venture was able to restructure the mortgage on the property by purchasing a $ 22.0 million principal balance junior participation in the outstanding loan on the property at a price of $ 19.0 million resulting in a $ 3.0 million gain on extinguishments of debt of the joint venture . story_separator_special_tag 43 rooms expense at our properties for the year ended december 31 , 2008 increased approximately $ 1.3 million or 10.8 % to approximately $ 13.6 million compared to rooms expense of approximately $ 12.3 million for the year ended december 31 , 2007. rooms expense from the sheraton louisville riverside and the crowne plaza hampton marina , as well as additional charges for three months of outside laundry services at our philadelphia property necessitated by the breakdown of laundry equipment in mid-january 2008 , accounted for the increase in rooms expense . food and beverage expenses at our properties for the year ended december 31 , 2008 decreased approximately $ 0.3 million or 1.7 % to approximately $ 13.4 million compared to food and beverage expense of approximately $ 13.7 million for the year ended december 31 , 2007. a significant decrease in sales of food and beverage through banqueting services at many of our properties and lower food costs at our wilmington property due to closure of the restaurant were partially offset by food and beverage costs related to our newly opened operations at the sheraton louisville riverside and operations at our newly acquired hotel in hampton , virginia . indirect expenses at our properties for the year ended december 31 , 2008 increased approximately $ 2.9 million or 11.7 % to approximately $ 28.0 million compared to indirect expenses of approximately $ 25.1 million for the year ended december 31 , 2007. sales and marketing costs , franchise fees , utilities , repairs and maintenance , insurance , management fees , real and personal property taxes as well as general and administrative costs at the property level are included in indirect expenses . indirect expenses related to the opening of the sheraton louisville riverside and the acquisition of the crowne plaza hampton marina account for the increase in indirect expenses . depreciation and amortization . depreciation and amortization for the year ended december 31 , 2008 increased approximately $ 1.3 million or 25.7 % to approximately $ 6.3 million compared to depreciation and amortization expense of approximately $ 5.0 million for the year ended december 31 , 2007. the increase in depreciation and amortization was attributable to the renovations placed in service at the hilton wilmington riverside , the hilton savannah desoto and the sheraton louisville riverside as well as the acquisition and renovation of the crowne plaza hampton marina . corporate general and administrative . corporate general and administrative expenses for the year ended december 31 , 2008 decreased approximately $ 0.2 million or 6.3 % to approximately $ 2.9 million compared to corporate general and administrative expenses of approximately $ 3.1 million for the year ended december 31 , 2007. a substantial portion of the decrease is attributable to the lower bonuses in 2008 compared to 2007 awarded to the principal executive officers pursuant to the cash bonus plan established in the first quarter 2007 by the nominating , corporate governance and compensation committee of the board of directors . we also incurred one-time legal fees in 2007 to structure the program and operating agreements that will allow us to jointly acquire , develop and operate hotel assets and , perhaps , hotel portfolios with carlyle . interest expense . interest expense for the year ended december 31 , 2008 increased approximately $ 2.6 million or 61.7 % to approximately $ 6.8 million ( net of capitalized interest of approximately $ 1.6 million ) compared to approximately $ 4.2 million of interest expense ( net of capitalized interest of approximately $ 1.0 million ) for the year ended december 31 , 2007. higher interest expense relates to borrowings on the credit facility used to fund the renovations at the hilton wilmington riverside ; interest expense on the borrowings on the credit facility associated with the sheraton louisville riverside subsequent to its re-opening and completion of its renovations ; borrowings on the mortgage on the hilton savannah desoto for completion of the renovations at that property , as well as borrowings associated with the purchase of the property in hampton , virginia . impairment of note receivable . impairment of note receivable represents a $ 0.3 million valuation allowance against the $ 0.4 million promissory note we received upon sale of the holiday inn downtown williamsburg in august 2006. after entering into default earlier in early 2008 , the property was sold at auction in august 2008 for less than the total mortgage indebtedness on the property . we are pursuing the collection of the note , which was guaranteed by individuals affiliated with the debtor . a charge for impairment has been taken in anticipation that a negotiated settlement for less than the full value of the note is more likely to occur than collection of the full face value of the note . 44 equity loss in joint venture . equity income in the joint venture was approximately $ 50,000 for the year ended december 31 , 2008 compared to an equity loss in the joint venture of approximately $ 1.0 million for the year ended december 31 , 2007 and represents our 25.0 % share of the net income of the crowne plaza hollywood beach resort . during the year ended december 31 , 2008 , the joint venture was able to restructure the mortgage on the property by purchasing a $ 22.0 million principal balance junior participation in the outstanding loan on the property at a price of $ 19.0 million resulting in a $ 3.0 million gain on extinguishments of debt of the joint venture . for the year ended december 31 , 2008 , the crowne plaza hollywood beach resort reported occupancy of 59.0 % , adr of $ 151.64 and revpar of $ 89.49. this compares with results reported by the hotel for the first few months of operation ending december 31 , 2007 , of occupancy of 32.1 % , adr of $ 144.94 and revpar of $ 46.58. income taxes .
| results of operations comparison of year ended december 31 , 2009 to year ended december 31 , 2008 the following table illustrates the key operating metrics for the years ended december 31 , 2009 and 2008 for our nine operating properties ( actual properties ) as well as the six properties in our portfolio that were under our control during all of 2009 and 2008 ( same-store properties ) . accordingly , the same-store data does not reflect the performance of the crowne plaza hampton marina , which we purchased in april 2008 ; sheraton louisville riverside , which opened in may 2008 ; or the crowne plaza tampa westshore , which opened in march 2009. replace_table_token_9_th revenue . total revenue for the year ended december 31 , 2009 was approximately $ 71.5 million , an increase of approximately $ 0.8 million or 1.1 % from total revenue for the year ended december 31 , 2008 of approximately $ 70.8 million . the overall increase in room revenue offset a decrease in food and beverage revenue . increases in room revenue attributable to the opening in march 2009 of the crowne plaza tampa westshore as well as full-year operations reflected in 2009 for the sheraton louisville riverside which opened in may 2008 and the crowne plaza hampton marina , which was acquired in april 2008 , offset declines in room revenues at our other properties . room revenues at our properties for the year ended december 31 , 2009 increased approximately $ 0.8 million or 1.8 % to approximately $ 48.9 million compared to room revenues for the year ended december 31 , 2008 of approximately $ 48.1 million .
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as a result , wsp 's results have been consolidated within the financial results of steel processing since that date with the minority member 's portion of earnings eliminated within earnings attributable to noncontrolling interest . the financial results of twb have been included in the amounts presented in the tables above through july 31 , 2013. on july 31 , 2013 , we completed the acquisition of an additional 10 % interest story_separator_special_tag selected statements contained in this item 7 . management 's discussion and analysis of financial condition and results of operations constitute forward-looking statements as that term is used in the private securities litigation reform act of 1995. such forward-looking statements are based , in whole or in part , on management 's beliefs , estimates , assumptions and currently available information . for a more detailed discussion of what constitutes a forward-looking statement and of some of the factors that could cause actual results to differ materially from such forward-looking statements , please refer to the safe harbor statement in the beginning of this annual report on form 10-k and part i item 1a . risk factors of this annual report on form 10-k. introduction worthington industries , inc. is a corporation formed under the laws of the state of ohio ( individually , the registrant or worthington industries or , collectively with the subsidiaries of worthington industries , inc. , we , our , worthington or the company ) . founded in 1955 , worthington is primarily a diversified metals manufacturing company , focused on value-added steel processing and manufactured metal products . our manufactured metal products include : pressure cylinders for liquefied petroleum gas ( lpg ) , compressed natural gas ( cng ) , oxygen , refrigerant and other industrial gas storage ; hand torches and filled hand torch cylinders ; propane-filled camping cylinders ; helium-filled balloon kits ; steel and fiberglass tanks and processing equipment primarily for the oil and gas industry ; cryogenic pressure vessels for liquefied natural gas ( lng ) and other gas storage applications ; engineered cabs and operator stations and cab components ; and , through joint ventures , suspension grid systems for concealed and lay-in panel ceilings ; laser welded blanks ; light gauge steel framing for commercial and residential construction ; and current and past model automotive service stampings . our number one goal is to increase shareholder value , which we seek to accomplish by optimizing existing operations , developing and commercializing new products and applications , and pursuing strategic acquisitions and joint ventures . as of may 31 , 2016 , excluding our joint ventures , we operated 31 manufacturing facilities worldwide , principally in three operating segments , which correspond with our reportable business segments : steel processing , pressure cylinders and engineered cabs . our remaining operating segments , which do not meet the applicable aggregation criteria or quantitative thresholds for separate disclosure , are combined and reported in the other category . these include construction services and worthington energy innovations ( wei ) . the company is in the process of exiting the businesses within construction services . we also held equity positions in 12 active joint ventures , which operated 51 manufacturing facilities worldwide , as of may 31 , 2016. six of these joint ventures are consolidated with the equity owned by the other joint venture member ( s ) shown as noncontrolling interests in our consolidated balance sheets , and the other joint venture member ( s ) ' portion of net earnings and other comprehensive income shown as net earnings or comprehensive income attributable to noncontrolling interests in our consolidated statements of earnings and consolidated statements of comprehensive income , respectively . the remaining six of these joint ventures are accounted for using the equity method . overview performance was steady during fiscal 2016 despite challenging market conditions resulting from lower average steel and oil prices . a higher spread between average selling prices and material cost and improved operations in the industrial and consumer products businesses in pressure cylinders helped to offset the impact of inventory holding losses in steel processing and lower volume in the oil & gas equipment business within pressure cylinders . demand remained steady in most of our key end markets , with the exception of the oil and gas equipment and agricultural end markets . equity in net income of unconsolidated affiliates ( equity income ) was up 31 % in fiscal 2016 to $ 115.0 million on higher contributions from all of our unconsolidated joint ventures . strong automotive and construction markets and lower steel costs have benefited these businesses . we received distributions of $ 86.5 million from our unconsolidated affiliates during fiscal 2016 . 30 recent business developments on december 7 , 2015 , the company completed the acquisition of the global cryoscience business of taylor wharton , including a manufacturing facility in theodore , alabama , for $ 30.6 million . the asset purchase was made pursuant to the chapter 11 bankruptcy proceedings of taylor wharton . the acquired net assets became part of the pressure cylinders operating segment upon closing . on january 15 , 2016 , the company acquired the net assets of netbraze , llc , a manufacturer of brazing alloys , silver brazing filler metals , solders and fluxes , for $ 3.4 million . the acquired net assets became part of the pressure cylinders operating segment upon closing . as of march 1 , 2016 , the company reached an agreement with united states steel corporation ( u.s . steel ) , its partner in the worthington specialty processing ( wsp ) joint venture , whereby the company appoints a majority of the wsp board of directors , giving the company effective control over the operations of wsp . as a result , wsp 's results have been consolidated within the financial results of steel processing since that date , with the minority member 's portion of earnings eliminated within earnings attributable to noncontrolling interest . story_separator_special_tag 33 story_separator_special_tag style= '' border-collapse : collapse '' width= '' 100 % '' > income tax increased $ 33.2 million over fiscal 2015 due to higher earnings and an approximately $ 5.3 million benefit related to foreign tax credits recorded in the prior year , partially offset by a $ 3.2 million tax benefit representing excess tax benefits from share-based payment awards recorded in income tax expense resulting from the adoption of new accounting guidance as described in item 8 . financial statements and supplementary data notes to consolidated financial statements note a summary of significant accounting policies recently issued accounting standards of this annual report on form 10-k. fiscal 2016 income tax expense reflects an effective tax rate attributable to controlling interest of 29.1 % vs. 25.1 % in fiscal 2015. the 29.1 % rate is lower than the federal statutory rate of 35 % primarily as a result of lower tax rates on foreign income , benefits from the qualified production activities deduction , and the adoption of the new accounting guidance described above with respect to share-based payment awards , offset partially by state and local income taxes . for additional information , refer to item 8 . financial statements and supplementary data notes to consolidated financial statements note l income taxes of this annual report on form 10-k. 35 segment operations steel processing the following table presents a summary of operating results for our steel processing operating segment for the periods indicated : replace_table_token_8_th net sales and operating highlights were as follows : net sales decreased $ 302.0 million from fiscal 2015 as lower average steel prices led to lower average selling prices , reducing net sales by approximately $ 260.5 million . the remaining decrease in net sales was due to the closure of the company 's stainless steel business , psm , in the current year , partially offset by contributions from recent acquisitions . the mix of direct versus toll tons processed was 58 % to 42 % compared to 59 % to 41 % in fiscal 2015. operating income increased $ 3.3 million over fiscal 2015. the increase was driven by an improved pricing spread and lower inventory holding losses . higher sg & a expense , driven by the impact of acquisitions and higher profit sharing and bonus expense , combined with current period restructuring activities partially offset the overall increase in operating income . restructuring and other expense in the current period consisted primarily of costs related to the closure of psm ( $ 7.0 million ) , which were partially offset by a net gain related to the disposal of the remaining fixed assets of our legacy baltimore steel processing facility ( $ 3.0 million ) . the $ 3.1 million impairment charge in the prior year period related to the closure of the psm facility . 36 pressure cylinders the following table presents a summary of operating results for our pressure cylinders operating segment for the periods indicated : replace_table_token_9_th * mississippi , an industrial gas facility , was sold in may 2015. it has been identified separately so as not to distort the industrial products comparisons as the products previously produced at the mississippi facility have been discontinued . net sales and operating highlights were as follows : net sales decreased $ 156.5 million from fiscal 2015 on lower volume , particularly in the oil & gas equipment business where volumes decreased 64 % . volumes in the current fiscal year were also negatively impacted by the may 2015 disposition of our high-pressure cylinders business in mississippi , which generated sales of $ 26.8 million in the prior year . operating income decreased $ 29.8 million from fiscal 2015 as declines in the oil & gas equipment business more than offset improvements in the industrial products and consumer products businesses resulting from lower commodity input prices and lower overall manufacturing costs . impairment charges in the current period related to the partial write-off of certain long-lived assets in the oil & gas equipment business . 37 engineered cabs the following table presents a summary of operating results for our engineered cabs operating segment for the periods indicated : replace_table_token_10_th net sales and operating highlights were as follows : net sales decreased $ 71.1 million from fiscal 2015 due to declines in market demand in most lines of business combined with the impact of the january 2015 sale of the assets of advanced component technologies , inc. and the september 2015 closure of the florence , south carolina facility . operating loss decreased $ 77.9 million from fiscal 2015 due primarily to lower impairment and restructuring charges . excluding the impact of impairment and restructuring charges , the operating loss was $ 0.9 million lower than fiscal 2015 as a result of lower sg & a expense , partially offset by a decrease in gross margin . fiscal 2016 impairment charges consisted of $ 3.0 million related to the closure of the florence , south carolina facility . impairment charges in the prior year consisted of $ 44.9 million for the full write off of goodwill and $ 39.0 million for other long-lived assets . for additional information regarding these impairment charges , refer to item 8 . financial statements and supplementary data notes to consolidated financial statements note c goodwill and other long-lived assets of this annual report on form 10-k. other the other category includes the construction services and wei operating segments , which do not meet the quantitative thresholds for separate disclosure . certain income and expense items not allocated to our operating segments are also included in the other category , including costs associated with our captive insurance company .
| results of operations fiscal 2016 compared to fiscal 2015 consolidated operations the following table presents consolidated operating results for the periods indicated : replace_table_token_7_th fiscal 2016 net earnings attributable to controlling interest increased $ 66.9 million over fiscal 2015. net sales and operating highlights were as follows : net sales decreased $ 564.5 million from fiscal 2015. the decrease was driven by lower average selling prices in steel processing due to the market price of steel and by lower volume in pressure cylinders and engineered cabs , partially offset by the impact of acquisitions . gross margin decreased $ 10.9 million from fiscal 2015 on lower volume partially offset by an improved pricing spread in steel processing and lower manufacturing expenses across many of our businesses . sg & a expense increased $ 1.5 million over fiscal 2015 driven by higher profit sharing and bonus expense and the impact of acquisitions . impairment charges of $ 26.0 million in fiscal 2016 consisted of $ 23.0 million related to the impairment of certain long-lived assets in our oil & gas equipment business and $ 3.0 million related to the september 30 , 2015 closure of the engineered cabs facility in florence , south carolina . impairment charges in the prior year related primarily to the impairment of goodwill and other 34 long-lived assets in engineered cabs . for additional information regarding these impairment charges , refer to item 8 .
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the acquired intangible assets consisted of developed technology , customer and maintenance relationships , trade name and other and were valued using the income approach in which the after-tax cash flows are discounted to present value . the cash flows are based on estimates used to price the transaction , and the discount rates applied were benchmarked with reference to the implied rate of return from the transaction model as well as the weighted average cost of capital . additionally , the company assumed certain liabilities in the story_separator_special_tag overview pros provides big data software applications designed to help companies outperform in their markets by using big data to sell more effectively . we apply years of data science experience to unlock buying patterns and preferences within transaction data to reveal which opportunities are most likely to close , which offers are most likely to sell and which prices are most likely to win . pros offers big data software applications to analyze , execute and optimize sales , pricing , quoting , rebates and revenue management . we also provide professional services to implement our software applications , as well as business consulting . since inception , pros has completed over 800 implementations of our solutions across more than 40 industries in more than 55 countries . fiscal 2014 overview fiscal 2014 was a year of continued investment , innovation and growth for pros . over the past twelve months , we continued to make significant investments in our on-going diversified growth strategy and initiatives to accelerate awareness . these increased investments included expanding our sales force and offering a new packaged offering in order to help reduce sales cycle time . these investments helped drive our results in fiscal 2014 and we believe position us well for future growth . license revenue recognition prior to 2013 , we did not generally recognize license revenue upon customer contract signature and software delivery . however , beginning in 2013 , we started recognizing more license revenue upon software delivery , with $ 5.9 million of software license revenue recognized at contract during fiscal 2013. in fiscal 2014 , the percentage of customer contracts for which we recognized license revenue on contract further increased , with $ 27.2 million , or 46.5 % of our license revenue recognized at contract . our contractual performance obligations in the future may differ from historical periods impacting the timing of the recognition of revenue . a delay or deferral in a small number of large new software license transactions could cause our quarterly license revenue to fall significantly short of our expectations . revenue by geography the following geographic information is presented for the years ended december 31 , 2014 , 2013 and 2012 . the company categorizes geographic revenues based on the location of the customer 's headquarters . replace_table_token_4_th acquisitions an active acquisition program is another important element of our corporate strategy . we believe our acquisition program strengthens our competitive position , enhances the products and services that we can offer to customers , expands our customer base , grows our revenues and increases our overall value . we expect to continue to acquire companies and technologies in furtherance of our corporate strategy . fiscal 2014 acquisition in october 2013 , we entered into a tender offer agreement with cameleon , indicating the company 's intent to acquire cameleon through the tender offer for all of the outstanding share capital of cameleon in an all cash tender offer . as a result of shares purchased in the market following the completion of the tender in january 2014 , the exercise of warrants in july 2014 , and second tender completed in november 2014 , we controlled 100 % of cameleon 's common stock as of december 31 , 2014 . we acquired cameleon for total cash consideration of approximately $ 32 million , net of cash acquired . 28 fiscal 2013 acquisition in december 2013 , we acquired signaldemand , inc. for total cash consideration of $ 13.5 million . financing activities in december 2014 , we issued $ 143.8 million aggregate principal amount of 2.0 % convertible senior notes due december 1 , 2019 , unless earlier purchased or converted . interest is payable semiannually in arrears on june 1 and december 1 of each year , commencing on june 1 , 2015. opportunities , trends and uncertainties we have noted opportunities , trends and uncertainties that we believe are particularly significant to understand our financial results and condition . growth opportunities . we believe the market for our big data software applications for pricing and sales effectiveness is underpenetrated . market interest for our software has increased over the past several years providing us with growth opportunities . we have and will continue to invest in our business to more effectively address these opportunities through significant investment in professional services , research and development , sales , marketing and support function . in addition to organic growth , we have acquired , and may continue to acquire companies or technologies that can contribute to the strategic , operational and financial growth of our business . we expect to continue to explore both organic and inorganic growth opportunities . managing our continued growth . since 2012 , we have experienced strong growth in both our revenues and operations , including significant growth in our sales and marketing personnel . our continued success depends on , among other things , our ability to successfully recruit , train and retain personnel to execute our sales and marketing strategies , successfully integrate the operations and personnel of companies we have acquired or may acquire , appropriately manage our expenses as we grow ; enter into and maintain beneficial channel relationships ; and develop new products . if we are not able to execute on these actions , our business may not grow as we anticipate . variability in revenue . story_separator_special_tag we evaluate the nature and scope of professional services for each arrangement and if we determine that the professional services revenue should not be accounted for separately from license revenue , the license revenue is recognized together with the professional services revenue using the percentage-of-completion method or completed contract method . the completed contract method is also used for contracts where there is a risk over final acceptance by the customer or for contracts that are short-term in nature . the portion of our license revenue that is recognized using the percentage-of-completion method , along with subscription and maintenance revenue , provides visibility into a portion of our revenue in the near-term quarters , although the actual timing of recognition of revenue on a percentage-of-completion arrangement varies based on the nature and requirements of our contracts . under the percentage-of-completion method of accounting , our license revenue recognition generally begins when implementation efforts commence , and continues over the implementation period . the percentage-of-completion method is measured by the percentage of man-days expended on an implementation during the reporting period as a percentage of the total man-days estimated to be necessary to complete the software implementation . we measure performance under the percentage-of-completion method using the total man-day method based on current estimates of man-days to complete the software implementation . we believe that for each such software implementation , man-days expended in proportion to total estimated man-days at completion represents the most reliable and meaningful measure for determining a software implementation 's progress toward completion . in addition , for fixed-fee software implementation arrangements , should a loss be anticipated on a contract , the full amount of the loss is recorded when the loss is determinable . see `` critical accounting policies and estimates '' for additional information regarding revenue recognition . we also license software under term license agreements that typically include maintenance and support during the contractual license term . our term license agreements typically range from two to five years . revenue and the associated cost is deferred until the delivery of the licensed solution and recognized ratably over the remaining contractual license term . revenue 30 from term license agreements represented 2.9 % , 3.6 % , and 4.8 % of total revenue for the years ended december 31 , 2014 , 2013 and 2012 , respectively . service revenue . we also provide software-related professional services , including implementation and configuration services , consulting and training . professional services are generally provided under time and materials contracts and revenues are recognized as the services are provided . however , if we enter into arrangements with a fixed-fee , professional services revenue are recognized based upon a proportionate performance method . when we enter into arrangements where professional services are considered essential to the functionality of the software , professional services revenue is recognized based upon the percentage of completion method . under this method , revenue is recognized based upon labor hours incurred as the percentage of total estimated labor hours to complete the project . revenues for professional services that are bundled with license fees are recognized when the services are performed . we also recognize revenue associated with billable expenses when the expenses are incurred . subscription revenue . we also provide saas and cloud-based offerings . our saas offerings generally provide customers access to certain of our software solution within a cloud-based it environment that we manage and offer to customers on a subscription basis . revenues for our saas offerings are generally recognized ratably over the contract term commencing with the date our service is made available to customers and all other revenue recognition criteria have been satisfied . our cloud-based services allow our customers to deploy pros solutions without any significant investment in hardware as pros software is integrated in cloud-based it environments that are deployed , supported and managed on our customers ' behalf . for arrangements that include cloud-based services , we allocate the arrangement consideration between the cloud-based service and other elements and recognize the cloud services fee ratably beginning on the date the customer commences use of our services and continuing through the end of the contractual cloud services term . maintenance and support revenue . we generate maintenance and support revenue from the sale of maintenance and support services on our software solutions . the vast majority of our software license arrangements include software license updates and product support contracts , generally ranging from one to two years . software license updates provide customers with rights to unspecified software updates and enhancements on a when and if available basis , maintenance releases and patches released during the term of the support period . software license updates and product support contracts are generally priced as a percentage of the software licenses fees . substantially all of our customers renew their software license updates and product support contracts annually . maintenance and support fees are invoiced to our customers generally on an annual basis , although they may be invoiced on a monthly or quarterly basis in certain circumstances . cost of revenue cost of license . cost of license consists of third-party fees for our licensed software and an allocation of the amortization of intangibles . cost of services . cost of services includes those costs related to professional services and implementation of our solutions , principally ( a ) personnel costs , which include our employees and employee benefits and third party contractors , ( b ) noncash share based compensation expense , ( c ) billable and nonbillable travel , lodging and other out-of-pocket expenses , and ( d ) an allocation of depreciation , facilities and information technology ( `` it '' ) support costs and other costs incurred in providing professional services to our customers . cost of providing professional services may vary from quarter to quarter depending on a number of factors , including the amount of professional services required to deploy our solutions . cost of subscription .
| results of operations comparison of year ended december 31 , 2014 with year ended december 31 , 2013 revenue : replace_table_token_5_th license , services and subscription . license , services and subscription revenue increased $ 32.5 million to $ 131.2 million for the year ended december 31 , 2014 from $ 98.7 million for the year ended december 31 , 2013 , representing a 33 % increase . the increase in total license , services and subscription revenue was the result of a $ 17.4 million increase in license revenue , a $ 14.2 million increase in subscription revenue and a $ 0.8 million increase in services revenue . our 2014 revenue was positively impacted by our acquisitions . license revenue increased $ 17.4 million to $ 58.5 million for the year ended december 31 , 2014 from $ 41.1 million for the year ended december 31 , 2013 , representing a 42 % increase . the increase in license revenue was attributable to an increase in license revenue recognized upon software delivery and an increase in the average license revenue recognized per customer . the average license revenue per customer , for customers with greater than $ 0.1 million of license revenue recognized , increased to $ 1.1 million for the year ended december 31 , 2014 from $ 0.7 million per customer for the year ended december 31 , 2013 . the increase in average license revenue recognized per customer was primarily attributable to an increase in license revenue recognized upon software delivery . we recognized $ 27.2 million and $ 5.9 million of license revenue upon software delivery for the years ended december 31 , 2014 and 2013 , respectively . services revenue increased $ 0.8 million to $ 49.2 million for the year ended december 31 , 2014 from $ 48.4 million for the year ended december 31 , 2013 , representing a 2 % increase .
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57 as competitors and similarly situated companies that compete for the same executive talent , the cng committee determined that the following peer group companies most closely matched the responsibilities and requirements of our executives : oncogenex pharmaceuticals , inc. targacept , inc. arqule , inc. exact sciences corp. progenics pharmaceuticals , inc. cell therapeutics , inc. threshold pharmaceuticals , inc. rigel pharmaceuticals , inc. curis , inc. ziopharm oncology , inc. hyperion therapeutics , inc. delcath systems , inc. keryx biopharmaceuticals , inc. tg therapeutics , inc. immunomedics , inc. gtx , inc. the cng committee used the publicly available compensation information for these companies to analyze our competitive position in the industry . the cng committee reviewed the base salaries and short-term and long term incentive plans of the executives of these companies to provide background and perspective in analyzing the compensation levels for our executives . specific elements of story_separator_special_tag the following discussion should be read together with our consolidated financial statements and the notes related to those statements , as well as the other financial information included in this form 10-k. some of our discussion is forward-looking and involves risks and uncertainties . for information regarding risk factors that could have a material adverse effect on our business , refer to item 1a of this form 10-k , risk factors . the company navidea biopharmaceuticals , inc. , a delaware corporation , is a precision medicine company focused on the development and commercialization of precision diagnostics , therapeutics and radiopharmaceutical agents . navidea is developing multiple precision-targeted products based on the manocept platform to help identify the sites and pathways of undetected disease and enable better diagnostic accuracy , clinical decision-making , targeted treatment and , ultimately , patient care . navidea 's manocept platform is predicated on the ability of the chemical backbone of the tilmanocept molecule to specifically target the cd206 mannose receptor expressed on macrophages . the manocept platform serves as the molecular backbone of lymphoseek ® ( technetium tc 99m tilmanocept ) injection , the first product developed by navidea based on the platform . lymphoseek is a novel , receptor-targeted , small-molecule radiopharmaceutical used in the evaluation of lymphatic basins that may have cancer involvement in patients . lymphoseek is designed for the precise identification of lymph nodes that drain from a primary tumor , which have the highest probability of harboring cancer . lymphoseek is approved by the u.s. food and drug administration ( fda ) for use in solid tumor cancers where lymphatic mapping is a component of surgical management and for guiding sentinel lymph node biopsy in patients with clinically node negative breast cancer , melanoma or squamous cell carcinoma of the oral cavity . lymphoseek has also received european approval in imaging and intraoperative detection of sentinel lymph nodes in patients with melanoma , breast cancer or localized squamous cell carcinoma of the oral cavity . building on the success of lymphoseek , the flexible and versatile manocept platform acts as an engine for the design of purpose-built molecules offering the potential to be utilized across a range of diagnostic modalities , including single photon emission computed tomography ( spect ) , positron emission tomography ( pet ) , intra-operative and or optical-fluorescence detection in a variety of disease states . recent preclinical data being developed by the company using tilmanocept linked to various therapeutic agents also suggest that tilmanocept 's binding affinity to cd206 receptors demonstrates the potential for this technology to be useful in treating diseases linked to the over-activation of macrophages . this includes various cancers as well as autoimmune , infectious , cardiovascular , and central nervous system diseases . thus , in january 2015 , the company formed a new subsidiary , macrophage therapeutics , inc. , to further explore therapeutic applications for the manocept platform . in addition , over the last year , the company 's board of directors made the decision to reduce our support while seeking to partner or out-license two of our development programs : nav4694 is a fluorine-18 ( f-18 ) radiolabeled pet imaging agent being developed as an aid in the diagnosis of patients with signs or symptoms of alzheimer 's disease ( ad ) and mild cognitive impairment ( mci ) . nav4694 is in phase 3 clinical development . nav5001 is an iodine-123 ( i-123 ) radiolabeled spect imaging agent being developed as an aid in the diagnosis of parkinson 's disease ( pd ) and other movement disorders , with potential use as a diagnostic aid in dementia . nav5001 is in phase 3 clinical development . the company is in discussions with potential parties interested in sublicensing and or assuming financial responsibility for the ongoing development of these two neuro tracer compounds and is currently evaluating term sheets . other than lymphoseek , none of the company 's drug product candidates have been approved for sale in any market . 35 executive summary our primary development efforts over the last few years have been focused on our now-approved lymphoseek product , as well as more recently on our other pipeline programs , including nav4694 , nav5001 , and our manocept platform . in may 2014 , the board of directors made the decision to refocus the company 's resources to better align the funding of our pipeline programs with the expected growth in lymphoseek revenue . this realignment primarily involves reducing our near-term support for our two neurological product candidates , nav4694 and nav5001 , as we seek to partner or divest these two programs . in addition , we are looking for ways to move macrophage therapeutics forward with a combination of grant funding and seed financing obtained from outside investors while retaining the vast majority of ownership benefits for existing navidea shareholders . the level of future expenditures on our development programs will depend on the scope , requirements and timing of our strategic development initiatives in different territories around the world . story_separator_special_tag additionally , we anticipate that we will incur costs related to supporting the other product , regulatory , manufacturing and commercial activities related to the potential marketing registration and sale of lymphoseek in other markets . we also expect to incur costs related to ongoing clinical development efforts to support the use of lymphoseek in additional cancer types . we can not assure you that lymphoseek will achieve regulatory approval in any other market outside the u.s. or eu , or if approved in those markets , that it will achieve market acceptance in the u.s. , eu or any other market . we are currently evaluating existing and emerging data on the potential use of manocept-related agents in the diagnosis and disease-staging of disorders in which macrophages are involved , such as ks , ra , vulnerable plaque/atherosclerosis , tb and other disease states , to define areas of focus , development pathways and partnering options to capitalize on the manocept platform . in the near-term , our more active development efforts with respect to the manocept platform will likely be limited to such evaluations . we will also be evaluating potential funding and other resources required for continued development , regulatory approval and commercialization of any manocept platform product candidates that we identify for further development , and potential options for advancing development . we can not assure you that further evaluation or development will be successful , that any manocept platform product candidate will ultimately achieve regulatory approval , or if approved , the extent to which it will achieve market acceptance . on march 12 , 2015 , the company initiated a reduction in force that will include seven staff members and three executives . the three executives will continue as employees during transition periods of varying lengths , depending upon the nature and extent of responsibilities to be transitioned or wound down . as of the filing date of this document , the specific terms of the executive 37 transition and separation were still being determined , and therefore the impact to our first quarter 2015 financial statements is not yet known . we expect the financial impact to be material , but anticipate that the initial cost will be offset with savings in compensation expense in the longer term . story_separator_special_tag 2013 from $ 16.9 million during the same period in 2012. the increase was primarily due to net increases in drug project expenses related to ( i ) increased nav4694 development costs of $ 4.5 million including increased clinical trial costs coupled with increased manufacturing-related activities , ( ii ) increased manocept platform development costs of $ 503,000 , and ( iii ) a net increase in nav5001 development costs of $ 443,000 including increased clinical trial costs and manufacturing-related activities of $ 1.9 million , offset by a decrease in licensing fees of $ 1.4 million ; offset by ( iv ) a net decrease in lymphoseek development costs of $ 929,000 resulting from decreased manufacturing-related costs , decreased ema filing fees and regulatory consulting costs primarily related to filing a maa in 2012 , and decreased clinical trial costs , offset by increased costs of $ 2.2 million related to snda submissions for two additional lymphoseek indications in 2013 and ( v ) decreased consulting costs related to potential pipeline products of $ 407,000. the net increase in research and development expenses also included increased compensation including incentive-based awards and other related expenses of $ 2.6 million related to increased headcount required for expanded development efforts , as well as increased travel and other support costs . selling , general and administrative expenses . selling , general and administrative expenses increased $ 4.3 million , or 39 % , to $ 15.5 million during 2013 from $ 11.2 million during the same period in 2012. the net increase was primarily due to increased medical education costs to support lymphoseek of $ 2.6 million , increased compensation including incentive-based awards and other expenses of $ 1.3 million related to increased headcount , and increased investor relations , legal and professional services costs , offset by decreased out-of-pocket marketing costs related to the commercial launch of lymphoseek of $ 1.3 million . other income ( expense ) . other expense , net , was $ 4.3 million during 2013 as compared to $ 1.2 million during the same period in 2012. interest expense increased $ 1.6 million to $ 2.8 million during 2013 from $ 1.2 million for the same period in 2012 , primarily due to the interest related to the gecc/midcap notes as well as the draws on the platinum credit facility , offset by the decreased balance of the hercules note . of this interest expense , $ 765,000 and $ 545,000 in 2013 and 2012 , respectively , was non-cash in nature related to the amortization of debt issuance costs and debt discounts related to the gecc/midcap notes and hercules note . during 2013 , we recorded losses on extinguishment of debt of $ 943,000 related to the modification of the platinum credit facility and $ 429,000 upon paying off the balance of the hercules note . for the years ended december 31 , 2013 and 2012 , we recorded non-cash expense of $ 112,000 and income of $ 32,000 , respectively , related to changes in the estimated fair value of financial instruments . liquidity and capital resources cash balances decreased to $ 5.5 million at december 31 , 2014 from $ 32.9 million at december 31 , 2013. the net decrease was primarily due to cash used to fund our operations , mainly for research and development activities , of $ 29.1 million , purchases of equipment of $ 1.1 million , and an investment in r-nav of $ 333,000 , offset by a net increase of $ 3.2 million related to borrowings under the oxford note and the extinguishment of the gecc/midcap notes .
| results of operations years ended december 31 , 2014 and 2013 net sales and margins . net sales of lymphoseek were $ 4.2 million during 2014 , compared to $ 614,000 during 2013. the increase was primarily due to sales starting in late april of 2013 , coupled with an increase in the initial transfer price to cardinal beginning in the second quarter of 2014. gross margins on net sales were 63 % in 2014 and 46 % in 2013. cost of goods sold in 2014 included a reserve for inventory obsolescence of $ 539,000 related to a specific lot that was originally produced for commercial validation purposes and that is nearing its product expiry and therefore is no longer expected to be sold . excluding the one-time inventory obsolescence charge , gross margin on net sales for 2014 would have been 83 % . cost of goods sold in both periods included post-production testing activities required by regulatory authorities , which are charged as one-time period costs , and a royalty on net sales payable under our license agreement with ucsd . lymphoseek milestone revenue . during 2014 , we recognized $ 300,000 of lymphoseek milestone revenue from a non-refundable upfront milestone payment received by the company related to the lymphoseek distribution agreement for china for which the company has no future obligations . no lymphoseek milestone revenue was recognized during 2013. grant and other revenue . during 2014 , we recognized $ 1.7 million of grant revenue as compared to $ 516,000 during 2013 , primarily related to sbir grants from the nih supporting nav4694 and manocept platform development . the net increase was primarily due to higher nav4694 grants offset by lower manocept platform and lymphoseek grants . grant and other revenue for 2014 also included $ 90,000 of revenue related to services provided to r-nav for manocept development . research and development expenses .
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minimum tax ( `` amt `` ) and changing how existing amt credits can be realized ; ( 7 ) creating the base erosion anti-abuse tax , a new minimum tax ; ( 8 ) limitations on the deductibility of certain executive compensation ; ( 9 ) creating a new limitation on deductible interest expense ; ( 10 ) eliminating the deductibility of entertainment expenses ; and ( 11 ) changing rules related to uses and limitations story_separator_special_tag the company 's consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the united states of america . the following discussion should be read in conjunction with the consolidated financial statements and notes thereto which appear elsewhere in this annual report . the company engages in a broad range of activities in the securities industry , including retail securities brokerage , institutional sales and trading , market-making , research , investment banking ( both corporate and public finance ) , investment advisory and asset management services and trust services . its principal subsidiaries are oppenheimer & co. inc. ( `` oppenheimer '' ) and oppenheimer asset management inc. ( `` oam '' ) . as of december 31 , 2018 , the company provided its services from 92 offices in 24 states located throughout the united states , offices in tel aviv , israel , hong kong , china , london , england , st. helier , isle of jersey , frankfurt , germany and geneva , switzerland . client assets administered by the company as of december 31 , 2018 totaled $ 80.1 billion . the company provides investment advisory services through oam and oppenheimer investment management llc ( `` oim '' ) and oppenheimer 's financial adviser direct programs . at december 31 , 2018 , client assets under management ( `` aum '' ) totaled $ 26.7 billion . the company provides trust services and products through oppenheimer trust company of delaware . the company provides discount brokerage services through freedom investments , inc. ( `` freedom '' ) . through opy credit corp. , the company offers syndication as well as trading of issued syndicated corporate loans . at december 31 , 2018 , the company employed 2,976 employees ( 2,918 full-time and 58 part-time ) , of whom 1,073 were financial advisers . critical accounting policies the company 's accounting policies are essential to understanding and interpreting the financial results reported on the consolidated financial statements . the significant accounting policies used in the preparation of the company 's consolidated financial statements are summarized in note 2 to those statements . certain of those policies are considered to be particularly important to the presentation of the company 's financial results because they require management to make difficult , complex or subjective judgments , often as a result of matters that are inherently uncertain . the following is a discussion of these policies : fair value measurements the accounting guidance for the fair value measurement of financial assets , which defines fair value , establishes a framework for measuring fair value , establishes a fair value measurement hierarchy , and expands fair value measurement disclosures . fair value , as defined by the accounting guidance , is the price that would be received in the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date . the fair value hierarchy established by this accounting guidance prioritizes the inputs used in valuation techniques into the following three categories ( highest to lowest priority ) : level 1 : observable inputs that reflect quoted prices ( unadjusted ) for identical assets or liabilities in active markets ; level 2 : inputs other than quoted prices included in level 1 that are observable for the asset or liability either directly or indirectly ; and level 3 : unobservable inputs that are significant to the overall fair value measurement . the company 's financial instruments that are recorded at fair value generally are classified within level 1 or level 2 within the fair value hierarchy using quoted market prices or quotes from market makers or broker-dealers . financial instruments classified within level 1 are valued based on quoted market prices in active markets and consist of u.s. treasury and agency securities , corporate equities , and certain money market instruments . level 2 financial instruments primarily consist of investment grade and high-yield corporate debt , convertible bonds , mortgage and asset-backed securities , and municipal obligations . financial instruments classified as level 2 are valued based on quoted prices for similar assets and liabilities in active markets and quoted prices for identical or similar assets and liabilities in markets that are not active . some financial instruments are classified within level 3 within the fair value hierarchy as observable pricing inputs are not available due to limited market activity for the asset or liability . such financial instruments include certain distressed municipal securities , auction rate securities ( `` ars '' ) and investments in hedge funds and private equity funds where the company , through its subsidiaries , is general partner . 42 legal and regulatory reserves the company records reserves related to legal and regulatory proceedings in accounts payable and other liabilities . the determination of the amounts of these reserves requires significant judgment on the part of management . in accordance with applicable accounting guidance , the company establishes reserves for litigation and regulatory matters where available information indicates that it is probable a liability had been incurred at the date of the consolidated financial statements and the company can reasonably estimate the amount of that loss . when loss contingencies are not probable and can not be reasonably estimated , the company does not establish reserves . story_separator_special_tag the company records uncertain tax positions in accordance with the financial accounting standards board ( `` fasb '' ) accounting standards codification ( `` asc '' ) 740 , `` income taxes '' on the basis of a two-step process whereby it determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and , for those tax positions that meet the more-likely-than-not recognition threshold , the company recognizes the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority . the company records interest and penalties accruing on unrecognized tax benefits in income ( loss ) before income taxes as interest expense and other expense , respectively , in its consolidated statement of operations . the company permanently reinvests eligible earnings of its foreign subsidiaries and , accordingly , does not accrue any u.s. income taxes that would arise if such earnings were repatriated . to the extent that a company 's accounting for certain income tax effects of the tcja is incomplete but the company is able to determine a reasonable estimate , it must record a provisional estimate in the financial statements . if a company can not determine a provisional estimate to be included in the financial statements , it should continue to apply asc 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the tcja . the company determined that there were no material changes from the 2017 provisional estimate . new accounting pronouncements recently issued accounting pronouncements are described in note 2 to the consolidated financial statements appearing in item 8 . 44 business environment the securities industry is directly affected by general economic and market conditions , including fluctuations in volume and price levels of securities and changes in interest rates , inflation , political events , investor confidence , investor participation levels , legal and regulatory , accounting , tax and compliance requirements and competition , all of which have an impact on commissions , firm trading , fees from accounts under investment management as well as fees for investment banking services , and investment and interest income as well as on liquidity . substantial fluctuations can occur in revenue and net income due to these and other factors . the company is focused on growing its private client and asset management businesses through strategic additions of experienced financial advisers in its existing branch system and employment of experienced money management personnel in its asset management business as well as deploying its capital for expansion through targeted acquisitions . in addition , the company is committed to the improvement of its technology capability to support client service and the expansion of its capital markets capabilities while addressing the issue of managing its expenses . regulatory and legal environment the company 's brokerage business is subject to regulation by , among others , the securities and exchange commission ( the `` sec '' ) , the commodities futures trading commission , the national futures association , the municipal securities rulemaking board and the financial industry regulatory authority ( `` finra '' ) in the united states , the financial conduct authority ( `` fca '' ) in the united kingdom , the jersey financial services commission in the isle of jersey , the securities and futures commission in hong kong , and various state securities regulators in the united states . in addition , oppenheimer israel ( opco ) ltd. operates under the supervision of the israel securities authority . past events surrounding corporate accounting and other activities leading to investor losses caused increased regulation of public companies . certain legislators continue to publicly advocate that the sec has not taken adequate enforcement action against firms and individuals . various states are imposing their own regulations that make compliance more difficult and more expensive to monitor . in july 2010 , congress enacted extensive legislation entitled the wall street reform and consumer protection act ( the `` dodd-frank act '' ) in which it mandated that the sec and other regulators conduct comprehensive studies and issue new regulations based on their findings to control the activities of financial institutions in order to protect the financial system , the investing public and consumers from issues and failures that occurred in the 2008-9 financial crisis . prohibitions and restrictions on proprietary trading and certain interests in , and relationships with , hedge funds and private equity funds ( the `` volcker rule '' ) was published by the u.s. federal reserve board as required by the dodd-frank act in 2011. the volcker rule is not applicable to the company . recent changes have narrowed the application of the volcker rule to fewer institutions and broadened the ability of banks to service their clients through the use of their balance sheet . in april 2016 , the dol finalized its definition of fiduciary under the employee retirement income security act through the release of new rules and changes to interpretations of six prohibited transaction exemptions which together set a new standard for the treatment and effects of advice given to retirement investors ( `` dol fiduciary rules '' ) . under this rule , investment advice given to an employee benefit plan or an individual retirement account ( `` ira '' ) would be considered fiduciary advice . in march 2018 , the u.s. 5th circuit court of appeals found that the dol did not have the jurisdiction to adopt the aforementioned rules and vacated the dol fiduciary rules effective in june 2018. on april 18 , 2018 , the sec announced its proposed `` regulation best interest , '' a package of rulemakings and interpretations that address customers ' relationships with investment advisers and broker-dealers . regulation best interest would enact an intermediate standard requiring advisers and broker-dealers to act in the clients ' `` best interest '' at all times .
| results of operations the company reported net income attributable to oppenheimer holdings inc. of $ 28.9 million or $ 2.18 basic net income per share for the year ended december 31 , 2018 compared with net income of $ 22.8 million or $ 1.72 basic net income per share for the year ended december 31 , 2017 . income before income taxes from continuing operations for the year ended december 31 , 2018 was $ 44.9 million compared with income before income taxes from continuing operations of $ 19.7 million for the year ended december 31 , 2017 . revenue from continuing operations for the year ended december 31 , 2018 was $ 958.2 million , an increase of 4.1 % compared with revenue from continuing operations of $ 920.3 million for the year ended december 31 , 2017 . the company recorded an after-tax benefit of $ 9.0 million during the year ended december 31 , 2017 primarily related to re-measuring deferred tax assets and deferred tax liabilities as a result of the enactment of the tcja . there was no such after-tax adjustment made to the year end december 31 , 2018 ; however , the company did benefit from a lower marginal tax rate . incentive fees earned during the year ended december 31 , 2017 totaled $ 27.5 million as a result of the return on assets under management from alternative investments exceeding certain benchmark returns over a 12-month period .
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incorporated by reference to exhibit 10.2 to the registrant 's quarterly report for the period ended june 30 , 2009 , filed on form 10-q . 67 exhibit index 10.46 eligible lender trust agreement , dated as of may 13 , 2009 between nelnet super conduit funding , llc , a delaware limited liability company , and zions first national bank , a national banking association , not in its individual capacity but solely as eligible lender trustee on behalf and for the benefit of the funding note issuer . incorporated by reference to exhibit 10.3 to the registrant 's quarterly report for the period ended june 30 , 2009 , filed on form 10-q . 10.47 student loan purchase agreement , dated as of may 13 , 2009 , among national education loan network , inc. story_separator_special_tag december 31 , 2012 , 2011 , and 2010 . all dollars are in thousands , except per share amounts , unless otherwise noted . ) the following discussion and analysis provides information that the company 's management believes is relevant to an assessment and understanding of the consolidated results of operations and financial condition of the company . the discussion and analysis should be read in conjunction with the company 's consolidated financial statements and related notes included in this report . this discussion and analysis also contains forward-looking statements and should also be read in conjunction with the disclosures and information contained in `` forward-looking and cautionary statements '' and item 1a `` risk factors '' included in this report . 26 overview the company is an education services company focused primarily on providing fee-based processing services and quality education-related products and services in four core areas : asset management and finance , loan servicing , payment processing , and enrollment services ( education planning ) . these products and services help students and families plan , prepare , and pay for their education and make the administrative and financial processes more efficient for schools and financial organizations . in addition , the company earns interest income on a portfolio of federally insured student loans . a summary of consolidated results and financial and operational highlights is provided below . continued strong earnings . for the year ended december 31 , 2012 , the company 's net income , excluding derivative market value and foreign currency adjustments , was $ 207.4 million , or $ 4.38 per share , compared to $ 215.4 million , or $ 4.47 per share , for 2011. gaap net income for the year ended december 31 , 2012 was $ 178.0 million , or $ 3.76 per share , compared with gaap net income for 2011 , which was $ 204.3 million , or $ 4.24 per share . derivative market value and foreign currency adjustments were an expense of $ 29.4 million after tax , or $ 0.62 per share , during 2012 , compared with an expense of $ 11.1 million after tax , or $ 0.23 per share , for 2011 . ( a ) the decrease in net income in 2012 compared to 2011 was expected as the company 's student loan portfolio runs off due to congress ' elimination of new loan originations under the ffel program in 2010. the decrease was partially offset by the growth of the company 's fee-based businesses . an increase in revenue from fee-based businesses ( excluding intersegment servicing revenue ) to $ 402.1 million , or 7.5 % , for 2012 as compared to $ 373.9 million in 2011 . purchased $ 3.9 billion ( par value ) of student loans from third parties during 2012 , including $ 3.0 billion during the fourth quarter . repurchased 806,023 shares of class a common stock for $ 22.8 million ( $ 28.30 per share ) during 2012 , including 746,459 shares repurchased in the fourth quarter of 2012. repurchased $ 136.1 million of debt for a gain totaling $ 4.0 million during 2012 , including $ 114.4 million of debt repurchased during the fourth quarter for a gain of $ 3.0 million . paid cash dividends totaling $ 1.40 per share in 2012 , which includes a special fourth quarter 2012 cash dividend of $ 1.00 per share . an increase in book value per share to $ 25.00 , or 10.5 % , from december 31 , 2011 . strong liquidity represented by $ 149.3 million of cash and investments as of december 31 , 2012 and $ 299.3 million of net cash provided by operating activities during 2012 . ( a ) the company provides non-gaap information that reflects specific items management believes to be important in the evaluation of its financial position and performance . `` derivative market value and foreign currency adjustments '' include ( i ) the unrealized gains and losses that are caused by changes in fair values of derivatives which do not qualify for `` hedge treatment '' under gaap ; and ( ii ) the foreign currency transaction gains or losses caused by the re-measurement of the company 's euro-denominated bonds to u.s. dollars . the company believes these point-in-time estimates of asset and liability values related to these financial instruments that are subject to interest and currency rate fluctuations affect the period-to-period comparability of the results of operations . 27 the company earns fee-based revenue through the following operating segments : student loan and guaranty servicing ( `` lgs '' ) - referred to as nelnet diversified solutions ( `` nds '' ) tuition payment processing and campus commerce ( `` tpp & cc '' ) - referred to as nelnet business solutions ( `` nbs '' ) enrollment services - commonly called nelnet enrollment solutions ( `` nes '' ) in addition , the company earns net interest income on its ffelp student loan portfolio in its asset generation and management ( `` agm '' ) operating segment . this segment is expected to generate a stable net interest margin and significant amounts of cash as the ffelp portfolio amortizes . story_separator_special_tag “ gain on sale of loans and debt repurchases ” includes the following : replace_table_token_9_th ( f ) the change in “ derivative market value and foreign currency adjustments ” is the result of the change in the fair value of the company 's derivative portfolio and transaction gains/losses resulting from the re-measurement of the company 's euro-denominated bonds to u.s. dollars . these changes are summarized below . valuations of derivative instruments vary based upon many factors , including changes in interest rates , credit risk , foreign currency fluctuations , and other market factors . as a result , net gains and losses on derivatives and hedging activities may vary significantly from period to period . replace_table_token_10_th ( g ) as discussed in footnote ( a ) to the `` consolidated net interest income after provision for loan losses ( net of settlements on derivatives ) '' table above , derivative settlements should be evaluated with the company 's net interest income . consolidated operating expenses operating expenses includes indirect costs incurred to acquire student loans ; costs incurred to manage and administer the company 's student loan portfolio and its financing transactions ; costs incurred to service the company 's student loan portfolio and the portfolios of third parties ; collection costs related to rehabilitation revenue ; the cost to provide enrollment services ; costs incurred to provide tuition payment processing and campus commerce products and services to third parties ; the depreciation and amortization of capital assets and intangible assets ; investments in products , services , and technology to meet customer needs and support continued revenue growth ; and other general and administrative expenses . operating expenses also includes impairment charges related to the impairment of goodwill and certain intangible assets . operating expenses in 2010 includes employee termination benefits and lease termination costs related to restructuring activities and a litigation settlement charge . 33 as shown below , operating expenses , excluding direct costs to provide enrollment services , depreciation and amortization , impairment charges , restructuring charges , a litigation settlement , and collection costs related to loan rehabilitation revenue increased $ 24.1 million ( 8.8 % ) for the year ended december 31 , 2012 compared to 2011 , and increased $ 7.8 million ( 2.9 % ) for the year ended december 31 , 2011 compared to 2010. replace_table_token_11_th ( a ) the company incurred impairments of certain intangible assets ( 2012 and 2010 ) and goodwill ( 2010 ) recorded at the enrollment services operating segment . ( b ) the company entered into a settlement agreement during 2010 to settle all claims associated with the `` qui tam '' action brought by jon h. oberg . as a result of the settlement , the company recorded a $ 55.0 million pre-tax charge . ( c ) the company incurred collection costs directly related to revenue earned from rehabilitation loans . these costs are included in `` other '' under the operating expense section of the consolidated statements of income and are shown separately in the above table for comparability purposes for the periods shown . the increase in operating expenses over the last two years was due to the addition of resources and incurring other expenses to ( i ) support the growth in loan and guaranty servicing revenue and improve survey results related to the government servicing contract ; ( ii ) support the hosted servicing software product ; ( iii ) implement and comply with the department 's special direct consolidation loan initiative ; and ( iv ) support the increase in the number of managed tuition payment plans and campus commerce customers . consolidated income taxes the company 's effective tax rate was 35.0 percent and 36.5 percent for the years ended december 31 , 2012 and 2011 , respectively . the effective tax rate during 2012 decreased compared to 2011 due to various state changes and changes in the company 's gross unrecognized tax benefits liability . during 2012 , state tax laws were enacted that reduced the company 's income tax expense by $ 3.4 million . the company currently expects the effective tax rate in 2013 will be 36 percent to 38 percent . the company 's effective tax rate was 36.5 percent and 37.5 percent for the years ended december 31 , 2011 and 2010 , respectively . the effective tax rate during 2011 decreased compared to 2010 due to a decrease in the company 's valuation allowance , state incentive tax credits , and an overall reduction of the company 's state effective tax rate . 34 student loan and guaranty servicing operating segment – results of operations student loan servicing volumes ( dollars in millions ) replace_table_token_12_th 35 summary and comparison of operating results replace_table_token_13_th loan and guaranty servicing revenue replace_table_token_14_th ( a ) ffelp servicing revenue decreased due to third-party customers ' ffelp portfolios decreasing in size due to run off . ( b ) government servicing revenue increased due to the increase in the number of borrowers serviced . ( c ) the company earns revenue from rehabilitating defaulted ffelp loan assets on behalf of ffelp guaranty agencies . this revenue has increased based on an increase in defaulted loan volume . however , over time , this ffelp-related revenue source will decrease as ffelp portfolios continue to run off . ( d ) ffelp guaranty servicing revenue will continue to decrease as ffelp portfolios run off and guaranty volume decreases . 36 ( e ) in october 2011 , the company began providing hosted student loan servicing to a significant customer , which resulted in an increase in software services revenue . the contract with this customer expires in december 2013 , at which time the company expects the number of remote hosted borrowers and related revenue to significantly decrease . however , a portion of these borrowers will transfer to a full-service borrower under the department 's servicing contract . during 2012 , $ 14.7 million in software services revenue was earned from this customer .
| consolidated results of operations the components of the company 's consolidated financial statements are summarized below . the company 's operating results are primarily driven by the performance of its existing portfolio and the revenues generated by its fee-based businesses and the costs to provide such services . the performance of the company 's portfolio is driven by net interest income ( which includes financing costs ) and losses related to credit quality of the assets , along with the cost to administer and service the assets and related debt . the company operates as four distinct operating segments . the company 's operating segments include : student loan and guaranty servicing tuition payment processing and campus commerce enrollment services asset generation and management see item 1 , `` business - overview '' for further discussion on the components of each segment . in addition , the operating results of each of the company 's reportable operating segments , including a reconciliation of the segment operating results to the consolidated results of operations , are included in note 14 of the notes to the consolidated financial statements included in this report . since the company monitors and assesses its operations and results based on these segments , the discussion following the consolidated results of operations is presented on a segment basis . as further discussed in the notes to the consolidated financial statements , in 2012 the company changed its operating segment income measurement from `` base net income '' to gaap net income . prior period segment operating results have been restated to conform to the current period presentation . consolidated net interest income after provision for loan losses ( net of settlements on derivatives ) replace_table_token_5_th ( a ) the company maintains an overall risk management strategy that incorporates the use of derivative instruments to reduce the economic effect of interest rate volatility .
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all financial information is presented in u.s. dollars . some of the statements set forth in this section are forward-looking statements relating to our future results of operations . accordingly , reference is made to “ part i. item 1a . risk factors ” and “ cautionary statement regarding forward-looking statements , ” which describe important factors that could cause actual results to differ from expectations and non-historical information contained herein . overview our mission is to provide simple useful services that help people unlock the power of the internet . we accomplish this by reducing the complexity our customers ' experience as they access the internet ( at home or on the go ) or internet services such as domain name registration , email , mobile telephony services and other internet services . we are organized and managed based on two segments , network access services and domain services , which are differentiated primarily by their services , the markets they serve and the regulatory environments in which they operate . our principal place of business is located in canada . we manage our business as segments , network access services , which primarily derives revenue from the sale of retail mobile phones , telephony services and high-speed internet access to individuals and small businesses , and domain services , which derives revenue from three distinct service offerings – wholesale , retail and portfolio . to assist us in forecasting growth and to help us monitor the effectiveness of our operational strategies , our management regularly reviews revenue and cost of revenues for each of our segments in order to gain more depth and understanding of the key business metrics driving our business . for the years ended december 31 , 2017 , 2016 and 2015 , we reported revenue of $ 329 million , $ 190 million and $ 172 million , respectively . network access services network access services derives revenue from the sale of retail mobile phones and services to individuals and small businesses through the ting website , as well as from providing high speed internet access , internet hosting and network consulting services to customers in select cities in the united states . ting provides customers with access to our provisioning and management tools to enable them , via the ting.com website , to purchase retail mobile phones and services nationally and fixed internet access in select cities . revenues are generated in the united states and are provided on a monthly basis with no fixed contract term . as of december 31 , 2017 , ting managed mobile telephony services for approximately 172,000 subscribers and had approximately 283,000 devices under management . our primary distribution channel for network access services is through our website , ting.com . we strive to meet or exceed our network access service customers ' needs by providing them with superior services , easy-to-use interfaces and proactive and attentive customer service . on september 19 , 2017 , the company acquired the consumer related assets of otono networks , inc. the consumer assets relate to the mobile roaming and instant activation esim business under the roam mobility , zipsim and always online wireless brands . the acquired portfolio operates as a mvno on the same nationwide gsm network as ting mobile and distributes through third-party retail stores and product-branded websites . 45 domain services domain services include wholesale and retail domain name registration services , value added services and portfolio services derived through our opensrs , enom and hover brands . we earn revenues primarily from the registration fees charged to resellers in connection with new , renewed and transferred domain name registrations . in addition , we earn revenues from the sale of retail domain name registration and email services to individuals and small businesses ; and by making our portfolio of domain names available for sale or lease . domain services revenues are attributed to the country in which the contract originates , primarily canada and the united states . our primary distribution channel is a global network of approximately 39,000 resellers that operate in over 150 countries and who typically provide their customers , the end-users of internet-based services , with solutions for establishing and maintaining an online presence . the increase in our reseller network during the year from 13,000 resellers resulted from our acquisition of enom . our primary focus is serving the needs of this network of resellers by providing the broadest portfolio of gtld and cctld options and related services , a white-label platform that facilitates the provisioning and management of domain names , a powerful application program interface , easy-to-use interfaces , comprehensive management and reporting tools , and proactive and attentive customer service . our services are integral to the solutions that our resellers deliver to their customers . we provide “ second tier ” support to our resellers by email , chat and phone in the event resellers experience issues or problems with our services . in addition , our network operating center proactively monitors all services and network infrastructure to address deficiencies before customer services are impacted . we believe that the underlying platforms for our services are among the most mature , reliable and functional reseller-oriented provisioning and management platforms in our industry , and we continue to refine , evolve and improve these services for both resellers and end-users . our business model is characterized primarily by non-refundable , up-front payments , which lead to recurring revenue and positive operating cash flow . wholesale , primarily branded as opensrs and enom , derives revenue from its domain service and from providing value-added services . the opensrs and enom domain services manage 28 million domain names under the tucows and enom icann registrar accreditations and for other registrars under their own accreditations . story_separator_special_tag growth in our domain services revenue is dependent upon our ability to continue to attract and retain customers by maintaining consistent domain name registration and value-added service renewal rates and to grow our customer relationships through refining , evolving and improving our provisioning platforms and customer service for both resellers and end-users . in addition , we also generate revenue through pay-per-click advertising and the sale of names from our portfolio of domain names and through the opensrs domain expiry stream . the revenue associated with names sales and advertising has recently experienced flat to declining trends due to the uncertainty around the implementation of icann 's new gtld program , lower traffic and advertising yields in the marketplace , which we expect to continue . from time-to-time certain of our vendors provide us with market development funds to expand or maintain the market position for their services . any decision by these vendors to cancel or amend these programs for any reason may result in payments in future periods not being commensurate with what we have achieved during past periods . sales of domain names from our domain portfolio have a negative impact on our advertising revenue as these names are no longer available for advertising purposes . in addition , the timing of larger domain names portfolio sales is unpredictable and may lead to significant quarterly and annual fluctuations in our portfolio revenue . our revenue is primarily realized in u.s. dollars and a major portion of our operating expenses are paid in canadian dollars . fluctuations in the exchange rate between the u.s. dollar and the canadian dollar may have a material effect on our business , financial condition and results from operations . in particular , we may be adversely affected by a significant weakening of the u.s. dollar against the canadian dollar on a quarterly and an annual basis . our policy with respect to foreign currency exposure is to manage our financial exposure to certain foreign exchange fluctuations with the objective of neutralizing some or all of the impact of foreign currency exchange movements by entering into foreign exchange forward contracts to mitigate the exchange risk on a portion of our canadian dollar exposure . we may not always enter into such forward contracts and such contracts may not always be available and economical for us . additionally , the forward rates established by the contracts may be less advantageous than the market rate upon settlement . 48 net revenues network access services mobile we derive revenue from ting 's sale of retail mobile phones and services and provide customers with access to our provisioning and management tools to enable them , via the ting.com website , to purchase retail mobile phones and services nationally . revenues are generated in the united states with a fixed access line charge per device and variable charges based on actual voice , data and text usage . services are provided on a monthly post-paid basis with no fixed contract term . for the mobile roaming and instant activation esim business under the roam mobility brands , we derive revenue from the sale of sim cards with prepaid usage as well as pay-as-you-go usage sold through third-party retail stores and product branded websites . other services other services derive revenues from providing fixed high-speed internet access to individuals and small businesses in select cities including westminster , maryland , holly springs , north carolina and charlottesville , virginia along with internet hosting and network consulting services to customers in charlottesville , virginia . ting provides customers with access to our provisioning and management tools to enable them , via the ting.com website , to purchase our fixed internet access services . revenues are generated from fixed monthly access charges with a primary focus on the 1 gb unlimited data usage package . services are provided on a monthly basis with no fixed contract term . domain services wholesale historically , our opensrs domain service has constituted the largest portion of our business and encompasses all of our services as an accredited registrar related to the registration , renewal , transfer and management of domain names . in addition , this service fuels other revenue categories as it often is the initial service for which a reseller will engage us , enabling us to follow on with other services and allowing us to add to our portfolio by purchasing names registered through us upon their expiration . with the acquisition of enom and its 26,000 reseller network , domain services will continue to be the largest portion of our business and will further fuel our ability to sell add-on services . we receive revenues for each domain registration or other internet service processed through our system by isps . our domain service revenue is principally comprised of registration fees charged to resellers in connection with new , renewed and transferred domain name registrations . the registration fee provides our resellers with access to our provisioning and management tools to enable them to register and administer domain names and access to additional services like whois privacy and domain name system services , enhanced domain name suggestion tools and access to our premium domain names . we earn fees in connection with each new , renewed and transferred-in registration and from providing provisioning services to resellers and registrars on a monthly basis . domain registrations are generally purchased for terms of one to ten years , with a majority having a one-year term . payments for the full term of all services , or billed revenue , are received at the time of activation of service and where appropriate are recorded as deferred revenue and are recognized as earned ratably over the term of provision of service . this accounting treatment reasonably approximates a recognition pattern that corresponds with the provision of the services during the quarters and the year . wholesale – value-added services we derive revenue from our hosted email service through our global distribution network .
| general and administrative general and administrative expenses consist primarily of compensation and related costs for managerial and administrative personnel , fees for professional services , public listing expenses , rent , foreign exchange and other general corporate expenses . replace_table_token_14_th general and administrative expenses for fiscal 2017 increased by $ 2.2 million , or 19 % , to $ 13.6 million as compared to fiscal 2016. this was primarily the result of professional fees increase of $ 0.8 million related to the acquisition of enom and the namecheap litigation . workforce related costs increased $ 1.0 million due mainly to the acquisition of enom . credit card processing fees , facilities costs and other expenses increased $ 1.2 million primarily to support growth of network access and also due to the acquisition of enom . these increases were offset by a reduction expenses due to foreign exchange gains as the company experienced a foreign exchange gain of $ 0.7 million in fiscal 2017 as compared to a $ 0.1 million loss in fiscal 2016. we expect general and administrative expenses for fiscal 2018 , in absolute dollars , to increase when compared to fiscal 2017 largely to support the growth of our business . depreciation of property and equipment replace_table_token_15_th depreciation costs for fiscal 201 7 increased to $ 0.6 million when compared to $ 0.5 million for fiscal 2016 driven primarily by the acquisition of enom . 62 amortization of intangible assets replace_table_token_16_th amortization of intangible assets increased $ 5.7 million for fiscal 2017 , to $ 6.6 million . the increase in amortization reflects the impact of the acquisition of enom . in the acquisition , the company acquired intangible assets related to brand and customer relationships totaling $ 40.4 million .
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“ risk factors ” and elsewhere in this form 10-k. overview business ryerson holding corporation ( “ ryerson holding ” ) , a delaware corporation , is the parent company of joseph t. ryerson & son , inc. ( “ jt ryerson ” ) , a delaware corporation . affiliates of platinum equity , llc ( “ platinum ” ) own approximately 21,037,500 shares of our common stock , which is approximately 56 % of our issued and outstanding common stock . we are a leading metals service center , a value-added processor and distributor of industrial metals with operations in the united states through jt ryerson , in canada through our indirect wholly-owned subsidiary ryerson canada , inc. , a canadian corporation ( “ ryerson canada ” ) , and in mexico through our indirect wholly-owned subsidiary ryerson metals de mexico , s. de r.l . de c.v. , a mexican corporation ( “ ryerson mexico ” ) . in addition to our north american operations , we conduct materials processing and distribution operations in china through an indirect wholly-owned subsidiary , ryerson china limited ( “ ryerson china ” ) . unless the context indicates otherwise , ryerson holding , jt ryerson , ryerson canada , ryerson china , and ryerson mexico , together with their subsidiaries , are collectively referred to herein as “ ryerson , ” “ we , ” “ us , ” “ our , ” or the “ company. ” industry and operating trends we are a metals service center providing value-added processing and distribution of industrial metals with operations in the united states , canada , mexico , and china . we purchase large quantities of metal products from primary producers and sell these materials in smaller quantities to a wide variety of metals-consuming industries . more than 75 % of the metals products sold are processed by us by bending , beveling , blanking , blasting , burning , cutting-to-length , drilling , embossing , flattening , forming , grinding , laser cutting , machining , notching , painting , perforating , polishing , punching , rolling , sawing , scribing , shearing , slitting , stamping , tapping , threading , welding , or other techniques to process materials to a specified thickness , length , width , shape , and surface quality pursuant to specific customer orders . similar to other metals service centers , we maintain substantial inventories of metals to accommodate the short lead times and just-in-time delivery requirements of our customers . accordingly , we purchase metals to maintain our inventory at levels that we believe to be appropriate to satisfy the anticipated needs of our customers based upon customer forecasts , historic buying practices , supply agreements with customers , mill lead times , and market conditions . our commitments to purchase metals are generally at prevailing market prices in effect at the time we place our orders . at the request of our customers , we have entered into swaps in order to mitigate our customers ' risk of volatility in the price of metals and we have entered into metals hedges to mitigate our own risk of volatility in the price of metals . we have no long-term , fixed-price metals purchase contracts . when metals prices decline , customer demands for lower prices and our competitors ' responses to those demands could result in lower sale prices and , consequently , lower gross profits and earnings as we sell existing metals inventory . when metals prices increase , competitive conditions will influence how much of the price increase we may pass on to our customers . the metals service center industry is cyclical and volatile in both demand and pricing , and difficult to predict . in 2018 , we saw improved demand when viewed against the year ago period . according to the metal service center institute , u.s. service center volumes have increased by four percent compared to the year-ago period . in 2018 , we experienced year-over-year growth in shipment volumes to nearly all of our end markets , most notably in the ground transportation and metal fabrication and machine shop sectors . we saw year-over-year shipment declines only in the hvac and construction equipment sectors . overall , commodity prices trended higher in 2018. cru hot-rolled carbon steel prices rose 21 % , midwest aluminum prices rose 3 % , and stainless 304 surcharge prices rose 2 % during the year . higher commodity prices translated into higher selling prices for ryerson , with per ton pricing increases of 16 % during the year . stronger demand and pricing were offset by higher procured metal costs , which resulted in flat gross margins in 2018 . 29 recent industry developments on march 1 , 2018 , the white house announced a 25 % tariff on all imported steel products and 10 % tariff on all imported aluminum products for an indefinite amount of time under section 232 of the trade expansion act . subsequently , the white house announced steel quotas , in lieu of tariffs , with south korea . on may 1 , 2018 , the white house further announced agreements-in-principle with argentina , australia , and brazil for permanent exemptions from the tariffs in exchange for export quotas or voluntary export restraints , with the exception of australia which has not agreed to quotas at the time of this release . in august 2018 , steel tariffs were increased to 50 % for turkey to offset inflation in the turkish lira . story_separator_special_tag tons sold per ship day were 7,968 in 2017 as compared to 7,552 in 2016. cost of materials sold replace_table_token_15_th the increase in cost of materials sold in 2017 compared to 2016 was primarily due to an increase in the average cost of materials sold per ton and the increase in tons sold . the average cost of materials sold for our carbon flat , carbon plate , and stainless flat product lines increased more than our other products during 2017 , which was a faster increase than the increase in average selling price per ton for these products . during 2017 , lifo expense was $ 44 million related to increases in pricing for all product lines . during 2016 , lifo expense was $ 7 million related to increases in pricing for carbon products . in 2017 , we recorded income of $ 24 million to adjust the lower of cost or market inventory reserve compared to income of $ 14 million in 2016. gross profit replace_table_token_16_th gross profit dollars increased in 2017 compared to 2016 , but gross profit as a percentage of sales decreased to 17.3 % in 2017 compared to 20.0 % in 2016 as a competitive pricing environment combined with increasing commodity prices compressed gross profit margin . while our revenue per ton increased in 2017 as compared to 2016 , cost of materials sold per ton increased at a faster pace , resulting in lower gross margins . 35 operating expenses replace_table_token_17_th operating expenses in 2017 were higher than in 2016 primarily due to the following reasons : higher salaries and wages of $ 10.3 million resulting mainly from an increase in headcount after the acquisitions of laserflex and guy metals in 2017 ; higher facility expenses of $ 8.0 million , primarily due to higher depreciation expense and higher operating supply costs ; higher delivery expenses of $ 7.8 million , primarily due to the increase in tons sold in 2017 ; higher employee benefit costs of $ 5.7 million in 2017 , primarily due to higher medical expenses ; and higher sales expenses of $ 2.4 million . these changes were partially offset by : lower incentive compensation expense of $ 3.2 million . on a per ton basis , operating expenses increased to $ 241 per ton in 2017 from $ 236 per ton in 2016 operating profit replace_table_token_18_th our operating profit decreased in 2017 compared to 2016 primarily due to the decrease in gross margin as a percent of sales discussed above . other expenses replace_table_token_19_th interest and other expense on debt increased in 2017 compared to 2016 as the interest rate on a portion of our outstanding notes increased after we redeemed the $ 569.9 million outstanding balance of our 9.00 % senior notes due 2017 ( the “ 2017 notes ” ) , repurchased $ 121.9 million and thereafter redeemed the remaining outstanding $ 48.5 million of our 11.25 % senior notes due 2018 ( the “ 2018 notes ” ) , and issued $ 650.0 million of new 11.00 % senior notes due 2022 ( the “ 2022 notes ” ) in 2016 , partially offset by a reduction in the amount of our outstanding notes and lower amortization of debt issuance costs expense . the other incom e in 2017 was primarily related to an $ 8.9 million credit from net periodic benefit cost other than service cost , partially offset by foreign currency losses . the other expense in 2016 was primarily related to a $ 8.7 million net loss on debt redemptions , a $ 4.7 million charge due to an other-than-temporary impairment recognized on an equity investment , and foreign currency losses of $ 3.9 million , partially offset by a credit of $ 11.1 million from net periodic benefit cost other than service cost . provision for income taxes the $ 1.3 million income tax benefit in 2017 includes tax expense on earnings in the u.s. and changes in our valuation allowances , adjusted for the impact of certain one-time items associated with the u.s. tax cuts and jobs act ( the “ act ” ) passed on 36 december 22 , 2017. these one-time adjustments included a benefit for the revaluation of our deferred tax assets of $ 10.6 million and the tax associated with the deemed repatriation of foreign earnings of $ 7.2 million under the act . the $ 7.2 mil lion income tax expense in 2016 results predominantly from tax expense on earnings in the u.s. and the inability to benefit losses in our foreign subsidiaries due to valuation allowances . the company 's 2017 provision for income taxes included $ 7.2 million of estimated tax expense related to the one-time deemed repatriation transition tax ( “ transition tax ” ) . of the $ 7.2 million of estimated tax expense , $ 0.5 million is reflected in our deferred tax balances and $ 6.7 million is reflected in income taxes payable . we chose to include an estimate of the transition tax in 2017 due to the complex nature of the calculation and the short amount of time between passing of the legislation and the filing of our financial statements . please refer to note 17 — “ income taxes ” of part ii , item 8 “ financial statements and supplementary data ” for further information on the impact of the tax cuts and jobs act . noncontrolling interest in 2017 , ryerson china 's results of operations was income and the portion attributable to the noncontrolling interest was $ 0.9 million . in 2016 , ryerson china 's results of operations was income partially offset by a loss at our brazil operations through açofran aços e metais ltda ( “ açofran ” ) in which we had a 50 % direct ownership percentage , until we substantially liquidated our investment in acofran during 2016. the portion of ryerson china 's and açofran 's results attributable to the noncontrolling interest in 2016 was income of $ 0.2 million .
| results of operations the following table sets forth our condensed consolidated statements of income data : replace_table_token_6_th the following table shows the company 's percentage of sales by major product line : replace_table_token_7_th 31 comparison of the year ended december 31 , 2018 with the year ended december 31 , 2017 net sales replace_table_token_8_th revenue for the year ended december 31 , 2018 increased from the same period a year ago due to higher average selling prices and higher tons sold reflecting improved economic conditions in the metals market . net sales and tons sold also increased in 2018 due to the acquisition of cs & w on july 2 , 2018. excluding cs & w ( same-store results ) , average selling price per ton increased for all of our product lines in 2018 with the largest increases in our carbon plate , aluminum plate , and stainless plate products . prices increased for our product lines in 2018 compared to 2017 as the impact of section 232 tariffs favorably impacted metal prices along with improved demand . as more fully discussed in item 1a “ risk factors ” of this annual report on form 10-k , the tariffs imposed on certain metal products under section 232 of the trade expansion act of 1962 have led to significant increases in the prices of the products we sell and our profitability . a rapid decline in metal prices from current levels could result in a significant adverse effect on our revenues , gross profit , and net income . excluding cs & w , tons sold also increased in 2018 for all of our product lines with the largest increases in shipments of our carbon plate , stainless plate , and aluminum flat product lines .
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126 the scheduled maturities of the benefits expected to be story_separator_special_tag executive summary this management 's discussion and analysis of financial condition and results of operations relates to and should be read together with our audited consolidated financial statements as of and for each of the years in the three-year period ended december 31 , 2013. therefore , unless otherwise noted , the discussion below of our financial condition and results of operations is for southern copper corporation and its subsidiaries ( collectively , scc , the company , our , and we ) on a consolidated basis for all periods . our financial results may not be indicative of our future results . this discussion contains forward-looking statements that are based on management 's current expectations , estimates and projections about our business and operations . our actual results may differ materially from those currently anticipated and expressed in the forward-looking statements as a result of a number of factors . see item 1 business - cautionary statement. executive overview business : our business is primarily the production and sale of copper . in the process of producing copper , a number of valuable metallurgical by-products are recovered , which we also produce and sell . market forces outside of our control largely determine the sale prices for our products . our management , therefore , focuses on value creation through copper production , cost control , production enhancement and maintaining a prudent capital structure to remain profitable . we endeavor to achieve these goals through capital spending programs , exploration efforts and cost reduction programs . our aim is to remain profitable during periods of low copper prices and to maximize financial performance in periods of high copper prices . we are one of the world 's largest copper mining companies in terms of production and sales with our principal operations in peru and mexico . we also have an active ongoing exploration program in chile and in 2011 we started exploration activities in argentina and ecuador . in addition to copper we produce significant amounts of other metals , either as a by-product of the copper process or in a number of dedicated mining facilities in mexico . in 2013 , we invested $ 1,703.3 million in capital programs along with $ 51 million in our exploration efforts . we believe this commitment to growth will continue to benefit our company , our investors , our neighboring communities , and the countries in which we operate . we believe we hold the world 's largest copper reserve position . our copper ore reserves , at december 31 , 2013 , totaled 67.6 million tons of contained copper , calculated at a copper price of $ 2.00 per pound ( as of december 31 , 2013 , the lme and comex copper price was $ 3.35 and $ 3.44 , respectively ) , as follows : copper contained in ore reserves thousand tons mexican open-pit 30,889 peruvian operations 25,103 immsa 220 development projects 11,388 total 67,600 outlook : various key factors will affect our outcome . these include , but are not limited to , some of the following : · changes in copper and molybdenum prices : in 2013 , the average lme copper price was $ 3.32 per pound and the average comex copper price was $ 3.34 per pound , about 8 % and 7.5 % lower than in 2012 , respectively . average silver , molybdenum and zinc prices in 2013 decreased , 23.6 % , 18.7 % and 1.1 % , respectively , compared to 2012. in 2013 , per pound lme spot copper prices ranged from $ 3.01 to $ 3.74 . · sales structure : in the last three years approximately 77.3 % of our revenues came from the sale of copper , 7.1 % from molybdenum , 7.1 % from silver , 3.1 % from zinc and 5.4 % from various other products , including sulfuric acid , gold and other materials . 76 · metal markets : we are cautiously optimistic about the current economic scenario . the international monetary fund has consistently increased its 2014 growth forecast for the world economy , expecting a 3.7 % increase in global gdp growth for 2014 and 3.9 % for 2015. a driver for the world economy is the synchronized growth expected for the united states , europe and japan , which together represent about 54 % of the world gdp . these three economies consume directly about 31 % of the world 's refined copper production and are an important driver of indirect demand . copper : during 2013 , we have seen the strong fundamentals of this market coming back again to support copper prices . as of december 31 , 2013 , inventories at the three major warehouses ( lme , comex and shanghai ) have decreased by 427,300 tons or 45 % since their peak in june of last year . this decreasing trend has continued during 2014 , with inventories of refined copper at january 31 , 2014 , 6 % lower than 2013´s close . we expect that the sustained recovery of the major economies , in conjunction with the year-to-year increase in chinese copper imports of 6.5 % , will reduce the chance of an oversupply , particularly of refined copper , our main product , in 2014. on the supply side , despite some evidence of a possible market oversupply for the coming year , we think that several structural factors , such as labor stoppages , excessive taxation or governmental intervention , technical problems , scrap shortages and other issues are affecting and will continue to affect copper supply , offsetting the net impact of additional production coming from new projects and expansions . we believe that we are well positioned to take advantage of the strong fundamentals of the copper market . story_separator_special_tag key matters we discuss below several matters that we believe are important to understand our results of operations and financial condition . these matters include ( i ) earnings , ( ii ) production , ( iii ) operating cash costs as a measure of our performance , ( iv ) metal prices , ( v ) business segments , ( vi ) the effect of inflation and other local currency issues , and ( vii ) our capital investment and exploration program . 78 earnings : the table below highlights key financial and operational data of our company for the three years ended december 31 , 2013 ( in millions , except per share amounts ) : replace_table_token_40_th net sales decreased in the three-year period from 2011 to 2013 , due to lower metal prices for copper and our principal by-products . improved sales volumes for some of our products helped reduce the impact of the price decreases . the 2013 molybdenum sales volume increased by 9.4 % and includes a new record of 25.9 million pounds at our la caridad mine and 0.8 million pounds from the first production of the new molybdenum plant at buenavista . the two largest components of operating costs and expenses are cost of sales and depreciation , amortization and depletion , which increased in each of the years in the periods above . cost of sales and depreciation , amortization and depletion increased by a little over $ 100 million and $ 70 million , respectively , in 2013. the increase in cost of sales was due to cost inflation of fuel , explosives , tires and reagents , as well as increases in labor cost , mainly at the peruvian operations due to the new collective bargaining agreements , signed in early 2013. the increase in depreciation was mainly due to the start-up of the quebalix iii and the first molybdenum plant at buenavista , as well as maintenance capital acquisitions at most of our operations . the 2012 operating cost , however , includes a charge of $ 316.2 million for legal fees related to our shareholders derivative lawsuit . this unique charge affects 2012 with no equivalent charge in the other years . finally , net income in 2013 was 16.3 % lower mainly due to the above factors . production : the table below highlights , mine production data of our company for the three years ended december 31 , 2013 : replace_table_token_41_th the tables below highlights copper production data at each of our mines for the three years ended december 31 , 2013 : replace_table_token_42_th 2013 compared to 2012 : mined copper in 2013 decreased 45.6 million pounds , compared to 2012 production . this decrease was due to : · lower production at our buenavista mine , which experienced temporary flooding problems , · lower production at the toquepala mine due to lower ore grades and throughput at the concentrator , and · lower sx-ew production because of a decrease in pls grades . partially offset by , · higher production at the cuajone mine resulting from higher ore grades and recoveries . 79 molybdenum production increased 3.5 million pounds in 2013 , compared to 2012. molybdenum production increased in all our mines . la caridad mine reached a new record production of 25.9 million pounds in 2013 compared to the prior year record of 24.2 million pounds . additionally , the new buenavista molybdenum plant which started commercial production by the end of the third quarter 2013 , produced 0.8 million pounds of molybdenum . zinc mine production from our immsa unit in mexico , increased by 20.9 million pounds in 2013 , 10.6 % higher than in 2012 , mainly as a result of higher recoveries and a full year of production at the santa eulalia mine after the flooding problems of prior years were resolved . our silver production decreased slightly in 2013 , compared to 2012 production , due to lower production at the toquepala , buenavista and la caridad mines offset somewhat by higher production at the cuajone and immsa mines . 2012 compared to 2011 : mined copper in 2012 increased 110.6 million pounds , compared to 2011 production . this increase was due to higher production at our mexican mines and includes an additional 60.8 million pounds at the buenavista mine , which had record production in 2012 , 15.5 million pounds at the la caridad mine , and 41.1 million pounds of higher production at the cuajone mine . these increases in production were the result of higher ore grades and recoveries , and were partially offset by lower production at the toquepala mine , whose production decreased by 2.2 % mainly due to lower pls copper grade and volume processed at the sx-ew plant . molybdenum production decreased slightly in 2012 , compared to 2011 , due primarily to 2.0 million pounds of lower production at the toquepala mine , as a result of lower ore grades and recoveries , offset by 1.2 million pounds and 0.2 million pounds of higher production at la caridad mine and cuajone mine , respectively . zinc mine production , which comes from our immsa unit in mexico , increased by 13.4 million pounds in 2012 , 7.3 % higher than in 2011 , mainly as a result of higher recoveries and the production recovery at the santa eulalia mine after the flooding problems of prior years were resolved . our silver production increased 7.2 % in 2012 , principally due to higher production at the buenavista mine and the cuajone mine , offset somewhat by lower production at some of our other mines . operating cash costs : an overall benchmark used by us and a common industry metric to measure performance is operating cash costs per pound of copper produced . operating cash cost is a non-gaap measure that does not have a standardized meaning and may not be comparable to similarly titled measures provided by other companies .
| results of operations the following table highlights key financial results for each of the years in the three-year period ended december 31 , 2013. replace_table_token_50_th net sales 2013-2012 : net sales in 2013 were $ 5,952.9 million , compared to $ 6,669.3 million in 20 12 , a decrease of $ 716.4 million or 10.7 % . the decrease was principally the result of lower copper prices and sales volume as well as lower prices for our major by-products partially offset by higher sales volume of molybdenum , zinc and silver . copper made up 78.2 % of net sales in 201 3 , compared to 77.0 % in 20 12 . sales of by-products in 2013 totaled $ 1,298.1 million , compared to $ 1,532.4 million in 20 12 , a decrease of 15.3 % . 2012-2011 : net sales in 201 2 were $ 6,669.3 million , compared to a record $ 6,818.7 million in 20 11 , a decrease of $ 149.4 million . the decrease was principally the result of lower metal prices . net sales in 201 1 include a gain of $ 13.5 million on copper hedges . 89 the table below outlines the average published market metals prices for our metals for each of the three years in the three-year period ended december 31 , 2013 : replace_table_token_51_th ( 1 ) platt 's metals week dealer oxide . the table below provides our metal sales as a percentage of our total net sales . replace_table_token_52_th the table below provides our copper sales by type of product .
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raven 's three unique divisions share resources , ideas and a passion to create technology that helps the world grow more food , produce more energy , protect the environment and live safely . the raven business model is its platform for success . raven 's business model is defensible , sustainable , and gives us a consistent approach in the pursuit of quality financial results . this overall approach to creating value , which is employed across the three business segments , is summarized as follows : intentionally serve market segments with strong growth prospects in both the near and long term . consistently manage a pipeline of growth initiatives within our market segments . aggressively compete on quality , service , innovation , and peak performance . attract and develop exceptional leaders who understand business deeply and can thrive in the raven way . on a path of continuous improvement , integrate sustainability with our operations by consistently taking actions to streamline processes , improve efficiencies , and increase value delivered to our customers . value our balance sheet as a source of strength and stability . corporate responsibility is a top priority . 18 the following discussion highlights the consolidated operating results for the years ended january 31 , 2021 and 2020. segment operating results are more fully explained in the results of operations - segment analysis section . for the years ended january 31 , ( dollars in thousands , except per-share data ) 2021 % change 2020 story_separator_special_tag style= '' display : none '' > return on average assets ( c ) 4.6 % 9.2 % return on average equity ( d ) 5.8 % 11.3 % ( a ) the company 's gross and operating margins may not be comparable to industry peers due to variability in the classification of expenses across industries in which the company operates . ( b ) net income attributable to raven industries , inc. divided by net sales . ( c ) net income attributable to raven industries , inc. divided by average assets . average assets is the sum of total assets for the beginning and ending of the fiscal year divided by two . ( d ) net income attributable to raven industries , inc. divided by average equity . average equity is the sum of total raven industries , inc. shareholders ' equity for the beginning and ending of the fiscal year divided by two . results of operations - fiscal 2021 compared to fiscal 2020 the company 's net sales in fiscal 2021 were $ 348.4 million , a decrease of $ 34.1 million , or 8.9 % , from the prior year 's net sales of $ 382.5 million . year-over-year growth in applied technology was more than offset by declines in engineered films and aerostar . the year-over-year growth within applied technology was driven by increased volumes to oems , as the division leveraged its industry-leading technology portfolio . engineered films ' decline in net sales was driven by weak demand as its end-markets were significantly affected by the global pandemic . the year-over-year decline in revenue for aerostar was primarily driven by pandemic related travel restrictions enacted by the department of defense . operating income in fiscal 2021 was $ 19.7 million , a decrease of $ 20.2 million , or 50.8 % , from the prior year 's operating income of $ 39.9 million . fiscal 2021 operating income was reduced by the following : strategic investments in raven autonomy during fiscal 2021 of $ 16.8 million , primarily in research and development and selling activities to advance the company 's autonomous ag solutions . lower operating leverage within engineered films due to significantly lower sales , primarily in the geomembrane ( specifically the energy sub-market ) and construction markets . net income attributable to raven for fiscal 2021 was $ 18.9 million , or $ 0.52 per diluted share , compared to net income of $ 35.2 million , or $ 0.97 per diluted share , in fiscal 2020. the investment in raven autonomy reduced net income attributable to raven by $ 12.9 million , or $ 0.36 per diluted share in fiscal 2021 , and $ 2.3 million , or $ 0.06 per diluted share in fiscal 2020 . 19 applied technology division fiscal 2021 net sales increased $ 16.7 million , or 12.8 % , from $ 130.5 million in fiscal 2020 to $ 147.2 million in fiscal 2021 . applied technology 's increase in sales was driven by growth in the oem channel , through leveraging its industry-leading technology portfolio and strong customer relationships . this growth was achieved despite economic challenges that included low commodity prices for much of the year and overall weak conditions within the ag industry . the growth included last-time buy activity associated with the exit of a commercial relationship initiated by the company . applied technology 's operating income decreased by 13.7 % to $ 26.5 million from $ 30.7 million in the prior year . operating income was reduced by $ 16.6 million of strategic investment in research and development and selling activities for raven autonomy . engineered films division fiscal 2021 net sales were $ 147.9 million , a decrease of $ 49.8 million , or 25.2 % , compared to fiscal 2020. engineered films faced weak economic conditions across a majority of its end-markets throughout the year , resulting in a decline in net sales year-over-year . geomembrane ( including the energy sub-market ) experienced the largest declines as rig counts in the permian basin were down 70 percent throughout a significant portion of the year . net sales in the construction market also declined as there was reduced demand driven by a significant decline in non-residential construction starts versus the prior year . partially offsetting these declines was the delivery of $ 4.8 million of film-based medical supplies associated with a fema contract to aid in the pandemic response . story_separator_special_tag in fiscal 2021 , the ongoing pandemic and resulting economic slowdown significantly impacted demand in the division 's end-markets , with the geomembrane ( including the energy sub-market ) and construction markets , most significantly impacted . rig counts within the permian basin were down over 70 percent year-over-year for most of fiscal 2021 before beginning to recover during the fourth quarter . in addition , delays in large-scale projects due to the pandemic has led to declines in demand within the construction and installation markets . during fiscal year 2022 , the company expects demand to continue to improve in the aforementioned markets that were significantly impacted by the economic slowdown . the company does not model comparative market share position for any of its operating divisions , but based on the sales developments in fiscal 2021 , the company believes that engineered films , in aggregate , has maintained its market share in its core business . 21 sales volume and selling prices . sales to geomembrane ( including the energy sub-market ) and construction markets were down significantly year-over-year . this decline in sales was driven by decreases in rig counts within the permian basin , as well as delays in large-scale projects , reducing sales volumes within the geomembrane , construction and installation markets during fiscal 2021. sales volume , measured in pounds sold , decreased approximately 19 % year-over-year for the twelve-month period ended january 31 , 2021. the decline in demand in certain end-markets , as well as unfavorable product mix , caused selling prices to decline in fiscal 2021 compared to the prior year . gross margin . fiscal 2021 gross margin was 17.4 % , 1.9 percentage points lower than the prior fiscal year . the decrease in gross margin percentage was led by lower operating leverage due to the reduction in sales volume . operating expenses . fiscal 2021 operating expenses , as a percentage of net sales , increased to 6.7 % , from 4.8 % in the prior year . despite ongoing efforts to reduce costs due to the uncertainty of the pandemic , lower sales and focused research and development expenditures to improve quality and production efficiencies to support raven composites drove the increase in operating expenses as a percentage of net sales . in addition , the division increased its allowance for uncollectible accounts , contributing to the increase in operating expenses . aerostar aerostar serves the aerospace and defense and commercial lighter-than-air markets . aerostar 's core products include high-altitude stratospheric platforms , technical services , and radar systems . these products can be integrated with additional third-party sensors to provide research , communications , and situational awareness capabilities to governmental and commercial customers . for the years ended january 31 , ( dollars in thousands ) 2021 % change 2020 net sales $ 53,343 ( 2.0 ) % $ 54,443 gross profit 17,673 ( 20.5 ) % 22,222 gross margin 33.1 % 40.8 % operating expenses $ 13,274 ( 2.6 ) % $ 13,625 operating expenses as % of sales 24.9 % 25.0 % operating income ( a ) $ 4,399 ( 48.8 ) % $ 8,597 operating margin 8.2 % 15.8 % ( a ) at the segment level , operating income does not include an allocation of general and administrative expenses . net sales for fiscal 2021 decreased 2.0 % to $ 53.3 million from last year 's net sales of $ 54.4 million . operating income decreased $ 4.2 million to $ 4.4 million in fiscal 2021 compared to $ 8.6 million in fiscal 2020. fiscal 2021 results compared to fiscal 2020 results were primarily driven by the following factors : market conditions . aerostar 's markets are subject to significant fluctuation in demand due to the timing of contract awards and unpredictability surrounding government spending . while it is particularly challenging to measure market share information for the aerostar division and the company does not model comparative market share position for any of its operating divisions , the company believes that aerostar has maintained its market share during fiscal 2021. sales volume . the decrease in net sales was driven by sales declines in stratospheric platforms and radar products . radar products were impacted by a reduction in the scope of the products and services related to the five-year $ 36 million radar systems contract awarded in fiscal 2019. partially offsetting these declines were an increase in deliveries on the aerostat contract awarded in fiscal 2020. gross margin . for fiscal 2021 , gross margin decreased 7.7 percentage points compared to the prior fiscal year . the decrease in gross margin was driven predominately by an unfavorable sales mix and higher materials and overhead expenses , as well as $ 0.5 million of inventory write downs for radar products . operating expenses . operating expenses as a percentage of net sales decreased 0.1 percentage points compared to the prior year . fiscal 2021 operating expenses were $ 13.3 million , or 24.9 % of net sales , compared to operating expenses of $ 13.6 million , or 25.0 % of net sales in fiscal 2020. the division 's research and development expenses increased as it continues investing in stratospheric systems that are expected to drive long-term growth . this increase was more than offset by a reduction in selling expenditures associated with lower sales volume . 22 corporate expenses ( administrative expenses ; other income ( expense ) , net ; and effective tax rate ) replace_table_token_2_th administrative expenses decreased $ 1.0 million in fiscal 2021 compared to fiscal 2020. increased f ocus on reducing expenditures in response to the pandemic drove down costs , including lower travel expenses due to company-wide travel restrictions and lower consulting and professional services . lower administrative expenses were also attributable to a reduction of project atlas expenditures of $ 0.6 million year-over-year . project atlas related expenses were $ 2.1 million and $ 2.7 million in fiscal 2021 and fiscal 2020 , respectively .
| results of operations net sales $ 348,359 ( 8.9 ) % $ 382,530 gross margin ( a ) 33.8 % 32.3 % operating income $ 19,651 ( 50.8 ) % $ 39,939 operating margin ( a ) 5.6 % 10.4 % net income attributable to raven industries , inc. $ 18,876 ( 46.4 ) % $ 35,196 diluted income per share $ 0.52 ( 46.4 ) % $ 0.97 cash flow and shareholder returns cash flow from operating activities $ 55,472 $ 54,872 cash outflow for capital expenditures 16,147 8,560 cash dividends 9,318 18,650 common share repurchases — 10,781 performance measures return on net sales ( b ) 5.4 % 9.2 % < td colspan= '' 3 ''
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all statements other than statements of historical fact are statements that could be deemed to be forward-looking statements , including any statements regarding trends in future revenue or results of operations , gross margin , operating margin , expenses , earnings or losses from operations , cash flow , synergies or other financial items ; any statements of the plans , strategies and objectives of management for future operations and the anticipated benefits of such plans , strategies and objectives ; any statements regarding future economic conditions or performance ; any statements regarding pending investigations , claims or disputes ; any statements regarding the financial impact of customer bankruptcies ; any statements regarding the timing of closing of , future cash outlays for , and benefits of completed , pending or anticipated acquisitions ; any statements regarding expected restructuring costs ; any statements about the expected results of real property sales ; any statements concerning the adequacy of our current liquidity and the availability of additional sources of liquidity ; any statements of expectation or belief ; and any statements of assumptions underlying any of the foregoing . generally , the words “ anticipate , ” “ believe , ” “ plan , ” “ expect , ” “ future , ” “ intend , ” “ may , ” “ will , ” “ should , ” “ estimate , ” “ predict , ” “ potential , ” “ continue ” and similar expressions identify forward-looking statements . our forward-looking statements are based on current expectations , forecasts and assumptions and are subject to risks and uncertainties , including those contained in part i , item 1a of this report . as a result , actual results could vary materially from those suggested by the forward looking statements . we undertake no obligation to publicly disclose any revisions to these forward-looking statements to reflect events or circumstances occurring subsequent to filing this report with the securities and exchange commission . overview we are a leading global provider of integrated manufacturing solutions , components , products and repair , logistics and after-market services . our revenue is generated from sales of our products and services primarily to original equipment manufacturers ( oems ) in the following industries : communications networks , storage , industrial , defense and aerospace , medical , energy and industries that include embedded computing technologies in products such as set-top boxes , point-of-sales devices , casino gaming machines and automotive components and systems . our operations are managed as two businesses : 1 ) integrated manufacturing solutions ( ims ) . ims is a reportable segment consisting of printed circuit board assembly and test , final system assembly and test , and direct-order-fulfillment . 2 ) components , products and services ( cps ) . components include interconnect systems ( printed circuit board fabrication , backplane and cable assemblies ) and mechanical systems ( enclosures , precision machining and plastic injection molding ) . products include memory , rf , optical and microelectronics solutions from our viking technology division , defense and aerospace products from sci technology , storage solutions from our newisys division and cloud-based manufacturing execution software from our newly-formed division , 42q . services include design , engineering , logistics and repair services . in accordance with the accounting rules for segment reporting , our only reportable segment is ims , which represented approximately 80 % of our total revenue in 2016 . our cps business consists of multiple operating segments which do not meet the quantitative thresholds for being presented as reportable segments . therefore , financial information for these operating segments is presented in a single category entitled “ components , products and services ” . all references in this section to years refer to our fiscal years ending on the last saturday of each year closest to september 30th . fiscal 2016 and 2014 were each 52 weeks and fiscal 2015 was a 53-week year , with the extra week occurring in the fourth fiscal quarter . the additional week in 2015 did not significantly affect our results of operations or financial position . our strategy is to leverage our comprehensive product and service offerings , advanced technologies and global capabilities to further penetrate diverse end markets that we believe offer significant growth opportunities and have complex products that require higher value-added services . we believe this strategy differentiates us from our competitors and will help drive more sustainable revenue growth and provide opportunities for us to ultimately achieve operating margins that exceed industry standards . there are many challenges to successfully executing our strategy . for example , we compete with a number of companies in each of our key end markets . these include companies that are much larger than we are and smaller companies 34 that focus on a particular niche . although we believe we are well-positioned in each of our key end markets and seek to differentiate ourselves from our competitors , competition remains intense and profitably growing our revenues , particularly in our cps business , has been challenging . for example , cps revenue and gross margins have decreased in each of the past two years , illustrating the challenges to our strategy . we believe this business is capable of delivering much better results . we continue to address these challenges on both a short-term and long-term basis . a small number of customers have historically generated a significant portion of our net sales . sales to our ten largest customers typically represent approximately 50 % of our net sales . a single customer represented more than 10 % of our net sales in 2016 , but no single customer represented more than 10 % of our net sales in 2015 or 2014. we typically generate about 80 % of our net sales from products manufactured in our foreign operations . story_separator_special_tag our practice is to dispose of excess and obsolete inventory for which a customer is not contractually liable as soon as practicable after such inventory has been identified as having no value to us . 36 long-lived assets —we review property , plant and equipment and intangible assets subject to amortization for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable . an asset or asset group is considered impaired if its carrying amount exceeds the undiscounted future net cash flows the asset or asset group is expected to generate . if an asset or asset group is considered impaired , the impairment to be recognized is measured by the amount by which the carrying amount of the asset or asset group exceeds its fair value . an asset group is the unit of accounting that represents the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets . for asset groups for which a building is the primary asset , we estimate fair value primarily based on data provided by commercial real estate brokers . for other assets , we estimate fair value based on projected discounted future net cash flows , which requires significant judgment . goodwill— is tested for impairment on an annual basis and whenever events or changes in circumstances indicate that the carrying amount of goodwill may not be recoverable , as assessed at a reporting unit level . if , based on a qualitative assessment , we determine it is more-likely-than-not that goodwill is impaired , we perform a quantitative assessment to determine whether the fair value of our reporting unit is less than its carrying value and , if so , we perform a further analysis to determine the amount , if any , of the impairment . income taxes— we estimate our income tax provision or benefit in each of the jurisdictions in which we operate , including estimating exposures related to examinations by taxing authorities . we believe our accruals for tax liabilities are adequate for all open years based on our assessment of many factors including past experience and interpretations of tax law applied to the facts of each matter . although we believe our accruals for tax liabilities are adequate , tax regulations are subject to interpretation and the tax controversy process is inherently lengthy and uncertain ; therefore , our assessments can involve a series of complex judgments about future events and rely heavily on estimates and assumptions . to the extent the probable tax outcome of these matters changes , such changes in estimate will impact our income tax provision in the period in which such determination is made . we only recognize or continue to recognize tax positions that meet a “ more likely than not ” threshold of being upheld . interest and penalties related to unrecognized tax benefits are recognized as a component of income tax expense . we must also make judgments regarding the realizability of deferred tax assets . the carrying value of our net deferred tax assets is based on our belief that it is more likely than not that we will generate sufficient future taxable income in certain jurisdictions to realize these deferred tax assets . we evaluate positive and negative evidence each reporting period when assessing the need for a valuation allowance . a valuation allowance is established for deferred tax assets when we believe realization of such assets is not more likely than not . our judgments regarding future taxable income may change due to changes in market conditions , new or modified tax laws , tax planning strategies or other factors . if our assumptions , and consequently our estimates , change in the future , the valuation allowances we have established may be increased or decreased , resulting in a respective increase or decrease in income tax expense . as a result of our analysis of the positive and negative evidence available at the end of 2016 , 2015 and 2014 , we released $ 96.2 million , $ 288.7 million and $ 87.6 million , respectively , of our valuation allowances against our u.s. and foreign deferred tax assets . we based this conclusion on continued improved operating results over the past few years and our expectations about generating taxable income in future periods . we exercised significant judgment and utilized estimates about our ability to generate revenue , gross profit , operating income and jurisdictional taxable income in future periods before expiration of our net operating losses . we will continue to evaluate all positive and negative evidence in future periods to determine if an adjustment to our valuation allowances is necessary . however , as of october 1 , 2016 , we no longer have a valuation allowance against our u.s. federal deferred tax assets . our effective tax rate is highly dependent upon the amount and geographic distribution of our worldwide income or losses , the tax regulations , rates and holidays in each geographic region , the utilization of net operating losses , the availability of tax credits and carryforwards , and the effectiveness of our tax planning strategies . 37 story_separator_special_tag research and development expenses were 0.6 % for 2016 and 0.5 % for 2015 and 2014. the increase in absolute dollars from 2015 to 2016 was primarily attributable to additional resources required to support new products and projects in our embedded computing and storage end market . research and development expenses remained relatively flat in 2015 , when compared to 2014. interest and other , net interest expense was $ 24.9 million , $ 25.0 million and $ 30.8 million in 2016 , 2015 and 2014 , respectively . interest expense remained relatively flat in 2016 , when compared to 2015 .
| results of operations years ended october 1 , 2016 , october 3 , 2015 and september 27 , 2014 . the following table presents our key operating results . replace_table_token_7_th net sales net sales increased from $ 6.4 billion for 2015 to $ 6.5 billion for 2016 , an increase of 1.7 % . net sales increased from $ 6.2 billion for 2014 to $ 6.4 billion for 2015 , an increase of 2.6 % . sales by end market were as follows : replace_table_token_8_th comparison of 2016 to 2015 in 2016 , sales to customers in our industrial , medical and defense end market increased 9.7 % , primarily as a result of customer program acquisitions partially offset by reduced demand from customers in the oil and gas industry as a result of depressed market conditions in this industry . this increase was partially offset by decreased sales in each of our other two end markets . sales to customers in our communications networks end market decreased 2.8 % , primarily as a result of reduced demand from certain customer programs for wireless communications products , partially offset by increased demand for our customers ' optical products . sales to customers in our embedded computing and storage end market decreased 5.2 % , primarily due to decreased demand for set-top boxes and our customers ' point-of-sale equipment . our industrial , medical and defense end market has grown to exceed our communications networks end market over the past two years as we continue to diversify our customer base . comparison of 2015 to 2014 in 2015 , sales to customers in our industrial , medical and defense end market increased 17.1 % , primarily as a result of customer program acquisitions and increased demand from existing customers for new program wins . this increase was partially offset by decreased sales in each of our other two end markets , the most significant of which occurred in our communications networks end market .
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the following table presents the changes in fair value of our level 3 assets and liabilities ( all related to commodity price swap contracts ) for the year ended december 31 , 2012 : level 3 financial instruments year ended december 31 , 2012 ( in thousands ) asset balance at beginning story_separator_special_tag this item 7 contains “ forward-looking ” statements . see “ forward-looking statements ” at the beginning of this annual report on form 10-k. in this document , the words “ we , ” “ our , ” “ ours ” and “ us ” refer only to hollyfrontier and its consolidated subsidiaries or to hollyfrontier or an individual subsidiary and not to any other person with certain exceptions . generally , the words “ we , ” “ our , ” “ ours ” and “ us ” include hep and its subsidiaries as consolidated subsidiaries of hollyfrontier , unless when used in disclosures of transactions or obligations between hep and hollyfrontier or its other subsidiaries . this document contains certain disclosures of agreements that are specific to hep and its consolidated subsidiaries and do not necessarily represent obligations of hollyfrontier . when used in descriptions of agreements and transactions , “ hep ” refers to hep and its consolidated subsidiaries . we merged with frontier on july 1 , 2011. accordingly , this document includes frontier , its consolidated subsidiaries and the operations of the merged frontier businesses effective july 1 , 2011 , but not prior to this date . overview we are principally an independent petroleum refiner that produces high-value refined products such as gasoline , diesel fuel , jet fuel , specialty lubricant products , and specialty and modified asphalt . we own and operate refineries having a combined crude oil processing capacity of 443,000 barrels per day that serve markets throughout the mid-continent , southwest and rocky mountain regions of the united states . our refineries are located in el dorado , kansas ( the el dorado refinery ) , tulsa , oklahoma ( the tulsa refineries ) , which comprise two production facilities , the tulsa west and east facilities , a petroleum refinery in artesia , new mexico , which operates in conjunction with crude , vacuum distillation and other facilities situated 65 miles away in lovington , new mexico ( the navajo refinery ) , cheyenne , wyoming ( the cheyenne refinery ) and woods cross , utah ( the woods cross refinery ) . our discussion of financial and operating results for the years ended december 31 , 2012 , 2011 and 2010 is presented in the following section . 35 table of content results of operations financial data replace_table_token_13_th ( 1 ) our consolidated financial and operating results reflect the operations of the merged frontier businesses beginning july 1 , 2011. assuming the merger had been consummated on january 1 , 2010 , pro forma revenues and net income for the years ended december 31 , 2011 and 2010 are as follows : years ended december 31 , 2011 2010 ( in thousands ) sales and other revenues $ 19,418,709 $ 14,207,835 net income attributable to hollyfrontier stockholders $ 1,335,257 $ 179,979 other financial data replace_table_token_14_th 36 table of content ( 1 ) earnings before interest , taxes , depreciation and amortization , which we refer to as “ ebitda , ” is calculated as net income plus ( i ) interest expense , net of interest income , ( ii ) income tax provision , and ( iii ) depreciation and amortization . ebitda is not a calculation provided for under gaap ; however , the amounts included in the ebitda calculation are derived from amounts included in our consolidated financial statements . ebitda should not be considered as an alternative to net income or operating income as an indication of our operating performance or as an alternative to operating cash flow as a measure of liquidity . ebitda is not necessarily comparable to similarly titled measures of other companies . ebitda is presented here because it is a widely used financial indicator used by investors and analysts to measure performance . ebitda is also used by our management for internal analysis and as a basis for financial covenants . ebitda presented above is reconciled to net income under “ reconciliations to amounts reported under generally accepted accounting principles ” following item 7a of part ii of this form 10-k. our operations are organized into two reportable segments , refining and hep . see note 21 “ segment information ” in the notes to consolidated financial statements for additional information on our reportable segments . refining operating data our refinery operations include the el dorado , tulsa , navajo , cheyenne and woods cross refineries . the following tables set forth information , including non-gaap performance measures about our consolidated refinery operations . the cost of products and refinery gross and net operating margins do not include the effect of depreciation and amortization . reconciliations to amounts reported under gaap are provided under “ reconciliations to amounts reported under generally accepted accounting principles ” following item 7a of part ii of this form 10-k. replace_table_token_15_th ( 1 ) crude charge represents the barrels per day of crude oil processed at our refineries . ( 2 ) refinery throughput represents the barrels per day of crude and other refinery feedstocks input to the crude units and other conversion units at our refineries . ( 3 ) refinery production represents the barrels per day of refined products yielded from processing crude and other refinery feedstocks through the crude units and other conversion units at our refineries . ( 4 ) includes refined products purchased for resale . ( 5 ) represents crude charge divided by total crude capacity ( bpsd ) . effective july 1 , 2011 , our consolidated crude capacity increased from 256,000 bpsd to 443,000 bpsd as a result of our merger with frontier . ( 6 ) represents average per barrel amount for produced refined products sold , which is a non-gaap measure . story_separator_special_tag 39 table of content operating expenses operating expenses , exclusive of depreciation and amortization increased 48 % from $ 504.4 million for the year ended december 31 , 2010 to $ 748.1 million for the year ended december 31 , 2011 , due principally to costs attributable to the el dorado and cheyenne refinery operations . also contributing to a much lesser extent were increased payroll and maintenance costs attributable to the legacy holly refining operations . for the years ended december 31 , 2011 and 2010 , operating expenses include $ 61.1 million and $ 52.7 million , respectively , in costs attributable to hep operations . general and administrative expenses general and administrative expenses increased 70 % from $ 70.8 million for the year ended december 31 , 2010 to $ 120.1 million for the year ended december 31 , 2011 . this includes $ 26.5 million in integration and severance costs associated with the merger integration . it also reflects higher payroll , equity based compensation costs and support costs for our larger organization . for the years ended december 31 , 2011 and 2010 , general and administrative expenses include $ 4.3 million and $ 5.4 million , respectively , in costs attributable to hep operations . depreciation and amortization expenses depreciation and amortization increased 36 % from $ 117.5 million for the year ended december 31 , 2010 to $ 159.7 million for the year ended december 31 , 2011 . the increase was due principally to depreciation and amortization attributable to the el dorado and cheyenne refinery operations and capitalized improvement projects . for the years ended december 31 , 2011 and 2010 , depreciation and amortization expenses include $ 33.3 million and $ 28.9 million , respectively , in costs attributable to hep operations . interest income interest income for the year ended december 31 , 2011 was $ 1.3 million compared to $ 1.2 million for the year ended december 31 , 2010 . for the year ended december 31 , 2011 , interest income reflects higher cash investment levels in 2011. additionally , interest income for the year ended december 31 , 2010 reflects interest received on income tax refunds . interest expense interest expense was $ 78.3 million for the year ended december 31 , 2011 compared to $ 74.2 million for the year ended december 31 , 2010 . this increase reflects the write-off of $ 5.0 million of previously deferred financing costs due to the july 1 , 2011 termination of our previous credit agreement and the inclusion of interest attributable to the senior notes assumed upon our merger with frontier . additionally , during 2011 we capitalized $ 17.2 million in interest attributable to construction projects . for the years ended december 31 , 2011 and 2010 , interest expense included $ 38.2 million and $ 36.2 million , respectively , in costs attributable to hep operations . merger transaction costs for the year ended december 31 , 2011 , we recognized merger transaction costs of $ 15.1 million related to our merger with frontier on july 1 , 2011. these costs relate to legal , advisory and other professional fees that are directly attributable to the merger . income taxes income taxes increased from $ 59.3 million for the year ended december 31 , 2010 to $ 582.0 million for the year ended december 31 , 2011 due to significantly higher pre-tax earnings for the year ended december 31 , 2011 compared to 2010 . our effective tax rate , before consideration of earnings attributable to noncontrolling interests was 35.5 % for the year ended december 31 , 2011 compared to 30.8 % for the year ended december 31 , 2010 . our effective tax rate for gaap disclosure purposes reflects the inclusion of non-taxable earnings attributable to noncontrolling interest holders in the denominator of our effective tax rate computation . liquidity and capital resources hollyfrontier credit agreement we have a $ 1 billion senior secured credit agreement ( the “ hollyfrontier credit agreement ” ) with union bank , n.a . as administrative agent and certain lenders from time to time party thereto . the hollyfrontier credit agreement matures in july 2016 and may be used to fund working capital requirements , capital expenditures , acquisitions and general corporate purposes . obligations under the hollyfrontier credit agreement are collateralized by our inventory , accounts receivables and certain deposit accounts and guaranteed by our material , wholly-owned subsidiaries . at december 31 , 2012 , we were in compliance with all covenants , had no outstanding borrowings and had outstanding letters of credit totaling $ 29.2 million under the hollyfrontier credit agreement . 40 table of content hep credit agreement hep has a $ 550 million senior secured revolving credit facility that matures in june 2017 ( the “ hep credit agreement ” ) and is available to fund capital expenditures , investments , acquisitions , distribution payments and working capital and for general partnership purposes . it is also available to fund letters of credit up to a $ 50 million sub-limit and to fund distributions to unitholders up to a $ 60 million sub-limit . at december 31 , 2012 , hep was in compliance with all of its covenants , had outstanding borrowings of $ 421.0 million and no outstanding letters of credit under the hep credit agreement . hep 's obligations under the hep credit agreement are collateralized by substantially all of hep 's assets ( presented parenthetically in our consolidated balance sheets ) . indebtedness under the hep credit agreement involves recourse to hep logistics holdings , l.p. , its general partner , and is guaranteed by hep 's wholly-owned subsidiaries . any recourse to the general partner would be limited to the extent of hep logistics holdings , l.p. 's assets , which other than its investment in hep , are not significant . hep 's creditors have no other recourse to our assets . furthermore , our creditors have no recourse to the assets of hep and its consolidated subsidiaries .
| summary net income attributable to hollyfrontier stockholders for the year ended december 31 , 2012 was $ 1,727.2 million ( $ 8.41 per basic and $ 8.38 per diluted share ) , a $ 703.8 million increase compared to $ 1,023.4 million ( $ 6.46 per basic and $ 6.42 per diluted share ) for the year ended december 31 , 2011 . net income increased due principally to greater operating scale following our july 1 , 2011 merger and higher refining margins in the current year . refinery gross margins for the year ended december 31 , 2012 increased to $ 24.89 per produced barrel compared to $ 20.64 for the year ended december 31 , 2011 . sales and other revenues sales and other revenues increased 30 % from $ 15,439.5 million for the year ended december 31 , 2011 to $ 20,090.7 million for the year ended december 31 , 2012 , due principally to the inclusion of sales volumes and related revenues attributable to the el dorado and cheyenne refineries for a full year period and higher sales volumes of refined products produced from the legacy holly refineries . additionally , the average sales price we received per produced barrel sold increased 1 % from $ 118.82 for the year ended december 31 , 2011 to $ 119.48 for the year ended december 31 , 2012 . sales and other revenues for the years ended december 31 , 2012 and 2011 include $ 47.6 million and $ 46.4 million , respectively , in hep revenues attributable to pipeline and transportation services provided to unaffiliated parties .
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special mention ( grade 5 ) : assets have potential weaknesses that deserve management 's close attention . if left uncorrected , these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the company 's credit position at some future date . special mention assets are not adversely classified and do not expose the company to sufficient risk to warrant adverse classification . ordinarily , special mention credits have characteristics which corrective management action would remedy . substandard ( grade 6 ) : loans are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged , if any . loans so classified must have a well-defined weakness or weaknesses that jeopardized the liquidation of the debt . they are characterized by the distinct possibility that the company will sustain some loss if the deficiencies are not corrected . doubtful ( grade 7 ) : loans classified as doubtful have all the weaknesses inherent in those classified substandard with the added characteristic that the weaknesses make collection or liquidation in full , on the basis of current known facts , conditions and values , highly questionable and improbable . loss ( grade 8 ) : loans are considered uncollectable and of such little value that continuing to carry them as assets on the company 's financial statement is not feasible . loans will be classified loss when it is neither practical nor desirable to defer writing off or reserving all or a portion of a basically worthless asset , even though story_separator_special_tag sb financial group , inc. ( “ sb financial ” or the “ company ” ) , is a bank holding company registered with the federal reserve board under the bank holding company act of 1956 , as amended . through its direct and indirect subsidiaries , sb financial is engaged in commercial and retail banking , trust and private client financial services and computerized item and statement processing . the following discussion provides a review of the consolidated financial condition and results of operations of sb financial and its subsidiaries ( collectively , the “ company ” ) . this discussion should be read in conjunction with the company 's consolidated financial statements and related footnotes as of and for the years ended december 31 , 2016 and 2015. strategic discussion the focus and strategic goal of the company is to grow into and remain a top decile ( > 90 th percentile ) independent financial services company . we intend to achieve and maintain that goal by executing our five key initiatives . increase profitability through ongoing diversification of revenue streams : for the twelve months ended december 31 , 2016 , the company generated $ 17.9 million in revenue from “ fee based ” products , or 40.9 percent of total operating revenue . these revenue sources include fees generated from saleable residential mortgage loans , retail deposit products , wealth management division , saleable business-based loans ( small business and farm service ) and fees generated by our wholly-owned item processing subsidiary . strengthen our penetration in all markets served : over our 114-year history of continuous operation in northwest ohio , we have established a significant presence in our traditional markets in defiance , fulton , paulding and williams counties in ohio . in our newer markets of columbus , findlay , toledo ( ohio ) and ft. wayne ( indiana ) , our current market penetration is minimal but we believe our potential for growth is significant . during 2015 , we expanded our presence into columbus ( dublin ) , ohio and findlay , ohio with new banking center openings . expand product utilization by new and existing customers : as of december 31 , 2016 , we served 27,368 households and provided 80,573 products and services to these households . our strategy is to continue to expand the scope of our relationship with each household via our dynamic “ on-boarding ” process . proactively identifying client needs is a key ingredient of our value proposition . deliver gains in operational excellence : our management team believes that becoming and remaining a high-performance financial services company will depend upon seamlessly and consistently delivering operational excellence , as demonstrated by the company 's leadership in the origination and servicing of residential mortgage loans . as of december 31 , 2016 , the company serviced 6,414 loans with a principal balance of $ 899.7 million . sustain asset quality : as of december 31 , 2016 , the company was ranked in the top quartile of our peer group in asset quality metrics . specifically , total non-performing assets were $ 5.3 million , or 0.65 percent of total assets . total delinquent loans at december 31 , 2016 were 0.34 percent of total loans . 29 critical accounting policies the accounting and reporting policies of sb financial are in accordance with generally accepted accounting principles in the united states and conform to general practices within the banking industry . the company 's significant accounting policies are described in detail in the notes to the company 's consolidated financial statements for the years ended december 31 , 2016 and 2015. the preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions . the company 's financial position and results of operations can be affected by these estimates and assumptions and are integral to the understanding of reported results . critical accounting policies are those policies that management believes are the most important to the portrayal of the company 's financial condition and results , and they require management to make estimates that are difficult , subjective or complex . allowance for loan losses : the allowance for loan losses provides coverage for probable losses inherent in the company 's loan portfolio . story_separator_special_tag management evaluates the adequacy of the allowance for loan losses each quarter based on changes , if any , in the nature and amount of problem assets and associated collateral , underwriting activities , loan portfolio composition ( including product mix and geographic , industry or customer-specific concentrations ) , trends in loan performance , regulatory guidance and economic factors . this evaluation is inherently subjective , as it requires the use of significant management estimates . many factors can affect management 's estimates of specific and expected losses , including volatility of default probabilities , rating migrations , loss severity and economic and political conditions . the allowance is increased through provisions charged to operating earnings and reduced by net charge-offs . the company determines the amount of the allowance based on relative risk characteristics of the loan portfolio . the allowance recorded for commercial loans is based on reviews of individual credit relationships and an analysis of the migration of commercial loans and actual loss experience . the allowance recorded for homogeneous consumer loans is based on an analysis of loan mix , risk characteristics of the portfolio , fraud loss and bankruptcy experiences , and historical losses , adjusted for current trends , for each homogeneous category or group of loans . the allowance for credit losses relating to impaired loans is based on each impaired loan 's observable market price , the collateral for certain collateral-dependent loans , or the discounted cash flows using the loan 's effective interest rate . regardless of the extent of the company 's analysis of customer performance , portfolio trends or risk management processes , certain inherent , but undetected , losses are probable within the loan portfolio . this is due to several factors including inherent delays in obtaining information regarding a customer 's financial condition or changes in their unique business conditions , the subjective nature of individual loan valuations , collateral assessments and the interpretation of economic trends . volatility of economic or customer-specific conditions affecting the identification and estimation of losses for larger non-homogeneous credits and the sensitivity of assumptions utilized to establish allowances for homogenous groups of loans are also factors . the company estimates a range of inherent losses related to the existence of these exposures . the estimates are based upon the company 's evaluation of imprecise risk associated with the commercial and consumer allowance levels and the estimated impact of the current economic environment . goodwill and other intangibles : the company records all assets and liabilities acquired in purchase acquisitions , including goodwill and other intangibles , at fair value as required . goodwill is subject , at a minimum , to annual tests for impairment . other intangible assets are amortized over their estimated useful lives using straight-line and accelerated methods , and are subject to impairment if events or circumstances indicate a possible inability to realize the carrying amount . the initial goodwill and other intangibles recorded and subsequent impairment analysis requires management to make subjective judgments concerning estimates of how the acquired asset will perform in the future . events and factors that may significantly affect the estimates include , among others , customer attrition , changes in revenue growth trends , specific industry conditions and changes in competition . 30 earnings summary net income for 2016 was $ 8.8 million , and net income available to common shareholders was $ 7.8 million or $ 1.38 per diluted share , compared with net income of $ 7.6 million and net income available to common of $ 6.7 million , or $ 1.19 per diluted share , for 2015. state bank reported net income for 2016 of $ 9.7 million , which was up from the $ 8.4 million in net income in 2015. rdsi reported a net loss for 2016 of $ 77 thousand , compared to a net loss of $ 3 thousand reported for 2015. positive results for 2016 included loan growth of $ 86.8 million , and deposit growth of $ 86.6 million . the mortgage banking business line continues to grow , with residential real estate loan production of $ 382.8 million for the year , resulting in $ 8.2 million of revenue from gains on sale . the level of mortgage origination was up from the $ 322.7 million in 2015. the company 's loans serviced for others ended the year at $ 899.7 million , up from $ 772.5 million at december 31 , 2015. operating revenue was up compared to the prior year by $ 4.6 million , or 12.0 percent , due to higher mortgage volume , sba gains and $ 82.9 million in balance sheet loan growth . net interest margin for 2016 was 3.75 percent , down 3 basis point from 2015. operating expense was up compared to the prior year by $ 3.2 million , or 11.8 percent , due to higher mortgage volumes , fringe benefit cost increases and higher staffing levels . net charge-offs for 2016 of $ 15 thousand resulted in a loan loss provision of $ 0.8 million , which was down from the $ 0.9 million and $ 1.1 million respectively in 2015. changes in financial condition total assets at december 31 , 2016 , were $ 816.0 million , compared to $ 733.1 million at december 31 , 2015. loans ( excluding loans held for sale ) were $ 644.4 million at december 31 , 2016 , compared to $ 557.7 million at december 31 , 2015. total deposits were $ 673.1 million at december 31 , 2016 , compared to $ 586.4 million at december 31 , 2015. total equity was $ 86.5 million at december 31 , 2016 , up from $ 81.2 million at december 31 , 2015. the $ 5.3 million increase in equity , which reflected a 6.5 percent increase over 2015 , was a result of net income less common and preferred dividends of $
| results of operations replace_table_token_20_th net interest income year ended december 31 , ( $ in thousands ) 2016 2015 % change net interest income $ 25,853 $ 23,343 10.8 % net interest income was $ 25.9 million for 2016 compared to $ 23.3 million for 2015 , an increase of $ 2.5 million or 10.8 percent . average earning assets increased to $ 698.5 million in 2016 , compared to $ 628.0 million in 2015 , an increase of $ 70.5 million or 11.2 percent due to loan volume . the consolidated 2016 full-year net interest margin decreased 3 basis points to 3.75 percent compared to 3.78 percent for the full year of 2015 . 31 provision for loan losses of $ 0.75 million was taken in 2016 compared to $ 1.1 million taken for 2015. the $ 0.35 million decrease was due to the lower level of charge-offs and the improvement in the company 's non-performing asset levels . for 2016 , net charge-offs totaled $ 15 thousand , or essentially 0.00 percent of average loans . this charge-off level was higher than 2015 , in which net charge-offs were $ 0.9 million or 0.17 percent of average loans . replace_table_token_21_th total non-interest income was $ 17.9 million for 2016 compared to $ 15.7 million for 2015 , representing a $ 2.2 million , or 13.9 percent increase year-over-year . this increase was driven by a 30 percent increase in gains on sale of residential real estate loans and gains on securities sales and higher commercial fee income . the company sold $ 337.4 million of originated mortgages into the secondary market , which allowed our serviced loan portfolio to grow to $ 899.7 million at december 31 , 2016 from $ 772.5 million at december 31 , 2015. higher amortization of the servicing rights led to the 21 percent decline in mortgage loan serving income .
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results of operations , contains forward-looking statements that are based upon current expectations . these forward-looking statements fall within the meaning of the federal securities laws that relate to future events or our future financial performance . in some cases , you can identify forward-looking statements by terminology such as “ may , ” “ will , ” “ expect , ” “ plan , ” “ anticipate , ” “ believe , ” “ estimate , ” “ intend , ” “ potential ” or “ continue ” or the negative of these terms or other comparable terminology . forward-looking statements involve risks and uncertainties . our actual results and the timing of events could differ materially from those anticipated in our forward-looking statements as a result of many factors , including product performance , a lack of acceptance in the marketplace by physicians and customers , insufficient customer demand , the inability to manufacture products in commercial quantities at an acceptable cost , possible delays in our research and development programs , the inability of customers to receive reimbursements from third-party payors , the impact of competitive products and pricing , our ability to obtain regulatory approvals and introduce new products , other uncertainties related to regulatory processes , our ability to respond to changing laws and regulations affecting our industry and changing enforcement practices related thereto , inadequate financial and other resources , global economic and political conditions , and the other risks set forth below under “ risk factors ” and elsewhere in this report . we assume no obligation to update any of the forward-looking statements after the date of this report or to conform these forward-looking statements to actual results . overview we are a medical device company focused on the design , development and commercialization of continuous glucose monitoring systems for ambulatory use by people with diabetes and for use by healthcare providers in the hospital for the treatment of people with and without diabetes . the majority of our product revenue comes from sales of our g4 platinum ambulatory continuous glucose monitoring system , which we began commercializing in the fourth quarter of 2012. we also have received ce mark approval for the glucoclear in-hospital system , and in partnership with edwards , we initiated a very limited launch of the first generation glucoclear system in europe in 2009 and edwards initiated another limited launch in europe of the second generation glucoclear system in 2013. from inception to 2006 , we devoted substantially all of our resources to start-up activities , raising capital and research and development , including product design , testing , manufacturing and clinical trials . since 2006 , we have devoted considerable resources to the commercialization of our ambulatory continuous glucose monitoring systems , including the seven plus and g4 platinum , as well as the continued research and clinical development of our technology platform . as of december 31 , 2014 , we generated $ 690.3 million of product and development grant and other ( non-product ) revenue , and we have incurred net losses in each year since our inception in may 1999. as of december 31 , 2014 , we had an accumulated deficit of $ 497.8 million . we expect our losses to continue as we proceed with our commercialization and research and development activities . we have financed our operations primarily through offerings of equity securities and debt , and the sales of our products . in november 2012 , we entered into a loan and security agreement that provides for up to $ 35.0 million in credit facilities and term loans , with $ 15.0 million currently available . in july 2013 , we were awarded a $ 4.0 million grant from the helmsley trust to accelerate the development of the sixth generation of our advanced glucose-sensing technologies . financial operations revenue we sell our durable systems and disposable units through a direct sales force in the united states and through distribution arrangements in the united states , canada , australia , new zealand , and in portions of europe , asia , the middle east and latin america . we have contracts with certain distributors who stock our products who we refer to as stocking distributors , whereby the distributors fulfill orders for our product from their inventory . we also have contracts with certain distributors that do not stock our products , but rather products are shipped directly to the customer by us on behalf of our distributor and we refer to these distributors as drop-ship distributors . we expect that revenues we generate from the sales of our products will fluctuate from quarter to quarter . between 2008 and 2012 , we entered into joint development and collaboration agreements with animas and tandem , as well as other third parties under agreements that have since expired or been terminated , under which we recognized development grant and other revenue received pursuant to each agreement ratably over the term of the development period . we recognize development milestones associated with each agreement as revenue upon achievement of each milestone if the milestone is considered substantive . 43 cost of sales product cost of sales includes direct labor and materials costs related to each product sold or produced , including assembly , test labor and scrap , as well as factory overhead supporting our manufacturing operations . factory overhead includes facilities , material procurement and control , manufacturing engineering , quality assurance , supervision and management . these costs are primarily salary , fringe benefits , share-based compensation , facility expense , supplies and purchased services . a portion of our costs are currently fixed due to our moderate level of production volumes compared to our potential capacity . all of our manufacturing costs are included in product cost of sales . development and other cost of sales consists primarily of salaries , fringe benefits , facility expense , and supplies directly attributable to our development or service contracts . story_separator_special_tag net cash used in operating activities decreased $ 35.5 million to $ 2.4 million provided for the twelve months ended december 31 , 2013 , compared to $ 33.1 million used for the same period in 2012. the decrease in cash used in operations was primarily due to $ 24.7 million in lower net loss , and $ 8.4 million in higher non-cash charges primarily comprised of share-based compensation , partially offset by a one-time non-cash tax benefit of $ 1.3 million for the twelve months ended december 31 , 2012. net cash used in/provided by investing activities . net cash used in investing activities was $ 16.8 million for the twelve months ended december 31 , 2014 , compared to $ 20.9 million net cash provided by investing activities for the twelve months ended december 31 , 2013 . the change in cash used in investing activities was primarily due to a $ 31.9 million decrease in proceeds from the maturity of short-term marketable securities and by the use of $ 16.2 million to purchase equipment to support manufacturing improvements and information technology infrastructure for the twelve months ended december 31 , 2014 , compared to $ 7.9 million for the twelve months ended december 31 , 2013 , partially offset by a $ 2.5 million decrease in cash used to purchase short-term marketable securities . net cash provided by investing activities decreased $ 7.5 million to $ 20.9 million for the twelve months ended december 31 , 2013 , compared to $ 28.4 million for the same period of 2012. the decrease in cash provided by investing activities was due to a $ 59.2 million decrease in proceeds from the maturity of short-term marketable securities , offset by a $ 50.1 million decrease in cash used to purchase short-term marketable securities . for the twelve months ended december 31 , 2014 , 2013 and 2012 , we invested $ 16.2 million , $ 7.9 million and $ 9.5 million , respectively , to purchase equipment to support manufacturing improvements and information technology infrastructure . net cash provided by financing activities . net cash provided by financing activities increased $ 10.0 million to $ 21.8 million for the twelve months ended december 31 , 2014 , compared to $ 11.8 million for the twelve months ended december 31 , 2013 . the increase was due to a $ 12.0 million increase in proceeds from the issuance of common stock pursuant to the exercise of then-outstanding stock options for the twelve months ended december 31 , 2014 compared to the twelve months ended december 31 , 2013 , partially offset by the repayment of long-term debt of $ 2.2 million for the twelve months ended december 31 , 2014 . net cash provided by financing activities increased $ 1.6 million to $ 11.8 million for the twelve months ended december 31 , 2013 , compared to $ 10.2 million for the same period of 2012. the increase was due to increased proceeds from 46 the issuance of common stock pursuant to the exercise of then-outstanding stock options for the twelve months ended december 31 , 2013 compared to the same period of 2012. operating capital and capital expenditure requirements we anticipate that we will continue to incur net losses as we incur expenses and expand the commercialization of our approved products , develop additional continuous glucose monitoring products , and expand our marketing , manufacturing and corporate infrastructure . we believe that our cash , cash equivalents , short-term marketable securities balances , and projected cash contributions from our commercial operations and existing partnership arrangements will be sufficient to meet our anticipated cash requirements with respect to the continued scale-up of our commercialization activities , research and development activities , including clinical trials , the expansion of our marketing , manufacturing and corporate infrastructure , and to meet our other anticipated cash needs through at least december 31 , 2015 . if our available cash , cash equivalents and short-term marketable securities are insufficient to satisfy our liquidity requirements , or if we develop additional products or new markets for our existing products , we may seek to sell additional equity or debt securities or obtain an additional credit facility . the sale of additional equity and debt securities may result in additional dilution to our stockholders . if we raise additional funds through the issuance of debt securities or preferred stock , these securities could have rights senior to those of our common stock and could contain covenants that would restrict our operations . we may require additional capital beyond our currently forecasted amounts . any such required additional capital may not be available on reasonable terms , if at all . additionally , we can not guaranty that we will be successful in obtaining additional cash contributions from future partnership arrangements . our ability to transition to , and maintain profitable operations is dependent upon achieving a level of revenues adequate to support our cost structure . if events or circumstances occur such that we do not meet our operating plan as expected , or if we are unable to obtain additional financing , we may be required to reduce planned increases in compensation related expenses or other operating expenses related to research , development , and commercialization activities , which could have an adverse impact on our ability to achieve our intended business objectives . because of the numerous risks and uncertainties associated with the development of continuous glucose monitoring technologies , we are unable to estimate the exact amounts of capital outlays and operating expenditures associated with our current and anticipated clinical trials .
| results of operations fiscal year ended december 31 , 2014 compared to december 31 , 2013 revenue , cost of sales and gross profit product revenue increased $ 100.0 million to $ 257.1 million for the twelve months ended december 31 , 2014 , compared to $ 157.1 million for the twelve months ended december 31 , 2013 based primarily on increased sales volume of our durable systems and disposable sensors , due to the continued growth of our installed base of customers using our g4 platinum system . product cost of sales increased $ 24.2 million to $ 82.3 million for the twelve months ended december 31 , 2014 compared to $ 58.1 million for the twelve months ended december 31 , 2013 primarily due to increased sales volume . the product gross profit of $ 174.8 million for the twelve months ended december 31 , 2014 increased $ 75.8 million compared to $ 99.0 million for the same period in 2013 , primarily due to increased revenue and the greater sales mix of our higher margin g4 platinum system compared to our seven plus system . revenue from products shipped to our drop-ship distributors ' customers was $ 31.8 million , or 12 % , of our total revenues for the twelve months ended december 31 , 2014 , compared to $ 23.4 million , or 15 % , of our total revenues for the twelve months ended december 31 , 2013 . revenue from the shipment of products to stocking distributors was $ 143.2 million , or 55 % , of our total revenues for the twelve months ended december 31 , 2014 , compared to $ 70.5 million , or 44 % , of our total revenues for the twelve months ended december 31 , 2013 .
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our actual results could differ materially from those anticipated by this forward-looking information due to the factors discussed under “ risk factors , ” “ cautionary statement concerning forward-looking statements , ” and elsewhere in this form 10-k. this section of this form 10-k does not address certain items regarding the fiscal year ended december 30 , 2017 ( “ fiscal 2017 ” ) . discussion and analysis of fiscal 2017 and year-to-year comparisons between fiscal 2018 and fiscal 2017 not included in this form 10-k can be found in “ item 7. management 's discussion and analysis of financial condition and results of operations ” of our annual report on form 10-k for the fiscal year ended december 29 , 2018. executive level overview company background bluelinx is a leading distributor of building and industrial products in the u.s. with a combination of market position and geographic coverage , the buying power of centralized procurement , and the strength of a locally-focused sales force and service-driven logistics and operations team , bluelinx is able to provide a wide range of value-added services and solutions to our customers and suppliers . we are headquartered in georgia , with executive offices located at 1950 spectrum circle , suite 300 , marietta , georgia , and we operate our distribution business through a broad network of distribution centers . we serve many major metropolitan areas in the u.s. and deliver building and industrial products to a variety of wholesale and retail customers . we distribute products in two principal categories : structural products and specialty products . structural products include plywood , oriented strand board , rebar and remesh , lumber , spruce , and other wood products primarily used for structural support , and walls in construction projects . structural products represented approximately 33 % of our fiscal 2019 net sales . specialty products include engineered wood products , moulding , siding ( including vinyl products ) , cedar , metal products ( excluding rebar and remesh ) , and insulation . specialty products accounted for approximately 67 % of our fiscal 2019 net sales . recent developments term loan facility in october 2019 , we amended our term loan facility to , among other things , permit real estate sale leaseback transactions and modify the “ total net leverage ratio ” covenant beginning in the third quarter of 2019. the amendment also established a designated outstanding principal balance level required to maintain the modified “ total net leverage ratio ” covenant levels for the 2019 fourth quarter and subsequent quarters . the principal balance level was satisfied on january 31 , 2020 , through repayments from the real estate financing transactions described below under “ real estate transactions ” and in note 16 to the consolidated financial statements . on february 28 , 2020 , we further amended our term loan facility to provide that we will not be subject to the facility 's quarterly “ total net leverage ratio ” covenant from and after the time , and then for so long as , the principal balance level under the facility is less than $ 45 million . revolving credit facility in january 2020 , we amended our revolving credit facility to ( i ) modify the “ seasonal period ” to run from november 15 , 2019 , through july 15 , 2020 , for the calendar year 2019 , and to run from december 15 of each calendar year through april 15 of each immediately succeeding calendar year for the calendar year 2020 and thereafter , and ( ii ) extend the measurement period in the definition of “ cash dominion event ” from three consecutive business days to five consecutive business days . the amendment , which is described further in note 16 to the consolidated financial statements , better aligns advance rates under the facility with the seasonality associated with our business . 22 real estate transactions during the second quarter of 2019 , we completed real estate financing transactions on two of our distribution centers . we sold these properties for gross proceeds of $ 45.0 million . as a result of these real estate financing transactions , we recognized financing obligations in the amount of the sales price , which will be amortized over the shorter of the lives of the leases or financing obligations . these transactions were completed through sale-leaseback arrangements , and were accounted for as financing transactions , in accordance with u.s. gaap . net proceeds were used to reduce our outstanding term loan facility balance . on december 31 , 2019 , we completed real estate financing transactions on four distribution centers for gross proceeds of $ 33.2 million . on january 31 , 2020 , we completed additional real estate financing transactions on nine distribution centers for gross proceeds of $ 37.0 million . and on february 28 , 2020 , we completed one additional real estate financing transaction transaction for gross proceeds of $ 8.1 million . these transactions , which were completed through sale-leaseback arrangements , were accounted for as financing transactions and we recognized financing obligations in the amount of the sales price , which will be amortized over the shorter of the lives of the leases or financing obligations under u.s. gaap . net proceeds from these transactions were used to further reduce our outstanding term loan facility balance . industry conditions many of the factors that cause our operations to fluctuate are seasonal or cyclical in nature . our operating results have historically been correlated with the level of single-family residential housing starts in the u.s. at any time , the demand for new homes is dependent on a variety of factors , including job growth , changes in population and demographics , the availability and cost of mortgage financing , the supply of new and existing homes , and consumer confidence . since 2011 , the u.s. housing market has generally shown improvement . story_separator_special_tag debt and credit sources as of december 28 , 2019 and december 29 , 2018 , long-term debt consisted of the following : replace_table_token_6_th 27 revolving credit facility in april 2018 we amended and restated our revolving credit facility to provide for a senior secured revolving loan and letter of credit facility of up to $ 600 million and an uncommitted accordion feature that permits us to increase the facility by an aggregate additional principal amount of up to $ 150 million . if we obtain the full amount of the additional increases in commitments , the revolving credit facility will allow borrowings of up to $ 750 million . borrowings under the revolving credit facility are subject to availability under the “ borrowing base ” ( as that term is defined in the revolving credit facility ) . letters of credit in an aggregate amount of up to $ 30 million are also available under the revolving credit facility , which would reduce the amount of the revolving loans available under the facility . the revolving credit agreement provides for interest at a rate per annum equal to ( i ) libor plus a margin ranging from 1.75 percent to 2.25 percent , with the margin determined based upon average excess availability for the immediately preceding fiscal quarter for loans based on libor , or ( ii ) the administrative agent 's base rate plus a margin ranging from 0.75 percent to 1.25 percent , with the margin based upon average excess availability for the immediately preceding fiscal quarter for loans based on the base rate . if excess availability under the revolving credit facility falls below the greater of ( i ) $ 50 million and ( ii ) 10 percent of the lesser of ( a ) the borrowing base and ( b ) the maximum permitted credit at such time , we will be required to maintain a fixed charge coverage ratio of 1.0 to 1.0 until excess availability has been at least the greater of ( i ) $ 50 million and ( ii ) 10 percent of the lesser of ( a ) the borrowing base and ( b ) the maximum permitted credit at such time for a period of 30 consecutive days . in january 2020 , we amended the revolving credit facility to ( i ) modify the “ seasonal period ” to run from november 15 , 2019 , through july 15 , 2020 , for the calendar year 2019 , and to run from december 15 of each calendar year through april 15 of each immediately succeeding calendar year for the calendar year 2020 and thereafter , and ( ii ) extend the measurement period in the definition of “ cash dominion event ” from three consecutive business days to five consecutive business days . the amendment , which is described further in note 16 to the consolidated financial statements , better aligns advance rates under the facility with the seasonality associated with our business . as of december 28 , 2019 , we had outstanding borrowings of $ 326.5 million , excess availability of $ 80.0 million , and a weighted average interest rate of 3.9 % under our revolving credit facility . as of december 29 , 2018 , we had outstanding borrowings of $ 333.3 million , excess availability of $ 91.7 million and a weighted average interest rate of 4.6 % under the facility . we were in compliance with all covenants under the revolving credit facility as of december 28 , 2019 . term loan facility in april 2018 , we entered into a credit and guaranty agreement with hps investment partners , llc , and other financial institutions as party thereto . the agreement provides for a term loan facility of $ 180.0 million secured substantially by all our assets . borrowings under the term loan facility may be made as base rate loans or eurodollar rate loans . the base rate loans will bear interest at the rate per annum equal to ( i ) the greatest of the ( a ) u.s. prime lending rate published in the wall street journal , ( b ) the federal funds effective rate plus 0.50 percent , and ( c ) the sum of the adjusted eurodollar rate of one month plus 1.00 percent , provided that the base rate shall at no time be less than 2.00 percent per annum ; and ( ii ) plus the applicable margin , as described below . eurodollar rate loans will bear interest at the rate per annum equal to ( i ) the ice benchmark administration libor rate , provided that the adjusted eurodollar rate shall at no time be less than 1.00 percent per annum ; plus ( ii ) the applicable margin . the applicable margin will be 6.00 percent with respect to base rate loans and 7.00 percent with respect to eurodollar rate loans . in october 2019 , we amended the term loan facility to , among other things , permit real estate sale leaseback transactions and modify the “ total net leverage ratio ” covenant beginning in the third quarter of 2019. the amendment also established a designated outstanding principal balance level required to maintain the modified “ total net leverage ratio ” covenant levels for the 2019 fourth quarter and subsequent quarters . in december 2019 , we amended the term loan facility to extend the period for satisfying the designated outstanding principal balance level , and the principal balance level was satisfied on january 31 , 2020 , through repayments from real estate financing transactions as described in note 16 to our consolidated financial statements . on february 28 , 2020 , we further amended our term loan facility to provide that we will not be subject to the facility 's quarterly “ total net leverage ratio ” covenant from and after the time , and then for so long as , the principal balance level under the facility is less than $ 45 million .
| results of operations fiscal 2019 compared to fiscal 2018 the following table sets forth our results of operations for fiscal 2019 and fiscal 2018 , which both comprised 52 weeks . replace_table_token_2_th the following table sets forth changes in net sales by product category . prior year amounts have been reclassified to conform to the current year product mix of structural and specialty products . replace_table_token_3_th 24 the following table sets forth gross margin dollars and percentages by product category versus comparable prior periods . prior year amounts have been reclassified to conform to the current year product mix of structural and specialty products . replace_table_token_4_th ( 1 ) “ inventory adjustments ” includes an adjustment for lower of cost or net realizable value of $ 0.3 million for fiscal 2018 , and an inventory acquisition step-up charge of $ 11.8 million for fiscal 2018. discussion of results of operations net sales . net sales of $ 2.6 billion in fiscal 2019 decreased by 7.9 % , or $ 0.2 billion , from fiscal 2018 . the sales decrease was driven by declines in wood-based commodity prices and supplier and sales disruptions associated with our cedar creek integration activities , including the discontinuation of a siding program that impacted sales in 2019. the declines were partially offset by the acquisition of cedar creek and the inclusion of cedar creek 's sales revenue for all of fiscal year 2019 as opposed to the inclusion of such sales from april 13 , 2018 , to december 29 , 2018 , in the prior year . gross profit . total gross profit for fiscal 2019 was $ 356.9 million , compared to $ 331.9 million in fiscal 2018 . gross margin increased to 13.5 % in fiscal 2019 , compared to 11.6 % in fiscal 2018. gross margin percentage increased due to greater stability in commodity prices relative to the prior year period .
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for additional information related to the earliest of the two years presented please refer to the company 's 2018 annual report on form 10-k. a reference to a “ note ” in this item 7 refers to the accompanying notes to consolidated financial statements included in part ii , item 8 , unless otherwise specified . certain of the tables below may not appear visually accurate due to rounding . md & a for pnmr story_separator_special_tag style= '' page-break-after : always '' / > a roe of 9.575 % a requirement to return to customers over a three-year period the benefit of the reduction in the new mexico corporate income tax rate to the extent attributable to pnm 's retail operations ( note 18 ) a disallowance of pnm 's ability to collect an equity return on certain investments aggregating $ 148.1 million at four corners , but allowing recovery of a debt-only return an agreement to not implement non-fuel base rate changes , other than changes related to pnm 's rate riders , with an effective date prior to january 1 , 2020 a requirement to consider the prudency of pnm 's decision to continue its participation in four corners in pnm 's next general rate case filing pnm implemented 50 % of the approved increase for service rendered beginning february 1 , 2018 and implemented the rest of the increase for service rendered beginning january 1 , 2019. this matter is now concluded . tnmp 2018 rate case – on december 20 , 2018 , the puct approved a settlement stipulation allowing tnmp to increase annual base rates by $ 10.0 million based on a roe of 9.65 % , a cost of debt of 6.44 % , and a capital structure comprised of 55 % debt and 45 % equity . under the approved settlement stipulation tnmp was granted authority to integrate revenues previously recorded under the ams rider , as well as other unrecovered ams costs , into base rates ; establish a new rider to recover hurricane harvey restoration costs , net of amounts owed to customers as a result of the reduction in the federal corporate income tax rate during 2018 ; and to update depreciation rates . in addition , the approved settlement stipulation allows tnmp to refund the regulatory liability recorded at december 31 , 2017 related to federal tax reform to customers and reflects the reduction in the federal corporate income tax rate to 21 % . new rates under the tnmp 2018 rate case became effective january 1 , 2019. advanced metering – tnmp completed its mass deployment of advanced meters across its service territory in 2016 and has installed more than 242,000 advanced meters . as discussed above , beginning in 2019 the costs associated with tnmp 's ams program are being recovered through base rates . in february 2016 , pnm filed an application with the nmprc requesting approval of a project to replace its existing customer metering equipment with advanced metering infrastructure ( “ ami ” ) , which was denied . as ordered by the nmprc , pnm 's 2020 filing for energy efficiency programs to be offered in 2021 should include a proposal for an ami pilot project . rate riders and interim rate relief – the puct has approved mechanisms that allow tnmp to recover capital invested in transmission and distribution projects without having to file a general rate case . the nmprc has approved pnm recovering fuel costs through the fppac , as well as rate riders for renewable energy and energy efficiency . these mechanisms allow for more timely recovery of investments . cost recovery related to joining the eim – in 2018 , pnm completed a cost-benefit analysis that indicated pnm 's participation in the california independent system operator ( “ caiso ” ) western energy imbalance market ( “ eim ” ) would provide substantial benefits to retail customers . in august 2018 , pnm filed an application with the nmprc requesting , among other things , to recover the cost of initial capital investments and authorization to establish a regulatory asset to recover other expenses that would be incurred in order to join the eim . pnm 's application proposed recovery of the costs incurred to join the eim beginning on the effective date of new rates in pnm 's next general rate case and that the benefits of participating in the eim be credited to retail customers through pnm 's existing fppac . in december 2018 , the nmprc issued an order approving the establishment of a regulatory asset to recover pnm 's cost of joining the eim . the order was subsequently vacated based on challenges by certain parties . in march 2019 , the nmprc issued a revised order approving the hearing examiner 's recommendation to defer certain rate making issues , including but not limited to implementation and ongoing eim costs and savings , the prudence and reasonableness of costs included in a regulatory asset , and the period over which costs would be charged to customers until pnm 's next general rate case filing . in april 2019 , the nmprc issued an order clarifying that the caiso quarterly benefits reports may be used to support the benefits of participating in the eim . pnm anticipates it will begin participating in the eim in april 2021. ferc regulation rates pnm charges wholesale transmission customers and wholesale generation customers are subject to traditional rate regulation by ferc . rates charged to wholesale electric transmission customers are based on a formula rate mechanism pursuant to which rates for wholesale transmission service are calculated annually in accordance with an approved formula . the formula includes updating cost of service components , including investment in plant and operating expenses , based on information contained in pnm 's annual financial report filed with ferc , as well as including projected transmission capital projects to be placed into service in the following year . the projections included are subject to true-up . story_separator_special_tag abundant renewable resources , large tracts of affordable land , and strong government and community support make new mexico a favorable location for renewable generation . new mexico ranks 3 rd in the nation for energy potential from solar power according to the nebraska department of energy & energy sun index and ranks 3 rd in the nation for land-based wind capacity according to the u.s. office of energy efficiency and renewable energy . pnmr development and aep onsite partners each have a 50 % ownership interest in nmrd . through nmrd , pnmr anticipates being able to provide additional renewable generation solutions to customers within and surrounding its regulated jurisdictions through partnering with a subsidiary of one of the united states ' largest electric utilities . the formation of this joint venture provides a more efficient use of pnmr 's capital to support new renewable investment opportunities while maintaining the necessary capital to support investments required by regulated jurisdictions . as of december 31 , 2019 , nmrd 's renewable energy capacity in operation was 85.1 mw , which includes 80 mw of solar-pv facilities to supply energy to the facebook data center located within pnm 's service territory , 1.9 mw to supply energy to columbus electric cooperative located in southwest new mexico , 2.0 mw to supply energy to the central new mexico electric cooperative , and 1.2 mw of solar-pv facilities to supply energy to the city of rio rancho , new mexico . the nmprc has approved pnm 's request to enter into an additional 25-year ppa to purchase renewable energy and recs from an aggregate of approximately 50 mw of capacity from solar-pv facilities to be constructed by nmrd to supply power to the facebook data center . these facilities are expected to begin commercial operation by june 2020. see note 17. nmrd actively explores opportunities for additional renewable projects , including large-scale projects to serve future data centers and other customer needs . integrated resource plan nmprc rules require that investor-owned utilities file an irp every three years . the irp is required to cover a 20-year planning period and contain an action plan covering the first four years of that period . pnm filed its 2017 irp on july 3 , 2017. the 2017 irp analyzed several scenarios utilizing assumptions that pnm continues service from its sjgs capacity beyond mid-2022 and that pnm retires its capacity after mid-2022 . key findings of the 2017 irp included , among other things , that retiring pnm 's share of sjgs in 2022 and exiting ownership in four corners in 2031 would provide long-term cost savings for pnm 's customers and that the best mix of new resources to replace the retired coal generation would include solar energy and flexible natural gas-fired peaking capacity as well as energy storage , if the economics support it , and wind energy provided additional transmission capacity becomes available . the 2017 irp also indicated that pnm should retain the currently leased capacity in pvngs . in december 2018 , the nmprc issued an order accepting pnm 's 2017 irp as compliant with applicable statute and nmprc rules . several parties appealed the nmprc 's final order to the nm supreme court . these appeals were ultimately withdrawn by parties or denied by the nm supreme court . see additional discussion regarding pnm 's leased capacity in pvngs in note 8 and pnm 's 2017 irp and the sjgs abandonment application in note 17. in the third quarter of 2019 , pnm initiated its 2020 irp process which will cover the 20-year planning period from 2019 through 2039. consistent with historical practice , pnm has provided notice to various interested parties and has hosted a series of public advisory presentations . nmprc rules require pnm to file its 2020 irp in july 2020. pnm will continue to seek input from interested parties as a part of this process . pnm can not predict the outcome of this matter . environmentally responsible power pnmr has a long-standing record of environmental stewardship . pnm 's environmental focus is in three key areas : developing strategies to provide reliable and affordable power while transitioning to a 100 % emissions-free generating portfolio by 2040 a - 33 preparing pnm 's system to meet new mexico 's increasing renewable energy requirements as cost-effectively as possible increasing energy efficiency participation pnmr 's sustainability portal provides key environmental and sustainability information related to pnm 's and tnmp 's operations and is available at http : //www.pnmresources.com/about-us/sustainability-portal.aspx . the portal also contains a climate change report , which outlines plans for pnm to be coal-free by 2031 ( subject to regulatory approval ) and to have an emissions-free generating portfolio by 2040. the energy transition act ( “ eta ” ) on june 14 , 2019 , senate bill 489 , known as the eta , became effective . prior to the enactment of the eta , the rea established a mandatory rps requiring utilities to acquire a renewable energy portfolio equal to 10 % of retail electric sales by 2011 , 15 % by 2015 , and 20 % by 2020. the eta amends the rea and requires utilities operating in new mexico to have renewable portfolios equal to 20 % by 2020 , 40 % by 2025 , 50 % by 2030 , 80 % by 2040 , and 100 % zero-carbon energy by 2045. the eta also amends sections of the rea to allow for the recovery of undepreciated investments and decommissioning costs related to qualifying egus that the nmprc has required be removed from retail jurisdictional rates , provided replacement resources to be included in retail rates have lower or zero-carbon emissions . the eta provides for a transition from fossil-fueled generating resources to renewable and other carbon-free resources by allowing utilities to issue securitized bonds , or “ energy transition bonds , ” related to the retirement of certain coal-fired generating facilities to qualified investors .
| executive summary overview and strategy pnmr is a holding company with two regulated utilities serving approximately 789,000 residential , commercial , and industrial customers and end-users of electricity in new mexico and texas . pnmr 's electric utilities are pnm and tnmp . strategic goals pnmr is focused on achieving three key strategic goals : earning authorized returns on regulated businesses delivering at or above industry-average earnings and dividend growth maintaining investment grade credit ratings in conjunction with these goals , pnm and tnmp are dedicated to : maintaining strong employee safety , plant performance , and system reliability delivering a superior customer experience demonstrating environmental stewardship in business operations , including transitioning to an emissions-free generating portfolio by 2040 supporting the communities in their service territories earning authorized returns on regulated businesses pnmr 's success in accomplishing its strategic goals is highly dependent on two key factors : fair and timely regulatory treatment for its utilities and the utilities ' strong operating performance . the company has multiple strategies to achieve favorable regulatory treatment , all of which have as their foundation a focus on the basics : safety , operational excellence , and customer satisfaction , while engaging stakeholders to build productive relationships . both pnm and tnmp seek cost recovery for their investments through general rate cases , interim cost of service filings , and various rate riders . fair and timely rate treatment from regulators is crucial to pnm and tnmp in earning their allowed returns and critical for pnmr to achieve its strategic goals . pnmr believes that earning allowed returns is viewed positively by credit rating agencies and that improvements in the company 's ratings could lower costs to utility customers .
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in 2019 , significant assumptions story_separator_special_tag the following discussion and analysis of our business , financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and notes thereto in item 8 of this form 10-k. the discussion below contains forward-looking statements that are based upon our current expectations and is subject to uncertainty and changes in circumstances . actual results may differ materially from these expectations due to inaccurate assumptions and known or unknown risks and uncertainties , including those identified in “ cautionary statement regarding forward-looking statements ” and item 1a . “ risk factors. ” business see item 1 . “ business ” for discussion pertaining to our business and reportable segments . recent acquisitions . during the year ended december 31 , 2019 , we completed six acquisitions , one of which specializes in water infrastructure for pipeline companies and is included within our oil and gas segment , four o f which are included within our communications segment , including a wireline/fiber deployment construction contractor and a telecommunications company specializing in a broad range of end-to-end wireless telecommunications solutions , and one of which specializes in construction projects in the power industry and is included in our power generation and industrial segment . during the year ended december 31 , 2018 , we completed two acquisitions , including a construction management firm specializing in steel building systems and a wind turbine services company , both of which are included in our power generation and industrial segment . for additional information , see note 3 - goodwill and other intangible assets in the notes to the audited consolidated financial statements , which is incorporated by reference . economic , industry and market factors we closely monitor the effects of changes in economic and market conditions on our customers . general economic and market conditions can negatively affect demand for our customers ' products and services , which can affect our customers ' planned capital and maintenance budgets in certain end-markets . market , regulatory and industry factors could affect demand for our services , including ( i ) changes to our customers ' capital spending plans ; ( ii ) new or changing regulatory requirements or other governmental policy changes or uncertainty ; ( iii ) economic , market or political developments ; ( iv ) mergers and acquisitions among the customers we serve ; ( v ) changes in technology , tax and other incentives ; and ( v ) access to capital for customers in the industries we serve . availability of transportation and transmission capacity and fluctuations in market prices for oil , gas and other fuel sources can also affect demand for our services , in particular , on pipeline and power generation construction services . these fluctuations , as well 27 as the highly competitive nature of our industry , can result in lower bids and lower profit on the services we provide . in the face of increased pricing pressure or other market developments , we strive to maintain our profit margins through productivity improvements , cost reduction programs and or business streamlining efforts . while we actively monitor economic , industry and market factors that could affect our business , we can not predict the effect that changes in such factors may have on our future results of operations , liquidity and cash flows , and we may be unable to fully mitigate , or benefit from , such changes . effect of seasonality and cyclical nature of business our revenue and results of operations can be subject to seasonal and other variations . these variations are influenced by weather , customer spending patterns , bidding seasons , project schedules , holidays and timing , in particular , for large , non-recurring projects . typically , our revenue is lowest at the beginning of the year and during the winter months because cold , snowy or wet conditions cause project delays . revenue is generally higher during the summer and fall months due to increased demand for our services when favorable weather conditions exist in many of the regions in which we operate , but continued cold and wet weather can often affect second quarter productivity . in the fourth quarter , many projects tend to be completed by customers seeking to spend their capital budgets before the end of the year , which generally has a positive effect on our revenue . however , the holiday season and inclement weather can cause delays , which can reduce revenue and increase costs on affected projects . any quarter may be positively or negatively affected by adverse or unusual weather patterns , including warm winter weather , excessive rainfall , flooding or natural catastrophes such as hurricanes or other severe weather , making it difficult to predict quarterly revenue and margin variations . additionally , our industry can be highly cyclical . fluctuations in end-user demand within the industries we serve , or in the supply of services within those industries , can affect demand for our services . as a result , our business may be adversely affected by industry declines or by delays in new projects . variations in project schedules or unanticipated changes in project schedules , in particular , in connection with large construction and installation projects , can create fluctuations in revenue , which may adversely affect us in a given quarter , even if not for the full year . in addition , revenue from master service and other service agreements , while generally predictable , can be subject to volatility . the financial condition of our customers and their access to capital ; variations in project margins ; regional , national and global economic , political and market conditions ; regulatory or environmental influences ; and acquisitions , dispositions or strategic investments/other arrangements can also materially affect quarterly results in a given period . accordingly , our operating results in any particular period may not be indicative of the results that can be expected for any other period . story_separator_special_tag financial performance metrics our senior management team regularly reviews certain key financial performance metrics within our business , including : revenue and profitability on an overall basis , by reportable segment and for selected projects ; revenue by customer and by contract type ; costs of revenue , excluding depreciation and amortization ; general and administrative expenses ; depreciation and amortization ; interest expense , net ; other income or expense ; and provision for income taxes ; earnings before interest , taxes , depreciation and amortization ( “ ebitda ” ) and adjusted ebitda , which is ebitda excluding certain items that may not be indicative of our core operating results , as well as items that can vary widely across different industries or among companies within the same industry . see discussion of our non-u.s. gaap financial measures following the “ comparison of fiscal year results ” section below ; earnings per share and adjusted earnings per share , as defined in our non-u.s. gaap financial measures discussion ; days sales outstanding , net of deferred revenue ; and days payable outstanding ; interest and debt service coverage ratios ; and liquidity and cash flows . management 's analysis includes detailed discussions of proposed investments in new business opportunities or property and equipment , productivity improvement efforts , acquisition integration efforts , strategic arrangement opportunities and working capital and other capital management efforts . measuring these key performance indicators is an important tool used by management to make informed and timely operational decisions , which we believe can help us improve our performance . critical accounting estimates this discussion and analysis of our financial condition and results of operations is based upon our audited consolidated financial statements , which have been prepared in accordance with u.s. gaap . the preparation of our consolidated financial statements requires the use of estimates and assumptions that affect the amounts reported in our audited consolidated financial statements and the accompanying notes . we base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances , the results of which form the basis of making judgments about our operating results , including the results of construction contracts accounted for under the cost-to-cost method , and the carrying values of assets and liabilities that are not readily apparent from other sources . given that management estimates , by their nature , involve judgments regarding future uncertainties , actual results may differ from these estimates if conditions change or if certain key assumptions used in making these estimates ultimately prove to be inaccurate . our accounting policies and critical accounting estimates are reviewed periodically by the audit committee of the board of directors . we believe that our accounting estimates pertaining to : the recognition of revenue and project profit or loss , which we define as project revenue , less project costs of revenue , including project-related depreciation , in particular , on construction contracts accounted for under the cost-to-cost method , for which the recorded amounts require estimates of costs to complete and the amount and probability of variable consideration included in the contract transaction price ; fair value estimates , including those related to acquisitions , valuations of goodwill , indefinite-lived intangible assets and acquisition-related contingent consideration ; income taxes ; self-insurance liabilities ; and litigation and other contingencies , are the most critical in the preparation of our consolidated financial statements as they are important to the portrayal of our financial condition and require significant or complex judgment and estimates on the part of management . actual results could , however , vary materially from these accounting estimates . refer to note 1 - business , basis of presentation and significant accounting policies in the notes to the audited consolidated financial statements , which is incorporated by reference , for discussion of our significant accounting policies . revenue recognition we recognize revenue from contracts with customers under accounting standards codification ( “ asc ” ) topic 606 ( “ topic 606 ” ) . under topic 606 , revenue is recognized when , or as , control of promised goods and services is transferred to customers , and the amount of revenue recognized reflects the consideration to which an entity expects to be entitled in exchange for the goods and services transferred . we primarily recognize revenue over time utilizing the cost-to-cost measure of progress on contracts for specific projects and for certain master service and other service agreements . 29 contracts . we derive revenue primarily from construction projects performed under : ( i ) master and other service agreements , which provide a menu of available services in a specific geographic territory that are utilized on an as-needed basis , and are typically priced using either a time and materials or a fixed price per unit basis ; and ( ii ) contracts for specific projects requiring the construction and installation of an entire infrastructure system or specified units within an infrastructure system , which are subject to multiple pricing options , including fixed price , unit price , time and materials , or cost plus a markup . the total contract transaction price and cost estimation processes used for recognizing revenue over time under the cost-to-cost method is based on the professional knowledge and experience of our project managers , engineers and financial professionals . management reviews estimates of total contract transaction price and total project costs on an ongoing basis . changes in job performance , job conditions and management 's assessment of expected variable consideration are factors that influence estimates of the total contract transaction price , total costs to complete those contracts and our profit recognition . changes in these factors could result in revisions to revenue in the period in which the revisions are determined , which could materially affect our consolidated results of operations for that period . provisions for losses on uncompleted contracts are recorded in the period in which such losses are determined .
| comparison of fiscal year results the following table , which may contain slight summation differences due to rounding , reflects our consolidated results of operations in dollar and percentage of revenue terms for the periods indicated ( dollar amounts in millions ) . our consolidated results of operations are not necessarily comparable from period to period due to the effect of recent acquisitions and certain other items , which are described in the comparison of results section below . replace_table_token_6_th we review our operating results by reportable segment . see note 13 - segments and related information in the notes to the audited consolidated financial statements , which is incorporated by reference . our reportable segments are : ( 1 ) communications ; ( 2 ) oil and gas ; ( 3 ) electrical transmission ; ( 4 ) power generation and industrial and ( 5 ) other . management 's review of reportable segment results includes analyses of trends in revenue , ebitda and ebitda margin . ebitda for segment reporting purposes is calculated consistently with our consolidated ebitda calculation . see the discussion of our non-u.s. gaap financial measures , including certain adjusted non-u.s. gaap measures , as described , following the comparison of results discussion below . the following table presents revenue , ebitda and ebitda margin by reportable segment for the periods indicated ( dollar amounts in millions ) : replace_table_token_7_th nm - percentage is not meaningful comparison of years ended december 31 , 2019 and 2018 revenue . for the year ended december 31 , 2019 , consolidated revenue totaled $ 7,183 million as compared with $ 6,909 million in 2018 , an increase of $ 274 million , or 4 % .
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as of december 31 , 2019 , upcic 's net written premium to surplus ratio and gross written premium to surplus ratio were in excess of the required minimums and , therefore , upcic is not subject to the penalty rate . maturities the following table provides an estimate of principal payments to be made for the amounts due on the surplus story_separator_special_tag the following management 's discussion and analysis of financial condition and results of operations ( “ md & a ” ) is intended to assist in an understanding of our financial condition and results of operations and should be read in conjunction with our consolidated financial statements and accompanying notes in “ item 8—financial statements and supplementary data ” below . except for the historical information contained herein , the discussions in this md & a contain forward-looking statements that involve risks and uncertainties . our future results could differ materially from those discussed herein . factors that could cause or contribute to such differences include , but are not limited to , those discussed above under “ cautionary note regarding forward-looking statements ” and “ part i , item 1a—risk factors. ” overview we develop , market , and underwrite insurance products for consumers predominantly in the personal residential homeowners lines of business and perform substantially all other insurance-related services for our primary insurance entities , including risk management , claims management and distribution . our primary insurance entities , upcic and appcic , offer insurance products through both our appointed independent agent network and our online distribution channels across 18 states ( primarily in florida ) , with licenses to write insurance in an additional two states . in the second quarter of 2019 , we surrendered our license in west virginia , a state in which we did not write any premium . also during the second quarter of 2019 , we received a certificate of authority in wisconsin , approving upcic as a licensed insurance company in wisconsin . the insurance entities seek to produce an underwriting profit ( defined as earned premium minus losses , lae , policy acquisition costs and other operating costs ) over the long term ; maintain a conservative balance sheet to prepare for years in which the insurance entities are not able to achieve an underwriting profit ; and generate investment income from invested assets . revenues 25 we generate revenue primarily from the collection of insurance premiums . other sources of revenue include : commissions paid by our reinsurers to our reinsurance intermediary subsidiary barc on reinsurance it places for the insurance entities ; policy fees collected from policyholders by our managing general agent subsidiary , era ( formerly universal risk advisors , inc. ) ; and financing fees charged to policyholders who choose to defer premium payments . in addition , our subsidiary alder receives fees from the insurance entities for claims-handling services . the insurance entities are reimbursed for these fees on claims that are subject to recovery under the insurance entities ' respective reinsurance programs . these fees , after expenses , are recorded in the consolidated financial statements as an adjustment to lae . we also generate income by investing our assets . the nature of our business tends to be seasonal during the year , reflecting consumer behaviors in connection with the florida residential real estate market and the hurricane season . the amount of direct premiums written tends to increase just prior to the second quarter and tends to decrease approaching the fourth quarter . trends and geographical distribution in recent years , the florida personal residential insurance market has been characterized by increased losses and lae due to abuses and inflated claims . these conditions have continued to worsen and have reached levels well beyond historical norms and levels experienced in other jurisdictions . the adverse conditions in the florida personal residential insurance market can be attributed largely to the proliferation of represented claims , involving both public adjusters and attorneys , as well as by aggressive estimates and demands put forth by remediation and repair companies . in many cases , policyholders have representation even before the claims are filed or before the company is able to provide an initial assessment of damages . in other instances , policyholder representatives are taking opportunities occasioned by hurricanes or other events to solicit customers to file other claims or to re-open prior claims , sometimes years after the purported dates of loss . these actions adversely affect both the frequency and severity of losses as otherwise understood based on historical patterns and patterns experienced in other states . see “ part i—item 1a—risk factors—risks relating to our business—actual claims incurred have exceeded , and in the future may exceed , reserves established for claims , adversely affecting our operating results and financial condition . the company has taken a series of steps over time to mitigate the financial impact of these negative trends in the florida market . we also have closely monitored rate levels , especially in the florida market , and have submitted filings annually based upon the evolving data . in addition , the company has implemented several initiatives in its claims department in response to the adverse market trends . we utilize our process called fast track , which is an initiative to handle straightforward , meritorious claims as promptly as possible to mitigate the adverse impacts that can be seen with claims that remain open for longer periods . in addition , we increased our emphasis on subrogation to reduce our net losses while also recovering policyholders ' deductibles when losses are attributable to the actions of others . we have an internal staff of trained water remediation experts to address the extraordinary number of purported water damage claims filed by policyholders and vendors . we developed a specialized in-house unit for responding to the unique aspects of represented claims , and we have substantially increased our in-house legal staff in an effort to address the increase in litigated or represented claims as cost-effectively as possible . story_separator_special_tag this model combines simulations of the natural occurrence patterns and characteristics of hurricanes , tornadoes , earthquakes and other catastrophes with information on property values , construction types and occupancy classes . the model outputs provide information concerning the potential for large losses before they occur , so companies can prepare for their financial impact . furthermore , as part of our operational excellence initiatives , we continually look to enable new technology to refine our data intelligence on catastrophe risk modeling . effective june 1 , 2019 , the insurance entities entered into multiple reinsurance agreements comprising our 2019-2020 reinsurance program . see “ item 8—note 4 ( reinsurance ) . ” 29 upcic 's 2019-2020 reinsurance program first event all states retention of $ 43 million ; first event non-florida retention of $ 10 million . all states first event tower expanded to $ 3.34 billion , an increase of $ 170 million over the final 2018-2019 program . assuming a first event completely exhausts the $ 3.34 billion tower , the second event exhaustion point would be $ 1.3 billion , an increase of $ 262 million over the final 2018-2019 program on the same assumptions . full reinstatement available for all private market first event catastrophe layers for guaranteed second event coverage . for all layers purchased below the fhcf , to the extent that all coverage or a portion thereof is exhausted in a catastrophic event and reinstatement premium is due , upcic has purchased reinstatement premium protection ( “ rpp ” ) to pay the premium necessary for the reinstatement of these coverages . private market reinsurance coverage continues to be structured into layers . this structure utilizes a cascading feature such that any layers above a $ 111 million attachment point are excess of loss over the immediately preceding layer . if the aggregate limit of the preceding layer is exhausted , the next layer cascades down in its place for future events . specific 3rd and 4th event private market catastrophe excess of loss coverage of $ 76 million in excess of $ 35 million provides robust frequency protection for a multiple event storm season . for the fhcf reimbursement contracts effective june 1 , 2019 , upcic has continued the election of the 90 % coverage level . the total mandatory fhcf layer is estimated to provide approximately $ 2.038 billion of coverage for upcic , which inures to the benefit of the open market coverage secured from private reinsurers . reinsurers the following table below provides the a.m. best and s & p financial strength ratings for each of the largest third-party reinsurers in upcic 's 2019-2020 reinsurance program : reinsurer a.m. best s & p allianz risk transfer a+ aa- arch reinsurance limited a+ a+ chubb tempest reinsurance ltd. a++ aa everest reinsurance company a+ a+ munich re a+ aa- renaissance re a+ a+ various lloyd 's of london syndicates a a+ florida hurricane catastrophe fund n/a n/a appcic 's 2019-2020 reinsurance program first event all states retention of $ 2 million . all states first event tower of $ 30.7 million . full reinstatement available for all private market first event catastrophe layers for guaranteed second event coverage . for the layer purchased below the fhcf , to the extent that all coverage or a portion thereof is exhausted in a catastrophic event and reinstatement premium is due , appcic has purchased rpp to pay the premium necessary for the reinstatement of this coverage . private market reinsurance coverage continues to be structured into layers . this structure utilizes a cascading feature such that any layers above the $ 2 million attachment point are excess of loss over the immediately preceding layer . if the aggregate limit of the preceding layer is exhausted , the next layer cascades down in its place for future events . appcic also purchases extensive multiple line excess per risk reinsurance with various reinsurers due to the high-value risks it insures in both the personal residential and commercial multiple peril lines of business . under this multiple line excess per risk contract , appcic has coverage of $ 8.5 million in excess of $ 500 thousand ultimate net loss for each risk and each property loss , and $ 1 million in excess of $ 0.3 million for each casualty loss . a $ 19.5 million aggregate limit applies to the term of the contract for property-related losses and a $ 2.0 million aggregate limit applies to the term of the contract for casualty-related losses . this contract also contains a profit-sharing feature if specific performance measures are met . for the fhcf reimbursement contracts effective june 1 , 2019 , appcic has continued the election of the 90 % coverage level . the total mandatory fhcf layer is estimated to provide approximately $ 14.8 million of coverage for appcic , which inures to the benefit of the open market coverage secured from private reinsurers . 30 reinsurers the following table below provides the a.m. best and s & p financial strength ratings for each of the largest third-party reinsurers in appcic 's 2019-2020 reinsurance program : reinsurer a.m. best s & p everest reinsurance company a+ a+ chubb tempest reinsurance ltd. a++ aa various lloyd 's of london syndicates a a+ the total cost of the 2019-2020 reinsurance programs for upcic and appcic is projected to be $ 420 million , representing approximately 33.5 % of estimated direct premium earned for the 12-month treaty period . 31 story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > $ 37.4 million , or 10.6 % , for the year ended december 31 , 2019 . reinsurance costs , as a percentage of direct premium earned , increased from 31.5 % in 2018 to 31.7 % in 2019 . this year ceded earned premiums had a lower level of additional costs from ceded earned reinstatement premiums , $ 2.6 million in 2019 , compared to $ 20.7 million in 2018 . these costs relate to additional reinsurance costs from hurricane irma .
| results of operations year ended december 31 , 2019 compared to year ended december 31 , 2018 2019 highlights ( comparisons are to 2018 unless otherwise specified ) direct premiums written overall grew by $ 101.8 million , or 8.6 % , to $ 1,292.7 million . in florida , direct premiums written grew by $ 52.8 million , or 5.2 % , and in our other states , direct premiums written grew by $ 49.0 million , or 27.6 % . premiums earned , net grew by $ 74.1 million , or 9.6 % , to $ 842.5 million . total revenues increased by $ 115.5 million , or 14.0 % , to $ 939.4 million . net loss ratio was 71.6 % as compared to 53.9 % , driven by the factors outlined below . expense ratio improved to 32.3 % from 33.4 % . net income decreased by $ 70.5 million , or 60.3 % , to $ 46.5 million . diluted earnings per share ( “ eps ” ) decreased by $ 1.91 , or 58.4 % , to $ 1.36 per common share . weighted average diluted common shares outstanding were lower by 4.3 % to 34.2 million shares at december 31 , 2019 from 35.8 million shares at december 31 , 2018. book value per share increased by $ 0.71 , or 4.9 % , to $ 15.13 at december 31 , 2019 from $ 14.42 at december 31 , 2018 . declared and paid dividends per common share of $ 0.77 , including a $ 0.13 special dividend in december 2019 . repurchased 2,337,825 shares in 2019 at an aggregate cost of $ 66.2 million . offered universal direct sm in all 18 states in which the company writes policies as of december 31 , 2019 . upcic commenced writing homeowners policies in illinois . 32 a detailed discussion of our results of operations follows the table below ( in thousands , except per share data ) .
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as of december 31 , 2017 , stock-based compensation cost for all outstanding unvested options and restricted stock units was $ 18.6 million , which is expected to be recognized over a weighted-average period of 1.3 years . the fair value of stock options is estimated at the date of grant using the black-scholes method . the black-scholes option-pricing model requires the input of subjective assumptions . because the company 's employee stock options have characteristics significantly different from those of traded options , and because changes in the subjective input assumptions can materially affect the fair value estimate , story_separator_special_tag the following discussion and analysis should be read with “ selected financial data ” and our financial statements and notes included elsewhere in this annual report on form 10-k. story_separator_special_tag because they depend on a number of factors , including market acceptance of xermelo , the success of our sales , marketing , medical affairs , distribution and other commercialization activities and the cost and availability of reimbursement for xermelo . future revenues from our existing collaborations are uncertain because they depend , to a large degree , on the achievement of milestones and payment of royalties we earn from any future products developed under the collaborations . our ability to secure future revenue-generating agreements will depend upon our ability to address the needs of our potential future collaborators and licensees , and to negotiate agreements that we believe are in our long-term best interests . we may determine , as we have with certain of our drug candidates , including xermelo in the united states and japan , that our interests are better served by retaining rights to our discoveries and advancing our therapeutic programs to a later stage , which could limit our near-term revenues and increase expenses . because of these and other factors , our operating results have fluctuated in the past and are likely to do so in the future , and we do not believe that period-to-period comparisons of our operating results are a good indication of our future performance . since our inception , we have incurred significant losses and , as of december 31 , 2017 , we had an accumulated deficit of $ 1.4 billion . our losses have resulted principally from costs incurred in research and development , selling , general and administrative costs associated with our operations , and non-cash stock-based compensation expenses associated with stock options and restricted stock granted to employees and consultants . research and development expenses consist primarily of salaries and related personnel costs , external research costs related to our nonclinical and clinical efforts , material costs , facility costs , depreciation on property and equipment , and other expenses related to our drug discovery and development programs . selling , general and administrative expenses consist primarily of salaries and related expenses for executive , sales and marketing , and administrative personnel , professional fees and other corporate expenses , including information technology , facilities costs and general legal activities . we expect to continue to incur significant research and development costs in connection with the continuing development of our drug candidates . as a result , we will need to generate significantly higher revenues to achieve profitability . critical accounting policies revenue recognition we recognize revenues when persuasive evidence of an arrangement exists , delivery has occurred or services have been rendered , the price is fixed or determinable and collectibility is reasonably assured . product revenues product revenues consist of commercial sales of xermelo in the united states and sales of bulk tablets of xermelo to ipsen . product revenues are recognized once we meet all four revenue recognition criteria described above . in march 2017 , we began shipping xermelo to our customers in the united states . we recognize revenue for product sales of xermelo at the time product is received by our specialty pharmacy customers , net of allowances for customer credits , including estimated rebates , chargebacks , discounts , returns , distribution service fees , and government rebates , such as medicare part d coverage gap reimbursements in the united states . product shipping and handling costs are included in cost of sales . customer credits : our specialty pharmacy customers are offered various forms of consideration , including allowances , service fees and prompt payment discounts . we expect that the specialty pharmacies will earn prompt payment discounts . as a result , we deduct the full amount of those discounts from total product sales when revenues are recognized . service fees are also deducted from product sales as they are earned . rebates : allowances for rebates include mandated discounts under the medicaid drug rebate program . rebate amounts are based upon contractual agreements or legal requirements with public sector ( e.g . medicaid ) benefit providers . 40 rebates are amounts owed after the final dispensing of the product to a benefit plan participant and are based upon contractual agreements or legal requirements with public sector benefit providers . the allowance for rebates is based on statutory discount rates and expected utilization . our estimates for expected utilization of rebates are based on third party market research data and data received from the specialty pharmacies . rebates are 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 unpaid rebates from the prior quarter . if actual future rebates vary from estimates , we may need to adjust prior period accruals , which would affect revenue in the period of adjustment . chargebacks : chargebacks are discounts that occur when contracted customers purchase directly from a specialty pharmacy . contracted customers , which currently consist primarily of public health service institutions , non-profit clinics , and federal government entities purchasing via the federal supply schedule , generally purchase the product at a discounted price . story_separator_special_tag we estimate that drug development activities are typically completed over the following periods : phase estimated completion period preclinical development 1-2 years phase 1 clinical trials 1-2 years phase 2 clinical trials 1-2 years phase 3 clinical trials 2-4 years we expect research and development costs to remain substantial in the future as we continue to fund our share of type 2 diabetes development expenses for sotagliflozin and our clinical trials of xermelo , lx2761 and lx9211 and advance new drug candidates into clinical development . due to the variability in the length of time necessary for drug development , the uncertainties related to the cost of these activities and ultimate ability to obtain governmental approval for commercialization , accurate and meaningful estimates of the ultimate costs to bring our potential drug candidates to market are not available . we record significant accrued liabilities related to unbilled expenses for products or services that we have received from service providers , specifically related to ongoing nonclinical studies and clinical trials . these costs primarily relate to clinical study management , monitoring , laboratory and analysis costs , drug supplies , toxicology studies and investigator grants . we have multiple drugs in concurrent nonclinical studies and clinical trials at clinical sites throughout the world . in order to ensure that we have adequately provided for ongoing nonclinical and clinical development costs during the period in which we incur such costs , we maintain accruals to cover these expenses . substantial portions of our nonclinical studies and clinical trials are performed by third-party laboratories , medical centers , contract research organizations and other vendors . for nonclinical studies , we accrue expenses based upon estimated percentage of work completed and the contract milestones remaining . for clinical studies , expenses are accrued based upon the number of patients enrolled and the duration of the study . we monitor patient enrollment , the progress of clinical studies and related activities to the extent possible through internal reviews of data reported to us by the vendors and clinical site visits . our estimates depend on the timeliness and accuracy of 42 the data provided by our vendors regarding the status of each program and total program spending . we periodically evaluate the estimates to determine if adjustments are necessary or appropriate based on information we receive . although we use consistent milestones or subject or patient enrollment to drive expense recognition , the assessment of these costs is a subjective process that requires judgment . upon settlement , these costs may differ materially from the amounts accrued in our consolidated financial statements . we record our research and development costs by type or category , rather than by project . significant categories of costs include personnel , facilities and equipment costs and third-party and other services . in addition , a significant portion of our research and development expenses is not tracked by project as it benefits multiple projects . consequently , fully-loaded research and development cost summaries by project are not available . stock-based compensation expense we recognize compensation expense in our statements of comprehensive loss for share-based payments , including stock options and restricted stock units issued to employees , based on their fair values on the date of the grant , with the compensation expense recognized over the period in which an employee is required to provide service in exchange for the stock award . stock-based compensation expense for awards without performance conditions is recognized on a straight-line basis . stock-based compensation expense for awards with performance conditions is recognized over the period from the date the performance condition is determined to be probable of occurring through the time the applicable condition is met . we had stock-based compensation expense of $ 9.5 million for the year ended december 31 , 2017 , or $ 0.09 per share . as of december 31 , 2017 , stock-based compensation cost for all outstanding unvested options and restricted stock units was $ 18.6 million , which is expected to be recognized over a weighted-average vesting period of 1.3 years . the fair value of stock options is estimated at the date of grant using the black-scholes option-pricing model . for purposes of determining the fair value of stock options , we segregate our options into two homogeneous groups , based on exercise and post-vesting employment termination behaviors , resulting in a change in the assumptions used for expected option lives and forfeitures . expected volatility is based on the historical volatility in our stock price . the following weighted-average assumptions were used for options granted in the years ended december 31 , 2017 , 2016 and 2015 , respectively : replace_table_token_4_th impairment of long-lived assets our long-lived assets include property , plant and equipment , intangible assets and goodwill . we regularly review long-lived assets for impairment . the recoverability of long-lived assets , other than goodwill , is measured by comparing the assets carrying amount to the expected undiscounted future cash flows that the asset is expected to generate . determining whether an impairment has occurred typically requires various estimates and assumptions , including determining which cash flows are directly related to the potentially impaired asset , the useful life over which cash flows will occur , their amount , and the asset 's residual value , if any . we use internal cash flow estimates , quoted market prices when available and independent appraisals as appropriate to determine fair value . we derive the required cash flow estimates from our historical experience and our internal business plans and apply an appropriate discount rate . during 2015 , we determined that our buildings were impaired and therefore recorded an impairment loss of $ 3.6 million , which was recorded in impairment loss on buildings in the accompanying consolidated statements of comprehensive loss . there were no significant impairments of long-lived assets in 2017 or 2016 .
| overview we are a biopharmaceutical company focused on the development and commercialization of breakthrough treatments for human disease . we are presently devoting most of our resources to the commercialization or development of our four most advanced drug programs : we have obtained approval from the fda to sell our first commercial product , xermelo ( telotristat ethyl ) , an orally-delivered small molecule drug for the treatment of carcinoid syndrome diarrhea in combination with ssa therapy in adults inadequately controlled by ssa therapy . we have commenced sales and marketing of xermelo , and it is now commercially available to patients in the united states . we have granted ipsen an exclusive , royalty-bearing right to commercialize xermelo outside of the united states and japan , and ipsen has obtained approval from the european commission to market xermelo in the member states of the european union , norway and iceland . ipsen has commenced sales and marketing of xermelo , and it is commercially available to patients in the united kingdom , germany and certain other european union member states . we are developing sotagliflozin , an orally-delivered small molecule drug candidate , as a treatment for type 1 and type 2 diabetes . we have reported positive top-line data from two pivotal phase 3 clinical trials and a third phase 3 clinical trial of sotagliflozin in type 1 diabetes patients . we have granted sanofi an exclusive , worldwide ( excluding japan ) , royalty-bearing right to develop , manufacture and commercialize sotagliflozin . we and sanofi are presently preparing applications for regulatory approval to market sotagliflozin for type 1 diabetes in the united states and the european union , and sanofi is presently conducting phase 3 development of sotagliflozin in type 2 diabetes . we are developing lx2761 , an orally-delivered small molecule drug candidate , as a treatment for diabetes . we are presently conducting phase 1 clinical development of lx2761 .
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in 2017 , 60 % of our revenue was generated from development contracts , 21 % of our revenue was generated from product sales , 9 % was generated from a prorated portion of the $ 8.0 million upfront payment we received under a 2015 license agreement with sony for our picop® scanning technology , 5 % was generated from performance on contracts for prototype units , and 5 % was generated from ongoing per unit royalties . in 2017 , one commercial customer accounted for $ 5.8 million in revenue , representing 53 % of our total revenue , a second commercial customer accounted for $ 2.3 million in revenue , representing 21 % of our total revenue , and a third commercial customer accounted for $ 1.6 million in revenue , representing 14 % of our total revenue . in 2016 , 87 % of our revenue was generated from product sales , less than 1 % was generated from performance on contracts for prototype units , 7 % was generated from a prorated portion of the $ 8.0 million upfront payment , and 5 % was generated from ongoing per unit royalties . sony corporation ( sony ) accounted for 91 % of our total revenue in 2016. in 2015 , 70 % of our revenue was generated from product sales , 17 % was generated from performance on support services contracts , 10 % was generated from a prorated portion of the $ 8.0 million upfront payment , and 3 % was generated from ongoing per unit royalties . sony accounted for 98 % of our total revenue in 2015. we have incurred substantial losses since inception and expect to incur a significant loss during the fiscal year ending december 31 , 2018. we have funded operations to date primarily through the sale of common stock , convertible preferred stock , warrants , the issuance of convertible debt and , to a lesser extent , from development contract revenues , product sales and licensing activities . there can be no assurance that additional capital will be available or that , if available , it will be available on terms acceptable to us on a timely basis . we can not be certain that we will succeed in commercializing our technology or products . these factors raise substantial doubt regarding our ability to continue as a going concern . 15 these financial statements were prepared assuming we will continue as a going concern and do not include any adjustments that might be necessary should we be unable to continue as a going concern . key accounting policies and estimates our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . the preparation of these financial statements requires us to make estimates and judgments that materially affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosure of contingent liabilities . we evaluate our estimates on a continuous basis . we base our estimates on historical data , terms of existing contracts , our evaluation of trends in the information display and 3d sensing industries , information provided by our current and prospective customers and strategic partners , information available from other outside sources and on various other assumptions we believe to be reasonable under the circumstances . the results form the basis for making judgments regarding the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . we believe the following key accounting policies require significant judgments and estimates used in the preparation of our consolidated financial statements . revenue recognition we recognize revenue when : ( i ) persuasive evidence of an arrangement exists , ( ii ) delivery has occurred and there are no uncertainties regarding customer acceptance , ( iii ) fees are fixed or determinable , and ( iv ) collection is reasonably assured . we generate revenue from many sources and activities . we enter into arrangements that can include various combinations of product sales , services , and licensing activities . for multiple-element arrangements , we use a hierarchy to determine the contract consideration to be used for allocating revenue to deliverables : ( i ) vendor-specific objective evidence of fair value ( vsoe ) , ( ii ) third party evidence of selling price ( tpe ) , and ( iii ) best estimate of selling price . to date , our revenue sources can be classified as : product revenue , royalty revenue , contract revenue , or development revenue . product revenue our product sales generally include acceptance provisions . we recognize product revenue upon acceptance of the product by the customer or expiration of the contractual acceptance period , after which there are no rights of return . no estimates are made for product returns because revenue is recognized upon expiration of the contractual acceptance period . royalty revenue we recognize revenue on upfront license fees over the expected time frame that we provide services or have ongoing obligations under the agreement . ongoing per unit royalties are recognized when reported by our customer to us on a quarterly basis . currently , we recognize revenue for ongoing per unit royalties one quarter in arrears when reported by our customer , representing when such amounts are fixed and determinable , and all other revenue recognition criteria are met . contract revenue our contract revenue in a particular period is dependent upon when we enter into a contract , the value of the contracts we have entered into , and the availability of technical resources to perform work on the contracts . we recognize contract revenue related to the sale of prototype units and evaluation kits upon acceptance of the deliverables by the customer or expiration of the contractual acceptance period , after which there are no rights of return . story_separator_special_tag based on our history of losses since inception , the available objective evidence creates sufficient uncertainty regarding the realizability of the deferred tax assets . our actual tax exposure may differ from our estimates and any such differences may impact income our tax expense in the period in which such determination is made . the key accounting policies described above are not intended to be a comprehensive list of all of our accounting policies . in many cases , the accounting treatment of a particular transaction is specifically dictated by generally accepted accounting principles , with no need for us to apply judgment or make estimates . there are also areas in which our judgment in selecting any available alternative would not produce a materially different result to our consolidated financial statements . additional information about our accounting policies , and other disclosures required by generally accepted accounting principles , are set forth in the notes to our consolidated financial statements . inflation has not had a material impact on our revenues or income from continuing operations over the three most recent fiscal years . story_separator_special_tag face= '' times new roman '' size= '' -1 '' > research and development expense $ 15,096 $ 12,134 $ 2,962 24.4 research and development expense consists of compensation related costs of employees and contractors engaged in internal research and product development activities , direct material to support development programs , laboratory operations , outsourced development and processing work , and other operating expenses . we assign our research and development resources based on the business opportunity of the available projects , the skill mix of the resources available and the contractual commitments we have made to our customers . we believe that a substantial level of continuing research and development expense will be required to further develop our scanning technology . the increase in research and development expense during the year ended december 31 , 2017 , compared to 2016 , was attributable to higher costs related to subcontractors , direct materials and increased headcount and personnel-related compensation and benefits expenses related to our lbs engine development . sales , marketing , general and administrative expense 2017 2016 $ change % change ( in thousands ) sales , marketing , general and administrative expense $ 10,156 $ 8,743 $ 1,413 16.2 sales , marketing , general and administrative expense includes compensation and support costs for marketing , sales , management and administrative staff , and for other general and administrative costs , including legal and accounting services , consultants and other operating expenses . the increase in sales , marketing , general and administrative expense during the year ended december 31 , 2017 , compared to 2016 , was primarily due to separation costs associated with the departure of our former chief executive officer , and to a lesser extent increased professional fees and business development costs . 20 gain on sale of previously reserved inventory replace_table_token_8_th gain on sale of previously reserved inventory includes the sales of excess component inventory for discontinued products that was fully reserved in prior periods . the activity during the year ended december 31 , 2016 was primarily the sale of previously reserved excess component inventory . year ended december 31 , 2016 compared to year ended december 31 , 2015. product revenue replace_table_token_9_th product revenue was higher during the year ended december 31 , 2016 , compared to the same period in 2015 , due to higher product sales to sony as part of continued shipments of orders we received during 2015 and 2014 totaling $ 14.6 million and $ 3.8 million , respectively , for key components to be integrated into display modules it manufactures and sells . during 2016 , we completed delivery of all outstanding orders from sony and the backlog of product orders at december 31 , 2016 was zero compared to $ 11.0 million at december 31 , 2015. royalty revenue replace_table_token_10_th royalty revenue was higher during the year ended december 31 , 2016 , compared to the same period in 2015 , as a result of higher royalty payments we received from sony for display modules it sold . during the year ended december 31 , 2016 , we recognized $ 801,000 from ongoing per unit royalties , and $ 1.0 million from a prorated portion of the $ 8.0 million upfront payment . during the year ended december 31 , 2015 , we recognized $ 316,000 from ongoing per unit royalties , and $ 849,000 from a prorated portion of the $ 8.0 million upfront payment . at december 31 , 2016 , remaining unrecognized upfront license fees are included in current and long-term deferred revenues , amounting to $ 999,000 and $ 5.1 million , respectively . at december 31 , 2015 , unrecognized upfront license fees are included in current and long-term deferred revenues , amounting to $ 1.0 million and $ 6.1 million , respectively . contract revenue replace_table_token_11_th in june 2015 , we recognized the full contract value of $ 1.5 million in revenue having completed all deliverables and obligations under an agreement to provide support services to sony for the production readiness , initial production and market launch for display modules incorporating our picop® scanning technology . the contract backlog , including orders for prototype units and evaluation kits , at december 31 , 2016 was $ 942,000 compared to $ 45,000 at december 31 , 2015 . 21 cost of product revenue replace_table_token_12_th cost of product revenue as a percentage of net product revenue decreased during the year ended december 31 , 2016 , compared to 2015 , driven primarily by a significant increase in product deliveries to sony .
| results of operations year ended december 31 , 2017 compared to year ended december 31 , 2016. product revenue replace_table_token_3_th product revenue is revenue from sales of our products which are lbs engines , mems and asics . our product sales generally include acceptance provisions . we recognize product revenue upon acceptance of the product by the customer or the expiration of the contractual acceptance period , after which there are no rights of return . during the fourth quarter of 2016 , we completed delivery of all outstanding orders from sony for key components to be integrated into display modules it manufactures and sells . product revenue was lower during the year ended december 31 , 2017 , compared to the same period in 2016 , due to no component sales and is partially offset by the initial shipments of our engines . in march 2017 , we received a $ 6.7 million order for small form factor display engines from ragentek . the backlog of product orders at december 31 , 2017 was approximately $ 4.3 million compared to zero at december 31 , 2016. the product backlog is scheduled for delivery during the next twelve months . in april 2017 , we signed a contract with a major technology company to develop an lbs display system . the backlog of product orders at december 31 , 2017 does not include any portion of the upfront payment from the april 2017 contract . 18 royalty revenue replace_table_token_4_th royalty revenue is revenue under license agreements to our picop® scanning technology . we recognize revenue on upfront license fees over the expected time frame that we provide services or have ongoing obligations under the agreement . ongoing per unit royalties are reported by sony and are recognized as revenue in the period in which the data becomes available to us .
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oreo is held for sale and is recorded at the story_separator_special_tag the following is management 's discussion and analysis of the financial condition and results of operations of first busey and subsidiaries for the years ended december 31 , 2012 , 2011 , and 2010. it should be read in conjunction with item 1. business , item 6. selected financial data , the consolidated financial statements and the related notes to the consolidated financial statements included in this annual report . critical accounting estimates critical accounting estimates are those that are critical to the portrayal and understanding of first busey 's financial condition and results of operations and require management to make assumptions that are difficult , subjective or complex . these estimates involve judgments , estimates and uncertainties that are susceptible to change . in the event that different assumptions or conditions were to prevail , and depending on the severity of such changes , the possibility of a materially different financial condition or materially different results of operations is a reasonable likelihood . first busey 's significant accounting policies are described in note 1 significant accounting policies in the notes to the consolidated financial statements . the majority of these accounting policies do not require management to make difficult , subjective or complex judgments or estimates or the variability of the estimates is not material . however , the following policies could be deemed critical : fair value of investment securities . securities are classified as held-to-maturity when first busey has the ability and management has the positive intent to hold those securities to maturity . accordingly , they are stated at cost , adjusted for amortization of premiums and accretion of discounts . first busey had no securities classified as held-to-maturity at december 31 , 2012 or 2011. securities are classified as available for sale when first busey may decide to sell those securities due to changes in market interest rates , liquidity needs , changes in yields on alternative investments , and for other reasons . they are carried at fair value with unrealized gains and losses , net of taxes , reported in other comprehensive income . all of first busey 's securities are classified as available for sale . for equity securities , unadjusted quoted prices in active markets for identical assets are utilized to determine fair value at the measurement date . for all other securities , we obtain fair value measurements from an independent pricing service . the fair value measurements consider observable data that may include dealer quotes , market spreads , cash flows , the u.s. treasury yield curve , live trading levels , trade execution data , market consensus prepayment speeds , credit information and the security 's terms and conditions , among other things . due to the limited nature of the market for certain securities , the fair value and potential sale proceeds could be materially different in the event of a sale . realized securities gains or losses are reported in securities gains ( losses ) , net in the consolidated statements of income . the cost of securities sold is based on the specific identification method . declines in the fair value of available for sale securities below their amortized cost are evaluated to determine whether the loss is temporary or other-than-temporary . if the company ( a ) has the intent to sell a debt security or ( b ) will more-likely-than-not be required to sell the debt security before its anticipated recovery , then the company recognizes the entire unrealized loss in earnings as an other-than-temporary loss . if neither of these conditions are met , the company evaluates whether a credit loss exists . the impairment is separated into the amount of the total impairment related to the credit loss and the amount of total impairment related to all other factors . the amount of the total other-than-temporary impairment related to the credit loss is recognized in earnings and the amount related to all other factors is recognized in other comprehensive income . the company also evaluates whether the decline in fair value of an equity security is temporary or other-than-temporary . in determining whether an unrealized loss on an equity security is temporary or other-than-temporary , management considers various factors including the magnitude and duration of the impairment , the financial condition and near-term prospects of the issuer , and the intent and ability of the company to hold the equity security to forecasted recovery . allowance for loan losses . first busey has established an allowance for loan losses which represents its estimate of the probable losses inherent in the loan portfolio as of the date of the financial statements . management has established an allowance for loan losses which reduces the total loans outstanding by an estimate of uncollectible loans . loans deemed uncollectible are charged against and reduce the allowance . a provision for loan losses is charged to current expense . this provision acts to replenish the allowance for loan losses and to maintain the allowance at a level that management deems adequate . 33 to determine the adequacy of the allowance for loan losses , a formal analysis is completed quarterly to assess the risk within the loan portfolio . this assessment is reviewed by senior management of the bank and holding company . the analysis includes review of historical performance , dollar amount and trends of past due loans , dollar amount and trends in non-performing loans , review of certain impaired loans , and review of loans identified as sensitive assets . sensitive assets include non-accrual loans , past-due loans , loans on first busey 's watch loan reports and other loans identified as having probable potential for loss . the allowance consists of specific and general components . the specific component considers loans that are classified as impaired . story_separator_special_tag in addition , the company is expanding its toll-free customer support hours and continually monitors avenues of development for innovative mobile channels of delivery . the process of understanding and optimizing best avenues for service distribution will be an ongoing exercise . in 2013 we will continue to monitor our investments and revenue growth with the greatest of care as we strive to deliver optimal value to our shareholders . with a healthy capital foundation , consistent earnings and dividend history , strong credit quality , and a reinforced sales model , we believe we remain well positioned to explore potential external growth opportunities to enhance and complement our mission to achieve positive organic growth . we take pride in our past and look confidently towards our future . 36 results of operation three years ended december 31 , 2012 net interest income net interest income is the difference between interest income and fees earned on earning assets and interest expense incurred on interest-bearing liabilities . interest rate levels and volume fluctuations within earning assets and interest-bearing liabilities impact net interest income . net interest margin is tax-equivalent net interest income as a percent of average earning assets . certain assets with tax favorable treatment are evaluated on a tax-equivalent basis . tax-equivalent basis assumes a federal income tax rate of 35 % . tax favorable assets generally have lower contractual pre-tax yields than fully taxable assets . a tax-equivalent analysis is performed by adding the tax savings to the earnings on tax favorable assets . after factoring in the tax favorable effects of these assets , the yields may be more appropriately evaluated against alternative earning assets . in addition to yield , various other risks are factored into the evaluation process . the following table shows the consolidated average balance sheets , detailing the major categories of assets and liabilities , the interest income earned on interest-earning assets , the interest expense paid for the interest-bearing liabilities , and the related interest rates for the periods , or as of the dates , shown . all average information is provided on a daily average basis . 37 average balance sheets and interest rates replace_table_token_6_th ( 1 ) on a tax-equivalent basis , assuming a federal income tax rate of 35 % . ( 2 ) non-accrual loans have been included in average loans , net of unearned discount . ( 3 ) includes loan fee income of $ 2.0 million , $ 1.4 million and $ 1.0 million for 2012 , 2011 and 2010 , respectively . 38 average balance sheets and interest rates ( continued ) changes in net interest income : replace_table_token_7_th ( 1 ) changes due to both rate and volume have been allocated proportionally . ( 2 ) on a tax-equivalent basis , assuming a federal income tax rate of 35 % . earning assets , sources of funds , and net interest margin average earning assets increased $ 34.6 million , or 1.1 % , to $ 3.22 billion in 2012 as compared to $ 3.19 billion in 2011. average earning assets decreased $ 140.7 million , or 4.2 % , to $ 3.19 billion in 2011 as compared to $ 3.33 billion in 2010. in 2012 , investment securities increased , which more than offset the decline in average loans ; however , at a much lower yield . the 2011 decline in the average balance of earning assets was due primarily to the decrease in loans as we continued to actively remove under and non-performing loans from our loan portfolio . soft loan demand and strong competition effected our ability to grow loans in 2012 and 2011. interest-bearing liabilities decreased slightly in 2012 compared to 2011. interest-bearing liabilities averaged $ 2.55 billion in 2011 , a decrease of $ 279.0 million from the average balance of $ 2.83 billion in 2010. the decrease in interest-bearing liabilities in both periods was due to a focus on reducing our non-core funding , which we were able to do in light of a decrease in our average loans and a continued increase in our average noninterest-bearing deposits during 2012 and 2011. interest income , on a tax-equivalent basis , decreased $ 15.5 million , or 11.5 % , to $ 119.2 million in 2012 from $ 134.7 million in 2011. interest income , on a tax-equivalent basis , decreased $ 23.4 million , or 14.8 % , to $ 134.7 million in 2011 from $ 158.2 million in 2010. the interest income declines in 2012 and 2011 were primarily related to decreases in loan volume as well as decreased yields in the continued low interest rate environment . interest expense decreased during 2012 by $ 7.7 million , or 34.1 % , to $ 14.8 million from $ 22.4 million in 2011. interest expense decreased during 2011 by $ 16.6 million , or 42.5 % , to $ 22.4 million from $ 39.0 million in 2010. the decreases in interest expense during the past two years were primarily due to the declining deposit and debt interest rate environment present since 2008. additionally , as our loan balances declined and we increased noninterest-bearing deposits , we were able to reduce our non-core funding sources . 39 net interest income , on a tax-equivalent basis , decreased $ 7.8 million , or 6.96 % , in 2012 as compared to 2011. net interest income , on a tax-equivalent basis , decreased $ 6.8 million , or 5.74 % , in 2011 as compared to 2010. net interest margin , our net interest income expressed as a percentage of average earning assets stated on a tax-equivalent basis , decreased to 3.24 % in 2012 from 3.52 % in 2011 and 3.58 % during 2010. the net interest spread , also on a tax-equivalent basis , was 3.12 % in 2012 compared to 3.35 % in 2011 , which was relatively steady with 3.37 % in 2010. the quarterly net interest margins are as follows : replace_table_token_8_th we continue to experience downward pressure on our yield
| operating results replace_table_token_5_th operating performance first busey corporation 's net income for the year ended december 31 , 2012 was $ 22.4 million and net income available to common shareholders was $ 18.7 million , or $ 0.22 per fully-diluted common share , as compared to net income of $ 29.9 million and net income available to common shareholders of $ 24.5 million , or $ 0.29 per fully-diluted common share , for the year ended december 31 , 2011. as net interest income margins have compressed , non-interest income sources of revenue have increased . the decrease in net income from year to year is due in large part to the previously disclosed commitment to our commercial banking and fee-based businesses , which have increased certain costs . this commitment is the centerpiece of our long term strategy to build quality asset and fee growth based upon solid capital and a careful balance of risk and return . significant operating performance items were : · net interest income for the year ended december 31 , 2012 was $ 102.1 million compared to $ 110.4 million for the same period of 2011. year-over-year net interest income declines were driven by decreases in average loan volumes and yields , which have prompted initiatives to foster quality asset growth . additional liquidity generated by our growing deposit base has primarily been deployed into our investment portfolio over the past year which has a lower average yield than our loan portfolio . · net interest margin for the year ended december 31 , 2012 decreased to 3.24 % compared to 3.52 % for the same period of 2011. the company continued to experience downward pressure on its yield on interest-earning assets resulting from a protracted period of historically low rates and heightened competition for assets , which has been experienced throughout the banking industry .
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recent developments on february 28 , 2016 , we entered into an agreement and plan of merger ( the merger agreement ) with rf1 holding company ( parent ) and rf acquisition sub , inc. , a wholly owned subsidiary of parent ( merger sub ) , providing for the merger of merger sub with and into the company ( the merger ) , with api surviving the merger as a wholly owned subsidiary of parent . in connection with transactions contemplated by the merger agreement , on february 28 , 2016 , we also entered into amendment no . 4 ( the amendment no . 4 ) to the term loan agreement ( as defined below ) , by and among the company , as borrower , the lenders party thereto and guggenheim corporate funding , llc , as administrative agent ( the agent ) . business overview of api technologies corp. we design , develop and manufacture high reliability rf microwave , millimeterwave , microelectronics , power , and security products and solutions to the defense , aerospace , industrial , satellite , and commercial end markets . in addition , we provide electronics manufacturing services to such markets . we own and operate several state-of-the-art manufacturing facilities in the u.s. , the u.k. , canada , china and mexico . operating through our three segments ; systems , subsystems & components ( ssc ) , electronic manufacturing services ( ems ) and secure systems & information assurance ( ssia ) , we are positioned as a differentiated solution provider to u.s. and u.s. friendly governments , military , defense , aerospace and homeland security contractors , and leading industrial and commercial firms . with a focus on high-reliability products and solutions , our product portfolio spans rf/microwave and microelectronics , electromagnetics , power products , and security products . we also offer a wide range of electronic manufacturing services from prototyping to high volume production . on june 8 , 2015 we completed the acquisition of aeroflex / inmet , inc. ( inmet ) and aeroflex / weinschel , inc. ( weinschel ) from cobham plc for a total purchase price of approximately $ 80.0 million . inmet and weinschel have each been in business for more than 40 years , and each manufactures and sells rf and microwave products for defense , space , avionics , wireless , and test and measurement applications . the acquisitions of inmet and weinschel add breadth to our rf , microwave , and microelectronics product portfolio , extend our subsystems offering , and further our reach in key end markets , including defense , space , commercial aviation , and wireless . we financed the acquisition with an $ 85.0 million add-on to our existing term loan with the agent through an amendment no . 3 to credit agreement ( the amendment no . 3 ) , by and among the company , as borrower , the lenders party thereto and the agent , as administrative agent . amendment no . 3 permits the acquisitions of inmet and weinschel and amends the credit agreement , dated as of february 6 , 2013 , by and among the company , as borrower , the lenders party thereto and agent ( as amended , supplemented or modified from time to time , the term loan agreement ) to provide for an incremental term loan facility in an 32 aggregate principal amount equal to $ 85.0 million ( the second incremental term loan facility ) . the proceeds of the second incremental term loan facility were used to fund the purchase price for the acquisition of inmet and weinschel and related fees and expenses , with the remainder available for general corporate purposes . we paid customary arrangement and commitment fees , as well as an amendment fee , in connection with the second incremental term loan facility . on march 21 , 2014 , we entered into amendment no . 2 to credit agreement ( the amendment no . 2 ) , by and among the company , as borrower , the lenders party thereto and the agent , as administrative agent . amendment no . 2 amends the term loan agreement to provide for an incremental term loan facility in an aggregate principal amount equal to $ 55.0 million ( the incremental term loan facility ) . the incremental term loan facility is subject to substantially the same terms and conditions , including the applicable interest rate and the maturity date of february 6 , 2018 , as the $ 165.0 million term loan facility provided upon the initial closing of the term loan agreement . in addition , amendment no . 2 amends the term loan agreement to reduce the minimum interest coverage ratio and increase the maximum leverage ratio , among other things . the proceeds of the incremental term loan facility were used ( i ) to pay in full the amounts due under a credit agreement ( the revolving loan agreement ) , by and among the company and certain of its u.s. subsidiaries , as borrowers , the lenders from time to time party thereto and wells fargo bank , national association , as administrative agent and u.k. security trustee , which revolving loan agreement was then terminated ; ( ii ) to redeem all 26,000 shares of the company 's series a mandatorily redeemable preferred stock that were outstanding ( as described below ) ; ( iii ) to pay fees , costs and expenses associated with the incremental term loan facility and related transactions ; and ( iv ) for general corporate purposes . as of march 21 , 2014 , we redeemed all 26,000 shares of our series a mandatorily redeemable preferred stock that were outstanding . we paid the holder of the series a mandatorily redeemable preferred stock an aggregate of $ 27.6 million to effect the redemption . following redemption , all shares of series a mandatorily redeemable preferred stock were cancelled and such shares were returned to authorized but undesignated shares of preferred stock . story_separator_special_tag the decreases in our ems and ssc segments resulted from lower bookings in the year ended november 30 , 2015 , and were partially offset by increased ssia bookings in the year ended november 30 , 2015. results of operations year ended november 30 , 2015 compared to year ended 2014 the following discussion of results of operations is a comparison of our year ended november 30 , 2015 and 2014. segment operating revenue and adjusted ebitda financial information for each of our segments is set forth in part ii- item 8 , financial statements and supplementary data , note 21 segment information and geographical data to our audited consolidated financial statements included in this annual report on form 10-k. in deciding how to allocate resources and assess performance , our chief operating decision maker regularly evaluates the performance of our reportable segments on the basis of revenue and adjusted ebitda . segment adjusted ebitda assists us in comparing our segment performance over various reporting periods because it removes from our operating results the impact of items that our management believes do not reflect our core operating performance . our reportable segment measure of adjusted ebitda is not a recognized measure under gaap and should not be considered an alternative to , or more meaningful than , net income ( loss ) or other measures of financial performance derived in accordance with gaap . our segment adjusted ebitda may not be comparable to similarly titled measures of other companies because other entities may not calculate segment adjusted ebitda in the same manner . 35 our segment adjusted ebitda is defined as income from continuing operations before income taxes , interest , depreciation and amortization , and excluding other items . such items include stock-based compensation expense , non-cash inventory provisions , charges related to inmet and weinschel purchase accounting , franchise taxes , acquisition related charges , restructuring charges , financing and other adjustments , foreign exchange losses , contingency accruals , change in benefit liability and lease payments related to the sale/leaseback . replace_table_token_5_th consolidated revenues for the year ended november 30 , 2015 increased 2.4 % over the year ended november 30 , 2014. the increase was due primarily to higher revenues in our ssc segment , partially offset by lower revenues in our ssia segment . the ssc segment increased by more than 5.0 % primarily due to approximately $ 21.4 million from the acquisition of inmet and weinschel , partially offset by the timing of certain key defense programs . the decrease in the ssia segment is due primarily to purchasing delays by the canadian government as a result of its federal election , but was partially offset by an increase in revenues at the ssia u.k. location . replace_table_token_6_th the ssc segment adjusted ebitda for the year ended november 30 , 2015 was lower than 2014 , as a result of higher operating expenses , including higher health care costs and the acquisition of inmet and weinschel , partially offset by a product mix shift to sales with higher margins . during the year ended november 30 , 2015 , the increase in our ems segment adjusted ebitda was primarily due to improved efficiencies , including cost reductions in the year ended november 30 , 2015 compared to the prior year . the ssia segment has higher adjusted ebitda , despite lower revenues , compared to the prior year as a result of a change in product mix in the year ended november 30 , 2015 , due primarily to the completion of a contract in the year ended november 30 , 2014 with a low margin profile . operating expenses cost of revenues and gross margin replace_table_token_7_th 36 our consolidated gross margin for the year ended november 30 , 2015 increased 1.0 percentage points compared to the prior year . gross profit margin varies from period to period and can be affected by a number of factors , including product mix , new product introduction , production efficiency , inventory obsolescence and restructuring activities . overall cost of revenues as a percentage of sales decreased for the year ended november 30 , 2015 to 76.0 % compared to 77.0 % for the same period in 2014. the ssc segment cost of revenues for fiscal 2015 decreased 0.5 percentage points compared to fiscal 2014 , mainly as a result of a change in product mix in fiscal 2015 , as we shipped products on certain programs with lower costs of revenues from the inmet and weinschel acquisition . the ems segment cost of revenues in fiscal 2015 decreased by 1.7 percentage points compared to fiscal 2014 primarily as a result of cost reductions realized in fiscal 2015 compared to fiscal 2014. the cost of revenues for the ssia segment decreased 3.8 percentage points in fiscal 2015 compared to fiscal 2014. the decrease is a result of an unfavorable product mix in the year ended november 30 , 2014 , due primarily to the completion of a contract with a lower margin profile . consolidated restructuring costs recorded in cost of revenues in fiscal 2015 decreased to approximately $ 0.5 million from approximately $ 1.1 million for the year ended november 30 , 2014. general and administrative expenses consolidated general and administrative expenses increased to approximately $ 29.2 million for the year ended november 30 , 2015 from $ 23.1 million for the year ended november 30 , 2014. the increase is primarily a result of approximately $ 5.6 million from the acquisition of inmet and weinschel , including higher salaries , higher amortization of intangibles and higher stock based compensation for the full year of fiscal 2015. as a percentage of sales , general and administrative expenses were 12.6 % for the year ended november 30 , 2015 , compared to 10.2 % for the year ended november 30 , 2014. the major components of general and administrative expenses are as follows : replace_table_token_8_th selling expenses selling expenses increased to approximately $ 15.4 million for the year ended november 30 , 2015 from approximately $ 14.5 million for the year ended
| overview and summary our principal sources of liquidity include cash flows from operations , funds from borrowings and existing cash on hand . at november 30 , 2015 , we held cash and cash equivalents of approximately $ 7.2 million compared to $ 8.3 million at november 30 , 2014. we believe that our available cash and cash equivalents and future cash flows from operations will be sufficient to satisfy our anticipated cash requirements for the next twelve months , including scheduled debt repayments , lease commitments , planned capital expenditures , and research and development expenses . there can be no assurance , however , that unplanned capital replacements or other future events will not require us to seek additional debt or equity financing and , if so required , that it will be available on terms acceptable to us , if at all . any issuance of additional equity could dilute our current stockholders ' ownership interests . on june 8 , 2015 , we entered into amendment no . 3 , which amends the term loan agreement to provide for an incremental term loan facility in an aggregate principal amount equal to $ 85.0 million ( the second incremental term loan facility ) , increases the margins applicable to the outstanding term loans to 7.50 % in the case of base rate loans and 8.50 % in the case of libor loans , beginning december 2015 , amends the prepayment premiums that we are required to pay upon voluntary prepayments or certain mandatory prepayments of the term loans , permits certain additional adjustments to our consolidated ebitda for cost savings in connection with the acquisition inmet and weinschel , and reduces the minimum interest coverage ratio and increases the maximum leverage ratio for certain compliance periods . the proceeds of the second incremental term loan facility were primarily used to fund the purchase price for the inmet and weinschel acquisition .
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overview we are a leading operator of automotive franchises and a retailer of new and used vehicles and related services . as of february 28 , 2017 , we offered 30 brands of new vehicles and all brands of used vehicles in 154 stores in the united states and online at lithia.com , dchauto.com and carbonecars.com . we sell new and used cars and replacement parts ; provide vehicle maintenance , warranty , paint and repair services ; arrange related financing ; and sell vehicle service contracts , vehicle protection products and credit insurance . we believe that the fragmented nature of the automotive dealership sector provides us with the opportunity to achieve growth through consolidation . in 2016 , the top ten automotive retailers , as reported by automotive news , represented approximately 7 % of the stores in the united states . our dealerships are located across the united states . we seek domestic , import and luxury franchises in cities ranging from mid-sized regional markets to metropolitan markets . we evaluate all brands for expansion opportunities provided the market is large enough to support adequate new vehicle sales to justify the required capital investment . our acquisition strategy has been to acquire dealerships at prices that meet our internal investment targets and , through the application of our centralized operating structure , leverage costs and improve store profitability . we believe our disciplined approach and the current economic environment provides us with attractive acquisition opportunities . we also believe that we can continue to improve operations at our existing stores . by promoting entrepreneurial leadership within our general and department managers , we strive for continuous improvement to drive sales and capture market share in our local markets . our goal is to retail an average of 75 used vehicles per store per month and we believe we can make additional improvements in our used vehicle sales performance by offering lower-priced value vehicles and selling brands other than the new vehicle franchise at each location . our service , body and parts operations provide important repeat business for our stores . we continue to grow this business through increased marketing efforts , competitive pricing on routine maintenance items and diverse commodity product offerings . in 2016 , we continued to experience organic growth and profitability through increasing market share and maintaining a lean cost structure , while adding significant revenue to our base through acquisitions . as sales volume increases and we gain leverage in our cost structure , we anticipate targeting sg & a as a percentage of gross profit in the upper 60 % range . as we focus on maintaining discipline in controlling costs , we continue to target maintaining , on a same store basis , between 45 % and 50 % of each incremental gross profit dollar after deducting sg & a expense . critical accounting policies and estimates the preparation of financial statements in conformity with u.s. generally accepted accounting principles requires us to make certain estimates , judgments and assumptions that affect the reported amounts of assets and liabilities , the disclosure of contingent assets and liabilities and reported amounts of revenues and expenses at the date of the financial statements . certain accounting policies require us to make difficult and subjective judgments on matters that are inherently uncertain . the following accounting policies involve critical accounting estimates because they are particularly dependent on assumptions made by management . while we have made our best estimates based on facts and circumstances available to us at the time , different estimates could have been used in the current period . changes in the accounting estimates we used are reasonably likely to occur from period to period , which may have a material impact on the presentation of our financial condition and results of operations . 33 our most critical accounting estimates include those related to goodwill and franchise value , long-lived assets , deferred taxes , equity-method investment associated with new markets tax credits , service contracts and other insurance contracts , and lifetime lube , oil and filter contracts and self-insurance programs . we also have other key accounting policies for valuation of accounts receivable , expense accruals and revenue recognition . however , these policies either do not meet the definition of critical accounting estimates described above or are not currently material items in our financial statements . we review our estimates , judgments and assumptions periodically and reflect the effects of revisions in the period that they are deemed to be necessary . we believe that these estimates are reasonable . however , actual results could differ materially from these estimates . goodwill and franchise value we are required to test our goodwill and franchise value for impairment at least annually , or more frequently if conditions indicate that an impairment may have occurred . goodwill is tested for impairment at the reporting unit level . our reporting units are individual retail automotive franchises as this is the level at which discrete financial information is available and for which operating results are regularly reviewed by our chief operating decision maker to allocate resources and assess performance . we have the option to qualitatively or quantitatively assess goodwill for impairment and , in 2016 , we evaluated our goodwill using a qualitative assessment process . if the qualitative factors determine that it is more likely than not that the fair value of the reporting unit exceeds the carrying amount , goodwill is not impaired . if the qualitative assessment determines it is more likely than not the fair value is less than the carrying amount , the first step of the two-step goodwill impairment test is performed . as of december 31 , 2016 , we had $ 259.4 million of goodwill on our balance sheet associated with 154 reporting units . story_separator_special_tag based upon the scheduled reversal of deferred tax liabilities , and our projections of future taxable income over the periods in which the deferred tax assets are deductible , we believe it is more likely than not that we will realize the benefits of the unreserved deductible differences . as of december 31 , 2016 , we had a $ 0.2 million valuation allowance against our deferred tax assets associated with state net operating losses . since these amounts are dependent on generating future taxable income , we evaluated the income expectations in the underlying states and determined that it is unlikely these amounts will be fully utilized . if we are unable to meet the projected taxable income levels utilized in our analysis , and depending on the availability of feasible tax planning strategies , we might record an additional valuation allowance on a portion or all of our deferred tax assets in the future . 35 equity-method investment associated with new markets tax credits in 2016 and 2015 , we held an equity investment in a limited liability company managed by u.s. bancorp community development corporation . this investment generated new market tax credits under the new markets tax credit program ( “ nmtc program ” ) . the nmtc program was established by congress in 2000 to spur new or increased investments into operating businesses and real estate projects located in low-income communities . while u.s. bancorp community development corporation exercised management control over the limited liability company , due to the economic interest we held in the entity , we determined the appropriate accounting for our ownership portion of the entity was under the equity method of accounting . the equity-method investment generated operating losses on a quarterly basis and , accordingly , we were required to assess the investment for other than temporary impairment on a quarterly basis . in 2016 , we recorded asset impairments totaling $ 14.0 million . we also recorded non-cash interest expense related to the discounted fair value of future equity contributions of $ 0.2 million , an $ 8.3 million charge to other income , net for our portion of the investment 's operating losses and a tax benefit of $ 28.5 million . as of december 31 , 2016 , we no longer owned any interest in the equity investment . see notes 1 , 12 and 18 of notes to consolidated financial statements for additional information . service contracts and other insurance contracts we receive commissions from the sale of vehicle service contracts and certain other insurance contracts . the contracts are sold through unrelated third parties , but we may be charged back for a portion of the commissions in the event of early termination of the contracts by customers . we sell these contracts on a straight commission basis ; in addition , we participate in future underwriting profit pursuant to retrospective commission arrangements , which are recognized as income upon receipt . we record commissions at the time of sale of the vehicles , net of an estimated liability for future charge-backs . we have established a reserve for estimated future charge-backs based on an analysis of historical charge-backs in conjunction with estimated lives of the applicable contracts . if future cancellations are different than expected , we could have additional expense related to the cancellations in future periods , which could have a material adverse impact on our financial position and results of operations . at december 31 , 2016 , the reserve for future cancellations totaled $ 44.2 million and is included in accrued liabilities and other long-term liabilities on our consolidated balance sheets . a 10 % increase in expected cancellations would result in an additional reserve of $ 4.4 million . lifetime lube , oil and filter contracts we retain the obligation for lifetime lube , oil and filter service contracts sold to our customers and assumed the liability of certain existing lifetime , lube , oil and filter contracts . payments we receive upon sale of the lifetime oil contracts are deferred and recognized in revenue over the expected life of the service agreement to best match the expected timing of the costs to be incurred to perform the service . we estimate the timing and amount of future costs for claims and cancellations related to our lifetime lube , oil and filter contracts using historical experience rates and estimated future costs . at december 31 , 2016 , the deferred revenue related to these self-insured contracts was $ 99.6 million . self-insurance programs we self-insure a portion of our property and casualty insurance , vehicle open lot coverage , medical insurance and workers ' compensation insurance . we engage third-parties to assist in estimating the loss exposure related to the self-retained portion of the risk associated with these insurances . additionally , we analyze our historical loss and claims trends associated with these programs . the maximum exposure on any single claim under our property and casualty insurance , medical insurance and workers ' compensation insurance is $ 1 million . there is no limit on our exposure to wind and hail storms for our vehicle open lot coverage . although we believe we have sufficient insurance , exposure to uninsured or underinsured losses may result in the recognition of additional charges , which could have a material adverse impact on our financial position and results of operations . 36 at december 31 , 2016 , we had liabilities associated with these programs of $ 32.8 million recorded as a component of accrued liabilities and other long-term liabilities on our consolidated balance sheets . story_separator_special_tag times new roman , times , serif '' > used vehicle wholesale revenue and gross profit replace_table_token_17_th 42 replace_table_token_18_th wholesale transactions are vehicles we have purchased from customers or vehicles we have attempted to sell via retail that we elect to dispose of due to inventory age or other factors .
| results of continuing operations for the year ended december 31 , 2016 , we reported income from continuing operations , net of tax , of $ 197.1 million , or $ 7.72 per diluted share . for the years ended december 31 , 2015 and 2014 , we reported income from continuing operations , net of tax , of $ 183.0 million , or $ 6.91 per diluted share , and $ 135.5 million , or $ 5.14 per diluted share , respectively . discontinued operations in the third quarter of 2014 , we early-adopted guidance that redefined discontinued operations . as a result , we determined that individual stores that met the criteria for held for sale after our adoption date would no longer qualify for classification as discontinued operations . we had previously reclassified a store 's operations to discontinued operations in our consolidated statements of operations , on a comparable basis for all periods presented , provided we did not expect to have any significant continuing involvement in the store 's operations after its disposal . we did not have any income from discontinued operations for the years ended december 31 , 2016 or 2015. we realized income from discontinued operations , net of income tax expense , of $ 3.2 million for the year ended december 31 , 2014. see note 15 of notes to consolidated financial statements for additional information . key performance metrics certain key performance metrics for revenue and gross profit were as follows ( dollars in thousands ) : replace_table_token_8_th replace_table_token_9_th 37 replace_table_token_10_th ( 1 ) commissions reported net of anticipated cancellations . same store operating data we believe that same store comparisons are an important indicator of our financial performance . same store measures demonstrate our ability to grow revenues in our existing locations . therefore , we have integrated same store measures into the discussion below .
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4. accrued expenses accrued expenses consisted of the following ( in thousands ) : replace_table_token_14_th 5. commitments and contingencies operating lease commitments the company 's portfolio of commercial real estate leases consists of office space for its corporate headquarters in boston , massachusetts and for administrative space in göteborg , sweden , both of which are accounted for as operating leases . these leases include renewal rights and , as for the corporate headquarters lease , escalating payments . on march 28 , 2019 , the company entered into an amendment to the boston , massachusetts lease to ( i ) replace the company 's prior office space with a new office space that is being leased from the same landlord and ( ii ) extend the term of the lease through october 31 , 2026. the new leased space contains monthly lease payments subject to annual story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes included elsewhere in this annual report on form 10-k. some of the information contained in this discussion and analysis or set forth elsewhere in this form 10-k , including information with respect to our plans and strategy for our business and related financing , includes forward-looking statements that involve risks and uncertainties . you should read the “ risk factors ” section of this annual report on form 10-k ( see part i , item 1a ) for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by any forward-looking statement contained in the following discussion and analysis . since inception , we have incurred significant operating losses . as of december 31 , 2020 , we had an accumulated deficit of $ 266.8 million . we expect to continue to incur significant expenses and increasing operating losses as we continue our development of , and seek marketing approvals for , our product candidates , prepare for and begin the commercialization of any approved products , and add infrastructure and personnel to support our product development efforts and operations as a public company in the united states . as a clinical-stage company , our revenues , expenses and results of operations are likely to fluctuate significantly from quarter to quarter and year to year . we believe that period-to-period comparisons of our results of operations should not be relied upon as indicative of our future performance . as of december 31 , 2020 , we had approximately $ 251.3 million in cash and cash equivalents . financial operations overview the following discussion sets forth certain components of our consolidated statements of operations as well as factors that impact those items . revenue we generate revenue from the receipt of royalty revenue , upfront or license fees and milestone payments . license agreements with commercial partners generally include nonrefundable upfront fees and milestone payments , the receipt of which is dependent upon the achievement of specified development , regulatory or commercial milestone events , as well as royalties on product sales of licensed products , if and when such product sales occur , and payments for pharmaceutical ingredient or related procurement services . for these agreements , management applies judgment in the allocation of total agreement consideration to the performance obligations on a reliable basis that reasonably reflects the selling prices that might be expected to be achieved in stand-alone transactions . for additional information about our revenue recognition , refer to note 1 to our consolidated financial statements included in this annual report on form 10-k. for the years ended december 31 , 2020 and 2019 , we recognized revenue of $ 8.3 million and $ 9.6 million , respectively , related to our agreement with ea pharma . we expect that any future revenue recognized under our license agreement with ea pharma will fluctuate from quarter to quarter and year to year as a result of royalties for the period from ea pharma , as well as the uncertain timing of future milestone payments , if any . operating expenses research and development expenses research and development expenses consist primarily of personnel costs ( including salaries , benefits and stock-based compensation ) for employees in research and development functions , costs associated with nonclinical and clinical development services , including clinical trials and related manufacturing costs , third-party contract research 89 organizations , or cros , and related services and other outside costs , including fees for third-party professional services such as consultants . our nonclinical studies and clinical studies are performed by cros . we expect to continue to focus our research and development efforts on nonclinical studies and clinical trials of our product candidates . as a result , we expect our research and development expenses to continue to increase for the foreseeable future . our direct research and development expenses are tracked on a program-by-program basis and consist primarily of external costs such as fees paid to cros and others in connection with our nonclinical and clinical development activities and related manufacturing . we do not allocate employee costs or facility expenses , including depreciation or other indirect costs , to specific product development programs because these costs are deployed across multiple product development programs and , as such , are not separately classified . successful development of our current and potential future product candidates is highly uncertain . completion dates and costs for our programs can vary significantly by product candidate and are difficult to predict . as a result , we can not estimate with any degree of certainty the costs we will incur in connection with development of any of our product candidates . story_separator_special_tag milestone payments that are not within the control of the company or the licensee , such as regulatory approvals , are not considered probable of being achieved until those approvals are received . the company evaluates factors such as the scientific , clinical , regulatory , commercial , and other risks that must be overcome to achieve the particular milestone in making this assessment . there is considerable judgment involved in determining whether it is probable that a significant revenue reversal would not occur . at the end of each subsequent reporting period , the company reevaluates the probability of achievement of all milestones subject to constraint and , if necessary , adjusts its estimate of the overall transaction price . any such adjustments are recorded on a cumulative catch-up basis , which would affect revenues and earnings in the period of adjustment . royalties for arrangements that include sales-based royalties , including milestone payments based on a level of sales , and the license is deemed to be the predominant item to which the royalties relate , the company recognizes revenue at the later of ( i ) when the related sales occur , or ( ii ) when the performance obligation to which some or all of the royalty has been allocated has been satisfied ( or partially satisfied ) . 91 research and development expenses research and development expenses consist primarily of personnel costs ( including salaries , benefits and stock-based compensation ) for employees in research and development functions , costs associated with nonclinical and clinical development services , including clinical trials and related manufacturing costs , third-party contract research organizations , or cros , and related services and other outside costs , including fees for third-party professional services such as consultants . our nonclinical studies and clinical studies are performed by cros . we expect to continue to focus our research and development efforts on nonclinical studies and clinical trials of our product candidates . as a result , we expect our research and development expenses to continue to increase for the foreseeable future . our direct research and development expenses are tracked on a program-by-program basis and consist primarily of external costs such as fees paid to cros and others in connection with our nonclinical and clinical development activities and related manufacturing . we do not allocate employee costs or facility expenses , including depreciation or other indirect costs , to specific product development programs because these costs are deployed across multiple product development programs and , as such , are not separately classified . successful development of our current and potential future product candidates is highly uncertain . completion dates and costs for our programs can vary significantly by product candidate and are difficult to predict . as a result , we can not estimate with any degree of certainty the costs we will incur in connection with development of any of our product candidates . we anticipate we will make determinations as to which programs and product candidates to pursue and how much funding to direct to each program and product candidate on an ongoing basis in response to the results of ongoing and future clinical trials , our ability to enter into licensing , collaboration and similar arrangements with respect to current or potential future product candidates , the success of research and development programs and our assessments of commercial potential . monetization of future royalties in december 2017 , we entered into a royalty interest acquisition agreement ( riaa ) with healthcare royalty partners iii , l.p. ( hcr ) pursuant to which it sold to hcr the right to receive all royalties from sales in japan and sales milestones achieved from any covered territory potentially payable to us under the agreement , up to a specified maximum “ cap ” amount of $ 78.8 million , based on the funds we received from hcr . in january 2018 , we received $ 44.5 million from hcr , net of certain transaction expenses , under the riaa . on june 8 , 2020 , the parties entered into an amendment to the riaa pursuant to which hcr agreed to pay us an additional $ 14.8 million , net of certain transactions expenses , in exchange for the elimination of the ( i ) $ 78.8 million cap amount on hcr 's rights to receive royalties on sales in japan and sales milestones for elobixibat in certain other territories that may become payable by ea pharma and ( ii ) the $ 15.0 million payable to us if a specified sales milestone is achieved for elobixibat in japan . we are obligated to make royalty interest payments to hcr under the riaa only to the extent it receives future japanese royalties , sales milestones or other specified payments from ea pharma . although we sold our rights to receive royalties from the sales of elobixibat in japan , as a result of its ongoing involvement in the cash flows related to these royalties , we will continue to account for these royalties as revenue . upon receipt of the payments from hcr we recorded net cash totaling $ 59.3 million as a liability related to sale of future royalties ( royalty obligation ) . the royalty obligation will be amortized using the effective interest rate method . we record estimated royalties due for the current period in accrued other expenses until the payment is received from ea pharma at which time we then remit payment to hcr . in order to determine the accretion of the royalty obligation , we are required to estimate the total amount of future royalty payments to be received and submitted to hcr . the sum of these amounts less the $ 59.3 million proceeds we received will be recorded as interest expense over the life of the royalty obligation . at december 31 , 2020 , our estimate of total interest expense resulted in an annual effective interest rate of approximately 19.0 % .
| results of operations years ended december 31 , 2020 and december 31 , 2019 result of operations replace_table_token_0_th revenue year ended december 31 , change 2020 2019 $ ( in thousands ) revenue $ 8,308 $ 9,636 $ ( 1,328 ) revenue was $ 8.3 million for the year ended december 31 , 2020 , compared with revenue of $ 9.6 million for the year ended december 31 , 2019 , a decrease of $ 1.3 million . the decrease in revenue primarily relates to a sales-based milestone achieved in 2019 offset by higher sales-based royalties earned in 2020. research and development expenses year ended december 31 , change 2020 2019 $ ( in thousands ) research and development expenses $ 76,777 $ 45,575 $ 31,202 research and development expenseswere $ 76.8 million for the year ended december 31 , 2020 compared with $ 45.6 million for the year ended december 31 , 2019 , an increase of $ 31.2 million .
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currently , the company 's story_separator_special_tag forward-looking information the following discussion and analysis of results of operations , financial condition , liquidity and capital resources should be read in conjunction with the accompanying audited consolidated financial statements and notes thereto that are included elsewhere in this annual report on form 10-k. the fiscal years ended january 28 , 2012 ( fiscal 2011 ) , january 29 , 2011 ( fiscal 2010 ) and january 30 , 2010 ( fiscal 2009 ) all included 52 weeks . unless otherwise indicated , information presented in the notes to the financial statements relates only to the company 's continuing operations . the discussion in this annual report on form 10-k contains both historical information and forward-looking statements . a number of factors affect our operating results and could cause our actual future results to differ materially from any forward-looking statements discussed below . in some cases , you can identify forward-looking statements by terminology such as anticipates , appears , believes , continue , could , estimates , expects , feels , goal , hope , intends , may , our future success depends , plans , potential , predicts , projects , reasonably , seek to continue , should , thinks , will or the negative of these terms or other comparable terminology . these statements are only predictions . actual events or results may differ materially . in addition , historical information should not be considered an indicator of future performance . factors that could cause or contribute to these differences include , but are not limited to , the risks discussed in part i , item 1a of this form 10-k under the caption risk factors. these factors may cause our actual results to differ materially from any forward-looking statements . although we believe that the expectations reflected in the forward-looking statements are reasonable , we can not guarantee future results , levels of activity , performance , or achievements . moreover , we are under no duty to update any of the forward-looking statements after the date of this form 10-k to conform these statements to actual results . these forward-looking statements are made in reliance upon the safe harbor provision of the private securities litigation reform act of 1995. story_separator_special_tag of sales and occupancy decreased $ 12.2 million , or 1.9 % , to $ 625.6 million in fiscal 2010 compared to $ 637.9 million in fiscal 2009. as a percentage of net sales , total cost of sales and occupancy decreased 530 basis points to 68.3 % in fiscal 2010 from 73.6 % in fiscal 2009. cost of sales as a percentage of net sales for fiscal 2010 decreased 380 basis points based on the strong performance in non-furniture home categories as well as significantly lower markdowns and higher initial markups across most categories of the business compared with fiscal 2009. occupancy as a percentage of net sales for fiscal 2010 decreased 150 basis points as a result of lower costs and the leveraging of the costs on higher comparable store sales . selling , general and administrative ( sg & a ) expenses sg & a expenses remained flat at $ 270.9 million for both fiscal 2010 and fiscal 2009. as a percentage of net sales , sg & a expenses for fiscal 2010 decreased 160 basis points to 29.6 % in 2010 from 31.2 % in fiscal 2009. included in sg & a for fiscal 2010 is $ 5.5 million of expense related to the estimated annual bonus payout under the fiscal 2010 management incentive plan . there was no management incentive plan bonus for fiscal 2009. store closure costs costs related to closing the stores classified within continuing operations totaled $ 3.2 million for fiscal 2010 compared to $ 5.8 million for fiscal 2009. the company closed five stores classified as continuing operations in fiscal 2010 compared to eight stores in fiscal 2009. the store closure costs for fiscal 2010 and fiscal 2009 primarily consist of lease exit costs which are recorded at the time the store is closed as well as other costs related to closing the stores such as relocating and terminating employees . net interest expense net interest expense was $ 11.1 million in fiscal 2010 compared to $ 11.2 million in fiscal 2009. included in net interest expense is interest related to the distribution center lease obligations of $ 8.3 million and $ 8.2 million for fiscal 2010 and fiscal 2009 , respectively . income taxes the company 's effective tax rate for fiscal 2010 was 23.1 % , compared to a benefit of 16.7 % in fiscal 2009. the rate increase was primarily due to the company 's pre-tax book income and corresponding increase in state tax expense . for fiscal 2010 , the company reserved against all remaining net deferred tax assets . for more information , see note 10 to our consolidated financial statements . liquidity and capital resources the company 's cash and cash equivalents balance at the end of fiscal 2011 was $ 5.9 million compared to $ 2.7 million at the end of fiscal 2010. the company 's primary uses for cash are to provide working capital for operations , to service our obligations , to pay interest and principal on debt , and to fund capital expenditures . historically , the company has financed its operations primarily from cash generated from operations and seasonal borrowings under an asset-based credit facility . prior to achieving net income in fiscal 2011 and fiscal 2010 , we incurred net losses in each annual period since fiscal 2006. as of january 28 , 2012 , we had an accumulated deficit of $ 78.1 million . for fiscal 2009 , we did not generate positive cash flows from operating activities . story_separator_special_tag all borrowings and letters of credit under the credit agreement are collateralized by all assets presently owned or hereafter-acquired by the company . interest is paid in arrears monthly , quarterly , or over the applicable interest period as selected by the company in the revolving loan notice , with the entire balance payable on january 3 , 2016. borrowings pursuant to the asset-based credit facility bear interest , at the company 's election , at a rate equal to either ( i ) the higher of bank of america 's prime rate or the federal funds effective rate plus an applicable margin ; or ( ii ) the libor rate plus an applicable margin . the applicable margin is based on the company 's average daily availability ( as defined in the credit agreement ) . in addition , the company pays a commitment fee on the unused portion of the amount available for borrowing as described in the credit agreement . the credit agreement includes limitations on the ability of the company to , among other things , incur debt , grant liens , make investments , enter into mergers and acquisitions , pay dividends , change its business , enter into transactions with affiliates , and dispose of assets . the events of default under the credit agreement include , among others , payment defaults , cross defaults with certain other indebtedness , breaches of covenants , loss of collateral , judgments , changes in control , and bankruptcy events . in the event of a default , the credit agreement requires the company to pay incremental interest at the rate of 2.0 % and the lenders may , among other remedies , foreclose on the security ( which could include the sale of the company 's inventory ) , eliminate their commitments to make credit available , declare due all unpaid principal amounts outstanding , and require cash collateral for any letter of credit obligations . in addition , in the event of a default or if the company 's availability ( as defined in the credit agreement ) is not equal to the greater of either $ 20.0 million or 15 % of the loan cap under the asset-based credit facility , the company will be subject to additional restrictions , including specific restrictions with respect to its cash management procedures . the company intends to use the proceeds from the credit agreement for working capital , issuance of commercial and standby letters of credit , capital expenditures , and other general corporate purposes . as of january 28 , 2012 , the company was in compliance with its loan covenant requirements , paid its asset-based credit facility off in its entirety ( including the $ 10.0 million term loan ) and had $ 9.6 million in outstanding letters of credit , and credit available under the credit agreement of $ 135.9 million . the company 's business is highly seasonal , reflecting the general pattern associated with the retail industry of peak sales and earnings during the fourth quarter holiday season , therefore borrowings under the line of credit often peak during the beginning of the fourth quarter . 23 contractual obligations and commercial commitments the following table provides summary information concerning the company 's future contractual obligations and commercial commitments as of january 28 , 2012 : replace_table_token_7_th 1. this table excludes $ 0.4 million of liabilities for uncertain tax positions as we are not able to reasonably estimate when cash payments for these liabilities will occur . this amount , however , has been recorded as a liability in the accompanying consolidated balance sheet as of january 28 , 2012 . 2. represents outstanding purchase orders , which were primarily related to merchandise inventory . such purchase orders are generally cancelable at the discretion of the company until the order has been shipped . the table above excludes certain immaterial executory contracts for goods and services that tend to be recurring in nature and similar in amount year over year . 3. represents interest expected to be paid on our deferred financing obligations related to the distribution centers . off balance sheet arrangements other than the operating leases and letters of credit discussed above , the company has no financial arrangements involving special-purpose entities or lease agreements , commonly described as synthetic leases , or any off-balance sheet arrangements that have a material current effect , or that are reasonably likely to have a material future effect , on the company 's financial condition , revenues or expenses , results of operations , liquidity , capital expenditures or capital resources . impact of new accounting standards in may 2011 , the fasb issued an accounting standards update to expand disclosure requirements for fair value measurements . this guidance requires entities to disclose the categorization by level of the fair value hierarchy for items that are not measured at fair value in the statement of financial position but for which the fair value is required to be disclosed . this accounting standards update is effective for fiscal years , and interim periods within those years , beginning after december 15 , 2011. the company does not expect the adoption of the accounting standard update and disclosure to have a material impact on its consolidated financial statements . inflation the company does not believe that inflation has had a material effect on its financial condition and results of operations during the past three fiscal years . however , there can be no assurance that the company 's business will not be affected by inflation in the future . quarterly results and seasonality the company 's business is highly seasonal , reflecting the general pattern associated with the retail industry of peak sales and earnings during the fourth quarter holiday season .
| overview cost plus , inc. is a leading specialty retailer of casual home furnishings and entertaining products . as of january 28 , 2012 , the company operated 258 stores in 30 states . the stores feature an ever-changing selection of casual home furnishings , housewares , gifts , decorative accessories , gourmet foods and beverages offered at competitive prices and imported from more than 50 countries . many items are unique and exclusive to cost plus world market . the value , breadth and continual refreshment of products invites customers to come back throughout a lifetime of changing home furnishings and entertaining needs . net sales for fiscal 2011 increased 5.2 % to $ 963.8 million from $ 916.6 million for fiscal 2010 , while comparable store sales for fiscal 2011 increased 5.4 % compared to a 7.2 % increase in fiscal 2010. net income in fiscal 2011 was $ 16.5 million , or $ 0.71 per diluted share , versus net income in fiscal 2010 of $ 2.9 million , or $ 0.13 per diluted share , marking two consecutive years of profitability for the company . the increase in profitability for fiscal 2011 is due to higher gross profit from increased sales , consistent merchandise margin , and leverage on occupancy costs and selling , general , and administrative ( sg & a ) expenses from higher sales . as a result of paying off the asset-based credit facility , the company ended fiscal 2011 with no outstanding borrowings and $ 9.6 million in letters of credit outstanding , compared to $ 25.4 million in outstanding borrowings and $ 10.8 million in letters of credit outstanding at the end of fiscal 2010. the company closed five stores and relocated one store during fiscal 2011 to end the year with 258 stores .
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( 1 ) note regarding forward-looking statements the company intends that certain matters discussed in this report are “ forward-looking statements ” intended to qualify for the safe harbor from liability established by the private securities litigation reform act of 1995. these forward-looking statements can generally be identified as such by reference to this footnote or because the context of the statement will include words such as the company “ believes ” , “ anticipates ” , “ expects ” , “ plans ” , or “ estimates ” or words of similar meaning . similarly , statements that describe future plans , objectives , outlooks , targets , guidance or goals are also forward-looking statements . such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially , unfavorably or favorably , from those anticipated as of the date of this report . certain of such risks and uncertainties are described in close proximity to such statements or elsewhere in this report , including under the caption “ risk factors ” in item 1a and under “ cautionary statements ” in item 7 of this report . shareholders , potential investors , and other readers are urged to consider these factors in evaluating the forward-looking statements and cautioned not to place undue reliance on such forward-looking statements . the forward-looking statements included in the outlook section are only made as of january 29 , 2019 and the remaining forward-looking statements in this report are only made as of the date of the filing of this report ( february 28 , 2019 ) , and the company disclaims any obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances . overview ( 1 ) the company 's net income for 2018 was $ 531.5 million , or $ 3.19 per diluted share , compared to $ 521.8 million , or $ 3.02 per diluted share , in 2017 . operating income from the motorcycles segment in 2018 was down $ 184.4 million compared to 2017 due primarily to lower wholesale motorcycle shipments and higher costs related to the impact of incremental tariffs , increased metals costs , voluntary recalls and restructuring activities . during 2018 , incremental european union and china tariffs were imposed on the company 's products shipped from the u.s. , as well as u.s. incremental tariffs on certain items imported from certain international markets . the european union tariffs on harley-davidson motorcycles exported from the u.s. increased from 6 % to 31 % effective june 22 , 2018. by their current terms , these tariffs are scheduled to increase to 56 % effective june 1 , 2021. the china tariffs on harley-davidson products exported from the u.s. increased from 30 % to 55 % , effective august 23 , 2018 , and are set to remain in place indefinitely . the company also experienced increased costs for metals resulting from u.s. steel and aluminum tariffs , but the company does not refer to these costs as part of incremental tariffs . operating income from the financial services segment in 2018 was up $ 15.9 million or 5.8 % compared to prior year , primarily due to higher revenues and a lower provision for credit losses . the overall decline in the company 's consolidated operating income during 2018 was more than offset by lower income tax expense which decreased $ 186.9 million in 2018 primarily due to the favorable impact of the tax cuts and jobs act ( 2017 tax act ) enacted in december 2017. worldwide independent dealer retail sales of new harley-davidson motorcycles decreased 6.1 % in 2018 compared to the prior year . u.s. retail sales fell 10.2 % on continued weakness in the u.s. industry which declined 8.7 % for the same period . retail sales in international markets increased 0.4 % compared to 2017. the company expects the u.s. industry to remain challenged into 2019 and will continue to address these weak conditions . in the near-term , the company is introducing exciting new products and adding innovation that customers value on its new motorcycles . the company will continue to aggressively manage supply and execute marketing efforts to encourage motorcycle trials and increase the conversion of these trials into sales . the company is also working to accelerate its strategy to build the next generation of harley-davidson riders through 2022 through its more roads to harley-davidson ( more roads ) plan . during 2018 , it met or exceeded all of the more roads plan milestones . the company believes its more roads plan is 23 designed to build the proper foundation and drive the right fundamentals to help steer the u.s. industry back to health and drive significant growth across international markets . the company ended 2018 with over 52,000 more harley-davidson riders in the u.s compared to prior year ( source : ihs markit motorcycles in operation ( mio ) data for on-highway and dual purpose bikes in the u.s. as of jan 1 , 2019 compared to previous years of mio back to 2002 ) . outlook ( 1 ) on january 29 , 2019 the company announced the following expectations for 2019 . the company expects the u.s. industry to continue to decline in 2019 , but at a more tempered pace than in 2018. the company expects international retail sales growth during 2019. as a result , in 2019 , the company expects to ship between 217,000 and 222,000 motorcycles to dealers which is down approximately 3 % to 5 % from 2018. during 2019 , the company expects retail sales to be positively impacted by : focused investment in its strategy to increase global ridership and strengthen its dealer network , model year 2019 and 2020 motorcycles , and continued expansion of the international dealer network . story_separator_special_tag as part of the manufacturing optimization plan , the company will also close its wheel operations in adelaide , australia resulting in the elimination of approximately 90 jobs . in november 2018 , the company implemented a workforce reorganization plan ( reorganization plan ) . as a result , approximately 70 employees left the company on an involuntary basis . 25 the following table summarizes the expected costs and savings associated with these restructuring plans . replace_table_token_8_th the current manufacturing optimization plan cost estimate has been revised down from the most recent estimate by $ 3 million and $ 23 million at the low and high ends of the range , respectively . in the first quarter of 2019 , the company expects manufacturing optimization plan costs of approximately $ 20 million . the company expects restructuring expenses for the manufacturing optimization plan to include the cost of employee termination benefits , accelerated depreciation , and other project implementation costs of $ 40 million to $ 41 million , $ 51 million to $ 53 million , and $ 38 million to $ 40 million , respectively . restructuring expenses for the reorganization plan will consist of the cost of employee termination benefits . the timing of cash payments for restructuring costs may not occur in the same fiscal period that the company records the expense . refer to note 3 of the notes to consolidated financial statements for additional information concerning restructuring expenses . the company expects total capital expenditures of $ 65 million associated with the manufacturing optimization plan through 2019 , including $ 20 million in 2019. this is a decrease from the company 's most recent expectation of $ 75 million in capital expenditures . results of operations 2018 compared to 2017 consolidated results replace_table_token_9_th consolidated operating income was down 19.1 % in 2018 driven by a decrease in operating income from the motorcycles segment which was down $ 184.4 million compared to 2017 . operating income for the financial services segment increased by $ 15.9 million during 2018 as compared to 2017 . please refer to the “ motorcycles and related products segment ” and “ financial services segment ” discussions following for a more detailed discussion of the factors affecting operating income . 26 other income in 2018 was adversely impacted by higher amortization of actuarial losses following a 2018 first quarter remeasurement of the assets and obligations of the company 's qualified pension plan . investment income was lower due to unfavorable changes in the fair value of marketable securities . the effective income tax rate for 2018 was 22.6 % compared to 39.6 % for 2017 . the lower effective income tax rate was primarily due to the impact of the 2017 tax act . the 2017 tax act reduced the federal corporate income tax rate beginning in 2018 from 35 % to 21 % . in addition , because the 2017 tax act was enacted in 2017 , the company was required to remeasure its net deferred tax assets in 2017. the impact of remeasuring the deferred tax asset balances combined with other adjustments related to the enactment of the 2017 tax act resulted in a non-cash income tax charge of $ 53.1 million in the fourth quarter of 2017. diluted earnings per share were $ 3.19 in 2018 , up 5.6 % compared to 2017 . diluted earnings per share were positively impacted by the 1.9 % increase in net income and also benefited from lower diluted weighted average shares outstanding . diluted weighted average shares outstanding decreased from 172.9 million in 2017 to 166.5 million in 2018 driven by the company 's repurchases of common stock . please refer to `` liquidity and capital resources '' for additional information concerning the company 's share repurchase activity . motorcycle retail sales and registration data harley-davidson motorcycle retail sales ( a ) the following table includes retail unit sales of new harley-davidson motorcycles : replace_table_token_10_th ( a ) data source for retail sales figures shown above is new sales warranty and registration information provided by harley-davidson dealers and compiled by the company . the company must rely on information that its dealers supply concerning new retail sales , and the company does not regularly verify the information that its dealers supply . this information is subject to revision . ( b ) includes austria , belgium , denmark , finland , france , germany , greece , italy , luxembourg , netherlands , norway , portugal , spain , sweden , switzerland and the united kingdom . ( c ) includes japan , australia , new zealand and korea . prior period asia pacific retail sales have been reclassified to conform to the current year presentation . retail sales of new harley-davidson motorcycles in the u.s. were down 10.2 % in 2018. overall , u.s. retail sales of new harley-davidson motorcycles were adversely impacted by the continued weak u.s. industry , which was down 8.7 % compared to 2017. the company believes that sales of new motorcycles continued to be adversely impacted by soft used motorcycle prices and a shift in rider preferences toward smaller displacement motorcycles . prices for used harley-davidson motorcycles in the u.s. remained at near historical low levels compared to new ; however , the company is encouraged by positive momentum in used motorcycle pricing . during 2018 , third-party pricing services continued to publish higher retail values year-over-year for used harley-davidson motorcycles . wholesale prices of 27 used harley-davidson motorcycles at auction were also up during most of 2018 before falling slightly below year-ago levels in the fourth quarter . additionally , for the sixth consecutive quarter , prices of used harley-davidson motorcycles in the company 's dealer network were higher in the fourth quarter of 2018 than the prior year quarter . retail sales of used harley-davidson motorcycles in the u.s. were up through november 2018 compared to the prior year .
| segment results the following table includes the condensed statements of operations for the financial services segment ( in thousands ) : replace_table_token_15_th interest income was favorable in 2018 primarily due to higher average retail receivables . 30 interest expense increased due to a higher cost of funds and higher average outstanding debt . the provision for credit losses decreased $ 25.6 million compared to 2017. the retail motorcycle provision decreased $ 27.1 million driven by a decrease in the retail reserve rate , as a result of lower retail credit losses , compared to an increase in the reserve rate during 2017. this favorability was partially offset by a larger increase in retail receivables compared to 2017. the wholesale provision increased $ 1.9 million as a result of an increase in the wholesale reserve rate . annual losses on the company 's retail motorcycle loans were 1.76 % during 2018 compared to 1.90 % in 2017. the 30-day delinquency rate for retail motorcycle loans at december 31 , 2018 decreased to 4.12 % from 4.21 % at december 31 , 2017. operating expenses increased $ 12.8 million compared to 2017 driven primarily by higher shared services and employee-related expenses . changes in the allowance for credit losses on finance receivables were as follows ( in thousands ) : replace_table_token_16_th at december 31 , 2018 , the allowance for credit losses on finance receivables was $ 182.1 million for retail receivables and $ 7.8 million for wholesale receivables . at december 31 , 2017 , the allowance for credit losses on finance receivables was $ 186.3 million for retail receivables and $ 6.2 million for wholesale receivables .
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all inventory in excess of 2 ½ years of anticipated sales is classified as noncurrent inventory . noncurrent inventory balances prior to valuation allowances were $ 467,100 and $ 469,000 at february 28 , 2017 and february 29 , 2016 , respectively . consultants that meet certain eligibility requirements are allowed to receive inventory on consignment . we believe allowing our consultants to have consignment inventory greatly increases their ability to be successful in making effective presentations at home shows , book fairs and other events ; and having consignment inventory leads to additional sales opportunities . approximately 11 % of our active consultants maintained consignment inventory at the end of the fiscal year . consignment inventory is stated at cost , less an estimated reserve for consignment inventory that is not expected to be sold or returned to the company . the total value of inventory on consignment with active consultants was $ 1,140,700 and $ 571,400 at february 28 , 2017 and february 29 , 2016 , respectively . inventory related to inactive consultants is reclassified to accounts receivables and amounted to $ 309,000 and $ 174,000 at the end of fiscal year 2017 and 2016 , respectively . inventories are presented net of a valuation allowance , which includes reserves for inventory obsolescence and active consultant consignment inventory that is not expected to be sold or returned . management estimates the allowance for both current and noncurrent inventory . the allowance is based on management 's identification of slow moving inventory and estimated consignment inventory that will not be sold or returned . management has estimated a valuation allowance for both current and noncurrent inventory of $ 300,000 and $ 325,000 as of february 28 , 2017 and 2016 , respectively . 14 our principal supplier , based in england , generally requires a minimum reorder of 6,500 or more of a title in order to get a solo print run . smaller orders would require a shared print run with the supplier 's other customers , which can result in lengthy delays to receive the ordered title . anticipating customer preferences and purchasing habits requires historical analysis of similar titles in the same series . we then place the initial order or re-order based upon this analysis . these factors and historical analysis have led our management to determine that 2 ½ years represents a reasonable estimate of the normal operating cycle for our products . new accounting pronouncements the financial accounting standards board ( “ fasb ” ) periodically issues new accounting standards in a continuing effort to improve standards of financial accounting and reporting . we have reviewed the recently issued pronouncements and concluded that the following recently issued accounting standards apply to us . in may 2014 , fasb issued asu no . 2014-09 , and amended with asu no . 2015-14 “ revenue from contracts with customers , ” which provides a single revenue recognition model intended to improve comparability over a range of industries , companies and geographical boundaries and will result in enhanced disclosures . the changes are effective for fiscal years , and interim periods within those years , beginning after december 15 , 2017 , which means the first quarter of our fiscal year 2019. we are currently reviewing the asu and assessing the potential impact on our financial statements . in july 2015 , fasb issued asu no . 2015-11 `` inventory - simplifying the measurement of inventory '' , which is intended to allow measurement of inventory at the lower of cost and net realizable value . net realizable value is the estimated selling prices in the ordinary course of business , less reasonably predictable costs of completion , disposal , and transportation . the new standard is effective for fiscal years beginning after december 15 , 2016 , including interim periods within those fiscal years , which means the first quarter of our fiscal year 2018. we anticipate this asu having minimal impact on our financial statements . in november 2015 , fasb issued asu no . 2015-17 “ income taxes – balance sheet classification of deferred taxes , ” intended to improve how deferred taxes are classified on organizations ' balance sheets by eliminating the current requirement for organizations to present deferred tax liabilities and assets as current and noncurrent in a classified balance sheet . instead , organizations will now be required to classify all deferred tax assets and liabilities as noncurrent . the changes are effective for financial statements issued for annual periods beginning after december 15 , 2016 , and interim periods within those annual periods , which means the first quarter of our fiscal year 2018. we anticipate this asu having minimal impact on our financial statements . in february 2016 , fasb issued asu no . 2016-02 , “ leases , ” intended to establish a comprehensive new lease accounting model . the new standard clarifies the definition of a lease , requires a dual approach to lease classification similar to current lease classifications , and causes lessees to recognize leases on the balance sheet as a lease liability with a corresponding right-of-use asset . the new standard is effective for interim and annual periods beginning after december 15 , 2018 , which means the first quarter of our fiscal year 2020. the new standard requires a modified retrospective transition for capital or operating leases existing at or entered into after the beginning of the earliest comparative period presented in the financial statements . we are currently reviewing the asu and evaluating the potential impact on our financial statements . in march 2016 , fasb issued asu no . 2016-09 , “ compensation - stock compensation : improvements to employee share-based payment accounting , ” intended to simplify several aspects of the accounting for share-based payment transactions , including the income tax consequences , classification of awards as either equity or liabilities , and classification on the statement of story_separator_special_tag all inventory in excess of 2 ½ years of anticipated sales is classified as noncurrent inventory . noncurrent inventory balances prior to valuation allowances were $ 467,100 and $ 469,000 at february 28 , 2017 and february 29 , 2016 , respectively . consultants that meet certain eligibility requirements are allowed to receive inventory on consignment . we believe allowing our consultants to have consignment inventory greatly increases their ability to be successful in making effective presentations at home shows , book fairs and other events ; and having consignment inventory leads to additional sales opportunities . approximately 11 % of our active consultants maintained consignment inventory at the end of the fiscal year . consignment inventory is stated at cost , less an estimated reserve for consignment inventory that is not expected to be sold or returned to the company . the total value of inventory on consignment with active consultants was $ 1,140,700 and $ 571,400 at february 28 , 2017 and february 29 , 2016 , respectively . inventory related to inactive consultants is reclassified to accounts receivables and amounted to $ 309,000 and $ 174,000 at the end of fiscal year 2017 and 2016 , respectively . inventories are presented net of a valuation allowance , which includes reserves for inventory obsolescence and active consultant consignment inventory that is not expected to be sold or returned . management estimates the allowance for both current and noncurrent inventory . the allowance is based on management 's identification of slow moving inventory and estimated consignment inventory that will not be sold or returned . management has estimated a valuation allowance for both current and noncurrent inventory of $ 300,000 and $ 325,000 as of february 28 , 2017 and 2016 , respectively . 14 our principal supplier , based in england , generally requires a minimum reorder of 6,500 or more of a title in order to get a solo print run . smaller orders would require a shared print run with the supplier 's other customers , which can result in lengthy delays to receive the ordered title . anticipating customer preferences and purchasing habits requires historical analysis of similar titles in the same series . we then place the initial order or re-order based upon this analysis . these factors and historical analysis have led our management to determine that 2 ½ years represents a reasonable estimate of the normal operating cycle for our products . new accounting pronouncements the financial accounting standards board ( “ fasb ” ) periodically issues new accounting standards in a continuing effort to improve standards of financial accounting and reporting . we have reviewed the recently issued pronouncements and concluded that the following recently issued accounting standards apply to us . in may 2014 , fasb issued asu no . 2014-09 , and amended with asu no . 2015-14 “ revenue from contracts with customers , ” which provides a single revenue recognition model intended to improve comparability over a range of industries , companies and geographical boundaries and will result in enhanced disclosures . the changes are effective for fiscal years , and interim periods within those years , beginning after december 15 , 2017 , which means the first quarter of our fiscal year 2019. we are currently reviewing the asu and assessing the potential impact on our financial statements . in july 2015 , fasb issued asu no . 2015-11 `` inventory - simplifying the measurement of inventory '' , which is intended to allow measurement of inventory at the lower of cost and net realizable value . net realizable value is the estimated selling prices in the ordinary course of business , less reasonably predictable costs of completion , disposal , and transportation . the new standard is effective for fiscal years beginning after december 15 , 2016 , including interim periods within those fiscal years , which means the first quarter of our fiscal year 2018. we anticipate this asu having minimal impact on our financial statements . in november 2015 , fasb issued asu no . 2015-17 “ income taxes – balance sheet classification of deferred taxes , ” intended to improve how deferred taxes are classified on organizations ' balance sheets by eliminating the current requirement for organizations to present deferred tax liabilities and assets as current and noncurrent in a classified balance sheet . instead , organizations will now be required to classify all deferred tax assets and liabilities as noncurrent . the changes are effective for financial statements issued for annual periods beginning after december 15 , 2016 , and interim periods within those annual periods , which means the first quarter of our fiscal year 2018. we anticipate this asu having minimal impact on our financial statements . in february 2016 , fasb issued asu no . 2016-02 , “ leases , ” intended to establish a comprehensive new lease accounting model . the new standard clarifies the definition of a lease , requires a dual approach to lease classification similar to current lease classifications , and causes lessees to recognize leases on the balance sheet as a lease liability with a corresponding right-of-use asset . the new standard is effective for interim and annual periods beginning after december 15 , 2018 , which means the first quarter of our fiscal year 2020. the new standard requires a modified retrospective transition for capital or operating leases existing at or entered into after the beginning of the earliest comparative period presented in the financial statements . we are currently reviewing the asu and evaluating the potential impact on our financial statements . in march 2016 , fasb issued asu no . 2016-09 , “ compensation - stock compensation : improvements to employee share-based payment accounting , ” intended to simplify several aspects of the accounting for share-based payment transactions , including the income tax consequences , classification of awards as either equity or liabilities , and classification on the statement of
| management summary we are the exclusive united states trade co-publisher of usborne children 's books and the owner of kane miller book publishers . we operate our business through two separate segments , ubam and edc publishing , to sell these books . our corporate headquarters , including the distribution facility for both segments , is located in tulsa , oklahoma . each of our two segments have their own sales channel and customer base . ubam markets its products to individual consumers as well as to school and public libraries through direct-selling consultants . edc publishing markets similar products on a wholesale basis to various retail accounts . ubam division our ubam division uses a multi-level direct selling platform to market products through independent sales representatives ( “ consultants ” ) located throughout the united states . the customer base of ubam consists of individual purchasers , as well as schools and public libraries . revenues are primarily generated through book showings in individual homes , social media , book fairs with school and public libraries , direct sales and internet sales . this past fiscal year continued a significant shift toward internet sales via social media outlets , such as facebook . an important factor in the continued growth of the ubam division is the addition of new sales consultants and the retention of existing consultants . current active consultants ( defined as those with sales during the past six months ) often recruit new sales consultants . ubam makes it easy to recruit by providing signing kits for which new consultants can earn partial or full reimbursement based on established sales criteria . in addition , our ubam division provides our consultants with an extensive handbook and valuable training .
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our common stock is listed on the nasdaq capital market under the symbol neo. introduction the following discussion and analysis should be read in conjunction with the consolidated financial statements , and the notes thereto included in this form 10-k. the information contained below includes statements of management 's beliefs , expectations , hopes , goals and plans that , if not historical , are forward-looking statements subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated in the forward-looking statements . for a discussion on forward-looking statements , see the information set forth in the introductory note to this annual report under the caption forward looking statements , which information is incorporated herein by reference . overview we operate a network of cancer-focused genetic testing laboratories whose mission is to improve patient care through exceptional genetic and molecular testing services . our vision is to become america 's premier cancer genetic testing laboratory by delivering uncompromising quality , exceptional service and innovative products and services . the company has laboratory locations in ft. myers and tampa , florida ; fresno , irvine , and west sacramento , california ; and nashville , tennessee , and currently offers the following types of testing services : a ) cytogenetics - the study of normal and abnormal chromosomes and their relationship to disease . it involves looking at the chromosome structure to identify changes from patterns seen in normal chromosomes . cytogenetic studies are often utilized to answer diagnostic , prognostic and predictive questions in the treatment of hematological malignancies . b ) fluorescence in-situ hybridization ( fish ) - a branch of cancer genetics that focuses on detecting and locating the presence or absence of specific dna sequences and genes on chromosomes . fish helps bridge abnormality detection between the chromosomal and dna sequence levels . the technique uses fluorescent probes that bind to only those parts of the chromosome with which they show a high degree of sequence similarity . fluorescence microscopy is used to visualize the fluorescent probes bound to the chromosomes . fish can be used to help identify a number of gene alternations , such as amplification , deletions , and translocations . c ) flow cytometry - a rapid way to measure the characteristics of cell populations . cells from peripheral blood , bone marrow aspirate , lymph nodes , and other areas are labeled with selective fluorescent antibodies and analyzed as they flow in a fluid stream through a beam of light . the properties measured in these antibodies include the relative size , relative granularity or internal complexity , and relative fluorescence intensity . these fluorescent antibodies bind to specific cell surface antigens and are used to identify malignant cell populations . flow cytometry is typically performed in diagnosing a wide variety of leukemia and lymphoma neoplasms . flow cytometry is also used to monitor patients through therapy to determine whether the disease burden is increasing or decreasing , otherwise known as minimal residual disease monitoring . d ) immunohistochemistry ( ihc ) - refers to the process of localizing proteins in cells of a tissue section and relies on the principle of antibodies binding specifically to antigens in biological tissues . ihc is widely used in the diagnosis of abnormal cells such as those found in cancerous tumors . specific surface cytoplasmic or nuclear markers are characteristic of cellular events such as proliferation or cell death ( apoptosis ) . ihc is also widely used to understand the distribution and localization of differentially expressed proteins . e ) molecular testing - a rapidly growing cancer diagnostic tool focusing on the analysis of dna and rna , as well as the structure and function of genes at the molecular level . molecular testing employs multiple technologies including dna fragment length analysis , real-time polymerase chain reaction ( rt-pcr ) rna analysis , bi-directional sanger sequencing analysis , and next-generation sequencing ( ngs ) . 45 f ) pathology consultation services are when our pathologists review surgical samples on a consultative basis for our clients . neogenomics is one of a few laboratories in the country with an electron microscopy lab which enables us to analyze complex renal cases . the cancer testing services we offer to community-based pathologists are designed to be a natural extension of , and complementary to , the services that they perform within their own practices . we believe our relationship as a non-competitive partner to community-based pathology practices and hospital pathology labs empowers them to expand their breadth of testing and provide a menu of services that matches or exceeds the level of service found in academic centers of excellence around the country . community-based pathology practices and hospital pathology labs may order certain testing services on a technical component only ( tc or tech-only ) basis , which allows them to participate in the diagnostic process by performing the professional component ( pc ) interpretation services without having to hire laboratory technologists or purchase the sophisticated equipment needed to perform the technical component of the tests . we also support our pathology clients with interpretation and consultative services on difficult or complex cases and provide overflow interpretation services when requested by clients . in areas where we do not provide services to community-based pathology practices and or hospital pathology labs , we may directly serve oncology , dermatology , urology and other clinician practices that prefer to have a direct relationship with a laboratory for cancer-related genetic and molecular testing services . we typically service these types of clients with a global service offering where we perform both the technical and professional components of the tests ordered . however , in certain instances larger clinician practices have begun to internalize pathology interpretation services , and our tech-only service offering allows these larger clinician practices to also participate in the diagnostic process by performing the pc interpretation services on tc testing performed by neogenomics . story_separator_special_tag our sales representatives often become trusted advisors to our clients who rely on them , and neogenomics , to keep up with the latest developments in the rapidly changing field of molecular genetics . we have also been successful in expanding to new geographies where we did not previously have sales representation and this has helped us bring our service offerings to new clients . our growth has also been aided by strong client retention . we believe our low client attrition is due to our strong service levels and culture of customer focus . we work to have engaged employees who want to achieve the highest customer satisfaction possible . our tc-pc model results in clients viewing us as 47 more of a partner than a vendor and this also helps in our retention of clients . by retaining our existing customer base and bringing in a steady stream of new customers we have been able to organically grow our business by over 200 % , over the past four years . we are keenly focused on innovation , and believe this has been a key factor in our growth . over the past three years , we have developed over 90 new molecular oncology tests , and believe we now have one of the most comprehensive oncology test menus of any laboratory in the world . by launching new tests at a steady rate , our sales representatives are able to share cutting edge developments in molecular genetics with customers and prospective customers . we believe clients are increasingly relying on us because we are an emerging leader in the molecular oncology field . we have had several academic centers begin to refer specimens for testing . these high profile reference customers often result in other accounts referring testing as well . new customers who begin using us because of our many new innovative test offerings often begin to refer large portions of their other testing , which has helped to sustain our growth . we will also look to grow our business through mergers or acquisitions if the right opportunities become available . we are focused on strategic opportunities that would be complementary to our menu of services and would be accretive to our earnings and cash flow in the short to medium timeframe . on july 8 , 2014 we acquired path labs , llc , doing business as , path logic a leading provider of specialized anatomic pathology services to hospitals and physicians primarily in northern california . path logic provides high-quality anatomic pathology services with significant expertise in the sub-specialties of renal pathology , dermatopathology , women 's health and gastrointestinal and genitourinary pathology . for 2013 , path logic reported revenue of approximately $ 10 million and employed approximately 65 people . we recognized revenue of approximately $ 4.9 million for the period of ownership from july 8 , 2014 through december 31 , 2014 from this acquisition . we estimate that an additional $ 2.0 to 3.0 million of annual revenue opportunities can be realized in the coming years as our existing customers and path logic 's customers begin to utilize each other 's testing menus and capabilities . we completed an equity offering of $ 34.3 million in august of 2014 to provide cash for future acquisition opportunities when they become available . innovate we are committed to being an innovative leader in oncology testing . our goal is to develop new assays to help physician clients better manage their patients and to enable them to practice evidence-based medicine tailored specifically for each of their patients . during the year ended december 31 , 2014 , we introduced an additional 48 new molecular and fish based tests and cancer profiles . we also converted another 23 tests to next generation sequencing ( ngs ) . we also launched our multimodality solid tumor discovery profile which analyzes 315 genes for mutation using ngs and includes 9 fish tests to analyze translocations , amplifications and deletions that might be missed by ngs . this discovery profile is designed to meet the needs of investigators and clinicians who are interested in testing large numbers of genes and numerous translocations and gene amplifications . it also meets the needs of pharmaceutical companies engaged in clinical trials . this multimodality testing is unique in the industry and provides the gold standard fish testing for detecting therapy-related abnormalities , such as alk translocations , and her2 and met amplifications , each of which is required to be confirmed by fish prior to initiating expensive therapy . we also recently launched two first-in-kind tests . the first predicts acquired resistance and susceptibility to bruton tyrosin kinase ( btk ) inhibitors . the second is a lymphoma profiling test to predict susceptibility to btk inhibitors for treatment of lymphoma and chronic lymphocytic leukemia . btk inhibitors are a new non-cytotoxic targeted therapy and a number of phase iii studies are ongoing . in fact , these tests are a good example of the compelling value proposition of genetic testing . new targeted therapies can be very effective and quite expensive , and these tests help physicians choose the right therapy for the individual patient . they substantially improve cancer care and help avoid therapies that will not be effective . our clients have been very receptive to our new molecular offerings and we believe that we have the most comprehensive clinical molecular test menu of any laboratory in the united states . we are also seeing increasing interest in our molecular menu from several pharmaceutical firms . we also introduced a number of neotype tm profiles that combine multiple molecular tests into multi-gene tests targeting specific types of cancer to help pathologists and oncologists determine cancer subtypes on difficult cases . we use next generation sequencing and bi-directional sanger sequencing analysis which we believe is superior to many of the molecular tests being offered by our competitors because we are able to detect mutations that other methods would not detect .
| general and administrative expenses general and administrative expenses relate to billing , bad debts , finance , human resources , information technology and other administrative functions . they primarily consist of employee related costs ( such as salaries , fringe benefits , and stock-based compensation expense ) , professional services , facilities expense , and depreciation and administrative-related costs allocated to general and administrative expenses . replace_table_token_16_th general and administrative expenses increased approximately 37 % , for the year ended december 31 , 2014 as compared to the year ended december 31 , 2013. this increase is primarily a result of adding information technology and billing personnel to support the increase in our testing volumes as well as health and business insurance costs , depreciation and increases in other professional fees . this increase also 59 includes the general and administrative expenses related to our acquisition of path logic from the period of acquisition on july 8 , 2014 through december 31 , 2014 and was approximately $ 1.7 million . general and administrative expenses increased 1 % as a percentage of revenue . bad debt expense , in dollars , decreased by approximately 13 % , or $ 0.4 million to $ 2.4 million for the year ended december 31 , 2014 as compared to $ 2.8 million for the year ended december 31 , 2013. bad debt as a percentage of revenue decreased to 2.8 % for the year ended december 31 , 2014 from 4.2 % of revenue for the year ended december 31 , 2013. this decrease was the result of increased cash collections during the year ended december 31 , 2014 , cash collected on balances previously written off , and the need to carry a smaller allowance for doubtful accounts at december 31 , 2014 than at december 31 , 2013. we expect our general and administrative expenses to increase as we add personnel , increase our billing and collections activities ; incur additional expenses associated with the expansion of
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synovus expects the second half of 2013 to positively outpace the first half of 2013 for some or all of these metrics . the unemployment rate is projected to improve at a slow pace . businesses are likely to invest and hire more when the resolution to the fiscal cliff and the length of the sequester is determined . the perceptions of an extended united states recession are more diminished than in prior years ; therefore , both national and international interest in investment in the southeastern united states is expected to increase during 2013 , leading to potential demand for workers . national unemployment rates have decreased over the past three years . the national unemployment rate at december 31 , 2010 was 9.3 % , 8.5 % at december 31 , 2011 and 7.8 % at december 31 , 2012 . within the synovus five state footprint , unemployment rates are higher than the national average . as of december 31 , 2012 , the unemployment rate was 8.6 % , 8.0 % and 8.4 % in georgia , florida and south carolina , respectively . one of the largest industries in georgia , real estate , creates additional sensitivities to synovus during movements in housing prices . the housing prices in synovus ' markets are now considered to be more comparable with those throughout the country . additionally , there has been a recent marked increase in the request for building permits , privately-owned housing starts , and privately-owned housing completions . nevertheless , several markets within synovus ' footprint continue to suffer from previous overbuilding and speculative building . these markets continue to be a focus of synovus and we continue to work to reduce our exposure in those markets . occupancy rates in income-producing properties continue to be lower than desired , and synovus expects those vacancy rates to decline at a slow pace . consumer reaction to the expiration of the payroll tax cuts and fiscal cliff uncertainties was less negative than expected , as indicated by various consumer confidence indexes from early 2013. consumers showed more confidence and optimism about the current business and labor markets , the conditions of the capital markets , and the short-term outlook for the economy . these sentiments are tempered by lower spending by consumers , even as the federal reserve maintains record low interest rates . many banks have seen core deposits rise and lending demand decrease while uncertainty still exists within the united states economy . the number of bank failures continued to decrease during 2012 , with 51 bank failures in 2012 compared to 92 in 2011 . the number of failed banks in synovus ' five state footprint declined from 41 in 2011 to 24 in 2012 . 47 story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > since year-end 2011 . the decrease was driven by a $ 690.4 million decline in brokered deposits and a $ 1.01 billion decline in non-brokered time deposits , as synovus continued to reduce its utilization of funding from these sources through planned reductions during 2012 . these declines were offset in part by growth in non-interest bearing demand deposit accounts of $ 298.7 million . at december 31 , 2012 , brokered deposits represented 5.2 % of synovus ' total deposits compared to 8.0 % at december 31 , 2011 . total shareholders ' equity increased by $ 742.0 million to $ 3.57 billion at year-end 2012 . the 2012 financial results position synovus for the repayment of tarp to the u.s. treasury under the cpp , no later than the end of 2013 , subject to regulatory approval . management currently expects that this transaction will be funded primarily by parent company cash , dividends from synovus bank ( subject to regulatory approval ) , and a combination of parent company debt and or equity issuance . see `` part ii - item 7. management 's discussion and analysis of financial condition and results of operations - capital resources '' of this report for further discussion regarding synovus ' series a preferred stock and related repayment of tarp . as part of its ongoing management of capital , synovus will continue to identify , consider , and pursue additional strategic initiatives to bolster its capital position as deemed necessary , including strategies in connection with the company 's repayment of tarp and strategies that may be required to meet the requirements of basel iii and other regulatory initiatives regarding capital . 48 consolidated financial highlights a summary of synovus ' financial performance for the years ended december 31 , 2012 and 2011 is set forth in the table below . replace_table_token_8_th ( 1 ) see `` part ii - item 7. management 's discussion and analysis of financial condition and results of operations - non-gaap financial measures ” of this report for further information . ( 2 ) total shareholders ' equity divided by total assets . ( 3 ) excludes the carrying value of goodwill and other intangible assets from common equity and total assets . ( 4 ) equity and common shares exclude impact of unexercised tangible equity units ( tmeds ) . 49 critical accounting policies the accounting and financial reporting policies of synovus conform to gaap and to general practices within the banking and financial services industries . synovus has identified certain of its accounting policies as “ critical accounting policies. ” in determining which accounting policies are critical in nature , synovus has identified the policies that require significant judgment or involve complex estimates . it is management 's practice to discuss critical accounting policies with the board of directors ' audit committee , including the development , selection , implementation and disclosure of the critical accounting policies . the application of these policies has a significant impact on synovus ' consolidated financial statements . synovus ' financial results could differ significantly if different judgments or estimates are applied in the application of these policies . story_separator_special_tag subsequent to foreclosure , ore is evaluated quarterly and reported at fair value less estimated costs to sell , not to exceed the new cost basis , determined by review of current appraisals , as well as the review of comparable sales and other estimates of fair value obtained principally from independent sources , changes in absorption rates or market conditions from the time of the latest appraisal received or previous re-evaluation performed , and anticipated sales values considering management 's plans for disposition . significant judgments and complex estimates are required in estimating the fair value of other real estate , and the period of time within which such estimates can be considered current is significantly shortened during periods of market volatility . in response to market conditions and other economic factors , management may utilize liquidation sales as part of its distressed asset disposition strategy . as a result of the significant judgments required in estimating fair value and the variables involved in different methods of disposition , the net proceeds realized from sales transactions could differ significantly from appraisals , comparable sales , and other estimates used to determine the fair value of other real estate . management reviews the fair value of other real estate each quarter and adjusts the values as appropriate . fair value measurements synovus reviews assets and liabilities that are either required or elected to be carried , reported , or disclosed at fair value ; and determines the valuation of these instruments in accordance with fasb asc topic 820 , fair value measurements . synovus assesses the fair value measurements of each instrument on a periodic basis , but no less than quarterly . these fair value measurements consider the guidance in asc 820 , which provides a three-level framework for determining the appropriate fair value for a particular asset or liability . these levels require consideration of information , such as observable market prices , reported trades , broker quotes , various modeling techniques , including , in some cases , unobservable inputs . synovus selects the most appropriate technique for determining the fair value of the asset or liability . the various techniques described by asc 820 require significant judgment , and results could vary materially , depending on the valuation method selected . fair value is measured either on a recurring basis , in which the fair value is the primary measure of accounting , or on a non-recurring basis , to measure items for potential impairment , or for disclosure purposes . assets and liabilities classified as level 3 in the fair value hierarchy are generally less liquid and estimating their value requires inputs that are unobservable and require the application of significant judgment on behalf of management in order to determine the appropriate fair value of each of these instruments . as of december 31 , 2012 , synovus reported $ 33.9 million of assets ( or 0.1 % of total assets ) classified as level 3 , of which $ 30.7 million represented private equity investments . also , as of december 31 , 2012 , synovus reported $ 3.0 million of liabilities ( or 0.1 % of total liabilities ) classified as level 3 under asc 820. see `` part ii - item 8. financial statements and supplementary data - note 16 - fair value accounting '' of this report for further discussion of synovus ' use of the various fair value methodologies and the types of assets and liabilities in which fair value accounting is applied . discussion of financial condition and results of operations investment securities available for sale the investment securities portfolio consists principally of debt securities classified as available for sale . investment securities available for sale provide synovus with a source of liquidity and a relatively stable source of income . the investment securities portfolio also provides management with a tool to balance the interest rate risk of its loan and deposit portfolios . see table 13 for maturity and average yield information of the investment securities available for sale portfolio . the investment strategy focuses on the use of the investment securities portfolio to generate interest income and to assist in the management of interest rate risk . synovus held the portfolio duration at a relatively constant level for most of 2012 while the average balance of the portfolio increased from the prior year . the average duration of synovus ' investment securities portfolio was 3.0 years at december 31 , 2012 compared to 3.4 years at december 31 , 2011 . during the third quarter of 2011 , synovus implemented a repositioning of the investment securities portfolio . the primary purpose of this repositioning was to reduce prepayment risk in the mortgage-backed securities portfolio . this was accomplished by selling higher coupon , more prepayment 51 sensitive mortgage-backed securities , and purchasing lower coupon mortgage-backed securities . in addition to these actions , synovus sold selected short duration u.s. treasury and corporate securities and reinvested the proceeds in moderate duration mortgage-backed securities . synovus also utilizes a significant portion of its investment portfolio to secure certain deposits and other liabilities requiring collateralization . at december 31 , 2012 , approximately $ 2.28 billion of these investment securities were pledged as required collateral for certain deposits , securities sold under repurchase agreements and payment network arrangements , as required by law and contractual agreements . the investment securities are primarily debt securities issued by u.s. government sponsored enterprises and mortgage-backed securities issued by gses , both of which have a high degree of liquidity and limited credit risk . a mortgage-backed security depends on the underlying pool of mortgage loans to provide a cash flow pass-through of principal and interest . at december 31 , 2012 , all of the collateralized mortgage obligations and mortgage-backed pass-through securities held by synovus were issued or backed by federal agencies or government sponsored enterprises .
| overview of 2012 financial results on january 22 , 2013 , synovus reported results of operations for the three and twelve months ended december 31 , 2012 . synovus reported net income available to common shareholders of $ 775.0 million , or $ 0.85 per diluted common share for the year ended december 31 , 2012 , as compared to a net loss of $ 118.7 million , or $ 0.15 per common share , for the year ended december 31 , 2011 . the accompanying consolidated statement of operations for the year ended december 31 , 2012 reflects a $ 3.5 million reduction in the income tax benefit for the three and twelve months ended december 31 , 2012 , as compared to the previously reported results on january 22 , 2013. accordingly , net income available to common shareholders for the year ended december 31 , 2012 was $ 771.5 million , or $ 0.85 per diluted common share . the 2012 results were impacted by an income tax benefit of $ 798.7 million , which was primarily due to the $ 802.8 million income tax benefit recognized upon the reversal of the deferred tax asset valuation allowance . the reversal of the valuation allowance also drove the $ 0.93 increase in tangible book value per common share to $ 2.95 at december 31 , 2012 . total credit costs continued to decline in 2012 and drove the improvement in the results for the year . total credit costs ( consisting primarily of provision for loan losses and foreclosed real estate expense ) were $ 432.6 million in 2012 , a $ 135.5 million or 23.8 % decline from 2011. the decline in credit costs is primarily due to continued improvement in credit quality trends during 2012 including reduced npl inflows , net charge-offs , special mention , and substandard loans .
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” this section of the form 10-k generally discusses 2020 and 2019 items and year-to-year comparisons of 2020 to 2019. discussions of 2018 items and year-to-year comparisons of 2019 and 2018 that are not included in this form 10-k can be found in “ management 's discussion and analysis of financial condition and results of operations ” in part ii , item 7 on our annual report on form 10-k for the year ended december 31 , 2019. in addition to historical information , this discussion and analysis contains forward-looking statements that involve risks and uncertainties . 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 discussed in item 1a . “ risk factors ” and elsewhere in this annual report . story_separator_special_tag because volume and portfolio size determine the magnitude of the impact of each of the above factors on the company 's earnings , the company also closely monitors origination and sales volume along with apr and discounts ( including subvention and net of dealer participation ) . 43 recent developments and other factors affecting the company 's results of operations changes to board of directors and executive management team effective as of december 7 , 2020 , the board appointed donald smith , as chief technology officer of the company . effective as of january 1 , 2021 , the board appointed josh baer , formerly chief risk officer , as head of pricing and strategy of the company , and appointed rl prasad as chief risk officer of the company . effective as of january 25 , 2021 , the board appointed leonard coleman , jr to the board . outbreak of covid-19 the current outbreak of a novel strain of coronavirus , or covid-19 , has materially impacted our business , and the continuance of this outbreak or any future outbreak of any other highly contagious diseases or other public health emergency , could materially and adversely impact our business , financial condition , liquidity and results of operations . due the unpredictable and changing nature of this outbreak and the resulting economic distress , it is not possible to determine with certainty the ultimate impact on our results of operations or whether other currently unanticipated consequences of the outbreak are reasonably likely to materially affect our results of operations ; however , certain adverse effects have already occurred or are probable . the following sets forth our discussion of the impact of covid-19 on company 's current financial and operating status , as well as its future operational and financial planning as of the date hereof : impact on customers and loans and lease performance : the covid-19 outbreak and the associated economic crisis have led to negative effects on our customers . unlike the regional impact of natural disasters , such as hurricanes , the covid-19 outbreak is impacting customers nationwide and is expected to have a materially more significant impact on the performance of our auto loan and auto lease portfolio than even the most severe historical natural disaster . similar to many other financial institutions , we have taken and will continue to take measures to mitigate our customers ' covid-19 related economic challenges . we have experienced a sharp increase in requests for extensions and modifications related to covid-19 nationwide and a significant number of such extensions and modifications have been granted . these customer support programs , by their nature , to negatively impact our financial performance and other results of operations in the near term . our business , financial condition and results of operations may be materially and adversely affected in the longer term if the covid-19 outbreak leads us to continue to conduct such programs for a significant period of time , if the number of customers experiencing hardship related directly or indirectly to the outbreak of covid-19 increases or if our customer support programs are not effective in mitigating the effects of the pandemic and the recession on our customers ' financial situations . given the unpredictable nature of this situation , the nature and extent of such effects can not be predicted at this time , but such effects could be materially adverse effects to our business , financial condition and results of operations . further , government or regulatory authorities could also enact laws , regulations , executive orders or other guidance that allow customers to forgo making scheduled payments for some period of time , require modifications to receivables ( e.g. , waiving accrued interest ) , preclude creditors from exercising certain rights or taking certain actions with respect to collateral , including repossession or liquidation of the financed vehicles , or mandate limited operations or temporary closures of the company or our vendors as “ non-essential businesses ” or otherwise . such actions by government or regulatory authorities could have materially negative effects on our business , financial condition and results of operations . impact on originations : since covid-19 outbreak , the company has partnered with fca to launch new incentive programs , including , 90-day first payment deferrals and 0 % apr for 84 months on select 2019/2020 fca models . most dealers are open today and operating at full capacity . however , some dealers are operating in a modified capacity based on state requirements and or covid related employee concerns . third party sources are reporting a new car saar rate that is approximately 95 % of pre-covid expectations . while an economic downturn associated with the pandemic will impact sales , most dealers have developed business models that will allow them to continue operation in some capacity . impact on debt and liquidity : we rely upon four primary sources to fund our operations , including private financing , warehouse lines of credit , the asset-backed securitization market , and support from santander . story_separator_special_tag , probability of default , payoff , loss given default and exposure at default ) on a loan level basis to estimate the expected future life time losses . the individual loan balances used in the models are measured on an amortized cost basis . regardless of the extent of the company 's analysis of customer performance , portfolio evaluations , trends or risk management processes established , a level of imprecision will always exist due to the judgmental nature of loan portfolio and or individual loan evaluations . the company maintains a qualitative reserve as a component of the acl to recognize the existence of these exposures . imprecisions include loss factors inherent in the loan portfolio that may not have been discreetly contemplated in deriving the quantitative component of the allowance , as well as potential variability in estimates . the qualitative adjustment is also established in consideration of several factors such as the interpretation of economic trends , changes in the nature and volume of our loan portfolio , trends in delinquency and collateral values , and concentration risks . this analysis is conducted at least quarterly , and the company revises the qualitative component of the allowance when necessary in order to address improving or deteriorating credit quality trends or specific risks associated with loan pool classification , not otherwise captured in the quantitative models . the company generally uses a third-party vendor 's consensus baseline macroeconomic scenario for the quantitative estimate and additional positive and negative macroeconomic scenarios to make a qualitative adjustment for macroeconomic uncertainty , and considers adjustments to macroeconomic inputs and outputs based on market volatility . the baseline scenario was based on the latest consensus forecasts available which showed an improvement in key variables in this quarter , including a sharp decrease in unemployment rates ( which are a key driver to losses ) . using the weighted-average of our economic forecast scenarios , we estimated at december 31 , 2020 that unemployment rate is expected to be to be approximately 7 % at the end of 2021 , with the labor market continuing to recover in 2022. while the economy has seen significant recovery in recent months , there is still considerable uncertainty regarding overall lifetime loss estimates . the scenarios used are periodically updated over a reasonable and supportable time horizon with weightings assigned by management and approved through established committee governance . management reviews , updates , and validates its process and loss assumptions on a periodic basis . this process involves an analysis of data integrity , review of loss and credit trends , a retrospective evaluation of actual loss information to loss forecasts , and other analyses . valuation of automotive lease assets and residuals the company has significant investments in vehicles in the company 's operating lease portfolio . in accounting for operating leases , management must make a determination at the beginning of the lease contract of the estimated realizable value ( i.e. , residual value ) of the vehicle at the end of the lease . residual value represents an estimate of the market value of the vehicle at the end of the lease term , which typically ranges from two to four years . at contract inception , the company determines the projected residual value based on an internal evaluation of the expected future value . this evaluation is based on a proprietary model using internally-generated data that is compared against third party , independent data for reasonableness . the customer is obligated to make payments during the term of the lease for the difference between the purchase price and the contract residual value plus a finance charge . however , since the customer is not obligated to purchase the vehicle at the end of the contract , the company is exposed to a risk of loss to the extent the value of the vehicle is below the residual value estimated at contract inception . management periodically performs a detailed review of the estimated realizable value of leased vehicles to assess the appropriateness of the carrying value of lease assets . to account for residual risk , the company depreciates automotive operating lease assets to estimated realizable value on a straight-line basis over the lease term . the estimated realizable value is initially based on the residual value established at contract inception . periodically , the company revises the projected value of the lease vehicle at termination based on current market conditions , and other relevant data points , and adjusts depreciation expense appropriately over the remaining term of the lease . 46 the company periodically evaluates its investment in operating leases for impairment if circumstances , such as a systemic and material decline in used vehicle values , indicates that an impairment may exist . these circumstances could include , for example , shocks to oil and gas prices ( which may have a pronounced impact on certain models of vehicles ) or pervasive manufacturer defects ( which may systemically affect the value of a particular vehicle brand or model ) . impairment is determined to exist if fair value of the leased asset is less than carrying value and it is determined that the net carrying value is not recoverable . the net carrying value of a leased asset is not recoverable if it exceeds the sum of the undiscounted expected future cash flows expected to result from the lease payments and the estimated residual value upon eventual disposition . if our operating lease assets are considered to be impaired , the impairment is measured as the amount by which the carrying amount of the assets exceeds the fair value as estimated by discounted cash flows . no impairment was recognized in 2020 , 2019 or 2018. the company 's depreciation methodology for operating lease assets considers management 's expectation of the value of the vehicles upon lease termination , which is based on numerous assumptions and factors influencing used vehicle values .
| background and overview the company was formed in 2013 as a corporation in the state of delaware and is the holding company for sc illinois , a full-service , technology-driven consumer finance company focused on vehicle finance and third-party servicing . the company is majority-owned ( as of february 22 , 2021 , approximately 80.2 % ) by shusa , a wholly-owned subsidiary of santander . the company is managed through a single reporting segment , consumer finance , which includes vehicle financial products and services , including retail installment contracts , vehicle leases , and dealer loans , as well as financial products and services related to recreational and marine vehicles , and other consumer finance products . ccap continues to be a focal point of the company 's strategy . in 2019 , the company entered into an amendment to the mplfa with fca , which modified the mplfa to , among other things , adjust certain performance metrics , exclusivity commitments and payment provisions . the amendment also established an operating framework that was mutually beneficial 42 for both parties for the remainder of the contract . the company 's average penetration rate under the mplfa for the year ended december 31 , 2020 was 34 % , flat compared to the same period in 2019. the company has dedicated financing facilities in place for its ccap business and has worked strategically and collaboratively with fca to continue to strengthen its relationship and create value within the ccap program . during the year ended december 31 , 2020 , the company originated $ 14.2 billion in ccap loans which represented 60 % of total retail installment contract originations ( unpaid principal balance ) , as well as $ 6.8 billion in ccap leases . additionally , substantially all of the leases originated by the company during the year ended december 31 , 2020 were under the mplfa .
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words such as “ expects , ” “ anticipates , ” “ believes , ” “ estimates , ” “ may , ” “ will , ” “ should , ” “ could , ” “ potential , ” “ continue , ” “ intends , ” “ plans , ” and similar words and terms used in the discussion of future operating and future financial performance identify forward-looking statements . investors are cautioned that such forward-looking statements are not guarantees of future performance , results or events and involve risks and uncertainties and that actual results or developments may differ materially from the forward-looking statements as a result of various factors . factors that may cause such differences to occur include , but are not limited to : our ability to effectively manage the impacts of the covid-19 pandemic and the government actions taken in response ; the level of our expenses and our operational cash burn rate , including our corporate expenses as a stand-alone publicly traded company ; our ability to successfully design , construct , finance and operate new venues in las vegas , london and other markets , and the investments , costs and timing associated with those efforts , including the impact of the temporary suspension of construction and any other construction delays and or cost overruns ; the level of our revenues , which depends in part on the popularity of the christmas spectacular starring the radio city rockettes ( “ christmas spectacular ” ) and other entertainment and sports events which are presented in our venues ; the level of our capital expenditures and other investments ; general economic conditions , especially in the new york city , las vegas , chicago and london metropolitan areas where we have ( or plan to have ) business activities ; the demand for sponsorship arrangements and for advertising ; competition , for example , from other venues and other sports and entertainment options , including the construction of new competing venues ; changes in laws , guidelines , bulletins , directives , policies and agreements , and regulations under which we operate ; any economic , social or political actions , such as boycotts , protests , work stoppages or campaigns by labor organizations ; seasonal fluctuations and other variations in our operating results and cash flow from period to period ; the successful development of new live productions or attractions , enhancements or changes to existing productions and the investments associated with such development , enhancements , or changes , as well as investment in personnel , content and technology for the msg spheres ; business , reputational and litigation risk if there is a security incident resulting in loss , disclosure or misappropriation of stored personal information or other breaches of our information security ; activities or other developments ( such as pandemics , including the covid-19 pandemic ) that discourage or may discourage congregation at prominent places of public assembly , including our venues ; the continued popularity and success of tao group hospitality entertainment dining and nightlife venues , as well as its existing brands , and the ability to successfully open and operate new entertainment dining and nightlife venues ; the ability of boston calling events , llc ( “ bce ” ) to attract attendees and performers to its future festivals ; the acquisition or disposition of assets or businesses and or the impact of , and our ability to successfully pursue , acquisitions or other strategic transactions ; our ability to successfully integrate acquisitions , new venues or new businesses into our operations ; 37 the operating and financial performance of our strategic acquisitions and investments , including those we do not control ; the costs associated with , and the outcome of , litigation and other proceedings to the extent uninsured , including litigation or other claims against companies we invest in or acquire ; the impact of governmental regulations or laws , including changes in how those regulations and laws are interpreted and the continued benefit of certain tax exemptions and the ability to maintain necessary permits or licenses ; the impact of any government plans to redesign new york city 's pennsylvania station ; a default by our subsidiaries under their respective credit facilities ; financial community and rating agency perceptions of our business , operations , financial condition and the industry in which we operate ; the ability of our investees and others to repay loans and advances we have extended to them ; our status as an emerging growth company ; the tax-free treatment of the entertainment distribution ( as defined below ) ; our ability to achieve the intended benefits of the entertainment distribution ; the performance by msg sports of its obligations under various agreements with the company related to the entertainment distribution and ongoing commercial arrangements ; lack of operating history as an operating company and costs associated with being an independent public company ; and the additional factors described under “ part i — item 1a . risk factors ” included in this annual report on form 10-k. we disclaim any obligation to update or revise the forward-looking statements contained herein , except as otherwise required by applicable federal securities laws . all dollar amounts included in the following md & a are presented in thousands , except as otherwise noted . introduction this md & a is provided as a supplement to , and should be read in conjunction with , the audited consolidated and combined financial statements and footnotes thereto included in item 8 of this annual report on form 10-k to help provide an understanding of our financial condition , changes in financial condition and results of operations . unless the context otherwise requires , all references to “ we , ” “ us , ” “ our , ” or the “ company ” refer collectively to madison square garden entertainment corp. , a holding company , and its direct and indirect subsidiaries through which substantially all of our operations are actually conducted . story_separator_special_tag it is unclear how long , and to what extent , these restrictions will be in effect . the covid-19 pandemic has materially impacted our revenues , most significantly because we are currently not generating revenue from : events at the garden , hulu theater at madison square garden , radio city music hall , the beacon theatre and the chicago theatre ; license fee payments under the arena license agreements ; sponsorships , suite licenses and in-venue advertising ; the 2020 production of the christmas spectacular ; and the 2020 boston calling music festival . while we have reduced certain operating expenses as a result of the covid-19 pandemic ( including ( i ) direct event expenses at our performance venues du ring the period our business operations are suspended , ( ii ) advertising and promotional spending for 39 suspended and cancelled games and events and ( iii ) certain direct operating and sg & a expenses , including at our tao group hospitality business ) , these expense reductions are not nearly enough to fully offset the revenue losses . we are building a state-of-the-art venue in las vegas , called msg sphere . this is a complex construction project with cutting-edge technology that relies on subcontractors obtaining components from a variety of sources around the world . in april , the company announced that it was suspending construction of msg sphere due to covid-19 related factors that were outside of its control , including supply chain issues . as the ongoing effects of the pandemic have continued to impact its business operations , the company has revised its processes and construction schedule , and has resumed work with a lengthened timetable that enables the company to better preserve cash in the near-term . the company remains committed to bringing msg sphere to las vegas and , based on its new construction schedule , now expects to open the venue in calendar year 2023 . a subsidiary of the company is party to arena license agreements ( the “ arena license agreements ” ) with subsidiaries of msg sports that require the knicks of the nba and the rangers of the nhl to play their home games at the garden . under the arena license agreements , the knicks and the rangers pay an annual license fee in connection with their respective use of the garden . for each , the license fee for the initial contract year ending june 30 , 2020 was to be prorated based on the number of games scheduled to be played at the garden between the entertainment distribution date and the end of that contract year . the license fee for the first full contract year ending june 30 , 2021 is approximately $ 22,500 for the knicks and approximately $ 16,700 for the rangers , and then for each subsequent year , the license fees will be 103 % of the license fees for the immediately preceding contract year . the teams are not required to pay the license fee during a period in which the garden is unavailable for home games due to a force majeure event ( including the government-mandated suspension of events at the garden as a result of the disruptions caused by the covid-19 pandemic ) . as a result , we have not received any license fee payments under the arena license agreements from the period following the entertainment distribution through the year ended june 30 , 2020 , and will continue to not receive any lease payments during the government mandated suspension of events at the garden as a result of the disruptions caused by the covid-19 pandemic . if , due to a force majeure event , capacity at the garden is limited to 1,000 or fewer attendees , the teams may schedule and play home games at the garden with amounts payable to the company under the arena license agreements reduced by up to 80 % . after the garden becomes available following a force majeure event , future rent payments due under the arena license agreements will be payable by the knicks and the rangers even if the nba or nhl seasons do not resume simultaneously or at all , and payments may be partially reduced in accordance with terms of the arena license agreements if the garden opens with materially limited capacity greater than 1,000 attendees . for more information about the risks to the company as a result of the covid-19 pandemic and its impact on our operating results , see “ part i - item 1a . risk factors - our operations and operating results have been , and continue to be , materially impacted by the covid-19 pandemic and government actions taken in response . ” additionally , as a result of operating disruptions due to the covid-19 pandemic , the company 's projected cash flows were directly impacted . these disruptions along with the deteriorating macroeconomic conditions and industry/market considerations , were considered a “ triggering event ” for the tao group hospitality reporting unit , which required the company to assess the carrying value of tao group hospitality 's intangible assets , long-lived assets and goodwill for impairment . based on this evaluation , the company recorded a total impairment charge of $ 105,817 . see “ — results of operations — comparison of the year ended june 30 , 2020 versus the year ended june 30 , 2019 — consolidated and combined results of operations — business segment results — impairment for intangibles , long-lived assets , and goodwill ” for further details on the impairment charges recorded for the year ended june 30 , 2020. due to the covid-19-related shutdown of its venues , tao group hospitality continues to review its lease contracts and could decide to close additional venues ( which may later reopen elsewhere ) if the landlords are unwilling to make concessions acceptable to tao group hospitality , which closures could result in additional impairment charges related to the venue 's long-lived assets .
| combined results of operations the table below sets forth , for the periods presented , certain historical financial information . replace_table_token_8_th nm — percentage is not meaningful 56 the following is a summary of changes in segments ' operating results for the year ended june 30 , 2019 as compared to the prior year . replace_table_token_9_th ( a ) see “ business segment results ” for a more detailed discussion of the operating results of our segments . depreciation and amortization depreciation and amortization for the year ended june 30 , 2019 decreased $ 2,715 , or 2 % , to $ 109,343 as compared to fiscal year 2018 primarily due to certain assets being fully depreciated and amortized . earnings ( loss ) in equity method investments earnings ( loss ) in equity method investments for the year ended june 30 , 2019 were $ 7,062 as compared to a loss of $ 3,758 in fiscal year 2018 . the year-over-year improvement is primarily due to ( i ) the improvement in net earnings of $ 10,480 attributable to the company 's investees as compared to fiscal year 2018 and ( ii ) gains of approximately $ 9,000 related to the sale of the company 's interest in amsge during fiscal year 2019 as well as the sale of an amsge investment during fiscal year 2019 prior to the company 's sale of its interest in amsge .
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the exercise price for the purchase option is $ 1,300,000 , for a total purchase price of $ 1,400,000 , if penn octane exercises the purchase option between july 1 and july 31 , 2007. if penn octane exercises the purchase option before july 1 , 2007 , the exercise price is $ 1,700,000 , for a total purchase price of $ 1,800,000 . the purchase option expires if it is not exercised on or before july 31 , 2007. the general partner generally has unlimited liability for the obligations of rio vista , such as its debts and environmental liabilities , except for those contractual obligations of rio vista that are expressly made without recourse to the general partner . distributions of available cash all rio vista unitholders have the story_separator_special_tag the following discussion of rio vista 's liquidity and capital resources should be read in conjunction with the consolidated financial statements of rio vista and related notes thereto appearing elsewhere herein . references to specific years preceeded by fiscal ( e.g . fiscal 2005 ) refer to rio vista 's fiscal year ending december 31. overview rio vista energy partners l.p. ( rio vista ) , a delaware limited partnership , was formed by penn octane corporation ( penn octane ) on july 10 , 2003 and was a wholly owned subsidiary of penn octane until september 30 , 2004 , the date that penn octane completed a series of transactions that ( i ) transferred substantially all of its owned pipeline and terminal assets in brownsville , texas and matamoros , mexico and certain immaterial liabilities to rio vista operating partnership l.p. ( rvop ) ( ii ) transferred penn octane 's 99.9 % interest in rvop to rio vista and ( iii ) distributed all of its limited partnership interests ( common units ) in rio vista to its common stockholders ( spin-off ) , resulting in rio vista becoming a separate public company . the common units represented 98 % of rio vista 's outstanding capital and 100 % of rio vista 's limited partnership interests . the remaining 2 % represented the general partner interest . the general partner interest is solely owned and controlled by rio vista gp llc ( general partner ) . prior to june 30 , 2006 , the general partner was wholly owned by penn octane . on july 1 , 2006 , options to acquire 50 % of the general partner were exercised , resulting in penn octane having a 50 % interest in the general partner . penn octane retains control over the general partner pursuant to a voting agreement with the other owners of the general partner . the general partner is responsible for the management of rio vista . common unitholders do not participate in the management of rio vista . rio vista energy partners l.p. and its consolidated subsidiaries ( not including the general partner ) are hereinafter referred to as rio vista . as more fully described in note d to the consolidated financial statements , prior to the sale of a portion of rio vista 's lpg related assets and all of penn octane 's liquefied petroleum gas ( lpg ) related assets to transmontaigne product services , inc. ( transmontaigne ) on august 22 , 2006 ( restated lpg asset sale ) , rio vista was principally engaged in the purchase , transportation and sale of lpg . subsequent to the restated lpg asset sale , rio vista continues to own and operate a lpg terminal facility in matamoros , tamaulipas , mexico ( matamoros terminal facility ) and approximately 23 miles of pipelines ( us mexico pipelines ) ( collectively retained assets ) which connects the matamoros terminal facility to the lpg terminal facility in brownsville , texas sold to transmontaigne . pursuant to a lpg transportation agreement with transmontaigne , rio vista uses the retained assets to transport lpg exclusively for transmontaigne on a fee-for-services basis . subsequent to the spin-off , and through the date of the restated lpg asset sale , rio vista sold lpg directly to p.m.i . trading limited ( pmi ) . pmi is a subsidiary of petróleos mexicanos , the state-owned mexican oil company , which is commonly known by its trade name pemex. pmi is currently the exclusive importer of lpg into mexico . rio vista purchased lpg from penn octane under a long-term supply agreement . the purchase price to rio vista of the lpg sold from penn octane was determined based on the cost of lpg under penn octane 's lpg supply agreements with its suppliers , other direct costs related to pmi sales and a formula that took into consideration operating costs of penn octane and rio vista . prior to the restated lpg asset sale , rio vista 's , primary customer for lpg was pmi . pmi sells the lpg delivered from the matamoros terminal facility to pemex which distributes the lpg into the northeastern region of mexico . subsequent to the restated lpg asset sale , transmontaigne continues to use the matamoros terminal facility for sales of lpg to pmi which are principally destined for consumption in the northeastern region of mexico , which includes the states of coahuila , nuevo leon and tamaulipas . sales of lpg to pmi have historically fluctuated in part based on the seasons . the demand for lpg is strongest during the winter season . rio vista does not anticipate that its existing business , the lpg transportation business ( see below ) , will generate sufficient cash flow to increase unitholder value . therefore the general partner of rio vista intends to use a portion of its available cash and credit to make strategic acquisitions . there can be no assurance , however , that rio vista will be able to complete such acquisitions or that , if completed , such acquisitions will increase unitholder value . see risk factors below . story_separator_special_tag valero originally contracted with pmi under a five year agreement to deliver approximately 6.3 million gallons ( of which 3.2 million gallons were previously delivered by truck from three rivers , texas ) of lpg per month . during july 2005 , valero announced that it had entered into a new agreement with pmi which provides for double the amount of lpg previously contracted for with pmi . during 2004 , a pipeline operated by el paso energy between corpus christi , texas and hidalgo county , texas was closed . historically these facilities had supplied approximately 5.0 million gallons of lpg per month to rio vista 's strategic zone . rio vista is not aware of any future plans for these facilities . during 2003 , pmi constructed and began operations of a refined products cross border pipeline connecting a pipeline running from pemex 's cadereyta refinery in monterrey , mexico to terminal facilities operated by transmontaigne , inc. in brownsville , texas . the pipeline crosses the us-mexico border near the proximity of rio vista 's pipelines . in connection with the construction of the pipeline , pmi utilizes an easement from rio vista for an approximate 21.67 acre portion of the pipeline . under the terms of the easement , pmi has agreed that it will not transport lpg through october 15 , 2017. dependence on transmontaigne . the ability of rio vista to transport lpg using the retained assets is dependent on transmontaigne , including transmontaigne 's future contracts with pmi , and its ability to bring supplies of lpg into the retained assets . currently , rio vista believes that transmontaigne 's options to obtain and deliver significant additional gallons of lpg in excess of the maximum gallons committed under the exxon supply agreement depends on transmontaigne 's ability to bring shipments of lpg into the port of brownsville via barges or ships to be delivered to its brownsville terminal , railcar deliveries of lpg to its brownsville terminal and or access to new pipelines which are capable of transporting lpg from other lpg suppliers into the seadrift pipeline . 25 story_separator_special_tag of $ 49.4 million or 40.8 % . of this decrease , $ 57.4 million was attributable to decreased volumes of lpg sold to pmi during the year ended december 31 , 2006 ( lpg sales business terminated on august 21 , 2006 ) , partially offset by $ 8.0 million attributable to increases in average sales prices of lpg sold to pmi during the year ended december 31 , 2006. cost of goods sold . cost of goods sold for the year ended december 31 , 2006 was $ 69.5 million compared with $ 116.5 million for the year ended december 31 , 2005 , a decrease of $ 47.0 million or 40.3 % . the cost of goods sold for lpg purchased from penn octane was determined in accordance with the lpg supply agreement . of this decrease , $ 55.2 million was attributable to decreased volumes of lpg sold to pmi during the year ended december 31 , 2006 ( lpg sales business terminated on august 21 , 2006 ) , partially offset by $ 8.6 million attributable to increases in the average costs of lpg sold to pmi during the year ended december 31 , 2006. year ended december 31 , 2005 compared with year ended july 31 , 2004 rio vista commenced operations on october 1 , 2004. the following discussion is based on a comparison of rio vista 's results of operations from discontinued operations of its lpg sales business for the year ended december 31 , 2005 to the results of operations from discontinued operations of rio vista 's predecessor penn octane corporation 's owned pipeline and terminal operations a division of penn octane corporation lpg sales business for the year ended july 31 , 2004. for rio vista 's results of operations for the year ended december 31 , 2004 ( actual results commenced october 1 , 2004 ) , no discussion has been provided as there are not any comparative periods available . since all costs of rio vista are not comparative with prior period results reported by rio vista 's predecessor penn octane corporation 's owned pipeline and terminal operations a division of penn octane corporation , no comparative discussion has been made but rather a discussion of the components comprising these costs . revenues . revenues for the year ended december 31 , 2005 , were $ 120.9 million compared with $ 141.9 million for the comparative period one year earlier , a decrease of $ 21.0 million or 14.8 % . of this decrease , $ 79.7 million was attributable to decreased volumes of lpg sold to pmi during the year ended december 31 , 2005 , 2006 partially offset by $ 58.7 million attributable to increases in average sales prices of lpg sold to pmi during the year ended december 31,2005. cost of goods sold . cost of goods sold for the year ended december 31 , 2005 was $ 116.5 million compared with $ 133.6 million for the year ended july 31 , 2004 , a decrease of $ 17.1 million or 12.8 % . the cost of goods sold for lpg purchased from penn octane was determined in accordance with the lpg supply agreement . of this decrease , $ 76.0 million was attributable to decreased volumes of lpg sold to pmi during the year ended december 31 , 2005 , partially offset by $ 58.0 million attributable to increases in the average costs of lpg sold to pmi during the year ended december 31 , 2005 . 28 liquidity and capital resources general .
| results of operations the following discussion of rio vista 's results of operations from continuing operations for all periods presented excludes the results of operations related to the sold assets , including revenues , direct costs and associated interest expenses , which have been reclassified as discontinued operations ( see below ) . as a result , the results of operations from continuing operations reflects only the results associated with the lpg transportation business , including all costs associated with operation of the us-mexico pipelines and matamoros terminal facility and all indirect income and expenses of rio vista . revenues from rio vista 's lpg transportation business commenced on august 22 , 2006 although expenses associated with operation of the us-mexico pipelines and matamoros terminal facility were incurred during the entire period for each period presented . continuing operations : year ended december 31 , 2006 compared with year ended december 31 , 2005 revenues . revenues for the year ended december 31 , 2006 , were $ .9 million . there were no revenues during the year ended december 31 , 2005 since the lpg transportation business did not commence until august 22 , 2006. all revenues prior to august 22 , 2006 were derived from rio vista 's lpg sales business and have been reclassified as discontinued operations ( see below ) . cost of goods sold . cost of goods sold for the year ended december 31 , 2006 was $ 1.8 million compared with $ 2.1 million for the year ended december 31 , 2005. the cost of goods sold consists of those costs associated with operation of the us mexico pipelines and matamoros terminal facility . all costs associated with rio vista 's lpg sales business prior to the lpg asset sale , except for costs associated with the us mexico pipelines and matamoros terminal facility , which are also being used for rio vista 's lpg transportation business , have been reclassified as discontinued operations ( see below ) .
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these statements are based on our current estimates and expectations as to prospective events and circumstances , which may or may not be in our control and as to which there can be no firm assurances given . these forward-looking statements , which include statements regarding business and market trends , future financial performance , the expected impact of the covid-19 pandemic on our assets , business and results of operations , customer order rates and timing of related revenue , future product mix , restructuring and other cost-savings initiatives , research and development activities , capital projects , investments , acquisitions , liquidity , dividends and stock repurchases , strategic plans , and estimated tax benefits and expenses and other tax matters , involve known and unknown risks and uncertainties that could cause actual results to differ materially from those projected . such risks and uncertainties include : ( 1 ) the impact , duration , and severity of the covid-19 pandemic ; ( 2 ) potential disruptions to our business due to restructuring activities ; ( 3 ) the loss of , or curtailment of purchases by , large customers in the consumer electronics and logistics industries ; ( 4 ) the reliance on revenue from the automotive industry ; ( 5 ) the reliance on key suppliers to manufacture and deliver critical components for our products ; ( 6 ) the failure to effectively manage product transitions or accurately forecast customer demand ; ( 7 ) the inability to design and manufacture high-quality products ; ( 8 ) the inability to attract and retain skilled employees and maintain our unique corporate culture ; ( 9 ) the failure to effectively manage our growth ; ( 10 ) the inability to achieve growth in revenue and profits from the logistics industry ; ( 11 ) the technological obsolescence of current products and the inability to develop new products ; ( 12 ) the failure to properly manage the distribution of products and services ; ( 13 ) the impact of competitive pressures ; ( 14 ) the challenges in integrating and achieving expected results from acquired businesses ; ( 15 ) potential disruptions in our business systems ; ( 16 ) information security breaches ; ( 17 ) the inability to protect our proprietary technology and intellectual property ; ( 18 ) potential impairment charges with respect to our investments or acquired intangible assets ; ( 19 ) exposure to additional tax liabilities ; ( 20 ) fluctuations in foreign currency exchange rates and the use of derivative instruments ; ( 21 ) our involvement in time-consuming and costly litigation ; ( 22 ) unfavorable global economic conditions ; and ( 23 ) economic , political , and other risks associated with international sales and operations . the foregoing list should not be construed as exhaustive and we encourage readers to refer to the detailed discussion of risk factors included in part i - item 1a of this annual report on form 10-k. the company cautions readers not to place undue reliance upon any such forward-looking statements , which speak only as of the date made . the company disclaims any obligation to subsequently revise forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date such statements are made . executive overview cognex corporation is a leading worldwide provider of machine vision products that capture and analyze visual information in order to automate manufacturing and distribution tasks where vision is required . in addition to product revenue derived from the sale of machine vision products , the company also generates revenue by providing maintenance and support , consulting , and training services to its customers ; however , service revenue accounted for less than 10 % of total revenue for all periods presented . cognex machine vision is used to automate manufacturing and distribution processes in a variety of industries , where the technology is widely recognized as an important component of automated production and quality assurance . virtually every manufacturer can achieve better quality and manufacturing efficiency by using machine vision , and therefore , cognex products are used by a broad base of customers across a variety of industries , including consumer electronics , automotive , consumer products , food and beverage , and medical-related . cognex products are also used to automate distribution processes in the logistics industry , including for applications in retail distribution and ecommerce to scan , track , and sort goods through distribution centers . revenue for the year ended december 31 , 2020 totaled $ 811,020,000 , representing an increase of 12 % from 2019. this increase was driven largely by higher revenue from certain customers in the consumer electronics industry and ecommerce customers in the logistics industry . we believe that both of these industries benefited in 2020 from higher consumer demand during the covid-19 pandemic . these increases were partially offset by lower revenue from customers in the automotive industry , which was our largest market in 2019 and continues to be negatively impacted by global economic conditions resulting from the covid-19 pandemic . 19 table of content gross margin improved to 75 % of revenue in 2020 from 74 % of revenue in 2019. gross margin expansion was due to the favorable impact of the higher revenue on fixed manufacturing costs , as well as favorable product mix . operating expenses increased by 10 % from the prior year due primarily to one-time restructuring charges and intangible asset impairment charges . excluding these charges , operating expenses were relatively flat with the prior year , as higher incentive compensation costs were offset by lower travel expenses resulting from covid-19 restrictions and savings from restructuring actions . operating income expanded to 21 % of revenue in 2020 compared to 20 % of revenue in 2019. a higher level of discrete tax benefits in 2019 related to tax structure changes resulted in net income of 22 % of revenue in 2020 compared to 28 % of revenue in 2019 , and net income per diluted share of $ 1.00 story_separator_special_tag these restructuring actions , together with other actions to reduce the company 's overall costs , were designed to generate an aggregate annualized cost savings of approximately $ 25 million versus the company 's original planned cost structure . as of the date of this report , we are on track to achieve this target for 2021 , with actual savings from these restructuring and other cost-saving actions in 2020 estimated to be approximately $ 16 million . intangible asset impairment charges deteriorating global economic conditions from the covid-19 pandemic triggered a review of long-lived assets for potential impairment in the second quarter of 2020. this review resulted in intangible asset impairment charges totaling $ 19,571,000 recorded in the second quarter of 2020 , primarily related to lower projected cash flows from the technologies and customer relationships acquired from sualab . non-operating income ( expense ) the company recorded foreign currency gains of $ 3,697,000 in 2020 and foreign currency losses of $ 509,000 in 2019. foreign currency gains and losses result primarily from the revaluation of cash , accounts receivable , accounts payable , and intercompany balances that are reported in one currency and denominated in another . in 2020 , the company recognized foreign currency gains related to the revaluation of intercompany payables reported on the company 's china entity that are denominated in u.s. dollars . the company currently does not hedge its chinese yuan exposures due to limitations in hedging instruments available for this currency . investment income decreased by $ 6,695,000 , or 34 % , from the prior year . the decrease was due to lower yields on the company 's portfolio of debt securities , and to a lesser extent , lower average investment balances . the company recorded other expense of $ 309,000 in 2020 and other income of $ 1,212,000 in 2019. other income ( expense ) includes fair value adjustments of contingent consideration liabilities arising from business acquisitions . in 2019 , the company recorded favorable fair value adjustments related to its acquisition of gvi ventures , inc. , resulting from a lower level of revenue in the americas ' automotive industry . income tax expense ( benefit ) the company 's effective tax rate was an expense of 6 % of pre-tax income in 2020 compared to a benefit of 25 % of pre-tax income in 2019. the effective tax rate in both years reflected several discrete tax items described below . the effective tax rate included a decrease in tax expense of $ 12,788,000 in 2020 and $ 6,472,000 in 2019 related to stock options , primarily from the excess tax benefit arising from the difference between the deduction for tax purposes and the compensation cost recognized for financial reporting purposes from stock option exercises . the company can not predict the level of stock option exercises by employees in future periods . in 2020 , the company recorded discrete tax items related to the final true-up of the prior year tax accrual upon filing the related tax return . this included a decrease in tax expense of $ 13,984,000 primarily to recognize a foreign tax benefit on certain gains taxed outside of the united states based on clarifications to rules related to the use of foreign tax credits . this benefit was partially offset by tax expense for a transfer price adjustment in china of $ 3,267,000 and smaller tax expense adjustments related to foreign tax filings of $ 843,000. in 2020 , interpretations of a german law relating to withholding taxes on intellectual property rights emerged . the company conducted a careful review of the interpretation and believes it has adequate reserves for this german tax exposure . management will continue to monitor this law and court rulings in germany . in 2019 , the company made changes to its international tax structure as a result of european union tax reform legislation , and as a result , recorded a net discrete tax benefit of $ 87,500,000. also , in 2019 , the company migrated acquired intellectual property to certain subsidiaries , and as a result , recorded a discrete tax expense of $ 28,528,000 . 23 table of content other discrete tax items , none of which were individually material , resulted in a net decrease in tax expense of $ 307,000 in 2020 and $ 1,932,000 in 2019. excluding the impact of all discrete tax items , the company 's effective tax rate was an expense of 17 % of pre-tax income in 2020 and 16 % of pre-tax income in 2019. the increase in the effective tax rate excluding discrete tax items was due to more of the company 's profits being earned and taxed in higher tax jurisdictions , as well as the impact of changes in 2019 to the company 's international tax structure . year ended december 31 , 2019 compared to year ended december 31 , 2018 revenue revenue for the year ended december 31 , 2019 was $ 725,625,000 compared to $ 806,338,000 for the prior year , representing a decrease of $ 80,713,000 , or 10 % . changes in foreign currency exchange rates accounted for approximately 2 % of the revenue decrease from 2018 to 2019 , primarily related to the translation of euro-denominated and chinese yuan-denominated revenue to u.s. dollars . in 2019 , industrial companies delayed and reduced spending for automation projects , including those with machine vision , amid weaker general manufacturing confidence and heightened uncertainty around global trade . this decrease in capital spending , along with the decision by certain of our larger customers to retrofit existing equipment rather than invest in new production lines or facilities , contributed to the decrease in revenue from the prior year . the impact to our business was most significant in our two largest markets , consumer electronics and automotive , which together represent approximately half of our total revenue .
| results of operations as foreign currency exchange rates are a factor in understanding period-to-period comparisons , we believe the presentation of results on a constant-currency basis in addition to reported results helps improve investors ' ability to understand our operating results and evaluate our performance in comparison to prior periods . we also use results on a constant-currency basis as one measure to evaluate our performance . constant-currency information compares results between periods as if exchange rates had remained constant period-over-period . we generally refer to such amounts calculated on a constant-currency basis as excluding the impact of foreign currency exchange rate changes . results on a constant-currency basis are not in accordance with accounting principles generally accepted in the united states of america ( u.s. gaap ) and should be considered in addition to , and not as a substitute for , results prepared in accordance with u.s. gaap . year ended december 31 , 2020 compared to year ended december 31 , 2019 revenue revenue for the year ended december 31 , 2020 was $ 811,020,000 compared to $ 725,625,000 for the prior year , representing an increase of 12 % . the increase was due largely to higher revenue from customers in the consumer electronics and logistics industries , which were our two largest markets in 2020. it appears that manufacturers of electronics products and ecommerce providers in the logistics industry both benefited from the `` stay-at-home '' conditions that arose from the covid-19 pandemic in 2020. revenue from customers in the consumer electronics and logistics industries increased by approximately 30 % and 40 % , respectively , from the prior year , and a significant portion of this growth came from large customers in these industries . our total revenue and quarterly timing of revenue is impacted by the purchasing cycles of these large customers .
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as of february 25 , 2016 , we owned and or operated 24 inpatient acute care hospitals , 3 free-standing emergency departments and 213 inpatient and 16 outpatient behavioral health care facilities located in 37 states , washington , d.c. , the united kingdom , puerto rico and the u.s. virgin islands . in addition , we are building a newly-constructed acute care hospital located in henderson , nevada , that is scheduled to be completed and opened during the fourth quarter of 2016. we also manage and or own outright or in partnerships with physicians , 4 surgical hospitals and surgery and radiation oncology centers located in 4 states . as a percentage of our consolidated net revenues , net revenues from our acute care hospitals , surgical hospitals , commercial health insurer , surgery centers and radiation oncology centers accounted for 51 % during each of 2015 and 2014 and 49 % during 2013. net revenues from our behavioral health care operations accounted for 49 % of our consolidated net revenues during each of 2015 and 2014 and 51 % during 2013. services provided by our hospitals include general and specialty surgery , internal medicine , obstetrics , emergency room care , radiology , oncology , diagnostic care , coronary care , pediatric services , pharmacy services and or behavioral health services . we provide capital resources as well as a variety of management services to our facilities , including central purchasing , information services , finance and control systems , facilities planning , physician recruitment services , administrative personnel management , marketing and public relations . forward-looking statements and risk factors you should carefully review the information contained in this annual report , and should particularly consider any risk factors that we set forth in this annual report and in other reports or documents that we file from time to time with the securities and exchange commission ( the “ sec ” ) . in this annual report , we state our beliefs of future events and of our future financial performance . this annual report contains “ forward-looking statements ” that reflect our current estimates , expectations and projections about our future results , performance , prospects and opportunities . forward-looking statements include , among other things , the information concerning our possible future results of operations , business and growth strategies , financing plans , expectations that regulatory developments or other matters will not have a material adverse effect on our business or financial condition , our competitive position and the effects of competition , the projected growth of the industry in which we operate , and the benefits and synergies to be obtained from our completed and any future acquisitions , and statements of our goals and objectives , and other similar expressions concerning matters that are not historical facts . words such as “ may , ” “ will , ” “ should , ” “ could , ” “ would , ” “ predicts , ” “ potential , ” “ continue , ” “ expects , ” “ anticipates , ” “ future , ” “ intends , ” “ plans , ” “ believes , ” “ estimates , ” “ appears , ” “ projects ” and similar expressions , as well as statements in future tense , identify forward-looking statements . in evaluating those statements , you should specifically consider various factors , including the risks related to healthcare industry trends and those set forth herein in item 1a . risk factors . forward-looking statements should not be read as a guarantee of future performance or results , and will not necessarily be accurate indications of the times at , or by which , such performance or results will be achieved . forward-looking information is based on information available at the time and or our good faith belief with respect to future events , and is subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in the statements . such factors include , among other things , the following : · our ability to comply with the existing laws and government regulations , and or changes in laws and government regulations ; · an increasing number of legislative initiatives have been passed into law that may result in major changes in the health care delivery system on a national or state level . no assurances can be given that the implementation of these laws will not have a material adverse effect on our business , financial condition or results of operations ; · possible unfavorable changes in the levels and terms of reimbursement for our charges by third party payors or government based payors , including medicare or medicaid in the united states , and government based payors in the united kingdom ; · our ability to enter into managed care provider agreements on acceptable terms and the ability of our competitors to do the same , including contracts with united/sierra healthcare in las vegas , nevada ; · the outcome of known and unknown litigation , government investigations , false claim act allegations , and liabilities and other claims asserted against us and other matters as disclosed in item 3. legal proceedings ; 37 · the potential unfavorable impact on our business of deterioration in national , regional and local economic and business conditions , including a worsening of unfavorable credit market conditions ; · competition from other healthcare providers ( including physician owned facilities ) in certain markets ; · technological and pharmaceutical improvements that increase the cost of providing , or reduce the demand for healthcare ; · our ability to attract and retain qualified personnel , nurses , physicians and other healthcare professionals and the impact on our labor expenses resulting from a shortage of nurses and other healthcare professionals ; · demographic changes ; · our ability to successfully integrate and improve our recent acquisitions and the availability of suitable acquisitions and divestiture opportunities ; · as discussed below in sources of revenue , we receive revenues from various state story_separator_special_tag in addition , our accounts receivable as of december 31 , 2015 and december 31 , 2014 includes approximately $ 80 million and $ 102 million , respectively , due from texas in connection with medicaid supplemental payment programs . the $ 80 million due from texas as of december 31 , 2015 consists of $ 47 million related to uncompensated care program revenues , $ 9 million related to disproportionate share hospital program revenues and $ 24 million related to delivery service reform incentive payment program ( “ dsrip ” ) revenues . the above-mentioned texas dsrip receivables outstanding as of december 31 , 2015 were collected in january , 2016. although the accounts receivable due from illinois and texas could remain outstanding for the foreseeable future , since we expect to eventually collect all amounts due to us , no related reserves have been established in our consolidated financial statements . however , we can provide no assurance that we will eventually collect all amounts due to us from illinois and or texas . failure to ultimately collect all outstanding amounts due from these states would have an adverse impact on our future consolidated results of operations and cash flows ; · there have been several attempts in congress to repeal or modify various provisions of the patient protection and affordable care act ( the “ ppaca ” ) . we can not predict whether or not any of these proposed changes to the ppaca will become law and therefore can provide no assurance that changes to the ppaca , as currently implemented , will not have a material adverse effect on our future results of operations ; · uninsured and self-pay patients treated at our acute care facilities unfavorably impact our ability to satisfactorily and timely collect our self-pay patient accounts ; · the ability to obtain adequate levels of general and professional liability insurance on current terms ; · changes in our business strategies or development plans ; · fluctuations in the value of our common stock , and ; · other factors referenced herein or in our other filings with the securities and exchange commission . given these uncertainties , risks and assumptions , as outlined above , you are cautioned not to place undue reliance on such forward-looking statements . our actual results and financial condition could differ materially from those expressed in , or implied by , the forward-looking statements . forward-looking statements speak only as of the date the statements are made . we assume no obligation to publicly update any forward-looking statements to reflect actual results , changes in assumptions or changes in other factors affecting forward-looking information , except as may be required by law . all forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by this cautionary statement . critical accounting policies and estimates the preparation of financial statements in conformity with accounting principles generally accepted in the united states requires us to make estimates and assumptions that affect the amounts reported in our consolidated financial statements and accompanying notes . a summary of our significant accounting policies is outlined in note 1 to the financial statements . we consider our critical accounting policies to be those that require us to make significant judgments and estimates when we prepare our financial statements , including the following : 39 revenue recognition : we record revenues and related receivables for health care services at the time the services are provided . medicare and medicaid revenues represented 35 % of our net patient revenues during 2015 , 38 % during 2014 and 39 % during 2013. revenues from managed care entities , including health maintenance organizations and managed medicare and medicaid programs accounted for 52 % of our net patient revenues durin g 2015 , 50 % during 2014 and 49 % during 2013. we report net patient service revenue at the estimated net realizable amounts from patients and third-party payors and others for services rendered . we have agreements with third-party payors that provide for payments to us at amounts different from our established rates . payment arrangements include prospectively determined rates per discharge , reimbursed costs , discounted charges and per diem payments . estimates of contractual allowances under managed care plans are based upon the payment terms specified in the related contractual agreements . we closely monitor our historical collection rates , as well as changes in applicable laws , rules and regulations and contract terms , to assure that provisions are made using the most accurate information available . however , due to the complexities involved in these estimations , actual payments from payors may be different from the amounts we estimate and record . we estimate our medicare and medicaid revenues using the latest available financial information , patient utilization data , government provided data and in accordance with applicable medicare and medicaid payment rules and regulations . the laws and regulations governing the medicare and medicaid programs are extremely complex and subject to interpretation and as a result , there is at least a reasonable possibility that recorded estimates will change by material amounts in the near term . certain types of payments by the medicare program and state medicaid programs ( e.g . medicare disproportionate share hospital , medicare allowable bad debts and inpatient psychiatric services ) are subject to retroactive adjustment in future periods as a result of administrative review and audit and our estimates may vary from the final settlements . such amounts are included in accounts receivable , net , on our consolidated balance sheets . the funding of both federal medicare and state medicaid programs are subject to legislative and regulatory changes . as such , we can not provide any assurance that future legislation and regulations , if enacted , will not have a material impact on our future medicare and medicaid reimbursements .
| other operating results combined net revenues and income/losses before income taxes from our surgical hospitals , ambulatory surgery centers and radiation oncology centers did not have a material impact on our consolidated results of operations during 2015 , 2014 or 2013. interest expense below is a schedule of our interest expense during 2015 , 2014 and 2013 ( amounts in thousands ) : replace_table_token_23_th 62 ( a . ) in august , 2014 , we entered into a fourth amendment to our credit agreement dated november 15 , 2010 , as amended . the credit agreement , as amended , which is scheduled to expire in august , 2019 , consists of : ( i ) an $ 800 million revolving credit facility , and ; ( ii ) a $ 1.775 billion term loan a facility , which combined our previously outstanding term loan a and term loan a2 facilities ( which were scheduled to mature in 2016 ) . interest rates were not impacted by t he fourth amendment to the credit agreement . the term loan b-1 facility was repaid in august , 2014 , utilizing other borrowed funds . ( b . ) in july , 2014 , we redeemed the entire $ 250 million aggregate principal amount of our 7 % senior notes due in 2018. an $ 11 million make-whole premium was paid in connection with this early extinguishment . ( c. ) in august , 2014 , we completed an offering of $ 300 million aggregate principal amount of 3.750 % senior secured notes due in 2019 and $ 300 million aggregate principal amount of 4.750 % senior secured notes due in 2022 . ( d. ) in december , 2015 , we amended our existing accounts receivable securitization program , which was scheduled to expire in october , 2016 , to extend the term through december 21 , 2018 and increase the borrowing limit to $ 400 million from $ 360 million .
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the new revenue recognition standard is effective for us for the fiscal year beginning july 1 story_separator_special_tag the following management 's discussion and analysis of financial condition and results of operations ( `` md & a '' ) is intended to help the reader understand our results of operations and financial condition . md & a is provided as a supplement to , and should be read in conjunction with , our financial statements and the accompanying notes . overview we are a vertically integrated designer and manufacturer of specialized electronic systems and components for critical applications . we sell our products and provide related services in diversified markets , including homeland security , healthcare , defense and aerospace . we have three operating divisions : ( a ) security , providing security and inspection systems and turnkey security screening solutions ; ( b ) healthcare , providing patient monitoring , diagnostic cardiology , and anesthesia systems ; and ( c ) optoelectronics and manufacturing , providing specialized electronic components for our security and healthcare divisions , as well as to third parties for applications in the defense and aerospace markets , among others . security division . through our security division , we provide security screening products and services globally , as well as turnkey security screening solutions . these products and services are used to inspect baggage , parcels , cargo , people , vehicles and other objects for weapons , explosives , drugs , radioactive and nuclear materials and other contraband . revenues from our security division accounted for 63 % of our total consolidated revenues for fiscal 2018. as a result of the terrorist attacks in the u.s. and in other locations worldwide , security and inspection products have increasingly been used at a wide range of facilities other than airports , such as border crossings , railways , seaports , cruise line terminals , freight forwarding operations , sporting venues , government and military installations and nuclear facilities . we believe that our wide-ranging product portfolio together with our ability to provide turnkey screening solutions position us to competitively pursue security and inspection opportunities as they arise throughout the world . currently , the u.s. federal government is discussing various options to address sequestration and the u.s. federal government 's overall fiscal challenges and we can not predict the outcome of these efforts . while we believe that national security spending will continue to be a priority , u.s. government budget deficits and the national debt have created increasing pressure to examine and reduce spending across many federal agencies . additionally , there continues to be volatility in international markets that has impacted international security spending . we believe that the diversified product portfolio and international customer mix of our security division position us well to withstand the impact of these uncertainties and even benefit from specific initiatives within various governments . however , depending on how future sequestration cuts are implemented and how the u.s. federal government and our other international customers manage their fiscal challenges , we believe that these actions could have a material , adverse effect on our business , financial condition and results of operations . healthcare division . through our healthcare division , we design , manufacture , market and service patient monitoring and diagnostic cardiology systems globally for sale primarily to hospitals and medical centers . to a limited extent , we continue to manufacture , market , and service anesthesia delivery and ventilation systems . our products monitor patients in critical , emergency and perioperative care areas of the hospital and provide information , through wired and wireless networks , to physicians and nurses who may be at the patient 's bedside , in another area of the hospital or even outside the hospital . revenues from our healthcare division accounted for 18 % of our total consolidated revenues for fiscal 2018. the healthcare markets in which we operate are highly competitive . we believe that our customers choose among competing products on the basis of product performance , functionality , value and service . there is 54 continued uncertainty regarding the u.s. federal government budget and the affordable care act , either of which may impact hospital spending , third-party payer reimbursement and fees to be levied on certain medical device revenues , any of which could adversely affect our business and results of operations . in addition , hospital capital spending appears to have been impacted by strategic uncertainties surrounding the affordable care act and economic pressures . we also believe that global economic uncertainty has caused some hospitals and healthcare providers to delay purchases of our products and services . during this period of uncertainty , sales of our healthcare products may be negatively impacted . we can not predict when the markets will fully recover or when the uncertainties related to the u.s. federal government will be resolved and , therefore , when this period of delayed and diminished purchasing will end . a prolonged delay could have a material adverse effect on our business , financial condition and results of operations . optoelectronics and manufacturing division . through our optoelectronics and manufacturing division , we design , manufacture and market optoelectronic devices and flex circuits and provide electronics manufacturing services globally for use in a broad range of applications , including aerospace and defense electronics , security and inspection systems , medical imaging and diagnostics , telecommunications , office automation , computer peripherals , industrial automation , automotive diagnostic systems , and consumer products . we also provide our optoelectronic devices and electronics manufacturing services to oem customers , and our own security and healthcare divisions . revenues from external customers in our optoelectronics and manufacturing division accounted for 19 % of our total consolidated revenues for fiscal 2018. story_separator_special_tag circumstance where terms of a product sale include subjective customer acceptance criteria , revenue is deferred until we have achieved the acceptance criteria unless the customer acceptance criteria are perfunctory or inconsequential . service revenue . story_separator_special_tag amortization of leasehold improvements is calculated on the straight-line method over the shorter of the useful life of the asset or the lease term . leased capital assets are included in property and equipment . amortization of property and equipment under capital leases is included with depreciation expense . in the event that property and equipment are idle , as a result of excess capacity or the early termination , non-renewal or reduction in scope of a turnkey screening operation , such assets are assessed for impairment on a periodic basis and when an indication that impairment may exist . income taxes . our annual tax rate is based on our income , statutory tax rates and tax planning opportunities available to us in the various jurisdictions in which we operate . tax laws are complex and subject to different interpretations by the taxpayer and respective governmental taxing authorities . significant judgment is required in determining our tax expense and in evaluating our tax positions including evaluating uncertainties . we review our tax positions quarterly and adjust the balances as new information becomes available . deferred income tax assets represent amounts available to reduce income taxes payable on taxable income in future years . such assets arise because of temporary differences between the financial reporting and tax bases of assets and liabilities , as well as from net operating loss and tax credit carryforwards . we evaluate the recoverability of these future tax deductions by assessing the adequacy of future expected taxable income from all sources , including reversal of taxable temporary differences , forecasted operating earnings and available tax planning strategies . these sources of income inherently rely on estimates . to provide insight , we use our historical experience and our short and long-range business forecasts . we believe it is more likely than not that a portion of the deferred income tax assets may expire unused and therefore have established a valuation allowance against them . although realization is not assured for the remaining deferred income tax assets , we believe it is more likely than not that the deferred tax assets will be fully recoverable within the applicable statutory expiration periods . however , deferred tax assets could be reduced in the near term if our estimates of taxable income are significantly reduced or available tax planning strategies are no longer viable . 58 the impact of the tax act has been recorded on a provisional basis as the legislation provides for additional guidance and regulations to be issued by the u.s. department of the treasury on several provisions including the computation of the transition tax on foreign earnings . guidance during the first two quarters of fiscal 2019 could impact the calculation of the fiscal 2018 transition tax charge and could affect decisions on timing of various u.s. and foreign items which would further impact the final tax act amounts included in the charge for the transition tax charge and the remeasurement of deferred taxes . in addition , analysis performed and conclusions reached as part of the tax return filing process and additional guidance on accounting for the tax act could affect the provisional amount . business combinations . in connection with the acquisition of a business , we allocate the fair value of purchase consideration to the tangible and intangible assets acquired , and liabilities assumed based on their estimated fair values . the excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill . such valuations require management to make significant estimates and assumptions , especially with respect to intangible assets . significant estimates in valuing certain intangible assets include , but are not limited to , future expected cash flows from acquired customers , acquired technology , and trade names , useful lives and discount rates . our estimates of fair value are based upon assumptions believed to be reasonable , but which are inherently uncertain and unpredictable and , as a result , actual results may differ from estimates . during the measurement period , which is up to one year from the acquisition date , we may record adjustments to the assets acquired and liabilities assumed , with the corresponding offset to goodwill . upon the conclusion of the measurement period , any subsequent adjustments are recorded to earnings . impairment of long-lived assets . goodwill represents the excess purchase price of net tangible and intangible assets acquired in business combinations over their estimated fair value . goodwill is allocated to our segments based on the nature of the product line of the acquired business . the carrying value of goodwill is not amortized , but is annually tested for impairment during our second quarter and more often if there is an indicator of impairment . intangible assets other than goodwill are amortized over their useful lives unless these lives are determined to be indefinite . we assess qualitative factors of each of our reporting units to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount , including goodwill . such assessments indicated that it is not more likely than not that the fair value of each reporting unit is less than its carrying amount , including goodwill . thus , we have determined that it is not necessary to proceed with the two-step goodwill impairment test . there was no goodwill impairment for each of the three fiscal years ended june 30 , 2018. we evaluate long-lived assets with finite lives for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable . impairment is considered to exist if the total estimated future cash flows on an undiscounted basis are less than the carrying amount of the assets . if impairment does exist , we measure the impairment loss and record it based on the discounted estimate of future cash flows .
| consolidated results fiscal 2018 compared with fiscal 2017. we reported consolidated sales of $ 1,089.3 million in fiscal 2018 , a 13 % increase over the prior year , which drove a year-over-year increase in gross profit of $ 68.2 million . our income from operations increased by 68 % from the prior year to $ 55.9 million in fiscal 2018. this increase in profitability was driven primarily by our 13 % increase in sales , an expanded gross margin , the contribution from acquisitions , including the explosive trace detection ( `` etd '' ) business acquired in july 2017 , and a decrease in impairment , restructuring and other charges . fiscal 2017 compared with fiscal 2016. we reported consolidated sales of $ 961.0 million in fiscal 2017 , a 16 % increase over the prior year , which drove a year-over-year increase in gross profit of $ 46.6 million . despite this increase in sales and gross profit , our income from operations decreased by 13 % from the prior year to $ 33.3 million in fiscal 2017. this decline in profitability was driven primarily by a 112 % increase in impairment , restructuring and other charges . such charges related to the abandonment of assets previously built or constructed for our turnkey scanning program in mexico and two product lines in our security division , facility consolidations among all three of our operating divisions , transaction costs for acquisition activity during the fiscal year and costs related to the integration of as & e , which was acquired in september 2016. acquisitions . on july 7 , 2017 , we completed the etd acquisition from smiths group plc . the etd operations are included in our security division . we financed the total purchase price of $ 80.5 million with a combination of cash on hand and borrowings under our existing revolving bank line of credit .
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