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overview we are a leading provider of substance abuse treatment services and youth treatment services in the united states . we also provide treatment services for other addiction diseases and behavioral disorders such as eating disorders . we deliver our services through our two divisions , the recovery division and the healthy living division . our recovery division provides substance abuse and behavioral disorder treatment services through our residential treatment facilities and outpatient treatment clinics . our healthy living division provides education to underachieving young people through residential schools and wilderness programs . our healthy living division also provides treatment services through adolescent and adult weight management programs as well as eating disorder facilities . we have two operating segments : recovery division and healthy living division . as of december 31 , 2010 , our recovery division , which operates 30 inpatient , 20 outpatient facilities , and 54 comprehensive treatment centers ( ctcs ) in 21 states , provides treatment services to patients suffering from chronic addiction related diseases and related behavioral disorders . as of december 31 , 2010 , our recovery division treated approximately 28,000 patients per day . as of december 31 , 2010 , our healthy living division , which operates 24 adolescent and young adult programs in 8 states , provides a wide variety of therapeutic educational programs for underachieving young people . our healthy living division also operates 18 facilities in 8 states inclusive of one facility each in the united kingdom and canada with a focus on providing treatment services for eating disorders and weight management . other activities classified as corporate represent revenue and expenses associated with egetgoing , an online internet treatment option , and general and administrative expenses ( i.e. , expenses associated with our corporate offices in cupertino , california , which provides management , financial , human resource and information system support ) and stock-based compensation expense that are not allocated to the segments . management uses segment profit information for internal reporting and control purposes and considers it important in making decisions regarding the allocation of capital and other resources , risk assessment and employee compensation , among other matters . intersegment sales and transfers are insignificant . we report in two segments : recovery division and healthy living division . in addition to the two reportable segments , the company has activities classified as corporate which represent revenue and expenses associate with egetgoing , an online internet treatment option , as well as certain corporate-level operating general and administrative costs . the recovery division includes all inpatient and outpatient drug and alcohol treatment programs consistent with our long-term objective of being a full spectrum chemical dependency provider that integrates the best of the various treatment modalities into a seamless web of service . the healthy living division includes adolescent residential and outdoor programs , eating disorders and adult weight management facilities and adolescent weight management programs . 32 basis of presentation the accompanying financial data has been prepared by us pursuant to the rules and regulations of the u.s. securities and exchange commission ( sec ) and is in conformity with u.s. generally accepted accounting principles ( gaap ) . our fiscal year end is december 31. unless otherwise stated , all years and dates refer to our fiscal year . management is responsible for the fair presentation of the accompanying consolidated financial statements , prepared in accordance with gaap , and has full responsibility for their integrity and accuracy . in the opinion of management , the accompanying consolidated financial statements contain all adjustments necessary to present fairly our consolidated balance sheets , statements of operation , statements of cash flows and statements of changes in equity for all periods presented . principles of consolidation . the consolidated financial statements include the accounts of the company and our wholly owned subsidiaries . all significant intercompany accounts and transactions have been eliminated . discontinued operations . we have reflected certain facility closures , and facilities held for sale , as discontinued operations in our consolidated statements of operations for all periods presented and as discontinued operations for 2010. acquisitions 2010 acquisitions for the year ended december 31 , 2010 , we completed two acquisitions for a total purchase consideration of approximately $ 1.0 million . the acquisitions are intended to provide expansion of our services within the respective markets of the acquired facilities in the united states . we recorded $ 0.5 million and $ 0.4 million of goodwill within our recovery division and healthy living division , respectively , related to the acquisitions , all of which is expected to be deductible for tax purposes . the purchase price for each acquisition was allocated to the assets acquired and liabilities assumed based on their respective fair values . we have included the acquired entities ' results of operations in the consolidated statements of operations from the date of each acquisition . pro forma results of operations have not been presented because the effect of the acquisitions was not material . 2009 acquisitions we did not complete any acquisitions during the year ended december 31 , 2009 . 2008 acquisitions during the third quarter of 2008 , we closed two acquisitions and paid approximately $ 11.6 million in cash . the acquisitions are intended to provide expansion of our services within the respective corresponding markets of the acquired facilities in the united states . the purchase price for each acquisition was allocated to the assets acquired and liabilities assumed based on their respective fair values . we have included the acquired entities ' results of operations in the consolidated statements of operations from the date of each acquisition . pro forma results of operations have not been presented because the effect of the acquisitions was not material . 33 executive summary we generate revenue by providing substance abuse treatment services and adolescent treatment services in the united states . we also generate revenue by providing treatment services for other specialized behavioral disorders . story_separator_special_tag we determine the fair value of our reporting units using a combination of the income approach and the market approach . under the income approach , we calculate the fair value of a reporting unit based on the present value of estimated future cash flows . under the market approach , we estimate fair value based on what investors have paid for similar interests in comparable companies through the development of ratios of market prices to various earnings indications of comparable companies taking into consideration adjustments for growth prospects , debt levels and overall size . if the fair value of the reporting unit exceeds the carrying value of the net assets assigned to that unit , goodwill is not impaired and we are not required to perform further testing . if the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit , then we must perform the second step of the impairment test in order to determine the implied fair value of the reporting unit 's goodwill . if the carrying value of a reporting unit 's goodwill exceeds its implied fair value , then we record an impairment loss equal to the difference . the process of evaluating the potential impairment of goodwill is subjective and requires significant estimates and assumptions at many points during the analysis . our estimated future cash flows are based on assumptions that reflect our best estimates and incorporate estimated future cash flows consistent with our annual planning process and include estimates for revenue and operating margins and future economic and market conditions . actual future results may differ from those estimates . in addition , we make certain judgments and assumptions in allocating shared assets and liabilities to determine the carrying values for each of our reporting units tested . changes in assumptions or circumstances could result in an additional impairment in the period in which the change occurs and in future years . factors that could cause us to record additional goodwill impairment include , but are not limited to : 1. decreases in revenues or increases in operating costs 2. increases in the company 's borrowing rates or weighted average cost of capital 3. increase in the blended tax rate 4. changes in working capital 5. significant alteration of market multiples utilized in the valuation process 6. significant decrease in market value of comparable companies 7. significant changes in perpetuity growth rate our other indefinite lived intangible assets consist of trademarks and trade names , certificates of need , and regulatory licenses . we test other indefinite lived intangible assets for impairment annually , at the beginning of 35 our fourth quarter or more frequently if evidence of possible impairment arises . we apply a fair value-based impairment test to the net book value of other indefinite lived intangible assets using a combination of income and market approaches . impairment charges related to fixed asset , goodwill and intangible assets not subject to amortization are included in the consolidated statements of operations under goodwill impairment , asset impairment and discontinued operations . revenue recognition revenue is recognized when rehabilitation and treatment services are provided to a patient . client service revenue is reported at the estimated net realizable amounts from clients , third-party payors and others for services rendered . revenue under third-party payor agreements is subject to audit and retroactive adjustment . provisions for estimated third-party payor settlements are provided for in the period the related services are rendered and adjusted in future periods as final settlements are determined . revenue for educational services provided by our healthy living division consists primarily of tuition , enrollment fees , alumni services and ancillary charges . tuition revenue and ancillary charges are recognized based on contracted monthly/daily rates as services are rendered . the enrollment fees for service contracts that are charged upfront are deferred and recognized over the average student length of stay , ranging between 2 and 16 months . alumni fees revenue represents non-refundable upfront fees for post-graduation services and these fees are deferred and recognized systematically over the contracted life . we may , from time to time , provide charity care to a limited number of clients . we do not record revenues or receivables for charity care provided . advance billings for client services are deferred and recognized as the related services are performed . stock-based compensation we measure and recognize compensation expense for all stock-based payment awards , including employee stock options , granted after january 1 , 2006 , based on the grant-date fair value . we estimate grant date fair value of our awards by utilizing the black scholes merton model for time-based awards and a closed-form lattice model for awards containing market conditions . for awards that are subject to both a performance and market condition , compensation expense is recognized over the longer of the implicit service period associated with the performance condition or the derived service period associated with the market condition . income taxes we account for income taxes under an asset and liability method . under this method , deferred income tax assets and liabilities are determined based upon the difference between the financial statement carrying amounts and tax bases of assets and liabilities using tax rates in effect when the differences are expected to reverse . a valuation allowance is established when necessary to reduce deferred tax assets to the amounts expected to be realized . for u.s. federal tax return purposes , we are part of a consolidated tax return with our parent , crc health group , inc. however , our provision for income taxes is prepared on a stand-alone basis . we establish reserves for tax-related uncertainties based on estimates of whether , and the extent to which , additional taxes will be due . these reserves are established when we believe that certain positions might be challenged despite our belief that our tax return positions are in accordance with applicable tax laws .
| results of operations continuing operations year ended december 31 , 2010 compared to continuing operations year ended december 31 , 2009 the following table presents our results of operations by segment for the year ended december 31 , 2010 and 2009 ( numbers in thousands , except for percentages ) . replace_table_token_4_th ( 1 ) healthy living division operating expenses include $ 21.2 million of asset impairment and $ 52.7 million of goodwill impairment for the year ended december 31 , 2010 and $ 2.3 million of asset impairment and $ 30.5 million of goodwill impairment for the year ended december 31 , 2009 . 39 the following table compares key total facility statistics for the years ended december 31 , 2010 and 2009 : replace_table_token_5_th consolidated net revenue increased $ 16.0 million , or 3.7 % , to $ 443.7 million for year ended december 31 , 2010 from $ 427.7 million for the year ended december 31 , 2009. of the total net revenue increase , the recovery division contributed an increase of $ 17.3 million and the healthy living division contributed a decrease of $ 1.2 million . the $ 17.3 million , or 5.6 % , increase within the recovery division was driven by increases of $ 11.0 million and $ 6.2 million within residential and ctc facilities , respectively . the $ 1.2 million , or 1.1 % , decrease within the healthy living division was driven by increases of $ 3.1 million and $ 0.8 million within weight management and outdoor programs , respectively , offset by a decrease of $ 5.1 million in residential facilities . see facility statistics table above for explanation of changes in revenue utilizing metrics for patient days and revenue per patient day .
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as we determined the covid-19 pandemic was a triggering event , we performed an interim impairment test of certain intangible assets as of march 28 , 2020 in addition to our annual impairment test during the fourth quarter . the impairment test for indefinite-lived intangible assets consists of a comparison of the fair value of the intangible asset with its carrying amount . an impairment loss is recognized story_separator_special_tag certain statements in management 's discussion and analysis of financial condition and results of operations of brunswick corporation are forward-looking statements . forward-looking statements are based on current expectations , estimates , and projections about brunswick 's business and by their nature address matters that are , to different degrees , uncertain . actual results may differ materially from expectations and projections as of the date of this filing due to various risks and uncertainties . for additional information regarding forward-looking statements , refer to forward-looking statements above . certain statements in management 's discussion and analysis are based on non-gaap financial measures . gaap refers to generally accepted accounting principles in the united states . a “ non-gaap financial measure ” is a numerical measure of a registrant 's historical or future financial performance , financial position or cash flows that excludes amounts , or is subject to adjustments that have the effect of excluding amounts , that are included in the most directly comparable measure calculated and presented in accordance with gaap in the consolidated statements of operations , balance sheets or statements of cash flows of the issuer ; or includes amounts , or is subject to adjustments that have the effect of including amounts , that are excluded from the most directly comparable measure so calculated and presented . for example , the discussion of our cash flows includes an analysis of free cash flows and total liquidity ; the discussion of our net sales include a discussion of net sales on a constant currency basis ; the discussion of our earnings includes a presentation of operating earnings and operating margin excluding restructuring , exit and impairment charges , purchase accounting amortization , acquisition-related costs and other applicable charges ; and diluted earnings per common share , as adjusted . non-gaap financial measures do not include operating and statistical measures . we include non-gaap financial measures in management 's discussion and analysis , as management believes that these measures and the information they provide are useful to investors because they permit investors to view our performance using the same tools that management uses to better evaluate our ongoing business performance . in order to better align our reported results with the internal metrics used by management to evaluate business performance as well as to provide better comparisons to prior periods and peer data , non-gaap measures exclude the impact of purchase accounting amortization related to the power products and freedom boat club acquisitions . brunswick does not provide forward-looking guidance for certain financial measures on a gaap basis because it is unable to predict certain items contained in the gaap measures without unreasonable efforts . these items may include restructuring , exit and impairment costs , special tax items , acquisition-related costs , and certain other unusual adjustments . overview and outlook impact of covid-19 in march 2020 , the world health organization announced that infections of the novel coronavirus ( covid-19 ) had become a world-wide pandemic . national , state and local authorities have enforced social distancing and imposed quarantine and isolation measures on large portions of the population , including mandatory business closures . these measures have had and continue to have serious adverse impacts on domestic and foreign economies of uncertain severity and duration . on march 23 , 2020 , we temporarily suspended manufacturing operations at most engine and boat production facilities to ensure the health and safety of affected employees and to balance inventory levels with anticipated reductions in near-term demand . on april 13 , 2020 , we resumed partial operations and limited production activities in certain manufacturing facilities and , in the ensuing weeks , continued to open additional manufacturing facilities . our distribution business operated throughout the pandemic and the dealer network continued to sell products , enabling boaters to get out on the water . approximately half of the dealer network was closed in some capacity in april , but the network was fully operational by mid-may . the pandemic also affected freedom boat club , as many of its locations were closed in april due to local stay-at-home restrictions , particularly in florida . however , once doors reopened , several locations had their busiest weekends in history with strong membership increases across the network . production ramp-up activities became a primary focus in the second half of the year , as we experienced an unprecedented surge in retail demand as a consequence of the need for social distancing friendly recreation . this surging retail demand environment resulted in our lowest pipeline inventory levels in over twenty years , at 19 weeks on hand as of the end of the year . as of february 12 , 2021 , all global manufacturing and distribution facilities are online with a continued focus on rigorously applying , evolving and automating covid-19 mitigation procedures , while continuing to ramp-up global production 28 to meet unprecedented market demand . we will continue to actively monitor the impact of covid-19 and may take further actions that alter business operations as may be required by government authorities , or that are determined to be in the best interest of our employees , customers , dealers , suppliers and stakeholders . the full extent of the impact of covid-19 on our business , operations and financial results will depend on evolving factors that we can not accurately predict . refer to part i. item 1a . risk factors for further information . story_separator_special_tag the surge in retail demand resulted in historically-low pipeline inventory levels , with 40 % percent fewer boats in dealer inventory at the end of 2020 versus the end of 2019. freedom boat club also exceeded expectations during 2020 by adding over 40 new locations and almost 10,000 new memberships . international net sales increased 9 percent and 10 percent in 2020 on a gaap and constant currency basis , respectively , primarily driven by asia-pacific , europe , and rest-of-world regions , partially offset by declines in canada . increase earnings before income taxes , as well as deliver improvements in operating margin percentage , excluding non-recurring charges : reported earnings before income taxes were $ 472.7 million in 2020 compared with earnings before income taxes of $ 110.7 million in 2019 ; adjusted earnings before income taxes were $ 511.2 million in 2020 versus $ 465.2 million in 2019. gross margin percentage improved 60 basis points when compared with 2019 reflecting the impact of higher sales across all segments during the second half of the year , as well as favorable changes in sales mix , partially offset by the impact of production suspensions and stay-at-home restrictions earlier in the year . operating margin improved by 90 basis points when compared with 2019 primarily due to the factors affecting gross margin percentage discussed above . operating margin , as adjusted , was up 40 basis points compared with 2019 . 30 continue to generate strong free cash flow and execute against our capital strategy : generated free cash flow of $ 629.3 million in 2020 enabling us to execute our capital strategy as follows : deployed $ 182 million of capital in our businesses for product and capacity initiatives ; retired $ 155 million of long term debt ; completed approximately $ 118 million of share repurchases ; and increased our dividend for the 8th consecutive year . maintained investment grade credit rating through the covid-related recession ended the year with $ 587.0 million of cash and marketable securities net earnings from continuing operations increased to $ 374.7 million in 2020 from $ 30.4 million in 2019. the 2019 results included an after-tax , non-cash charge of $ 310.3 million related to pension settlement costs as well as a net tax benefit of $ 17.2 million primarily related to a favorable rate change impact on state deferred tax assets as well as a reassessment of the state valuation allowance . outlook for 2021 while we remain very cognizant of macroeconomic headwinds and other related uncertainties , our continued strong performance in a robust marine retail environment has created improved visibility into our substantial growth opportunities for 2021. the progression of the pandemic remains very dynamic , and the resulting impact on our dealers , oem partners , suppliers , and the macro-economy is difficult to fully predict . however , given our improved clarity on our ability to drive growth , we are providing the following guidance for 2021. we anticipate : u.s. marine industry retail unit demand up low-to-mid single digit percent for the year versus 2020 ; net sales between $ 4.75 and $ 5.0 billion ; adjusted operating margins to grow between 60 and 100 basis points , with operating expenses as a percent of sales to be lower than in 2020 ; adjusted diluted eps in the range of $ 6.00 to $ 6.40 ; and free cash flow generation to be in excess of $ 300 million . for the propulsion segment , we anticipate net sales growth for the year to be in the high-single to low double-digit percent range , with operating margins up more than 20 basis points versus 2020. we expect earnings growth to include margin expansion associated with new product introductions , increased factory absorption from elevated production levels and currency tailwinds , partially offset by regional sales mix , increased tariffs due to volume increases , and some increase in spending on products , technology , and other strategic priorities . for the parts & accessories segment , we anticipate organic net sales growth in the mid-single digit percent range for 2021. we expect margins to grow slightly in the year . this area will continue to be the primary focus of our m & a activity as we look for opportunities to further build out our technology and systems portfolio . the boat segment will be focused on improving operational performance , fulfilling demand and refilling pipelines in a very robust retail environment , which should lead to top line growth of more than 30 percent and strong improvement in operating earnings and margins . with three-quarters of our entire calendar-year 2021 wholesale orders already received , and with several brands largely sold-out into 2022 , we anticipate consistent production throughout the year , which should result in cost efficiencies . we anticipate exiting 2021 with operating margins approaching our double-digit target for the segment . we are planning for the effective tax rate in 2021 to be approximately 23 percent based on existing tax law , which does not reflect any potential changes in statutory tax rates . these 2021 expectations assume no major additional pandemic-related business continuity issues . in addition , the level of recovery of the global economy , continued stable channel operations , the ability to moderate labor and input costs , and the absence of significant additional disruption to our global operations and supply chain , will be important factors in determining whether we ultimately perform in line with our targets . 31 matters affecting comparability certain events occurred during 2020 , 2019 and 2018 that we believe affect the comparability of the results of operations . the tables below summarize the impact of changes in currency exchange rates , the impact of recent acquisitions and the impact of sport yacht & yachts operations on our net sales : replace_table_token_6_th replace_table_token_7_th sport yacht & yachts wind-down . the results of sport yacht & yachts operations are summarized in the table below .
| results of operations consolidated the following table sets forth certain amounts , ratios and relationships calculated from the consolidated statements of operations for 2020 , 2019 and 2018 : replace_table_token_10_th nm = not meaningful bpts = basis points ( a ) gross margin is defined as net sales less cost of sales as presented in the consolidated statements of operations . the following is a summary of adjusted operating earnings and adjusted diluted earnings per common share from continuing operations : replace_table_token_11_th 2020 vs. 2019 net sales increased 5.8 percent during 2020 when compared with 2019. refer to the propulsion , parts & accessories , and boat segments discussions for further details on the drivers of net sales changes . gross margin percentage increased 60 basis points in 2020 when compared with 2019 , reflecting impacts of higher sales partially offset by the impacts of production suspensions and stay-at-home restrictions earlier in the year . 34 sg & a increased during 2020 and includes purchase accounting amortization and acquisition and it transformation-related costs , as applicable . excluding those items , sg & a as a percentage of sales was relatively consistent in 2020 compared with 2019. research and development expense increased in 2020 versus 2019 , but remained consistent as a percentage of net sales . during 2020 , we recorded restructuring , exit and impairment charges of $ 4.1 million compared with $ 18.8 million in 2019. see note 4 – restructuring , exit and impairment activities in the notes to consolidated financial statements for further details . we recognized equity earnings of $ 4.5 million and $ 7.3 million in 2020 and 2019 , respectively , which were mainly related to our marine and technology-related joint ventures . in 2019 , we fully exited our remaining defined benefit pension plans and as a result , recorded a $ 1.1 million benefit in 2020 , associated with a final settlement adjustment . in 2019 , we recorded $ 292.8
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executive summary company overview — swift is a multi-faceted transportation services company , operating the largest fleet of truckload equipment in north america from over 40 terminals near key freight centers and traffic lanes . we principally operate in short- to medium-haul traffic lanes around our terminals and dedicated customer locations . as of december 31 , 2014 , our fleet of 18,836 tractors was comprised of 13,882 company tractors and 4,954 owner-operator tractors , together covering 2.1 billion miles for shippers throughout north america during 2014 . our fleet also included 61,652 trailers and 9,150 intermodal containers as of december 31 , 2014 . our extensive suite of service offerings provides our customers with the opportunity to `` one-stop-shop '' for their truckload transportation needs . in 2014 , we generated consolidated operating revenue of $ 4.3 billion from our service offerings , which include line-haul services , dedicated customer contracts , temperature-controlled units , intermodal freight solutions , cross-border united states/mexico and united states/canada freight , flatbed hauling , freight brokerage and logistics , and others . consolidated operating income in 2014 was $ 370.1 million . revenue — we primarily generate revenue by transporting freight for our customers , generally at a predetermined rate per mile . we supplement this revenue by charging for fuel surcharges , stop-off pay , loading and unloading activities , tractor and trailer detention , and other ancillary services . the main factors that affect our revenue from transporting freight are the rate per mile we receive from our customers and the number of loaded miles we run . the main factors that affect fuel surcharge revenue are the price of diesel fuel and the number of loaded miles . fuel surcharges are billed on a lagging basis , meaning that we typically bill customers in the current week based on a previous week 's applicable index . therefore , in times of increasing fuel prices , we do not recover as much as we are currently paying for fuel . in periods of declining prices , the opposite is true . revenue in our non-reportable segment is generated by our non-asset-based freight brokerage and logistics management service , tractor leasing revenue from our financing subsidiaries , premium revenue from our captive insurance companies , and revenue from third parties serviced by our repair and maintenance shops . main factors affecting revenue in our non-reportable segment are demand for brokerage and logistics services and number of equipment leases to our owner-operators by our financing subsidiaries . expenses — our most significant expenses vary with miles traveled and include fuel , driver-related expenses ( such as wages and benefits ) and services purchased from owner-operators and other transportation providers ( such as railroads , drayage providers , and other trucking companies ) . maintenance and tire expenses and cost of insurance and claims generally vary with the miles we travel , but also have a controllable component based on safety improvements , fleet age , efficiency , and other factors . our primary fixed costs are depreciation and lease expense for revenue equipment and terminals , interest expense , and non-driver compensation . changes in deadhead miles percentage generally have the largest proportionate effect on our profitability because we still bear all of the expenses for each deadhead mile , but do not earn any revenue to offset those expenses . changes in rate per mile have the next largest proportionate effect on profitability because incremental improvements in rate per mile are not offset by any additional expenses . changes in loaded miles generally have a smaller effect on profitability because variable expenses fluctuate with changes in miles . however , changes in mileage are affected by driver satisfaction and network efficiency , which indirectly effect expenses . financial overview replace_table_token_5_th 27 glossary of terms ( 1 ) adjusted ebitda , adjusted operating ratio and adjusted eps are non-gaap financial measures . these non-gaap financial measures should not be considered alternatives to or superior to gaap financial measures . however , management believes that presentation of these non-gaap financial measures provides useful information to investors regarding the company 's results of operations . adjusted ebitda , adjusted operating ratio and adjusted eps are reconciled to the most directly comparable gaap financial measures under `` non-gaap financial measures , '' below . factors affecting comparability between periods 2014 results of operations — our net income for the year ended december 31 , 2014 was $ 161.2 million . items impacting comparability between 2014 and prior periods include the following : $ 39.9 million loss on debt extinguishment resulting from the repurchase of our senior notes and replacement of the 2013 agreement ; $ 19.5 million reduction in interest expense in 2014 as compared to 2013 , primarily due to the redemption of the senior notes , lower debt balances , and the replacement of the 2013 agreement with the 2014 agreement ; 280 basis point difference in the effective tax rate , which was 35.7 % , as compared to the expected effective tax rate of 38.5 % , primarily due to the benefit of prior year federal income tax credits realized in the third quarter of 2014 and federal employment income tax credits realized in the fourth quarter of 2014 ; $ 2.3 million pre-tax impairment charge for the write-off of certain operational software replaced ; and $ 3.0 million in pre-tax gain on disposal of redundant central properties . 2013 story_separator_special_tag style= '' page-break-after : always '' / > glossary of terms fees associated with the senior secured credit facility and previous senior secured second-priority fixed and floating rate notes , which were paid off , along with the remaining interest rate swaps , in conjunction with our ipo and refinancing transactions on december 21 , 2010 . ( 5 ) excludable transaction costs for the year ended december 31 , 2013 were a result of the central acquisition , in which swift and central incurred financial advisory , severance and other professional fees associated with the transaction . story_separator_special_tag ( 3 ) refer to footnote ( 6 ) to the adjusted ebitda reconciliation for a description of items in `` non-cash impairments of non-operating assets . '' ( 4 ) refer to footnote ( 5 ) to the adjusted operating ratio reconciliation for a description of items in `` acceleration of non-cash stock options . '' ( 5 ) refer to footnote ( 4 ) to the adjusted ebitda reconciliation for a description of items in `` loss on debt extinguishment . '' ( 6 ) refer to footnote ( 4 ) to the adjusted operating ratio reconciliation for a description of items in `` other special non-cash items . '' ( 7 ) refer to footnote ( 5 ) to the adjusted ebitda reconciliation for a description of items in `` excludable transaction costs . '' ( 8 ) mark-to-market adjustment of interest rate swaps reflects the portion of the change in fair value of these financial instruments that was recorded in earnings in each period indicated and excludes the portion recorded in aoci under cash flow hedge accounting . ( 9 ) amortization of unrealized losses on interest rate swaps reflects the non-cash amortization expense of $ 5.1 million and $ 15.1 million for the years ended december 31 , 2012 and 2011 , respectively , included in derivative interest expense in the consolidated income statements . non-cash amortization expense is comprised of previous losses recorded in aoci related to the interest rate swaps we terminated upon our ipo and concurrent refinancing transactions in december 2010. such losses were incurred in prior periods when hedge accounting applied to the swaps and were expensed in relation to the hedged interest payments through the original maturity of the swaps in august 2012 . ( 10 ) refer to footnote ( 2 ) to the adjusted operating ratio reconciliation for a description of items in `` amortization of certain intangibles . '' 31 glossary of terms ( 11 ) for all periods through 2012 , we used a normalized tax rate of 39 % in our adjusted eps calculation due to the amortization of deferred tax assets related to our pre-ipo interest rate swap amortization and other items that we knew would cause fluctuations in our gaap effective tax rate . beginning in 2013 , these items no longer resulted in large variations in our gaap effective tax rate , and we began using our gaap expected effective tax rate for our adjusted eps calculation . results of operations — segment review during 2014 , we operated four reportable segments : truckload , dedicated , central refrigerated and intermodal . the descriptions of the operations of these reportable segments are described in note 27 to the consolidated financial statements . in the first quarter of 2014 , the company reorganized its reportable segments to reflect management 's revised reporting structure of its lines of business following the integration of central . in association with the operational reorganization , the operations of central 's tofc business are reported within the company 's intermodal segment and the operations of central 's logistics business , third-party leasing , and other services provided to owner-operators are reported in the company 's other non-reportable segment . all prior period historical results related to the above noted segment reorganization have been retrospectively recast . consolidating tables for operating revenue and operating income are as follows : replace_table_token_9_th ( 1 ) during 2012 , intermodal incurred an increase in insurance and claims expense , primarily related to one claim associated with a drayage accident , which increased the intermodal operating ratio by approximately 300 basis points . our chief operating decision makers monitor the gaap results of our reporting segments , as supplemented by certain non-gaap information . refer to `` non-gaap financial measures '' above for more details . additionally , we use a number of primary indicators to monitor our revenue and expense performance and efficiency . weekly trucking revenue xfsr per tractor ( monitored monthly ) — this is our primary measure of productivity for our truckload , dedicated and central refrigerated segments . weekly trucking revenue xfsr per tractor is affected by the following factors , which are typically monitored daily : loaded miles ( miles driven when hauling freight ) ; fleet size ( because available loads are spread over available tractors ) ; rates received for our services ; and network balance ( number of loads accepted , compared to available trucks , by market ) . we strive to increase our revenue per tractor by improving freight rates with customers , hauling more loads with existing equipment , effectively moving freight within our network , maintaining our tractors , and recruiting and retaining drivers and owner-operators . 32 glossary of terms deadhead miles percentage ( monitored daily ) — this is calculated by dividing the number of unpaid miles by the total number of miles driven . we monitor deadhead miles percentage in truckload and central refrigerated , as we strive to reduce our number of deadhead miles within these segments . by balancing our freight flows and planning consecutive loads with shorter distances between the drop-off and pick-up locations , we are able to reduce the percentage of deadhead miles driven to allow for more revenue-generating miles during our drivers ' hours-of-service . this also enables us to reduce wage , fuel and other costs associated with deadhead miles . average tractors available for dispatch ( monitored daily ) — we use this measure for all of our reportable segments . it includes tractors driven by company drivers as well as owner-operator units . this measure changes based on our ability to adjust our fleet size in response to changes in demand . adjusted operating ratio ( monitored monthly ) — we consider this ratio an important measure of our operating profitability for each of our reportable segments . we define and reconcile adjusted operating ratio under `` non-gaap financial measures , '' above .
| results of operations — our net income for the year ended december 31 , 2013 was $ 155.4 million . items impacting comparability between 2013 and other periods include the following : $ 22.5 million reduction in interest expense for the year ended december 31 , 2013 compared to the corresponding period in 2012 resulting from the replacement of our previous amended and restated credit agreement in the first quarter of 2013 and our voluntary debt repayments ; $ 6.9 million pre-tax gain on the sale of three properties classified as held for sale ; $ 4.9 million in merger and acquisition expense for financial advisory , severance and other professional fees related to the central acquisition ; $ 5.5 million loss on debt extinguishment resulting from the repayment of certain outstanding central debt in full at closing of the acquisition , resulting in a loss on debt extinguishment of $ 0.5 million , and $ 5.0 million from the replacement of our previous amended and restated credit agreement in the first quarter of 2013 ; and $ 0.9 million in one-time non-cash equity compensation charge incurred by central for certain stock options that accelerated upon closing of the central acquisition . 2012 results of operations — our net income for the year ended december 31 , 2012 was $ 140.1 million .
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within the scope of this new guidance , an entity should measure inventory at the lower story_separator_special_tag financial condition and results of operations 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 appearing elsewhere . in addition to historical information , this discussion and analysis contains forward-looking statements that involve risks , uncertainties and assumptions . our actual results may differ materially from those discussed below . factors that could cause or contribute to such differences include , but are not limited to , those identified below , and those discussed in the section titled “ risk factors ” included in part i , item 1a of this annual report on form 10-k. overview we are a specialty pharmaceutical company that operates through two business divisions : an acute care division and a revenue-generating cdmo division . each of these divisions are deemed to be reportable segments for financial reporting purposes . our acute care segment is primarily focused on developing innovative products for commercialization in hospital and other acute care settings . our lead product candidate , iv meloxicam , has successfully completed three phase iii clinical trials , two pivotal efficacy trials , large double-blind phase iii safety trial and other safety studies for the management of moderate to severe pain . overall , the total nda program included over 1,400 patients . at the end of july 2017 , we submitted an nda to the fda for iv meloxicam 30mg for the management of moderate to severe pain . the fda has accepted the nda for review and set a pdufa date of may 26 , 2018. our acute care segment has no revenue and our costs consist primarily of expenses incurred in conducting our clinical trials and preclinical studies , manufacturing scale-up , regulatory activities , pre-commercialization of meloxicam and personnel costs . our cdmo segment leverages our formulation expertise to develop and manufacture pharmaceutical products using our proprietary delivery technologies for commercial partners who commercialize or plan to commercialize these products . these collaborations result in revenue streams including royalties , profit sharing , research and development and manufacturing , which support continued operations for our cdmo segment and have contributed funds to be used in our research and development and pre-commercialization activities in our acute care segment . we operate a 97,000 square-foot , dea-licensed manufacturing facility in gainesville , georgia , and we currently develop and or manufacture the following key products with our commercial partners : ritalin la® , focalin xr® , verelan pm® , verelan sr® , verapamil pm , verapamil sr and zohydro er® , as well as development stage products . our cdmo segment 's revenue streams are derived from manufacturing , royalty and profit sharing revenues , as well as our research and development of services performed for commercial partners . we have incurred losses and generated negative cash flows from operations since inception , and expect to continue to incur significant and increasing operating losses for the foreseeable future . substantially all of our operating losses resulted from costs incurred in connection with our development programs , including our non-clinical and formulation development activities , manufacturing , clinical trials and pre-commercialization activities . we have used revenue generated by our cdmo segment primarily to fund operations at our gainesville , georgia manufacturing facility , to make payments under our previous credit facility and to partially fund our development and pre-commercialization activities of our acute care segment . we believe our cdmo segment 's revenue will continue to contribute cash for general corporate purposes that may , to some extent , reduce the amount of external capital needed to fund development and commercial operations . we expect to incur increasing expenses over the next several years to commercialize iv meloxicam , if approved , including continued pre-commercialization and commercialization activities for iv meloxicam , and to develop our other current and future product candidates . on april 10 , 2015 , we completed the gainesville transaction , which transformed our business through the addition of a revenue-generating business and the increase in our workforce as a result of the addition of the employees at our gainesville , georgia manufacturing facility . the consideration paid consisted of $ 50.0 million cash , a $ 4.0 million working capital adjustment and a seven-year warrant to purchase 350,000 shares of our common stock at an exercise price of $ 19.46 per share . in addition , we may be required to pay up to an additional $ 125.0 million in milestone payments including $ 45 million upon regulatory approval of iv meloxicam , as well as net sales milestones and a royalty percentage of future product net sales related to iv meloxicam . we funded the up-front payment of the gainesville transaction with borrowings under our previous credit facility with orbimed royalties , ii , lp , or orbimed , and cash on hand . pursuant to the credit facility with orbimed , we issued orbimed a warrant to purchase an aggregate of 294,928 shares of our common stock at an exercise price of $ 3.28 per share , subject to certain adjustments . 64 in november 2017 , we entered into our credit agreement with athyrium , pursuant to which we drew upon an initial $ 60.0 million term loan and have the ability to draw upon two addition al tranches of terms loans , each in the aggregate original principal amount of $ 20.0 million , subject to certain timing and milestone restrictions . we used the proceeds from the initial term loan to repay in full all outstanding indebtedness and transacti on fees under the previous credit facility with orbimed . the interest rate under the credit agreement with athyrium is equal to three-month libor plus 9.75 % , with a 1.0 % libor floor . story_separator_special_tag we expect our research and development costs to primarily relate to injectable meloxicam for the foreseeable future as we advance this product candidate through the pre-commercialization scale-up , clinical and other pre-approval activities . we also expect to have expenses as we initiate clinical trials and related work for our other product candidates . we may elect to seek out collaborative relationships in order to provide us with a diversified revenue stream and to help facilitate the development and commercialization of our product candidate pipeline . we expect our research and development costs to continue to increase as we continue clinical and pre-commercialization manufacturing activities for iv meloxicam , and engage in pipeline development activities . in addition , research and development expenses consist of costs incurred by our cdmo segment for its product and formulation development activities , including regulatory support . we expense research and development costs as incurred . advanced payments for goods and services that will be used in future research and development activities are initially recorded as prepaid expenses and expensed as the activity is performed or when the goods have been received . general and administrative expenses general and administrative expenses consist principally of salaries and related costs for personnel in executive , pre-commercial and finance and information technology functions . general and administrative expenses also include professional fees for legal , including patent-related expenses , consulting , auditing and tax services , and stock compensation expense . 66 we expect our general and administrative expenses to continue to increase as we build our acute care commercialization team and engage in pre-commercialization iv meloxicam marketing , sales , market access and medical affairs activities . in addition , we will continue to incur costs relating to our operations as a public company , including increased headcount and increased salary , consulting , legal , patent and compliance , accounting , insurance and investor relations costs . amortization of intangible assets we recognize amortization expense related to the intangible asset for our contract manufacturing relationships on a straight-line basis over an estimated useful life of six years . the intangible asset related to injectable meloxicam represents in process research and development , or ipr & d , which is considered an indefinite-lived intangible asset that is assessed for impairment annually or more frequently if impairment indicators exist . change in fair value of contingent consideration in connection with the acquisition of injectable meloxicam in the gainesville transaction , we are required to pay up to an additional $ 125.0 million in milestone payments , including $ 45 million upon regulatory approval of iv meloxicam , as well as net sales milestones and a royalty percentage of future product net sales related to iv meloxicam between 10 % and 12 % ( subject to a 30 % reduction when no longer covered by patent ) . the estimated fair value of the initial $ 54.6 million payment obligation was recorded as part of t he purchase price for the gainesville transaction . we have since reevaluated and as of december 31 , 2017 recorded a $ 82.0 payment obligation , representing the estimated probability adjusted fair value , and we expect , at a minimum , the current portion of $ 32.0 million will further increase by approximately $ 15 million to $ 20 million as we approach the pdufa date , and potential approval of iv meloxicam , which will trigger the $ 45 million milestone payment due to alkermes . each reporting period , we revalue this estimated obligation with changes in fair value recognized as a non-cash operating expense or income . change in fair value of warrants we have classified as liabilities certain warrants outstanding which contain a contingent net cash settlement feature , upon a change in control . the fair value of these warrants are remeasured through settlement or expiration with changes in fair value recognized as a period charge within the consolidated statements of operations and comprehensive income ( loss ) . interest expense , net interest expense , net for the twelve months ended december 31 , 2017 was a result of interest expense incurred on our orbimed and athyrium senior secured term loans and the amortization of the related financing costs and one-time charges for fees related to early extinguishment of the orbimed debt and the non-cash write-off of orbimed deferred financing costs . interest expense for the twelve months ended december 31 , 2016 and 2015 was a result of interest expense incurred on our orbimed senior secured term loan and the amortization of the related financing costs . net operating losses and tax carryforwards as of december 31 , 2017 , we had approximately $ 9.0 million of federal net operating loss carryforwards . we also had federal and state research and development tax credit carryforwards of $ 3.4 million available to offset future taxable income . u.s. tax laws limit the time during which these carryforwards may be utilized against future taxes . these federal and state net operating loss and federal and state tax credit carryforwards will begin to expire at various dates beginning in 2028 , if not utilized . based on our projected future taxable income we expect to be able to utilize all federal and state net operating losses . we have also generated foreign net operating loss carryforwards in ireland . we currently do not believe it is more likely than not we will use any of these net operating losses and as a result have recorded a full valuation allowance against the deferred tax asset related to the losses . under the tax reform act of 1986 , or the act , the utilization of a corporation 's net operating loss and research and development tax credit carryforwards is limited following a greater than 50 % change in ownership during a three-year period . any unused annual limitation may be carried forward to future years for the balance of the carryforward period .
| results of operations comparison of the twelve months ended december 31 , 2017 and 2016 replace_table_token_6_th revenue and costs of sales . our revenues were $ 71.8 million and $ 69.3 million and cost of sales were $ 38.2 million and $ 37.2 million for the twelve months ended december 31 , 2017 and 2016 , respectively . excluding the $ 2.3 million , one-time , contractually based manufacturing revenue amount from one of our commercial partners in the twelve months ended december 31 , 2016 , the $ 4.8 million increase in 2017 revenue versus 2016 was primarily due to higher profit share revenue as a result of stronger sales volumes and pricing of verapamil as well as increased manufacturing revenue . these increases were partially offset by decreased royalty revenue due to a change in the mix of generic and brand sales by another of our commercial partners . costs of sales were $ 38.2 million and $ 37.2 million for the twelve months ended december 31 , 2017 and 2016 , respectively . the increase in cost of sales of $ 1.0 million was primarily due to changes in the product mix . research and development . our research and development expenses were $ 33.1 million and $ 33.3 million for the twelve months ended december 31 , 2017 and 2016 , respectively . the decrease of $ 0.2 million in 2017 was primarily due to lower iv meloxicam clinical trial expenses offset by increases in pre-commercialization iv meloxicam product validation , manufacturing and support costs , nda filing fees and development costs for our other pipeline products . general and administrative . our general and administrative expenses were $ 25.4 million and $ 12.7 million for the twelve months ended december 31 , 2017 and 2016 , respectively .
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'' on march 24 , 2020 , we effected a one-for-fifteen reverse stock split , or the reverse stock split , reducing the number of our common shares outstanding on that date from 87.4 million shares to approximately 5.8 million shares . additionally , the exercise price and number of all outstanding options and warrants , and the number of shares reserved for future issuance pursuant to our equity compensation plan were all adjusted proportionately . all such amounts presented herein have been adjusted retroactively to reflect these changes . the number of the company 's authorized shares were not proportionately reduced in the reverse stock split and remain at 141,428,571 shares . overview the following discussion highlights the results of our operations and the principal factors that have affected our financial condition as well as our liquidity and capital resources for the periods described , and provides information that management believes is relevant for an assessment and understanding of our financial condition and results of operations presented herein . the following discussion and analysis is based on our audited consolidated financial statements contained in this annual report on form 10-k , which have been prepared in accordance with generally accepted accounting principles in the united states . you should read the discussion and analysis together with such financial statements and the related notes thereto . covid-19 in march 2020 , the world health organization declared the covid-19 outbreak to be a global pandemic . in response to this pandemic , public health officials and governments across the world have recommended and mandated actions to curb the spread of the sars-cov-2 virus , the pathogen that causes covid-19 . the covid-19 pandemic and the related responses to the pandemic have caused a significant adverse impact on the global economy , including disruptions to supply chains , sharp increases in unemployment and overall economic uncertainty . this pandemic has negatively impacted our business , including our employees , suppliers , customers and other business partners , resulting in our terminating 23 employees in 2020. we have seen demand for our exoskeleton products decrease in the current business environment , as many inpatient rehabilitation facilities temporarily shift priorities and delay capital expenditures , resulting in 61 units booked ( non-cancellable customer orders ) in 2020 compared to 98 in 2019 , a decrease of 38 % . we have seen that the clinical need has not diminished as more data is coming out about the increase prevalence of strokes during this pandemic . as such , we continue to engage with our current and prospective customers through video conferencing , virtual training events and online education demos to offer our support and showcase the value of our ekso devices . although market uncertainties related to the pandemic make it difficult for us to project the full impact on our business and customers , we believe that we are well-positioned to serve our customers when business conditions begin to normalize . we continue to instruct the majority of our employees to work from home , restrict non-critical business travel and have enhanced the use of personal protective equipment in our facilities . we are hopeful that covid cases and hospitalizations will continue to decrease , and now that our clinical team is fully vaccinated and are active onsite at rehab centers , we expect to see an uptick in live in-person interactions going forward . in fact , we are now close to the number of onsite demos in the first quarter of 2021 compared to the previous three quarters combined . while we are cautiously optimistic about the current covid outlook , the successful completion of our first virtual training sessions leave us well-positioned to address existing pipeline opportunities , mitigating the effects of future covid-related lock downs or travel restrictions . management continues to actively monitor the global situation and its effects on our financial position and operations . 27 business we design , develop , sell , and rent exoskeleton products that augment human strength , endurance and mobility . our exoskeleton technology serves multiple markets and can be utilized both by able-bodied persons and persons with physical disabilities . we have sold or leased devices that ( i ) enable individuals with neurological conditions affecting gait ( acquired brain injury and spinal cord injury ) to rehabilitate , and in some cases , to walk again , ( ii ) assist individuals with a broad range of upper extremity impairments , and ( iii ) allow industrial workers to perform difficult repetitive work for extended periods . we believe that the commercial opportunity for exoskeleton technology adoption is accelerating as a result of recent advancements in material technologies , electronic and electrical engineering , control technologies , and sensor and software development . taken individually , many of these advancements have become ubiquitous in peoples ' everyday lives . we believe that we have learned how to integrate these existing technologies and wrap the result around a human being efficiently , elegantly and safely , supported by an industry leading intellectual property portfolio . we further believe that we can do so across a broad spectrum of applications , from persons with lower limb paralysis to able-bodied users . eksohealth eksohealth is our business unit focused on developing , marketing , and selling exoskeletons for medical applications . our leading product in eksohealth , the eksonr , is a robotic exoskeleton used to provide physical therapy for patients with lower extremity impairment . eksonr , which in 2019 superseded our eksogt product in this segment , includes unique features designed specifically to assist physical therapists and other clinicians to teach patients to walk again after suffering a neurological impairment . typical conditions that can be treated with the assistance of eksonr include acquired brain injuries , such as stroke and traumatic brain injuries , as well as spinal cord injuries and others . story_separator_special_tag where there is a possibility that we may have to settle warrants in cash , we estimate the fair value of the issued warrants as a liability at each reporting date and record changes in the estimated fair value as a non-cash gain or loss in the consolidated statements of operations and comprehensive loss . the fair values of these warrants have been determined using the black-scholes option-pricing model ( the “ black-scholes model ” ) and the binomial lattice model ( the “ lattice model ” ) . the black-scholes model requires inputs , such as the expected volatility , expected term , exercise price , risk-free interest rate , and the value of the underlying security . the lattice model provides for assumptions regarding expected volatility , expected term , exercise price , risk-free interest rates , the value of the underlying security , and the probability of and likely timing of a specific event within the period to maturity . these values are subject to a significant degree of judgment on our part . our common stock price represents a significant input that affects the valuation of our warrants . going concern we assess our ability to continue as a going concern at every interim and annual period in accordance with accounting standards codification ( `` asc '' ) 205-40 , presentation of financial statements – going concern . the accompanying consolidated financial statements have been prepared assuming that we will continue as a going concern . 30 comparison of the year ended december 31 , 2020 to the year ended december 31 , 2019 ( dollars in thousands ) : replace_table_token_2_th ( 1 ) not meaningful revenue revenue decreased $ 5.0 million , or 36 % , for the year ended december 31 , 2020 , compared to the same period of 2019. this decrease was comprised of a $ 3.9 million decrease in eksohealth and a $ 1.1 million decrease in eksoworks primarily due to a decrease in volume of medical device sales driven by the impact of the covid-19 pandemic , as our customers shifted their priorities to prepare for and manage their business during the pandemic . gross profit gross profit decreased $ 1.7 million , or 25 % , for the year ended december 31 , 2020 , compared to the same period of 2019 , primarily attributable to a decreased volume of device sales . gross margin was approximately 57 % for the year ended december 31 , 2020 , compared to a gross margin of 49 % for the same period in 2019. gross margins increased primarily due to higher average selling prices for eksonr , an increased proportion of medical device sales in overall revenue composition , lower unit production costs , the introduction of evo , and higher service margins . operating expenses sales and marketing expenses decreased $ 3.6 million , or 32 % , for the year ended december 31 , 2020 , compared to the same period of 2019 , primarily due to a decrease in employee compensation expenses as a result of a furlough and a reduction in force in march and may 2020 , respectively , lower selling expense as we shifted to video conferencing , virtual training events and online education demonstrations , lower general marketing and trade show activities , and the absence of clinical trials expense due to the completion of our main clinical trial in the first quarter of 2019 . 31 research and development expenses decreased $ 2.1 million , or 46 % , for the year ended december 31 , 2020 , compared to the same period of 2019 , primarily due to a decrease in employee compensation expenses as a result of a furlough and a reduction in force in march and may 2020 , respectively , and a decrease in patent and licensing costs . general and administrative expenses increased $ 0.3 million , or 4 % , for the year ended december 31 , 2020 , compared to the same period of 2019 , primarily due to an increase in legal expense . goodwill impairment charge of $ 0.2 million was recorded in the year ended december 31 , 2020 , reducing the goodwill balance to zero . no goodwill impairment charge was recorded in 2019. restructuring expense of $ 0.2 million was recorded in the year ended december 31 , 2020 , and related to the completion of a restructuring plan in may of 2020. we streamlined our operations and reduced our workforce by approximately 35 % to lower operating expenses and reduce cash burn . the restructuring expense consisted of employee severance payments . the reduction in operating expenses reflects the continuation of the company-wide initiatives we implemented last year , the restructuring completed in may 2020 , as well as improving overall operational efficiencies . our focus remains on optimizing the cost structure of our organization . other ( expense ) income , net interest expense decreased $ 0.2 million , or 64 % for the year ended december 31 , 2020 , compared to the same period of 2019 , primarily due to lower effective interest rates on our term loans . loss on revaluation of warrant liabilities of $ 3.1 million for the year ended december 31 , 2020 , was associated with the revaluation of warrants issued in 2015 , 2019 and 2020. gain on revaluation of warrant liabilities of $ 6.4 million for the year ended december 31 , 2019 , related to warrants issued in 2015 and 2019. gains and losses on revaluation of warrants are primarily driven by changes in our stock price .
| operational highlights in 2020 , we booked a total of 61 eksogt and eksonr units , 19 of which were subscription units and 9 of which were previously rented units that were converted to sales . we recorded annual gross margins of approximately 57 % in 2020 , compared to 49 % in 2019. in february 2020 , we announced the worldwide launch of our upgraded eksopulse platform , an innovative cloud-based information technology platform that measures and analyzes progress using the eksonr robotic exoskeleton . the improved analytics system provides an easy-to-use dashboard to chart activity in rehabilitation sessions , enhancing the clinician , institutional , and patient experience of the most clinically used exoskeleton . in june 2020 , we received fda clearance to market our eksonr robotic exoskeleton for use with acquired brain injury patients 28 also in june 2020 , we were named “ best healthcare robotics company ” in 2020 medtech breakthrough awards program in august 2020 , we launched evo , an endurance-boosting assistive upper body exoskeleton designed for industrial use . 2020 financing activities in april 2020 , we received proceeds of a $ 1.1 million unsecured loan under the paycheck protection program , or the ppp . in june 2020 , we sold 1,747,704 shares of our common stock and warrants to purchase up to 873,852 shares of our common stock , or june 2020 investor warrants , at a combined public offering price of $ 4.51 per share for proceeds , net of expenses and underwriting discount and commission , of $ 7.1 million . in august 2020 , we paid off the entire amount of $ 1.5 million of the company 's indebtedness to western alliance bank with proceeds from a new loan of $ 2.0 million from pacific western bank . the terms of the new loan agreement include monthly interest-only payments over the next three years . during the year ended december 31 , 2020 , we received $ 3.3
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a sustained disruption in the operations of this manufacturer or in the event the company would need to change to a new supplier , could result in a significant delay in the ability of the company to complete the activities needed to support a biologics license application for , and , if approved , commercialization of exebacase . use of estimates the preparation of financial statements in conformity with u.s. gaap 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 expenses during the reporting period . the company bases estimates story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the related notes and other financial information included elsewhere in this annual report on form 10-k. some of the information contained in this discussion and analysis or set forth elsewhere in this annual report on form 10-k , including information with respect to our plans and strategy for our business , includes forward-looking statements that involve risks and uncertainties . you should review the risk factors section of this annual report on form 10-k for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . 75 overview we are a clinical-stage biotechnology company focused on the discovery and development of direct lytic agents ( dlas ) , including lysins and amurin peptides , as new medical modalities for the treatment of life-threatening , antibiotic-resistant infections . antibiotic-resistant infections account for 2,000,000 illnesses in the united states and 700,000 deaths worldwide each year . we intend to address antibiotic-resistant infections using product candidates from our lysin and amurin peptide platforms . dlas are fundamentally different than antibiotics and offer a potential paradigm shift in the treatment of antibiotic-resistant infections . lysins are recombinantly-produced enzymes , that when applied to bacteria cleave a key component of the target bacteria 's peptidoglycan cell wall , resulting in rapid bacterial cell death . in addition to the speed of action and potent cidality , we believe lysins are differentiated by their other hallmark features , which include the demonstrated ability to eradicate biofilms and synergistically boost the efficacy of conventional antibiotics in animal models . lysins also tend to have a targeted spectrum , meaning they kill only specific species of bacteria or closely related bacteria . amurin peptides are a new class of direct lytic agents , discovered in our laboratories , which disrupt the outer membrane of gram-negative bacteria , resulting in rapid bacterial cell death , offering a distinct mechanism of action from lysins . amurins are further differentiated from lysins by potent broad spectrum in vitro activity against a wide range of gram-negative pathogens in , including deadly , drug-resistant pseudomonas aeruginosa ( p. aeruginosa ) , klebsiella pneumoniae , escherichia coli , acinetobacter baumannii and enterobacter cloacae bacteria species as well as difficult to treat pathogens such as stenotrophomonas , achromobacter and burkholderia species . the highly differentiated properties of dlas have shown these agents to be complimentary to and synergistic with conventional antibiotics enabling the potential use of these agents in addition to conventional antibiotics with the goal of improving clinical outcomes compared to conventional antibiotics alone . the development of these compounds involves a novel clinical and regulatory strategy , using superiority design clinical trials with the goal of delivering significantly improved clinical outcomes for the treatment of serious , antibiotic-resistant bacterial infections , including biofilm-associated infections . this approach affords potential clinical benefits to patients as well as the potential ability to mitigate against further development of antibiotic resistance . we have not generated any revenues and , to date , have funded our operations primarily through our initial public offering ( ipo ) , our follow-on public offerings , private placements of securities , and grant funding received . on march 22 , 2021 , we completed an underwritten public offering of 11,500,000 shares of our common stock , including shares sold pursuant to the fully exercised overallotment option granted to the underwriters in connection with the offering , at a public offering price of $ 5.00 per share of common stock , resulting in estimated net proceeds of approximately $ 53.7 million after underwriting discounts and commissions and offering expenses payable by us . on may 27 , 2020 , we completed an underwritten public offering of 11,797,752 shares of our common stock and warrants to purchase an additional 8,848,314 shares of our common stock at an exercise price of $ 4.90 per share . the public offering price was $ 4.45 for one share of common stock and an accompanying warrant to purchase 0.75 shares of common stock , resulting in net proceeds of approximately $ 48.9 million after underwriting discounts and commissions and offering expenses payable by us . we also completed a concurrent private placement to pfizer inc. ( pfizer ) of 674,156 shares of common stock and an accompanying warrant to purchase an additional 505,617 shares of our common stock at an exercise price of $ 4.90 per share . the offering price for the warrant was $ 4.45 for one share of common stock and an accompanying warrant to purchase 0.75 shares of common stock , resulting in net proceeds of approximately $ 3.0 million . this was the second investment by pfizer , for a total of $ 6.0 million invested into the company . on march 10 , 2021 , we executed a cost-share contract ( the barda contract ) with the biomedical advanced research and development authority ( barda ) and any exercise of barda 's options to extend such contract , part of the office of the assistant secretary for preparedness and response at the u.s. department of health and human services . story_separator_special_tag we obtained concurrence with the u.s. food and drug administration ( fda ) on the phase 3 study protocol at an end-of-phase 2 meeting with the fda in september 2019 , including the key design features of the study population , the endpoints and the size of the safety database that would be needed to support a biologics license application ( bla ) for approval of exebacase , under the fda 's streamlined development paradigm for agents to treat bacterial infections associated with high unmet medical need . we completed a phase 2 superiority study of exebacase that evaluated its safety , tolerability , efficacy and pharmacokinetics ( pk ) when used in addition to background soc antibiotics compared to soc antibiotics alone for the treatment of staph aureus bacteremia , including endocarditis in adult patients . the results from this study showed clinically meaningful improvement in clinical responder rates among patients treated with exebacase in addition to soc antibiotics compared to soc antibiotics alone . in the primary efficacy analysis population of 116 patients with documented staph aureus bacteremia , including endocarditis , who received a single intravenous ( iv ) infusion of blinded study drug , the clinical responder rate at day 14 was 70.4 % for patients treated with exebacase and 60.0 % for patients dosed with soc antibiotics alone ( p=0.314 ) . the clinical responder rate at day 14 in the subset of patients with bacteremia including right-sided endocarditis was 80.0 % for patients treated with exebacase compared to 59.5 % for patients treated with soc antibiotics alone , an increase of 20.5 % ( p=0.028 ) . in the subset of patients with bacteremia alone , the clinical responder rate at day 14 was 81.8 % for patients treated with exebacase compared to 61.5 % for patients treated with soc antibiotics alone , an increase of 20.3 % ( p=0.035 ) . in a pre-specified analysis of mrsa-infected patients , the clinical responder rate at day 14 in patients treated with exebacase was nearly 43-percentage points higher than in patients treated with soc antibiotics alone ( 74.1 % for patients treated with exebacase compared to 31.3 % for patients treated with soc antibiotics alone ( p=0.010 ) ) . in addition to the higher rate of clinical response , mrsa-infected patients treated with exebacase showed a 21-percentage point reduction in 30-day all-cause mortality ( p=0.056 ) , a four day lower mean length of hospital stay and meaningful reductions in hospital readmission rates . exebacase was well-tolerated and treatment emergent adverse events , including serious treatment-emergent serious adverse events ( saes ) were balanced between the treatment groups . there were no saes that we determined to be related to exebacase , there were no reports of hypersensitivity related to exebacase and no patients discontinued treatment with study drug in either treatment group . 78 we also performed a post-hoc phase 3 simulation analysis using the phase 2 data to evaluate the clinical outcomes for the phase 2 patient population that would meet the phase 3 inclusion criteria . in this simulated phase 3 analysis population of 84 u.s. patients with documented staph aureus bacteremia , including right-sided endocarditis , who received a single iv infusion of blinded study drug , the clinical responder rate at day 14 was 83.7 % for patients treated with exebacase and 54.3 % for patients dosed with soc antibiotics alone , an improvement in the responder rate of over 29-percentage points . the clinical responder rate at day 14 in the subset of patients with mrsa bacteremia including right-sided endocarditis was 82.6 % for patients treated with exebacase compared to 33.3 % for patients treated with soc antibiotics alone , an improvement in the responder rate of over 49-percentage points . in the subset of patients with mssa bacteremia including right-sided , the clinical responder rate at day 14 was 84.6 % for patients treated with exebacase compared to 66.7 % for patients treated with soc antibiotics alone , an increase of nearly 18-percentage points . we believe these data established proof of concept for exebacase and for dlas as therapeutic agents . in particular , the data for mrsa-infected patients treated with exebacase , which , in the phase 2 superiority study , demonstrated superior outcomes in clinical response at day 14 and in 30-day all-cause mortality as well as health economics benefits , provided the basis for the fda to grant breakthrough therapy designation to exebacase for the treatment of mrsa bloodstream infections ( bacteremia ) , including right-sided endocarditis , when used in addition to soc anti-staphylococcal antibiotics in adult patients . breakthrough therapy designation is a program designed by the fda to expedite the development and review of medicines for serious or life-threatening diseases where preliminary clinical evidence suggests that the investigational therapy may demonstrate substantial improvement on at least one clinically significant endpoint over available therapies . the breakthrough therapy designation provides additional benefits , such as intensified interactions with the fda and the potential for priority review , over the fast track designation granted to exebacase in august 2015. in addition to the ongoing phase 3 disrupt study of exebacase , we initiated an expanded access program to provide exebacase for the treatment of persistent bacteremia caused by methicillin-resistant staphylococcus aureus ( mrsa ) in covid-19 patients and continued the investigator-initiated early access program for compassionate use of exebacase for individual named patients with chronic post-operative prosthetic joint infections ( pjis ) under temporary authorizations for use from the french national agency for medicines and health products safety in collaboration with dr. tristan ferry at the hôpital de la croix rousse in lyon , france . other programs we have made further advancements with our novel lytic agents across our portfolio . we have developed a novel , engineered variant of exebacase , known as cf-296 , which we believe provides an additional opportunity to advance a potential targeted therapy for deep-seated , invasive biofilm-associated staph aureus infections .
| results of operations for a discussion of our results of operations for the year ended december 31 , 2019 , including a year-to-year comparison between 2019 and 2018 , refer to part ii , item 7 , management 's discussion and analysis of financial condition and results of operations in our annual report on form 10-k for the year ended december 31 , 2019. comparison of years ended december 31 , 2020 and 2019 the following table summarizes our results of operations for the years ended december 31 , 2020 and 2019 : replace_table_token_7_th 83 research and development expenses research and development expense was $ 22.6 million for the year ended december 31 , 2020 , compared with $ 18.1 million for the year ended december 31 , 2019 , an increase of $ 4.5 million . this increase was primarily attributable to a $ 3.9 million increase in manufacturing expenditures relating to the process scale-up campaign of exebacase and the initiation of validation activities that will support the potential bla submission , in addition to process development and small-scale batch manufacturing for both cf-370 and cf-296 . we also increased our expenditures on expansion of our research and development personnel and consultants by $ 2.2 million and on clinical activities by $ 1.0 million as we enrolled patients and expanded the number of clinical sites in the phase 3 disrupt study of exebacase throughout 2020. these increases were partially offset by a $ 1.6 million decrease in internal and external research costs , a decrease of $ 0.4 million in licensing fees paid to rockefeller as the milestone fee paid upon completion of the phase 2 trial of exebacase was in 2019 , and a $ 0.6 million increase in our expenses that are reimbursable under our grants compared to the prior year period .
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these forward-looking statements are subject to numerous risks and uncertainties , including , but not limited to , the risks and uncertainties described under risk factors and elsewhere in this annual report on form 10-k . our actual results may differ materially from those contained in or implied by any forward-looking statements . overview we are a leading provider of data and information management software applications and related services in terms of product breadth and functionality and market penetration . we develop , market and sell a unified suite of data and information management software applications under the simpana ® brand . our simpana software is a platform with licensable modules that work together seamlessly , sharing a single code and common function set , to deliver backup and recovery , archive , replication , search and resource management capabilities . with a single platform approach , simpana is specifically designed to protect , manage and access data throughout its lifecycle in less time , at lower cost and with fewer resources than alternative solutions . our products and capabilities enable our customers to deploy solutions for data protection , business continuance , corporate compliance and centralized management and reporting . we also provide our customers with a broad range of highly effective services that are delivered by our worldwide support and field operations . as of march 31 , 2011 , we had licensed our software applications to approximately 14,000 registered customers . history and background in early 2000 , we launched commvault galaxy for backup and recovery , a storage industry award winner . in the years since , commvault has forged numerous alliances with top software application and hardware vendors , such as dell , hp , hitachi data systems , microsoft , network appliance , novell and oracle , to enhance capabilities and to create a premiere suite of data and information management solutions . in 2002 , we launched our single-platform technology that provides the foundation of our information management approach to storing , managing , and accessing data . our simpana software suite is comprised of the following five distinct data and information management software application modules : data protection ( back-up and recovery ) , archive , replication , resource management and search . all of our software application modules share a common platform that provides back-end services and advanced capabilities , like encryption ; deduplication ; content indexing ; policy-based automation ; data classification ; e-discovery and role-based security . in addition to back-up and recovery , the subsequent release of our other software application modules has substantially increased our addressable market . each application module can be used individually or in combination with other application modules from our single platform suite . in july 2007 , we released our commvault simpana 7.0 software suite ( simpana 7 ) , which significantly expanded the breadth and depth of our existing data and information management suite at that time . we believe that simpana 7 provided us the foundation to shift to providing information management solutions . simpana 7 provided major enhancements to our existing backup , archiving and replication products and also delivered new product features that are non backup related including single instancing , advanced archiving , enterprise-wide search and discovery and data classification . in january 2009 , commvault simpana 8.0 ( simpana 8 ) was made available for public release . simpana 8 included advances in recovery management , data reduction , virtual server protection and content organization . in addition , we believe that simpana 8 met a broad spectrum of customer 's discovery and recovery management requirements and eliminated the need for a myriad of point level products . in august 2010 , our commvault simpana 9.0 software suite ( simpana 9 ) was made available for public release . we believe that simpana 9 , which builds on and significantly expands simpana 8 , allows customers to deploy a modern data management solution to achieve gains in efficiency , cost optimization and scale . we believe that simpana 9 solves real-world it challenges with major technology advancements , including increased virtualization scalability and performance , integrated source and target data deduplication , automatic and transparent integration with hardware array-based snapshots , as well as new tools that ease migration to our next generation simpana 9 platform . 31 we currently derive the majority of our software revenue from our backup and recovery software application . sales of backup and recovery represented approximately 59 % of our total software revenue for fiscal 2011 and 61 % of our total software revenue for fiscal 2010. in addition , we derive the majority of our services revenue from customer and technical support associated with our backup and recovery software application . the increase in software revenue generated by our non-backup and recovery software products , or advanced data and information management products ( adim ) , was primarily driven by new components and enhancements related to simpana 8 and simpana 9 software suites . we anticipate that adim software revenue will continue to increase in the future as we expand our domestic and international sales activities and continue to build brand awareness . however , we anticipate that we will continue to derive a majority of our software and services revenue from our backup and recovery software application for the next few fiscal years . more recently , the industry in which we currently operate is going through accelerating changes as the result of the introduction of new technologies such as cloud computing . we believe cloud computing , in its various forms , represents a major new long term trend in the way that applications are delivered , data is stored and information is retrieved . we believe as a result of our simpana data and information management platform , that we are in a unique position to enhance and extend the value of our simpana software suite by developing innovative , industry leading ways to manage data and information in the cloud . story_separator_special_tag sales through our agreements with dell accounted for 23 % of our total revenues for fiscal 2011 , 24 % of our total revenues for fiscal 2010 and 23 % of our total revenues in fiscal 2009. we have original equipment manufacturer agreements primarily with dell and hitachi data systems for them to market , sell and support our software applications and services on a stand-alone basis and or incorporate our software applications into their own hardware products . dell and hitachi data systems have no obligation to recommend or offer our software applications exclusively or at all , and they have no minimum sales requirements and can terminate our relationship at any time . a material portion of our software revenue is generated through these arrangements , and we expect this contribution to grow in the future . sales through our original equipment manufacturer agreements accounted for 10 % of our total revenues for fiscal 2011 , 10 % of our total revenues for fiscal 2010 and 12 % of our total revenues for fiscal 2009. we also have non-exclusive distribution agreements covering our north american commercial markets and our u.s. federal government market with arrow enterprise computing solutions , inc. ( arrow ) , a subsidiary of arrow electronics , inc. , and avnet technology solutions ( avnet ) , a subsidiary of avnet , inc. pursuant to these distribution agreements , these distributors ' primary role is to enable a more efficient and effective distribution channel for our products and services by managing our reseller partners and leveraging their own industry experience . many of our north american resellers have been transitioned to either arrow or avnet . we generated approximately 25 % of our total revenues through arrow in fiscal 2011 , approximately 24 % of our total revenues in fiscal 2010 and approximately 21 % of our total revenues in fiscal 2009. avnet 's total revenue contribution was not material in fiscal 2011 , 2010 or 2009. if arrow or avnet were to discontinue or reduce the sales of our products or if our agreement with arrow or avnet was terminated , and if we were unable to take back the management of our reseller channel or find another north american distributor to replace arrow or avnet , then it could have a material adverse effect on our future revenues . our services revenue is made up of fees from the delivery of customer support and other professional services , which are typically sold in connection with the sale of our software applications . customer support agreements provide technical support and unspecified software updates on a when-and-if-available basis for an annual fee based on licenses purchased and the level of service subscribed . other professional services include consulting , assessment and design services , implementation and post-deployment services and training , all of which to date have predominantly been sold in connection with the sale of software applications . our services revenue was 52 % of our total revenues for fiscal 2011 , 50 % for fiscal 2010 and 48 % for fiscal 2009. the gross margin of our services revenue was 76.6 % for fiscal 2011 , 76.1 % for fiscal 2010 and 75.0 % for fiscal 2009. the increase in the gross margin of our services revenue in fiscal 2011 compared to fiscal 2010 was primarily due to a higher percentage of our services revenue being derived from customer support agreements as a result of sales to new customers and renewal agreements with our installed customer base . overall , our services revenue has lower gross margins than our software revenue . the gross margin of our software revenue was 98.4 % for fiscal 2011 , 97.8 % for fiscal 2010 and 98.0 % for fiscal 2009. an increase in the percentage of total revenues represented by services revenue may adversely affect our overall gross margins . 33 description of costs and expenses our cost of revenues is as follows : cost of software revenue , consists primarily of third-party royalties and other costs such as media , manuals , translation and distribution costs ; and cost of services revenue , consists primarily of salary and employee benefit costs in providing customer support and other professional services . our operating expenses are as follows : sales and marketing , consists primarily of salaries , commissions , employee benefits , stock-based compensation and other direct and indirect business expenses , including travel and related expenses , sales promotion expenses , public relations expenses and costs for marketing materials and other marketing events ( such as trade shows and advertising ) ; research and development , which is primarily the expense of developing new software applications and modifying existing software applications , consists principally of salaries , stock-based compensation and benefits for research and development personnel and related expenses ; contract labor expense and consulting fees as well as other expenses associated with the design , certification and testing of our software applications ; and legal costs associated with the patent registration of such software applications ; general and administrative , consists primarily of salaries , stock-based compensation and benefits for our executive , accounting , human resources , legal , information systems and other administrative personnel . also included in this category are other general corporate expenses , such as outside legal and accounting services , compliance costs and insurance ; and depreciation and amortization , consists of depreciation expense primarily for computer equipment we use for information services and in our development and test labs . we anticipate that each of the above categories of operating expenses will increase in dollar amounts , but will decline as a percentage of total revenues in the long-term .
| results of operations the following table sets forth each of our sources of revenues and costs of revenues for the specified periods as a percentage of our total revenues for those periods : replace_table_token_6_th fiscal year ended march 31 , 2011 compared to fiscal year ended march 31 , 2010 revenues total revenues increased $ 43.8 million , or 16 % , from $ 271.0 million in fiscal 2010 to $ 314.8 million in fiscal 2011. software revenue . software revenue increased $ 15.3 million , or 11 % , from $ 134.5 million in fiscal 2010 to $ 149.8 million in fiscal 2011. software revenue represented 48 % of our total revenues in fiscal 2011 compared to 50 % in fiscal 2010. the increase in software revenue is primarily due to increased software revenue derived from our foreign locations , which increased 18 % while software revenue derived from the united states grew 7 % in fiscal 2011 compared to fiscal 2010. the growth in software revenue in foreign locations is primarily due to increases in europe , canada , australia and asia as we expand our international operations . software revenue derived from enterprise software transactions ( transactions greater than $ 0.1 million ) increased by $ 9.0 million , or 14 % , in fiscal 2011 compared to fiscal 2010. as a result , software revenue derived from enterprise software transactions represented approximately 48 % of our software revenue in fiscal 2011 and approximately 47 % of our software revenue in fiscal 2010. the increase in software revenue derived from enterprise transactions is primarily due to an 18 % increase in the number of transactions of this type .
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however due to the sale of the tdg assets , and because the company was not in compliance with its ebitda covenants under its loan agreement with the story_separator_special_tag you should read the following discussion and analysis of financial condition and results of operations in conjunction with the “ selected financial and other data ” and our financial statements and related notes appearing elsewhere in this annual report . in addition to historical information , the following discussion and analysis includes forward looking statements that involve risks , uncertainties and assumptions . our actual results and the timing of events could differ materially from those anticipated in these forward looking statements as a result of a variety of factors , including those discussed in “ risk factors ” and elsewhere in this annual report . see the discussion under “ forward looking statements ” beginning on page 3 of this annual report . overview we are engaged in the design , manufacture , marketing and sale of devices that are worn like eyeglasses and feature built-in video screens that enable the user to view video and digital content , such as movies , computer data , the internet or video games . our products ( known commercially as video eyewear , but also commonly referred to as virtual displays , wearable displays , personal viewers , smart glasses , head mounted displays ( or hmds ) , or near-to-eye displays ( or neds ) ) are used to view high-resolution video and digital information primarily from mobile electronic devices ( such as cell phones , portable media players , gaming systems and laptop computers ) and from desktop computers . our products provide the user a viewing experience that simulates viewing a large screen television or a desktop computer monitor . our video eyewear products feature high performance miniature display modules , low power electronics and related optical systems . we produce both monocular and binocular video eyewear devices that we believe are excellent solutions for many mobile computer or video viewing requirements . with respect to our video eyewear products , we focus on the consumer markets for gaming and mobile video while our virtual and augmented reality products are also sold in the consumer , industrial , commercial , academic and medical markets . the consumer electronics and mobile phone accessory markets in which we compete has been subject to rapid technological change including the rapid adoption of tablets and most recently larger screen sizes and display resolutions along with declining prices on mobile phones , and as a result we must continue to improve our products ' performance and lower our costs . today , we believe our intellectual property portfolio gives us a leadership position in microdisplay electronics , waveguides , ergonomics , packaging , motion tracking and optical systems . critical accounting policies and significant developments and estimates the discussion and analysis of our financial condition and results of operations are based on our financial statements and related notes appearing elsewhere in this annual report . the preparation of these statements in conformity with generally accepted accounting principles requires the appropriate application of certain accounting policies , many of which require us to make estimates and assumptions about future events and their impact on amounts reported in our financial statements , including the statement of operations , balance sheet , cash flow and related notes . since future events and their impact can not be determined with certainty , the actual results will inevitably differ from our estimates . such differences could be material to the financial statements . 35 we believe that our application of accounting policies , and the estimates inherently required therein , are reasonable . these accounting policies and estimates are periodically reevaluated , and adjustments are made when facts and circumstances dictate a change . historically , we have found our application of accounting policies to be appropriate , and actual results have not differed materially from those determined using necessary estimates . our accounting policies are more fully described in the notes to our financial statements included in this annual report . in reading our financial statements , you should be aware of the factors and trends that our management believes are important in understanding our financial performance . since the sale of the tdg assets in june 2012 , we no longer sell night vision display drive electronics , the tac-eye line of video eyewear products , and a full range engineering services to defense customers , which will materially reduce our revenue and cash flow in the future . in accordance with asc 205-20 , the sale of the tdg assets has been accounted for as discontinued operation and accordingly the operating results of the tdg assets for the years ending december 31 , 2012 and 2011 have been reclassified as discontinued operations on our consolidated statements of operations . the critical accounting policies , judgments and estimates that we believe have the most significant effect on our financial statements are : valuation of inventories ; carrying value of long-lived assets ; valuation of patents and trademarks ; revenue recognition ; product warranty ; stock-based compensation ; and income taxes . valuation of inventories inventory is stated at the lower of cost or market , with cost determined on a first-in , first-out method . inventory includes purchased parts and components , work in process and finished goods . provisions for excess , obsolete or slow moving inventory are recorded after periodic evaluation of historical sales , current economic trends , forecasted sales , estimated product lifecycles and estimated inventory levels . purchasing practices , electronic component obsolescence , accuracy of sales and production forecasts , introduction of new products , product lifecycles , product support and foreign regulations governing hazardous materials are the factors that contribute to inventory valuation risks . story_separator_special_tag should actual performance rates or repair costs differ from estimates , revision to the estimated warranty liability would be required . stock-based compensation our board of directors approves grants of stock options to employees to purchase our common stock . a stock compensation expense is recorded based upon the estimated fair value of the stock option at the date of grant . the accounting estimate related to stock-based compensation is considered a “ critical accounting estimate ” because estimates are made in calculating compensation expense including expected option lives , forfeiture rates and expected volatility . the fair market value of our common stock on the date of each option grant is determined based on the most recent quoted sales price on the tsx-v exchange . 37 income taxes we have historically incurred domestic operating losses from both a financial reporting and tax return standpoint . accordingly , we provide deferred income tax assets and liabilities based on the estimated future tax effects of differences between the financial and tax bases of assets and liabilities based on currently enacted tax laws . a valuation allowance is established for deferred tax assets in amounts for which realization is not considered more likely than not to occur . the accounting estimate related to income taxes is considered a “ critical accounting estimate ” because judgment is exercised in estimating future taxable income , including prudent and feasible tax planning strategies , and in assessing the need for any valuation allowance . to date we have determined a 100 % valuation allowance is required and accordingly no amounts have been reflected in our consolidated financial statements . in the event that it should be determined that all or part of a deferred tax asset in the future is in excess of the nil amount currently recorded , an adjustment of the valuation allowance would increase income to be recognized in the period such determination was made . in addition , the calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax regulations . as a result we recognize liabilities for uncertain tax positions based on the two-step process prescribed within the interpretation . the first step is to evaluate the 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 requires us to estimate and measure the tax benefit as the largest amount that is more than 50 % likely of being realized upon ultimate settlement . it is inherently difficult and subjective to estimate such amounts , as this requires us to determine the probability of various possible outcomes . we re-evaluate these uncertain tax positions on a quarterly basis . this evaluation is based on factors including , but not limited to , changes in facts or circumstances , changes in tax law , effectively settled issues under audit and new audit activity . such a change in recognition or measurement would result in the recognition of a tax benefit or an additional charge to the tax provision in the period . finally , any future recorded value of our deferred tax assets will be dependent upon our ability to generate future taxable income in the jurisdictions in which we operate . these assets consist of research credit carry-forwards , capital and net operating loss carry-forwards and the future tax effect of temporary differences between balances recorded for financial statement purposes and for tax return purposes . it will require future pre-tax earnings in excess of $ 20,607,000 in order to fully realize the value of our unrecorded deferred tax assets . if we were to sustain future net losses , it may be necessary to record valuation allowances against such deferred tax assets in order to recognize impairments in their estimated future economic value . off balance sheet arrangements we do not have any off-balance sheet arrangements that have , or are reasonably likely to have , an effect on our financial condition , financial statements , revenues or expenses . recent accounting pronouncements fasb accounting standards update 2011-04 , `` amendments to achieve common fair value measurement and disclosure requirements in u.s. gaap and ifrs , '' was issued in may 2011 to be effective for fiscal years beginning after december 15 , 2011. the update changes the wording for certain measurement and disclosure requirements relating to fair value determinations under u.s. gaap in order to make them more consistent with international financial reporting standards ( ifrs ) . while many of the modifications are not expected to change the application of u.s. gaap , additional disclosure requirements relating to the use of level 3 inputs in determining fair value will apply in the future if applicable to us . in december 2011 , the fasb issued new guidance which requires enhanced disclosures on offsetting amounts within the balance sheet , including disclosing gross and net information about instruments and transactions eligible for offset or subject to a master netting or similar agreement . the guidance is effective beginning january 1 , 2013 and is to be applied retrospectively . the adoption of this guidance , which is related to disclosure only , will not have an impact on our consolidated financial position , results of operations or cash flows . 38 tdg asset sale and discontinued operations on june 15 , 2012 , we entered into an asset purchase agreement with tdg acquisition company , llc pursuant to which we sold the tdg assets . the tdg assets included equipment , tooling , certain patents and trademarks and our proprietary tac-eye displays and night vision display electronics , which comprised our tactical defense group , which engaged in the business of selling and licensing products and providing services , directly and indirectly , to military organizations and defense and security organizations .
| general and administrative . general and administrative expenses were $ 2,181,310 for 2012 as compared to $ 2,590,636 for 2011 , a decrease of $ 409,326 or 16 % . the decrease in costs for 2012 resulted from lower salary costs , reduced spending on professional fees and reduced rent . offsetting these costs reductions were two unusual expense items incurred in 2012. after the tdg asset sale , we consolidated our office space with our manufacturing facility in rochester during september 2012 and as a result incurred relocation costs of $ 48,158. secondly , included in this expense category for 2012 was $ 74,072 in charges related to the write-off of subscriptions receivables for two employees . there were no such expenses for 2011. depreciation and amortization . our depreciation and amortization expense for 2012 was $ 468,817 as compared to $ 468,823 in 2011. other income ( expense ) . total other expenses were $ ( 520,804 ) for 2012 compared to $ ( 433,217 ) in 2011 , an increase of $ 87,587. the increase in these expenses was primarily attributable to higher interest costs . interest expense increased by $ 85,993 or 22 % due to the higher interest rate costs on senior debt incurred when the loans were in default during the first 6 months of 2012 , as compared to most of the same period in 2011 when such loans were not in default . provision for income taxes . the provision for income taxes for 2012 was $ 20,398 compared to $ 27,689 for 2011.the composition of each year 's tax provision was primarily for franchise taxes payable to the state of delaware , our state of incorporation as well as japanese branch taxes . income ( loss ) from discontinued operations .
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these transfers and increases in tax basis will increase ( for tax purposes ) depreciation and amortization and therefore reduce the amount of tax that certain of the partnership 's subsidiaries , including carlyle holdings i gp inc. , which are referred to as the corporate taxpayers , would otherwise be required to pay in the future . this increase story_separator_special_tag the carlyle group l.p. ( the partnership ) is a delaware limited partnership formed on july 18 , 2011. pursuant to a reorganization into a holding partnership structure , the partnership became a holding partnership and its sole material assets are equity interests through wholly-owned subsidiary entities representing partnership units in carlyle holdings i l.p. , carlyle holdings ii l.p. and carlyle holdings iii l.p. ( collectively , carlyle holdings ) that the partnership acquired using proceeds from the partnership 's initial public offering on may 8 , 2012. beginning on may 8 , 2012 , through wholly-owned subsidiary entities , the partnership is the sole general partner of carlyle holdings and operates and controls all of the business and affairs of carlyle holdings and , through carlyle holdings and its subsidiaries , continues to conduct the business now conducted by these subsidiaries . carlyle group management l.l.c . is the general partner of the partnership . on may 2 , 2012 , our senior carlyle professionals , the california public employees ' retirement system ( calpers ) , and entities affiliated with mubadala development company , the abu-dhabi based strategic development and investment company ( mubadala ) contributed all of their interests in the parent entities , and our senior carlyle professionals and other individuals engaged in our business contributed a portion of the equity interests they owned in the general partners of our existing carry funds , to carlyle holdings in exchange for an aggregate of 274,000,000 carlyle holdings partnership units . carlyle holdings did not conduct any activity prior to may 2 , 2012. as the sole general partner of carlyle holdings , the partnership consolidates the financial position and results of operations of carlyle holdings into its financial statements , and the ownership interests of the limited partners of the carlyle holdings partnerships are reflected as a non-controlling interest in the partnership 's financial statements . the historical combined and consolidated financial statements of tc group , l.l.c. , tc group cayman , l.p. , tc group investment holdings , l.p. and tc group cayman investment holdings , l.p. , as well as their majority-owned subsidiaries ( collectively carlyle group ) , reflect the predecessor financial statements of the partnership , and are based on the historical ownership interests of the senior carlyle professionals , calpers , and mubadala in carlyle group . the following discussion analyzes the financial condition and results of operations of the partnership and , for periods prior to may 8 , 2012 , the financial condition and results of operations of carlyle group , the predecessor of the partnership . such analysis should be read in conjunction with the consolidated financial statements and the related notes included in this annual report on form 10-k and the partnership 's final prospectus dated may 2 , 2012 , included in the partnership 's registration statement on form s-1 , as amended ( sec file no . 333-176685 ) . for ease of reference , we refer to the historical financial results of carlyle group as being our historical financial results . unless the context otherwise requires , references to we , us , our , and the partnership are intended to mean the business and operations of the partnership since may 8 , 2012. when used in the historical context ( i.e. , prior to may 8 , 2012 ) , these terms are intended to mean the business and operations of carlyle group . overview we conduct our operations through four reportable segments : corporate private equity , global market strategies , real assets and solutions . we launched operations in our solutions segment with the acquisition of a 60 % equity interest in alpinvest on july 1 , 2011. corporate private equity our corporate private equity segment advises our 21 buyout and 10 growth capital funds , which seek a wide variety of investments of different sizes and growth potentials . as of december 31 , 2012 , our corporate private equity segment had approximately $ 53 billion in aum and approximately $ 34 billion in fee-earning aum . global market strategies our global market strategies segment advises a group of 57 funds that pursue investment opportunities across structured credit , distressed debt , corporate and energy mezzanine debt , middle-market and senior debt , as well as credit , emerging markets and commodities-focused hedge funds . as of december 31 , 2012 , our global market strategies segment had approximately $ 33 billion in aum and approximately $ 31 billion in fee-earning aum . real assets our real assets segment advises our ten u.s. and internationally focused real estate funds , our infrastructure fund , as well as our six legacy energy funds that we jointly advise with riverstone . the segment also includes eight ngp management fee funds advised by ngp . as of december 31 , 2012 , our real assets segment had approximately $ 40 billion in aum and approximately $ 29 billion in fee-earning aum . 97 solutions our solutions segment was launched upon our acquisition of a 60 % equity interest in alpinvest on july 1 , 2011 and advises a global private equity fund of funds program and related co-investment and secondary activities across 67 fund of funds vehicles . as of december 31 , 2012 , alpinvest had approximately $ 44 billion in aum and approximately $ 29 billion in fee-earning aum . we earn management fees pursuant to contractual arrangements with the investment funds that we manage and fees for transaction advisory and oversight services provided to portfolio companies of these funds . story_separator_special_tag our ability to maintain and grow our revenue base is dependent upon our ability to successfully deploy the capital that our investors have committed to our funds . because we pursue investment opportunities strategically as they arise and we have a long-term investment horizon , the capital deployed in any one quarter may vary significantly from the cumulative capital deployed in a given year . we believe that the current economic environment provides significant opportunities to pursue attractive investment opportunities . during the year ended december 31 , 2012 , we invested $ 7.9 billion in new and existing investments in our carry funds and committed more than $ 2 billion to additional investments that have closed or are expected to close in early to mid-2013 . as of december 31 , 2012 , we had capital available for investment through our carry funds of $ 25 billion . we have expanded both the breadth and depth of our hedge fund partnerships , and as of december 31 , 2012 , we had $ 12.1 billion in hedge fund assets invested across credit , equities , and commodities trading strategies . we believe that our available capital and our general investment pace put us in a position to grow our revenues over time . our ability to identify and execute investments which our investment professionals determine to be attractive continues to depend on a number of factors , including competition , valuation , credit availability and pricing and other general market conditions . our ready access to credit . in 2012 , due to the actions taken by central banks around the world , credit became more readily available on attractive terms with historically low interest rates . our investment funds and portfolio companies were able to take advantage of the opportunities provided by this increase in liquidity in the market to finance , refinance or restructure on more favorable terms more than $ 23.4 billion of debt for over 25 portfolio companies . in addition , in early 2013 , we were able to issue $ 500 million in aggregate principal amount of ten-year senior notes at a coupon of 3.875 % , which allowed us to repay the outstanding borrowings under the revolving credit facility of our senior credit facility of $ 386.3 million as of december 31 , 2012 and to prepay $ 75.0 million of term loan principal that would have been due in september 2014. our ability to meet evolving investor requirements . we believe that investors will seek to deploy their investment capital in a variety of different ways , including fund investments , separate accounts and direct co-investments . we anticipate that this trend will result in a bifurcation within the global alternative asset management industry , with a limited number of large global market participants joined by numerous smaller and more specialized funds , providing investors with greater flexibility when allocating their investment capital . additionally , individual investors are increasingly seeking opportunities to invest with global alternative asset managers given the strength of private equity returns as compared to other asset classes . we are currently addressing this demand through the use of feeder funds and may explore other methods to access this market . the cost of feeder funds and other intermediaries to access these investors differs from our traditional fundraising model and may significantly increase our fundraising expenses . we intend to continue our focus on innovation to offer investors a broad variety of investment options . additionally , as we continue to expand our platform , we seek to broaden the appeal of our investment products and to create avenues through which we expect to attract a new base of individual investors . a significant portion of our revenues are derived from performance fees , the size of which is dependent on the success of our fund investments . a decrease in valuations of our fund investments or valuation increases that are below the hurdle rate or high water marks may result in a reduction of accrued performance fees which we would expect to be most significant in corporate private equity , our largest business segment . we were able to make significant distributions to the investors in our carry funds in the last year , as a result of successful realization activity in our funds . generally , successful realization activity has a positive impact on our realized performance 99 fees when those realizations occur in funds that are realizing performance fees , but a negative impact on our fee-earning aum to the extent such realizations occur in funds where the management fees are calculated on the basis of invested capital . to the extent such successful realization activity continues in subsequent periods , we would expect a similar impact . the investment periods for many of the large carry funds that we raised between 2006 and 2008 expired during 2012 and the investment period for additional funds will expire in 2013. in certain cases , the investment period of a fund may expire prior to the raising of a successor fund . in general , the end of the original investment period ( regardless of whether it is extended ) will trigger a change in the capital base on which management fees are calculated from committed capital to invested capital at cost . in some cases , a step-down in the applicable rate used to calculate management fees may also occur . as a result , the management fee revenues we earn from these extended funds will decline ; however , it is during this period that our funds are generally realizing their remaining investments and generating realized performance fees if such funds have exceeded their performance hurdles . also , the favorable impact on fee-earning aum and related management fee revenues of a successor fund or new fundraising initiatives will , to the extent of the success of these new funds or initiatives , offset the management fee revenue reductions .
| consolidated results of operations the following table and discussion sets forth information regarding our consolidated results of operations for the years ended december 31 , 2012 , 2011 and 2010. our consolidated financial statements have been prepared on substantially the same basis for all historical periods presented ; however , the consolidated funds are not the same entities in all periods shown due to changes in u.s. gaap , changes in fund terms and the creation and termination of funds . pursuant to revised consolidation guidance that became effective january 1 , 2010 , we consolidated the existing and any subsequently acquired clos where we hold a controlling financial interest . on december 31 , 2010 , we completed our acquisition of claren road and consolidated its operations and certain of its managed funds from that date forward . in addition , on july 1 , 2011 , we completed the acquisitions of esg and alpinvest and consolidated these entities as well as certain of their managed funds from that date forward . on february 28 , 2012 , we acquired certain european clo management contracts from highland capital management l.p. and consolidated those clos from that date forward . we also formed four new clos throughout 2012 and consolidated those clos beginning on their respective formation dates . as further described below , the consolidation of these funds had the impact of increasing interest and other income of consolidated funds , interest and other expenses of consolidated funds , and net investment gains ( losses ) of consolidated funds in the year that the fund is initially consolidated . the consolidation of these funds had no effect on net income attributable to the partnership for the periods presented .
| 7,608 |
the information for each market cluster includes such things as estimated market share , estimated capital start-up costs , population , household income , retail sales and other expenditures that would influence advertising expenditures . alternatively , some stations under evaluation have had limited relevant cash flow history due to planned or actual conversion of format or upgrade of station signal . the assumptions the company makes about cash flows after conversion are based on the performance of similar stations in similar markets and potential proceeds story_separator_special_tag the following discussion of our consolidated results of operations and cash flows for the years ended december 31 , 2015 , 2014 and 2013 and consolidated financial condition as of december 31 , 2015 and 2014 should be read in conjunction with our consolidated financial statements and the related notes included elsewhere in this document . overview we are a leading media company that reaches and engages hispanics in the united states and certain border markets of mexico across media channels and advertising platforms . our expansive portfolio encompasses integrated marketing and media solutions , comprised of television , radio and digital properties and data analytics services . we operate in three reportable segments based upon the type of advertising medium : television broadcasting , radio broadcasting and digital media . through june 30 , 2014 , we operated in two reportable segments , television broadcasting and radio broadcasting . on june 18 , 2014 , we acquired pulpo , a leading provider of digital advertising services and solutions focused on hispanics in the u.s. and mexico . beginning with the third quarter of 2014 , we separated the results of pulpo into a new reporting segment , digital media . we believe that this information regarding our digital media segment is useful to readers of our financial statements . our net revenue for the year ended december 31 , 2015 was $ 254.1 million . of that amount , revenue attributed to our television segment accounted for 63 % , revenue attributed to our radio segment accounted for 30 % , and revenue attributed to our digital media segment accounted for 7 % . as of the date of filing this report , we own and or operate 56 primary television stations located primarily in california , colorado , connecticut , florida , kansas , massachusetts , nevada , new mexico , texas and washington , d.c. we own and operate 49 radio stations ( 38 fm and 11 am ) located primarily in arizona , california , colorado , florida , nevada , new mexico and texas . we own and operate a national sales representation firm , entravision solutions , through which we sell advertisements and syndicate radio programming to approximately 350 stations across the united states . we also own and operate an online advertising platform that delivers digital advertising in a variety of formats to reach hispanic audiences on internet-connected devices . we generate revenue primarily from sales of national and local advertising time on television stations , radio stations and digital media platforms , and from retransmission consent agreements that are entered into with mvpds . advertising rates are , in large part , based on each medium 's ability to attract audiences in demographic groups targeted by advertisers . we recognize advertising revenue when commercials are broadcast and when display or other digital advertisements record impressions on the websites of our third party publishers . we do not obtain long-term commitments from our advertisers and , consequently , they may cancel , reduce or postpone orders without penalties . we pay commissions to agencies for local , regional and national advertising . for contracts directly with agencies , we record net revenue from these agencies . seasonal revenue fluctuations are common in our industry and are due primarily to variations in advertising expenditures by both local and national advertisers . in addition , advertising revenue is generally higher during presidential election years ( 2016 , 2020 , etc . ) resulting from political advertising . we generate revenue from retransmission consent agreements that are entered into with mvpds . we refer to such revenue as retransmission consent revenue , which represents payments from mvpds for access to our television station signals so that they may rebroadcast our signals and charge their subscribers for this programming . we recognize retransmission consent revenue when it is accrued pursuant to the agreements we have entered into with respect to such revenue . we also generate revenue from agreements associated with television stations in order to accommodate the operations of telecommunications operators . revenue from such agreements is recognized when we have relinquished all rights to operate the station on the existing channel free from interference to the telecommunications operators . our primary expenses are employee compensation , including commissions paid to our sales staff and amounts paid to our national representative firms , as well as expenses for marketing , promotion and selling , technical , local programming , engineering , and general and administrative . our local programming costs for television consist primarily of costs related to producing a local newscast in most of our markets . in addition , cost of revenue related to our digital media segment consists primarily of the costs of online media acquired from third-party publishers . highlights during 2015 , we achieved revenue growth despite challenging comparisons to 2014 , when we benefited from world cup , which was absent in 2015 , and significant political advertising revenue , which was not material in 2015. this revenue growth was primarily driven by our radio and digital media segments , and retransmission consent revenue in our television segment . story_separator_special_tag the company acquired pulpo in order to acquire an additional digital media platform that the company believes will enhance its offerings to the u.s. hispanic market . the transaction was funded from the company 's cash on hand , for an aggregate cash consideration of $ 15.0 million , net of cash acquired of $ 0.7 42 million , and contingent consideration with a fair value of $ 1.4 million as of the acquisition date . the fair value of the contingent consideration recognized on the acquisition date was estimated by applying the real options approach . the following is a summary of the purchase price allocation for the acquisition of pulpo ( in millions ) : accounts receivable $ 1.6 prepaids and other assets 0.1 property and equipment 0.5 intangible assets subject to amortization 3.4 goodwill 14.1 current liabilities ( 1.8 ) deferred income taxes ( 1.5 ) the acquisition of pulpo includes a contingent consideration arrangement that requires additional consideration to be paid by the company to pulpo if certain annual performance benchmarks are achieved over a three-year period . any such additional consideration is payable 90 days after each fiscal year end beginning december 31 , 2014. the range of the total undiscounted amounts the company could pay under the contingent consideration agreement over the three-year period is between $ 0 and $ 3.0 million . as of december 31 , 2014 , the company determined that pulpo was less likely to earn the full amount of the contingent consideration for the years 2015 and 2016. therefore , the company adjusted the fair value of the contingent consideration in the fourth quarter of 2014 to $ 1.3 million . performance targets were achieved for the year ended december 31 , 2014 , and , accordingly , a payment of $ 1.0 million was made to the sellers in the first quarter of 2015. in the second quarter of 2015 , the company determined that pulpo was not likely to earn any amount of the contingent consideration for the fiscal year 2015. therefore , the company adjusted the fair value of the contingent consideration in the second quarter of 2015 to $ 0.1 million . in the fourth quarter of 2015 , the company determined that pulpo was not likely to earn any amount of the contingent consideration for the fiscal year 2016. therefore , the company further adjusted the fair value of the contingent consideration in the fourth quarter of 2015 to $ 0. the adjustments are included in corporate expense in the accompanying consolidated statements of operations . the fair value of the assets acquired includes trade receivables of $ 1.6 million . the gross amount due under contract is $ 1.7 million , of which $ 0.1 million is expected to be uncollectable . the goodwill , which is not expected to be deductible for tax purposes , is assigned to the digital media segment and is attributable to pulpo 's workforce and expected synergies from combining pulpo 's operations with the company 's . pro forma results of operations for this acquisition have not been presented because the effect of this acquisition was not material to the company 's financial position or results of operations for any of the periods presented . in a strategic effort to focus our resources on strengthening existing clusters and expanding into new u.s. hispanic markets and subject to limitations contained in our amended credit agreement , we periodically review our portfolio of media properties and , from time to time , consider divesting assets in markets where we do not see the opportunity to grow to scale and build out media clusters . please see “ liquidity and capital resources ” below . 43 story_separator_special_tag style= '' font-style : normal ; '' > as a result of the above factors , operating income was $ 55.2 million for the year ended december 31 , 2015 , compared to $ 59.7 million for the year ended december 31 , 2014. interest expense . interest expense decreased to $ 13.0 million for the year ended december 31 , 2015 from $ 13.9 million for the year ended december 31 , 2014 , a decrease of $ 0.9 million . this decrease was primarily attributable to a $ 20.0 million prepayment to reduce the amount of debt outstanding on december 30 , 2014. loss on debt extinguishment . we recorded a loss on debt extinguishment of $ 0.2 million for each of the years ended december 31 , 2015 and 2014 , related to capitalized finance costs written off due to partial prepayments of our debt . income tax expense or benefit . income tax expense for the year ended december 31 , 2015 was $ 16.4 million or 39 % of our pre-tax income . income tax expense for the year ended december 31 , 2014 was $ 18.4 million or 40 % of our pre-tax income . our management periodically evaluates the realizability of the deferred tax assets and , if it is determined that it is more likely than not that the deferred tax assets are realizable , adjusts the valuation allowance accordingly . valuation allowances are established and maintained for deferred tax assets on a “ more likely than not ” threshold . the process of evaluating the need to maintain a valuation allowance for deferred tax assets and the amount maintained in any such allowance is highly subjective and is based on many factors , several of which are subject to significant judgment calls . based on our analysis we determined that it was more likely than not that our deferred tax assets would be realized except for certain expiring state net operating loss carryforwards . segment operations television net revenue . net revenue in our television segment decreased to $ 159.1 million for the year ended december 31 , 2015 from $ 165.5 million for the year ended december 31 , 2014 , a decrease of $ 6.4 million .
| results of operations separate financial data for each of the company 's operating segments is provided below . segment operating profit ( loss ) is defined as operating profit ( loss ) before corporate expenses , loss ( gain ) on sale of assets and impairment charge . the company evaluates the performance of its operating segments based on the following ( in thousands ) : replace_table_token_6_th * percentage not meaningful . ( 1 ) consolidated adjusted ebitda means net income ( loss ) plus gain ( loss ) on sale of assets , depreciation and amortization , non-cash impairment charge , non-cash stock-based compensation included in operating and corporate expenses , net interest expense , other income ( loss ) , gain ( loss ) on debt extinguishment , income tax ( expense ) benefit , equity in net income ( loss ) of nonconsolidated affiliate , non-cash losses and syndication programming amortization less syndication programming payments . we use the term consolidated adjusted ebitda because that measure is defined in our 2013 credit facility and does not include gain ( loss ) on sale of assets , depreciation and amortization , non-cash impairment charge , non-cash stock-based 44 compensation , net interest expense , other income ( loss ) , gain ( loss ) on debt extinguishment , income tax ( expense ) benefit , equity in net income ( loss ) of nonconsolidated affiliate , non-cash losses and syndication programming amortization and does include syndication programming payments . since our ability to borrow from our 2013 credit facility is based on a consolidated adjusted ebitda financial covenant , we believe that it is important to disclose consolidated adjusted ebitda to our investors . our 2013 credit facility contains a total net leverage ratio financial covenant in the event that the revolving credit facility is drawn .
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common stock receivable 8,015 - contribution to capital - 76,000 net cash provided by financing activities 1,052,582 488,836 net change in cash ( 112,112 ) 24,765 cash at beginning of the period 160,377 135,612 cash at end of the period $ 48,265 $ 160,377 supplemental disclosure of cash flows information : interest paid $ 5,569 $ 2,722 income tax paid $ - $ - non-cash financing and investing activities : conversion of accrued interest – related party to convertible notes payable – related party $ 12,815 $ - conversion of convertible notes payable to shares of common stock $ 69,335 $ - derivative liability accounted as convertible debt discount $ 305,474 $ - derivative liability accounted as reduction to paid in capital $ 149,500 $ - finder fee settled in shares of common stock $ - $ 400,000 issuance of common stock for conversion of notes payable $ - $ 100,000 minority share of losses of subsidiary $ 32,008 $ 56,745 see accompanying notes to the consolidated financial statements . f- 5 carolco pictures inc. notes to the consolidated financial statements december 31 , 2015 and 2014 note 1 - organization and operations carolco pictures , inc. ( formerly “ brick top productions , inc. ” or the “ company ” ) was incorporated under the laws of the state of florida on in february 2009 under the name “ york entertainment , inc. ” the company changed its name to brick top productions , inc. in october 2010. in january 2015 , the company changed its name from brick top productions , inc. to carolco pictures , inc. in addition , in january 2015 , the company changed its stock symbol from “ btop ” to “ crco . ” going concern the company 's consolidated financial statements have been prepared assuming that it will continue as a going concern , and which contemplates continuity of operations , realization of assets , and liquidation of liabilities in the normal course of business . as reflected in the consolidated financial statements , the company had a stockholders ' deficit of $ 5,371,359 at december 31 , 2015 , and incurred a net loss of $ 7,609,153 , and utilized net cash used in operating activities $ 914,694 for the year then ended . in addition , at december 31 , 2015 , $ 543,115 of convertible notes payable – related party matured and were in default and as a result , $ 261,157 of convertible notes were also deemed in default due to a cross-default provision of the note . these factors raise substantial doubt about the company 's ability to continue as a going concern . the consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the company be unable to continue as a going concern . management estimates that the current funds on hand and raising capital through proceeds from the sale of common stock subscriptions will be sufficient to story_separator_special_tag story_separator_special_tag 10pt times new roman , times , serif ; margin : 0 '' > on july 20 , 2016 , the company entered into that certain amendment to promissory notes ( “ notes amendment ” ) with alexander bafer , whereby the maturity date of each of our five loans from mr. bafer was amended to be august 1 , 2017 instead of october 1 , 2015. the five loans are represented by replacement convertible promissory notes ( “ notes ” ) . pursuant to the terms of the notes amendment , mr. bafer waived any default under each of the notes through the date of the notes amendment as a result of any amounts payable under the notes not being paid as of october 1 , 2015 and waived the payment of any default interest ( as defined in the notes ) through the date of the notes amendment as a result of such failure of payment . no other terms of the loans changed , and we did not pay any consideration for the extension . our outstanding balance on the loans under the notes as of july 20 , 2016 was approximately $ 469,000. on july 21 , 2016 , the company entered into a redemption and issuance agreement ( the “ redemption agreement ” ) by and between the company and south centre , inc. , an entity owned and controlled by david cohen , the company 's sole director ( at the time ) and chief executive officer . pursuant to the redemption agreement , on the same date , the company redeemed 2,500,000 shares of the company 's series a preferred stock ( the “ series a stock ” ) in exchange for the payment to south centre of $ 0.0001 per share , for a total consideration of $ 250. the company undertook the redemption for the purposes of obtaining the shares of series a stock so that such shares could be paid to certain third parties in connection with the contribution agreement as disclosed below . pursuant to the redemption agreement , on the same date , the company issued to south centre 12,750,000 shares of newly designated series c preferred stock of the company ( the “ series c stock ” ) in exchange for payment to the company of $ 1,275. on july 25 , 2016 , the company entered into a contribution agreement ( the “ contribution agreement ” ) by and between the company , recall studios , inc. , a nevada corporation ( “ recall ” ) , south centre and various other shareholders of recall ( the “ recall shareholders ” ) . story_separator_special_tag each class a warrant entitles the holder to purchase one share of our common stock at an exercise price of $ 3.00 per share for a period of two years after its issuance and each class b warrant entitles the holder to purchase one share of our common stock at an exercise price of $ 6.00 per share for a period of two years after its issuance . the minimum investment amount per investor is $ 100,000 for 125,000 units subject to our right to accept subscriptions in a lesser amount . we expect to invest up to $ 4,000,000 of the proceeds from this offering to partially finance the production of a motion picture based on the screenplay titled “ audition ” written by richard gray . in addition , we plan to continue use the balance of the offering proceeds in our feature film and television production business . results of operations for the year ended december 31 , 2015 compared to the year ended december 31 , 2014 replace_table_token_2_th 15 revenues for the year ended december 31 , 2015 were $ 964,000 as compared to $ 790,000 for the year ended december 31 , 2014. the increase in revenue was due to an increase in demand for the company 's production services , particularly in area of award presentation programming . the company continues to focus much of its efforts in the area of productions related to televised awards programming where it believes it has the expertise to grow in this sector . revenue recognition is deferred until product is delivered and accepted by our customers . our future revenue plan is , in part , dependent on our ability to effectively market the doorman pilot and close new viable acquisitions of film rights . cost of goods sold for the year ended december 31 , 2015 were $ 792,000 as compared to $ 631,000 for the year ended december 31 , 2014. this increase was attributable in part to a 25 % increase in revenues and primarily to increases in production labor as the company increased staff in anticipation of future planned production projects . operating expenses for the year ended december 31 , 2015 were relatively constant at $ 3,218,000 compared to $ 2,500,000 for the year ended december 31 , 2014. the change was primarily attributable to an increase in professional fees of $ 190,000 , and an increase in general and administrative expenses of $ 73,000 and impairment of goodwill of $ 319,000. these increases were primarily offset by a decrease in compensation expenses of $ 263,000. the company has realized a net loss of $ 7,609,000 for the year ended december 31 , 2015 compared to a net loss of $ 2,276,000 for the year ended december 31 , 2014. the increase in net loss of approximately $ 5,333,000 is primarily due to the change in fair value to derivatives of $ 2,263,000 , loss on extinguishment of debt of $ 1,500,000 , and an impairment of goodwill of $ 319,000. liquidity and capital resources replace_table_token_3_th as of december 31 , 2015 , our total assets were $ 313,000 and our total liabilities were $ 5,685,000 and we had negative working capital of ( $ 5,623,000 ) . our financial statements report a net loss of $ 7,609,000 for the year ended december 31 , 2015 and a net loss of $ 2,677,000 for the year ended december 31 , 2014. as part of the company 's acquisition of s & g holdings , inc. ( doing business as high five entertainment ) , the company entered into an executive employment agreement with mr. martin fischer , pursuant to which mr. fischer will serve as high five 's president for an initial term of five years with an initial base salary of $ 144,000. he will also be entitled to an annual bonus of up to $ 100,000 and a monthly car allowance of $ 500. in addition , the company awarded mr. fischer an option to purchase 1,491,351 shares of common stock , these options vest throughout 2014. we have suffered recurring losses from operations . the continuation of our company is dependent upon our company attaining and maintaining profitable operations and raising additional capital as needed . in this regard , we have raised additional capital through equity offerings and loan transactions , and , in the short term , will seek to raise additional capital in such manners to fund our operations . we do not currently have any third-party financing available in the form of loans , advances , or commitments . our officers and shareholders have not made any written or oral agreement to provide us additional financing . there can be no assurance that we will be able to continue to raise capital on terms and conditions that are deemed acceptable to us . 16 off balance sheet arrangements as of december 31 , 2015 , there were no off balance sheet arrangements . going concern the accompanying consolidated financial statements have been prepared assuming that the company will continue as a going concern , which contemplates continuity of operations , realization of assets , and liquidation of liabilities in the normal course of business . as reflected in the accompanying consolidated financial statements , the company had a stockholders ' deficit at december 31 , 2015 , incurred a net loss and used cash in operating activities for the year then ended . these conditions raise substantial doubt about its ability to continue as a going concern . the company is attempting to produce sufficient revenue ; however , the company 's cash position may not be sufficient to support its daily operations .
| overview we were incorporated on february 20 , 2009 , in the state of florida , under the name york entertainment , inc. on october 5 , 2010 , we amended our articles of incorporation to change our name to brick top productions , inc. effective december 31 , 2014 , we amended our articles of incorporation to change our name to carolco pictures , inc. we are an award-winning feature film and television specials production company . we seek to finance , produce and distribute one or more television series and feature films to be licensed for exploitation in domestic and international theatrical , television , cable , home video and pay per view markets . through our subsidiary high five entertainment , we specialize in the development and presentation of quality television programming including series , specials , pilots , live events and award shows . we seek to combine modern business strategy with old-fashioned industry experience by bringing together highly trained relative newcomers and entertainment industry stalwarts to create low risk , high profit and artistically acclaimed feature film and television projects . recent developments on january 1 , 2016 , sam lupowitz and other shareholders , collectively representing carolco pictures , inc. 's controlling shareholders , ( jointly , the “ seller ” ) , entered into and closed separate and distinct securities purchase agreements ( the “ agreements ” ) with tarek kirschen whereby tarek kirschen ( individually ) purchased , in the aggregate , 5,000,000 shares of the company 's series a preferred shares and a total of 30,000,000 common shares of the company 's common stock ( the “ shares ” ) . each share of the series a preferred stock has 1,000 votes on all matters presented to the holders of common stock , resulting in tarek kirschen holding a majority of the issued and outstanding voting capital shares of the company . on january 1 , 2016 , sam lupowitz resigned as a member of the board of directors of the company and as an officer of the company .
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our primary insurance subsidiary , nmic , is a qualified mi provider on loans purchased by the gses and is licensed in all 50 states and d.c. to issue mi . our reinsurance subsidiary , re one , solely provides reinsurance to nmic on certain loans insured by nmic to meet state statutory coverage limits . our subsidiary , nmis , provides outsourced loan review services on a limited basis to mortgage loan originators . our stock trades on the nasdaq under the symbol `` nmih . '' mi protects mortgage lenders from all or a portion of default-related losses on residential mortgage loans made to home buyers who generally make down payments of less than 20 % of a home 's purchase price . by protecting lenders and investors from credit losses , we help facilitate the availability of mortgages to prospective , primarily first-time , u.s. home buyers , thus promoting homeownership while protecting lenders and investors against potential losses related to a borrower 's default . mi also facilitates the sale of these mortgage loans in the secondary mortgage market , most of which are sold to the gses . we are one of six companies in the u.s. who offer mi . our business strategy is to continue to expand our customer base and write insurance on high quality , low down payment residential mortgages in the u.s. we reported our first quarterly profit for the quarter ended june 30 , 2016 , and we reported income of $ 65.8 million for the year ended december 31 , 2016 . we had total iif of $ 35.8 billion and total rif of $ 7.9 billion as of december 31 , 2016 , compared to total iif of $ 19.1 billion and total rif of $ 3.7 billion as of december 31 , 2015 , and total iif of $ 8.1 billion and total rif of $ 894.7 million as of december 31 , 2014. of total iif as of december 31 , 2016 , we had $ 32.2 billion of primary iif and $ 3.6 billion of pool iif , compared to $ 14.8 billion of primary iif and $ 4.2 billion of pool iif as of december 31 , 2015 and $ 3.4 billion of primary iif and $ 4.7 billion of pool iif as of december 31 , 2014 . as of december 31 , 2016 , our primary rif was $ 7.8 billion , compared to primary rif of $ 3.6 billion and $ 801.6 million as of december 31 , 2015 and december 31 , 2014 , respectively . pool rif was $ 93.1 million as of december 31 , 2016 , december 31 , 2015 , and december 31 , 2014 . we discuss below our results of operations for the periods presented , as well as the conditions and trends that have impacted or are expected to impact our business , including customer development , new business writings , the composition of our insurance portfolio and other factors that we expect to impact our results . our headquarters are located in emeryville , california and our website is www.nationalmi.com . our website and the information contained on or accessible through our website are not incorporated by reference into this report . conditions and trends impacting our business customer development as discussed in part i , item 1 , `` business - customers , '' our sales and marketing strategy is focused on expanding relationships with existing customers and attracting new mortgage originator customers in the u.s. that fall into two primary categories , which we refer to as `` national accounts '' and `` regional accounts . '' in 2016 , we continued to increase our customer base . we had 1,131 master policy holders as of december 31 , 2016 , compared to 964 master policy holders as of december 31 , 2015 and 735 master policy holders as of december 31 , 2014. of those master policy holders , 56.4 % , or 638 , generated new insurance written ( niw ) in 2016 , compared to 500 , or 51.9 % , that generated niw in 2015 and 277 , or 37.7 % , that generated niw in 2014. lenders in the combined residential mortgage market who control the mi decision are currently comprised of three groups : top 10 , primarily national accounts , representing approximately 19 % of the mi market ; next 30 , a combination of national and regional accounts , representing approximately 17 % of the mi market ; and approximately 1,500 , primarily regional accounts , representing the remainder of the mi market . 52 since april 2013 , we have increased our customer base significantly , and we expect to continue to acquire new customers . as of december 31 , 2016 , we had active customer relationships with 26 of the top 40 lenders and expect to develop additional active customer relationships . we believe our most significant growth opportunity is within the large and fragmented market of regional accounts , which includes some of the top correspondent lenders . in addition to adding new customers , we believe existing customers will begin to allocate more of their business to us for placement of our mi . new insurance written , insurance in force and premiums nmic 's primary insurance may be written on a flow basis , in which loans are insured in individual , loan-by-loan transactions , or on an aggregated basis , in which each loan in a portfolio of loans is individually insured in a single transaction . nmic has also written pool insurance under an agreement with fannie mae , in which it insured a group of loans ( or pool ) in one transaction . nmic 's pool insurance has a stated aggregate loss limit and a deductible under which no losses are paid by nmic until losses on the pool of loans exceed the deductible . story_separator_special_tag premiums written and earned in a year are generally influenced by : niw , which is the new iif ( aggregate principal amount of the mortgages ) insured during a period . many factors affect niw , including the volume of low down payment home mortgage originations ( which tend to be generated to a greater extent in purchase financings as compared to refinancings ) and the competition to provide credit enhancement on those mortgages , which includes primarily competition from the fha and other private mortgage insurers ; the product mix of our book of business , which includes recurring monthly premiums earned for monthly policies and the recognition of premiums earned from the amortization of our single premiums over the policies ' lives . we expect our product mix and the average premium rate we charge to be generally comparable with the industry as our business matures ; cancellations , which reduce iif . upon cancellation of a policy , all premium that is non-refundable is immediately earned , and any refundable premium is returned to the policyholder . cancellations due to refinancings are affected by the level of current mortgage interest rates compared to the mortgage rates on our iif . refinancings are also affected by current home values compared to values when the loans became insured and the terms on which mortgage credit is available . to a lesser extent , cancellations also result from claim payments , as we return any premium received from the servicer after the date the insured mortgage defaults . finally , cancellations are affected by home price appreciation , which may give homeowners the right to cancel the mi on their loans . based on current market conditions , we expect our mi policies to have a persistency rate of between 80 % and 85 % ; 54 premium rates , which are based on the risk characteristics of the loans insured , the percentage of coverage on the loans , competition from other mortgage insurers and general industry conditions ; and premiums ceded under reinsurance agreements . in addition to the reinsurance agreements we currently have in place between nmic and re one , we entered into the 2016 qsr transaction during the third quarter of 2016. under the terms of the agreement , premiums are ceded to reinsurers who assume a portion of the risk under the insurance policies we write . in our industry , a `` book '' is a group of loans that an mi company insures in a particular period , normally a calendar year . in general , the majority of any underwriting profit ( i.e . , the earned premium revenue minus claims and expenses , excluding investment income ) that a book generates occurs in the early years of the book , with the largest portion of the underwriting profit for that book realized in the first year . this pattern generally occurs because relatively few of the claims that a book will ultimately experience typically occur in the first few years of the book , when premium revenue is highest , while subsequent years are affected by declining premium revenues , as the number of insured loans decreases ( primarily due to loan prepayments ) , and by increasing losses . the earnings we record and the cash flow we receive vary based on the type of mi product ( e.g . , bpmi or lpmi ) and premium plan ( e.g . , single or monthly ) our customers select . the premium rates for our products have changed substantially in response to the pmiers financial requirements that became effective in january 2016. in 2016 , based on these requirements , we introduced new rates for monthly premium policies , which historically have represented approximately 75 % of industry niw . to target a mid-teens return on pmiers required assets across the risk spectrum , we generally increased rates on low fico/high ltv loans and reduced rates on high fico/low ltv loans . see , `` - gse oversight , `` below for a discussion of the pmiers financial requirements . most of the industry has since moved to similar rate cards for monthly premium policies . single-premium lpmi , which historically has represented approximately 25 % of industry niw , has generally seen greater price competition . in 2016 , in response to the required assets provisions of pmiers , including the additional capital charges applied to lpmi products , we implemented new , higher lpmi single premium rates . through 2015 , single premium policies had comprised a majority of our niw . in 2016 , we saw a reduction in lpmi single niw as a percentage of our mix compared to 2015. as a result , during 2016 , our mix of mi products has shifted to a higher percentage of monthly premium policies . for the year ended december 31 , 2016 , 67 % of our niw consisted of monthly premium policies , and in the fourth quarter we reached a mix approximating the industry average , with 75 % of our niw comprised of monthly premium policies . our persistency rate is the percentage of iif that remains on our books after any 12-month period . because our insurance premiums are earned over the life of a policy , changes in persistency rates can have a significant impact on our earnings . the persistency rate on our portfolio was 80.7 % at december 31 , 2016 , compared to 79.6 % at december 31 , 2015. persistency rates are sensitive to fluctuations in interest rates . decreases in interest rates typically increase our portfolio 's cancellation rate . when cancellations increase , we experience lower profitability and returns on our monthly premium business . conversely , we experience higher returns on our single premium business because , rather than amortizing the single premium over the expected life of the policy , upon cancellation , we immediately recognize all unamortized single premium as earned .
| consolidated results of operations replace_table_token_29_th revenues for the year ended december 31 , 2016 , we had net premiums earned of $ 110.5 million compared to net premiums earned of $ 45.5 million for the year ended december 31 , 2015 and $ 13.4 million for the year ended december 31 , 2014 . the principal drivers of the increase in premiums earned for the year ended december 31 , 2016 were the continued growth of our niw and iif , primarily related to our monthly products , and the continued development of our customer base , including higher allocations of business to us from existing customers , slightly offset by ceded premiums earned related to the 2016 qsr transaction of $ 5.3 million . premiums earned in 2014 and 2015 were primarily driven by growth of our policies in force and the significant development of our customer base . additionally , we had $ 16.7 million of earned premiums in the year ended december 31 , 2016 related to cancellations of single premium policies , compared to $ 4.4 million for the year ended december 31 , 2015 and $ 1.9 million for the year ended december 31 , 2014 . we believe revenue from cancellations will be a lower portion of our revenue base as our iif grows , particularly as interest rates have risen over the last quarter , causing refinance activity to slow . we will continue to experience higher than expected earnings from cancellations of single premium policies if interest rates remain low , and expect single premium policy cancellations to decrease if interest rates rise significantly . net investment income has increased year over year from december 31 , 2014 , as a result of increases in the size of our consolidated investment portfolio .
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10.62 amendment of restricted stock unit awards ( 2007 and 2011 omnibus equity compensation plans ) , effective october 9 , 2014 , between registrant and alfonso leon ( incorporated by reference to exhibit 10.6 to registrant 's quarterly report on form 10-q for the quarter ended september 30 , story_separator_special_tag apache corporation , a delaware corporation formed in 1954 , is an independent energy company that explores for , develops , and produces natural gas , crude oil , and natural gas liquids . we currently have exploration and production interests in five countries : the u.s. , canada , egypt , australia , and the u.k. north sea . apache also pursues exploration interests in other countries that may over time result in reportable discoveries and development opportunities . the following discussion should be read together with the consolidated financial statements and the notes to consolidated financial statements set forth in part iv , item 15 of this form 10-k , and the risk factors and related information set forth in part i , item 1a and part ii , item 7a of this form 10-k. executive overview strategy apache 's mission is to grow a profitable global exploration and production company in a safe and environmentally responsible manner for the long-term benefit of our shareholders . our growth strategy focuses on economic growth through exploration and development drilling , supplemented by occasional strategic acquisitions and portfolio high-grading through asset divestitures . the company 's foundation for future growth is driven by our significant producing asset base and large undeveloped acreage positions . this allows for growth through sustainable lower-risk drilling opportunities , balanced by higher-risk , higher-reward exploration . we closely monitor drilling and acquisition cost trends in each of our core areas relative to product prices and , when appropriate , adjust our capital budgets accordingly and allocate funds to projects based on expected value . we do this through a disciplined and focused process that includes analyzing current economic conditions , projected rate of return on internally generated drilling inventories , and opportunities for tactical acquisitions or leasehold purchases that add substantial drilling prospects or , occasionally , provide access to new core areas that could enhance our portfolio . over the last five years , apache has increasingly focused on its north american onshore resource base . recent drilling successes and acquisitions of acreage positions across north america have built a robust drilling inventory for our permian , gulf coast , and other onshore regions . we believe that this area is capable of driving our growth and performance over the next several years . as part of this strategy , we conducted a company-wide review of our portfolio and our operations in an effort to best position apache for the long-term benefit of our shareholders . this has resulted in several key divestitures during the last eighteen months and the recent announcement and agreed sale of our kitimat and wheatstone lng projects . we believe our efforts will ultimately position the company with an established base portfolio of assets that allows for flexibility in capital allocation and provides a platform for sustainable growth . this is especially important given the volatility in oil and gas commodities . throughout the cycles of our industry , our focus on having a portfolio of core assets and a conservative capital structure has underpinned our long-term strategic decisions and we remain steadfast to the business principles that have guided apache 's progress since our inception . a strong sense of urgency , empowerment of our employees , effective incentive systems , and an independent mindset are at the heart of how we build value . 2015 outlook the rapid decline in the price of oil at the end of 2014 and into the first quarter of 2015 has been dramatic ; however , we believe this environment will provide future growth opportunities for companies that have moved aggressively in response to the price drop . as we can not predict the length or depth of this oil price correction , or the timing and extent of any potential rebound , we have moved quickly and decisively regarding what we can 33 control : the timing and levels of capital spending and our cost structure . specifically , during the third quarter of 2014 we were operating 91 rigs onshore in north america , and by the end of february 2015 , our rig count was reduced to 27 rigs . we also reduced the number of completion crews and will delay completing some of our wells in backlog until the associated service costs align with the current commodity price environment . in addition to well cost initiatives , we have taken steps to reduce both lease operating and general and administrative expenses and will continue to take proactive measures to reduce them further . these actions were taken with the goal of quickly reducing well costs to a level that will enable us to generate profitable rates of return under today 's depressed commodity prices environment . we have initially set our 2015 capital budget at $ 3.8 billion , which is approximately 60 percent lower than the prior year , as a result of our response to the changing market conditions , operating cash flow forecasts and divested assets . of this amount , approximately $ 2.1 billion to $ 2.3 billion is allocated for projects in north america , with the remaining amount allocated across our international regions . our budgeted amounts exclude expenditures attributable to a one-third non-controlling interest in egypt . while some funds have been committed for certain 2015 exploration wells and development projects , the majority of our capital activity is discretionary and subject to acceleration , deferral , or cancelation as conditions warrant . we closely monitor commodity prices , service cost levels , regulatory impacts , and numerous other industry factors and routinely adjust our budgets in response to changing market conditions and operating cash flow forecasts . story_separator_special_tag for detailed information regarding our acquisitions and divestitures , please refer to note 2 35 acquisitions and divestitures in the notes to consolidated financial statements set forth in part iv , item 15 of this form 10-k. during 2014 and 2013 , apache announced the following significant transactions : 2014 activity lng projects divestiture in december 2014 , apache agreed to sell its interest in two lng projects , wheatstone lng in australia and kitimat lng in canada , along with accompanying upstream oil and gas reserves , to woodside petroleum limited for a purchase price of $ 2.75 billion plus recovery of apache 's net expenditure in the wheatstone and kitimat lng projects between june 30 , 2014 , and closing . this transaction is subject to necessary government and regulatory approvals and is expected to close in the first quarter of 2015. as a result of the announced sale of these projects , the lng facilities and associated downstream assets are classified as held for sale on apache 's consolidated balance sheet at december 31 , 2014. anadarko basin and southern louisiana divestitures in december 2014 , apache completed the sale of non-core anadarko basin and southern louisiana oil and gas assets for approximately $ 1.3 billion in two separate transactions . in the anadarko basin , apache sold approximately 115,000 net acres in wheeler county , texas , and western oklahoma . in southern louisiana , apache sold its working interest in approximately 90,000 net acres . the effective date of both of these transactions is october 1 , 2014. gulf of mexico deepwater divestiture on june 30 , 2014 , apache completed the sale of non-operated interests in the lucius and heidelberg development projects and 11 primary term deepwater exploration blocks in the gulf of mexico for $ 1.4 billion . the effective date of the transaction was may 1 , 2014. canada divestiture on april 30 , 2014 , apache completed the sale of primarily dry gas producing hydrocarbon assets in the deep basin area of western alberta and british columbia , canada , for $ 374 million . the assets comprise 328,400 net acres in the ojay , noel , and wapiti areas . apache retained 100 percent of its working interest in horizons below the cretaceous in the wapiti area , including rights to the liquids-rich montney and other deeper horizons . the effective date of the transaction was january 1 , 2014. argentina divestiture on march 12 , 2014 , apache 's subsidiaries completed the sale of all of the company 's operations in argentina to ypf sociedad anónima for $ 800 million , subject to customary closing adjustments , plus the assumption of $ 52 million of bank debt as of june 30 , 2013. the results of operations related to argentina have been classified as discontinued operations in all periods presented in this annual report on form 10-k. leasehold acquisitions during 2014 , apache completed $ 1.3 billion of leasehold acquisitions , substantially increasing its drilling opportunities in key focus areas in north america including the eagle ford and canyon lime plays . 2013 activity egypt sinopec partnership on november 14 , 2013 , apache announced the completion of the sale of a one-third minority participation in its egypt oil and gas business to sinopec for cash consideration of $ 2.95 billion after customary closing adjustments . apache will continue to operate the egypt upstream oil and gas business . gulf of mexico shelf divestiture on september 30 , 2013 , apache completed the sale of its gulf of mexico shelf operations and properties to fieldwood , an affiliate of riverstone holdings . under the terms of the agreement , apache received cash consideration of $ 3.7 billion , and fieldwood assumed $ 1.5 billion of discounted asset abandonment liabilities . additionally , apache retained 50 percent of its ownership interest in all exploration blocks and in horizons below production in developed blocks . canadian divestitures in september , apache completed sales of primarily dry gas assets for $ 214 million . the sale includes 621,000 gross acres ( 530,000 net acres ) and more than 2,700 wells . additionally in october of 2013 , apache completed two additional sales of canadian oil and gas production properties for $ 112 million . the assets comprise approximately 4,000 operated and 1,300 non-operated wells . 36 kitimat lng project in february 2013 , apache completed a transaction with chevron canada limited ( chevron canada ) under which each company became a 50 percent owner of the kitimat lng plant , the pacific trail pipelines limited partnership ( ptp ) , and 644,000 gross undeveloped acres in the horn river and liard basins . apache 's net proceeds from the transaction were $ 396 million after post-closing adjustments . leasehold acquisitions during 2013 , apache completed $ 215 million of leasehold acquisitions in north america . story_separator_special_tag margin-bottom:0pt ; text-indent:4 % ; font-size:10pt ; font-family : times new roman '' > worldwide gas production from continuing operations decreased 8 percent ; however , excluding production from the gulf of mexico shelf and canadian assets sold during 2013 , gas production declined only 2 percent , or 34 mmcf/d . production declined 66 mmcf/d from our remaining properties in canada , a result of a shift in our drilling and recompletion activity from dry gas to liquids-rich gas properties . production from our u.s. deepwater region decreased 26 mmcf/d on natural decline . these decreases were partially offset by production increases of 52.6 mmcf/d in our u.s. onshore regions resulting from drilling activity focusing on liquids-rich targets , 9.4 mmcf/d in australia on volumes from our macedon field discovery , which commenced operations in the third quarter , and 2.7 mmcf/d in egypt . 41 ngl revenues 2014 vs. 2013 ngl revenues totaled $ 668 million in 2014 , an increase of $ 16 million from 2013 , the result of a 7 percent increase in production volumes partially offset by a 4 percent decrease in realized prices . worldwide production from continuing operations rose 4.5
| results of operations oil and gas revenues apache 's oil and gas revenues by region are as follows : replace_table_token_11_th 37 ( 1 ) financial derivative hedging activities decreased 2014 , 2013 , and 2012 oil revenues $ 2 million , $ 47 million , and $ 146 million , respectively . ( 2 ) financial derivative hedging activities increased 2014 , 2013 , and 2012 natural gas revenues $ 2 million , $ 31 million , and $ 414 million , respectively . ( 3 ) 2014 and 2013 includes revenues attributable to a noncontrolling interest in egypt . production the following table presents production volumes by region : replace_table_token_12_th ( 1 ) gross oil production and gross natural gas production in egypt for 2014 , 2013 , and 2012 were as follows : replace_table_token_13_th 38 ( 2 ) includes 2014 and 2013 production volumes per day attributable to a noncontrolling interest in egypt of : oil ( b/d ) 29,292 3,875 gas ( mcf/d ) 123,511 16,278 ngl ( b/d ) 224 ( 3 ) the table shows production on a barrel of oil equivalent basis ( boe ) in which natural gas is converted to an equivalent barrel of oil based on a 6:1 energy equivalent ratio . this ratio is not reflective of the price ratio between the two products . nmnot meaningful pricing the following table presents pricing information by region : replace_table_token_14_th ( 1 ) reflects a per-barrel decrease of $ 0.02 , $ 0.37 , and $ 1.13 in 2014 , 2013 , and 2012 , respectively , from financial derivative hedging activities . ( 2 ) reflects a per-mcf increase of $ 0.04 and $ 0.49 in 2013 and 2012 , respectively , from financial derivative hedging activities . nmnot meaningful 39 crude oil prices a substantial portion of our oil production is sold at prevailing market prices , which fluctuate in response to many factors that are outside of the company 's control .
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return item . the tax matters challenged by the tax authorities are typically complex ; therefore , the ultimate outcome of these challenges is subject to uncertainty . 76 reconciliation of the consolidated liability for gross unrecognized tax benefits , excluding interest , from story_separator_special_tag executive summary eagle materials inc. is a diversified producer of basic building products used in residential , industrial , commercial and infrastructure construction . information presented for the fiscal years ended march 31 , 2016 , 2015 and 2014 , respectively , reflects the company 's business segments , consisting of cement , gypsum wallboard , recycled paperboard , oil and gas proppants and concrete and aggregates . these operations are conducted in the u.s. and include the mining of limestone and the manufacture , production , distribution and sale of portland cement ( a basic construction material which is the essential binding ingredient in concrete ) and specialty oil well cement ; the grinding of slag , the mining of gypsum and the manufacture and sale of gypsum wallboard ; the manufacture and sale of recycled paperboard to the gypsum wallboard industry and other paperboard converters ; the sale of readymix concrete , the mining and sale of aggregates ( crushed stone , sand and gravel ) and the mining and sale of sand used in hydraulic fracturing ( “ frac sand ” ) . the products that we manufacture , distribute and sell are basic materials with broad application as construction products , building materials and basic materials used for oil and natural gas extraction . our construction products are used in residential , industrial , commercial and infrastructure construction and include cement , concrete and aggregates . our building materials are sold into similar markets and include gypsum wallboard . our basic materials used for oil and gas extraction include frac sand and oil well cement . certain information for each of concrete and aggregates is broken out separately in the segment discussions . on july 10 , 2015 , we completed the acquisition of a 600,000 ton per year granulated ground blast furnace slag ( “ slag ” ) plant in south chicago ( the “ skyway plant ” ) from holcim ( us ) inc. ( the “ skyway acquisition ” ) . among other applications , slag is used in conjunction with portland cement to make a lower permeability concrete . the skyway plant purchases its primary raw material , slag , pursuant to a long term supply agreement with a third party . the purchase price ( the “ skyway purchase price ” ) for the skyway acquisition was approximately $ 29.9 million , net of $ 2.5 million which will be refunded by the seller . we received $ 1.5 million of the expected refund in january 2016 , and we expect to receive the remaining $ 1.0 million in january 2017. we funded the payment of the skyway purchase price and expenses incurred in connection with the skyway acquisition through operating cash flow . we also assumed certain liabilities , including contractual obligations , related to the skyway plant . on november 14 , 2014 , we acquired all of the outstanding equity interests of crs holdco llc , crs proppants llc , great northern sand llc , and related entities ( collectively , “ crs proppants ” ) ( such acquisition , the “ crs acquisition ” ) . crs proppants is a supplier of frac sand to the energy industry , and its business currently consists of a frac sand mine in new auburn , wisconsin , and a trans-load network into texas and southwest oklahoma . the purchase price ( the “ crs purchase price ” ) paid by the company for the crs acquisition was approximately $ 236.1 million in cash , including approximately $ 8.9 million for in-process capital expenditures paid through the closing date , and estimated working capital and other estimated closing amounts . the crs purchase price was funded through borrowings under the company 's credit facility . crs proppants was in the process of expanding its frac sand mine in new auburn , wisconsin at the time of purchase . this expansion was completed during the first quarter of fiscal 2016 , at a cost of approximately $ 8.0 million . the decline in oil prices throughout fiscal 2016 adversely impacted u.s. oil and gas drilling activity leading to further reductions in demand and pricing for proppants . as a result , we recorded impairments to several intangible assets originally booked in connection with our acquisition of crs proppants and revalued downward certain raw sand inventory values associated with the downward revaluation of raw sand inventory that crs proppants purchased from a third party pursuant to a purchase contract entered into in connection with the plant expansion . we have fulfilled our obligations under this purchase contract . the impairments and inventory revaluation charges totaled approximately $ 44.4 million ( pre-tax ) and were recorded within our oil and gas proppants segment during fiscal 2016. one of the customer contracts contained a liability related to prepaid sand , which was to be credited to the customer based on future sand purchases required by the contract . this customer has not made the required purchases in accordance with the terms of the contract , and therefore has forfeited 34 approximately $ 10 . 7 million of the prepaid balances , which partially offsets the write-off of the intangible assets in fiscal 2016. we operate in cyclical commodity businesses that are affected by changes in market conditions and the overall construction environment . our operations , depending on each business segment , range from local in nature to national businesses . we have operations in a variety of geographic markets , which subject us to the economic conditions in those geographic markets as well as economic conditions in the national market . general economic downturns or localized downturns in the regions where we have operations may have a material adverse effect on our business , financial condition and results of operations . story_separator_special_tag cement revenues were $ 528.5 million for fiscal 2016 , which is an 8 % increase over revenues of $ 488.6 million for fiscal 2015. approximately $ 21.3 million of the increase in revenues for fiscal 2016 , compared to fiscal 2015 , was related to the skyway acquisition . the remaining increase in revenue during fiscal 2016 compared to fiscal 2015 is primarily due to a 6 % increase in average net sales prices , partially offset by a slight decrease in sales volumes . the increase in average net sales prices during fiscal 2016 , compared to fiscal 2015 , positively impacted cement revenues by approximately $ 20.7 million , while the decrease in sales volumes negatively impacted cement revenues by approximately $ 2.1 million . the decrease in sales volumes during fiscal 2016 , compared to fiscal 2015 , was primarily related to above average rainfall during april and may 2015 in our texas , oklahoma and colorado markets , as well as wet weather in our texas and oklahoma markets during october and november . in texas , demand for construction grade cement continues to offset much of the impact from lower oil well cement demand . cement operating earnings increased 17 % to $ 137.9 million from $ 117.5 million for fiscal 2016 and 2015 , respectively . approximately $ 4.5 million of the increase in operating earnings fiscal 2016 , compared to fiscal 2015 , was related to the skyway acquisition . the remaining increase in operating earnings was due primarily to increased average net sales prices , which positively impacted operating earnings by approximately $ 20.7 million , partially offset by decreased sales volumes and increased operating costs of approximately $ 4.4 million and $ 0.4 38 million . the increase in operating costs in fiscal 2016 , compared to fiscal 2015 , is primarily related to increased ma intenance , which adversely impacted operating earnings by approximately $ 8.4 million , partially offset by decreased energy costs of approximately $ 4.4 million . additionally , the percentage of purchased cement sold during fiscal 2016 , declined approximatel y 3 % compared to the percentage of purchased cement sold for fiscal 2015 , which positively impacted our operating costs by approximately $ 3.4 million . the increase in maintenance costs was due primarily to a shift in the timing of some of our annual maint enance outages , which adversely impacted operating earnings by approximately $ 3.0 million during the first quarter of fiscal 2016 , compared to the first quarter of fiscal 2015 and increased maintenance activity at certain plants in fiscal 2016. the operati ng margin increased to 26 % in fiscal 2016 , compared to 24 % in fiscal 2015 , primarily due to increased sales prices and a reduction in the percentage of sales of lower margin purchased cement . gypsum wallboard operations . sales revenues increased 5 % to $ 461.5 million for fiscal 2016 , from $ 437.5 million for fiscal 2015 , primarily due to an 8 % increase in sales volumes , partially offset by a 3 % decrease in average net sales prices . the increase in sales volumes positively impacted revenues by approximately $ 36.5 million , partially offset by a $ 12.5 million decrease in sales revenues due to lower average net sales prices . the increased sales volumes are primarily due to increased construction activity in fiscal 2016 , compared to fiscal 2015. our market share was essentially unchanged during fiscal 2016 , compared to fiscal 2015. operating earnings increased to $ 159.4 million for fiscal 2016 , from $ 145.9 million for fiscal 2015 , primarily due to the increase in sales volumes and the reduction in operating costs , which positively impacted operating earnings by approximately $ 12.2 million and $ 13.8 million , partially offset by decreased average net sales prices of approximately $ 12.5 million . the decrease in operating costs was primarily related to natural gas , raw materials and customer freight , which decreased approximately $ 5.6 million , $ 4.6 million and $ 2.5 million , respectively . during fiscal 2016 , our gross margin improved to 35 % from 33 % in fiscal 2015 , primarily due to the reduction in operating expenses , partially offset by decreased average net sales prices . fixed costs are not a significant part of the overall cost of wallboard ; therefore , changes in volume have a relatively minor impact on our operating cost per unit . recycled paperboard operations . revenues increased 5 % to $ 149.2 million for fiscal 2016 , from $ 142.7 million for fiscal 2015. the increase in net revenue during fiscal 2016 , compared to fiscal 2015 , is primarily due to increased sales volumes , which contributed approximately $ 6.7 million to revenues ; partially offset by a decrease in average net sales prices that adversely impacted revenue by approximately $ 0.2 million . the decrease in average net sales price is due to the pricing provisions in our long-term sales agreement . operating earnings increased to $ 32.2 million for fiscal 2016 , compared to $ 31.5 million for fiscal 2015 , while gross margin remained consistent at 22 % for both fiscal 2016 and fiscal 2015. the increase in operating earnings is primarily due to increased sales volumes , which increased operating earnings by approximately $ 2.0 million , partially offset by increased operating costs of approximately $ 1.3 million . the increase in operating costs was due primarily to recycled fiber costs , customer freight and chemicals , which adversely impacted operating earnings by approximately $ 1.3 million , $ 1.1 million and $ 0.5 million , respectively , partially offset by decreased natural gas and electricity costs of approximately $ 1.8 million and $ 0.5 million , respectively . oil and gas proppants .
| results of operations fiscal year 2016 compared to fiscal year 2015 replace_table_token_9_th revenues . revenues increased $ 77.0 million to $ 1,143.4 million in fiscal 2016 , compared to $ 1,066.4 million in fiscal 2015. revenues from the crs and skyway acquisitions positively impacted revenues by approximately $ 18.7 million and $ 21.3 million , respectively . revenues increased in all of our segments except our legacy oil and gas proppants segment . the increase in revenues was due primarily to increased average net sales prices in our cement and concrete and aggregates segments and increased sales volumes in our gypsum wallboard , recycled paperboard and concrete segments , partially offset by decreased sales volumes in aggregates segment . the reduction in revenues from our legacy oil and gas proppants business was due primarily to reduced sales volumes . excluding revenues from the crs and skyway acquisitions , increased average net sales prices 35 and sales volumes positively impacted revenue from our historical businesses for fiscal 201 6 , compared to fiscal 201 5 , by approximately $ 13 . 1 million and $ 23.9 million , respectively . cost of goods sold . cost of goods sold increased $ 99.7 million to $ 911.9 million in fiscal 2016 , compared to $ 812.2 million in fiscal 2015. excluding cost of goods sold of $ 81.3 million from our crs and skyway acquisitions , cost of goods sold increased approximately $ 18.4 million during fiscal 2016 , compared to fiscal 2015. the increase in cost of goods sold during fiscal 2016 , compared to fiscal 2015 , was due to increased sales volumes and increased operating costs , which increased cost of goods sold by approximately $ 10.4 million and $ 8.0 million , respectively .
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this review includes analyzing the length of time and the extent to which the fair value has been lower than the cost , the financial condition and near-term prospects of the issuer , including any specific events which may influence the operations of the issuer and whether we are more likely than not to sell the security . we evaluate whether we are more likely than not to sell debt securities based upon our investment strategy for the particular story_separator_special_tag the following discussion and analysis represents an overview of the financial condition and the results of operations of first commonwealth and its subsidiaries , fcb , first commonwealth insurance agency , inc. ( “ fcia ” ) and first commonwealth financial advisors , inc. ( “ fcfa ” ) , as of and for the years ended december 31 , 2014 , 2013 and 2012 . during 2014 , first commonwealth sold its registered investment advisory business . the purpose of this discussion is to focus on information concerning our financial condition and results of operations that is not readily apparent from the consolidated financial statements . in order to obtain a more thorough understanding of this discussion , you should refer to the consolidated financial statements , the notes thereto and other financial information presented in this annual report . company overview first commonwealth provides a diversified array of consumer and commercial banking services through our bank subsidiary , fcb . we also provide trust and wealth management services through fcb and insurance products through fcia . at december 31 , 2014 , fcb operated 110 community banking offices throughout western pennsylvania and loan production offices in downtown pittsburgh , pennsylvania and cleveland , ohio . our consumer services include internet , mobile and telephone banking , an automated teller machine network , personal checking accounts , interest-earning checking accounts , savings accounts , insured money market accounts , debit cards , investment certificates , fixed and variable rate certificates of deposit , mortgage loans , secured and unsecured installment loans , construction and real estate loans , safe deposit facilities , credit lines with overdraft checking protection and ira accounts . commercial banking services include commercial lending , small and high-volume business checking accounts , on-line account management services , ach origination , payroll direct deposit , commercial cash management services and repurchase agreements . we also provide a variety of trust and asset management services and a full complement of auto , home and business insurance as well as term life insurance . we offer annuities , mutual funds , stock and bond brokerage services through an arrangement with a broker-dealer and insurance brokers . most of our commercial customers are small and mid-sized businesses in central and western pennsylvania . as a financial institution with a focus on traditional banking activities , we earn the majority of our revenue through net interest income , which is the difference between interest earned on loans and investments and interest paid on deposits and borrowings . growth in net interest income is dependent upon balance sheet growth and maintaining or increasing our net interest margin , which is net interest income ( on a fully taxable-equivalent basis ) as a percentage of our average interest-earning assets . we also generate revenue through fees earned on various services and products that we offer to our customers and , less frequently , through sales of assets , such as loans , investments or properties . these revenue sources are offset by provisions for credit losses on loans , operating expenses , income taxes and , less frequently , loss on sale or other-than-temporary impairments on investment securities . general economic conditions also affect our business by impacting our customers ' need for financing , thus affecting loan growth , as well as impacting the credit strength of existing and potential borrowers . critical accounting policies and significant accounting estimates first commonwealth 's accounting and reporting policies conform to accounting principles generally accepted in the united states of america ( “ gaap ” ) and predominant practice in the banking industry . the preparation of financial statements in accordance with gaap requires management to make estimates , assumptions and judgments that affect the amounts reported in the financial statements and accompanying notes . over time , these estimates , assumptions and judgments may prove to be inaccurate or vary from actual results and may significantly affect our reported results and financial position for the period presented or in future periods . we currently view the determination of the allowance for credit losses , fair value of financial instruments and income taxes to be critical because they are highly dependent on subjective or complex judgments , assumptions and estimates made by management . allowance for credit losses we account for the credit risk associated with our lending activities through the allowance and provision for credit losses . the allowance represents management 's best estimate of probable losses that are inherent in our existing loan portfolio as of the balance sheet date . the provision is a periodic charge to earnings in an amount necessary to maintain the allowance at a level that is appropriate based on management 's assessment of probable estimated losses . management determines and reviews with the board of directors the adequacy of the allowance on a quarterly basis in accordance with the methodology described below . 25 individual loans are selected for review in accordance with financial accounting standards board ( “ fasb ” ) accounting standards codification ( “ asc ” ) topic 310 , “ receivables. ” these are generally large balance commercial loans and commercial mortgages that are rated less than “ satisfactory ” based on our internal credit-rating process . we assess whether the loans identified for review in step one are “ impaired , ” which means that it is probable that all amounts will not be collected according to the contractual terms of the loan agreement , which generally represents loans that management has placed on nonaccrual status . story_separator_special_tag management assesses all available positive and negative evidence on a quarterly basis to estimate if sufficient future taxable income will be generated to utilize the existing deferred tax assets . the amount of future taxable income used in management 's valuation is based upon management approved forecasts , evaluation of historical earnings levels , proven ability to raise capital to support growth or during times of economic stress and consideration of prudent and feasible potential tax strategies . if future events differ from our current forecasts , a valuation allowance may be required , which could have a material impact on our financial condition and results of operations . accrued taxes represent the net estimated amount due to taxing jurisdictions and are reported in other liabilities in the consolidated statements of financial condition . management evaluates and assesses the relative risks and appropriate tax treatment of transactions and filing positions after considering statutes , regulations , judicial precedent and other information and maintains tax accruals consistent with its evaluation of these relative risks and merits . changes to the estimate of accrued taxes occur periodically due to changes in tax rates , interpretations of tax laws , the status of examinations being conducted by taxing authorities and changes to statutory , judicial and regulatory guidance . these changes , when they occur , can affect deferred taxes and accrued taxes , as well as the current period 's income tax expense and can be significant to our operating results . results of operations—2014 compared to 2013 net income net income for 2014 was $ 44.5 million , or $ 0.48 per diluted share , as compared to net income of $ 41.5 million , or $ 0.43 per diluted share , in 2013 . net income in 2014 was positively impacted by a decrease in provision expense of $ 8.0 million , offset by a decline of $ 1.0 million in net interest income and an increase in noninterest expense of $ 2.4 million . noninterest expense increased as the result of $ 7.4 million in expenses related to a core system conversion in 2014 and the recording of an $ 8.6 million legal contingency reserve . our return on average equity was 6.2 % and return on average assets was 0.71 % for 2014 , compared to 5.7 % and 0.68 % , respectively , for 2013 . average diluted shares for the year 2014 were 4 % less than the comparable period in 2013 primarily due to the common stock buyback programs that were authorized during 2014 and 2013 . net interest income net interest income , which is our primary source of revenue , is the difference between interest income from earning assets ( loans and securities ) and interest expense paid on liabilities ( deposits , short-term borrowings and long-term debt ) . the amount of net interest income is affected by both changes in the level of interest rates and the amount and composition of interest-earning assets and interest-bearing liabilities . the net interest margin is expressed as the percentage of net interest income , on a fully taxable equivalent basis , to average interest-earning assets . to compare the tax exempt asset yields to taxable yields , amounts are adjusted to the pretaxable equivalent amounts based on the marginal corporate federal income tax rate of 35 % . the taxable equivalent adjustment to net interest income for 2014 was $ 3.3 million compared to $ 4.1 million in 2013 . net interest income comprises a majority of our operating revenue ( net interest income before the provision plus noninterest income ) at 75 % for both years ended december 31 , 2014 and 2013 . net interest income , on a fully taxable equivalent basis , was $ 187.0 million for the year-ended december 31 , 2014 , a $ 1.7 million , or 1 % , decrease compared to $ 188.7 million for the same period in 2013 . the net interest margin , on a fully taxable equivalent basis , decreased 12 basis points , or 4 % , to 3.27 % in 2014 from 3.39 % in 2013 . the net interest margin is affected by 27 both changes in the level of interest rates and the amount and composition of interest-earning assets and interest-bearing liabilities . the low interest rate environment and resulting decline in rates earned on interest-earning assets challenged the net interest margin during the year ended december 31 , 2014 . yields and spreads on new loan volumes continued to experience competitive pricing pressures in 2014 , specifically home equity and indirect loans . also contributing to lower yields on earning assets is the runoff of existing older assets , which were earning higher interest rates than new volumes , as well as growth in the investment portfolio . growth in earning assets has helped to offset the spread compression as average earning assets for the year ended december 31 , 2014 increased $ 166.5 million , or 3 % , compared to the comparable period in 2013 . however , approximately 39 % of the growth in earning assets relates to the investment portfolio , which is earning approximately 180 basis points less than the rate earned on growth in the loan portfolio . investment portfolio purchases during 2014 have been primarily in the mortgage-related assets with approximate durations of 36-48 months and municipal securities with a duration of five years . the mortgage-related investments have monthly principal payments that will provide for reinvestment opportunities as interest rates rise . it is expected that the challenges to the net interest margin will continue as $ 3.0 billion in interest-sensitive assets either reprice or mature over the next twelve months . the taxable equivalent yield on interest-earning assets was 3.59 % for the year ended december 31 , 2014 , a decrease of 20 basis points from the 3.79 % yield for the same period in 2013 .
| summary of 2013 results net income for 2013 was $ 41.5 million , or $ 0.43 per diluted share , as compared to a net income of $ 42.0 million , or $ 0.40 per diluted share , in 2012 . the improvement in performance in 2013 was primarily the result of a $ 1.3 million decrease in provision expenses , a decrease of $ 6.3 million related to loss on sale or write-down of assets , and a $ 4.3 million decrease in net interest income . partially offsetting the aforementioned items are a $ 1.4 million decrease in net securities gains and a $ 3.3 million decrease in operational losses . our return on average equity was 5.7 % and return on average assets was 0.68 % for 2013 , compared to 5.5 % and 0.71 % , respectively , for 2012 . average diluted shares for the year 2013 were 7 % less than the comparable period in 2012 primarily due to the common stock buyback program authorized during 2012. net interest income , on a fully taxable equivalent basis , for 2013 was $ 4.6 million , or 2 % , lower than 2012 , primarily due to a $ 169.4 million , or 4 % , increase in average interest bearing liabilities and a 22 basis point decrease in the net interest margin . positively affecting net interest income in 2013 was a $ 41.1 million increase in average net free funds . average net free funds are the excess of demand deposits , other noninterest-bearing liabilities and shareholders ' equity over nonearning assets .
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44 ( 16 ) comprehensive loss the accumulated other comprehensive loss was comprised of the adjustment to the defined benefit plan liability as follows : replace_table_token_43_th 45 ( 17 ) other financial data balance sheet information : replace_table_token_44_th ( 18 ) rights agreement on april 26 , 1999 , the company 's board of directors declared a dividend distribution of one right per share of the company 's outstanding common stock as of may 17 , 1999 pursuant to a rights agreement , dated as of april 27 , 1999. the rights agreement also provides that one right will attach to each share of the company 's common stock issued after may 17 , 1999. on april 21 , 2009 , effective april 25 , 2009 , the company 's board of directors amended the rights agreement to , among other changes , extend the final expiration date and adjust the purchase price payable upon exercise of a right . 46 the rights are not currently exercisable but trade with the company 's common stock shares and become exercisable on the distribution date . the distribution date will occur upon the earliest of 10 business days following a public announcement that either a person or group of affiliated or associated persons ( an “ acquiring person story_separator_special_tag the matters discussed in this section include forward-looking statements that are subject to numerous risks . you should carefully read the “ cautionary note regarding forward-looking statements ” and “ risk factors ” in this form 10-k. overview our operations are entirely focused on the manufacture and marketing of concrete reinforcing products for the concrete construction industry . our business strategy is focused on : ( 1 ) achieving leadership positions in our markets ; ( 2 ) operating as the lowest cost producer ; and ( 3 ) pursuing growth opportunities within our core businesses that further our penetration of the markets we currently serve or expand our geographic footprint . on august 15 , 2014 , we , through our wholly-owned subsidiary , iwp , purchased substantially all of the assets associated with the pc strand business of asw for a final adjusted purchase price of $ 33.5 million . asw manufactured pc strand at facilities located in houston , texas and newnan , georgia ( see note 4 to the consolidated financial statements ) . we acquired , among other assets , the accounts receivable and inventories related to asw 's pc strand business , the production equipment at its facility in houston , texas and its production equipment and facility in newnan , georgia . we also entered into an agreement pursuant to which we lease the houston facility from asw with an option to purchase it in the future . subsequent to the acquisition , we elected to consolidate our pc strand operations with the closure of the newnan facility , which was completed in march 2015. critical accounting policies our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the united states ( “ gaap ” ) . our discussion and analysis of our financial condition and results of operations are based on these financial statements . the preparation of our consolidated financial statements requires the application of these accounting principles in addition to certain estimates and judgments based on current available information , actuarial estimates , historical results and other assumptions believed to be reasonable . actual results could differ from these estimates . following is a discussion of our most critical accounting policies , which are those that are both important to the depiction of our financial condition and results of operations and that require judgments , assumptions and estimates . revenue recognition . we recognize revenue from product sales when products are shipped and risk of loss and title has passed to the customer . sales taxes collected from customers are recorded on a net basis and as such , are excluded from revenue . concentration of credit risk . financial instruments that subject us to concentrations of credit risk consist principally of cash and cash equivalents and trade accounts receivable . our cash is concentrated primarily at one financial institution , which at times exceeds federally insured limits . we are exposed to credit risk in the event of default by institutions in which our cash and cash equivalents are held and by customers to the extent of the amounts recorded on the balance sheet . we invest excess cash primarily in money market funds , which are highly liquid securities that bear minimal risk . 12 most of our accounts receivable are due from customers that are located in the u.s. and we generally require no collateral depending upon the creditworthiness of the account . we provide an allowance for doubtful accounts based upon our assessment of the credit risk of specific customers , historical trends and other information . there is no disproportionate concentration of credit risk . allowance for doubtful accounts . we maintain allowances for doubtful accounts for estimated losses resulting from the potential inability of our customers to make required payments on outstanding balances owed to us . significant management judgments and estimates are used in establishing the allowances . these judgments and estimates consider such factors as customers ' financial position , cash flows and payment history as well as current and expected business conditions . it is reasonably likely that actual collections will differ from our estimates , which may result in increases or decreases in the allowances . adjustments to the allowances may also be required if there are significant changes in the financial condition of our customers . inventory valuation . we periodically evaluate the carrying value of our inventory . this evaluation includes assessing the adequacy of allowances to cover losses in the normal course of operations , providing for excess and obsolete inventory , and ensuring that inventory is valued at the lower of cost or estimated net realizable value . story_separator_special_tag we use the monte carlo valuation model to determine the fair value of stock options at the date of grant , which requires us to make assumptions such as expected term , volatility and forfeiture rates to determine the stock options ' fair value . these assumptions are based on historical information and judgment regarding market factors and trends . if actual results differ from our assumptions and judgments used in estimating these factors , future adjustments to these estimates may be required . assumptions for employee benefit plans . we account for our defined employee benefit plans , the insteel wire products company retirement income plan for hourly employees , wilmington , delaware ( the “ delaware plan ” ) and the supplemental employee retirement plans ( each , a “ serp ” ) in accordance with fasb asc topic 715 , compensation - retirement benefits . under the provisions of asc topic 715 , we recognize net periodic pension costs and value pension assets or liabilities based on certain actuarial assumptions , principally the assumed discount rate and the assumed long-term rate of return on plan assets . the discount rates we utilize for determining net periodic pension costs and the related benefit obligations for our plans are based , in part , on current interest rates earned on long-term bonds that receive one of the two highest ratings assigned by recognized rating agencies . our discount rate assumptions are adjusted as of each valuation date to reflect current interest rates on such long-term bonds . the discount rates are used to determine the actuarial present value of the benefit obligations as of the valuation date as well as the interest component of the net periodic pension cost for the following year . the discount rate for the delaware plan and serps was 4.25 % for 2015 and 2014 , and 4.75 % for 2013. the assumed long-term rate of return on plan assets for the delaware plan represents the estimated average rate of return expected to be earned on the funds invested or to be invested in the plan 's assets to fund the benefit payments inherent in the projected benefit obligations . unlike the discount rate , which is adjusted each year based on changes in current long-term interest rates , the assumed long-term rate of return on plan assets will not necessarily change based upon the actual short-term performance of the plan assets in any given year . the amount of net periodic pension cost or benefit that is recorded each year is based on the assumed long-term rate of return on plan assets for the plan and the actual fair value of the plan assets as of the beginning of the year . we regularly review our actual asset allocation and , when appropriate , rebalance the investments in the plan to more accurately reflect the targeted allocation . for fiscal years 2015 , 2014 and 2013 , the assumed long-term rate of return utilized for the delaware plan assets was 8 % . we currently expect to use the same assumed rate for the long-term return on plan assets in fiscal 2016. in determining the appropriateness of this assumption , we considered the historical rate of return on the plan assets , the current and projected asset mix , our investment objectives and information provided by our third-party investment advisors . the projected benefit obligations and net periodic pension cost for the serps are based in part on expected increases in future compensation levels . our assumption for the expected increase in future compensation levels is based upon our average historical experience and our intentions regarding future compensation increases , which generally approximates average long-term inflation rates . assumed discount rates and rates of return on plan assets are reevaluated annually . changes in these assumptions can result in the recognition of materially different pension costs over different periods and materially different asset and liability amounts in our consolidated financial statements . a reduction in the assumed discount rate generally results in an actuarial loss , as the actuarially-determined present value of estimated future benefit payments will increase . conversely , an increase in the assumed discount rate generally results in an actuarial gain . in addition , an actual return on plan assets for a given year that is greater than the assumed return on plan assets results in an actuarial gain , while an actual return on plan assets that is less than the assumed return results in an actuarial loss . other actual outcomes that differ from previous assumptions , such as individuals living longer or shorter lives than assumed in the mortality tables that are also used to determine the actuarially-determined present value of estimated future benefit payments , changes in such mortality tables themselves or plan amendments will also result in actuarial losses or gains . under gaap , actuarial gains and losses are deferred and amortized into income over future periods based upon the expected average remaining service life of the active plan participants ( for plans for which benefits are still being earned by active employees ) or the average remaining life expectancy of the inactive participants ( for plans for which benefits are not still being earned by active employees ) . however , any actuarial gains generated in future periods reduce the negative amortization effect of any cumulative unamortized actuarial losses , while any actuarial losses generated in future periods reduce the favorable amortization effect of any cumulative unamortized actuarial gains . 14 the amounts recognized as net periodic pension cost and as pension assets or liabilities are based upon the actuarial assumptions discussed above . we believe that all of the actuarial assumptions used for determining the net periodic pension costs and pension assets or liabilities related to the delaware plan are reasonable and appropriate . the funding requirements for the delaware plan are based upon applicable regulations , and will generally differ from the amount of pension cost recognized under asc topic 715 for financial reporting purposes .
| results of operations statements of operations – selected data ( dollars in thousands ) replace_table_token_3_th “ n/m ” = not meaningful 2015 compared with 2014 net sales net sales increased 9.4 % to $ 447.5 million in 2015 from $ 409.0 million in 2014. shipments for the year increased 10.0 % while average selling prices decreased 0.5 % from the prior year levels . the increase in shipments was primarily driven by the additional business provided by the asw acquisition . sales for both years reflect reduced volumes relative to prerecession levels in our construction end-markets . gross profit gross profit increased 19.6 % to $ 58.3 million , or 13.0 % of net sales , in 2015 from $ 48.8 million , or 11.9 % of net sales , in 2014. the year-over-year increase was primarily due to wider spreads between average selling prices and raw material costs ( $ 11.4 million ) and higher shipments ( $ 5.3 million ) partially offset by higher unit conversion costs ( $ 7.0 million ) . the increase in spreads was driven by lower raw material costs ( $ 13.2 million ) and freight expense ( $ 0.9 million ) partially offset by lower average selling prices ( $ 2.7 million ) . gross profit for both years was unfavorably impacted by reduced shipment volumes and elevated unit conversion costs relative to prerecession levels largely driven by reduced operating schedules .
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opinion on internal control over financial reporting we have audited the internal control over financial reporting of advanced drainage systems , inc. and subsidiaries ( the “ company ” ) as of march 31 , 2020 , based on criteria established in internal control — integrated framework ( 2013 ) issued by the committee of sponsoring organizations of the treadway commission ( coso ) . in our opinion , because of the effect of the material weakness identified below on the achievement of the objectives of the control criteria , the story_separator_special_tag our fiscal year begins on april 1 and ends on march 31. unless otherwise noted , references to “ year ” pertain to our fiscal year . for example , 2020 refers to fiscal 2020 , which is the period from april 1 , 2019 to march 31 , 2020. the following discussion and analysis of our financial condition and results of our operations should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this annual report on form 10-k. this discussion contains forward-looking statements that are based on the beliefs of our management , as well as assumptions made by , and information currently available to , our management . our actual results could differ materially from those discussed below . factors that could cause or contribute to such differences include , but are not limited to , those identified below , and those discussed in the sections titled “ item 1a . risk factors ” and “ cautionary statement about forward-looking statements ” included elsewhere in this annual report on form 10-k. please read the following discussion together with the sections titled “ item 1a . risk factors , ” “ item 6. selected financial and operating data ” and our consolidated financial statements , including the related notes , included in “ item 8. financial statements and supplementary data ” of this form 10-k. we consolidate our joint venture for purposes of gaap , except for our south american joint venture . overview we are the leading manufacturer of high performance thermoplastic corrugated pipe , providing a comprehensive suite of water management products and superior drainage solutions for use in the underground construction and infrastructure marketplace . our innovative products are used across a broad range of end markets and applications , including non-residential , residential , agriculture and infrastructure applications . we have established a leading position in many of these end markets by leveraging our national sales and distribution platform , our overall product breadth and scale and our manufacturing excellence . in the united states , our national footprint combined with our strong local presence and broad product offering make us the leader in an otherwise highly fragmented sector comprised of many smaller competitors . with the acquisition of infiltrator water technologies in the second quarter of fiscal 2020 , we are now a leading provider of plastic leach field chambers , septic tanks and accessories for use primarily in residential applications . our products are generally lighter , more durable , more cost effective and easier to install than comparable alternatives made with traditional materials . following our entrance into the non-residential construction market with the introduction of n-12 corrugated polyethylene pipe in the late 1980s , our pipe has been displacing traditional materials , such as reinforced concrete , corrugated steel and pvc , across an ever-expanding range of end markets . this has allowed us to consistently gain share and achieve above market growth throughout economic cycles . we expect to continue to drive conversion to our products from traditional materials as contractors , civil design engineers and municipal agencies increasingly acknowledge the superior physical attributes and compelling value proposition of our thermoplastic products . in addition , we believe that overall demand for our products will benefit as the regulatory environment continues to evolve . our broad product line includes hdpe pipe , pp pipe , related water management products and , after the acquisition , plastic leach field chambers and septic tanks . we refer to our plastic leach field chamber and septic tank products as infiltrator water technologies . infiltrator water technologies shares a similar conversion strategy as our pipe products , gaining market share through conversion from traditional materials . building on our core drainage businesses , we have aggressively pursued attractive ancillary product categories such as storm chambers , pvc drainage structures , fittings and filters , and water quality filters and separators , including our acquisition of infiltrator water technologies . we refer to our ancillary product categories as allied products & other . given the scope of our overall sales and distribution platform , we have been able to drive growth within our allied products & other and believe there are significant growth opportunities going forward . 44 advanced drainage systems , inc. story_separator_special_tag style= '' font-weight : normal ; font-style : normal ; '' > there are numerous factors that influence demand for our products . our businesses are cyclical in nature and sensitive to general economic conditions , primarily in the united states , canada , mexico and south america . the non-residential , residential , agricultural and infrastructure markets we serve are affected by the availability of credit , lending practices , interest rates and unemployment rates . demand for new homes , farm income , commercial development and highway infrastructure spending have a direct impact on our financial condition and results of operations . accordingly , the following factors may have a direct impact on our business in the markets in which our products are sold : the strength of the economy ; the amount and type of non-residential and residential construction ; funding for infrastructure spending ; farm income and agricultural land values ; inventory of improved housing lots ; changes in raw material prices ; the availability and cost of credit ; non-residential occupancy rates ; 46 advanced drainage systems , inc. commodity prices ; and demographic factors such as population growth and household formation . story_separator_special_tag we also consume a large amount of energy and other petroleum products in our operations , including the electricity we use in our manufacturing process as well as the diesel fuel consumed in delivering a significant volume of products to our customers through our in-house fleet . as a result , our operating profit also depends upon our ability to manage the cost of the energy and fuel we require , as well as our ability to pass through increased prices or surcharges to our customers . seasonality - our operating results are impacted by seasonality . historically , sales of our products have been higher in the first and second quarters of each fiscal year due to favorable weather and longer daylight conditions accelerating construction project activity during these periods while fourth quarter results are impacted by the timing of spring in the northern united states and canada . seasonal variations in operating results may also be significantly impacted by inclement weather conditions , such as cold or wet weather , which can delay projects , resulting in decreased net sales for one or more quarters , but we believe that these delayed projects generally result in increased net sales during subsequent quarters . in the non-residential , residential and infrastructure markets in the northern united states and canada , the construction season typically begins to gain momentum in late march and lasts through november , before winter sets in , significantly slowing the construction markets . in the southern and western united states , mexico , central america and south america , the construction markets are less seasonal . the agricultural drainage market is concentrated in the early spring just prior to planting and in the fall just after crops are harvested prior to freezing of the ground in winter . currency exchange rates - although we sell and manufacture our products in many countries , our sales and production costs are primarily denominated in u.s. dollars . we have wholly-owned facilities in canada , the netherlands and joint venture facilities in mexico , chile , brazil , argentina , colombia and peru . the functional currencies in the areas in which we have wholly-owned facilities and joint venture facilities other than the u.s. dollar are the canadian dollar , euro , mexican peso , chilean peso , brazilian real and colombian peso . in fiscal 2019 , we converted the functional currency of joint venture facilities using the argentine peso to the chilean peso . from time to time , we use derivatives to reduce our exposure to currency fluctuations . description of our segments following the acquisition of infiltrator water technologies , we revised our reportable segments to reflect how the chief operating decision maker ( “ codm ” ) currently reviews financial information and makes operational decisions . after the acquisition , we operate our business in three distinct reportable segments : “ pipe ” , “ international ” and “ infiltrator water technologies. ” “ allied products & other ” represents our allied products and all other business segments . “ pipe ” and “ allied products & other ” were previously disclosed as our domestic segment . we generate a greater proportion of our net sales and gross profit in our pipe segment , which consists of pipe product sales in all regions of the united states . we expect the percentage of total net sales and gross profit derived 48 advanced drainage systems , inc. from our other segments to continue to increase in future periods as we continue to expand non-pipe product and our international presence . see “ note 2 1 . business segment information , ” to our audited consolidated financial statements included in “ item 8. financial statements and supplementary data ” of this form 10-k. pipe – our pipe segment manufactures and markets high performance thermoplastic corrugated pipe throughout the united states . we maintain and serve these markets through product distribution relationships with many of the largest national and independent waterworks distributors , buying groups and co-ops , major national retailers as well as an extensive network of hundreds of small to medium-sized distributors across the united states . for fiscal 2020 , 2019 and 2018 , we generated net sales attributable to our pipe segment of $ 954.6 million , $ 868.8 million , and $ 844.9 million , respectively . infiltrator water technologies –infiltrator water technologies is a leading national provider of plastic leach field chambers and systems , septic tanks and accessories , primarily for use in residential applications . infiltrator water technologies products are used in on-site septic wastewater treatment systems in the united states and canada . we acquired infiltrator water technologies on july 31 , 2019. we generated net sales to external customers attributable to our infiltrator water technologies segment of $ 211.0 million subsequent to the acquisition . international - our international segment manufactures and markets products in regions outside of the united states , with a strategy focused on our owned facilities in canada and those markets serviced through our joint ventures in mexico and south america . pipe manufactured in these countries is primarily sold into the same region . our joint venture strategy has provided us with local and regional access to new markets . for fiscal 2020 , 2019 , and 2018 , we generated net sales attributable to our international segment of $ 148.6 million , $ 160.6 million , and $ 155.9 million , respectively . our investment in the south american joint venture is accounted for under the equity method and is not consolidated for financial reporting purposes . the unconsolidated sales of the south american joint venture were $ 52.5 million , $ 47.6 million , and $ 44.6 million , in fiscal 2020 , 2019 , and 2018 , respectively . allied products & other – our other operating segments manufacture a range of allied products & other that are complementary to our pipe products .
| executive summary fiscal year 2020 results net sales increased 20.9 % to $ 1,673.8 million net loss of $ 191.8 million as compared to net income of $ 81.5 million in the prior year o includes $ 246.8 million of additional one-time esop stock-based compensation expense adjusted ebitda increased 56.0 % to $ 361.9 million cash provided by operating activities increased 101.9 % to $ 306.2 million free cash flow increased 120.3 % to $ 238.5 million net sales increased $ 289.1 million , or 20.9 % , to $ 1,673.8 million , as compared to $ 1,384.7 million in the prior year . domestic pipe sales increased $ 85.8 million , or 9.9 % , to $ 954.6 million . allied & other sales increased $ 47.9 million , or 13.5 % , to $ 403.3 million . these increases were driven by strong performance in both the u.s. construction and agriculture end markets . international net sales decreased $ 12.0 million or 7.5 % to $ 148.6 million as compared to $ 160.6 million in the prior year , driven primarily by a decrease in mexico sales . infiltrator water technologies contributed an additional $ 211.0 million to net sales prior to the effects of intercompany eliminations . as part of the company 's capital allocation strategy , the company paid a dividend of $ 1.09 per share in the first quarter of fiscal 2020 , including a $ 1.00 special dividend to all shareholders of record . the esop used a portion of its proceeds to payback a portion of its loan from the company , resulting in an allocation of approximately 11.6 million shares to participants and $ 246.8 million of non-cash , stock-based compensation expense . the company recorded $ 168.6 million of this expense in cost of goods sold – esop special dividend compensation and $ 78.1 million of this expense in selling , general and administrative – esop special dividend compensation .
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within the public sector , we primarily concentrate on heavy-civil infrastructure projects , including the construction of streets , roads , highways , mass transit facilities , airport infrastructure , bridges , trenchless and underground utilities , power-related facilities , water-related facilities , well drilling , utilities , tunnels , dams and other infrastructure-related projects . within the private sector , we perform site preparation , mining services and infrastructure services for residential development , energy development , commercial and industrial sites , and other facilities , as well as provide construction management professional services . our reportable business segments are the same as our operating segments and correspond with how our chief operating decision maker ( our president ) regularly reviews financial information to allocate resources and assess performance . our reportable business segments are : transportation , water , specialty and materials . see note 21 of “ notes to the consolidated financial statements ” for additional information about our reportable business segments . in addition to business segments , we review our business by operating groups . in alphabetical order , our operating groups are defined as follows : ( i ) california ; ( ii ) federal , which primarily includes offices in california , colorado , texas and guam ; ( iii ) heavy civil , which primarily includes offices in california , florida and texas ( the new york office was closed in january 2021 ) ; ( iv ) midwest , which primarily includes offices in illinois ; ( v ) northwest , which primarily includes offices in alaska , arizona , nevada , utah and washington ; and ( vi ) water and mineral services , which includes offices across the united states , canada and mexico . the five primary economic drivers of our business are ( i ) the overall health of the u.s. economy ; ( ii ) federal , state and local public funding levels ; ( iii ) population growth resulting in public and private development ; ( iv ) the need to build , replace or repair aging infrastructure ; and ( v ) the pricing of certain commodity related products . a stagnant or declining economy will generally result in reduced demand for construction and construction materials in the private sector . this reduced demand increases competition for private sector projects and will ultimately also increase competition in the public sector as companies migrate from bidding on scarce private sector work to projects in the public sector . in addition , a stagnant or declining economy tends to produce less tax revenue for public agencies , thereby decreasing a source of funds available for spending on public infrastructure improvements . some funding sources that have been specifically earmarked for infrastructure spending , such as diesel and gasoline taxes , are not as directly affected by a stagnant or declining economy , unless actual consumption is reduced or gasoline sales tax revenues decline consistent with fuel prices . however , even these can be temporarily at risk as federal , state and local governments take actions to balance their budgets . additionally , fuel prices and more fuel efficient vehicles can have a dampening effect on consumption , resulting in overall lower tax revenue . conversely , increased levels of public funding as well as an expanding or robust economy will generally increase demand for our services and provide opportunities for revenue growth and margin improvement . critical accounting policies and estimates the financial statements included in “ item 8. financial statements and supplementary data ” have been prepared in accordance with accounting principles generally accepted in the united states of america ( “ u.s . gaap ” ) . the preparation of these financial statements requires management to make estimates that affect the reported amounts of assets and liabilities , revenue and expenses , and related disclosure of contingent assets and liabilities . our estimates and related judgments and assumptions are continually evaluated based on available information and experiences ; however , actual amounts could differ from those estimates . the following are accounting policies and estimates that involve significant management judgment and can have significant effects on the company 's reported results of operations . the audit/compliance committee of our board of directors has reviewed our disclosure of critical accounting policies and estimates . revenue recognition our revenue is primarily derived from construction contracts that can span several quarters or years in our transportation , water and specialty segments and from sales of construction related materials in our materials segment . we recognize revenue in accordance with asc topic 606 , revenue from contracts with customers , and subsequently issued additional related asus ( “ topic 606 ” ) , which we adopted on january 1 , 2018 using a modified retrospective transition approach . topic 606 provides for a five-step model for recognizing revenue from contracts with customers as follows : 1. identify the contract 2. identify performance obligations 3. determine the transaction price 4. allocate the transaction price 5. recognize revenue generally , our contracts contain one performance obligation . contracts with customers in our materials segment are typically defined by our customary business practices and are valued at the contractual selling price per unit . our customary business practices are for the delivery of a separately identifiable good at a point in time which is typically when delivery to the customer occurs . contracts in our transportation , water and specialty segments may contain multiple distinct promises or multiple contracts within a master agreement ( e.g . contracts that cross multiple locations/geographies and task orders ) , which we review at contract inception to determine if they represent multiple performance obligations or multiple separate contracts . this review consists of determining if promises or groups of promises are distinct within the context of the contract , including whether contracts are physically contiguous , contain task orders , purchase or sales orders , termination clauses and or elements not related to design and or build . story_separator_special_tag significant changes in revenue and cost estimates , particularly in our larger , more complex , multi-year projects have had , and can in future periods have , a significant effect on our profitability . all state and federal government contracts and many of our other contracts provide for termination of the contract at the convenience of the party contracting with us , with provisions to pay us for work performed through the date of termination including demobilization cost . 21 costs to obtain our contracts ( “ pre-bid costs ” ) that are not expected to be recovered from the customer are expensed as incurred and included in selling , general and administrative expenses on our consolidated statements of operations . although unusual , pre-bid costs that are explicitly chargeable to the customer even if the contract is not obtained are included in accounts receivable on our consolidated balance sheets when we are notified that we are not the low bidder with a corresponding reduction to selling , general and administrative expenses on our consolidated statements of operations . goodwill as of december 31 , 2020 and 2019 , we had eight reporting units in which goodwill was recorded as follows : midwest group transportation midwest group specialty northwest group transportation northwest group materials california group transportation water and mineral services group water water and mineral services group specialty water and mineral services group materials we perform our goodwill impairment tests annually as of november 1 and more frequently when events and circumstances occur that indicate a possible impairment of goodwill . examples of such events or circumstances include , but are not limited to , the following : a significant adverse change in the business climate ; a significant adverse change in legal factors or an adverse action or assessment by a regulator ; a more likely than not expectation that a segment or a significant portion thereof will be sold ; or the testing for recoverability of a significant asset group within the segment . in accordance with u.s. gaap , we can elect to perform a qualitative assessment to test a reporting unit 's goodwill for impairment or perform a quantitative impairment test . based on a qualitative assessment , if we determine that the fair value of a reporting unit is more likely than not to be less than its carrying amount , the quantitative impairment test will be performed . in performing the quantitative goodwill impairment tests , we calculate the estimated fair value of the reporting unit in which the goodwill is recorded using the discounted cash flows and market multiple methods . judgments inherent in these methods include the determination of appropriate discount rates , the amount and timing of expected future cash flows , revenue and margin growth rates , and appropriate benchmark companies . the cash flows used in our 2020 discounted cash flow model were based on five-year financial forecasts developed internally by management adjusted for market participant-based assumptions . our discount rate assumptions are based on an assessment of the equity cost of capital and appropriate capital structure for our reporting units . to assess for reasonableness we compare the estimated fair values of the reporting units to our current market capitalization . the estimated fair value is compared to the net book value of the reporting unit , including goodwill . if the fair value of the reporting unit exceeds its net book value , goodwill of the reporting unit is considered not impaired . if the fair value of the reporting unit is less than its net book value , goodwill is impaired and the excess of the reporting unit 's net book value over the fair value is recognized as a non-cash impairment charge . during 2020 , we performed two interim tests both of which resulted in impairment charges ( see note 12 ) . for our 2020 annual goodwill impairment test , we conducted quantitative impairment tests for all of our reporting units and concluded that no additional impairment charge was required since the estimated fair value for each of the reporting units exceeded their respective net book values . the annual goodwill assessment for the water and mineral services ( “ wms ” ) water and wms materials indicated that their estimated fair values exceeded their net book value , but not by a significant amount , as the estimated fair values align with the second interim goodwill impairment test as of september 30 , 2020. the wms specialty and northwest group materials reporting units had $ 9.4 million and $ 1.9 million , respectively , of goodwill balances as of december 31 , 2020 and the annual goodwill assessment resulted in headroom of 12 % and 3 % , respectively . although unexpected , additional adverse changes in the business climate for the wms specialty reporting unit could result in an impairment in future periods . there are no known potential events and or changes in circumstances that could reasonably be expected to negatively affect the key assumptions used to estimate the northwest group materials reporting unit fair value . the headroom for all other reporting units was in excess of 50 % . insurance estimates we carry insurance policies to cover various risks , primarily general liability , automobile liability , workers compensation and employee medical expenses under which we are liable to reimburse the insurance company for a portion of each claim paid . the amounts for which we are liable for general liability and workers compensation generally range from the first $ 0.5 million to $ 1.0 million per occurrence . we accrue for probable losses , both reported and unreported , that are reasonably estimable using actuarial methods based on historic trends , modified , if necessary , by recent events .
| results of operations our operations are typically affected more by weather conditions during the first and fourth quarters of our fiscal year which may alter our construction schedules and can create variability in our revenues and profitability . replace_table_token_8_th 23 revenue total revenue by segment replace_table_token_9_th transportation revenue replace_table_token_10_th transportation revenue in 2020 increased $ 125.8 million , or 6.7 % , compared to 2019 primarily from the california operating group beginning the year with higher contract backlog , new awards and favorable weather in 2020. increases were also due to increases in the midwest operating group from beginning the year with higher contract backlog and were partially offset by decreases in the northwest operating group from a decrease in new awards in 2020. during 2020 and 2019 , the majority of revenue earned in the transportation segment was from the public sector . water revenue replace_table_token_11_th water revenue in 2020 decreased $ 28.4 million , or 6.1 % , compared to 2019 primarily due to decreases in the water and mineral services operating group due to beginning the year with lower contract backlog . the decreases were partially offset by increases in the california operating group from favorable weather conditions during 2020 when compared to 2019 and in heavy civil operating group from beginning the year with higher contract backlog . during 2020 and 2019 , the majority of revenue earned in the water segment was from the public sector .
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bvf and csnk are collectively referred to as “ bay view funding. ” this information is intended to facilitate the understanding and assessment of significant changes and trends related to our financial condition and the results of operations . this discussion and analysis should be read in conjunction with our consolidated financial statements and the accompanying notes presented elsewhere in this report . unless we state otherwise or the context indicates otherwise , references to the “ company , ” “ heritage , ” “ we , ” “ us , ” and “ our , ” in this report on form 10‑k refer to heritage commerce corp and its subsidiaries . critical accounting policies and estimates the preparation of financial statements in accordance with the accounting principles generally accepted in the united states ( “ u.s . gaap ” ) requires management to make a number of judgments , estimates and assumptions that affect the reported amount of assets , liabilities , income and expense in the financial statements . various elements of our accounting policies , by their nature , involve the application of highly sensitive and judgmental estimates and assumptions . some of these policies and estimates relate to matters that are highly complex and contain inherent uncertainties . it is possible that , in some instances , different estimates and assumptions could reasonably have been made and used by management , instead of those we applied , which might have produced different results that could have had a material effect on the financial statements . we have identified the following accounting policies and estimates that , due to the inherent judgments and assumptions and the potential sensitivity of the financial statements to those judgments and assumptions , are critical to an understanding of our financial statements . we believe that the judgments , estimates and assumptions used in the preparation of the company 's financial statements are appropriate . for a further description of our accounting policies , see note 1 — summary of significant accounting policies in the financial statements included in this form 10‑k . use of estimates the preparation of financial statements in conformity with accounting principles generally accepted in the united states of america requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period . actual results could differ from those estimates . allowance for loan losses the allowance for loan losses is an estimate of the losses in our loan portfolio . the allowance is only an estimate of the inherent loss in the loan portfolio and may not represent actual losses realized over time , either of losses in excess of the allowance or of losses less than the allowance . our accounting for estimated loan losses is discussed under the heading “ allowance for loan losses ” and disclosed primarily in notes 1 and 4 to the consolidated financial statements . loan sales and servicing the amounts of gains recorded on sales of loans and the initial recording of servicing assets and interest‑only ( “ i/o ” ) strips are based on the estimated fair values of the respective components . in recording the initial value of the servicing assets and the fair value of the i/o strips receivable , the company uses estimates which are made on management 's expectations of future prepayment and discount rates as discussed in notes 1 and 5 to the consolidated financial statements . stock based compensation we grant stock options to purchase our common stock and restricted stock to our employees and directors under the 2013 equity incentive plan . additionally , we have outstanding options that were granted under option plans from 57 which we no longer make grants . the benefits provided under all of these plans are subject to the provisions of accounting guidance related to share‑based payments . our results of operations for fiscal years 2017 , 2016 , and 2015 were impacted by the recognition of non‑cash expense related to the fair value of our share‑based compensation awards . the determination of fair value of stock‑based payment awards on the date of grant using the black‑scholes model is affected by our stock price , as well as the input of other subjective assumptions . these assumptions include , but are not limited to , the expected term of stock options and our stock price volatility . our stock options have characteristics significantly different from those of traded options , and changes in the assumptions can materially affect the fair value estimates . current accounting guidance requires forfeitures to be estimated at the time of grant and revised , if necessary , in subsequent periods if actual forfeitures differ from those estimates . if actual forfeitures vary from our estimates , we will recognize the difference in compensation expense in the period the actual forfeitures occur . business combinations the company accounts for acquisitions of businesses using the acquisition method of accounting . under the acquisition method , assets acquired and liabilities assumed are recorded at their estimated fair values at the date of acquisition . this fair value may differ from the cost basis recorded on the acquired institution 's financial statements . management performs an initial assessment to determine which assets and liabilities must be designated for fair value analysis . management typically engages experts in the field of valuation to perform the valuation of significant assets and liabilities and , after assessing the resulting fair value computation , will utilize such value in computing the initial purchase accounting adjustments for the acquired assets . it is possible that these values could be viewed differently through alternative valuation approaches or if performed by different experts . management is responsible for determining that the values derived by experts are reasonable . any excess of the purchase price over amounts allocated to the acquired assets , including identifiable intangible assets , and liabilities assumed is recorded as goodwill . story_separator_special_tag executive summary this summary is intended to identify the most important matters on which management focuses when it evaluates the financial condition and performance of the company . when evaluating financial condition and performance management looks at certain key metrics and measures . the company 's evaluation includes comparisons with peer group financial institutions and its own performance objectives established in the internal planning process . the primary activity of the company is commercial banking . the company 's operations are located in the southern and eastern regions of the general san francisco bay area of california in the counties of santa clara , alameda , contra costa , and san benito . the largest city in this area is san jose and the company 's market includes the headquarters of a number of technology based companies in the region known commonly as silicon valley . the company 's customers are primarily closely held businesses and professionals . performance overview for the year ended december 31 , 2017 , net income was $ 23.8 million , or $ 0.62 per average diluted common share , which included additional income tax expense of $ 7.1 million , or ( $ 0.18 ) per average diluted common share , related to the company 's remeasurement of its net deferred tax assets in the fourth quarter of 2017. net income for the year ended december 31 , 2017 also included $ 671,000 of pre-tax acquisition costs incurred by the company related to the tri-valley bank ( otc : trvb ) and united american bank ( otc : uabk ) proposed mergers . net income was $ 27.4 million , or $ 0.72 per average diluted common share , for the year ended december 31 , 2016 , and $ 16.5 million , or $ 0.48 per average 59 diluted common share , for the year ended december 31 , 2015. the results of operations included a pre-tax gain from company-owned life insurance totaling $ 1.1 million for 2016 , and pre-tax acquisition , severance and retention costs related to the focus transaction totaling $ 6.4 million for 2015. the company 's annualized return on average tangible assets was 0.88 % and annualized return on average tangible equity was 10.98 % for the year ended december 31 , 2017 , compared to 1.15 % and 13.55 % , respectively , for the year ended december 31 , 2016 , and 0.88 % and 9.41 % , respectively , for the year ended december 31 , 2015. tax cuts and jobs act on december 22 , 2017 , h.r.1 , commonly known as the tax cuts and jobs act ( the “ tax act ” ) , was signed into law , which among other items , reduces the federal corporate tax rate to 21 % from 35 % , effective january 1 , 2018. when tax rates change , u.s. generally accepted accounting principles requires companies to remeasure certain tax-related assets and liabilities as of the date of enactment of the new legislation with resulting tax effects being recognized as tax expense in the reporting period of enactment . while the benefits of lower tax rates in 2018 and beyond will be substantial for u.s. corporations , balance sheet adjustments for deferred tax assets and operating results for the fourth quarter of 2017 have had a material impact on financial institutions . the company performed an analysis and determined the value of the net deferred tax assets ( “ dta ” ) was reduced by $ 7.1 million , which was recognized as a non-cash , incremental income tax expense for the fourth quarter of 2017. the impact of the tax act on the company 's 2017 financial results are not necessarily indicative of the results to be achieved for any future periods . tri-valley bank and united american bank proposed mergers on december 20 , 2017 , the company announced that it signed an agreement to acquire tri-valley bank ( “ tri-valley ” ) . the transaction is valued at approximately $ 31.6 million . tri-valley shareholders will receive an exchange ratio of 0.0489 of a share of the company 's common stock , or an aggregate of approximately 1.9 million shares . the exchange ratio is fixed and the aggregate and of share values of the merger consideration will fluctuate between the date of the agreement and the date that the merger is completed , which is expected in the second quarter of 2018. based on the company 's stock price of $ 15.76 for the 20-day volume weighted average as of december 19 , 2017 , the last trading day before the announcement of the transaction , total consideration for each tri-valley share would be $ 0.77. the transaction is subject to the approval of state and federal bank regulatory agencies and the shareholders of tri-valley and other customary closing conditions . the company does not need to obtain shareholder approval . tri-valley is a full-service commercial bank headquartered in san ramon , california , and serves businesses , non-profits , entrepreneurs and professionals primarily in california 's tri-valley area , specifically the cities and communities of pleasanton , livermore , dublin , san ramon and danville in the counties of contra costa and alameda . on january 11 , 2018 , the company announced that it signed an agreement to acquire united american bank ( “ united american ” ) . the transaction is valued at approximately $ 44.2 million . united american common and preferred shareholders will receive an exchange ratio of 2.1644 shares of the company 's common stock for each united american share of common stock , and each common stock equivalent underlying the united american series d preferred stock and series e preferred stock , or an aggregate of approximately 2.8 million shares .
| 2017 highlights the following are major factors that impacted the company 's results of operations : net interest income before provision for loan losses increased 11 % to $ 101.5 million for the year ended december 31 , 2017 , compared to $ 91.2 million for the year ended december 31 , 2016. the increase in net interest income for the year ended december 31 , 2017 , compared to the year ended december 31 , 2016 , primarily due to an increase in the average balance of loans , investment securities , and other interest earning assets . 61 the fully tax equivalent ( “ fte ” ) net interest margin contracted 13 basis points to 3.99 % for the year ended december 31 , 2017 , compared to 4.12 % for the year ended december 31 , 2016. the contraction was primarily due to a higher average balance of lower yielding excess funds at the federal reserve bank , the issuance of the subordinated debt , and a decrease in the accretion of the loan purchase discount into loan interest income from the 2015 focus acquisition . this was partially offset by an increase in the average balances of loans and securities , and the impact of increases in the prime rate on loan yields and overnight funds . the average balance of other investments and interest-bearing deposits in other financial institutions increased $ 89.7 million to $ 318.0 million for the year ended december 31 , 2017 , compared to $ 228.3 million for the year ended december 31 , 2016 .
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building and improvements included in accounts payable and accrued expenses $ 51,315 $ 36,920 $ 15,584 $ 1,812 derivative instruments at fair values included in accounts payable and accrued expenses 1,922 story_separator_special_tag forward-looking statements this annual report on form 10-k contains forward-looking statements within the meaning of section 27a of the securities act of 1933 , as amended ( the “ securities act '' ) , and section 21e of the securities exchange act of 1934 , as amended ( the “ exchange act ” ) . for these statements , we claim the protections of the safe harbor for forward-looking statements contained in such section . forward-looking statements are subject to substantial risks and uncertainties , many of which are difficult to predict and are generally beyond our control . in particular , statements pertaining to our capital resources , portfolio performance , dividend policy and results of operations contain forward-looking statements . likewise , all of our statements regarding anticipated growth in our portfolio from operations , acquisitions and anticipated market conditions , demographics and results of operations are forward-looking statements . forward-looking statements involve numerous risks and uncertainties and you should not rely on them as predictions of future events . you can identify forward-looking statements by the use of forward-looking terminology such as “ believes , ” “ expects , ” “ may , ” “ will , ” “ should , ” “ seeks , ” “ approximately , ” “ intends , ” “ plans , ” “ estimates , ” “ contemplates , ” “ aims , ” “ continues , ” “ would ” or “ anticipates ” or the negative of these words and phrases or similar words or phrases . forward-looking statements depend on assumptions , data or methods which may be incorrect or imprecise and we may not be able to realize them . we do not guarantee that the transactions and events described will happen as described ( or that they will happen at all ) . the following factors , among others , could cause actual results and future events to differ materially from those set forth or contemplated in the forward-looking statements : the factors included in this annual report on form 10-k , including those set forth under the heading `` business , '' risk factors , '' and `` management 's discussion and analysis of financial condition and results of operations '' ; changes in our industry , the real estate markets , either nationally or in manhattan or the greater new york metropolitan area ; resolution of the litigations and arbitration involving the company ; reduced demand for office or retail space ; new office development in our market ; general volatility of the capital and credit markets and the market price of our class a common stock and our publicly-traded op units ; changes in our business strategy ; changes in technology and market competition , which affect utilization of our broadcast or other facilities ; changes in domestic or international tourism , including geopolitical events and currency exchange rates ; defaults on , early terminations of or non-renewal of leases by tenants ; bankruptcy or insolvency of a major tenant or a significant number of smaller tenants ; fluctuations in interest rates ; increased operating costs ; declining real estate valuations and impairment charges ; termination or expiration of our ground leases ; availability , terms and deployment of capital ; our failure to obtain necessary outside financing , including our unsecured revolving credit facility ; our leverage ; decreased rental rates or increased vacancy rates ; our failure to generate sufficient cash flows to service our outstanding indebtedness ; our failure to redevelop and reposition properties successfully or on the anticipated timeline or at the anticipated costs ; difficulties in identifying properties to acquire and completing acquisitions ; risks of real estate development ( including our metro tower development site ) , including the cost of construction delays and cost overruns ; failure to operate properties successfully ; inability to manage our growth effectively ; inability to make distributions to our securityholders in the future ; impact of changes in governmental regulations , tax law and rates and similar matters ; failure to continue to qualify as a reit ; a future terrorist event in the u.s. ; environmental uncertainties and risks related to adverse weather conditions and natural disasters ; lack or insufficient amounts of insurance ; unavailability of , and inability to attract and retain , qualified personnel ; 48 conflicts of interest affecting any of our senior management team ; misunderstanding of our competition ; changes in real estate and zoning laws and increases in real property tax rates ; broadcasting competition and changes in the broadcasting of signals over the air ; risks associated with security breaches through cyberattacks , cyber intrusions or otherwise , as well as other significant disruptions of our technology ( it ) networks related systems , which support our operations and our buildings ; and inability to comply with the laws , rules and regulations applicable to companies and , in particular , public companies . while forward-looking statements reflect our good faith beliefs , they are not guarantees of future performance . we disclaim any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors , of new information , data or methods , future events or other changes after the date of this annual report on form 10-k , except as required by applicable law . for a further discussion of these and other factors that could impact our future results , performance or transactions , see the section entitled “ risk factors '' of this annual report on form 10-k. you should not place undue reliance on any forward-looking statements , which are based only on information currently available to us . story_separator_special_tag the book value of our predecessor ownership interests in the four non-controlled entities plus the elimination of the intercompany ground and building leases . income taxes income taxes increased due to taxable income activities within our trss , primarily taxable income related to our observatory operations , third party management fees , construction income , and certain cleaning income . private perpetual preferred unit distributions represents distributions to holders of private perpetual preferred units , which were issued in august 2014. year ended december 31 , 2014 compared to the predecessor period from january 1 , 2013 through october 6 , 2013 the following table summarizes the historical results of operations for year ended december 31 , 2014 and the predecessor period from january 1 , 2013 through october 6 , 2013 ( amounts in thousands ) : 54 replace_table_token_16_th _ ( 1 ) not meaningful . we did not have any meaningful operating activity until the consummation of the offering and the related acquisition of our predecessor and certain non-controlled entities controlled by our predecessor on october 7 , 2013 as part of the formation transactions . see footnote 1 “ description of business and organization ” to the financial statements of this annual report in form 10-k for a description of the offering and formation transactions . our operations commenced upon completion of the offering and related formation transactions on october 7 , 2013. consequently , our predecessor 's results of operations for 2013 reflect a partial year and are not comparable to the results of operations for the full year 2014. formation transaction expenses the expenses incurred in 2013 reflect costs associated with the formation of our company . acquisition expenses 55 acquisition expenses in 2014 are attributable to the acquisition of two properties during july 2014. equity in net income of non-controlling entities reflects net income from the predecessor 's investments in four non-controlled entities . these entities were acquired by us during the formation transactions . settlement expense settlement expense of $ 55.0 million reflects costs associated with the settlement of litigation during the year ended december 31 , 2013. on september 28 , 2012 , a stipulation of settlement resolving the original class actions was entered into . the terms of the settlement include , amongst other things , a payment of $ 55.0 million , with a minimum of 80 % in cash and a maximum of 20 % in freely-tradable shares of common stock and or operating partnership units . as the payment is to be fully made by the principal owners of certain predecessor entities , $ 55.0 million was recorded as settlement expense in our predecessor 's statement of operations , with a corresponding $ 55.0 million capital contribution to our predecessor at that time . income taxes income taxes are due to taxable income activities within our trss , primarily taxable income related to our observatory operations , third party management fees , construction income , and certain cleaning income . private perpetual preferred unit distributions represents distributions to holders of private perpetual preferred units , which were issued in august 2014. liquidity and capital resources at december 31 , 2015 , we had approximately $ 46.7 million available in cash and cash equivalents and there was $ 760.0 million available under our unsecured revolving credit facility . liquidity is a measure of our ability to meet potential cash requirements , including ongoing commitments to repay borrowings , fund and maintain our assets and operations , including lease-up costs , fund our redevelopment and repositioning programs , acquire properties , make distributions to our securityholders and other general business needs . based on the historical experience of our management and our business strategy , in the foreseeable future we anticipate we will generate positive cash flows from operations . in order to qualify as a reit , we are required under the code to distribute to our securityholders , on an annual basis , at least 90 % of our reit taxable income , determined without regard to the deduction for dividends paid and excluding net capital gains . we expect to make quarterly distributions to our securityholders . while we may be able to anticipate and plan for certain liquidity needs , there may be unexpected increases in uses of cash that are beyond our control and which would affect our financial condition and results of operations . for example , we may be required to comply with new laws or regulations that cause us to incur unanticipated capital expenditures for our properties , thereby increasing our liquidity needs . even if there are no material changes to our anticipated liquidity requirements , our sources of liquidity may be fewer than , and the funds available from such sources may be less than , anticipated or needed . our primary sources of liquidity will generally consist of cash on hand and cash generated from our operating activities , mortgage financings and unused borrowing capacity under our secured revolving and term credit facility . we expect to meet our short-term liquidity requirements , including distributions , operating expenses , working capital , debt service , and capital expenditures from cash flows from operations , debt issuances , and available borrowing capacity under our unsecured revolving credit facility . the availability of these borrowings is subject to the conditions set forth in the applicable loan agreements . we expect to meet our long-term capital requirements , including acquisitions , redevelopments and capital expenditures through our cash flows from operations , our unsecured revolving credit facility , mortgage financings , debt issuances , common and or preferred equity issuances and asset sales . our properties require periodic investments of capital for individual lease related tenant improvements allowances , general capital improvements and costs associated with capital expenditures . our overall leverage will depend on our mix of investments and the cost of leverage . our charter does not restrict the amount of leverage that we may use .
| 2015 highlights achieved core ffo of $ 0.97 per fully diluted share and net income attributable to the company of $ 0.29 per fully diluted share . executed 245 leases , representing 1,209,145 rentable square feet across the total portfolio , achieving a 73.7 % increase in mark-to-market rent over previously fully escalated rents on new , renewal , and expansion leases ; 177 of these leases , representing 958,704 rentable square feet , were within the manhattan office portfolio ( excluding the retail component of these properties ) capturing a 43.3 % increase in mark-to-market rent over previously fully escalated rents on new , renewal and expansion leases . executed 12 leases , representing 70,940 rentable square feet within the manhattan retail portfolio , achieving a 474.1 % increase in mark-to-market rent over previously fully escalated rents on new , renewal , and expansion leases . signed 93 new leases representing 728,264 rentable square feet in 2015 for the manhattan office portfolio ( excluding the retail component of these properties ) , achieving an increase of 53.8 % in mark-to-market rent over expired previously fully escalated rents . the empire state building observatory revenue grew 0.6 % to $ 112.2 million from $ 111.5 million in 2014. declared and paid aggregate dividends of $ 0.34 per share during 2015. recast our $ 800 million corporate credit facility , converting it from a secured to an unsecured facility , reducing its interest rate and extending its maturity by one year . completed a private placement of $ 350 million aggregate principal amount of senior unsecured notes with a blended 12.5 year average life and 4.08 % coupon . 49 closed on a new seven year $ 265.0 million senior unsecured term loan facility . repaid a $ 44 million mortgage loan on 1359 broadway and a $ 91 million mortgage loan on one grand central place . as of december 31 , 2015 , our total portfolio , containing 10.1 million rentable square feet of office and retail space , was 87.3
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each option granted pursuant to our non-employee director compensation program will have an exercise price per share of common story_separator_special_tag this annual report on form 10-k contains forward-looking statements within the meanings of the federal securities laws . these statements are subject to risks and uncertainties that could cause actual results and events to differ materially from those expressed or implied by such forward-looking statements . for a detailed discussion of these risks and uncertainties , see the risk factors section in item 1a of part i of this form 10-k. we caution the reader not to place undue reliance on these forward-looking statements , which reflect management 's analysis only as of the date of this form 10-k. we undertake no obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this form 10-k. overview we are a development stage biopharmaceutical company based in los angeles , california with a focus on the acquisition , development and commercialization of innovative products to enhance cancer care . we aim to acquire proprietary rights to these products , by license or otherwise , fund their research and development and bring the products to market . our efforts and resources to date have been focused primarily on acquiring and developing our pharmaceutical technologies , raising capital and recruiting personnel . as a development stage company , we have had no product sales to date and we will have no product sales until we receive approval from the united states food and drug administration , or fda , or equivalent foreign regulatory bodies to begin selling our pharmaceutical candidates . developing pharmaceutical products , however , is a lengthy and very expensive process . assuming we do not encounter any unforeseen safety issues during the course of developing our product candidates , we do not expect to receive approval of a product candidate until approximately 2015. we currently license the rights to three drug candidates : pb272 ( neratinib ( oral ) ) , which we are developing for the treatment of advanced breast cancer patients and non-small cell lung cancer patients ; pb272 ( neratinib ( intravenous ) ) , which we are developing for the treatment of advanced cancer patients ; and pb357 , which we believe can serve as a backup compound to pb272 , and which we plan to evaluate for further development in 2013. a large portion of our expenses to date have been related to the clinical development of our lead product candidate , pb272 ( neratinib ( oral ) ) , and the transition of the neratinib program from the licensor . during this transition period , as we built up our infrastructure and assumed responsibility for the neratinib program , a duplication of effort took place that resulted in higher than normal operating expenses . we estimate the duplication of effort had an impact on research and development , or r & d , operating expense for the year ended december 31 , 2012 , of approximately $ 5.1 million . the license agreement for pb272 established a limit for the company 's expenses related to the pfizer initiated clinical trials for pb272 that were on-going at the time of the agreement . this capped our out-of-pocket costs incurred in conducting these existing trials beginning january 1 , 2012. the company reached the cost cap during the fourth quarter of 2012 , which resulted in a reduction of our r & d expenses for the fourth quarter of 2012. the licensor will continue to be responsible for these expenses until the existing trials are completed . additionally , our expenses to date have been related to hiring staff and the build out of our corporate infrastructure . as we proceed with clinical development of pb272 ( neratinib ( oral ) ) , and as we further develop pb272 ( neratinib ( intravenous ) ) , and pb357 , our second and third product candidates , respectively , we expect our r & d expenses and expenses related to our third-party contractors will increase . to the extent we are successful in acquiring additional product candidates for our development pipeline , our need to finance r & d will increase . accordingly , our success depends not only on the safety and efficacy of our product 42 candidates , but also on our ability to finance product development . our major sources of working capital have been proceeds from a public offering of our common stock and sales of our common stock in private placements . r & d expenses include costs associated with services provided by consultants who conduct clinical services on our behalf , contract organizations for manufacturing of clinical materials and clinical trials . during the year ended december 31 , 2012 , our r & d expenses consisted primarily of transition costs , as clinical trial responsibilities shifted from the licensor to us and our outside clinical research organization , or cro ; fees paid to other consultants ; salaries and related personnel costs ; and facility costs . we expense our r & d costs as they are incurred . general and administrative , or g & a , expenses consist primarily of salaries and related personnel costs , including stock-based compensation expense , professional fees , business insurance , rent , general legal activities , and other corporate expenses . stock-based compensation expense for the year ended december 31 , 2012 , included approximately $ 18.2 million of stock-based compensation related to an anti-dilutive warrant issued to our founder and chief executive officer in 2011 , of which the exercise price and the number of underlying shares were established in 2012. we do not expect to incur such additional expense for this warrant in the future . story_separator_special_tag 47 adjusted statement of operations : the following tables present our operating results , as calculated in accordance the accounting principles generally accepted in the united states , or gaap , as adjusted to remove the impact of employee stock-based compensation and the outside cro/licensor services and outside clinical development costs associated with the licensor legacy clinical trials that we are in the process of completing . the major component of the stock-based compensation is the valuation of an anti-dilutive warrant issued to mr. auerbach , our president and chief executive officer . these non-gaap financial measures are not , and should not be viewed as , substitutes for gaap reporting measures . we believe these non-gaap measures enhance understanding of our financial performance , are more indicative of our operational performance and facilitate a better comparison among fiscal periods . the issuance of the anti-dilutive warrant was a onetime occurrence and the full value of the warrant has been recorded in our consolidated financial statements . the majority of the cost associated with the licensor legacy clinical trials related to external costs that we were responsible for but that were subject to a cap . having reached the cap , the licensor is responsible for all external costs associated with the licensor legacy clinical trials going forward and we expect to have only limited costs associated with our managing these trials through to completion . reconciliation of gaap and non-gaap financial information ( in thousands except share and per share data ) replace_table_token_6_th 48 liquidity and capital resources operating activities we reported a net loss of approximately $ 74.4 million , $ 10.2 million and $ 7,000 for the years ended december 31 , 2012 and 2011 and for the period from inception ( september 15 , 2010 ) to december 31 , 2010 , respectively . we also reported negative cash flows from operating activities of approximately $ 44.0 million , $ 1.8 million and $ 7,000 for the years ended december 31 , 2012 and 2011 and for the period from inception ( september 15 , 2010 ) to december 31 , 2010 , respectively . our net loss from former puma 's date of inception september 15 , 2010 , to december 31 , 2012 , amounted to approximately $ 84.6 million , while negative cash flows from operating activities amounted to approximately $ 45.8 million . net cash used in operating activities through december 31 , 2012 , includes a net loss of $ 74.4 million adjusted for non-cash items of approximately $ 18.2 million from the issuance of the anti-dilutive warrant , stock option expense of $ 1.4 million , $ 0.5 million resulting from an allowance received from the landlord , an increase in accounts payable and accrued expenses of approximately $ 21.1 million ; an increase of $ 10.6 million in licensor receivables , and an increase in prepaid expenses and other assets of approximately $ 0.7 million . the increase in accounts payable and accrued expenses is a direct result of the company assuming operational and financial responsibility for the clinical trials transferred from the licensor . these accruals and payables consist mainly of fees due to the licensor and cros for maintaining and managing our clinical trials . the licensor receivable represents costs in excess of a cap cost established in the license agreement . the license agreement allows us to bill back any external costs associated with the transferred trials in excess of the cap cost to the licensor . we reached the cap cost during the fourth quarter of 2012 and will continue to bill the licensor , on a quarterly basis , for on-going external costs associated with the transferred clinical trials until such time as the clinical trials are closed . net cash used in operating activities through december 31 , 2011 , includes a net loss of $ 10.2 million adjusted from non-cash items of approximately $ 7.6 million for the issuance of an anti-dilutive warrant , stock option expense of $ 0.1 million , $ 0.4 million resulting for an allowance received from the landlord , $ 0.6 million increase in accounts payable and accrued expenses , and $ 0.3 million increase in prepaid expenses and other assets . the increase in accounts payable and accrued expenses is a direct result of us commencing operations in the fourth quarter of 2011. investing activities net cash used in investing activities was approximately $ 1.2 million for the year ended december 31 , 2012 , and approximately $ 1.7 million for 2011. the major portion for 2012 , $ 0.6 million , represents additional computer equipment and infrastructure , along with $ 0.5 million in leasehold improvements to support our growth in the number of employees and facilities . the major investing activity for 2011 was the acquisition of a high yield savings account in the amount of $ 1.1 million , which was used to secure a stand-by letter of credit issued to our landlord as collateral for our office lease and lease hold improvements . we also incurred $ 0.4 million for leasehold improvements and $ 0.3 million for computers and office furniture in 2011. financing activities 2011 private placements . immediately prior to the merger , former puma entered into a securities purchase agreement with certain institutional and accredited investors , pursuant to which it sold 14,666,733 shares of its common stock at a price per share of $ 3.75 , for aggregate gross proceeds of approximately $ 55 million . former puma also issued a warrant to each investor that provided such investor with anti-dilution protection in regard to certain issuances of securities . we assumed these warrants in the merger and they subsequently terminated unexercised in accordance with their terms upon our quotation on the otc bulletin board in april 2012. we reimbursed the lead investor in this private placement $ 125,000 for all of its reasonable fees and expenses , including legal fees , associated with the private placement .
| results of operations results of operations for fiscal 2012 compared to fiscal 2011 general and administrative expenses : total g & a expenses for the years ended december 31 , 2012 and 2011 , were approximately $ 24.8 million and $ 9.3 million , respectively , and include employee stock-based compensation expense of $ 18.7 million and $ 7.6 million , respectively . g & a expenses for the fiscal years ended december 31 , 2012 and 2011 , were as follows : replace_table_token_2_th 43 in connection with the closing of a public offering on october 24 , 2012 , the exercise price and number of shares underlying the anti-dilutive warrant issued to the company 's chief executive officer were established ( see note 5 in the accompanying notes to the consolidated financial statements ) , and accordingly , the final value of the warrant became fixed . the final valuation of the warrant based on the black-scholes option pricing method , was approximately $ 25.8 million and resulted in an adjustment to the fair value of the warrant of $ 18.2 million , which is included in g & a expenses for 2012 , compared to the $ 7.6 million estimated fair value of the warrant recorded in 2011. we do not anticipate having a similar equity instrument grant in the near future , if ever . the remaining employee stock-based compensation represents the fair value of stock option grants to employees applicable to the reporting period . excluding the impact of employee stock-based compensation expense , g & a expenses increased primarily as a result of a $ 1.1 million increase in professional fees and a $ 1.5 million increase in payroll and related costs . major expenses incurred in professional fees were legal fees for sec filings , intellectual property review , contract review and general legal support . we expect to continue to incur significant legal fees in the future .
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our primary products , the diamondback 360° pad system ( diamondback 360° ) , diamondback predator 360° pad system ( predator 360° ) and stealth 360° pad system ( stealth 360° ) , are catheter-based platforms capable of treating a broad range of plaque types in arteries throughout the leg and 40 address many of the limitations associated with existing treatment alternatives . we also intend to pursue approval of our products for coronary use . we refer to the diamondback 360° , predator 360° and stealth 360° collectively in this report as the pad systems. we were incorporated as replidyne , inc. in delaware in 2000. on february 25 , 2009 , replidyne , inc. completed its business combination with cardiovascular systems , inc. , a minnesota corporation ( csi-mn ) , in accordance with the terms of the agreement and plan of merger and reorganization , dated as of november 3 , 2008 ( the merger agreement ) . pursuant to the merger agreement , csi-mn continued after the merger as the surviving corporation and a wholly-owned subsidiary of replidyne . replidyne changed its name to cardiovascular systems , inc. ( csi ) and csi-mn merged with and into csi , with csi continuing after the merger as the surviving corporation . these transactions are referred to herein as the merger. unless the context otherwise requires , all references herein to the company , csi , we , us and our refer to csi-mn prior to the completion of the merger and to csi following the completion of the merger and the name change , and all references to replidyne refer to replidyne prior to the completion of the merger and the name change . replidyne was a biopharmaceutical company focused on discovering , developing , in-licensing and commercializing anti-infective products . at the closing of the merger , replidyne 's net assets , as calculated pursuant to the terms of the merger agreement , were approximately $ 36.6 million as adjusted . as of immediately following the effective time of the merger , former csi stockholders owned approximately 80.2 % of the outstanding common stock of the combined company , and replidyne stockholders owned approximately 19.8 % of the outstanding common stock of the combined company . csi was incorporated in minnesota in 1989. from 1989 to 1997 , we engaged in research and development on several different product concepts that were later abandoned . since 1997 , we have devoted substantially all of our resources to the development of the pad systems . from 2003 to 2005 , we conducted numerous bench and animal tests in preparation for application submissions to the fda . we initially focused our testing on providing a solution for coronary in-stent restenosis , but later changed the focus to pad . in 2006 , we obtained an investigational device exemption from the fda to conduct our pivotal oasis clinical trial , which was completed in january 2007. the oasis clinical trial was a prospective 20-center study that involved 124 patients with 201 lesions . in august 2007 , the fda granted us 510 ( k ) clearance for the use of the diamondback 360° as a therapy in patients with pad . we commenced commercial introduction of the diamondback 360° in the united states in september 2007. we were granted 510 ( k ) clearance of the predator 360° in march 2009 and stealth 360° in march 2011. we market the pad systems in the united states through a direct sales force and expend significant capital on our sales and marketing efforts to expand our customer base and utilization per customer . we assemble at our facilities the saline infusion pump used with our stealth 360° product and the single-use catheter used in the pad systems with components purchased from third-party suppliers , as well as with components manufactured in-house . the control unit and guidewires are purchased from third-party suppliers . as of june 30 , 2011 , we had an accumulated deficit of $ 162.4 million . we expect our losses to continue but generally decline as revenue grows from continued commercialization activities , development of additional product enhancements , accumulation of clinical data on our products , and further regulatory submissions . to date , we have financed our operations primarily from the issuance of common and preferred stock , convertible promissory notes , and debt . financial overview revenues . we derive substantially all of our revenues from the sale of pad systems and other ancillary products . the pad systems each use a disposable , single-use , low-profile catheter that travels over our proprietary viperwire guidewire . the diamondback 360° and predator 360° pad systems use an external control unit that powers the system , while the stealth 360° pad system uses a saline infusion pump as a power supply for the operation of the catheter . our ancillary products include the viperslide lubricant and vipertrack radiopaque tape . we also have an exclusive distribution agreement with asahi-intecc , ltd. to market its peripheral guide wire line in the united states . 41 cost of goods sold . we assemble the single-use catheter with components purchased from third-party suppliers , as well as with components manufactured in-house . the control unit and guidewires are purchased from third-party suppliers . our cost of goods sold consists primarily of raw materials , direct labor , and manufacturing overhead . selling , general and administrative expenses . selling , general and administrative expenses include compensation for executive , sales , marketing , finance , information technology , human resources and administrative personnel , including stock-based compensation . other significant expenses include travel and marketing costs and professional fees . research and development . research and development expenses include costs associated with the design , development , testing , enhancement and regulatory approval of our products . research and development expenses include employee compensation including stock-based compensation , supplies and materials , patent expenses , consulting expenses , travel and facilities overhead . story_separator_special_tag we record estimated sales returns , discounts and rebates as a reduction of net sales in the same period revenue is recognized . costs related to products delivered are recognized in the period revenue is recognized . cost of goods sold consists primarily of raw materials , direct labor , and manufacturing overhead . allowance for doubtful accounts . we maintain allowances for doubtful accounts . this allowance is an estimate and is regularly evaluated for adequacy by taking into consideration factors such as past experience , credit quality of the customer base , age of the receivable balances , both individually and in the aggregate , and current economic conditions that may affect a customer 's ability to pay . provisions for the allowance for doubtful accounts attributed to bad debt are recorded in general and administrative expenses . excess and obsolete inventory . we have inventories that are principally comprised of capitalized direct labor and manufacturing overhead , raw materials and components , and finished goods . due to the technological nature of our products , there is a risk of obsolescence to changes in our technology and the market , which is impacted by technological developments and events . accordingly , we write down our inventories as we become aware of any situation where the carrying amount exceeds the estimated realizable value based on assumptions about future demands and market conditions . the evaluation includes analyses of inventory levels , expected product lives , product at risk of expiration , sales levels by product and projections of future sales demand . debt conversion option . the fair value of the conversion option is related to the loan and security agreement with partners for growth and has been included as a component of debt conversion option and other assets on our balance sheet . the monte carlo option pricing model used to determine the value of the conversion option included various inputs including historical volatility , stock price simulations , and the assessed behavior of us and partners for growth based on those simulations . stock-based compensation . we recognize stock-based compensation expense in an amount equal to the fair value of share-based payments computed at the date of grant . the fair value of all stock option and restricted stock awards and units are expensed in the consolidated statements of operations over the related vesting period . we calculate the fair value on the date of grant using a black-scholes model . 43 to determine the inputs for the black-scholes option pricing model , we are required to develop several assumptions , which are highly subjective . these assumptions include : our common stock 's volatility ; the length of our options ' lives , which is based on future exercises and cancellations ; the number of shares of common stock pursuant to which options will ultimately be forfeited ; the risk-free rate of return ; and future dividends . prior to the consummation of the merger , we used comparable public company data to determine volatility for option grants . expected volatility is now based on the historical volatility of our stock . we use a weighted average calculation to estimate the time our options will be outstanding . we estimated the number of options that are expected to be forfeited based on our historical experience . the risk-free rate is based on the u.s. treasury yield curve in effect at the time of grant for the estimated life of the option . we use our judgment and expectations in setting future dividend rates , which is currently expected to be zero . all options we have granted become exercisable over periods established at the date of grant . the option exercise price is generally not less than the estimated fair market value of our common stock at the date of grant , as determined by management and the board of directors . the absence of an active market for our common stock prior to the merger required our management and board of directors to estimate the fair value of our common stock for purposes of granting options and for determining stock-based compensation expense . in response to these requirements , prior to the merger our management and board of directors estimated the fair market value of common stock at each date at which options are granted based upon stock valuations and other qualitative factors . our management and board of directors conducted stock valuations using two different valuation methods : the option pricing method and the probability weighted expected return method . both of these valuation methods took into consideration the following factors : financing activity , rights and preferences of our preferred stock , growth of the executive management team , clinical trial activity , the fda process , the status of our commercial launch , our mergers and acquisitions and public offering processes , revenues , the valuations of comparable public companies , our cash and working capital amounts , and additional objective and subjective factors relating to our business . our management and board of directors set the exercise prices for option grants based upon their best estimate of the fair market value of the common stock at the time they made such grants , taking into account all information available at those times . in some cases , management and the board of directors made retrospective assessments of the valuation of the common stock at later dates and determined that the fair market value of the common stock at the times the grants were made was different than the exercise prices established for those grants . in cases in which the fair market was higher than the exercise price , we recognized stock-based compensation expense for the excess of the fair market value of the common stock over the exercise price . following the merger , our stock valuations are based upon the market price for our common stock . legal proceedings .
| results of operations the following table sets forth , for the periods indicated , our results of operations expressed as dollar amounts ( in thousands ) , and , for certain line items , the changes between the specified periods expressed as percent increases or decreases : replace_table_token_3_th comparison of fiscal year ended june 30 , 2011 with fiscal year ended june 30 , 2010 revenues . revenues increased by $ 14.0 million , or 21.5 % , from $ 64.8 million for the year ended june 30 , 2010 to $ 78.8 million for the year ended june 30 , 2011. this increase was attributable to an $ 11.5 million , or 20.1 % , increase in sales of pad systems and a $ 2.4 million , or 32.0 % , increase in sales of supplemental and other revenue during the year ended june 30 , 2011 compared to the year ended june 30 , 2010. supplemental products include our viper product line and distribution partner products . currently , all of our revenues are in the united states ; however , we may potentially sell internationally in the future . we expect our revenue to increase as we continue to increase the number of physicians using the devices , and increase the usage per physician as we continue to focus on physician education programs , introduce new and improved products , and generate clinical data . cost of goods sold . cost of goods sold increased by $ 1.3 million , or 8.5 % , from $ 15.0 million for the year ended june 30 , 2010 to $ 16.3 million for the year ended june 30 , 2011. these amounts represent the cost of materials , labor and overhead for single-use catheters , guidewires , control units , pumps , and other supplemental products .
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these increases were partially offset by unfavorable currency rates . this impact reduced the net sales growth rate by 0.7 % . excluding this impact , we grew sales 10.3 % on a constant currency basis . operating income was $ 702.4 million in 2017 and $ 641.0 million in 2016. we recorded $ 22.2 million and $ 16.0 million of special charges in 2017 and 2016 , respectively , related to organization and streamlining actions . in 2017 , we also recorded $ 61.7 million of transaction and integration expenses relating to our acquisition of rb foods that reduced operating income . in 2017 compared to the year-ago period , the favorable impact of higher sales , including the effects of acquisitions , and $ 117.0 million of cost savings from our cci program and organization and streamlining actions more than offset higher special charges , transaction and integration expenses , material costs and a $ 24.1 million increase in brand marketing . excluding special charges and , in 2017 , transaction and integration expenses related to our acquisition of rb foods , adjusted operating income was $ 786.3 million , an increase of 19.7 % compared to $ 657.0 million in the year-ago period . in constant currency , adjusted operating income rose 20.5 % . for further details and a reconciliation of non-gaap to reported amounts , see non-gaap financial measures . diluted earnings per share was $ 3.72 in 2017 and $ 3.69 in 2016. the year-on-year increase in earnings per share was driven mainly by higher operating income , as described above , which was nearly offset by higher interest expense and higher shares outstanding . special charges lowered earnings per share by $ 0.12 and $ 0.09 in 2017 and 2016 , respectively . transaction and integration expenses , including $ 15.4 million reflected as other debt costs , lowered earnings per share by $ 0.42 in 2017. excluding the effect of those special charges and transaction and integration expenses , adjusted diluted earnings per share was $ 4.26 in 2017 and $ 3.78 in 2016 , or an increase of 12.7 % . 2018 outlook we project another year of strong financial performance in 2018 and , including the results of rb foods from its acquisition date of august 17 , 2017 , we expect our constant currency growth rate in sales , operating income and adjusted earnings per share to exceed our long-term financial growth objectives . in 2018 , we expect to grow sales 12 % to 14 % , including an estimated 1 % favorable impact from currency rates , or 11 % to 13 % on a constant currency basis . the incremental impact of the rb foods acquisition is projected to contribute approximately 8 % of that sales growth . we expect further increases in volume and product mix in our base business to drive the remaining sales growth anticipated in 2018 as , with material cost inflation projected in the low single digits , we do not expect significant pricing impact in 2018 other than the incremental impact of actions taken in 2017. in 2018 , we expect gross profit margin to be approximately 150 to 200 basis points higher than 2017 , due to a projected low single digit increase in material costs that is more than offset by the effects of favorable business mix , cci-led cost savings and the lack of $ 20.9 million of transaction and integration expenses reflected in cost of goods sold in 2017 related to the rb foods acquisition . led by cci , we expect to reach cost savings of approximately $ 100 million in 2018 , with a large portion impacting our cost of goods sold . material cost inflation is expected to be in the mid-single digit range and we expect to offset most of this incremental impact with our 2017 pricing actions . in 2018 , we expect a significant increase in operating income , in part , due to the effects of the rb foods acquisition including the lower amount of transaction and integration expenses . we expect 2018 's adjusted operating income to increase 23 % to 25 % , which includes the incremental impact of the rb foods acquisition and a 1 % favorable impact from currency rates . for 2018 , we plan to increase brand marketing at a rate above our sales growth . on december 22 , 2017 , president trump signed into law h.r . 1 , “ an act to provide for reconciliation pursuant to titles ii and v of the concurrent resolution on the budget for fiscal year 2018 ” ( this legislation was formerly called the “ tax cuts and jobs act ” and is referred to herein as the “ u.s . tax act ” ) . the u.s. tax act provides for significant changes in the u.s. internal revenue code of 1986 , as amended . the u.s. tax act contains provisions with separate effective dates but is generally effective for taxable years beginning after december 31 , 2017. certain provisions of the u.s. tax act will be effective during our fiscal year ending november 30 , 2018 with all provisions of the u.s. tax act effective as of the beginning of our fiscal year ending november 30 , 2019 . we expect that u.s. tax act will have the following effects on our income tax expense for the fiscal year ending november 30 , 2018 : the u.s. tax act imposes a tax on post-1986 earnings of non-u.s. affiliates that have not been repatriated for purposes of us federal income tax , with those earnings taxed at rates of 15.5 % for earnings reflected by cash and cash equivalent items and 8 % for other assets . story_separator_special_tag % to sales . the incremental impact of acquisitions completed in 2017 ( both rb foods and giotti ) and in 2016 ( principally , gourmet garden ) added 6.5 % to sales . these factors offset an unfavorable impact from foreign currency exchange that reduced sales by 0.7 % compared to 2016 and is excluded from our measure of sales growth of 10.3 % on a constant currency basis . replace_table_token_3_th in 2017 , gross profit rose 10 basis points to 41.6 % from 41.5 % in 2016 , as the favorable impact of pricing actions , cci-led cost savings and more favorable business mix more than offset the unfavorable material cost inflation , including unfavorable foreign currency effects . in addition , our gross profit for 2017 was burdened by $ 20.9 million of transaction and integration expenses , representing the amortization of the fair value adjustment to the acquired inventories of rb foods , that depressed our fiscal 2017 gross profit margin of 41.6 % by 40 basis points . excluding those transaction and integration expenses , adjusted gross profit margin rose 50 basis points from 41.5 % in 2016 to 42.0 % in 2017. replace_table_token_4_th selling , general and administrative expense was $ 1,244.8 million in 2017 compared to $ 1,175.0 million in 2016 , an increase of $ 69.8 million . that increase in sg & a expense was driven by the impact of acquisitions , together with increased brand marketing and higher freight costs , partially offset by lower acquisition-related costs related to both completed and uncompleted acquisitions , all as compared to the 2016 levels . the lower acquisition-related costs in the 2017 period were primarily the result of costs associated with our investigation in 2016 of a large potential acquisition in the u.k. that we ultimately declined to pursue . in addition , acquisition-related costs attributable to rb foods in 2017 are not included in sg & a expense but are instead included in transaction and integration expenses in our income statement ( and are further discussed below ) . sg & a expense as a percentage of net sales was 25.8 % , an 80-basis point improvement from 2016. driving this reduction in sg & a expense as a percentage of net sales , in addition to the items described above were lower employee benefit expense , including lower pension and other postretirement benefit expense , together with benefits from the organization and streamlining actions described in note 3 of the financial statements . replace_table_token_5_th we regularly evaluate whether to implement changes to our organization structure to reduce fixed costs , simplify or improve processes , and improve our competitiveness , and we expect to continue to evaluate such actions in the future . from time to time , those changes are of such significance in terms of both up-front costs and organizational/ structural impact that we obtain advance approval from our management committee and classify expenses related to those changes as special charges in our financial statements . special charges of $ 22.2 million were recorded in 2017 and $ 16.0 million in 2016 to enable us to implement these changes . during 2017 , we recorded $ 22.2 million of special charges , consisting primarily of $ 12.7 million related to third party expenses incurred as part of our evaluation of changes relating to our global enablement initiative , $ 2.8 million related to employee severance benefits and other costs associated with the relocation of one of our chinese manufacturing facilities , $ 2.5 million for severance and other exit costs associated with the closure of our manufacturing plant in portugal , and $ 1.7 million related to employee severance benefits and other costs associated with actions related to the transfer of certain manufacturing operations to a new facility under construction in thailand . see note 3 of the financial statements for more details on these charges and our basis for classifying amounts as special charges . of the $ 16.0 million of special charges recorded in 2016 , $ 0.3 million were recorded in cost of goods sold . the 2016 special charges principally consist of $ 5.7 million related to our emea reorganization , which began in 2015 , $ 2.8 million related to our exit from a consolidated joint venture in south africa , $ 1.9 million for other exit costs related to the discontinuance of non-profitable product lines of our kohinoor business in india initiated in 2015 , $ 1.8 million associated with actions in connection with our planned exit of two leased manufacturing facilities in singapore and thailand , and $ 1.7 million for employee severance actions related to our north american effectiveness initiative begun in 2015. replace_table_token_6_th total transaction and integration expenses related to the rb foods acquisition are anticipated to approximate $ 100 million , of which approximately $ 60 million represent transaction expenses and the remainder represent estimated integration expenses . these costs are anticipated to be incurred through 2018 and primarily consist of amortization of the acquisition-date fair value adjustment of inventories of $ 20.9 million that is included in cost of goods sold ; outside advisory , service and consulting costs ; employee-related costs ; and other costs related to the acquisition , including the costs related to the bridge financing commitment of $ 15.4 million that is included in other debt costs . of the total anticipated transaction and integration expenses , we incurred $ 77.1 million in 2017 and expect to incur the balance in 2018. replace_table_token_7_th interest expense for 2017 was sharply higher than the prior year , primarily due to higher average borrowings related to our incurrence of $ 3.7 billion in debt in august to finance the acquisition of rb foods ( see note 6 of the financial statements ) . other income , net , for 2017 was $ 0.7 million lower than the 2016 level , primarily due to a gain on the 2016 sale of a non-operating asset .
| overview the following management 's discussion and analysis of financial condition and results of operations ( md & a ) is intended to help the reader understand mccormick & company , incorporated , our operations and our present business environment . md & a is provided as a supplement to , and should be read in conjunction with , our financial statements and the accompanying notes thereto contained in item 8 of this report . we use certain non-gaap information that we believe is important for purposes of comparison to prior periods and development of future projections and earnings growth prospects . this information is also used by management to measure the profitability of our ongoing operations and analyze our business performance and trends . the dollar and share information in the charts and tables in the md & a are in millions , except per share data . mccormick is a global leader in flavor . the company manufactures , markets and distributes spices , seasoning mixes , condiments and other flavorful products to the entire food industry–retailers , food manufacturers and foodservice businesses . we manage our business in two operating segments , consumer and industrial , as described in item 1 of this report . our long-term annual growth objectives in constant currency are to increase sales 4 % to 6 % , increase adjusted operating income 7 % to 9 % and increase adjusted earnings per share 9 % to 11 % . sales growth : over time , we expect to grow sales with similar contributions from : 1 ) our base business-driven by brand marketing support , customer intimacy , expanded distribution and category growth ; 2 ) new products ; and 3 ) acquisitions . base business –in 2017 , we increased our investment in brand marketing by 39 % over the 2012 level and we plan a further increase in 2018. we measure the return on our brand marketing investment and have identified digital marketing as one of our highest return investments in brand marketing support .
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i ) consolidated balance sheets , ( ii ) consolidated statements of income , ( iii ) consolidated statements of changes in equity , ( iv ) consolidated statements of capital , ( v ) consolidated statements of cash flows and ( vi ) notes to the consolidated financial statements . ( 1 ) * filed herewith † management contract or compensatory plan or arrangement . ( 1 ) pursuant to rule 406t of regulation s-t , these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of sections 11 or 12 of the securities act of 1933 or section 18 of story_separator_special_tag the following discussion relates to our consolidated financial statements and should be read in conjunction with the financial statements and notes thereto appearing elsewhere in this report . the results of operations discussion are combined for the company and the operating partnership because there are no material differences in the results of operations between the two reporting entities . forward-looking statements statements contained in this “ item 7. management 's discussion and analysis of financial condition and results of operations ” that are not historical facts may be forward-looking statements , including statements or information concerning our plans , objectives , capital resources , portfolio performance , results of operations , projected future occupancy and rental rates , lease expirations , debt maturities , potential investments , strategies such as capital recycling , development and redevelopment activity , projected construction costs , projected construction commencement and completion dates , projected square footage of office space that could be constructed on undeveloped land that we own , projected rentable square footage of or number of units in properties under construction or in the development pipeline , anticipated proceeds from capital recycling activity or other dispositions and anticipated dates of those activities or dispositions , projected increases in the value of properties , dispositions , future executive incentive compensation , pending , potential or proposed acquisitions , plans to grow our net operating income and ffo , anticipated market conditions and demographics and other forward-looking financial data , as well as the discussion in “ —factors that may influence future results of operations ” , “ —liquidity and capital resource of the company ” , and “ —liquidity and capital resources of the operating partnership. ” forward-looking statements can be identified by the use of words such as “ believes , ” “ expects , ” “ projects , ” “ may , ” “ will , ” “ should , ” “ seeks , ” “ approximately , ” “ intends , ” “ plans , ” “ pro forma , ” “ estimates ” or “ anticipates ” and the negative of these words and phrases and similar expressions that do not relate to historical matters . forward-looking statements are based on our current expectations , beliefs and assumptions , and are not guarantees of future performance . forward-looking statements are inherently subject to uncertainties , risks , changes in circumstances , trends and factors that are difficult to predict , many of which are outside of our control . accordingly , actual performance , results and events may vary materially from those indicated in the forward-looking statements , and you should not rely on the forward-looking statements as predictions of future performance , results or events . numerous factors could cause actual future performance , results and events to differ materially from those indicated in the forward-looking statements , including , among others : global market and general economic conditions and their effect on our liquidity and financial conditions and those of our tenants ; adverse economic or real estate conditions generally , and specifically , in the states of california and washington ; risks associated with our investment in real estate assets , which are illiquid , and with trends in the real estate industry ; defaults on or non-renewal of leases by tenants ; any significant downturn in tenants ' businesses ; our ability to re-lease property at or above current market rates ; costs to comply with government regulations , including environmental remediation ; the availability of cash for distribution and debt service and exposure to risk of default under debt obligations ; increases in interest rates and our ability to manage interest rate exposure ; 50 the availability of financing on attractive terms or at all , which may adversely impact our future interest expense and our ability to pursue development , redevelopment and acquisition opportunities and refinance existing debt ; a decline in real estate asset valuations , which may limit our ability to dispose of assets at attractive prices or obtain or maintain debt financing , and which may result in write-offs or impairment charges ; significant competition , which may decrease the occupancy and rental rates of properties ; potential losses that may not be covered by insurance ; the ability to successfully complete acquisitions and dispositions on announced terms ; the ability to successfully operate acquired , developed and redeveloped properties ; the ability to successfully complete development and redevelopment projects on schedule and within budgeted amounts ; delays or refusals in obtaining all necessary zoning , land use and other required entitlements , governmental permits and authorizations for our development and redevelopment properties ; increases in anticipated capital expenditures , tenant improvement and or leasing costs ; defaults on leases for land on which some of our properties are located ; adverse changes to , or implementations of , applicable laws , regulations or legislation ; risks associated with joint venture investments , including our lack of sole decision-making authority , our reliance on co-venturers ' financial condition and disputes between us and our co-venturers ; environmental uncertainties and risks related to natural disasters ; and our ability to maintain our status as a reit . the factors included in this report are not exhaustive and additional factors could adversely affect our business and financial performance . story_separator_special_tag subsequent to year end , we perform final detailed reconciliations and analyses on a lease-by-lease basis and bill or refund each tenant for any cumulative annual adjustments in the first and second quarters of each year for the previous year 's activity . our historical experience for the years ended december 31 , 2015 and 2014 has been that 54 our final reconciliation and billing process resulted in final amounts that approximated the total annual tenant reimbursement revenues recognized . allowances for uncollectible current tenant receivables and deferred rent receivables tenant receivables and deferred rent receivables are carried net of the allowances for uncollectible current tenant receivables and deferred rent receivables . current tenant receivables consist primarily of amounts due for contractual lease payments and reimbursements of common area maintenance expenses , property taxes , and other costs recoverable from tenants . deferred rent receivables represent the amount by which the cumulative straight-line rental revenue recorded to date exceeds cash rents billed to date under the lease agreement . as of december 31 , 2016 and 2015 , current receivables were carried net of an allowance for uncollectible tenant receivables of $ 1.7 million and $ 2.1 million , respectively , for each period and deferred rent receivables were carried net of an allowance for deferred rent of $ 1.5 million and $ 1.9 million , respectively . management 's determination of the adequacy of the allowance for uncollectible tenant receivables and the allowance for deferred rent receivables is performed using a methodology that incorporates a specific identification analysis and an aging analysis and considers the current economic and business environment . this determination requires significant judgment and estimates about matters that are uncertain at the time the estimates are made , including the creditworthiness of specific tenants , specific industry trends and conditions , and general economic trends and conditions . since these factors are beyond our control , actual results can differ from our estimates , and such differences could be material . with respect to the allowance for uncollectible tenant receivables , the specific identification methodology analysis relies on factors such as the age and nature of the receivables , the payment history and financial condition of the tenant , our assessment of the tenant 's ability to meet its lease obligations , and the status of negotiations of any disputes with the tenant . with respect to the allowance for deferred rent receivables , given the longer-term nature of these receivables , the specific identification methodology analysis evaluates each of our significant tenants and any tenants on our internal watchlist and relies on factors such as each tenant 's financial condition and its ability to meet its lease obligations . we evaluate our reserve levels quarterly based on changes in the financial condition of tenants and our assessment of the tenant 's ability to meet its lease obligations , overall economic conditions , and the current business environment . for the years ended december 31 , 2016 , 2015 and 2014 , we recorded a total provision for bad debts for both current tenant receivables and deferred rent receivables of approximately 0.0 % , 0.1 % and 0.0 % , respectively , of rental revenue . our historical experience has been that actual write-offs of current tenant receivables and deferred rent receivables has approximated the provision for bad debts recorded for the years ended december 31 , 2016 , 2015 and 2014 . in the event our estimates were not accurate and we had to change our allowances by 1 % of revenue from continuing operations , the potential impact to our net income available to common stockholders would be approximately $ 6.4 million , $ 5.8 million and $ 5.2 million for the years ended december 31 , 2016 , 2015 and 2014 , respectively . acquisitions we record the acquired tangible and intangible assets and assumed liabilities of acquisitions of all operating properties and those development and redevelopment opportunities that meet the accounting criteria to be accounted for as business combinations at fair value at the acquisition date . we assess and consider fair value based on estimated cash flow projections that utilize available market information and discount and or capitalization rates that we deem appropriate . estimates of future cash flows are based on a number of factors including historical operating results , known and anticipated trends , and market and economic conditions . the acquired assets and assumed liabilities for an operating property acquisition generally include but are not limited to : land and improvements , buildings and improvements , construction in progress and identified tangible and intangible assets and liabilities associated with in-place leases , including tenant improvements , leasing costs , value of above-market and below-market operating leases and ground leases , acquired in-place lease values and tenant relationships , if any . the fair value of land is derived from comparable sales of land within the same submarket and or region . the fair value of buildings and improvements , tenant improvements , and leasing costs are based upon current market replacement costs and other relevant market rate information . 55 the fair value of the above-market or below-market component of an acquired in-place operating lease is based upon the present value ( calculated using a market discount rate ) of the difference between ( i ) the contractual rents to be paid pursuant to the lease over its remaining non-cancellable lease term and ( ii ) management 's estimate of the rents that would be paid using fair market rental rates and rent escalations at the date of acquisition measured over the remaining non-cancellable term of the lease for above-market operating leases and the initial non-cancellable term plus the term of any below-market fixed rate renewal options , if applicable , for below-market operating leases .
| operating and development highlights 2016 was an exceptional year with strong results across all areas of our business . we believe our strong leasing performance , continued execution of our development program with focus and discipline , maintenance of our strong balance sheet and availability to capital , and success with our capital recycling program , continues to position us well for sustained long-term growth . leasing . during 2016 , we executed new and renewal leases totaling 1.3 million square feet within our stabilized portfolio with an increase in gaap rents of 30.2 % and cash rents of 13.4 % , and 99,000 square feet of leases within our “ lease-up ” portfolio . our efforts over the past few years have increased the occupancy in our stabilized office portfolio to 96.0 % as of december 31 , 2016 , up from 94.8 % as of december 31 , 2015 . development . during 2016 , we continued to execute on our development program , delivering projects and commencing construction on new development projects . in 2016 , we stabilized three development projects , 350 mission street and 333 brannan street in san francisco , california , and the heights at del mar in san diego , california , totaling 713,942 square feet of office space that was 96 % committed to preeminent technology tenants , including salesforce.com , inc. and dropbox , inc. we define committed space as space that is subject to an executed lease or letter of intent . commitments not supported by executed leases are not binding obligations and there can be no assurance that they will result in executed leases on the terms contemplated or at all . these three projects represent a total investment of approximately $ 424.3 million . in addition , at december 31 , 2016 , we had one project , columbia square phase 2 - office , in hollywood , california , in “ lease-up ” which was 86 % committed .
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as of december 31 , 2010 , the carrying value of the intangible asset was $ 7.4 story_separator_special_tag the following discussion and analysis should be read in conjunction with the accompanying audited consolidated financial statements and related notes . the financial statements have been prepared in accordance with canadian gaap . for a reconciliation to accounting principles generally accepted in the united states ( us gaap ) , see note 27 to the consolidated financial statements . this management 's discussion and analysis of financial condition and results of operations includes information available to february 22 , 2011. non-gaap financial measures in this form 10-k , we use the terms total cash cost per ounce and cash operating cost per ounce. cost of sales as found in our statements of operations , includes all mine-site operating costs , including the costs of mining , processing , maintenance , work-in-process inventory changes , mine-site overhead as well as production taxes , royalties , mine site depreciation , depletion , amortization , asset retirement obligation accretion and by-product credits , but does not include cost of waste stripping capitalized under betterment waste stripping rules , exploration costs , property holding costs , corporate office general and administrative expenses , impairment charges , corporate business development costs , gains and losses on asset sales , capital gains and losses on foreign currency conversions , interest expense , gains and losses on derivatives , gains and losses on investments and income tax expense/benefit . 45 total cash cost per ounce for a period is equal to cost of sales for the period less mining related depreciation and amortization costs , accretion of asset retirement obligation costs and operations-related foreign currency gains and losses for the period , divided by the number of ounces of gold sold during the period . cash operating cost per ounce for a period is equal to total cash costs for the period less royalties and production taxes , divided by the number of ounces of gold sold during the period . 46 the following table shows the derivation of these measures : replace_table_token_16_th 47 we use total cash cost per ounce and cash operating cost per ounce as key operating indicators . we monitor these measures monthly , comparing each month 's values to prior periods ' values to detect trends that may indicate increases or decreases in operating efficiencies . these measures are also compared against budget to alert management about trends that may cause actual results to deviate from planned operational results . we provide these measures to our investors to allow them to also monitor operational efficiencies of our mines . we calculate these measures for both individual operating units and on a consolidated basis . total cash cost per ounce and cash operating cost per ounce should be considered as non-gaap financial measures as defined in sec regulation s-k item 10 and in applicable canadian securities laws and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with gaap . there are material limitations associated with the use of such non-gaap measures . since these measures do not incorporate revenues , changes in working capital and non-operating cash costs , they are not necessarily indicative of operating profit or cash flow from operations as determined under gaap . changes in numerous factors including , but not limited to , mining rates , milling rates , gold grade , gold recovery , costs of labor , consumables and mine site general and administrative activities can cause these measures to increase or decrease . we believe that these measures are the same as , or similar to , the measures of other gold mining companies , but may not be comparable to similarly titled measures in every instance . trends and events in the twelve months ended december 31 , 2010 gold prices gold prices have generally trended upward during the last ten years from a low of $ 260 per ounce in 2001 to a high of $ 1,421 per ounce in november 2010. realized gold prices for our shipments averaged $ 1,219 per ounce during 2010 , up from $ 978 per ounce during 2009. royalties during the first quarter of 2010 , the government of ghana amended its 2006 mining act to change the method of calculating mineral royalties payable to the government . the prior rules established a royalty rate of not less than 3 % and not more than 6 % of a mine 's total revenues , the exact amount being determined by each mine 's margin as defined in the law . under the old rules , our mines have , since their inception , qualified for and paid a 3 % rate . under the amended law , the royalty has been set at a flat rate of 5 % of mineral revenues with an effective date of march 19 , 2010. in october 2010 , we were notified that the effective date was extended to the end of march 2011. certain mining companies operating in ghana , including our subsidiaries gsbpl and gswl , operate under tax stabilization agreements which govern , among other things , royalty rates and various tax rules . discussions with the ministry of finance and economic planning are ongoing to determine the applicability of this new royalty legislation to gsbpl and gswl after march 2011. increases in power , fuel and labor rates in ghana we experienced significant upward pressure on the costs of several of our operating consumables during 2010 including higher prices for diesel fuel , electricity and processing reagents . story_separator_special_tag most recent year . mr. mair would also receive a portion of the target bonus for the current calendar year which is pro rata to the portion of such year prior to mr. mair 's change of control termination . to address u.s. internal revenue code sections 280g and 4999 non-deductibility and excise taxes on excess parachute payments , the amendment provides that , in the event any payment or distribution by the company to or for the benefit of mr. mair would , absent the provisions of the amendment 's excise tax payment provision , be subject to the excise tax imposed by section 4999 of the u.s. internal revenue code , then the payment shall be reduced to equal the maximum amount that may be paid to mr. mair without triggering the application of the excise tax . results of operations 2010 compared to 2009 story_separator_special_tag fuel , explosives and electric power accounted for most of the increase over 2009 levels . also , as wassa ramped up its mining effort at benso and hwini-butre during 2010 , it incurred higher costs for contract mining , ore haulage costs and equipment rental than in 2009. wassa/hbb moved a total of 21.7 million tonnes of ore and waste in 2010 , as compared to 18.9 million tonnes in 2009. the higher cash costs and lower gold sales contributed to a cash operating cost of $ 677 per ounce in 2010 , as compared to $ 447 per ounce in 2009. lower gold production resulted in lower depreciation and amortization costs which were down $ 7.9 million from 2009. results of operations 2009 compared to 2008 consolidated results our consolidated net income totaled $ 16.5 million or $ 0.070 per share for 2009 as compared to a net loss of $ 119.3 million or $ 0.506 per share , in 2008. the significant earnings improvement , as compared to 2008 , was largely related to a $ 79.3 million improvement in mine operating margins which was the result of a 38.5 % , or 113,975 ounce increase in gold sales and a $ 108 per ounce increase in average realized gold price . an $ 8.3 million increase in tax benefits and $ 65.3 million reduction in impairment losses also contributed to the earnings improvement from 2008. a $ 64.1 million increase in cost of sales partially offset the improvements in gold sales and gold price . bogoso 's gold sales improved by 9 % , or 15,555 ounces , mostly due to improved gold recoveries . higher grade ores during 2009 from wassa 's new hwini-butre and benso mines ( hbb properties ) yielded a 78 % , or 98,421 ounce increase in wassa 's gold sales . these higher ounces combined with the gold price improvements resulted in a 56 % increase in gold revenues over 2008 levels . bogoso 's cost of sales declined from 2008 levels , but the extra costs associated with the new hbb mining operations resulted in increases in wassa 's cost of sales , resulting in our overall increase in cost of sales . transfer of the hbb mining leases to wassa in 2009 and improved operational performance at wassa , which allowed release of deferred tax asset valuation allowances , provided the tax benefit . our 2009 general and administrative expense was down $ 1.1 million reflecting lower legal and tax audit costs than in 2008 and the cost cutting programs implemented in early 2009. property holding costs are mostly the costs incurred in care and maintenance activities at the prestea underground which was deemed impaired and written off at the end of 2008. higher derivative costs reflect the increased use of gold price derivatives during 2009 as compared to 2008. most of the increase in interest expense was related to scheduled increases in accretion of the convertible debentures equity component . 51 bogoso/prestea operations 2009 compared to 2008 bogoso/prestea gold shipments increased to 186,054 ounces in 2009 at an average price of $ 978 per ounce , up from 170,499 ounces in 2008 at an average price of $ 873 per ounce . the increase in gold recovery to 70.7 % in 2009 from 66.5 % in 2008 was the major factor in the gold sales improvement . while the bogoso oxide plant processed refractory ore at various times during 2009 , there was no non-refractory ore processed at bogoso during the year . oxide ore mining remained on stand-by at pampe awaiting receipt of permits for prestea south . once prestea south permits are issued , we expect to mine oxide ore from both pampe and prestea south in amounts sufficient to run the bogoso oxide mill at capacity . bogoso/prestea operations resulted in a $ 1.5 million operating margin loss , an improvement from its $ 47.2 million operating margin loss in 2008. cash operating costs fell from $ 142.7 million in 2008 to $ 131.2 million in 2009 on lower fuel , power and consumable costs . lower cash operating costs coupled with increases in gold output resulted in an improvement in unit costs to $ 705 per ounce , down from $ 837 per ounce in 2008. the prestea underground mine remained on a care and maintenance basis during 2009 , and dewatering continued as we evaluated various plans that could allow underground mining to restart . wassa operations 2009 compared to 2008 wassa mining operations underwent significant changes during 2009 due to the impact of its two new mining operations at benso and hwini-butre located 50 and 80 kilometers south of wassa , respectively . both of these ore bodies are much higher grade than the pits located adjacent to the wassa plant site which have furnished ore to the wassa plant since 2005. as a result of the new ores from benso and hwini-butre during 2009 , wassa saw higher ore grades , increased gold sales , better gold recoveries and lower costs per ounce .
| consolidated results consolidated 2010 financial results include a net loss of $ 8.3 million or $ 0.032 per share as compared to net income of $ 16.5 million or $ 0.070 per share in 2009. increased revenues on higher gold prices offset increases in cost of sales yielding a $ 6.6 million increase in mine operating margin as compared to 2009. but increases in non-operating costs and interest during 2010 offset the improved mine operating margin yielding a $ 0.3 million pre-tax loss , down from a $ 0.9 million pre-tax loss in 2009. our 2010 consolidated tax expense was $ 7.9 million , as compared to a $ 17.4 million tax benefit in 2009. the 2009 benefit was a result of recognizing wassa 's deferred tax assets at the end of 2009 upon transfer of the hbb mining leases to wassa and improved operational performance at wassa . the $ 7.9 million tax expense in 2010 reflects the ongoing use of wassa 's tax assets to offset 2010 taxable income , and the cost of a temporary tax levy in ghana . gold sales totaled 354,904 ounces in 2010 , down from 409,902 ounce sold in 2009. the major factors contributing to the decrease in gold sold were lower gold recovery at bogoso and lower ore grades at wassa . realized gold prices averaged $ 1,219 per ounce during 2010 , up 25 % from $ 978 per ounce in 2009. wassa processed essentially the same tonnes in 2010 as in 2009 , but ore grades were lower than in 2009 as mining moved into lower grade areas of the benso and hwini-butre ore bodies during 2010. in contrast , bogoso processed higher grade ore during 2010 than in 2009 , but its gold output was adversely impacted by lower gold recoveries during most of the year .
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f-17 summer infant , inc. and subsidiaires notes to consolidated financial statements ( continued ) 4. debt ( continued ) at december 31 , 2016 , approximately $ 404 of the lease obligation was included in accrued expenses , with the balance of approximately $ 2,429 included in other liabilities , in the accompanying consolidated balance sheet . this obligation is reduced each month ( along with a charge to interest expense ) as the rent payment is made to faith realty . approximate future minimum sale-leaseback payments due under the lease is as follows : replace_table_token_12_th 5. income taxes the provision ( benefit ) for income taxes is summarized as follows : replace_table_token_13_th f-18 summer infant , inc. and subsidiaires notes to consolidated financial statements ( continued ) 5. income taxes ( continued ) the tax effects of temporary differences that comprise the deferred tax liabilities and assets are as follows : replace_table_token_14_th the story_separator_special_tag the following discussion is intended to assist in the assessment of significant changes and trends related to our results of operations and financial condition . the information contained in this section has been derived from our consolidated financial statements and should be read together with our consolidated financial statements and related notes included elsewhere in this report . readers should 17 also review and consider our disclosures under the heading `` special note regarding forward-looking statements '' describing various factors that could affect our business and the disclosures under the heading `` risk factors '' in this report . note that all dollar amounts in this item 7 are in thousands of u.s. dollars , except share and per share data . overview we are a premier infant and juvenile products company originally founded in 1985 and have publicly traded on the nasdaq stock market since 2007 under the symbol `` sumr . '' we are a leader in product innovation in the juvenile industry , providing mothers and caregivers a full range of high quality , high value products to care for babies and toddlers . we seek to improve the quality of life of both caregivers and babies through our product offerings , while at the same time maximizing shareholder value over the long term . we operate in one principal industry segment across geographically diverse marketplaces , selling our products globally to large , national retailers as well as independent retailers , and on our partner 's websites and our own summerinfant.com website . in north america , our customers include babies r us , amazon.com , wal-mart , target , buy buy baby , home depot , and lowe 's . our largest european-based customers are argos , amazon , toys r us , and mothercare . we also sell through international distributors , representatives , and to select international retail customers in geographic locations where we do not have a direct sales presence . we estimate the size of the juvenile products market to be $ 25 billion worldwide , with consumers focusing on quality , safety , innovation , and style . we believe we are positioned to capitalize on positive market trends in the juvenile products industry , including a predicted increase in u.s. birth rates over the next several years . in fiscal 2016 , we continued to focus on our core product offerings , phasing out less profitable categories , and improving our balance sheet and working capital positions . sales for the year ended december 31 , 2016 ( `` fiscal 2016 '' ) decreased 5.6 % compared to the year ended january 2 , 2016 ( `` fiscal 2015 '' ) due predominantly to the phasing out of less profitable categories , unfavorable foreign exchange rates and lower than expected sales of certain products . while gross profit declined 0.3 % in fiscal 2016 as compared to fiscal 2015 , our gross margin improved by 170 basis points . general and administrative expenses decreased 10.5 % in fiscal 2016 due to the full year impact of cost reduction actions implemented in the latter half of fiscal 2015 and a reduction in litigation costs . in december 2016 we settled the litigation ( see note 10 to the consolidated financial statements ) and therefore expect no material legal costs in 2017 related to the litigation . as discussed further below , following our annual intangible asset impairment analysis , we determined that the estimated fair value of an indefinite lived asset was lower than its carrying value , and we recorded a non-cash impairment charge of $ 2,993 in the fourth quarter of fiscal 2016. in addition , we deemed the remaining value of the indefinite lived asset to have a finite life subject to amortization over its remaining useful life of fifteen years . as a result , our earnings per share for fiscal 2016 were negatively impacted by $ 0.12. however , the impairment charge had no impact on our day-to-day operations or liquidity and will not result in any future cash expenditures . primarily as a result of the impairment charge , the litigation costs , and lower than expected sales in fiscal 2016 , we ended fiscal 2016 with a net loss of $ 0.23 per share as compared to a net loss of $ 0.47 per share in fiscal 2015. in 2017 , we expect to continue to focus on our core categories with innovative product offerings , strengthening margins and , if necessary , phasing out less profitable products . with the settlement of our litigation in december 2016 , litigation costs are expected to be immaterial in 2017 with improved 18 bottom line performance . as a result , we expect to continue to strengthen our balance sheet and our working capital results . summary of critical accounting policies and estimates the following summary of our critical accounting policies is presented to assist in understanding our consolidated financial statements . the consolidated financial statements and notes are representations of our management , who are responsible for their integrity and objectivity . story_separator_special_tag interest and penalties related to uncertain tax positions were accrued at december 31 , 2016. all audit adjustments have been recorded without significant impact on our results of operations . on a global basis , the open tax years subject to examination by major taxing jurisdictions in which we operate is between two to six years . 20 story_separator_special_tag favorable payment terms from our suppliers . for fiscal 2016 , net cash used in investing activities was approximately $ 2,266. for fiscal 2015 , net cash used in investing activities was $ 3,505. the use of cash in investing activities was primarily attributable to tooling and mold expenditures related to new product introductions . for fiscal 2016 , net cash used in financing activities was approximately $ 6,548 , reflecting repayments on our credit facility . for fiscal 2015 , net cash used in financing activities was approximately $ 5,116 , reflecting repayments on our credit facility . based primarily on the above factors , net cash increased for fiscal 2016 by $ 76 , resulting in a cash balance of approximately $ 999 at fiscal year end . the following table summarizes our significant contractual commitments at fiscal 2016 year end : replace_table_token_3_th estimated future interest payments on our revolving facility , filo facility , and term loan facility are based upon the interest rates in effect at december 31 , 2016. capital resources in addition to operating cash flow , we also rely on our existing asset-based revolving credit facility with bank of america , n.a . to meet our financing requirements , which is subject to changes in our inventory and account receivable levels . we regularly evaluate market conditions , our liquidity profile , and various financing alternatives for opportunities to enhance our capital structure . if market conditions are favorable , we may refinance our existing debt or issue debt or equity securities . based on past performance and current expectations , we believe that our anticipated cash flow from operations and availability under our existing credit facility are sufficient to fund our working capital , capital expenditures and debt service requirements for at least the next 12 months . however , if we are unable to meet our current financial forecast , do not adequately control expenses , and can not raise additional funds or adjust our operations accordingly , we may not remain in compliance with the financial covenants required under our revolving credit facility . unforeseen circumstances , such as softness in the retail industry or deterioration in the business of a significant customer , could create a situation where we can not access all of our available lines of credit due to insufficient asset availability or an inability to meet the financial covenants as required under our credit facility . there is no assurance that we will meet all of our financial or other covenants in the future , or 23 that our lenders will grant waivers if there are covenant violations . in addition , should we need to raise additional funds through debt or equity financings , any sale of debt or equity securities may cause dilution to existing stockholders . if sufficient funds are not available or are not available on acceptable terms , our ability to address any unexpected changes in our operations could be limited . furthermore , there can be no assurance that we will be able to raise such funds if and when they are required . failure to obtain future funding when needed or on acceptable terms could materially adversely affect our results of operations . credit facilities we and our wholly owned subsidiary , summer infant ( usa ) , inc. , are parties to an amended and restated loan and security agreement with bank of america , n.a. , as agent , providing for an asset-based credit facility ( as amended in december 2015 and may 2016 , the `` credit facility '' ) . the credit facility consists of a $ 60,000 asset-based revolving credit facility , with a $ 10,000 letter of credit sub-line facility ( the `` revolving facility '' ) , a $ 5,000 `` first in last out '' ( filo ) revolving credit facility ( the `` filo facility '' ) and a $ 10,000 term loan facility ( the `` term loan facility '' ) . pursuant to an accordion feature , the credit facility includes the ability to increase the revolving facility by an additional $ 15,000 upon the company 's request and the agreement of the lenders participating in the increase . the total borrowing capacity under the revolving facility is based on a borrowing base , generally defined as 85 % of the value of eligible accounts plus the lesser of ( i ) 70 % of the value of eligible inventory or ( ii ) 85 % of the net orderly liquidation value of eligible inventory , less reserves . the total borrowing capacity under the filo facility is based on a borrowing base , generally defined as a specified percentage of the value of eligible accounts that steps down over time , plus a specified percentage of the value of eligible inventory that steps down over time . for additional information on the credit facility , please see note 4 to our consolidated financial statements included in this annual report on form 10-k. as of december 31 , 2016 , the rate for base-rate loans was 4.75 % and rate for libor-rate loans was 3.375 % . the amount outstanding on the revolving facility at december 31 , 2016 was $ 36,182. total borrowing capacity under the revolving facility at december 31 , 2016 was $ 47,196 and borrowing availability was $ 11,014. the amounts outstanding on the term loan facility and filo facility at december 31 , 2016 were $ 7,000 and $ 3,750 , respectively .
| results of operations the following table presents selected condensed consolidated financial information for our company for the fiscal years ended december 31 , 2016 ( `` fiscal 2016 '' ) and january 2 , 2016 ( `` fiscal 2015 '' ) . replace_table_token_2_th fiscal 2016 compared with fiscal 2015 net sales decreased 5.6 % from $ 205,804 for fiscal 2015 to $ 194,328 for fiscal 2016. fiscal 2015 included $ 8,265 of sales related to our bank-approved inventory reduction plan and our furniture product line exit . fiscal 2016 included $ 2,054 of unfavorable foreign exchange on a constant currency basis primarily due to the decline in the value of the british pound . the year-over-year net sales decrease was also attributable to lower sales of bornfree® breeze bottles and certain summer® monitors partially offset by increased safety and gear product sales . cost of goods sold includes the cost of the finished product from suppliers , duties on certain imported items , freight-in from suppliers , and miscellaneous charges . the components of cost of goods sold remained substantially the same for fiscal 2016 as compared to fiscal 2015. gross profit declined 0.3 % from $ 61,950 for fiscal 2015 to $ 61,751 for fiscal 2016 , however , gross margin increased from 30.1 % for fiscal 2015 to 31.8 % for fiscal 2016. fiscal 2015 included $ 1,937 in losses on the sale of inventory below cost relating to our bank-approved inventory reduction plan , $ 949 of inventory charges taken as we completed our exit of the furniture category , and $ 690 in temporary additional costs due to inventory mix changes in our west coast distribution center .
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series a cumulative convertible redeemable preferred stock the company 's series a preferred stock has certain embedded features including ; a company put right to convert each share into common stock at an initial conversion price and a specified price which increases annually based on the passage of time beginning in november 2019 , the series a preferred story_separator_special_tag the following management 's 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 in this annual report and the historical financial statements of rekor systems , inc. , and the related notes thereto . overview we are a leader in the field of vehicle identification and intelligent roadway management systems developed to exploit the benefits of recent advances in artificial intelligence ( “ ai ” ) . in development for over six years using deep learning algorithms , our core proprietary software enables the creation of more powerful and capable vehicle recognition systems that can be deployed at a fraction of the cost of traditional legacy systems . the software provides a wider field of view , greater light sensitivity and recognitions at faster speeds and with higher accuracy rates . it also includes the ability to identify the color , make and body type of a vehicle and its direction of travel . these capabilities are particularly useful to governmental entities and businesses in solving a wide variety of real-world vehicle related operational challenges . in addition , the ability to enhance existing internet protocol ( “ ip ” ) connected cameras has enabled significant new uses for vehicle recognition technology that were not previously available or cost effective . we currently provide products and services for governmental organizations , for large and small businesses and for individuals throughout the world . customers currently use our products or services in approximately 80 countries in applications that include public safety , security , customer experience , transportation , parking , operational efficiencies and logistics . rekor 's vision is to enable “ ai driven decisions ” by enhancing the capabilities in commercial and government sectors with actionable , real-time insights . we deliver these insights through an expanding software portfolio that is being designed not only to address the challenges our customers are currently facing but empowers them to effectively deal with their evolving needs . general the information provided in this discussion and analysis of rekor 's financial condition and results of operations covers the years ended december 31 , 2020 and 2019. during 2019 , we completed the acquisition of certain assets and assumed certain liabilities of openalpr technology , inc. ( the “ openalpr technology acquisition ” ) . during 2020 we sold our fully owned subsidiaries aoc key solutions inc. ( “ aoc key solutions ” ) and global technical services inc. ( “ teamglobal ” ) . as a result of the dispositions , we determined in 2020 that all the remaining operations that comprised our professional services segment met the criteria to be considered discontinued and they are no longer presented as continuing operations . our financial results are impacted principally by the demand by clients for our products and services , the degree to which full-time staff can be kept occupied in revenue-generating activities and the success of our sales team in generating client engagements . unexpected changes in the demand for our products and services can result in significant variations in revenues , and present a challenge to optimal hiring , staffing and use of consultants . the volume of work performed can vary from period to period . acquisitions and dispositions on march 12 , 2019 , we completed the openalpr technology acquisition for an aggregate purchase price of $ 12,397,000 , consisting of $ 7,000,000 in cash , $ 5,000,000 related to the issuance of note payable and $ 397,000 of stock consideration . 34 on june 1 , 2019 , we sold all the interest we had acquired in secure education consultants , llc , which we acquired on january 1 , 2018. at that time , we also discontinued operations of bc management . on april 2 , 2020 , we sold aoc key solutions for an aggregate purchase price of $ 4,000,000 , consisting of $ 3,400,000 in cash and a subordinated promissory note in the amount of $ 600,000. on june 29 , 2020 , we sold teamglobal for an aggregate purchase price of $ 4,000,000 , consisting of $ 2,300,000 in cash and a secured promissory note in the amount of $ 1,700,000. opportunities , trends and uncertainties we look to identify the various trends , market cycles , uncertainties and other factors that may provide us with opportunities and present challenges that impact our operations and financial condition from time to time . although there are many that we may not or can not foresee , we believe that our results of operations and financial condition for the foreseeable future will be primarily affected by the following : ● ai for the roadway – we believe that the application of ai to the analysis of roadway conditions will significantly affect vehicular travel in the future by assisting in the intelligent optimization of traffic flows and the identification of anomalous and unsafe movements – e.g . wrong way vehicles , stopped vehicles , or/and pedestrian on the roadway . marketers and drive-thru retailers with loyalty programs can also benefit from rapid , lower cost identification of existing and potential customers in streamlining and accelerating vehicular flow . ● graphic processing unit ( “ gpu ” ) improvements – we expect our business to benefit as a result of more powerful and affordable gpu hardware that has recently been developed . these gpus are more efficient for image processing because their highly parallel structure makes them more efficient than general-purpose central processing units ( “ cpus ” ) for algorithms that process large blocks of data , such as those produced by video streams . story_separator_special_tag we anticipate that an increased presence in the market , the continued development of strategic partnerships and other economies of scale will significantly reduce the level of costs necessary to support sales of our products and services . however , the speed at which these markets grow to the degree of which our products and services are adopted is uncertain . ● sales cycle – as many of our products are new to market , their acceptance and integration into the intended markets is uncertain and we do not have sufficient historical experience to accurately predict revenues as a result of their implementation . ● covid 19 - the spread of a novel strain of covid-19 around the world since the first quarter of 2020 has caused significant volatility in u.s. and international markets . there is significant uncertainty around the breadth and duration of business disruptions related to covid-19 , as well as its impact on the u.s. and international economies and , as such , we are unable to determine the full impact to our operations . 36 ● pressure on government budgets – in addition to the covid-19 crisis crippling businesses revenues , it has caused significant strain on government budgets . with less money to spend and more need for resources , government agencies need affordable , effective , and scalable solutions for revenue recovery and discovery . with subscription pricing and a roadway intelligence platform that accomplishes multiple agency missions from a single camera source , we are uniquely positioned to provide agencies force-multiplying tools when money and man-power are limited . agencies can be better positioned to identify vehicle registration fee avoidance , enforce parking and find scofflaws , aid motorists in acquiring valid insurance , and dynamically price tolls based on traffic flow . in addition , states adopting uved programs may be able to garner significant net cash contributions to their annual budgets while reducing the number of uninsured vehicles on their roadways . ● unifying source of roadway intelligence with rekor one - the rekor one platform will support multiple community safety , intelligent roadway and revenue generation activities . rekor one will provide government agencies with a comprehensive vehicle intelligence system that supports multiple agency-specific missions . with rekor one , governments will be able to leverage their existing ip cameras and transform them into a safe and smart multi-dimensional intelligent roadway network . by interfacing with multiple databases and operating systems , rekor one can allow governmental units to observe security and privacy protocols and fractionalize costs based on relative end user value . each participating agency receives a unique user interface and dashboard , which draws on rekor one 's unified vehicle recognition intelligence to provide data customized to the agency 's specific needs . this will eliminate redundant systems and single function applications to help use public funds wisely . the platform will aid in identifying licensing and registration non-compliance , uninsured motorists and unpaid parking violations . this will allow agencies to create targeted intervention programs that result in increased safety as well as increased revenue recovery . smart parking and permitting are also important capabilities that increase government efficiency and provide better citizen and visitor experience . as part of traffic management , rekor one will also support advanced tolling and congestion pricing as well as parking and other fees . ● increased demand for contactless economy solutions – even prior to the covid-19 crisis , efficient , touch-free shopping experiences were becoming increasingly present . now moving beyond simple tap-to-pay credit card functionality , we can offer businesses such as retail and quick service restaurants the ability to have customers pay-by-plate for a complete contactless experience for curbside pick-up or drive-thru transactions . pay-by-plate functionality not only keeps customers and employees safe , but it also accelerates service time as the technology fully integrates with existing point of sale ( “ pos ” ) and customer loyalty systems . ● necessity for on-demand mobile solutions – with app downloads increasing exponentially year-over-year and over 90 % of mobile phone time spent within apps , businesses require a means to leverage the ever-present smartphones of employees . by developing a first-of-its-kind ios and android app that can read license plates on-device , we can provide businesses an affordable way to scale by using existing devices as license plate recognition sensors . now businesses can efficiently manage visitors , streamline parking operations , enhance campus/event security , and even recover costly assets . we believe that recent developments in computing capabilities , such as gpu advances , and new techniques of analysis , sometimes referred to broadly as ai , have broadened the market for vehicle recognition technology and created new opportunities in existing markets . with our new line of products and services , we are working to actively exploit these opportunities . other than as discussed above and elsewhere in this annual report on form 10-k , we are not aware of any trends , events or uncertainties that are likely to have a material effect on our financial condition . 37 components of operating results revenues we derive our revenues substantially from license and subscription fees for software and related products and services . a portion of the subscription fees are generated through our ecommerce website rather than through in-person sales . in addition , we derive revenues in connection with certain citation and collection services in connection with uved , automated traffic safety and parking enforcement services . revenue is recognized upon transfer of control of promised products and services to our customers , in an amount that reflects the consideration we expect to receive in exchange for those products and services . if the consideration promised in the contract includes a variable amount , for example maintenance fees , we include an estimate of the amount it expects to receive for the total transaction price , if it is probable that a significant reversal of cumulative revenue recognized will not occur .
| results of operations our historical operating results in dollars are presented below . the results below and the analysis of operation is solely related to continuing operations and do not include results of operations from teamglobal , aoc key solutions and firestorm . the following selected consolidated financial data should be read in conjunction with the foregoing information contained in this item 7 and with the consolidated financial statements and the notes thereto in item 8 of part ii , “ financial statements and supplementary data. ” only historical operating results are presented below . historical results are not necessarily indicative of future results . replace_table_token_1_th 39 comparison of the years ended december 31 , 2020 and 2019 restructuring as part of our shift in strategic direction since 2019 , we have focused on our technology offerings and have disposed of or discontinued operations in the subsidiaries in our legacy professional services segment . in april 2020 , we completed the sale of aoc key solutions and in june 2020 , we completed the sale of teamglobal . as part of evaluating the future of firestorm , management decided to sell secure education and transfer the bc management line of business to its founder in the second quarter of 2019. in addition , management determined to discontinue the operation of firestorm franchising , llc , a division of firestorm , due to non-performance by franchisees . the company has also commenced an action for rescission of the original purchase of firestorm . as a result , we have completed the final steps of our announced change in strategic direction to sell lower margin assets and focus on our core technology segment . beginning in 2020 , all of the subsidiaries that were previously presented as part of professional services operations are classified as discontinued operations and not presented as part of continuing operations .
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's transition bonus ( see potential payments upon termination of employment or change in control ) ; · upon a termination of employment after the five year period commencing november 15 , 2006 by reason of death , disability , without cause or a resignation for good reason , the executive will story_separator_special_tag overview we are a holding company and conduct substantially all of our business operations through our subsidiaries . we are an international provider of business process outsourcing services , referred to as bpo , primarily focused on accounts receivable management , referred to as arm , and customer relationship management , referred to as crm , serving a wide range of clients in north america and abroad through our global network of over 100 offices . we also purchase and collect past due accounts receivable from consumer creditors such as banks , finance companies , retail merchants , utilities , healthcare companies , and other consumer-oriented companies . we operate our business in three segments : arm , crm and portfolio management . during 2009 , we generated approximately 50 percent of our arm revenue from the recovery of delinquent accounts receivable on a contingency fee basis . our arm contingency fees range from five percent for the management of accounts placed early in the accounts receivable cycle to 52 percent for accounts that have been serviced extensively by the client or by third-party providers . our average fee for arm contingency-based revenue across all industries was approximately 18 percent during 2009 and 17 percent during 2008 , and 2007. in addition , we generate revenue from certain contractual arm services . generally , revenue is earned and recognized upon collection of accounts receivable for contingency fee services and as work is performed for contractual services . we enter into contracts with most of our clients that define , among other things , fee arrangements , scope of services , and termination provisions . clients typically have the right to terminate their contracts on 30 or 60 days ' notice . approximately 50 percent of our arm revenue is generated from contractual collection services , where fees are based on a monthly rate or a per service charge , and other arm services . during 2009 , approximately 94 percent of our crm revenue was generated from inbound services , which consist primarily of customer service and technical support programs , and to a lesser extent acquisition and retention services . inbound services involve the processing of incoming calls , often placed by our clients ' customers using toll-free numbers , to a customer service representative for service , order fulfillment or information . during 2009 , outbound services , which consist of customer acquisition and customer retention services , represented approximately six percent of our crm revenue . historically , we have participated in the purchased accounts receivable business on an opportunistic basis . given the decline in liquidation rates , competition for purchased accounts receivable and the continued uncertainty of collectibility , we significantly reduced our purchases of accounts in 2009. we currently expect to limit our purchases in 2010 to certain of our non-cancelable forward flow commitments . additionally , we may opportunistically purchase accounts receivable that allow us to leverage meaningful third-party servicing contracts . our amended credit facility limits purchases in 2010 to $ 20 million and purchases in 2011 and beyond to $ 10 million . our operating costs consist principally of payroll and related costs ; selling , general and administrative costs ; and depreciation and amortization . payroll and related expenses consist of wages and salaries , commissions , bonuses , and benefits for all of our employees , including management and administrative personnel . selling , general and administrative expenses include telephone , postage and mailing costs , outside collection attorneys and other third-party collection services providers , and other collection costs , as well as expenses that directly support operations , including facility costs , equipment maintenance , sales and marketing , data processing , professional fees , and other management costs . due to the expected impact of the economic environment on our clients ' business in 2010 , in the fourth quarter of 2009 we reduced our budgeted volumes from certain of our clients in the crm reporting unit . as a result , our 2009 annual impairment test for goodwill indicated that the carrying value of our crm reporting unit exceeded its fair value and we recorded goodwill impairment charges of $ 24.7 million in the crm segment in 2009. we were not required to record trade name impairment charges in 2009. late in 2008 , the arm and portfolio management reporting units experienced a significant reduction in the collectability of both customer-placed and purchased accounts receivable resulting from deteriorating economic conditions . due to the expected impact of the economic environment , we reduced our 2009 budgeted expectations for each of our reporting units . as a result , our 2008 annual impairment test for goodwill and trade name indicated that the carrying values of all of our reporting units exceeded their fair values and we recorded goodwill impairment charges of $ 275.5 million and trade name impairment charges of $ 14.0 million in 2008. we were not required to record any impairment charges based upon the annual impairment tests in 2007. additionally , revenue for 2009 and 2008 was reduced by a $ 21.5 million and a $ 98.9 million , respectively , impairment charge recorded to increase the valuation allowance against the carrying value of the portfolios of purchased accounts receivable . 30 during the second half of 2007 and during 2008 , our payroll and related expenses were negatively impacted by the decline in the u.s. dollar against the canadian dollar . during 2009 , the u.s. dollar strengthened , resulting in a positive impact compared to the prior year . story_separator_special_tag due to the expected impact of the economic environment , we reduced our 2009 budgeted expectations for each of our reporting units . as a result , our 2008 annual impairment test for goodwill and trade name indicated that the carrying values of all of our reporting units exceeded their fair values . fair values were determined by using a combination of the market approach and income approach . our fair value calculations were based on projected financial results that were prepared in connection with our annual budget and forecasting process that included the expected impact of the current economic environment . the fair value calculations were also based on other assumptions including long-term growth rates of 4 percent and weighted average cost of capital ranging from 13 percent to 14 percent . as a result of the annual impairment testing , we recorded goodwill impairment charges of $ 24.7 million in the crm reporting unit in 2009. we were not required to record any trade name impairment charges in 2009. we recorded total goodwill impairment charges of $ 275.5 million and total trade name impairment charges of $ 14.0 million in the arm and portfolio management reporting units in 2008. we were not required to record any impairment charges based upon the annual impairment tests in 2007. we make significant assumptions to estimate the future revenue and cash flows used to determine the fair value of our reporting units . these assumptions include future growth rates , profitability , discount factors , market comparables , future tax rates , and other factors . variations in any of these assumptions could result in materially different calculations of impairment amounts . if the expected revenue and cash flows are not realized , additional impairment losses may be recorded in the future . we periodically evaluate the net realizable value of identifiable definite-lived intangible assets for impairment , based on the estimated undiscounted future cash flows , whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable . during 2009 , the company began to reduce its purchases of portfolios of accounts receivable and has made a decision to minimize further investments in purchased accounts receivable in the future . this decision resulted primarily from the continuation of the difficult collection environment , the competitive market for portfolio investments , as well as potential regulatory changes affecting the purchased accounts receivable business . as a result of this decision , the 32 company recorded an impairment charge of $ 5.3 million for the portfolio management reporting unit 's customer relationship intangible assets . revenue recognition for purchased accounts receivable in the ordinary course of accounting for purchased accounts receivable , estimates have been made by management as to the amount of future cash flows expected from each portfolio . we have historical collection records for all of our purchased accounts receivable which provide us a reasonable basis for our judgment that it is probable that we will ultimately collect the recorded amount of our purchased accounts receivable plus a premium or yield . the historical collection amounts also provide a reasonable basis for determining the timing of the collections . we use all available information to forecast the cash flows of our purchased accounts receivable including , but not limited to , historical collections , payment patterns on similar purchases , credit scores of the underlying debtors , seller 's credit policies , and location of the debtor . the estimated future cash flow of each portfolio is used to compute the internal rate of return , referred to as the irr , for each portfolio . the irr is used to allocate collections between revenue and amortization of the carrying values of the purchased accounts receivable . if the original collection estimates are lowered , an allowance is established in the amount required to maintain the original irr . if collection estimates are raised , increases are first used to recover any previously recorded allowances and then recognized prospectively through an increase in the irr over a portfolio 's remaining life . any increase in the irr must be used for subsequent revenue recognition and allowance testing . if management came to a different conclusion as to the future estimated collections , it could have had a significant impact on the amount of revenue that was recorded from the purchased accounts receivable . a five percent increase in the amount of future expected collections would have resulted in additional income of $ 2.5 million for the year ended december 31 , 2009 , largely as a result of lower allowances since increases in future expected collections are recognized to the extent sufficient to recover any allowances or to increase the expected irr . a five percent decrease in the amount of future expected collections would have resulted in additional loss of $ 2.5 million for the year ended december 31 , 2009 , largely as a result of higher allowances . income taxes deferred tax assets and liabilities are recognized using enacted tax rates for the effect of temporary differences between the book and tax bases of recorded assets and liabilities . deferred tax assets are reduced by a valuation allowance , if it is more likely than not that some portion or all of the deferred tax asset will not be realized . deferred taxes have not been provided on the cumulative undistributed earnings of foreign subsidiaries because such amounts are expected to be reinvested indefinitely . in assessing the realization of deferred tax assets , management considers whether it is more likely than not that some portion of the deferred tax assets will not be realized . the ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible or the net operating losses can be utilized .
| results of operations the following table sets forth selected historical statement of operations data ( amounts in thousands ) : replace_table_token_6_th year ended december 31 , 2009 compared to year ended december 31 , 2008 revenue . revenue increased $ 50.8 million , or 3.4 percent , to $ 1,563.9 million for 2009 , from $ 1,513.1 million in 2008. revenue for the year ended december 31 , 2009 was reduced by a $ 21.5 million impairment charge recorded to increase the valuation allowance against the carrying value of the portfolios of purchased accounts receivable , compared to an impairment charge of $ 98.9 million in 2008 . 34 revenue by segment ( amounts in thousands ) : replace_table_token_7_th arm 's revenue for 2009 included $ 60.5 million of intercompany revenue earned on services performed for portfolio management and crm 's revenue for 2009 included $ 5.1 million of intercompany revenue earned on services performed for arm , which were eliminated upon consolidation . arm 's revenue for 2008 included $ 82.8 million of intercompany revenue earned on services performed for portfolio management and crm 's revenue for 2008 included $ 2.9 million of intercompany revenue earned on services performed for arm , which were eliminated upon consolidation . the increase in arm 's revenue was primarily attributable to increased volume from new and existing clients in both first-party ( early stage ) and contingent collections as well as a full year of revenue from the osi acquisition completed on february 29 , 2008. this increase was offset in part by the weaker collection environment during 2009 and a $ 22.3 million decrease in fees from collection services performed for portfolio management . the decrease in crm 's revenue was primarily due to lower volumes from certain existing clients attributable to the impact of the economy on the clients ' business , partially offset by increased client volumes related to the implementation of new contracts during 2008 and 2009.
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in accordance with asc topic 740 , interest associated with unrecognized tax benefits is classified as income tax and penalties are classified in selling , general story_separator_special_tag the following management 's discussion and analysis should be read in conjunction with the company 's financial statements and the notes thereto and the other financial information appearing elsewhere in this report . in addition to historical information , the following discussion contains certain forward-looking information . see “ forward-looking statements ” above for certain information concerning those forward-looking statements . the company 's financial statements are prepared in u.s. dollars and in accordance with u.s. gaap . overview the company is primarily an e-business company designed around the “ business-to-customer ” concept , which means that the company 's products are sold directly to customers through its web site . the company 's “ business-to-customer ” model differs from the traditional “ business to business ” model where products are sold to distributors who then sell the products to ultimate customers . in addition , the company has begun to diversify its offerings of products and services in the recent past , as discussed above in item 1 “ business. ” 13 from 2009 through 2012 , the company constructed a factory and water plant to produce bottled natural soda water in baiquan , heilongjiang province , china . the bottled water factory is fully constructed and all manufacturing equipment has been purchased . after obtaining all the required licenses and passing iso22000 requirements , the factory started production in april 2013 , but production was suspended because tianquan was sued by a contractor who constructed the water plant . the production is expected to resume when the lawsuit is closed . the company operates through its subsidiaries and , unless otherwise noted , any reference to its operations includes the operations of its subsidiaries . industry wide trends that are relevant to the company 's business the nutritional supplement and cosmetic e-business markets have and continue to become increasingly competitive and are rapidly evolving . barriers to entry are minimal . current and new competitors can launch new websites at a relatively low cost . many competitors in this area have greater financial , technical and marketing resources than the company does . continued advancement in technology and increasing access to that technology is paving the way for growth in direct marketing . the company also faces competition for consumers from retailers , duty-free retailers , specialty stores , department stores and specialty and general merchandise catalogs , many of which have greater financial and marketing resources than the company has . notwithstanding the foregoing , the company believes that it is well-positioned within the asian consumer market with its current plan of supplying u.s. merchandise brands to consumers and that its exposure to both the asian and american cultures gives it a competitive advantage . there can be no assurance that the company will maintain its competitive edge or that the company will continue to provide solely u.s.-made merchandise . the company 's products are sensitive to business and personal discretionary spending levels and tend to decline or grow more slowly during economic downturns , including downturns in any of the company 's major markets . the current worldwide downturn is expected to adversely affect the company 's sales and liquidity for the foreseeable future . although the company has mitigated decreases in sales by lowering its levels of inventory to preserve cash on hand , the company does not know when the downturn will subside and when consumer spending will increase from its current depressed levels . even if consumer spending increases , the company is not sure when consumer spending will increase for its products , which will affect its liquidity . the global economy is currently undergoing a period of unprecedented volatility , and the future economic environment may continue to be less favorable than that of recent years . this has led , and could further lead , to reduced consumer spending , and which may affect adversely spending on nutritional and beauty products and other discretionary items , such as the company 's products . in addition , reduced consumer spending may force the company and its competitors to lower prices . these conditions may adversely affect the company 's revenues and profits . in addition , the company expects future operations to be affected by tobyto 's marketing and distribution of eft phones , ezgt 's marketing of the travel program and the company 's water bottling operations . story_separator_special_tag net of fees and commissions in the amount of approximately $ 4,400,000 , pursuant to the settlement agreement with meifu and transglobe . this asset had been previously written off . the settlement agreement was signed in october 2015 and the company received a settlement payment from meifu and transglobe in the form of property and cash of approximately $ 16,500,000 for settling its claim in taiwan . this increase in other income was offset by an accrual for tax risk of the sale transaction of approximately $ 4,400,000 related to the tax assessment received by the government and other costs directly associated with the settlement . 15 loss on disposal of securities available for sale loss on disposal of securities available for sale decreased to approximately $ 30,000 for the year ended march 31 , 2016 from approximately $ 53,000 for the year ended march 31 , 2015 mainly due to a decrease in the loss associated with the liquidation of funds held in one of the company 's investment accounts . gain on sales of long-term investment the gain on sales of long-term investment for the year ended march 31 , 2016 was nil as compared to approximately $ 2.4 million for the year ended march 31 , 2015 , which is mainly due to the sale in the prior year by the company of ctx shares that the company had previously written off . story_separator_special_tag the company 's overall working capital position changed to a deficiency of $ 9.8 million at march 31 , 2016 compared to a deficiency of $ 8.8 million at march 31 , 2015 as a result of accruals for commission of $ 1.6 million and tax risk of $ 4.4 million related to the settlement agreement of the investment in taiwan , offset by the reversal of more than $ 5.2 million of tax liabilities associated with the final report received from the irs in september 2015. there is no assurance that the company will be able to obtain further funds required for its continued working capital requirements . the ability of the company to meet its financial obligations and commitments will depend primarily upon the continued financial support of its directors and shareholders , the continued issuance of equity to new shareholders , and its ability to achieve and maintain profitable operations . there is substantial doubt about the company 's ability to continue as a going concern as the continuation of the company 's business is dependent upon obtaining further long-term financing . the issuance of additional equity securities by the company could result in a significant dilution of the equity interests of its current shareholders . obtaining commercial loans , assuming those loans would be available , will increase the company 's liabilities and future cash commitments . balance sheet items material changes in the company 's balance sheet items between march 31 , 2016 and march 31 , 2015 are discussed below : securities available for sale securities available for sale decreased to $ 810,344 for the year ended march 31 , 2016 compared to $ 2,132,397 for the year ended march 31 , 2015 , as the company sold certain securities to fund operations . inventories inventory decreased to $ 221,439 at march 31 , 2016 compared to $ 303,848 at march 31 , 2015 due to the sale of overstocked or products nearing expiration during the year to third parties , since the company only orders products on an “ as needed ” basis to avoid overstocking and lower inventory levels are adequate to meet the current demand . 17 property and equipment property and equipment increased to $ 10,129,691 for the year ended march 31 , 2016 compared to $ 894,129 for the year ended march 31 , 2015 , as a result of additional property in the amount of approximately $ 9,300,000 transferred by meifu for settling the company 's claim in taiwan and scheduled depreciation expense being recorded . related party receivable in february 2016 , the company advanced $ 1,000,000 to president jack qin related to the prepayment of expenses for business development activities planned by the company . the advance was repaid to the company in june 2016. accounts payable accounts payable increased to $ 2,138,078 at march 31 , 2016 compared to $ 980,045 at march 31 , 2015 , mainly due to an increase in legal fees for the year ended march 31 , 2016 compared to the year ended march 31 , 2015. related party payable related party payable increased to $ 97,500 at march 31 , 2016 compared to $ 93,750 at march 31 , 2015 , mainly due to an increase in consultant fees payable to jfl capital for the year ended march 31 , 2016 compared to the year ended march 31 , 2015. commission payable commission payable slightly decreased to $ 3,682,236 at march 31 , 2016 compared to $ 3,785,004 at march 31 , 2015 due to lower commissions earned by affiliates this year compared to last year . contingent liabilities contingent liabilities slightly decreased to $ 205,087 at march 31 , 2016 compared to $ 214,019 at march 31 , 2015 mainly due to the effect of exchange rate changes . other liabilities other liabilities increased to $ 6,601,774 at march 31 , 2016 compared to $ 5,874,187 at march 31 , 2015. the increase was mainly due to an accrual of mediator 's commission of $ 1,583,740 related to the negotiation with meifu and transglobe for the settlement of the investment in taiwan and an accrual for tax risk of the sale transaction of approximately $ 4,400,000 as part of settlement . the increase was offset by the reversal of approximately $ 5.3 million of accrued income tax liabilities as a result of the irs 's final tax assessment . unearned revenue unearned revenue slightly increased to $ 3,201,936 at march 31 , 2016 compared to $ 3,198,776 at march 31 , 2015. the recording of unearned revenue results from temporary delays associated with the recognition of revenue related to the sale of products or services to affiliates . non-controlling interest this item represents the interest in digital owned by others . non-controlling interest increased from $ 49,522 at march 31 , 2015 to $ 58,660 at march 31 , 2016 because digital recorded a loss during the year ended march 31 , 2016. investment the company lent $ 5,000,000 to ctx virtual technologies inc. , “ ctx , ” in july 2010. the loan to ctx was unsecured , bore interest at 8 % per year and had a term of one year to july 26 , 2011. at any time during the one-year term , the company could , at its option , convert the loan into 8,474,576 units , with each unit consisting of one share of ctx 's common stock and one warrant , to be increased by 25 % to 10,593,220 units if ctx common stock was not listed on any of the american stock exchange , the otc bulletin board or nasdaq by february 28 , 2011. on march 12 , 2011 , ctx elected to convert the full amount of $ 5,000,000 into 10,593,220 units and paid the company in full for all accrued and unpaid interest that it owed to the company .
| results of operations comparison for the years ended march 31 , 2016 and 2015 sales revenue , net sales revenues , net of commission expense , decreased to approximately $ 380,000 for the year ended march 31 , 2016 from approximately $ 750,000 for the year ended march 31 , 2015 primarily due to a decline in sales demand from the company 's affiliates . the company 's policy is to pay commissions to its affiliates upon receipt of the sales orders even though revenue is not recognized by the company until later when the products are delivered . in addition , sales orders dropped from $ 1.3 million to $ 0.4 million which caused the associated commission expense to decrease to approximately $ 209,000 for the year ended march 31 , 2016 from approximately $ 799,000 for the year ended march 31 , 2015. commissions paid to the company 's affiliates are considered to be a reduction of the selling prices of its products , and are recorded as a reduction of revenue . shipping charges shipping charges decreased to $ 62,000 for the year ended march 31 , 2016 from $ 218,000 for the year ended march 31 , 2015 mainly due to the reduction in gross sales . 14 cost of sales cost of sales consists of merchandise purchased from vendors . cost of sales decreased to approximately $ 220,000 for the year ended march 31 , 2016 from $ 315,000 for the year ended march 31 , 2015 mainly due to reductions in gross sales and sales of promotional products by $ 221,000 and $ 139,000 , respectively . cost of sales as a percentage of sales revenues for the year ended march 31 , 2016 was 58 % , higher than last year by 16 % , which is mainly due to vendor price increases during the year .
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our patented technology offers multiple features including the ability to sense an object 's size , depth , velocity , pressure , and proximity to any type of surface . in 2010 , we began licensing to original equipment manufacturers ( “ oems ” ) and tier 1 suppliers who embed our technology into products they develop , manufacture and sell . since 2010 , our licensing customers have sold approximately 56 million devices that use our technology . in mid-2017 , we augmented our licensing business and started to manufacture and ship sensor modules that incorporate our technology . we sell these embedded sensors to oems and tier 1 suppliers for use in their products . as of december 31 , 2017 , we had entered into forty-one technology license agreements with global oems and tier 1 suppliers . this compares with forty-one and forty technology license agreements as of december 31 , 2016 and 2015 , respectively . one license agreement was terminated in 2017. during the year ended december 31 , 2017 , we had nineteen customers using our touch technology in products that were being shipped to their customers . the majority of our license fees earned in 2017 and 2016 were from customer shipments of printers . the majority of our license fees earned in 2015 were from customer shipments of tablets and e-readers . as of december 31 , 2017 , our license customers in the automotive and printer markets have not released all the products that are currently in development and that are planned to go into production and market release over the next 12 to 24 months . we now offer our technology to our current and new customer under either a license agreement or a supply agreement , where we sell them a manufactured embedded sensor module that has been customized for use in their products . we anticipate our revenue will be generated by a combination of royalties from our existing and new license customers plus sales of our sensor modules . we will offer our current licensing customers a path to transition to a supply agreement where they purchase our sensor modules . this conversion process is expected to take several years . we intend to continue expanding our sensor module product offerings in 2018 , including new sensors for delivery to the automotive and other key markets in 2018. we expect that over time the sales of sensors components will constitute the majority of our revenue . in the fourth quarter of 2016 , we started selling airbar , a neonode branded consumer product incorporating one of our sensor modules , through distributors and directly to consumers . we have no current plans to develop new neonode branded products for the consumer markets . 19 critical accounting policies and estimates the consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the united states of america ( “ u.s . gaap ” ) and include the accounts of neonode inc. and its wholly owned subsidiaries , as well as pronode technologies ab ( sweden ) , a 51 % majority owned subsidiary of neonode technologies ab . the noncontrolling interests are reported below net loss including noncontrolling interests under the heading “ net loss attributable to noncontrolling interests ” in the consolidated statements of operations , below comprehensive loss under the heading “ comprehensive income loss attributable to noncontrolling interests ” in the consolidated statements of comprehensive loss and shown as a separate component of stockholders ' equity in the consolidated balance sheets . see “ noncontrolling interests ” for further discussion . all inter-company accounts and transactions have been eliminated in consolidation . the consolidated balance sheets at december 31 , 2017 and 2016 and the consolidated statements of operations , comprehensive loss and cash flows for the years ending 2017 , 2016 and 2015 include our accounts and those of our wholly owned subsidiaries , neonode technologies ab ( sweden ) , neonode americas inc. ( u.s. ) , neonode japan inc. ( japan ) , neon technology inc. ( u.s. ) , neno user interface solutions ab ( sweden ) , neonode korea ltd. ( south korea ) and neonode taiwan ltd. ( taiwan ) , as well as pronode technologies ab ( sweden ) , a 51 % majority owned subsidiary of neonode technologies ab . in june 2016 , we entered into a joint venture ( “ jv ” ) with a swedish based eye-tracking company smart eye ab . the name of this jv is neoeye ab ( “ neoeye ” ) . we use the equity method of accounting to record our investments in the common stock of each entity in which neonode has the ability to exercise significant influence , but does not own a majority equity interest . under the equity method , our investment is originally included in equity interests at cost , and is adjusted to recognize our share of net earnings or losses of the investee , in our consolidated balance sheets ; our share of net income ( loss ) is reported in our consolidated statements of operations according to our equity ownership in each entity . the accounting policies affecting our financial condition and results of operations are more fully described in note 2 to our consolidated financial statements . certain of our accounting policies require the application of judgment by management in selecting appropriate assumptions for calculating financial estimates , which inherently contain some degree of uncertainty . management bases its estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances . the historical experience and assumptions form the basis for making judgments about the reported carrying values of assets and liabilities and the reported amounts of revenue and expenses that may not be readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . story_separator_special_tag shipping documents and customer acceptance , when applicable , are used to verify delivery . ● the fee is fixed or determinable . we assess whether the fee is fixed or determinable based on the payment terms associated with the transaction and whether the sales price is subject to refund or adjustment . ● collectability is reasonably assured . we assess collectability based primarily on the creditworthiness of the customer as determined by credit checks and analysis , as well as the customer 's payment history . in instances where final acceptance of the product is specified by the customer , revenue is deferred until all acceptance criteria have been met . as our business and offerings are expected to evolve over time , our pricing practices may be required to be modified accordingly , which could result in changes in selling prices . we make sales to distributors and revenue from distributors is recognized based on a sell-through basis using sales and inventory information provided by these distributors . under the sell-through basis , accounts receivable is recognized and inventory is relieved upon shipment to the distributor as title to the inventory is transferred upon shipment , at which point we have a legally enforceable right to collection under normal terms . the associated sales and cost of sales are deferred and are included in deferred revenues in the consolidated balance sheet . when the related product is sold by our distributors to their end customers , at which time the ultimate price we receive is known , we recognize previously deferred revenues as sales and cost of sales . distributors participate in various cooperative marketing and other incentive programs , and we maintain estimated accruals and allowances for these programs . if actual credits received by distributors under these programs were to deviate significantly from our estimates , which are based on historical experience , our revenue could be adversely affected . a reserve for future sales returns is established based on historical trends in product return rates . the reserve for future sales returns as of december 31 , 2017 was $ 0.2 million and was recorded as a reduction of our revenue and increase of deferred revenue . if the actual future returns were to deviate from the historical data on which the reserve had been established , our revenue could be adversely affected . 22 accounts receivable and allowance for doubtful accounts our accounts receivable is stated at net realizable value . our policy is to maintain allowances for estimated losses resulting from the inability of our customers to make required payments . credit limits are established through a process of reviewing the financial history and stability of each customer . where appropriate , we obtain credit rating reports and financial statements of the customer when determining or modifying its credit limits . we regularly evaluate the collectability of our trade receivable balances based on a combination of factors . when a customer 's account balance becomes past due , we initiate dialogue with the customer to determine the cause . if it is determined that the customer will be unable to meet its financial obligation , such as in the case of a bankruptcy filing , deterioration in the customer 's operating results or financial position or other material events impacting its business , we record a specific allowance to reduce the related receivable to the amount we expect to recover . should all efforts fail to recover the related receivable , we will write off the account . we also record an allowance for all customers based on certain other factors including the length of time the receivables are past due and historical collection experience with customers . inventory inventory is stated at the lower of cost or net realizable value , using the first-in , first-out method ( “ fifo ” ) valuation method . net realizable value is the estimated selling prices in the ordinary course of business , less reasonably predictable costs of completion , disposal , and transportation . any adjustments to reduce the cost of inventories to their net realizable value are recognized in earnings in the current period . during the fourth quarter of 2017 , after a comprehensive evaluation of our airbar business we recorded a $ 1.1 million write-down , included in our cost of goods sold , to reduce our airbar specific component and finished goods inventory to estimated net realizable value and to revalue the purchase price from the initial order of one component by $ 0.12 each . the component was originally valued at an average price basis but due to slow selling inventory , we revalued at a higher specific price . the total price adjustment related to this component included in cost of sales was approximately $ 0.1 million . in addition , we recorded a $ 0.1 million write-down related to this component repricing which is included in our research and development expense . we also recorded a $ 0.5 million write-off related to production development units , included in inventory , that is included in our research and development expense . as of december 31 , 2017 , the company 's inventory consists primarily of components that will be used in the manufacturing of our sensor modules . we segregate inventory for reporting purposes by raw materials , work-in-process , and finished goods . investment in joint venture we invested $ 3,000 , a 50 % interest in neoeye ab . we account for our investment using the equity method of accounting since the investment provides us the ability to exercise significant influence , but not control , over the investee . significant influence is generally deemed to exist if we have an ownership interest in the voting stock of the investee of between 20 % and 50 % , although other factors , such as representation on the investee 's board of directors , are considered in determining whether the equity method of accounting is appropriate .
| results of operations we develop user interface and optical interactive touch and gesture solutions . since 2010 , under our licensing agreements , oems and tier 1 suppliers have sold approximately 56 million devices that use our technology . in mid-2017 , we augmented our licensing business and started to manufacture and sell sensor modules that incorporate our technology . a summary of our financial results is as follows ( in thousands , except percentages ) : replace_table_token_10_th 27 revenues all of our sales for the years ended december 31 , 2017 , 2016 and 2015 were to customers located in the united states , europe and asia . the following table presents revenues by market and nre for the years ended december 31 , 2017 , 2016 and 2015 ( dollars in thousands ) : replace_table_token_11_th replace_table_token_12_th replace_table_token_13_th we have historically licensed our technology to oems and tier 1 suppliers who embed it in their products based upon our custom designs and we charge these customers a non-recurring fee to offset our engineering costs . in the fourth quarter of 2016 , we began selling a neonode branded consumer product , airbar and in mid-2017 we added sales of embedded sensor modules to our business model . our new sensor modules provide a hardware based technology solution which allows our customers a way to use our zforce air technology while forgoing the complex design and manufacturing phase associated with our licensing model . we now earn revenue from a combination of licensing plus selling our embedded sensor modules and airbar . we plan to offer a pathway to our current license customers to convert from a license agreement to a supply agreement where they purchase our embedded sensor modules . if successful , this conversion process will take several years and is expected to only be applicable to new or redesigned products they may release in the future .
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unamortized debt issuance costs were $ 1.0 million and $ 1.7 million as of december 29 , 2019 and december 30 , 2018 , respectively . the company is subject to a number of customary covenants under its credit facility , including limitations on additional borrowings , acquisitions , capital expenditures , share repurchases , lease commitments , dividend payments , and requirements to maintain certain financial ratios . the company was in compliance with such covenants as of december 29 , 2019 . new credit facility on january 10 , 2020 , the company replaced its prior credit facility with a new amended and restated credit agreement ( the `` new credit facility `` ) which provides for a $ 161.5 million revolving line of credit and a $ 138.5 story_separator_special_tag management 's discussion and analysis of financial condition and results of operations provides a narrative of our financial performance and condition that should be read in conjunction with the accompanying consolidated financial statements . all comparisons under this heading between 2019 and 2018 refer to the fifty-two week periods ending december 29 , 2019 and december 30 , 2018 , respectively , unless otherwise indicated . overview description of business red robin gourmet burgers , inc. , a delaware corporation , together with its subsidiaries ( “ red robin , ” “ we , ” “ us , ” “ our ” or the “ company ” ) , primarily operates , franchises , and develops full-service restaurants with 556 locations in north america . as of december 29 , 2019 , the company operated 454 company-owned restaurants located in 38 states . the company also had 102 franchised full-service restaurants in 16 states and one canadian province as of december 29 , 2019 . the company operates its business as one operating and one reportable segment . our primary source of revenue is from the sale of food and beverages at company-owned restaurants . we also earn revenue from royalties and fees from franchised restaurants . the company 's fiscal year ends on the last sunday of each calendar year . most of our fiscal years have 52 weeks ; however , we experience a 53rd week once every five to six years . our discussions for fiscal years 2019 and 2018 both refer to 52 week fiscal years . story_separator_special_tag statements , with the exception of changes made due to the adoption of topic 842 ( leases ) , and , in the opinion of management , includes all adjustments , consisting only of normal recurring adjustments , necessary for a fair presentation of the information for the periods presented . certain percentage amounts in the table below do not total due to rounding as well as restaurant operating costs being expressed as a percentage of restaurant revenue and not total revenues . replace_table_token_4_th _ ( 1 ) expressed as a percentage of restaurant revenue rather than total revenue 28 revenues replace_table_token_5_th restaurant revenue , which comprises primarily food and beverage sales , decreased $ 26.7 million for the 52 week fiscal year ended december 29 , 2019 , or 2.0 % , as compared to the 52 week fiscal year ended december 30 , 2018 . the decrease was due to a $ 20.2 million decrease from closed restaurants , and a $ 7.7 million , or 0.6 % , decrease in comparable restaurant revenue , partially offset by a $ 1.2 million increase from newly opened restaurants in their first full year of operations . the comparable restaurant revenue decrease was driven by a 4.7 % decrease in guest count partially offset by a 4.1 % increase in average guest check . the increase in average guest check comprised a 2.1 % increase in pricing , a 1.7 % increase in menu mix primarily driven by the company 's current menu and promotional strategy , resulting in lower tavern burger sales and higher gourmet and finest burger sales , and a 0.3 % increase from lower discounting in 2019 compared to 2018. we are implementing a series of new strategic initiatives ; ( i ) enhancing our brand promise of memorable moments of connection with our guests , ( ii ) leveraging service model improvements and technology , and undertaking menu rationalization efforts in order to improve our dine-in experience , ( iii ) telling our story via consumer driven omni-channel messaging focused on our brand , and ( iv ) enhancing our focus on areas of profitable growth , including growing and enhancing our off-premise business , and our roll out of donatos® , a high quality pizza brand `` nested '' inside of red robin restaurants that is expected to drive incremental top-line sales and gross margin . our strategic initiatives serve to develop our brand , while enhancing the value proposition red robin provides to its dine-in and off-premise guests ; we believe our initiatives will drive increased guest counts , incremental margin growth , and increased comparable restaurant revenue . average weekly sales volumes represent the total restaurant revenue for all company-owned red robin restaurants for each time period presented , divided by the number of operating weeks in the period . comparable restaurant revenues include those restaurants that are in the comparable base at the end of each period presented . new restaurants are restaurants that are open but not included in the comparable category because they have not operated for five full quarters . fluctuations in average weekly net sales volumes for company-owned restaurants reflect the effect of comparable restaurant revenue changes as well as the performance of new and acquired restaurants during the period and the average square footage of our restaurants . franchise revenues comprise primarily royalty income and advertising fund contributions . story_separator_special_tag during 2018 , we determined that 41 company-owned restaurants were impaired , 19 of which had immaterial impairments . we recognized a non-cash impairment charge of $ 28.1 million as a result of the current and projected future results of these restaurants . the company reviewed each restaurant 's past and present operating performance combined with projected future results , primarily through projected undiscounted cash flows , which indicated impairment . the carrying amount of each restaurant was compared to its estimated fair value as determined by management . the impairment charge represents the excess of each restaurant 's carrying amount over its estimated fair value . the fair value measurement for asset impairment is based on significant inputs not observed in the market and thus represents a level 3 fair value measurement . for further information on other charges line items that were not comparable , refer to note 4 , other charges , of the notes to the consolidated financial statements in part ii , item 8 of this report interest expense interest expense in 2019 and 2018 was $ 10.2 million and $ 10.7 million , respectively . interest expense decreased in 2019 compared to the same period in 2018 primarily due to a lower weighted average outstanding debt balance partially offset by a higher weighted average interest rate . our weighted average interest rate in 2019 and 2018 was 5.1 % and 4.2 % , respectively . 31 income tax benefit income tax benefit was $ 14.3 million in 2019 , compared to an income tax benefit of $ 15.0 million in 2018. our effective income tax rate was a 64.5 % benefit in 2019 and a 70.0 % benefit in 2018. the decrease in the company 's 2019 effective tax benefit is attributable to a decrease in tax credits and an increase in the valuation allowance primarily driven by closing and refranchising all remaining company-operated restaurants in canada in the fourth quarter of 2019. liquidity and capital resources cash and cash equivalents increased $ 11.5 million to $ 30.1 million at december 29 , 2019 , from $ 18.6 million at the beginning of the fiscal year . we expect to continue to reinvest available cash flows from operations to pay down debt , maintain existing restaurants and infrastructure , make disciplined investment in growth projects , and repurchase our common stock . the company plans to use at least 50 % of available cash flows for ongoing de-leveraging of the business . cash flows the table below summarizes our cash flows from operating , investing , and financing activities for each period presented ( in thousands ) : replace_table_token_12_th operating cash flows net cash flows provided by operating activities decreased $ 68.4 million to $ 57.9 million in 2019 as compared to 2018 . the changes in net cash provided by operating activities are primarily attributable to a $ 19.2 million decrease in profit from operations compared to the same period in 2018 , as well as changes driven by other charges ( see note 4 , other charges , in item 8 of part ii in this report ) and timing of payments related to our operating assets and liabilities . investing cash flows net cash flows used in investing activities increased $ 7.2 million to $ 57.0 million in 2019 as compared to 2018 . the increase was due to increased investment in new restaurant technology partially offset by a decrease in restaurant openings during the year and lower restaurant maintenance capital expenditures . the following table lists the components of our capital expenditures , net of currency translation effect , for the fiscal year ended december 29 , 2019 ( in thousands ) : replace_table_token_13_th financing cash flows net cash flows provided by financing activities increased $ 84.0 million to $ 9.7 million in 2019 as compared to 2018 . the increase primarily resulted from a $ 86.2 million increase in net borrowings of long-term debt , offset by an increase of $ 2.0 million of cash used to repurchase the company 's common stock . credit facility on june 30 , 2016 , the company entered into a credit facility ( the “ credit facility ” ) , which provides for a $ 400 million revolving line of credit with a sublimit for the issuance of up to $ 25 million in letters of credit and swingline loans up to $ 15.0 million . on august 19 , 2019 , the company entered into a second amendment ( the “ amendment ” ) to the credit facility . the amendment increased the lease adjusted leverage ratio to 5.0 through december 29 , 2019 before returning to 4.75 thereafter . in addition , the amendment revised the definition of permitted acquisitions under the credit facility to correspond 32 with the change to the lease adjusted leverage ratio and clarified the classification of existing capital and operating leases . the company 's lease adjusted leverage ratio was 4.72 as of december 29 , 2019 . the lease adjusted leverage ratio is defined in section 1.1 of the credit facility , which is filed as exhibit 10.1 to the company 's current report on form 8-k filed with the sec on july 5 , 2016 , as further amended by the amendment filed as exhibit 10.2 to the company 's quarterly report on form 10-q filed with the sec on august 23 , 2019. the credit facility matures on june 30 , 2021 . loan origination costs associated with the credit facility are included as deferred costs in other assets , net in the accompanying consolidated balance sheets . as of december 29 , 2019 , the company had outstanding borrowings under the credit facility of $ 206.0 million , in addition to amounts issued under letters of credit of $ 7.5 million . amounts issued under letters of credit reduce the amount available under the credit facility but are not recorded as debt .
| financial and operational highlights the following summarizes the financial and operational highlights during the fifty-two weeks ended december 29 , 2019 : financial performance . ◦ restaurant revenue decreased $ 26.7 million , or 2.0 % , to $ 1.3 billion for the 52 weeks ended december 29 , 2019 , as compared to the 52 weeks ended december 30 , 2018 , due to a $ 20.2 million decrease from closed restaurants and a $ 7.7 million , or 0.6 % , decrease in comparable restaurant revenue , partially offset by a $ 1.2 million increase from newly opened restaurants in their first full year of operations . ◦ restaurant operating costs , as a percentage of restaurant revenue , increased 110 basis points to 82.1 % for the 52 weeks ended december 29 , 2019 , as compared to 81.0 % for the 52 weeks ended december 30 , 2018 . the increase was primarily due to a 70 basis point increase in labor costs and a 70 basis point increase in other operating costs , partially offset by a 30 basis point decrease in cost of sales . ◦ net loss was $ 7.9 million for the 52 weeks ended december 29 , 2019 compared to net loss of $ 6.4 million for the 52 weeks ended december 30 , 2018 . diluted loss per share was $ 0.61 for the 52 weeks ended 25 december 29 , 2019 , as compared to diluted loss per share of $ 0.49 for the 52 weeks ended december 30 , 2018 .
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in addition to our core ltl services , we offer a range of value-added services including container drayage , truckload brokerage , supply chain consulting and warehousing . more than 97 % of our revenue has historically been derived from transporting ltl shipments for our customers , whose demand for our services is generally tied to industrial production and the overall health of the u.s. domestic economy . in analyzing the components of our revenue , we monitor changes and trends in our ltl services using the following key metrics , which exclude certain transportation and logistics services where pricing is generally not determined by weight , commodity or distance : ltl revenue per hundredweight - this measurement reflects the application of our pricing policies to the services we provide , which are influenced by competitive market conditions and our growth objectives . generally , freight is rated by a class system , which is established by the national motor freight traffic association , inc. light , bulky freight typically has a higher class and is priced at higher revenue per hundredweight than dense , heavy freight . fuel surcharges , accessorial charges , revenue adjustments and revenue for undelivered freight are included in this measurement . revenue for undelivered freight is deferred for financial statement purposes in accordance with our revenue recognition policy ; however , we believe including it in our revenue per hundredweight metrics results in a better indicator of changes in this metric by matching total billed revenue with the corresponding weight of those shipments . revenue per hundredweight is a commonly-used indicator of pricing trends , but this metric can be influenced by many other factors , such as changes in fuel surcharges , weight per shipment , length of haul and the class , or mix , of our freight . as a result , changes in revenue per hundredweight do not necessarily indicate actual changes in underlying base rates . ltl weight per shipment - fluctuations in weight per shipment can indicate changes in the mix of freight we receive from our customers , as well as changes in the number of units included in a shipment . generally , increases in weight per shipment indicate higher demand for our customers ' products and overall increased economic activity . changes in weight per shipment can also be influenced by shifts between ltl and other modes of transportation , such as truckload and intermodal , in response to capacity , service and pricing issues . fluctuations in weight per shipment generally have an inverse effect on our revenue per hundredweight , as a decrease in weight per shipment will typically cause an increase in revenue per hundredweight . average length of haul - we consider lengths of haul less than 500 miles to be regional traffic , lengths of haul between 500 miles and 1,000 miles to be inter-regional traffic , and lengths of haul in excess of 1,000 miles to be national traffic . this metric is used to analyze our tonnage and pricing trends for shipments with similar characteristics , and also allows for comparison with other transportation providers serving specific markets . by analyzing this metric , we can determine the success and growth potential of our service products in these markets . changes in length of haul generally have a direct effect on our revenue per hundredweight , as an increase in length of haul will typically cause an increase in revenue per hundredweight . our primary revenue focus is to increase density , which is shipment and tonnage growth within our existing infrastructure . increases in density allow us to maximize our asset utilization and labor productivity , which we measure over many different functional areas of our operations including linehaul load factor , pickup and delivery ( “ p & d ” ) stops per hour , p & d shipments per hour , platform pounds handled per hour and platform shipments per hour . in addition to our focus on density and operating efficiencies , it is critical for us to obtain an appropriate yield , which is measured as revenue per hundredweight , on the shipments we handle . we are committed to a disciplined yield management process that focuses on individual account profitability . we believe yield management and improvements in efficiency are key components in our ability to produce profitable growth . our primary cost elements are direct wages and benefits associated with the movement of freight , operating supplies and expenses , which include diesel fuel , and depreciation of our equipment fleet and service center facilities . we gauge our overall 20 success in managing costs by monitoring our operating ratio , a measure of profitability calculated by dividing total operating expenses by revenue , which also allows for industry-wide comparisons with our competition . we continually upgrade our technological capabilities to improve our customer service and lower our operating costs . our technology provides our customers with visibility of their shipments throughout our network , increases the productivity of our workforce and provides key metrics that we use to monitor and enhance our processes . story_separator_special_tag of salaries and wages , which contributed to the overall improvement in total employee benefit costs as a percent of salaries and wages to 33.2 % for 2017 from 34.2 % for 2016. operating supplies and expenses increased $ 58.8 million , or 18.2 % in 2017 as compared to 2016 due primarily to increased costs of diesel fuel . the cost of diesel fuel , excluding fuel taxes , represents the largest component of operating supplies and expenses , and can vary based on both average price per gallon and consumption . the increase in our diesel fuel costs , excluding fuel taxes , was due primarily to a 23.5 % increase in our average cost per gallon of diesel fuel during 2017. in addition , our gallons consumed increased 4.3 % in 2017 as compared to 2016 due primarily to a 4.5 % increase in linehaul and p & d miles driven . story_separator_special_tag our group health and dental costs were higher in 2016 primarily due to a 5.8 % increase in the average cost per covered employee as compared to 2015. as a result , our employee benefit costs increased to 34.2 % of salaries and wages in 2016 as compared to 32.6 % in 2015. operating supplies and expenses decreased $ 30.9 million in 2016 as compared to 2015. these costs as a percent of revenue improved to 10.8 % of revenue in 2016 from 11.9 % of revenue in 2015 primarily due to a reduction in fuel costs . the cost of diesel fuel , excluding fuel taxes , represents the largest component of operating supplies and expenses , and can vary based on both average price per gallon and consumption . the decrease in our diesel fuel costs , excluding fuel taxes , during 2016 was due primarily to a 13.4 % decline in our average cost per gallon , while our fuel consumption remained relatively consistent between the periods compared despite the increase in miles driven . our fuel consumption benefited from an overall improvement in miles per gallon , which continues to improve as we add newer , more fuel-efficient equipment to our operations . we do not use diesel fuel hedging instruments and are therefore subject to market price fluctuations . other operating supplies and expenses , excluding diesel fuel , remained relatively consistent as a percent of revenue between the periods compared . depreciation and amortization increased $ 24.5 million due primarily to the assets acquired as part of our 2015 and 2016 capital expenditure programs . as a percent of revenue , our depreciation and amortization expense increased to 6.3 % in 2016 compared to 5.6 % in 2015. we believe depreciation will continue to increase based on our 2017 capital expenditure plan . while our investments in real estate , equipment and technology can increase our costs in the short-term , we believe these investments are necessary to support our continued growth and strategic initiatives . purchased transportation decreased $ 42.2 million , or 36.3 % in 2016 as compared to 2015. the decrease was due primarily to the strategic elimination of certain services in the second quarter of 2015 that reduced our use of third-party providers for the remainder of 2015 and throughout 2016. we continue to utilize purchased transportation services , when beneficial , to support our ltl services and other non-ltl services , including our container drayage and truckload brokerage services . 24 our effective tax rate in 2016 was 38.1 % as compared to 37.8 % in 2015. our effective tax rates in 2016 and 2015 were favorably impacted by various tax credits . our effective tax rate generally exceeds the federal statutory rate of 35 % due to the impact of state taxes , and to a lesser extent , certain other non-deductible items . liquidity and capital resources a summary of our cash flows is presented below : replace_table_token_13_th the change in our cash flows provided by operating activities during 2017 was impacted by an increase in income before income taxes of $ 98.2 million and an increase in depreciation and amortization of $ 15.9 million . these increases were more than offset by an increase in income taxes paid of $ 76.0 million and other fluctuations in certain working capital accounts . the change in our cash flows provided by operating activities during 2016 was impacted by an increase in depreciation and amortization of $ 24.5 million as compared to 2015. this increase was partially offset by an $ 8.9 million decrease in net income as well as other fluctuations in certain working capital accounts . the changes in cash flows used in investing activities for all periods were due to the timing of equipment purchases under our capital expenditure plans . changes in our capital expenditures are more fully described below in “ capital expenditures. ” the changes in cash flows used in financing activities for all periods were due primarily to fluctuations in capital returned to shareholders and fluctuations in our long-term debt , which includes our senior unsecured revolving line of credit . our financing arrangements are more fully described below under `` financing agreements . '' our return of capital to shareholders is more fully described below under `` stock repurchase program '' and `` dividends to shareholders , '' respectively . we have three primary sources of available liquidity : cash and cash equivalents , cash flows from operations and available borrowings under our senior unsecured revolving credit agreement , which is described below . we believe we also have sufficient access to debt and equity markets to provide other sources of liquidity , if needed . capital expenditures the table below sets forth our net capital expenditures for property and equipment , including those obtained through capital leases , for the years ended december 31 , 2017 , 2016 and 2015 : replace_table_token_14_th our capital expenditures varied based upon the projected increase in the number and size of our service center facilities to support our plan for long-term growth , our planned tractor and trailer replacement cycle and forecasted tonnage and shipment growth . expenditures for land and structures can be dependent upon the availability of land in the geographic areas where we are looking to expand . we expect to continue to maintain a high level of capital expenditures in order to support our long-term plan for market share growth . 25 we currently estimate capital expenditures will be approximately $ 510 million for the year ending december 31 , 2018 . approximately $ 200 million is allocated for the purchase of service center facilities , construction of new service center facilities or expansion of existing service center facilities , subject to the availability of suitable real estate and the timing of construction projects ; approximately $ 265 million is allocated for the purchase of tractors and trailers ; and approximately $ 45 million is allocated for investments in technology and other assets .
| results of operations the following table sets forth , for the years indicated , expenses and other items as a percentage of revenue from operations : replace_table_token_10_th ( 1 ) for the purpose of this table , interest expense is presented net of interest income . our financial results for 2017 reflect company record increases in revenue , net income and earnings per diluted share . we believe our results were driven by the strengthening economy and a favorable pricing environment during a period of tightening industry capacity . our consistent investments in our service center network and equipment have provided us with the capacity needed to serve our customers ' increasing freight demands and win market share . the increased freight density in our service center network and improvement in yield , combined with our continued focus on managing our variable costs , led to the 110 basis-point improvement in our operating ratio as compared to 2016. in addition to the increase in operating income , our net income also increased due in part to net tax benefits recognized in connection with the enactment of the tax act in december 2017. as a result , our net income and earnings per diluted share increased 56.8 % and 58.1 % , respectively , in 2017 as compared to 2016 . 21 2017 compared to 2016 key financial and operating metrics for 2017 and 2016 are presented below : replace_table_token_11_th revenue revenue increased $ 366.6 million , or 12.3 % as compared to 2016 due to a $ 364.0 million increase in ltl revenue and a $ 2.6 million increase in non-ltl revenue . ltl revenue was higher in 2017 due to increases in both ltl tons and yield .
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the complementary building products we distribute include siding , windows , insulation , waterproofing systems , wallboard , acoustical ceilings , and other specialty exterior and interior building products . we purchase products from a large number of manufacturers and then distribute these goods to a customer base consisting of contractors , and to a lesser extent , home builders , retailers , and other building materials suppliers . as of september 30 , 2019 , we operated 529 branches throughout all 50 states in the u.s. and 6 provinces in canada . we offer one of the most extensive assortments of high-quality branded products in the industry with approximately 140,000 skus available across our branch network , enabling us to deliver products to serve over 110,000 customers on a timely basis . effective execution of both our sales and operating plans enables us to grow beyond the relative strength of the markets we serve . our business model is a bottom-up approach , where each of our branches uses its regional knowledge and experience to assist with the development of a marketing plan and product mix that is best suited for its respective market . local alignment with overall strategic goals provides the foundation for significant ownership of results at the branch level . our distinctive operating model and branch level autonomy differentiate us from the competition . we provide our customers with industry-leading digital solutions , including beacon pro+ , our innovative e-commerce portal , and beacon 3d+ , an in-home visualizer and dynamic modeling tool for our residential customers . these platforms help our customers save time , work more efficiently and grow their business . additional value-added services we offer include , but are not limited to , job site delivery , custom designed tapered roofing systems , metal fabrication and trade credit . we consider customer relations and our employees ' knowledge of roofing and building materials to be vital to our ability to increase customer loyalty and maintain customer satisfaction . our customers ' business success can be enhanced when they are supported by our efficient and effective distribution network . we invest significant resources in professional development , management skills , product knowledge , and operational proficiency . we pride ourselves on providing these capabilities developed on a foundation of continuous improvement that drives service excellence , productivity and efficiency . we seek opportunities to expand our business operations through both acquisitions and organic growth ( opening branches , growing sales with existing customers , adding new customers and introducing new products ) . our main acquisition strategy is to target market leaders that do business in geographic areas that we currently do not service or that complement our existing regional operations . we pursue organic growth opportunities that allow us to penetrate deeper into target markets and establish a greater presence . the most recent successful execution of our growth strategy is summarized by the following : on january 2 , 2018 , we completed the acquisition of allied building products corp. ( “ allied ” ) , one of the country 's largest exterior and interior building products distributors , for $ 2.88 billion ( the “ allied acquisition ” ) . this significant acquisition expanded our geographic footprint , enhanced our scale and market presence , diversified our product offerings , and positioned us to provide new growth opportunities that will increase our long-term profitability . we completed two additional acquisitions in 2018 , as well as five more in 2017. in 2019 , we opened a total of nine new branch locations across alabama , california , florida , nevada , north carolina , pennsylvania and texas . we opened three new branch locations in 2018 as well as four more in 2017. general we sell all materials necessary to install , replace and repair residential and non-residential roofs , including : shingles , standard and specialty ; single-ply roofing ; metal roofing and accessories ; 22 modified bitumen ; built-up roofing ; insulation ; slate and tile roofing ; fasteners , coatings and cements ; and other roofing accessories . we also sell complementary building products such as : vinyl , wood and fiber cement siding ; doors , windows and millwork ; decking and railing ; building insulation ; waterproofing systems ; wallboard ; and acoustical ceilings . we serve over 110,000 customers , none of which individually represents more than 1 % of our total net sales . many of our customers are small to mid-size contractors with relatively limited capital resources . we maintain strict credit review and approval policies , which has helped to keep losses from uncollectible customer receivables within our expectations . our expenses consist primarily of the cost of products purchased for resale , labor , fleet , occupancy , and selling and administrative expenses . story_separator_special_tag an increase in payroll and employee benefit costs of $ 21.1 million , mainly due to annual merit increases , payroll taxes , and insurance costs ; an increase in real property and facility-related costs of $ 6.1 million , composed mainly of increases in warehouse and building maintenance expenses ; and an increase in selling expense of $ 2.5 million , mainly due to higher sales volume and related costs ; partially offset by : a net decrease in general and administrative expense of $ 13.8 million , mainly due to higher incursion of acquisition-related costs in the prior period ; and a decrease in amortization expense of $ 10.9 million , mainly due to the scheduled declining run-rate of intangible amortization related to acquisitions . interest expense , financing costs and other interest expense , financing costs and other expense was $ 158.5 million in 2019 , compared to $ 136.5 million in 2018. the increase was mainly driven by incremental interest costs from the financing of the allied acquisition due to the additional quarter in 2019 over which the related debt was outstanding . story_separator_special_tag we then repay any such borrowings with cash flows from operations . we have funded most of our capital expenditures with cash on hand or through increased bank borrowings , including equipment financing , and then have reduced those obligations with cash flows from operations . 28 we believe we have adequate current liquidity and availability of capital to fund our present operations , meet our commitments on our existing debt and fund anticipated growth , including expansion in existing and targeted market areas . we seek potential acquisitions from time to time and hold discussions with certain acquisition candidates . if suitable acquisition opportunities or working capital needs arise that require additional financing , we believe that our financial position and earnings history provide a sufficient base for obtaining additional financing resources at reasonable rates and terms . we may also choose to issue additional shares of common stock or preferred stock in order to raise funds . the following table summarizes our cash flows for the periods indicated ( in thousands ) : replace_table_token_17_th operating activities net cash provided by operating activities was $ 212.7 million in 2019 , compared to $ 539.4 million in 2018. cash from operations decreased $ 326.7 million due to an incremental cash outflow of $ 314.5 million stemming from changes to our net working capital , mainly driven by comparatively larger cash outflows related to accounts payable , accrued expenses and prepaid expenses , as well as a decrease in net income after adjustments for non-cash items of $ 12.3 million . investing activities net cash used in investing activities was $ 211.7 million in 2019 , compared to $ 2.78 billion in 2018. the $ 2.57 billion decrease in investing cash spend was primarily due to the impact of the allied acquisition in 2018 , partially offset by the $ 164.0 million payment resulting from the 338 ( h ) ( 10 ) election made in october 2018 ( see note 3 in the notes to the condensed consolidated financial statements ) . financing activities net cash used in financing activities was $ 58.8 million in 2019 , compared to $ 2.24 billion provided by financing activities in 2018. the financing cash flow decrease of $ 2.29 billion was primarily due to a net $ 1.95 billion decline in cash inflow related to financing arrangements that we entered into in connection with the allied acquisition in 2018 ( see note 9 in the notes to the consolidated financial statements ) , as well as the $ 400.0 million in gross proceeds we received from the issuance of preferred stock in 2018 ( see note 3 in the notes to the consolidated financial statements ) . monitoring and assessing collectability of accounts receivable we perform periodic credit evaluations of our customers and typically do not require collateral , although we typically obtain payment and performance bonds for any type of public work and can lien projects under certain circumstances . consistent with industry practices , we require payment from most customers within 30 days , except for sales to our non-residential roofing contractors , which we typically require to pay in 60 days . as our business is seasonal in certain geographic regions , our customers ' businesses are also seasonal . sales are lowest in the winter months and our past due accounts receivable balance as a percentage of total receivables generally increases during this time . throughout the year , we closely monitor our receivables and record estimated reserves based upon our judgment of specific customer situations , aging of accounts and our historical write-offs of uncollectible accounts . our divisional credit offices are staffed to manage and monitor our receivable aging balances and our systems allow us to enforce pre-determined credit approval levels and properly leverage new business . the credit pre-approval process denotes the maximum credit that each level of management can approve , with the highest credit amount requiring approval by our ceo and cfo . there are daily communications with branch and field staff . our divisional offices conduct periodic reviews with their branch managers , various regional management staff and the chief credit officer . depending on the state of the respective division 's receivables , these reviews can be weekly , bi-weekly or monthly . additionally , the divisions are required to submit a monthly receivable forecast to the chief credit officer . on a monthly basis , the chief credit officer reviews and discusses these forecasts , as well as a prior month recap , with the company 's executive management team . periodically , we perform a specific analysis of all accounts past due and write off account balances when we have exhausted reasonable collection efforts and determined that the likelihood of collection is remote based upon the following factors : aging statistics and trends ; 29 customer payment history ; review of the customer 's financial statements when available ; independent credit reports ; and discussions with customers . we still pursue collection of amounts written off in certain circumstances and credit the allowance for any subsequent recoveries . over the past three fiscal years , bad debt expense has been , on average , 0.08 % of net sales . the continued limitation of bad debt expense is primarily attributed to the continued strengthening of our collections process and overall credit environment . commitments as of september 30 , 2019 , our contractual obligations were as follows ( in thousands ) : replace_table_token_18_th 1 represent principal amounts for 2023 senior notes and 2025 senior notes . in october 2019 , the 2023 senior notes were fully redeemed and replaced in connection with re-financing efforts ( see note 20 in the notes to the consolidated financial statements ) . 2 interest payments reflect all currently scheduled and projected amounts as calculated using future libor projections .
| results of operations the following tables set forth consolidated statement of operations data and such data as a percentage of total net sales for the periods presented ( in thousands ) : replace_table_token_9_th 23 replace_table_token_10_th in managing our business , we consider all growth , including the opening of new branches , to be organic growth unless it results from an acquisition . when we refer to growth in existing markets or organic growth , we include growth from existing and newly opened branches but exclude growth from acquired branches until they have been under our ownership for at least four full fiscal quarters at the start of the fiscal reporting period . we believe the existing market information is useful to investors because it helps explain organic growth or decline . when we refer to regions , we are referring to our geographic regions . when we refer to our net product costs , we are referring to our invoice cost less the impact of short-term buying programs ( also referred to as “ special buys ” given the manner in which they are offered ) . as of september 30 , 2019 , we had a total of 529 branches in operation . our existing market calculations include the operating results of the 312 branches that meet our definition ( 217 branches were excluded because they were acquired after the start of fiscal year 2018 ) . comparison of the years ended september 30 , 2019 and 2018 the following table summarizes our results of operations by market type ( existing and acquired ) for the periods presented ( in thousands ) : replace_table_token_11_th _ 1 total operating expense for 2019 and 2018 includes $ 29.2 million ( none from acquired markets ) and $ 54.4 million ( $ 0.9 million from acquired markets ) , respectively , of acquisition costs and business restructuring costs . acquired market operating expense for 2019 reflects full year of impact from the allied acquisition , compared to three quarters in 2018 .
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level 3 - fair value is determined using one or more significant inputs that are unobservable in active markets at the measurement date , such as a pricing model , discounted cash flow , or similar technique . the company utilizes fair value measurements to account for certain items and account balances within its consolidated financial statements . fair value measurements may also be utilized on a nonrecurring basis , such as for the impairment of long-lived assets . the fair value of financial instruments , including cash and cash equivalents , accounts receivable and notes payable , approximate their carrying amounts due to the short term nature of these instruments . in addition , as of december 31 , 2013 , the notes payable story_separator_special_tag for purposes of this management 's discussion and analysis of financial condition and results of operation , references to “ we , ” “ our , ” “ us ” or similar terms when used in a historical context refer to lgi homes , inc. and its subsidiaries . see note 1 “ organization and business — initial public offering and reorganization transactions ” and note 2 `` acquisition of lgi/gtis joint venture partners ' interests '' to our consolidated financial statements included in part ii , item 15 of this annual report on form 10-k for more information regarding the reorganization transactions , the initial public offering and our acquisitions of our joint venture partners ' interests in the lgi/gtis joint ventures . story_separator_special_tag and value of our business . adjusted ebitda provides an indicator of general economic performance that is not affected by fluctuations in interest rates or effective tax rates , levels of depreciation or amortization and items considered to be non-recurring . accordingly , our management believes that this measurement is useful for comparing general operating performance from period to period . other companies may define adjusted ebitda differently and , as a result , our measure of adjusted ebitda may not be directly comparable to adjusted ebitda of other companies . although we use adjusted ebitda as a financial measure to assess the performance of our business , the use of adjusted ebitda is limited because it does not include certain costs , such as interest and taxes , necessary to operate our business . adjusted ebitda should be considered in addition to , and not as a substitute for , net income in accordance with gaap as a measure of performance . our presentation of adjusted ebitda should not be construed as an indication that our future results will be unaffected by unusual or nonrecurring items . our adjusted ebitda is limited as an analytical tool , and you should not consider it in isolation or as a substitute for analysis of our results as reported under gaap . please see “ —non-gaap measures—adjusted ebitda ” for a reconciliation of adjusted ebitda to net income , which is the gaap financial measure that our management believes to be most directly comparable . 34 year ended december 31 , 2013 compared to year ended december 31 , 2012 homes sales . our home sales revenues and closings by division for the year ended december 31 , 2013 and 2012 were as follows ( dollars in thousands ) : replace_table_token_5_th home sales revenues for the year ended december 31 , 2013 were $ 160.1 million , an increase of $ 86.2 million , or 116.8 % , from $ 73.8 million for the year ended december 31 , 2012. home sales revenues represented approximately 98.3 % and 96.8 % of our total revenues for the year ended december 31 , 2013 and 2012 , respectively . the increase in home sales revenues is primarily due to a 98.1 % increase in homes closed and an increase in the average selling price per home during the year ended december 31 , 2013 as compared to the year ended december 31 , 2012. the average selling price per home closed during the year ended december 31 , 2013 was $ 150,722 , an increase of $ 12,998 , or 9.4 % , from the average selling price per home of $ 137,724 for the year ended december 31 , 2012. we closed 1,062 homes during the year ended december 31 , 2013 , as compared to 536 homes closed during the year ended december 31 , 2012. during the year ended december 31 , 2013 , we averaged 13.8 active communities as compared to 6.6 for the year ended december 31 , 2012 , a 109.1 % increase . management and warranty fees . management and warranty fees for the year ended december 31 , 2013 were $ 2.7 million , as compared to $ 2.4 million for the year ended december 31 , 2012. the increase in management and warranty fees is primarily attributable to an increase in the number of active communities and the geographic expansion of the lgi/gtis joint ventures ' operations during 2013. total home closings on a combined basis for the lgi/gtis joint ventures were 686 and 526 for the years ended december 31 , 2013 and 2012 , respectively . cost of sales and gross margin ( home sales revenues less cost of sales ) . cost of sales increased for the year ended december 31 , 2013 to $ 121.3 million , an increase of $ 66.8 million , or 122.5 % , from $ 54.5 million for the year ended december 31 , 2012. this increase is primarily due to a 98.1 % , increase in homes closed during 2013 as compared to 2012. gross margin for the year ended december 31 , 2013 was $ 38.7 million , an increase of $ 19.5 million , or 100.8 % , from $ 19.3 million for the year ended december 31 , 2012. gross margin as a percentage of home sales revenues was 24.2 % for the year ended december 31 , 2013 and 26.1 % for the year ended december 31 , 2012. the decrease in gross margin as a percentage of home sales story_separator_special_tag the increases in management and warranty fees are primarily attributable to an increase in the number of active communities and the geographic expansion of the operations of the lgi/gtis joint ventures . cost of sales and gross margin ( home sales revenue less cost of sales ) . cost of sales increased for the year ended december 31 , 2012 to $ 54.5 million , an increase of $ 17.8 million , or 48.6 % , from $ 36.7 million for the year ended december 31 , 2011. this increase is primarily due to a 42.6 % increase in home closings during 2012 as compared to 2011 and an increase in raw material prices . our gross margin for the year ended december 31 , 2012 was $ 19.3 million , an increase of $ 6.7 million , or 53.4 % , from $ 12.6 million for the year ended december 31 , 2011. the increase in our gross margin was primarily related to new communities being acquired at lower average lot costs resulting in lower basis , partially offset by increases in construction costs and other home plan changes . gross margin as a percentage of sales slightly increased from 25.5 % for the twelve months ended december 31 , 2011 to 26.1 % for the twelve months ended december 31 , 2012 . 36 selling expenses . selling expenses for the year ended december 31 , 2012 were $ 7.3 million , an increase of $ 2.4 million , or 48.8 % , from $ 4.9 million for the year ended december 31 , 2011. this increase is largely due to the higher number of home closings and the 37.5 % growth in the average number of active communities in 2012 as compared to 2011. general and administrative . general and administrative expenses for the year ended december 31 , 2012 were $ 6.1 million , an increase of $ 1.0 million , or 18.9 % , from $ 5.1 million for the year ended december 31 , 2011. the increase in general and administrative expenses is primarily due to the higher number of home closings and active communities in 2012 as compared to 2011. additionally , we experienced a rapid pace of growth through the year ended december 31 , 2012 , and as a result , hired more employees . income from unconsolidated joint ventures . income from the lgi/gtis joint ventures for the year ended december 31 , 2012 was $ 1.5 million , an increase of $ 0.8 million , or 113.6 % , from $ 0.7 million for the year ended december 31 , 2011. the increase is primarily attributed to the recording of net earnings in accordance with the terms of the respective joint venture agreements . combined net earnings of the lgi/gtis joint ventures for the year ended december 31 , 2012 was $ 10.2 million , an increase of $ 5.4 million , or 112.5 % , from $ 4.8 million for the year ended december 31 , 2011. the increase in earnings is primarily related to an increase in closed units from 251 for 2011 to 526 for 2012 as the lgi/gtis joint ventures added additional communities in their markets . as of december 31 , 2012 , none of the lgi/gtis joint ventures had achieved priority returns based on the terms of their respective joint venture agreements . income attributable to non-controlling interests . income attributable to non-controlling interests for the year ended december 31 , 2012 was $ 0.2 million , a $ 1.0 million decrease from $ 1.2 million for the year ended december 31 , 2011. income attributable to non-controlling interests relates to income from the lgi homes sterling lakes , llc project , which was closed out by the end of 2012. operating income and net income . operating income for the year ended december 31 , 2012 was $ 9.9 million , an increase of $ 5.4 million , or 120.8 % , from $ 4.5 million for the year ended december 31 , 2011. net income for the year ended december 31 , 2012 was $ 9.9 million , an increase of $ 5.4 million , or 118.7 % , from $ 4.5 million for the year ended december 31 , 2011. the increases are primarily attributed to a 160 -unit increase in homes closed during 2012 as compared to 2011. unaudited pro forma financial information the following unaudited pro forma statements of operations have been developed by applying pro forma adjustments to our audited statements of operations for the years ended december 31 , 2013 and 2012 and audited financial statements of the lgi/gtis joint ventures , included elsewhere in this annual report . the unaudited pro forma statements of operations for the year ended december 31 , 2013 and 2012 give effect to the gtis acquisitions as if they had occurred on january 1 , 2012. the unaudited pro forma adjustments are based upon available information and certain assumptions that we believe are reasonable under the circumstances . the unaudited pro forma financial data is presented for informational purposes only . the unaudited pro forma financial data does not purport to represent what our results of operations would have been had the gtis acquisitions actually occurred on the date indicated and does not purport to project our results of operations for any future period . the unaudited pro forma financial statements should be read in conjunction with the information contained in other sections of this annual report including “ selected financial data , ” in our historical audited financial statements and related notes thereto , the audited financial statements of the lgi/gtis joint ventures and related notes included elsewhere in this annual report , and other sections of this “ management 's discussion and analysis of financial condition and results of operations ” appearing elsewhere in this annual report . all pro forma adjustments and their underlying assumptions are described more fully in the notes to our unaudited pro forma statements of operations .
| key results key financial results as of and for the year ended december 31 , 2013 , as compared to the same period in 2012 , were as follows : homes closed increased 98.1 % to 1,062 homes from 536 homes with an increase in the average sales price of our homes of 9.4 % to $ 150,722 . on a pro forma basis , homes closed increased 52.3 % to 1,617 homes from 1,062 homes with an increase in the average sales price of our homes of 10.4 % to $ 149,018 . home sales revenues increased 116.8 % to $ 160.1 million from $ 73.8 million . on a pro forma basis , home sales revenues increased 68.1 % to $ 241.0 million from $ 143.4 million . gross margin as a percentage of home sales revenues decreased to 24.2 % from 26.1 % . on a pro forma basis , gross margin as a percentage of home sales revenues decreased to 25.4 % from 27.3 % . adjusted gross margin as a percentage of home sales revenues decreased to 27.1 % from 27.4 % . on a pro forma basis , adjusted gross margin as a percentage of home sales revenues decreased to 27.3 % from 28.0 % . adjusted ebitda margin as a percentage of home sales revenues decreased to 13.3 % from 14.9 % . on a pro forma basis , adjusted ebitda margin as a percentage of home sales revenues decreased to 11.8 % from 14.0 % . on a pro forma basis , active communities at the end of 2013 increased from 15 to 25 including our expansion into the florida and southeast divisions .
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because of the inherent limitations , internal control over financial reporting may not prevent or detect misstatements . also , projections of any evaluation of effectiveness to future periods are subject to story_separator_special_tag you should read the following discussion in conjunction with our consolidated financial statements and related notes appearing elsewhere in this form 10-k. in addition to historical information , this discussion contains forward-looking statements that involve risks , uncertainties and assumptions that could cause actual results to differ materially from our expectations . factors that could cause such differences include those described in “ risk factors ” and elsewhere in this form 10-k. certain tabular information may not foot due to rounding . overview since our founding 42 years ago , we have grown to be a large provider of industrial products to the u.s. market . today , we serve approximately 9,000 customers . our products are used in mro activities and related projects , as well as for larger-scale projects in the utility , industrial and infrastructure markets and a diverse range of industrial applications including communications , energy , engineering and construction , general manufacturing , mining , marine construction and marine transportation , infrastructure , oilfield services , petrochemical , transportation , utility , wastewater treatment and food and beverage . activity in the mro market has been inconsistent , while the level of competition has increased . our revenue is driven in part by the level of capital spending within the end-markets we serve . because many of these end-markets defer capital expenditures during periods of economic downturns , our business has experienced cyclicality . our revenue has been and will continue to be impacted by fluctuations in capital spending and by our ability to drive demand through our sales and marketing initiatives and the continued development and marketing of our private branded products , such as lifeguard . the recent increased levels of economic activity and commodity prices have impacted sales and the level of demand . our direct costs will continue to be influenced significantly by the prices we pay our suppliers to procure the products we distribute to our customers . changes in these costs may result , for example , from increases or decreases in raw material costs , changes in our relationships with suppliers or changes in vendor rebates . our operating expenses will continue to be affected by our investment in sales , marketing and customer support personnel and commissions paid to our sales force for revenue and profit generated . some of our operating expenses are related to our fixed infrastructure , including rent , utilities , administrative salaries , maintenance , insurance and supplies . to meet our customers ' needs for an extensive product offering and short delivery times , we will need to continue to maintain adequate inventory levels . our ability to obtain this inventory will depend , in part , on our relationships with suppliers . critical accounting policies and estimates critical accounting policies are those that both are important to the accurate portrayal of a company 's financial condition and results of operations , and require subjective or complex judgments , often as a result of the need to make estimates about the effect of matters that are inherently uncertain . in order to prepare financial statements that conform to accounting principles generally accepted in the united states , commonly referred to as gaap , we make estimates and assumptions that affect the amounts reported in our financial statements and accompanying notes . certain estimates are particularly sensitive due to their significance to the financial statements and the possibility that future events may be significantly different from our expectations . we have identified the following accounting policies as those that require us to make the most subjective or complex judgments in order to fairly present our consolidated financial position and results of operations . actual results in these areas could differ materially from management 's estimates under different assumptions and conditions . inventories inventories are valued at the lower of cost , using the average cost method , and net realizable value . we continually monitor our inventory levels at each of our distribution centers . our reserve for inventory is based on the age of the inventory , movements of our inventory over the prior twelve months and the experience of our purchasing and sales departments in estimating demand for the product in the succeeding year . our inventories are generally not susceptible to technological obsolescence . a 20 % change in our estimate at december 31 , 2017 would have resulted in a change in income before income taxes of $ 0.8 million . 14 intangible assets the company 's intangible assets , excluding goodwill , represent tradenames and customer relationships . tradenames are not being amortized and are treated as indefinite-lived assets . tradenames are tested for recoverability on an annual basis in october of each year , or when there is a triggering event . before testing its indefinite-lived assets , the company considers whether or not to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more-likely-than-not that the fair value is less than its carrying amount and whether an impairment test is required . the annual qualitative test for 2017 showed no indications of impairment . the company assigns useful lives to its intangible assets based on the periods over which it expects the assets to contribute directly or indirectly to the future cash flows of the company . customer relationships are amortized over 6 to 9 year useful lives . if events or circumstances were to indicate that any of the company 's definite-lived intangible assets might be impaired , the company would assess recoverability based on the estimated undiscounted future cash flows to be generated from the applicable intangible asset . story_separator_special_tag the most significant assumptions used in the discounted cash flow methodology are the discount rate , the customer attrition rate and expected future revenue and operating margins , which vary among reporting units . if actual results are not consistent with our assumptions and judgments used in estimating future cash flows and asset fair values , we may be exposed to future impairment losses that could be material to our results of operations . the annual goodwill impairment qualitative test was performed as of october 1 , 2017 , related to the southern and vertex reporting units . based on the company 's assessment of these tests , which compared current year to date performance to plan , the company does not believe it is more-likely-than- not that the fair values of these reporting units are less than their respective carrying values . if there are future reductions in our market capitalization and market multiples , or the projected performance is not achieved , these reporting units could be at risk of failing the second step in the future . income taxes the company determines deferred tax assets and liabilities based on differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse . on december 22 , 2017 , the tax cuts and jobs act ( “ the act ” ) was signed into law , making significant changes to the us internal revenue code . the company has made a reasonable estimate of the effects , including re-measurement on its existing deferred tax balances and re-evaluating the valuation allowance on the deferred tax assets not expected to be realized , as of december 31 , 2017. the company is still analyzing the act and refining its calculations , which could potentially impact the measurement of the deferred tax balances . the company is also assessing the impact of the provisions of the act which do not apply until 2018. estimates , judgments and assumptions are required in determining whether deferred tax assets will be fully or partially realized . the company establishes a valuation allowance to reduce the deferred tax assets when it is more likely than not that some portion or all of the deferred tax assets will not be realized . in evaluating the ability to realize deferred tax assets , the company considers all available positive and negative evidence , in determining whether , based on the weight of that evidence , a valuation allowance is needed for part or all of the deferred tax assets . in determining the need for a valuation allowance on the company 's deferred tax assets the company places greater weight on recent and objectively verifiable current information , as compared to more forward-looking information that is used in valuing other assets on the balance sheet . the company has considered taxable income in prior carryback years , future reversals of existing taxable temporary differences , future taxable income , and tax planning strategies in assessing the need for the valuation allowance . the company establishes liabilities for estimated tax issues , and the provisions and benefits resulting from changes to those liabilities are included in our annual tax provision along with related interest . the company recognizes interest on any tax issue as a component of interest expense and any related penalties in other operating expenses . sales we generate most of our sales by providing industrial products to our customers , as well as billing for freight charges . we recognize revenue upon shipment of our products to customers from our distribution centers or directly from our suppliers . sales incentives earned by customers are accrued in the same month as the shipment is invoiced and are accounted for as a reduction in sales . 16 cost of sales cost of sales consists primarily of the average cost of the industrial products that we sell . we also incur shipping and handling costs in the normal course of business . cost of sales also reflects cash discounts for prompt payment to vendors and vendor rebates generally related to annual purchase targets , as well as inventory obsolescence charges . operating expenses operating expenses include all expenses , excluding freight , incurred to receive , sell and ship product and administer the operations of the company . salaries and commissions . salary expense includes the base compensation , and any overtime earned by hourly personnel , for all sales , administrative and warehouse employees and stock compensation expense for options and restricted stock granted to employees . commission expense is earned by inside sales personnel based on gross profit dollars generated , by field sales personnel from generating sales and meeting various objectives , by sales , national and marketing managers for driving the sales process , by region managers based on the profitability of their branches and by corporate managers based primarily on our profitability and also on other operating metrics . other operating expenses . other operating expenses include all payroll taxes , health insurance , travel expenses , public company expenses , advertising , management information system expenses , facility rent and all distribution expenses such as packaging , reels , and repair and maintenance of equipment and facilities . depreciation and amortization . we incur depreciation expense on costs related to capitalized property and equipment on a straight-line basis over the estimated useful lives of the assets , which range from three to thirty years . we incur amortization expense on leasehold improvements and capital leases over the shorter of the lease term or the life of the related asset and on intangible assets over the estimated life of the asset . interest expense interest expense consists primarily of interest we incur on our debt .
| results of operations the following discussion compares our results of operations for the years ended december 31 , 2017 , 2016 and 2015. the following table shows , for the periods indicated , information derived from our consolidated statements of operations , expressed as a percentage of sales for the period presented . replace_table_token_4_th note : due to rounding , percentages may not add up to total operating expenses , operating income ( loss ) , income ( loss ) before income taxes or net income ( loss ) . comparison of years ended december 31 , 2017 and 2016 sales replace_table_token_5_th our sales in 2017 increased $ 56.1 million or 21.4 % from 2016. the increase in sales was primarily attributable to an increase in sales of $ 31.3 million , or 12.5 % , together with the inclusion of a full year of vertex 's sales , which was $ 24.7 million more than sales of vertex included in the 2016 financial statements , following its acquisition on october 3 , 2016. we estimate that higher metals prices in 2017 represented approximately 3 % of the increase in sales . we estimate sales for our project business , which targets end markets for environmental compliance , engineering & construction , industrials , utility power generation , and mechanical wire rope , increased 3 % , while maintenance , repair , and operations ( mro ) sales increased 15 % , as compared to 2016 , including the impact of higher metals prices . gross profit replace_table_token_6_th gross profit increased $ 19.7 million or 37.2 % from 2016. the increase was primarily attributable to the increase in sales , including a full year of vertex 's sales , higher product margins and the higher margins generated by vertex . 18 operating expenses replace_table_token_7_th note : due to rounding , numbers may not add up to total operating expenses . salaries and commissions .
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the business address of this stockholder is 601 carlson parkway , suite 330 , minnetonka , minnesota 55305 . ( 14 ) according to a schedule 13g filed with the sec on february 13 , 2015 on behalf of barclays plc , an entity organized under the laws of the united kingdom ( “ barclays plc ” ) , barclays capital inc. , a connecticut corporation ( “ barclays capital ” ) , and barclays capital securities limited , an entity organized under the laws of the united kingdom ( “ barclays capital securities ” ) , the shares reported above are owned , or may be deemed to be beneficially owned , by barclays capital , a broker or dealer registered under section 15 of the exchange act , barclays bank plc , a non-us banking institution registered with the financial conduct authority authorised by the prudential regulation authority and regulated by the financial conduct authority and the prudential regulation authority in the united kingdom and barclays capital securities , a non-us broker or dealer registered with the financial conduct authority regulated by the financial conduct authority and the prudential regulation authority in the united kingdom . barclays capital , barclays bank plc , barclays capital derivative funding and barclays capital securities are wholly-owned subsidiaries of barclays plc . the business address of this stockholder is 1 churchill place , london , e14 5hp , england . item 13. certain relationships and related transactions , and director independence founder shares on august 5 , 2013 , our sponsor purchased 4,312,500 founder shares for $ 25,000 , or approximately $ 0.006 per share . on october 17 , 2013 , our sponsor transferred 17,250 founder shares to each of howard b. bernick , craig j. duchossois , greg flynn and marc s. simon ( our independent directors ) , each of whom paid a purchase price of $ 100 for their respective shares ( the same per-share purchase price initially paid by our sponsor ) . our independent directors also purchased an aggregate of 150,000 units in our initial public offering through our directed unit program . on november 19 , 2013 , the initial stockholders forfeited an aggregate of 562,500 founder shares . as a result , the initial stockholders own 20.80 % of the company 's issued and outstanding shares . in addition , 937,500 founder shares , representing 5.0 % of the company 's issued and outstanding shares , are subject to forfeiture by the initial stockholders under certain conditions described in this report . our initial stockholders have agreed that , subject to certain limited exceptions described in the prospectus associated with our initial public offering , the founder shares may not be transferred , assigned , sold or released from escrow until one year after the date of the consummation of our initial business combination or earlier if , subsequent to our initial business combination , ( i ) the last sale price of our common stock equals or exceeds $ 12.00 per share ( as adjusted for stock splits , stock dividends , reorganizations and recapitalizations ) for any 20 trading days within any 30-trading day period commencing at least 150 days after our initial business combination or ( ii ) we consummate a subsequent liquidation , merger , stock exchange or other similar transaction which results in all of our stockholders having the right to exchange their shares of common stock for cash , securities or other property . rights — the founder shares are identical to the public shares except that ( i ) the founder story_separator_special_tag the following discussion and analysis should be read in conjunction with the financial statements and related notes included elsewhere in this annual report on form 10-k. this discussion contains forward-looking statements reflecting our current expectations , estimates and assumptions concerning events and financial trends that may affect our future operating results or financial position . 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 sections entitled “ risk factors ” and “ cautionary note regarding forward-looking statements ” appearing elsewhere in this annual report on form 10-k. overview we are a blank check company incorporated on august 2 , 2013 as a delaware corporation and formed for the purpose of effecting a merger , capital stock exchange , asset acquisition , stock purchase , reorganization or similar business combination with one or more businesses . while we may pursue an acquisition opportunity in any business industry or sector , we intend to focus on industries or sectors that complement our management team 's background , and to capitalize on the ability of our management team to identify , acquire and operate a business in these industries or sectors . we believe that our management team is well positioned to take advantage of investment opportunities in the restaurant and hospitality sectors , and that our contacts and sources in these sectors will allow us to generate attractive acquisition opportunities . under our amended and restated certificate of incorporation , we are not permitted to effectuate our business combination with another blank check company or similar company with nominal operations . we intend to effectuate our initial business combination using cash from the proceeds of our initial public offering and the sale of the private placement warrants , our capital stock , debt or a combination of cash , stock and debt . story_separator_special_tag story_separator_special_tag roman , times , serif ; margin : 0 ; text-align : justify ; text-indent : 0.25in '' > contractual obligations we do not have any long-term debt , capital lease obligations , operating lease obligations or long-term liabilities other than an agreement to pay an affiliate of our sponsor a total of ( i ) $ 10,000 per month for office space , utilities , secretarial support and administrative services , and ( ii ) $ 15,000 per month as reimbursement for a portion of the compensation paid to its personnel including certain of our officers who work on our behalf . upon completion of our business combination or our liquidation , we will cease paying these monthly fees . 38 going concern consideration if the company does not complete a business combination by august 19 , 2015 , or november 19 , 2015 if the company has executed a letter of intent , agreement in principle or definitive agreement for a business combination on or prior to august 19 , 2015 , the company will ( i ) cease all operations except for the purpose of winding up , ( ii ) as promptly as reasonably possible but not more than ten business days thereafter , redeem 100 % of the common stock sold as part of the units in the initial public offering , at a per-share price , payable in cash , equal to the aggregate amount then on deposit in the trust account , including interest not previously released to the company to pay its franchise and income taxes ( less up to $ 100,000 of such net interest to pay dissolution expenses ) , divided by the number of then outstanding public shares , which redemption will completely extinguish public stockholders ' rights as stockholders ( including the right to receive further liquidation distributions , if any ) , subject to applicable law , and ( iii ) as promptly as reasonably possible following such redemption , subject to the approval of the company 's remaining stockholders and the company 's board of directors , dissolve and liquidate , subject in each case to the company 's obligations under delaware law to provide for claims of creditors and the requirements of other applicable law . this mandatory liquidation and subsequent dissolution raises substantial doubt about the company 's ability to continue as a going concern . in the event of liquidation , it is likely that the per share value of the residual assets remaining available for distribution ( including trust account assets ) will be approximately equal to the initial public offering price per share ( assuming no value is attributed to the warrants contained in the units offered in the initial public offering ) . critical accounting policies and estimates the preparation of financial statements and related disclosures in conformity with gaap requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities , disclosure of contingent assets and liabilities at the date of the financial statements , and income and expenses during the periods reported . actual results could materially differ from those estimates . we have identified the following as our critical accounting policies : cash and cash equivalents the company considers all highly liquid investments with original maturities of three months or less to be cash equivalents . cash held in trust a total of approximately $ 150,000,000 , including approximately $ 147,000,000 of the net proceeds from our initial public offering , $ 2,652,900 from the sale of the private placement warrants and $ 347,100 paid by the underwriters to the company as reimbursement for certain expenses incurred in connection with the initial public offering , was placed in the trust account with continental stock transfer & trust company serving as trustee . the trust proceeds are invested in permitted united states “ government securities ” within the meaning of section 2 ( a ) ( 16 ) of the investment company act , having a maturity of 180 days or less or in money market funds meeting certain conditions under rule 2a-7 promulgated under the investment company act which invest only in direct u.s. government treasury obligations . as of december 31 , 2014 and 2013 , the balance in the trust account was $ 150,056,895 and $ 150,035,663 , respectively , which includes $ 62,000 and $ 35,663 , respectively , of interest earned since the inception of the trust . loss per common share loss per share is computed by dividing net loss applicable to common stockholders by the weighted average number of common shares outstanding , excluding shares subject to possible redemption , for the period . the weighted average common shares issued and outstanding , excluding shares subject to possible redemption , of 4,752,646 for the period from january 1 , 2014 to december 31 , 2014 takes into effect the 4,312,500 shares issued on august 5 , 2013 to the sponsor ; the aggregate of 69,000 shares transferred by the sponsor to howard b. bernick , craig j. duchossois , greg flynn and marc s. simon ( the company 's independent directors ) , on october 17 , 2013 ; 15,000,000 shares sold in our initial public offering and outstanding since november 19 , 2013 ; and the aggregate of 562,500 founder shares forfeited by the initial stockholders on november 19 , 2013 as a result of the underwriters ' election not to exercise their over-allotment option in connection with our initial public offering . the 12,250,000 warrants related to our initial public offering and the sale of the private placement warrants are contingently issuable shares and are excluded from the calculation of diluted earnings per share because they are anti-dilutive . 39 use of estimates the preparation of financial statements in conformity with gaap requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets
| results of operations results of operations through december 31 , 2014 and 2013 , our efforts have been limited to organizational activities , activities relating to our initial public offering , activities relating to identifying and evaluating prospective acquisition candidates and activities relating to general corporate matters . we have not generated any revenues , other than interest income earned on the proceeds held in the trust account . as of december 31 , 2014 and 2013 , $ 150,056,895 and $ 150,035,663 , respectively , was held in the trust account ( including $ 5,250,000 of deferred underwriting commissions and $ 7,500,000 from the sale of the private placement warrants ) , and we had cash outside of trust of $ 230,467 and $ 1,078,466 , respectively , and $ 660,400 and $ 71,145 , respectively , in accounts payable and accrued expenses . our amended and restated certificate of incorporation provides that , other than the withdrawal of interest to pay income taxes and franchise taxes , none of the funds held in trust will be released until the earlier of : ( i ) the completion of our initial business combination ; or ( ii ) the redemption of 100 % of the shares of common stock included in the units sold in our initial public offering if we are unable to complete a business combination by august 19 , 2015 ( which is the date that is 21 months from the closing of our initial public offering ) , or november 19 , 2015 ( which is the date that is 24 months from the closing of our initial public offering ) if we have executed a letter of intent , agreement in principle or definitive agreement for a business combination by august 19 , 2015 but have not completed the business combination by august 19 , 2015 ( subject to the requirements of law ) .
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the address of each person is deemed to be the address of the story_separator_special_tag the following discussion and analysis of the financial condition and results of our operations should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this filing . in addition to historical consolidated financial information , the following discussion contains forward-looking statements that reflect our plans , estimates and beliefs . these statements involve risks and uncertainties and our actual results could differ materially from those discussed below . see the “ forward-looking statements ” disclosure above for a discussion of the uncertainties , risks and assumptions associated with these statements . see also the “ risk factors ” disclosure above for additional discussion of such risks . growth opportunities and trends our ability to further grow our revenue will depend largely on increasing the number of distributors , the number of paid listings , increasing revenue per listing and increasing revenue from other products and services through our marketplace . our achievement of these objectives will further depend on our ability to successfully enable more online bookable listings . achieving growth in the number of distributors and the number of listings involves our ability to ( i ) increase our listing renewal rates , ( ii ) reach new distributors , property managers and owners through marketing activities , and or ( iii ) obtain new listings through geographic expansion , strategic acquisitions or investments . increasing revenue per listing and revenue from other products and services will involve our ability to successfully drive more bookings to our performance based listings and to successfully introduce new products to our marketplace . 42 | page in the future , we believe it will become more important to increase marketing investments to grow and further advertise our brand and products to distributors and travelers . we have seen other companies launch online businesses offering vacation rentals or other alternatives to hotels . we believe this growing favorable awareness of alternatives to hotels has and will support growth in our business . however , we have also seen a trend of increased government regulation and taxation of the industry . we continue to monitor the effects of these trends and will take actions as necessary to mitigate their effects . key financial highlights key financial highlights for the fiscal year end ( fye ) february 28 , 2017 include the following : ● travel and commission revenue was approximately $ 400,000 compared to $ 545,000 for fye february 29 , 2016 , or a decrease of 26.5 % ; however , totalrevenues for fye february 29 , 2016 included $ 300,000 of released funds from a reserve account with a merchant processor . therefore , if you were to remove that one-time release of funds from revenue for fye february 29 , 2016 , operating travel and commissionrevenues for fye february 29 , 2016 , would have amounted to $ 245,000 compared to $ 400,000 for fye february 28 , 2017 for anincrease of 63.6 % ; ● net loss attributable to monaker group , inc. was $ 7.1 million , or $ 0.82 per diluted share for fye february 28 , 2017 , compared to net loss of $ 4.5 million , or $ 1.56 per diluted share , in fye february 29 , 2016 , or an increase of 56 % ; ● cash used in operating activities was $ 3.7 million for fye february 28 , 2017 compared to $ 2.1 million for fye february 29 , 2016 , or an increase of 76 % ; ● there was a net increase in cash of $ 869,000 for fye february 28 , 2017 , compared to a decrease in cash of $ 88,000 for fye february 29 , 2016 ; and ● cash and cash equivalents as of february 28 , 2017 were $ 1,007,065. revenue recognition we recognize revenue when the customer has purchased the product , the occurrence of the earlier of date of travel or the date of cancellation has expired , the sales price is fixed or determinable and collectability is reasonably assured . revenue for customer travel packages purchased directly from the company are recorded gross ( the amount paid to the company by the customer is shown as revenue and the cost of providing the respective travel package is recorded to cost of revenues ) . business combinations the purchase prices of acquired businesses or acquired assets have been allocated to the tangible and intangible assets acquired and liabilities assumed , based upon their estimated fair value at the date control is obtained . the difference between the purchase price and the fair value of the net assets acquired is recorded as goodwill . most of the businesses we have acquired did not have a significant amount of tangible assets . we typically identified the following identifiable intangible assets in each acquisition : trade name , customer relationships and internal software . in making certain assumptions on valuation and useful lives , we considered the unique nature of each acquired asset . determining the estimated fair value of assets involves the use of significant estimates , judgment and assumptions , such as future cash flows and selection of comparable companies . future changes in our assumptions or the interrelationship of those assumptions may negatively impact future valuations and could result in an impairment of goodwill or intangible assets that may have a material effect on our financial condition and operating results . definite-lived intangible assets are recorded at cost and amortized using a method that reflects our best estimate of the pattern in which the economic benefit of the related intangible asset is utilized . 43 | page goodwill and indefinite-lived intangible assets , such as certain trade names , are not amortized and are subject to annual impairment tests during the fourth quarter , or whenever events or circumstances indicate impairment may have occurred . story_separator_special_tag net cash provided by financing activities increased to $ 5,292,438 , for the fye february 28 , 2017 , an increase of $ 3,227,477 from cash provided by financing activities of $ 2,064,961 for the fye february 29 , 2016. this increase was primarily due to sales of warrants and stock , exercises of common stock warrants and draw downs on the line of credit ( described below ) . on june 15 , 2016 , we entered into a revolving line of credit agreement with republic bank , inc. of duluth , minnesota , in the maximum amount of $ 1,000,000. amounts borrowed under the line of credit accrue interest at the wall street journal u.s. prime rate plus 1 % ( updated daily until maturity ) , payable monthly in arrears beginning on july 15 , 2016. any amounts borrowed under the line of credit are due on june 15 , 2017. amounts borrowed under the line of credit are planned to be used for marketing initiatives , working capital and to repay $ 300,000 previously borrowed from the donald p. monaco insurance trust , of which donald monaco , a director of the company , is the trustee . the loan contains standard and customary events of default . on december 22 , 2016 , the revolving line of credit was increased to $ 1,200,000 ; all terms of the revolving line of credit remain unchanged . as of february 28 , 2017 , $ 1,193,000 was outstanding under the line of credit . our outstanding convertible promissory notes and notes payable are described in “ note 7 – convertible promissory notes ” , “ note 8 – notes payable ” , and “ note 9 – other notes payable ” , to the consolidated audited financial statements beginning on page f-1 herein . the growth and development of our business will require a significant amount of additional working capital . we currently have limited financial resources and based on our current operating plan , we will need to raise additional capital in order to continue as a going concern . we currently do not have adequate cash to meet our short or long-term objectives . in the event additional capital is raised , it may have a dilutive effect on our existing stockholders . 46 | page we have very limited financial resources . we currently have a monthly cash requirement of approximately $ 300,000 , exclusive of capital expenditures . we will need to raise substantial additional capital to support the on-going operation and increased market penetration of our products including the development of national advertising relationships , increases in operating costs resulting from additional staff and office space until such time as we generate revenues sufficient to support itself . we believe that in the aggregate , we could require several millions of dollars to support and expand the marketing and development of our travel products , repay debt obligations , provide capital expenditures for additional equipment and development costs , payment obligations , office space and systems for managing the business , and cover other operating costs until our planned revenue streams from travel products are fully-implemented and begin to offset our operating costs . our failure to obtain additional capital to finance our working capital needs on acceptable terms , or at all , will negatively impact our business , financial condition and liquidity . as of february 28 , 2017 , we had approximately $ 3.0 million of current liabilities ( similar to the $ 3 million of current liabilities as of february 29 , 2016 ) . we currently do not have the resources to satisfy these obligations , and our inability to do so could have a material adverse effect on our business and ability to continue as a going concern . to date , we have funded our operations with the proceeds from the private equity and debt financings and we anticipate we will continue to meet our funding requirements through the sale of equity or debt financing , which funds may not be available on favorable terms , if at all . we anticipate that we would need several millions of dollars to properly market our products and fund the operations for the next 12 months . assuming we are able to raise the funds discussed above , we anticipate that by the fourth fiscal quarter of fye february 28 , 2018 , our operations will be self-sustaining and providing the necessary cash flow to enable us to continue to grow the company . critical accounting policies and estimates our consolidated financial statements are prepared in accordance with u.s. generally accepted accounting principles ( gaap ) . the preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenues , costs and expenses , and related disclosures . on an ongoing basis , we evaluate our estimates and assumptions . to the extent there are material differences between these estimates and our actual results , our consolidated financial statements will be affected . our significant accounting policies are described in note 2 - summary of significant accounting policies to the accompanying consolidated financial statements . the methods , estimates and judgments we use in applying our accounting policies have a significant impact on our results of operations . we believe that the policies listed below involve the greatest degree of complexity and judgment by our management and are critical for understanding and evaluating our financial condition and results of operations . if actual results significantly differ from the company 's estimates , the company 's financial condition and results of operations could be materially impacted . revenue recognition we recognize revenue when the customer has purchased the product , the occurrence of the earlier of date of travel or the date of cancellation has expired , the sales price is fixed or determinable and collectability is reasonably assured .
| results of operations results of operations for the fiscal year ended february 28 , 2017 compared to the fiscal year ended february 29 , 2016 revenues total travel and commission revenues decreased 26.5 % to $ 400,277 for the fiscal year ended ( fye ) february 28 , 2017 , compared to $ 544,658 for the fye february 29 , 2016 , a decrease of $ 144,381. this decrease is mainly due to non-recurring funds from a merchant processor in the amount of $ 300,000 , received during fye february 29 , 2016. therefore , if such one-time non-recurring merchant processor funds are removed from the calculation , travel and commission revenues for the fye february 29 , 2016 amounted to $ 244,658 , compared to $ 400,277 for the fye february 28 , 2017 , an increase of $ 155,619 or 63.6 % , which increase is attributable to the marketing efforts throughout the fiscal year which resulted in an increase in booked travel during the last quarter of fye february 28 , 2017. operating expenses our operating expenses , including cost or revenues , technology and development , salaries and benefits , selling and promotion , amortization of intangibles and general and administrative expenses , increased 80 % to $ 7,332,055 for the fye february 28 , 2017 , compared to $ 4,073,300 for the fiscal year ended february 29 , 2016 , an increase of $ 3,258,755. this increase was mainly due to increases in general and administrative costs of $ 3,040,489 which is mostly attributable to amortization of three non-performing platforms ( amounting to $ 1,779,820 ) and professional fees of $ 653,588 related to realbiz litigation ( see item 3. legal proceedings ) , increased cost of revenues of $ 141,937 directly related to increases in booked travel , increases in technology and development of $ 189,638 related to the discontinued platforms ( a new platform is being developed through third party vendors and the related costs are capitalized ) , and increases
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as of december 31 , 2012 and each december 31 st thereafter through december 31 , 2016 , each award vested and became the right to receive a number of shares of common stock equal to a total vesting percentage multiplied by the story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read together with the selected consolidated financial data and our consolidated financial statements and the related notes appe aring elsewhere in this report . 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 many factors , including but not limited to those under the heading “ risk factors ” beginning on page 6 . we do not assume , and specifically disclaim , any obligation to update any forward-looking statement contained in this report . overview we have strategically transitioned from a long-haul carrier to a multifaceted business offering a network of truck-based transportation capabilities across our five distinct business platforms – truckload , dedicated , intermodal , brokerage and mrtn de mexico . the primary source of our operating revenue is provided by our truckload segment through a combination of regional short-haul and medium-to-long-haul full-load transportation services . we transport food and other consumer packaged goods that require a temperature-controlled or insulated environment , along with dry freight , across the united states and into and out of mexico and canada . our dedicated segment provides customized transportation solutions tailored to meet individual customers ' requirements , utilizing temperature-controlled trailers , dry vans and other specialized equipment within the united states . our agreements with customers range from three to five years and are subject to annual rate reviews . generally , we are paid by the mile for our truckload and dedicated services . we also derive truckload and dedicated revenue from fuel surcharges , loading and unloading activities , equipment detention and other accessorial services . the main factors that affect our truckload and dedicated revenue are the rate per mile we receive from our customers , the percentage of miles for which we are compensated , the number of miles we generate with our equipment and changes in fuel prices . we monitor our revenue production primarily through average truckload and dedicated revenue , net of fuel surcharges , per tractor per week . we also analyze our average truckload and dedicated revenue , net of fuel surcharges , per total mile , non-revenue miles percentage , the miles per tractor we generate , our fuel surcharge revenue , our accessorial revenue and our other sources of operating revenue . our intermodal segment transports our customers ' freight within the united states utilizing our temperature-controlled trailers on railroad flatcars for portions of trips , with the balance of the trips using our tractors or , to a lesser extent , contracted carriers . the main factors that affect our intermodal revenue are the rate per mile and other charges we receive from our customers . our brokerage segment develops contractual relationships with and arranges for third-party carriers to transport freight for our customers in temperature-controlled trailers and dry vans within the united states and into and out of mexico through marten transport logistics , llc , which was established in 2007 and operates pursuant to brokerage authority granted by the dot . we retain the billing , collection and customer management responsibilities . the main factors that affect our brokerage revenue are the rate per mile and other charges that we receive from our customers . operating results of our mrtn de mexico business which offers our customers door-to-door service between the united states and mexico with our mexican partner carriers is reported within our truckload and brokerage segments . in addition to the factors discussed above , our operating revenue is also affected by , among other things , the united states economy , inventory levels , the level of truck and rail capacity in the transportation market , a contracting driver market , severe weather conditions and specific customer demand . 16 our operating revenue increased $ 89.5 million , or 12.8 % , from 2017 to 2018. our operating revenue , net of fuel surcharges , increased $ 50.4 million , or 8.0 % , compared with 2017. truckload segment revenue , net of fuel surcharges , decreased 4.2 % from 2017 , primarily due to a reduction in our average number of tractors , partially offset by an increase in our average revenue per tractor . dedicated segment revenue , net of fuel surcharges , increased 21.8 % from 2017 , primarily due to fleet growth driven by an increase in the number of dedicated contracts we have with our customers . intermodal segment revenue , net of fuel surcharges , increased 21.8 % due to increases in revenue per load and in volume . brokerage segment revenue increased 22.7 % also due to increases in revenue per load and in volume in 2018. fuel surcharge revenue increased to $ 106.2 million in 2018 from $ 67.1 million in 2017 primarily due to higher fuel prices and a shift of a portion of line haul revenue to fuel surcharge revenue which began in the first quarter of 2018 as a result of changes in a number of customer agreements . the change reduced our revenue excluding fuel surcharges by $ 12.9 million in 2018 and increased our fuel surcharge revenue by the same amount . our profitability is impacted by the variable costs of transporting freight for our customers , fixed costs , and expenses containing both fixed and variable components . the variable costs include fuel expense , driver-related expenses , such as wages , benefits , training , and recruitment , and independent contractor costs , which are recorded under purchased transportation . expenses that have both fixed and variable components include maintenance and tire expense and our cost of insurance and claims . story_separator_special_tag the new revenue standard requires us to recognize revenue and related expenses within each of our four reporting segments over time , compared with our former policy in which we recorded revenue and related expenses on the date shipment of freight was completed . story_separator_special_tag experience with employees ' health insurance claims , changes in health care premiums and other factors . salaries , wages and benefits expense increased $ 26.0 million , or 11.5 % , in 2018 from 2017. the increase in salaries , wages and benefits from 2017 resulted primarily from an increase in company driver compensation expense of $ 11.1 million , an increase in bonus compensation expense for our non-driver employees of $ 5.4 million , and an increase in employees ' health insurance expense of $ 3.3 million due to an increase in our self-insured medical claims . purchased transportation consists of amounts payable to railroads and carriers for transportation services we arrange in connection with brokerage and intermodal operations and to independent contractor providers of revenue equipment . this category will vary depending upon the amount and rates , including fuel surcharges , we pay to third-party railroad and motor carriers , the ratio of company drivers versus independent contractors and the amount of fuel surcharges passed through to independent contractors . purchased transportation expense increased $ 26.3 million in total , or 22.2 % , in 2018 from 2017. amounts payable to carriers for transportation services we arranged in our brokerage segment increased $ 13.7 million to $ 72.3 million in 2018 from $ 58.6 million in 2017 , primarily due to an increase in brokerage revenue . amounts payable to railroads and drayage carriers for transportation services within our intermodal segment increased $ 13.6 million to $ 65.0 million in 2018 from $ 51.5 million in 2017. this increase was due to increased intermodal revenue along with increased fuel surcharges to the railroads due to higher fuel prices . the portion of purchased transportation expense related to our independent contractors within our truckload and dedicated segments , including fuel surcharges , decreased $ 1.1 million in 2018. we expect that purchased transportation expense will increase as we grow our intermodal and brokerage segments . fuel and fuel taxes increased by $ 16.2 million , or 15.4 % , in 2018 from 2017. net fuel expense ( fuel and fuel taxes net of fuel surcharge revenue and surcharges passed through to independent contractors , outside drayage carriers and railroads ) decreased $ 17.4 million , or 37.2 % , to $ 29.4 million in 2018 from $ 46.8 million in 2017. fuel surcharges passed through to independent contractors , outside drayage carriers and railroads increased to $ 14.0 million from $ 8.6 million in 2017. despite an increase in the united states department of energy , or doe , national average cost of fuel to $ 3.18 per gallon from $ 2.65 per gallon in 2017 , net fuel expense decreased to 4.9 % of truckload , dedicated and intermodal segment revenue , net of fuel surcharges , from 8.4 % in 2017. the net fuel expense to revenue improved primarily due to a $ 12.9 million shift during 2018 of a portion of line haul revenue to fuel surcharge revenue as a result of changes in a number of customer agreements . increases in our miles per gallon and in our revenue rate per mile in 2018 further improved this ratio . we have worked diligently to control fuel usage and costs by improving our volume purchasing arrangements and optimizing our drivers ' fuel purchases with national fuel centers , focusing on shorter lengths of haul , installing and tightly managing the use of auxiliary power units in our tractors to minimize engine idling and improving fuel usage in the temperature-control units on our trailers . auxiliary power units , which we have installed in our company-owned tractors , provide climate control and electrical power for our drivers without idling the tractor engine . supplies and maintenance consist of repairs , maintenance , tires , parts , oil and engine fluids , along with load-specific expenses including loading/unloading , tolls , pallets and trailer hostling . our supplies and maintenance expense decreased $ 760,000 , or 1.8 % , from 2017 primarily due to a decrease in our loading/unloading expense . depreciation relates to owned tractors , trailers , auxiliary power units , communication units , terminal facilities and other assets . the increase in depreciation was primarily due to a continued increase in the cost of revenue equipment . we expect our annual cost of tractor and trailer ownership will increase in future periods as a result of higher prices of new equipment , which will result in greater depreciation over the useful life . gain on disposition of revenue equipment increased to $ 7.2 million in 2018 from $ 5.5 million in 2017 primarily due to an increase in the number of trailers sold , along with an increase in our average gain for each tractor and trailer sold . future gains or losses on dispositions of revenue equipment will be impacted by the market for used revenue equipment , which is beyond our control . the $ 5.4 million increase in other operating expenses in 2018 was due in part to proceeds received in 2017 from the settlement of a lawsuit , net of 2017 legal expenses , of $ 1.0 million , and increased costs associated with recruiting and retaining drivers .
| results of operations the following table sets forth for the years indicated certain operating statistics regarding our revenue and operations : replace_table_token_1_th ( 1 ) includes tractors driven by both company-employed drivers and independent contractors . independent contractors provided 46 , 60 and 68 tractors as of december 31 , 2018 , 2017 and 2016 , respectively . 18 comparison of year ended december 31 , 201 8 to year ended december 31 , 201 7 the following table sets forth for the years indicated our operating revenue , operating income and operating ratio by segment , along with the change for each component : replace_table_token_2_th ( 1 ) represents operating expenses as a percentage of operating revenue . our operating revenue increased $ 89.5 million , or 12.8 % , to $ 787.6 million in 2018 from $ 698.1 million in 2017. our operating revenue , net of fuel surcharges , increased $ 50.4 million , or 8.0 % , to $ 681.4 million in 2018 from $ 631.0 million in 2017. this increase was due to a $ 33.4 million increase in dedicated revenue , net of fuel surcharges , a $ 16.0 million increase in brokerage revenue , and a $ 15.3 million increase in intermodal revenue , net of fuel surcharges , partially offset by a $ 14.3 million decrease in truckload revenue , net of fuel surcharges . fuel surcharge revenue increased to $ 106.2 million in 2018 from $ 67.1 million in 2017 primarily due to higher fuel prices and a shift of a portion of line haul revenue to fuel surcharge revenue which began in the first quarter of 2018 as a result of changes in a number of customer agreements . the change reduced our revenue excluding fuel surcharges by $ 12.9 million in 2018 and increased our fuel surcharge revenue by the same amount .
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our fiscal year is based on either a 52- or 53- week period ending on the saturday closest to december 31. for the fiscal year ended january 2 , 2021 , we had 53- weeks of activity , compared to 52- weeks of activity for the fiscal years ended december 28 , 2019 and december 29 , 2018. we estimate the additional week contributed $ 19.4 million of additional revenue and $ 3.9 million of additional operating income for the fiscal year ended january 2 , 2021. one of our subsidiaries uses a calendar year-end which differs from the company 's 52- or 53- week fiscal year end . differences arising from the use of the different fiscal year ends were not deemed story_separator_special_tag overview primo is a leading pure-play water solutions provider in north america , europe and israel . primo operates largely under a recurring razor/razorblade revenue model . the razor in primo 's revenue model is its industry leading line-up of sleek and innovative water dispensers , which are sold through major retailers and online at various price points or leased to customers . the dispensers help increase household penetration , which drives recurring purchases of primo 's razorblade offering . primo 's razorblade offering is comprised of water direct , water exchange , and water refill . through its water direct business , primo delivers sustainable hydration solutions across its 21-country footprint direct to the customer 's door , whether at home or to commercial businesses . through its water exchange and water refill businesses , primo offers pre-filled and reusable containers at over 13,000 locations and water refill units at approximately 22,000 locations , respectively . primo also offers water filtration units across its 21-country footprint representing a top five position . primo 's water solutions expand consumer access to purified , spring and mineral water to promote a healthier , more sustainable lifestyle while simultaneously reducing plastic waste and pollution . primo is committed to its water stewardship standards and is proud to partner with the international bottled water association in north america as well as with watercoolers europe , which ensure strict adherence to safety , quality , sanitation and regulatory standards for the benefit of consumer protection . in the third quarter of 2020 , our u.s. operations achieved a carbon neutral certification under the carbon neutral protocol , an international standard administered by natural capital partners . this certification is in addition to the certifications in our european operations where we have maintained carbon neutrality for the past nine consecutive years in many of our markets . we conduct operations in countries involving transactions denominated in a variety of currencies . we are subject to currency exchange risks to the extent that our costs are denominated in currencies other than those in which we earn revenues . as our financial statements are denominated in u.s. dollars , fluctuations in currency exchange rates between the u.s. dollar and other currencies have had , and will continue to have an impact on our results of operations . the market in which we operate is subject to some seasonal variations . our water delivery sales are generally higher during the warmer months . our purchases of raw materials and related accounts payable fluctuate based upon the demand for our products . the seasonality of our sales volume causes our working capital needs to fluctuate throughout the year . ingredient and packaging costs represent a significant portion of our cost of sales . these costs are subject to global and regional commodity price trends . our most significant commodities are polyethylene terephthalate ( “ pet ” ) resin , high-density polyethylene ( “ hdpe ” ) and polycarbonate bottles , caps and preforms , labels and cartons and trays . we attempt to manage our exposure to fluctuations in ingredient and packaging costs by entering into fixed price commitments for a portion of our ingredient and packaging requirements and implementing price increases as needed . in 2020 , our capital expenditures were devoted primarily to supporting growth in our business , maintaining existing facilities and making equipment upgrades . during the second quarter of 2020 , we implemented a restructuring program intended to optimize synergies from the company 's transition to a pure-play water company following the legacy primo acquisition ( defined below ) and , as a result , reorganized into two reporting segments : north america ( which includes our ds services of america , inc. ( “ dss ” ) , aquaterra corporation ( “ aquaterra ” ) , mountain valley spring company ( “ mountain valley ” ) and legacy primo ( defined below ) businesses ) and rest of world ( which includes our eden springs nederland b.v. ( “ eden ” ) , aimia foods limited ( “ aimia ” ) , decantae mineral water limited ( “ decantae ” ) and john farrer & company limited ( “ farrers ” ) businesses ) . our corporate oversight function and other miscellaneous expenses are aggregated and included in the all other category . segment reporting results have been recast to reflect these changes for all periods presented . our fiscal year is based on either a 52- or 53- week period ending on the saturday closest to december 31. for the year ended january 2 , 2021 , we had 53 weeks of activity , compared to 52 weeks of activity for the years ended december 28 , 2019 and december 29 , 2018. we estimate the additional week contributed $ 19.4 million of additional revenue and $ 3.9 million of additional operating income for the year ended january 2 , 2021. one of our subsidiaries uses a calendar year-end which differs from the company 's 52- or 53- week fiscal year-end . differences arising from the use of the different fiscal year-ends were not deemed material for the fiscal years ended january 2 , 2021 , december 28 , 2019 or december 29 , 2018 . story_separator_special_tag 33 additionally , on june 11 , 2020 , we announced that our board of directors approved a plan intended to optimize synergies from the company 's transition to a pure-play water company following the acquisition of legacy primo ( defined below ) and to mitigate the negative financial and operational impacts of the covid-19 pandemic , including implementing headcount reductions and furloughs in our north america and rest of world reporting segments ( “ 2020 restructuring plan ” ) . when we implement these programs , we incur various charges , including severance , asset impairments , and other employment related costs . in connection with the 2020 restructuring plan , we expected to incur approximately $ 19.0 million in severance costs . we have revised this estimate to $ 10.5 million and all costs related to the 2020 restructuring plan have been recorded as of january 2 , 2021. all costs incurred by the 2020 restructuring plan are included in sg & a expenses for the year ended january 2 , 2021. see note 1 to the consolidated financial statements for additional information on restructuring charges incurred during the year ended january 2 , 2021. during the year ended january 2 , 2021 we also incurred $ 10.3 million in other covid-19 related costs . other covid-19 related costs primarily include front-line incentives paid and costs incurred for supplies . divestiture , acquisition and financing transactions divestitures on february 28 , 2020 , we completed the sale of our coffee , tea and extract solutions business , s. & d. coffee , inc. ( “ s & d ” ) , to westrock coffee company , llc , a delaware limited liability company ( “ westrock ” ) , pursuant to which westrock acquired all of the issued and outstanding equity of s & d from the company ( “ s & d divestiture ” ) . the consideration was $ 405.0 million paid at closing in cash , with customary post-closing working capital adjustments , which were resolved in june 2020 by payment of $ 1.5 million from the company to westrock . we used the proceeds of the transaction to finance a portion of the legacy primo acquisition ( defined below ) . on february 8 , 2019 , we sold all of the outstanding equity of cott beverages llc to refresco group b.v. , a dutch company ( “ refresco ” ) . the aggregate deal consideration paid at closing was $ 50.0 million . we used the proceeds of this transaction to repay a portion of the outstanding borrowings under our previously existing asset-based lending credit facility ( “ abl facility ” ) . in july 2017 , we entered into a share repurchase agreement with refresco , pursuant to which we sold to refresco , in january 2018 , our carbonated soft drinks and juice businesses and our rci finished goods export business ( collectively , the “ traditional business ” and such transaction , the “ traditional business divestiture ” ) . the traditional business divestiture was structured as a sale of the assets of our canadian business and a sale of the stock of the operating subsidiaries engaged in the traditional business in the other jurisdictions after we completed an internal reorganization . the aggregate deal consideration was $ 1.25 billion , paid at closing in cash , with customary post-closing adjustments resolved in december 2018 by the payment of $ 7.9 million from us to refresco . the traditional business divestiture did not include our north america or rest of world reporting segments , or our cott beverages llc business . as a result of the s & d divestiture and the traditional business divestiture , the operating results associated with the s & d business and the traditional business have been presented as discontinued operations for all years presented . the following discussion and analysis of financial condition and results of operations are those of our continuing operations unless otherwise indicated . for additional information regarding our discontinued operations , see note 2 to the consolidated financial statements . acquisitions on march 2 , 2020 , pursuant to the terms and conditions of the agreement and plan of merger entered into on january 13 , 2020 , cott corporation completed the acquisition of primo water corporation ( “ legacy primo ” and such transaction , the “ legacy primo acquisition ” ) . the aggregate consideration paid in the legacy primo acquisition was approximately $ 798.2 million and includes $ 377.6 million of our common shares issued by us to holders of legacy primo common stock , $ 216.1 million paid in cash by us to holders of legacy primo common stock , $ 196.9 million of cash paid to retire outstanding indebtedness on behalf of legacy primo , $ 4.7 million to settle a pre-existing liability and $ 2.9 million in fair value of replacement common share options and restricted stock units for vested legacy primo awards . the legacy primo acquisition is consistent with our strategy of transitioning to a pure-play water solutions provider . in connection with the closing of the legacy primo acquisition , cott corporation changed its corporate name to primo water corporation and its ticker symbol on the new york stock exchange and toronto stock exchange to “ prmw ” . 34 in october 2018 , we acquired mountain valley , a growing american brand of spring and sparkling bottled water delivered to homes and offices throughout the united states ( the “ mountain valley acquisition ” ) . the initial purchase price paid by us in the mountain valley acquisition was $ 80.4 million on a debt and cash free basis . the post-closing working capital adjustment was resolved in february 2019 by the payment of $ 0.4 million by the former owners of mountain valley to us . the mountain valley acquisition was funded through a combination of incremental borrowings under our previously existing abl facility and cash on hand .
| results of operations the following table summarizes the change in revenue by reporting segment for 2020 : replace_table_token_9_th 1 impact of foreign exchange is the difference between the current year 's revenue translated utilizing the current year 's average foreign exchange rates less the current year 's revenue translated utilizing the prior year 's average foreign exchange rates . the following table summarizes the change in revenue by reporting segment for 2019 : replace_table_token_10_th 1 impact of foreign exchange is the difference between the current year 's revenue translated utilizing the current year 's average foreign exchange rates less the current year 's revenue translated utilizing the prior year 's average foreign exchange rates . 44 the following tables summarize the change in gross profit by reporting segment for 2020 : replace_table_token_11_th 1 impact of foreign exchange is the difference between the current year 's gross profit translated utilizing the current year 's average foreign exchange rates less the current year 's gross profit translated utilizing the prior year 's average foreign exchange rates . the following tables summarize the change in gross profit by reporting segment for 2019 : replace_table_token_12_th 1 impact of foreign exchange is the difference between the current year 's gross profit translated utilizing the current year 's average foreign exchange rates less the current year 's gross profit translated utilizing the prior year 's average foreign exchange rates . our corporate oversight function is not treated as a segment ; it includes certain general and administrative costs that are disclosed in the all other category . 45 the following table summarizes our ebitda and adjusted ebitda for the fiscal years ended january 2 , 2021 , december 28 , 2019 and december 29 , 2018 , respectively . replace_table_token_13_th 1 includes $ 3.9 million of benefit associated with the 53rd week for the year ended january 2 , 2021 .
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in addition for each common unit of our operating partnership the holder received a common unit of the operating limited liability company subsidiary of ashford inc. each holder of common units of the operating limited liability company of ashford inc. could exchange up to 99 % of those units for shares of ashford inc. stock at the rate of one share of ashford inc. common stock for every 55 common units of the operating limited liability company subsidiary of ashford inc. the distribution was made on november 12 , 2014. following the spin-off , we continue to hold approximately 598,000 shares of ashford inc. common stock , which represents an approximate 30 % ownership interest in ashford inc. at december 31 , 2016. in connection with the spin-off we entered into an advisory agreement with ashford inc. based on our primary business objectives and forecasted operating conditions , our current key priorities and financial strategies include , among other things : acquisition of hotel properties that will be accretive to our portfolio ; disposition of non-core hotel properties ; pursuing capital market activities to enhance long-term stockholder value ; preserving capital , enhancing liquidity , and continuing current cost-saving measures ; implementing selective capital improvements designed to increase profitability ; implementing effective asset management strategies to minimize operating costs and increase revenues ; financing or refinancing hotels on competitive terms ; utilizing hedges and derivatives to mitigate risks ; and making other investments or divestitures that our board of directors deems appropriate . in june 2015 , our board of directors modified our investment strategy to focus predominantly on full-service hotels in the upscale and upper-upscale segments in domestic and international markets that have revenue per available room ( “ revpar ” ) generally less than twice the national average . the change in our investment strategy was made in conjunction with our announcement that we plan to sell the vast majority of our select-service hotel portfolio over time as market conditions warrant and values are supported . we believe that as supply , demand , and capital market cycles change , we will be able to shift our investment strategy to take advantage of new lodging-related investment opportunities as they may develop . our board of directors may change our investment strategy at any time without stockholder approval or notice . recent developments in february 2016 , the four seasons hotel property in nevis was sold . no gain or loss was recognized associated with our 14.4 % subordinated beneficial interest . as a result of the sale , we have no ownership interest in the hotel property as of december 31 , 2016 . on december 2 , 2015 , we refinanced three mortgage loans totaling $ 273.5 million . the initial amount of the new loan was $ 375.0 million . on march 1 , 2016 , we increased the loan amount by $ 37.5 million . the loan balance is now $ 412.5 million , which is interest only and provides for a floating interest rate of libor + 5.52 % . the stated maturity is december 2017 , with four one-year extension options . the new loan is secured by 17 hotel properties . the springhill suites in jacksonville , florida is now unencumbered . 45 in march 2016 , the company invested $ 2.0 million in an unconsolidated entity , openkey , that is controlled and consolidated by ashford inc. , for a 12.2 % ownership interest . on october 4 , 2016 , we invested an additional $ 322,000 in openkey , resulting in a 13.34 % total ownership interest . on april 14 , 2016 , ashford op general partner llc , a delaware limited liability company and wholly-owned subsidiary of ashford trust , as general partner of ashford trust op , and ashford op limited partner llc , a delaware limited liability company , as a limited partner of ashford trust op , entered into that certain seventh amended and restated agreement of limited partnership of ashford hospitality limited partnership ( the “ amended partnership agreement ” ) . the amended partnership agreement was amended to , among other things : incorporate amendment no . 1 to the sixth amended and restated agreement of limited partnership of ashford hospitality limited partnership dated november 12 , 2014 , which adjusted the conversion factor used by the company to determine the number of shares of company common stock issuable , at the option of the company , upon the exercise of a redemption right by a limited partner of ashford trust op and related provisions , including definitions ( the “ conversion factor ” ) ; incorporate amendment no . 2 to the sixth amended and restated agreement of limited partnership of ashford hospitality limited partnership dated july 20 , 2015 , which specifically provided for the distribution of common units of ashford hospitality prime limited partnership to the common unitholders of ashford trust op ; add a provision regarding new federal income tax partnership audit matters as a result of tax legislation enacted in december 2015 ; and clarify the computation of the conversion factor . on june 1 , 2016 , the company sold a 5-hotel portfolio of select-service hotel properties for approximately $ 142.0 million in cash . the sale resulted in a gain of $ 22.8 million which is included in “ gain ( loss ) on acquisition of pim highland jv and sale of hotel properties ” in the consolidated statements of operations for the year ended december 31 , 2016 . the portfolio is comprised of the courtyard edison in edison , new jersey ; the residence inn buckhead in atlanta , georgia ; the courtyard lake buena vista , the fairfield inn lake buena vista and the springhill suites lake buena vista in orlando , florida ( the “ noble five hotels ” ) . on july 6 , 2016 , the company agreed to issue 4.8 million shares of our 7.375 % series f cumulative preferred stock ( the “ series f preferred stock ” ) . story_separator_special_tag dividends on the series g preferred stock accrue in the amount of $ 1.8438 per share each year , which is equivalent to 7.375 % of the $ 25.00 liquidation preference per share of series g preferred stock . dividends on the series g preferred stock are payable quarterly in arrears on the 15th day of january , april , july and october of each year ( or , if not on a business day , on the next succeeding business day ) . the first dividend on the series g preferred stock sold in this offering was paid on january 17 , 2017 in the amount of $ 0.3739 per share . closing of the issuance and sale of the series g preferred stock occurred on october 18 , 2016. the company received net proceeds from the offering of approximately $ 149.8 million , including proceeds from the exercise of the over-allotment option by the underwriters , after deducting underwriting discounts , advisory fees and commissions and estimated offering expenses payable by the company . in october 2016 , our secured revolving credit facility expired . we did not draw on the secured revolving credit facility while it was outstanding . cash flows from operations , capital market activities and property refinancing proceeds have provided sufficient liquidity throughout the term of the secured revolving credit facility . accordingly , the absence of a credit facility is not expected to have a significant impact on our liquidity . on january 19 , 2017 , aht sma , lp , a delaware limited partnership ( “ client ” ) and a wholly-owned subsidiary of ashford trust entered into an investment management agreement ( the “ agreement ” ) with ashford investment management , llc ( “ aim ” ) , a subsidiary of ashford inc. , to manage all or a portion of ashford trust 's excess cash ( the “ account ” ) . pursuant to the agreement , client retained and appointed aim as the investment manager of client . the agreement will govern the relationship between client and aim , as well as grant aim certain rights , powers and duties to act on behalf of client . aim will not be compensated by client for its services under the agreement . client bears all costs and expenses of the establishment and ongoing maintenance of the account as well as all costs and expenses of aim . on february 1 , 2017 , the company completed the sale of the renaissance hotel in portsmouth , virginia for approximately $ 9.2 million . the carrying value of the land , building and furniture , fixtures and equipment was approximately $ 8.8 million at december 31 , 2016. on february 20 , 2017 , the board of directors of the company appointed mr. douglas a. kessler as chief executive officer of the company , effective february 21 , 2017. also on february 20 , 2017 , mr. monty j. bennett ceased to serve as the company 's chief executive officer . mr. bennett remains the chairman of the board . in connection with the appointment of mr. kessler as chief executive officer of the company , the company and mr. kessler entered into a restricted stock award agreement ( the “ award agreement ” ) , pursuant to which mr. kessler will receive 359,477 shares of restricted stock ( as defined in the award agreement ) . on february 21 , 2017 , the company announced a proposal to acquire all of the outstanding shares of common stock of felcor lodging trust incorporated ( “ felcor ” ) comprised of a fixed exchange ratio of 1.192 shares of ashford trust common 47 stock for one share of felcor common stock , 400,000 shares of ashford inc. common stock and 100,000 warrants to purchase shares of ashford inc. common stock . on march 2 , 2017 , we invested an additional $ 650,000 in openkey , resulting in a 15.35 % total ownership interest . on march 6 , 2017 , the company completed the sale of the embassy suites in syracuse , new york for approximately $ 8.8 million . the carrying value of the land , building and furniture , fixtures and equipment was approximately $ 8.4 million at december 31 , 2016. on march 7 , 2017 , aim rehe funds gp , lp ( “ aim gp ” ) , the general partner of the aqua u.s. fund , provided written notice to ashford trust of its election to dissolve the aqua u.s. fund pursuant to section 6.1 ( a ) of the second amended and restated limited partnership agreement of the aqua u.s. fund as of march 31 , 2017 ( the “ dissolution date ” ) . the balance of ashford trust 's capital account in the aqua u.s. fund , less an audit hold-back of 5 % , will be distributed in cash on the dissolution date , and thereafter ashford trust will cease to be a limited partner of the aqua u.s. fund . the balance will be paid ( without interest ) promptly following the completion of the audits of the aqua u.s. fund 's and the master fund 's financial statements for the period january 1 , 2017 through march 31 , 2017 , which is expected to be on or before june 30 , 2017. liquidity and capital resources our cash position from operations is affected primarily by macro industry movements in occupancy and rate as well as our ability to control costs . further , interest rates can greatly affect the cost of our debt service as well as the value of any financial hedges we may put in place . we monitor industry fundamentals and interest rates very closely . capital expenditures above our reserves will affect cash flow as well . certain of our loan agreements contain cash trap provisions that may get triggered if the performance of our hotels decline .
| results of operations revpar is a commonly used measure within the hotel industry to evaluate hotel operations . revpar is defined as the product of the adr charged and the average daily occupancy achieved . revpar does not include revenues from food and beverage or parking , telephone , or other guest services generated by the property . although revpar does not include these ancillary revenues , it is generally considered the leading indicator of core revenues for many hotels . we also use revpar to compare the results of our hotels between periods and to analyze results of our comparable hotels ( comparable hotels represent hotels we have owned for the entire year ) . revpar improvements attributable to increases in occupancy are generally accompanied by increases in most categories of variable operating costs . revpar improvements attributable to increases in adr are generally accompanied by increases in limited categories of operating costs , such as management fees and franchise fees . the following table summarizes the changes in key line items from our consolidated statements of operations for the years ended december 31 , 2016 , 2015 and 2014 ( in thousands ) : replace_table_token_9_th 52 comparison of year ended december 31 , 2016 with year ended december 31 , 2015 all hotel properties owned during the years ended december 31 , 2016 and 2015 have been included in our results of operations during the respective periods in which they were owned . based on when a hotel property was acquired or disposed , operating results for certain hotel properties are not comparable for the years ended december 31 , 2016 and 2015 . the hotel properties listed below are not comparable hotel properties for the periods indicated and all other hotel properties are considered comparable hotel properties .
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no other individual customer accounted for 10 % or more of the company 's net sales in fiscal 2020 . national and international retailers comprised 92 % of our net sales in fiscal 2020 . the remaining 8 % came from our direct-to-consumer e-commerce channels . we estimate our total digital sales , including retailer.coms , amazon.com and other digital channels represented approximately 11 % of our total net sales in fiscal 2020. the primary market for our products is the united states , which accounted for 90 % of our net sales in fiscal 2020 . the remaining 10 % was attributable to international markets , primarily canada and the united kingdom . for additional information regarding our business , see item 1 , “ business. ” components of our results of operations and trends affecting our business net sales we develop , market and sell beauty products under the e.l.f . cosmetics and w3ll people brands . our net sales are derived from sales of beauty products , net of provisions for sales discounts and allowances , product returns , markdowns and price adjustments . year over year changes in net sales is driven by a number of factors , including mass beauty category performance , levels of consumer spending , and our ability to drive awareness of and demand for our products . within our existing retailer accounts , we are able to drive growth by expanding space and door penetration and increasing sales per linear foot , supported by our continued innovation , including our ability to introduce new first-to-mass products in our existing categories and new products in adjacent categories . while we have distribution with a number of key retail accounts , we expect to continue to grow through improved sales per linear foot in our existing space , expanded space allocation with our current retail accounts , as well as adding new retail customers . our results of operations and business face challenges and uncertainties , including our ability to introduce new products that will appeal to a broad consumer base , our ability to service demand , the ability of our major retail customers to drive traffic and keep products in stock , our ability to continue to grow our customer base and competitive threats from other beauty companies . gross profit gross profit is our net sales less cost of sales . cost of sales includes the aggregate costs to procure our products , including the amounts invoiced by our third-party contract manufacturers for finished goods as well as costs related to transportation to our distribution center , customs and duties . cost of sales also includes the effect of changes in the balance of reserves for excess and obsolete inventory . gross margin measures our gross profit as a percentage of net sales . we have an extensive network of third-party manufacturers in china where we purchase substantially all of our finished goods . we have worked to evolve our supply chain to increase capacity and technical capabilities while maintaining or reducing overall costs as a percentage of sales . 38 historically , we have improved our gross margin largely through changes in our product mix , pricing , purchasing efficiencies and cost reductions in our supply chain , and expect to continue leveraging our innovation and sourcing capabilities in future periods . other drivers of changes in gross margin include fluctuations in exchange rates , changes in customer mix , and changes in the balance of reserves for excess and obsolete inventory , among other things , which may offset the benefit of changes in pricing , product mix and cost reductions . selling , general and administrative our selling , general and administrative ( “ sg & a ” ) expenses primarily consist of personnel-related expenses , including salaries , bonuses , fringe benefits and stock-based compensation , marketing and digital expenses , warehousing and distribution costs , costs related to merchandising , depreciation of property and equipment , amortization of retail product displays and amortization of intangible assets . see “ critical accounting policies and estimates-stock-based compensation ” below for more detail regarding stock-based compensation . in the near term , we expect to continue to invest in our growth initiatives , including investments in both the e.l.f . and w3ll people brands and infrastructures . over time , we expect our sg & a expenses to grow at a slower rate than our net sales as we leverage our past investments . interest expense , net interest expense primarily consists of cash interest and fees on our outstanding indebtedness . see “ financial condition , liquidity and capital resources ” below and a description of our indebtedness in note 10 to the notes to consolidated financial statements in item 15 “ exhibits , financial statement schedules ” . other income ( expense ) , net our purchases are largely in rmb , and , as such , we are exposed to periodic fluctuations in that currency . other income ( expense ) , net is primarily related to foreign exchange rate movements . income tax ( provision ) benefit the provision for income taxes represents federal , foreign , state and local income taxes . the effective rate differs from statutory rates due to the effect of state and local income taxes and certain permanent tax adjustments . our effective tax rate will change from quarter to quarter based on recurring and nonrecurring factors including , but not limited to , the geographical mix of earnings , enacted tax legislation , state and local income taxes , tax audit settlements , the interaction of various tax strategies and the impact of permanent tax adjustments , such as those related to stock based compensation . on december 22 , 2017 , the 2017 tax act was signed into law making significant changes to the internal revenue code of 1986 , as amended . story_separator_special_tag moving forward , we will continue to work with our suppliers to closely manage inventory levels as we monitor the impact of covid-19 on demand . cost savings and liquidity we have taken a number of cost-saving measures to mitigate impact from covid-19 , including reducing expenses and scaling back marketing and digital investments in proportion to net sales . we also plan to reduce costs in the areas of merchandising , operations as well as capital expenditures , and are tightly managing receivables and inventory . on april 8 , 2020 , we amended our credit agreement to provide greater flexibility with our quarterly maintenance covenants . we believe our liquidity is adequate . between our cash balance and revolving credit facility , we have access to approximately $ 95 million in cash . story_separator_special_tag style= '' font-family : calibri , sans-serif ; font-size:10pt ; '' > increase of $ 20.6 million , or 15 % , from $ 136.6 million in the year ended december 31 , 2018. sg & a expenses as a percentage of net sales increased to 56 % for the year ended march 31 , 2020 from 51 % in the year ended december 31 , 2018. the increase was primarily due to investments in marketing and digital expenses , bonus expense , and increased depreciation expenses driven by customer fixture programs . these increases were partially offset by the closure of e.l.f retail stores . other income ( expense ) , net other income ( expense ) , net was $ 0.4 million in the year ended march 31 , 2020 , an increase of $ 0.8 million versus the year ended december 31 , 2018. the change was primarily related to foreign exchange rate movements . interest expense , net interest expense decreased $ 1.5 million , or 19 % , to $ 6.3 million in the year ended march 31 , 2020 , as compared to $ 7.8 million in the year ended december 31 , 2018. this decrease was primarily due to an increase in interest income generated on our cash and cash equivalents , in addition to a reduction in our long-term debt . income tax benefit ( provision ) the provision for income taxes increased from $ 2.4 million , or an effective tax rate of 14 % , for the year ended december 31 , 2018 to expense of $ 6.2 million , or an effective tax rate of 26 % , for the year ended march 31 , 2020. the change in the provision for income taxes was primarily driven by an increase in income before taxes of $ 6.1 million and a decrease in one-time tax benefits of $ 2.3 million . the decrease in one-time tax benefits primarily relates to larger tax benefits associated with the vesting of restricted stock or exercise of stock options in the year ended december 31 , 2018 , as well as the company 's provision-to-return adjustment for the period ending december 31 , 2017 , which was recorded during the year ended december 31 , 2018. comparison of the three months ended march 31 , 2019 to the three months ended march 31 , 2018 a comparison of the three months ended march 31 , 2019 to the three months ended march 31 , 2018 may be found in part i , item 2 , of the company 's quarterly report on form 10-qt for the three months ended march 31 , 2019. comparison of the year ended december 31 , 2018 to the year ended december 31 , 2017 a comparison of the year ended december 31 , 2018 to the year ended december 31 , 2017 may be found in part ii , item 7 , of the company 's annual report on form 10-k for the year ended december 31 , 2018. financial condition , liquidity and capital resources overview as of march 31 , 2020 , we held $ 46.2 million of cash and cash equivalents . in addition , as of march 31 , 2020 , we had borrowing capacity of $ 49.8 million under our revolving credit facility . in april 2020 , we borrowed $ 20.0 million against the available capacity under our revolving credit facility in order to increase our cash position given the volatility driven by the covid-19 pandemic . we do not expect that we will need to utilize the borrowed funds to meet our existing obligations . our primary cash needs are for capital expenditures , retail product displays and working capital . capital expenditures typically vary depending on strategic initiatives selected for the fiscal year , including investments in infrastructure , digital capabilities , and expansion within or to additional retailer store locations . we expect to fund ongoing capital expenditures from existing cash on hand , cash generated from operations and , if necessary , draws on our revolving credit facility . our primary working capital requirements are for product and product-related costs , payroll , rent , distribution costs and advertising and marketing . fluctuations in working capital are primarily driven by the timing of when a retailer rearranges or restocks its products , expansion of space within our existing retailer base and the general seasonality of our 43 business . as of march 31 , 2020 , we had working capital , excluding cash , of $ 35.1 million , compared to $ 38.3 million as of march 31 , 2019 . working capital , excluding cash and debt , was $ 47.6 million and $ 48.5 million as of march 31 , 2020 and march 31 , 2019 , respectively . we believe that our operating cash flow , cash on hand and available financing under our revolving credit facility will be adequate to meet our operating , investing and financing needs for the next twelve months . if necessary , we can borrow funds under our revolving credit facility to finance our liquidity requirements , subject to customary borrowing conditions .
| results of operations the following table sets forth our consolidated statements of operations data in dollars and as a percentage of net sales for the periods presented . results for the twelve months ended march 31 , 2019 were derived from our quarterly consolidated statements of operations as previously reported . replace_table_token_5_th replace_table_token_6_th 41 comparison of the year ended march 31 , 2020 to the twelve months ended march 31 , 2019 net sales net sales increased $ 15.2 million , or 6 % , to $ 282.9 million in the year ended march 31 , 2020 , from $ 267.7 million in the twelve months ended march 31 , 2019 . the increase was primarily driven by increased productivity across our retail and e-commerce channels , partially offset by the closing of all 22 e.l.f . retail stores in february 2019. gross profit gross profit increased $ 18.1 million , or 11 % , to $ 181.1 million in the year ended march 31 , 2020 , compared to $ 163.0 million in the twelve months ended march 31 , 2019 . gross margin increased to 64 % from 61 % , when compared to the twelve months ended march 31 , 2019 , with benefits primarily from margin accretive innovation , cost savings , price increases , favorable movements in foreign exchange rates and an increase in inventory reserves in the prior year , partially offset by higher sales adjustments and the impact of tariffs on goods imported from china . selling , general and administrative expenses sg & a expenses were $ 157.2 million in the year ended march 31 , 2020 , an increase of $ 19.5 million , or 14 % , from $ 137.7 million in the twelve months ended march 31 , 2019 .
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marketable securities the company has an investment story_separator_special_tag the following discussion should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this report . overview we are a fully integrated biopharmaceutical company that discovers , invents , develops , manufactures , and commercializes medicines for the treatment of serious medical conditions . our total revenues were $ 2,104.7 million in 2013 , compared to $ 1,378.5 million in 2012 and $ 445.8 million in 2011 . our net income was $ 424.4 million , or $ 3.81 per diluted share , in 2013 , compared to net income of $ 750.3 million , or $ 6.75 per diluted share , in 2012 , and a net loss of $ 221.8 million , or $ 2.45 per share ( basic and diluted ) , in 2011 . net income in 2012 included an income tax benefit of $ 335.8 million , primarily attributable to the release of substantially all of the valuation allowance against our deferred tax assets . refer to `` results of operations '' below for further details of our financial results . we currently have three marketed products : eylea ( aflibercept ) injection , which is available in the united states , eu , japan , and certain other countries outside the united states for the treatment of wet amd and macular edema following crvo . net product sales of eylea in the united states were $ 1,408.7 million in 2013 , $ 837.9 million in 2012 , and $ 24.8 million in 2011 . bayer healthcare records revenue from sales of eylea outside the united states . eylea net product sales outside of the united states commenced in the fourth quarter of 2012 , and were $ 472.1 million in 2013 and $ 19.0 million in 2012 . we commenced sales of eylea for the treatment of wet amd in november 2011 and for the treatment of macular edema following crvo in september 2012 , following receipt of regulatory approval in the united states . bayer healthcare commenced sales of eylea for the treatment of wet amd in the fourth quarter of 2012 following receipt of regulatory approvals outside the united states , and for the treatment of macular edema secondary to crvo in the fourth quarter of 2013 following receipt of regulatory approvals in the eu and japan . bayer healthcare has additional regulatory applications for eylea for the treatment of wet amd and macular edema secondary to crvo pending in other countries . we are collaborating with bayer healthcare on the global development and commercialization of eylea outside the united states . bayer healthcare markets eylea outside the united states , where , for countries other than japan , the companies share equally the profits and losses from sales of eylea . in japan , we are entitled to receive a percentage of the sales of eylea , as described below . we maintain exclusive rights to eylea in the united states and are entitled to all profits from any such sales . zaltrap ( ziv-aflibercept ) injection for intravenous infusion , which is available in the united states , eu , and certain other countries for treatment , in combination with folfiri , of patients with mcrc that is resistant to or has progressed following an oxaliplatin-containing regimen . regulatory applications for marketing authorization of zaltrap for the treatment of previously treated mcrc patients in other countries have also been submitted and are currently under review by the respective regulatory agencies . we and sanofi globally collaborate on the development and commercialization of zaltrap , and share profits and losses from commercialization of zaltrap , except for japan , where we are entitled to receive a percentage of the sales of zaltrap , as described below . zaltrap net product sales , which are recorded by sanofi , commenced in the united states in august 2012 and in europe in the first quarter of 2013 , and were $ 70.2 million in 2013 and $ 31.7 million in 2012 . arcalyst ( rilonacept ) injection for subcutaneous use , which is available in the united states for the treatment of caps , including fcas and mws , in adults and children 12 and older . caps are a group of rare , inherited , auto-inflammatory conditions characterized by life-long , recurrent symptoms of rash , fever/chills , joint pain , eye redness/pain , and fatigue . net product sales of arcalyst totaled $ 17.1 million in 2013 , $ 20.2 million in 2012 , and $ 19.9 million in 2011 . we do not expect future net product sales of arcalyst for the treatment of caps to be significant . developing and commercializing new medicines entails significant risk and expense . before significant revenues from the commercialization of our antibody candidates or new indications for our marketed products can be realized , we ( or our collaborators ) must overcome a number of hurdles which include successfully completing research and development and obtaining regulatory approval from the fda and regulatory authorities in other countries . in addition , the biotechnology and pharmaceutical industries are rapidly evolving and highly competitive , and new developments may render our products and technologies uncompetitive or obsolete . 49 our ability to continue to generate profits and to generate positive cash flow from operations over the next several years depends significantly on our success in commercializing eylea . we expect to continue to incur substantial expenses related to our research and development activities , a significant portion of which we expect to be reimbursed by our collaborators . also , our research and development activities outside our collaborations , the costs of which are not reimbursed , will expand and require additional resources . story_separator_special_tag in phase 3 saril-ra program reported positive results from saril-ra- mobility study continue patient enrollment in saril-niu-saturn phase 2 study in non-infectious uveitis initiated saril-niu-saturn phase 2 study in non-infectious uveitis initiate additional clinical studies alirocumab ( pcsk9 antibody ) completed patient enrollment in majority of phase 3 odyssey trials continue enrollment of phase 3 odyssey outcomes and odyssey choice i and ii trials reported positive results from phase 3 odyssey mono trial report results from additional phase 3 odyssey trials initiated phase 3 odyssey choice i and odyssey choice ii trials dupilumab ( il-4r antibody ) reported results for phase 1b studies in atopic dermatitis continue patient enrollment in phase 2 trials reported results from phase 2a study in asthma . results were also published online in the new england journal of medicine . report results from phase 2a and phase 2b studies in atopic dermatitis initiate phase 3 studies reported results from phase 2 study in atopic dermatitis initiated phase 2b trials in atopic dermatitis and asthma initiated phase 2 trial in nasal polyposis enoticumab ( dll4 antibody ) continued patient enrollment in phase 1 program complete patient enrollment in the expansion of the phase 1 program nesvacumab ( ang2 antibody ) continued patient enrollment in phase 1 program complete patient enrollment in the phase 1b program in advanced malignancies initiate clinical development in ophthalmology regn1033 ( gdf8 antibody ) continued patient enrollment in phase 1 program complete patient enrollment in phase 1 and phase 2a programs initiated phase 2a study regn2009 ( target not disclosed ) initiated phase 1 program continue patient enrollment in phase 1 program regn1400 ( erbb3 antibody ) continued patient enrollment in phase 1 program continue patient enrollment in phase 1 program regn1154 ( target not disclosed ) completion of phase 1 program regn1500 ( target not disclosed ) continued patient enrollment in phase 1 program continue patient enrollment in phase 1 program regn1193 ( target not disclosed ) initiated phase 1 program continue patient enrollment in phase 1 program regn1908-1909 ( target not disclosed ) initiated phase 1 program continue patient enrollment in phase 1 program regn2176-3 ( pdgfr-beta antibody in combination with eylea ) initiated phase 1 program continue patient enrollment in phase 1 program fasinumab ( ngf antibody ) on clinical hold determine future development plan 52 critical accounting policies and use of estimates a summary of the significant accounting policies that impact us is provided in note 2 to our consolidated financial statements . the preparation of financial statements in accordance with accounting principles generally accepted in the united states of america ( gaap ) requires management to make estimates and assumptions that affect reported amounts and related disclosures in the financial statements . management considers an accounting estimate to be critical if : it requires an assumption ( or assumptions ) regarding a future outcome ; and changes in the estimate or the use of different assumptions to prepare the estimate could have a material effect on our results of operations or financial condition . management believes the current assumptions used to estimate amounts reflected in our consolidated financial statements are appropriate . however , if actual experience differs from the assumptions used in estimating amounts reflected in our consolidated financial statements , the resulting changes could have a material adverse effect on our results of operations , and in certain situations , could have a material adverse effect on our liquidity and financial condition . the critical accounting estimates that impact our consolidated financial statements are described below . revenue recognition product revenue product sales consist of u.s. sales of eylea and arcalyst . revenue from product sales is recognized when persuasive evidence of an arrangement exists , title to product and associated risk of loss have passed to the customer , the price is fixed or determinable , collection from the customer is reasonably assured , we have no further performance obligations , and returns can be reasonably estimated . we record revenue from product sales upon delivery to our distributors and specialty pharmacies ( collectively , our customers ) . we sell eylea in the united states to three distributors and several specialty pharmacies . we sell arcalyst in the united states to two specialty pharmacies . under these distribution models , the distributors and specialty pharmacies generally take physical delivery of product . for eylea , the distributors and specialty pharmacies generally sell the product directly to healthcare providers , whereas for arcalyst , the specialty pharmacies sell the product directly to patients . for the years ended december 31 , 2013 , 2012 , and 2011 , we recorded 76 % , 78 % , and 42 % , respectively , of our total gross product revenue from sales to besse medical , a subsidiary of amerisourcebergen corporation . revenue from product sales is recorded net of applicable provisions for rebates and chargebacks under governmental programs ( including medicaid ) , distribution-related fees , prompt pay discounts , product returns , and other sales-related deductions . calculating these provisions involves estimates and judgments . we review our estimates of rebates , chargebacks , and other applicable provisions each period and record any necessary adjustments in the current period 's net product sales . the following table summarizes the provisions , and credits/payments , for these sales-related deductions ; such amounts were not significant during the year ended december 31 , 2011. replace_table_token_6_th government rebates and chargebacks : we estimate reductions to product sales for medicaid and veterans ' administration ( va ) programs , and for certain other qualifying federal and state government programs . based upon our contracts with government agencies , statutorily-defined discounts applicable to government-funded programs , historical experience , and estimated payer mix , we estimate and record an allowance for rebates and chargebacks .
| results of operations years ended december 31 , 2013 and 2012 net income net income in 2013 and 2012 consists of the following : replace_table_token_7_th the increase in pre-tax income is related primarily to higher net product sales of eylea in the united states and higher bayer healthcare collaboration revenue in connection with sales of eylea outside the united states , partly offset by higher operating expenses . however , the increase in pre-tax income was more than offset by substantially higher income tax expense in 2013 than in 2012. in 2012 , we recorded a tax benefit of $ 335.8 million primarily related to the release of substantially all of the valuation allowance associated with our deferred tax assets . consequently , in 2013 , we began recording income tax expense based on an estimated effective tax rate . revenues revenues in 2013 and 2012 consist of the following : replace_table_token_8_th net product sales net product sales consist of u.s. sales of eylea and arcalyst . in november 2011 , we received marketing approval from the fda for eylea for the treatment of wet amd , at which time product sales commenced . in addition , in september 2012 , we received marketing approval from the fda for eylea for the treatment of macular edema following crvo . in 2013 , eylea net product sales increased to $ 1,408.7 million from $ 837.9 million in 2012 due to higher sales volume . in 2013 , arcalyst net product sales were $ 17.1 million compared to $ 20.2 million in 2012 . 57 sanofi collaboration revenue the collaboration revenue we earned from sanofi , as detailed below , consisted primarily of reimbursement for research and development expenses that we incurred , our share of losses in connection with sanofi 's commercialization of zaltrap , recognition of a substantive milestone payment in 2012 , and recognition of previously deferred revenue related to non-refundable up-front payments .
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our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors , including those set forth under the heading risk factors in part i , item 1a of this annual report on form 10-k. business overview we are an automated global electronic broker and market maker ( although , we have substantially exited our options market making business - see note 2 - discontinued operations and costs associated with exit or disposal activities to the audited consolidated financial statements in part ii , item 8 of this annual report on form 10-k ) . we custody and service accounts for hedge and mutual funds , registered investment advisers , proprietary trading groups , introducing brokers and individual investors . we specialize in routing orders and executing and processing trades in securities , futures and foreign exchange instruments on more than 120 electronic exchanges and market centers around the world . since our inception in 1977 , we have focused on developing proprietary software to automate broker-dealer functions . the proliferation of electronic exchanges over nearly the last three decades has provided us with the opportunity to integrate our software with an increasing number of exchanges and market centers into one automatically functioning , computerized platform that requires minimal human intervention . in connection with our ipo priced on may 3 , 2007 , ibg , inc. purchased 10.0 % of the membership interests in ibg llc , became the sole managing member of ibg llc and began to consolidate ibg llc 's financial results into its financial statements . our primary assets are our ownership of approximately 18.1 % of the membership interests of ibg llc , the current holding company for our businesses , and our controlling interest and related contractual rights as the sole managing member of ibg llc . the remaining approximately 81.9 % of ibg llc membership interests are held by holdings , a holding company that is owned by our founder , chairman and chief executive officer , mr. thomas peterffy and his affiliates , management and other employees of ibg llc , and certain other members . the ibg llc membership interests held by holdings will be subject to purchase by us over time in connection with offerings by us of shares of our common stock . business segments we report our results in two operating business segments , electronic brokerage and market making ( being discontinued ) . these segments are analyzed separately as these are the two principal business activities from which we derive our revenues and to which we allocate resources . electronic brokerage . we conduct our electronic brokerage business through certain interactive brokers ( ib ) subsidiaries . as an electronic broker , we execute , clear and settle trades globally for both institutional and individual customers . capitalizing on our proprietary technology , ib 's systems provide our customers with the capability to monitor multiple markets around the world simultaneously and to execute trades electronically in these markets at a low cost , in multiple products and currencies from a single trading account . we offer our customers access to all classes of tradable , primarily exchange-listed products , including stocks , bonds , options , futures , forex and mutual funds traded on more than 120 exchanges and market centers in 29 countries and in 24 currencies seamlessly around the world . the emerging complexity of multiple market centers has provided us with the opportunity of building and continuously adapting our order routing software to secure excellent execution prices . our customer base is diverse with respect to geography and segments . currently , approximately 68 % of our customers reside outside the u.s. in over 200 countries and territories , and over 50 % of new customers come from outside the u.s. approximately 65 % of our customers ' equity is in institutional accounts such as hedge funds , financial advisors , proprietary trading desks and introducing brokers . specialized products and services that we have developed are successfully attracting these accounts . for example , we offer prime brokerage services , including capital introduction and securities lending to hedge funds ; our model portfolio technology and automated share allocation and rebalancing tools are particularly attractive to financial advisors ; and our trading platform and low pricing attract introducing brokers . 37 we provide a host of analytical and business tools such as investors ' marketplace sm , which allows wealth advisors to search for money managers and assign them to customer accounts based on their investment strategy . employeetrack sm is widely used by compliance officers of financial institutions to streamline the process of tracking their employees ' brokerage activities . the probability lab ® allows our customers to analyze option strategies under various market assumptions . risk navigator sm is a real-time market risk management platform that allows our customers to measure risk exposure across multiple asset classes around the globe . portfolio builder sm allows our customers to set up an investment strategy based on research and rankings from top research providers and fundamental data . ibkr asset management recruits registered financial advisors , vets them , analyzes their investment track records , groups them by their risk profile , and allows retail investors to assign their accounts to be traded by one or more advisors . in addition , our greenwich compliance affiliate offers direct expert registration and start-up compliance services , as well as answers to basic day-to-day compliance questions for experienced investors and traders looking to start their own investment advisor firms . greenwich compliance professionals have regulatory and industry experience , and they can help investment advisors trading on the ib platform meet their registration and compliance needs . we have recently expanded the range of financial services we offer our customers through our integrated investment management program , where customers can perform many different types of transactions from a single account . story_separator_special_tag increases in benchmark rates have generally led to higher net interest income and wider net interest margin . because we pay among the highest rates in the brokerage industry on qualified customer cash balances and charge among the lowest rates on margin borrowings , we attract customers who seek to maximize their yields and minimize their costs . as our margin balances are tied to benchmark rates , rising u.s. interest rates have enhanced the interest we receive on our u.s. dollar customer margin balances . rising rates also increase the interest we earn on our segregated cash , the majority of which is invested in u.s. government securities and related instruments . higher rates also raise our interest expense , as we pass along more interest to our customers . we believe our low rates on margin borrowings and high yields on qualified cash balances are important factors that attract customers to our platform . while the interest we pay on customer cash balances and the interest we earn on customer margin loans is based on fixed spreads around benchmark rates , additional net interest income is earned on non-interest bearing customer balances , e.g. , on securities accounts with less than $ 100,000 in equity , and on rising balances . electronic brokerage net interest income grew 38 % , compared to 2017. during this time , average customer credit balances rose 6 % due , in part , to an inflow of new accounts , and average customer margin loan balances increased 26 % , due to our customers ' appetite for increased leverage , along with expanded prime broker financing . currency fluctuations . as a global electronic broker and market maker trading on exchanges around the world in multiple currencies , we are exposed to foreign currency risk . we actively manage this exposure by keeping our net worth in proportion to a defined basket of 14 currencies we call the global to diversify our risk and to align our hedging strategy with the currencies that we use in our business . because we report our financial results in u.s. dollars , the change in the value of the global versus the u.s. dollar affects our earnings . during 2018 the value of the global , as measured in u.s. dollars , decreased 1.14 % compared to its value as of december 31 , 2017 , which had a negative impact on our comprehensive earnings for 2018. a discussion of our approach for managing foreign currency exposure is contained in part ii , item 7a of this annual report on form 10-k entitled quantitative and qualitative disclosures about market risk. 39 financial overview diluted earnings per share were $ 2.28 for the year ended december 31 , 2018 ( current year ) , compared to diluted earnings per share of $ 1.07 for the year ended december 31 , 2017 ( prior year ) . the calculation of diluted earnings per share is detailed in note 4 to the audited consolidated financial statements , in part ii , item 8 of this annual report on form 10-k. diluted earnings per share on comprehensive income were $ 2.09 for the current year , compared to $ 1.22 for the prior year . in connection with our currency diversification strategy ( i.e. , globals ) as of december 31 , 2018 , approximately 30 % of our equity was denominated in currencies other than the u.s. dollar . in the current year , our currency diversification strategy decreased our comprehensive earnings by $ 99 million ( compared to an increase of $ 175 million in the prior year ) , as the u.s. dollar value of the global decreased by approximately 1.14 % , compared to its value as of december 31 , 2017. the effects of our currency diversification strategy are reported as ( 1 ) a component of other income in the consolidated statement of comprehensive income and ( 2 ) oci in the consolidated statement of financial condition and the consolidated statement of comprehensive income . the full effect of the global is captured in comprehensive income . consolidated : for the current year , our net revenues were $ 1,903 million and income before income taxes was $ 1,196 million , compared to net revenues of $ 1,702 million and income before income taxes of $ 1,049 million in the prior year . the increase in income before income taxes in the current year was mainly driven by a 36 % increase in net interest income and a 20 % increase in commissions , partially offset by a 52 % decrease in other income . our pre-tax profit margin was 63 % , compared to 62 % for the prior year . the results for the prior year were negatively impacted by the effects of the tax cuts and jobs act ( the tax act ) , enacted on december 22 , 2017. the tax act significantly revised u.s. corporate income tax law by , among other things , reducing the corporate income tax rate from 35 % to 21 % and implementing a modified territorial tax system that includes a one-time transition tax on deemed repatriated earnings of foreign subsidiaries . as a result of the tax act , the prior year includes a net reduction in consolidated earnings of approximately $ 84 million , of which $ 62 million was due to the one-time repatriation tax and a net $ 22 million was related to the remeasurement of our u.s. deferred tax assets at lower enacted corporate tax rates .
| operating results income before income taxes , for 2017 , increased $ 288 million , or 38 % , to $ 1,049 million , compared to 2016. pretax profit margin was 62 % for 2017 and 55 % for 2016. our operating results , for 2017 , excluding the effects of our currency diversification strategy , the net mark-to-market gains and losses from our u.s. government securities portfolio , the one-time net costs related to the wind-down of our options market making activities , and the remeasurement gain on our tax receivable agreement liability due to the tax act , compared to 2016 , were as follows : net revenues were $ 1,500 million , up 6 % ; non-interest expenses were $ 628 million , down 1 % ; income before income taxes was $ 872 million , up 13 % ; and pre-tax profit margin increased to 58 % for 2017 , from 55 % for 2016 . 54 trading volumes and brokerage statistics the following tables present historical trading volumes and brokerage statistics for our business . however , volumes are not the only drivers in our business . trade volumes : ( in 000 's , except % ) replace_table_token_11_th contract and share volumes : ( in 000 's , except % ) total replace_table_token_12_th market making replace_table_token_13_th brokerage total replace_table_token_14_th ( 1 ) futures contract volume includes options on futures . 55 brokerage cleared replace_table_token_15_th ( 1 ) futures contract volume includes options on futures . brokerage statistics : ( in 000 's , except % and where noted ) replace_table_token_16_th ( 1 ) excludes non-customers . business segments the following sections discuss the results of our operations by business segment , excluding a discussion of corporate segment income and expense . in the following tables , revenues and expenses directly associated with each business segment are included in determining income before income taxes . due to the integrated nature of the business segments , estimates and judgments have been made in allocating certain revenue and expense items .
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earnings per share basic earnings per share is computed story_separator_special_tag background and overview santander consumer usa holdings inc. is the holding company for santander consumer usa inc. , a specialized consumer finance company focused on vehicle finance , third-party servicing and delivering superior service to our more than 2.6 million customers across the full credit spectrum . the company is majority-owned ( as of december 31 , 2017 , approximately 68.1 % ) by shusa , a wholly-owned subsidiary of santander . the company is managed through a single reporting segment , consumer finance , which includes its vehicle financial products and services , including retail installment contracts , vehicle leases , and dealer loans , as well as financial products and services related to motorcycles , rvs , and marine vehicles . the consumer finance segment also includes its personal loan and point-of-sale financing operations . since may 1 , 2013 , u nder terms of the chrysler agreement , a ten-year private-label financing agreement with fca , the company has been fca 's preferred provider for consumer loans and leases and dealer loans . business generated under terms of the chrysler agreement is branded as chrysler capital . in conjunction with the chrysler agreement , sc offers a full spectrum of auto financing products and services to fca customers and dealers under the chrysler capital brand . these products and services include consumer retail installment contracts and leases , as well as dealer loans for inventory , construction , real estate , working capital and revolving lines of credit . under the terms of the chrysler agreement , certain standards were agreed to , including sc meeting specified escalating penetration rates for the first five years , and fca treating sc in a manner consistent with comparable oems ' treatment of their captive providers , primarily in regard to sales support . the failure of either party to meet its respective obligations under the agreement , including sc 's failure to meet target penetration rates , could result in the agreement being terminated . the targeted penetration rates and the actual penetration rates that the company must meet under the terms of the chrysler agreement are as follows as of december 31 , 2017 . replace_table_token_7_th ( a ) each program year runs from may 1 to april 30. retail and lease penetration is based on a percentage of fca retail sales . ( b ) actual penetration rates shown for program year 1 , 2 , 3 and 4 are as of april 30 , 2014 , 2015 , 2016 and 2017 , respectively , the end date of each of those program years . actual penetration rate shown for program year 5 , which ends april 30 , 2018 , is as of december 31 , 2017 . the target penetration rate as of april 30 , 2018 is 65 % . the company 's actual penetration rate as of december 31 , 2017 was 18 % , an increase from 17 % as of december 31 , 2016. the company 's penetration rate has been constrained due to a more competitive landscape and low interest rates , causing its subvented loan offers not to be materially more attractive than other lenders ' offers . while the company has not achieved the targeted penetration rates to date , chrysler capital continues to be a focal point of its strategy , the company continues to work with fca to improve penetration rates , and it remains committed to the chrysler agreement . the company has worked strategically and collaboratively with fca to continue to strengthen its relationship and create value within the chrysler capital program . the company has partnered with fca to roll out two new pilot programs , including a dealer rewards program and a nonprime subvention program . during the year ended december 31 , 2017 , the company originated more than $ 6.7 billion in chrysler capital loans which represents approximately 50 % of total retail installment contract originations , with an approximately even share between prime and non-prime , as well as more than $ 6.0 billion in chrysler capital leases . additionally , substantially all of the leases originated by the company during the year ended december 31 , 2017 were made under the chrysler capital agreement . since its may 1 , 2013 launch , chrysler capital has originated more than $ 45.2 billion in retail loans and $ 23.6 billion in leases , and facilitated the origination of $ 3.0 billion in leases and dealer loans for an affiliate . as of december 31 , 2017 , the company 's auto retail installment contract portfolio consisted of $ 8.2 billion of chrysler capital loans , which represents 37 % of the company 's auto retail installment contract portfolio . the company also originates vehicle loans through a web-based direct lending program , purchases vehicle retail installment contracts from other lenders , and services automobile and recreational and marine vehicle portfolios for other lenders . 42 additionally , the company has several relationships through which it has provided personal loans , private-label credit cards and other consumer finance products . in october 2015 , the company announced a planned exit from the personal lending business . the company has dedicated financing facilities in place for its chrysler capital business . the company periodically sells consumer retail installment contracts through flow agreements and , when market conditions are favorable , it accesses the abs market through securitizations of consumer retail installment contracts . the company also periodically enters into bulk sales of consumer vehicle leases with a third party . the company typically retains servicing of loans and leases sold or securitized , and may also retain some residual risk in sales of leases . the company has also entered into an agreement with the buyer of its leases whereby the company will periodically sell charged-off loans . economic and business environment the u.s. economy continues to stabilize . story_separator_special_tag the company has considered the impact of both hurricanes in its allowance for credit losses recorded as of december 31 , 2017. personal lending as a result of the strategic evaluation of its personal lending portfolio , in the third quarter of 2015 , the company began reviewing strategic alternatives for exiting the personal loan portfolios . on february 1 , 2016 , the company completed the sale of substantially all lendingclub loans to a third-party buyer at an immaterial premium to par value . on april 14 , 2017 , the company sold the remaining lendingclub portfolio to a third-party buyer . the company 's other significant personal lending relationship is with bluestem . the company continues to perform in accordance with the terms and operative provisions of the agreements under which it is obligated to purchase personal revolving loans originated by bluestem for a term ending in 2020 , or 2022 if extended at bluestem 's option . this revolving loan portfolios is carried as held for sale in the company 's consolidated financial statements . accordingly , the company has recorded $ 374 million during 2017 in lower-of-cost-or market adjustments on this portfolio , and there may be further such adjustments required in future periods ' financial statements . the company is currently evaluating alternatives for the sale of the bluestem portfolio , which had a carrying value of $ 1.1 billion at december 31 , 2017 . securitizations on march 29 , 2017 , the company entered into a master securities purchase agreement ( mspa ) with santander , whereby the company has the option to sell a contractually determined amount of eligible prime loans to santander , through the spain securitization platform , for a term ending in december 2018. the company provides servicing on all loans originated under the mspa . for the year ended december 31 , 2017 , the company sold approximately $ 1.2 billion of loans under the mspa . under a separate securities purchase agreement , the company sold approximately $ 1.3 billion of prime loans to santander for the year ended december 31 , 2017. the company provides servicing of these loans sold . dividends in june 2017 , shusa announced that the frbb did not object to the planned capital actions described in shusa 's 2017 annual capital plan that was submitted as part of is ccar submissions . included in shusa 's capital actions were proposed dividend payments for the company 's stockholders . as a result , we made a dividend payment in 2017 and in february 2018 and , subject to board approval , plan to pay a further dividend in the second quarter of 2018. prior flow agreements until january 31 , 2017 , the company had a flow agreement with bank of america whereby it was committed to sell a contractually determined amount of eligible chrysler capital loans to bank of america on a monthly basis , depending on the amount and credit quality of eligible current month originations and prior month sales . for loans sold , the company retains the servicing rights at contractually agreed-upon rates . the company also may receive or pay a servicer performance payment based on an agreed-upon formula if performance on the sold loans is better or worse , respectively , than expected performance 45 at the time of sale . these servicer performance payments are limited to a dollar amount known at the time of sale and are not expected to be significant to the company 's total servicing compensation from the flow agreement . until may 1 , 2017 , the company sold loans to cbp under terms of a flow agreement and predecessor sale agreements . the company retained servicing on the sold loans and will owe cbp a loss-sharing payment capped at 0.5 % of the original pool balance if losses exceed a specified threshold , established on a pool-by-pool basis . reportable segment the company has one reportable segment : consumer finance . this segment includes the company 's vehicle financial products and services , including retail installment contracts , vehicle leases , and dealer loans , as well as financial products and services related to motorcycles , rvs , and marine vehicles . it also includes the company 's personal loan and point-of-sale financing operations . 46 volume the company 's originations of individually acquired loans and leases , including revolving loans , average apr , and discount during the year ended december 31 , 2017 , 2016 , and 2015 have been as follows : replace_table_token_9_th ( a ) unpaid principal balance excluded from the weighted average fico score is $ 1.5 billion , $ 2.1 billion and $ 3.2 billion for the years ended 2017 , 2016 , and 2015 , respectively , as the borrowers on these loans did not have fico scores at origination . of these amounts $ 164 million , $ 364 million , and $ 650 million , respectively , were commercial loans . ( b ) effective as of three months ended december 31 , 2017 , the company revised its approach to define origination volumes for personal loans to include new originations , gross of paydowns and charge-offs , related to customers who took additional advances on existing accounts ( including capitalized late fees , interest and other charges ) , and newly opened accounts . in the prior periods , the company reported net balance increases on personal loans as origination volume . included in the total origination volume is $ 264 million , $ 304 million , and $ 933 million for the years ended 2017 , 2016 , and 2015 , respectively , related to newly opened accounts . ( c ) unpaid principal balance excluded from the weighted average fico score is $ 318 million , $ 451 million , and $ 647 million for the years ended 2017 , 2016 , and 2015 , respectively , as the borrowers on these loans did not have fico scores at origination .
| results of operations this md & a should be read in conjunction with the consolidated financial statements and the accompanying notes included elsewhere in this report . the following table presents the company 's results of operations for the years ended december 31 , 2017 , 2016 , and 2015 : replace_table_token_14_th 51 year ended december 31 , 2017 compared to year ended december 31 , 2016 interest on finance receivables and loans replace_table_token_15_th income from individually acquired retail installment contracts decreased $ 241 million , or 5 % , from 2016 to 2017 , greater than the ( 3 ) % decline in the average outstanding balance of the company 's portfolio primarily due to lower interest income accruals for specific categories of loans classified as tdrs . income from purchased receivables portfolios decreased $ 40 million , or 57 % , from 2016 to 2017 , due to the sale of a majority of the purchased receivables to sbna during the period and the continued runoff of the portfolios , as the company has made no portfolio acquisitions since 2012. the average balance of the portfolios decreased from $ 286 million in 2016 to $ 146 million , or 49 % , in 2017 . income from personal loans increased $ 10 million , or 3 % , from 2016 to 2017 , as the sale of the entire lendingclub personal loan portfolio left only higher-yielding revolving loan portfolio . leased vehicle income and expense replace_table_token_16_th leased vehicle income and expense increased from prior year due to the continual growth in the portfolio since the company launched chrysler capital in 2013. leased vehicle expense increased at a larger rate than leased vehicle income due to an increase in depreciation expense which was the result of a decrease in residual values .
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recent accounting pronouncements in may 2014 , the fasb issued asu 2014-09 , revenue from contracts with customers . asu 2014-09 outlines a single comprehensive model for accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance . asu 2014-09 requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services . asu 2014-09 will be effective for annual and interim reporting periods beginning after december 15 , 2016. the impact on our financial condition , results of operations and cash flows as a result of the adoption of asu 2014-09 has not yet been determined . 57 note 2. cash , cash equivalents and investments our cash , cash equivalents and investments are classified as follows ( in thousands ) : replace_table_token_24_th we manage our investments as a single portfolio of highly marketable securities that is intended to be available to meet our current cash requirements . we have no investments in auction rate securities . proceeds from sales of available-for-sale investments for the year ended december 31 , 2014 were $ 1.3 story_separator_special_tag in addition to historical information , the following discussion contains forward-looking statements that are subject to risks and uncertainties . actual results may differ substantially from those referred to herein due to a number of factors , including but not limited to risks described in the section entitled item 1a . risk factors and elsewhere in this annual report . this discussion should be read in conjunction with item 6 . selected consolidated financial data and our consolidated financial statements and related notes included elsewhere in this form 10-k. 27 on august 11 , 2014 , we announced the appointment of mr. gary l. fischer as the company 's vice president , chief financial officer and corporate secretary , effective as of august 11 , 2014. dr. morris s. young , chief executive officer of the company relinquished his role as interim chief financial officer and corporate secretary of the company , effective as of august 11 , 2014. restructuring charges on february 25 , 2014 , we announced a restructuring plan with respect to our wholly-owned subsidiary , beijing tongmei xtal technology co , ltd. , or tongmei , in order to better align manufacturing capacity with demand . under the restructuring plan , tongmei implemented certain workforce reductions with respect to its manufacturing facility in china . we reduced the workforce at tongmei by approximately 93 positions that were no longer required to support production and operations , or approximately 11 percent of our workforce . we recorded a restructuring charge of approximately $ 907,000 related to the reduction in force for severance-related expenses . this restructuring plan and reduction in force has been completed as of march 31 , 2014. critical accounting policies and estimates we prepare our consolidated financial statements in accordance with accounting principles generally accepted in the united states of america . accordingly , we make estimates , assumptions and judgments that affect the amounts reported on our consolidated financial statements . these estimates , assumptions and judgments about future events and their effects on our results can not be determined with certainty , and are made based upon our historical experience and on other assumptions that are believed to be reasonable under the circumstances . these estimates may change as new events occur or additional information is obtained , and we may periodically be faced with uncertainties , the outcomes of which are not within our control and may not be known for a prolonged period of time . we have identified the policies below as critical to our business operations and understanding of our financial condition and results of operations . critical accounting policies are material to the presentation of our consolidated financial statements and require us to make difficult , subjective or complex judgments that could have a material effect on our financial condition and results of operations . they may require us to make assumptions about matters that are highly uncertain at the time of the estimate . different estimates that we could have used , or changes in the estimate that are reasonably likely to occur , may have a material impact on our financial condition or results of operations . we also refer you to note 1 to our consolidated financial statements included elsewhere in this form 10-k. revenue recognition we manufacture and sell high-performance compound semiconductor substrates and sell certain raw materials including gallium , germanium dioxide , and pbn crucibles . after we ship our products , there are no remaining obligations or customer acceptance requirements that would preclude revenue recognition . our products are typically sold pursuant to a purchase order placed by our customers , and our terms and conditions of sale do not require customer acceptance . we recognize revenue upon shipment and transfer of title of products to our customers , which is either upon shipment from our dock , receipt at the customer 's dock , or removal from consignment inventory at the customer 's location , provided that we have received a signed purchase order , the price is fixed or determinable , title and risk of ownership have transferred , collection of resulting receivables is probable , and product returns are reasonably estimable . we do not provide training , installation or commissioning services . we provide for future returns based on historical experience , current economic trends and changes in customer demand at the time revenue is recognized . accounts receivable , allowance for doubtful accounts and allowance for sales returns we periodically review the likelihood of collection on our accounts receivable balances and provide an allowance for doubtful accounts receivable primarily based upon the age of these accounts . story_separator_special_tag we had no write-downs in 2014 , 2013 and 2012. fair value of investments asc topic 820 , fair value measurement ( asc 820 ) establishes three levels of inputs that may be used to measure fair value . 29 level 1 instruments represent quoted prices in active markets . therefore , determining fair value for level 1 instruments does not require significant management judgment , and the estimation is not difficult . level 2 instruments include observable inputs other than level 1 prices , such as quoted prices for comparable instruments in markets with insufficient volume or infrequent transactions ( less active markets ) , issuer credit ratings , non-binding market consensus prices that can be corroborated with observable market data , model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated with observable market data for substantially the full term of the assets or liabilities , or quoted prices for similar assets or liabilities . these level 2 instruments require more management judgment and subjectivity compared to level 1 instruments , including : determining which instruments are most comparable to the instrument being priced requires management to identify a sample of similar securities based on the coupon rates , maturity , issuer , credit rating , and instrument type , and subjectively select an individual security or multiple securities that are deemed most similar to the security being priced . determining which model-derived valuations to use in determining fair value requires management judgment . when observable market prices for identical securities or similar securities are not available , we price our marketable debt instruments using non-binding market consensus prices that are corroborated with observable market data or pricing models , such as discounted cash flow models , with all significant inputs derived from or corroborated with observable market data . level 3 instruments include unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities . the determination of fair value for level 3 instruments requires the most management judgment and subjectivity . as of december 31 , 2014 and 2013 , we did not have any assets or liabilities required to be carried at fair value without observable market values that would require a high level of judgment to determine fair value ( level 3 assets ) . impairment of long-lived assets we evaluate the recoverability of property , equipment and intangible assets in accordance with asc topic 360 , property , plant and equipment ( asc 360 ) . when events and circumstances indicate that long-lived assets may be impaired , we compare the carrying value of the long-lived assets to the projection of future undiscounted cash flows attributable to such assets . in the event that the carrying value exceeds the future undiscounted cash flows , we record an impairment charge against income equal to the excess of the carrying value over the asset 's fair value . fair values are determined based on quoted market values , discounted cash flows or internal and external appraisals , as applicable . assets held for sale are carried at the lower of carrying value or estimated net realizable value . we had no assets held for sale on the consolidated balance sheet as of december 31 , 2014 and 2013. stock based compensation we account for stock-based compensation in accordance with asc topic 718 , stock-based compensation ( asc 718 ) . share-based awards granted include stock options and restricted stock awards . we utilize the black-scholes option pricing model to estimate the grant date fair value of stock options , which requires the input of highly subjective assumptions , including estimating stock price volatility and expected term . historical volatility of our stock price was used while the expected term for our options was estimated based on historical option exercise behavior and post-vesting forfeitures of options , and the contractual term , the vesting period and the expected term of the outstanding options . further , we apply an expected forfeiture rate in determining the amount of share-based compensation . we use historical forfeitures to estimate the rate of future forfeitures . changes in these inputs and assumptions can materially affect the measure of estimated fair value of our stock compensation . the cost of restricted stock awards is determined using the fair value of our common stock on the date of grant . we recognize the compensation costs net of an estimated forfeiture rate over the requisite service period of the options award , which is generally the vesting term of four years . compensation expense for restricted stock awards is recognized over the vesting period , which is generally three years or four years . stock-based compensation expense is recorded in cost of revenue , research and development , and selling , general and administrative expenses . ( see note 1—summary of significant accounting policies—stock-based compensation ) . 30 income taxes we account for income taxes in accordance with asc topic 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 bases 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 a portion of the deferred tax asset will not be realized . we provide for income taxes based upon the geographic composition of worldwide earnings and tax regulations governing each region , particularly china . the calculation of tax liabilities involves significant judgment in estimating the impact of uncertainties in the application of complex tax laws , particularly in foreign countries such as china . see note 13—income taxes in the consolidated financial statements for additional information . results of operations overview we were founded in 1986 to commercialize and enhance our proprietary vertical gradient freeze ( vgf ) technology for producing high-performance compound semiconductor substrates or wafers .
| operating results we manufacture all of our semiconductor substrates using our proprietary vertical gradient freeze ( vgf ) technology . our gaas substrate product line generates the most revenue as compared to ge , inp or raw material sales . we manufacture all of our products in the people 's republic of china ( prc or china ) , which generally has favorable costs for facilities and labor compared to comparable facilities in the united states , japan or europe . our supply chain includes axt subsidiaries and joint ventures in china , which provide us pricing advantages , reliable supply and enhanced sourcing lead-times for key raw materials which are central to our final manufactured products . we have experienced declining annual revenue in the last three years , primarily as a result of silicon chips replacing gaas chips in the mobile phone switching function . previous to certain recent innovations silicon chips did not perform adequately in this function due to power consumption , heat and speed issues . the application of the silicon-on-insulator technique overcame these deficiencies and provided a lower cost solution for mobile phone switches . we believe that this transition in the mobile phone switches starting in 2011 was largely completed in late 2013 and early 2014. mobile phones continue to use gaas chips in other functions , primarily in the power amplifier function , and we are currently developing a gaas substrate to meet the specifications for this function . the decline in revenue in 2014 compared to 2013 was partially mitigated by revenue growth in our inp and raw material product lines .
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actual results , performance or achievements may differ materially from those expressed or implied by forward-looking statements depending on a variety of important factors , including , but not limited to , weather , local , regional , national and global luobuma and herbal medicines price fluctuations , availability of financing and interest rates , competition , changes in , or failure to comply with , government regulations , costs , uncertainties and other effects of legal and other administrative proceedings , and other risks and uncertainties . . actual results and the timing of the events may differ materially from those contained in these forward looking statements due to many factors , including those discussed in the “ forward-looking statements ” set forth elsewhere in this quarterly report on form 10-q . we are not undertaking to update or revise any forward-looking statement , whether as a result of new information , future events or circumstances or otherwise . business overview and corporate structure shineco , inc. ( the “ company ” , “ we ” , “ us ” and “ our ” ) was incorporated in the state of delaware on august 20 , 1997. on december 30 , 2004 , the company acquired all of the issued and outstanding shares of beijing tenet-jove technological development co. , ltd. ( “ tenet-jove ” ) , a prc company , in exchange for our restricted shares of common stock . consequently , tenet-jove became our 100 % owned subsidiary and its operating business became that of the company . tenet-jove was incorporated on december 15 , 2003 under the laws of china and was officially granted the status of a wholly foreign-owned entity ( “ wfoe ” ) by chinese authorities on july 14 , 2006. this transaction was accounted for as a recapitalization . tenet-jove owns a 90 % interest of tianjin tenet huatai technological development co. , ltd. ( “ tenet huatai ” ) . on december 31 , 2008 , june 11 , 2011 and may 24 , 2012 , tenet-jove entered into a series of contractual agreements including an executive business cooperation agreement , a timely reporting agreement , an equity interest pledge agreement and executive option agreement ( collectively , the “ vie agreements ” ) , with each one of the following entities , ankang longevity pharmaceutical ( group ) co. , ltd. ( “ ankang longevity group ” ) , yantai zhisheng international freight forwarding co. , ltd. ( “ zhisheng freight ” ) , yantai zhisheng international trade co. , ltd. ( “ zhisheng trade ” ) , yantai mouping district zhisheng agricultural produce cooperative ( “ zhisheng agricultural ” ) and qingdao zhihesheng agricultural produce services. , ltd. ( “ qingdao zhihesheng ” ) . on february 24 , 2014 , tenet-jove entered into the same series of contractual agreements with shineco zhisheng ( beijing ) bio-technology co. , ltd. ( “ zhisheng bio-tech ” ) , which was incorporated in 2014. zhisheng bio-tech , zhisheng freight , zhisheng trade , zhisheng agricultural , and qingdao zhihesheng are collectively referred to herein as the “ zhisheng group ” . zhisheng agricultural has not had any significant business activities and thus we have deregistered it in 2017. we have transferred all assets , rights and liabilities to an affiliated entity , zhisheng freight . 31 pursuant to the vie agreements , tenet-jove has the exclusive right to provide to each of the zhisheng group entities and ankang longevity group consulting services related to their business operations and management . all these contractual agreements obligate tenet-jove to absorb a majority of the risk of loss from each of the zhisheng group entities and ankang longevity group 's activities and entitle tenet-jove to receive a majority of their residual returns . in essence , tenet-jove has gained effective control over each of the zhisheng group and ankang longevity group . based on these contractual arrangements , the zhisheng group and ankang longevity group are treated as variable interest entities ( “ vies ” ) under financial accounting standards board ( “ fasb ” ) accounting standards codification ( “ asc ” ) 810 “ consolidation ” . accordingly , the accounts of each of the zhisheng group entities and ankang longevity group are consolidated with those of tenet-jove . ankang longevity group has several subsidiaries . we carry out all of our business in china through our prc subsidiaries , our vies and their subsidiaries . on april 19 , 2017 , tenet-jove established xinjiang tiankunrunze biological engineering co. , ltd. ( “ tiankunrunze ” ) with registered capital of rmb 50.0 million ( us $ 7,262,000 ) and owns 65 % interest of tiankunrunze . on april 28 , 2017 , tiankunrunze established xinjiang tianzhuo technology development co. , ltd. ( “ tianzhuo ” ) with registered capital of rmb 10.0 million ( us $ 1,450,233 ) . on may 22 , 2017 , tiankunrunze established xinjiang tianhuihechuang agriculture development co. , ltd. ( “ tianhuihechuang ” ) with registered capital of rmb 10.0 million ( us $ 1,452,294 ) . on may 23 , 2017 , tiankunrunze established xinjiang tianxintongye biotechnology development co. , ltd. ( “ tianxintongye ” ) with registered capital of rmb 10.0 million ( us $ 1,451,615 ) . therefore , tenet-jove controls tiankunrunze and its wholly owned subsidiaries . on may 2 , 2017 , the company entered into a strategic cooperation agreement with beijing zhongke biorefinery engineering technology co. , ltd. ( “ biorefinery ” ) , a leading high-tech biomass refining company financially backed by the chinese academy of sciences institute of process engineering , to establish the institute of chinese apocynum industrial technology research ( “ icaitr ” ) . pursuant to the strategic cooperation agreement the two parties agreed to establish the icaitr and each will own 80 % and 20 % of the equity interests of icaitr , respectively . shineco invested rmb 5.0 million ( us $ 737,745 ) as the registered capital , and biorefinery will invest a technology patent for “ steam explosion degumming ” . story_separator_special_tag financing activities and subsequent events on january 23 , 2018 , the company entered into a common stock purchase agreement ( the “ purchase agreement ” ) with ifg opportunity fund llc ( “ ifg fund ” ) whereby , upon the terms and subject to the conditions and limitations set forth therein , the company has the right , from time to time in its sole discretion during the 24-month term of the purchase agreement , to direct ifg fund to purchase up to a total of $ 15,000,000 of shares of common stock and an additional 200,000 shares of common stock ( the “ commitment shares ” ) as consideration for ifg to enter into the purchase agreement . the company and ifg fund , on january 23 , 2018 , entered into a registration rights agreement for certain registration rights in connection with the purchase agreement ( the “ registration rights agreement ” ) . the ifg fund offering was made pursuant to a prospectus supplement dated and filed with the securities and exchange commission ( “ sec ” ) on january 26 , 2018 ( the “ prospectus supplement ” ) and an accompanying prospectus dated november 21 , 2017 , under the company 's shelf registration statement on form s-3 declared effective by the sec on december 19 , 2017 ( file no . 333-221711 ) ( the “ registration statement ” ) . on january 23 , 2018 , the company issued the commitment shares to ifg fund . on july 3 , 2018 , the company and ifg fund entered into a termination agreement , dated july 3 , 2018 ( the “ termination agreement ” ) effective as of july 3 , 2018 , to terminate the purchase agreement and the registration rights agreement . as of the date of this annual report , shares pursuant to the equity line have been issued to ifg by the company ( except for the commitment shares ) . on september 27 , 2018 , the company entered into a securities purchase agreement with selected investors whereby the company agreed to sell up to 1,637,700 of common stock at a purchase price of $ 1 per share , for gross proceeds to the company of approximately $ 1,637,700 ( the “ 2018 offering ” ) . the 2018 offering closed on september 28 , 2018. the 2018 offering was made pursuant to the company 's effective registration statement on form s-3 ( registration statement no . 333-221711 ) previously filed with the securities and exchange commission and a prospectus supplement thereunder . 33 factors affecting financial performance we believe that the following factors will affect our financial performance : increasing demand for our products - the increasing demand for our chinese medicinal herbal products and our agricultural products will have a positive impact on our financial position . we plan to develop new products and expand our distribution network as well as to grow our business through possible mergers and acquisitions of similar or synergetic businesses , all aimed at increasing awareness of our brand , developing customer loyalty , meeting customer demands in various markets and providing solid foundations for our continuous growth . as of the date of this report however , we do not have any agreements , undertakings or understandings to acquire any such entities and there can be no guarantee that we ever will . expansion of our sources of supply , production capacity and sales network - to meet the increasing demand for our products , we need to expand our sources of supply and production capacity . we plan to make capital improvements in our existing production facilities , which would improve both their efficiency and capacity . in the short-run , we intend to increase our investment in our reliable supply network , personnel training , information technology applications and logistic system upgrades . we also participate in two non-equity investment opportunities through a vie , both of which we expect to provide us with new networks and platforms . maintaining effective control of our costs and expenses - successful cost control depends upon our ability to obtain and maintain adequate material supplies as required by our operations at competitive prices . we will focus on improving our long-term cost control strategies including establishing long-term alliances with certain suppliers to ensure adequate supply is maintained . we will carry forward the economies of scale and advantages from our nationwide distribution network and diversified offerings . moreover , we will step up our efforts in higher value added products of luobuma by using an exclusive and patented technology , to optimize quality management , procurement processes and cost control , and give full play to the strong production capacity and trustworthy sales teams to maximize our profit and bring better long-term return for our shareholders . economic and political risks our operations are conducted primarily in the prc . accordingly , our business , financial conditions and results may be influenced by the political , economic and legal environment in the prc , and by the general state of the prc economy . our operations in the prc are subject to special considerations and significant risks not typically associated with companies in north america and western europe . these include risks with , among others , the political , economic and legal environment and foreign currency exchange . our company 's results may be adversely affected by changes in the political and social conditions in the prc , and by changes in governmental policies with respect to laws and regulations , anti-inflationary measures , currency conversions , remittances abroad , and rates and methods of taxation , among other things . critical accounting policies and estimates the preparation of financial statements in conformity with u.s. generally accepted accounting principles ( “ u.s . gaap ” ) requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements as well as the reported amounts of revenue and expenses during the reporting period .
| overview the following table summarizes our results of operations for the years ended june 30 , 2018 and 2017 : replace_table_token_4_th 36 revenue currently , we have three revenue streams derived from our three major business segments . first , developing , manufacturing and distributing specialized fabrics , textiles and other by-products derived from an indigenous chinese plant apocynum venetum , known in chinese as “ luobuma ” or “ bluish dogbane ” , as well as purchasing and luoboma raw materials processing , this segment is channeled through our wholly owned subsidiary , tenet-jove . second , processing and distributing traditional chinese medicinal herbal products as well as other pharmaceutical products ; this segment is conducted via our vie , ankang longevity group and its subsidiaries . third , planting , processing and distributing green and organic agricultural produce as well as growing and cultivation of yew trees ; this segment is conducted through our vies , the zhisheng group . the following table sets forth the breakdown of our revenue for each of our three segments , for the years ended june 30 , 2018 and 2017 , respectively : replace_table_token_5_th for the years ended june 30 , 2018 and 2017 , revenue from sales of luobuma products was us $ 10,884,901 and us $ 3,624,993 , respectively , which represented a significant increase of us $ 7,259,908 or 200.27 % . the significant increase of revenue from this segment was mainly due to revenue generated by a new subsidiary , xinjiang taihe , of us $ 8,206,556 for the year ended june 30 , 2018. moreover , the increase of revenue from this segment was due to increased sales volume of our health awareness related products . the company also enhanced online sales promotions during the year ended june 30 , 2018 , which contributed to more sales revenue overall .
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the company issued an aggregate of 59,618,300 shares of its common stock in a subscription offering to eligible depositors . concurrent with the conversion , the company contributed an additional 1,920,000 shares of its common stock and $ 4.8 million in cash to the provident bank foundation , a charitable foundation established by the bank . the company conducts business through its subsidiary , the bank , a community- and customer-oriented bank currently operating 77 full-service branches throughout northern and central new jersey . strategy established in 1839 , the bank is the oldest new jersey-chartered bank in the state . the bank offers a full range of retail and commercial loan and deposit products , and emphasizes personal service and convenience . the bank 's strategy is to grow profitably through a commitment to credit quality and expanding market share by acquiring , retaining and expanding customer relationships , while carefully managing interest rate risk . in recent years , the bank has focused on commercial real estate , multi-family and commercial loans as part of its strategy to diversify the loan portfolio and reduce interest rate risk . these types of loans generally have adjustable rates that initially are higher than residential mortgage loans and generally have a higher rate of risk . the bank 's credit policy focuses on quality underwriting standards and close monitoring of the loan portfolio . at december 31 , 2013 , commercial loans accounted for 66.3 % of the loan portfolio and retail loans accounted for 33.7 % . the company intends to continue to diversify the loan portfolio and to focus on commercial real estate , multi-family and commercial and industrial lending relationships . the company 's relationship banking strategy focuses on increasing core accounts and expanding relationships through its branch network , mobile banking , online banking and telephone banking touch points . the company continues to evaluate opportunities to increase market share by expanding within existing and contiguous markets . core deposits , consisting of all savings and demand deposit accounts , are generally a stable , relatively inexpensive source of funds . at december 31 , 2013 , core deposits were 84.5 % of total deposits . the company 's results of operations are primarily dependent upon net interest income , the difference between interest earned on interest-earning assets and the interest paid on interest-bearing liabilities . changes in interest rates could have an adverse effect on net interest income to the extent the company 's interest-bearing assets and interest-bearing liabilities reprice or mature at different times or relative interest rates . an increase in interest rates generally would result in a decrease in the company 's average interest rate spread and net interest income , which could have a negative effect on profitability . the company generates non-interest income such as income from retail and business account fees , loan servicing fees , loan origination fees , appreciation in the cash surrender value of bank-owned life insurance , income from loan or securities sales , fees from wealth management services and investment product sales and other fees . the company 's operating expenses consist primarily of compensation and benefits expense , occupancy and equipment expense , data processing expense , the amortization of intangible assets , marketing and advertising expense and other general and administrative expenses . the company 's results of operations are also affected by general economic conditions , changes in market interest rates , changes in asset quality , changes in asset values , actions of regulatory agencies and government policies . 41 acquisition on december 20 , 2013 , the company announced that it had entered into an agreement under which team capital bank ( `` team capital '' ) will merge with and into the company 's subsidiary , the provident bank . consideration will be paid to team capital stockholders in a combination of stock and cash valued at approximately $ 122.0 million on the day of the announcement . the transaction is subject to regulatory approvals and team capital 's stockholder approval . the merger will add twelve branches to the provident bank branch network , with five branches in pennsylvania and seven in new jersey . on august 11 , 2011 , the company 's wholly owned subsidiary , the provident bank , completed its acquisition of beacon trust company , a new jersey limited purpose trust company , and beacon global asset management , inc. , an sec-registered investment advisor incorporated in delaware ( collectively “ beacon ” ) . pursuant to the terms of the stock purchase agreement announced on may 19 , 2011 , beacon 's former parent company , beacon financial corporation , may be paid cash consideration in an amount up to $ 10.5 million , based upon the acquired companies ' financial performance in the three years following the closing of the transaction . subsequent to the acquisition , beacon global asset management was merged with and into beacon trust company . critical accounting policies the company considers certain accounting policies to be critically important to the fair presentation of its financial condition and results of operations . these policies require management to make complex judgments on matters which by their nature have elements of uncertainty . the sensitivity of the company 's consolidated financial statements to these critical accounting policies , and the assumptions and estimates applied , could have a significant impact on its financial condition and results of operations . these assumptions , estimates and judgments made by management can be influenced by a number of factors , including the general economic environment . the company has identified the following as critical accounting policies : adequacy of the allowance for loan losses goodwill valuation and analysis for impairment valuation of securities available for sale and impairment analysis valuation of deferred tax assets the calculation of the allowance for loan losses is a critical accounting policy of the company . the allowance for loan losses is a valuation account that reflects management 's evaluation of the probable losses in the loan portfolio . story_separator_special_tag additional critical accounting policies relate to judgments about other asset impairments , including goodwill , investment securities and deferred tax assets . goodwill is evaluated for impairment on an annual basis , or more frequently if events or changes in circumstances indicate potential impairment between annual measurement dates . the company qualitatively determines whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount before performing step 1 of the goodwill impairment test . if an entity concludes that it is more likely than not that the fair value of a reporting unit is less than its carrying amount , the entity would be required to perform step 1 of the assessment and then , if needed , step 2 to determine whether goodwill is impaired . however , if it is more likely than not that the fair value of the reporting unit is more than its carrying amount , the entity does not need to apply the two-step impairment test . for this analysis , the reporting unit is defined as the bank , which includes all core and retail banking operations of the company but excludes the assets , liabilities , equity , earnings and operations held exclusively at the company level . the guidance provides certain factors an entity should consider in its qualitative assessment in determining whether it is more likely than not that a reporting unit 's fair value is less than its carrying amount . the factors include : macroeconomic conditions , such as deterioration in economic condition and limited access to capital . industry and market considerations , such as increased competition , regulatory developments and decline in market-dependent multiples . cost factors , such as increased labor costs , cost of materials and other operating costs . overall financial performance , such as declining cash flows and decline in revenue or earnings . other relevant entity-specific events , such as changes in management , strategy or customers , litigation and contemplation of bankruptcy . reporting unit events , such as selling or disposing a portion of a reporting unit and a change in composition of assets . the company completed its annual goodwill impairment test as of september 30 , 2013. based upon its qualitative assessment of goodwill , the company concluded it is more likely than not that the fair value of the reporting unit exceeds its carrying amount , goodwill was not impaired and no further quantitative analysis ( step 1 ) was warranted . 43 the company may , based upon its qualitative assessment , or at its option , perform the two-step process to evaluate the potential impairment of goodwill . if , based upon step 1 , the fair value of the reporting unit exceeds its carrying amount , goodwill of the reporting unit is considered not impaired . however , if the carrying amount of the reporting unit exceeds its fair value , an additional test must be performed . the second step test compares the implied fair value of the reporting unit 's goodwill with the carrying amount of that goodwill . an impairment loss would be recorded to the extent that the carrying amount of goodwill exceeds its implied fair value . the company 's available for sale securities portfolio is carried at estimated fair value , with any unrealized gains or losses , net of taxes , reported as accumulated other comprehensive income or loss in stockholders ' equity . estimated fair values are based on market quotations or matrix pricing as discussed in note 5 to the audited consolidated financial statements . securities which the company has the positive intent and ability to hold to maturity are classified as held to maturity and carried at amortized cost . the company conducts a periodic review and evaluation of the securities portfolio to determine if any declines in the fair values of securities are other-than-temporary . in this evaluation , if such a decline were deemed other-than-temporary , the company would measure the total credit-related component of the unrealized loss , and recognize that portion of the loss as a charge to current period earnings . the remaining portion of the unrealized loss would be recognized as an adjustment to accumulated other comprehensive income . the fair value of the securities portfolio is significantly affected by changes in interest rates . in general , as interest rates rise , the fair value of fixed-rate securities decreases and as interest rates fall , the fair value of fixed-rate securities increases . turmoil in the credit markets resulted in a lack of liquidity in certain sectors of the mortgage-backed securities market . increases in delinquencies and foreclosures have resulted in limited trading activity and significant price declines , regardless of favorable movements in interest rates . the company determines if it has the intent to sell these securities or if it is more likely than not that the company would be required to sell the securities before the anticipated recovery . if either exists , the decline in value is considered other-than-temporary . in this evaluation , the company recognized an other-than-temporary securities impairment loss in 2013 and 2011 , totaling $ 434,000 and $ 302,000 , respectively . no other-than-temporary securities impairment loss was incurred in 2012. the determination of whether deferred tax assets will be realizable is predicated on the reversal of existing deferred tax liabilities , utilization against carryback years and estimates of future taxable income . such estimates are subject to management 's judgment . a valuation allowance is established when management is unable to conclude that it is more likely than not that it will realize deferred tax assets based on the nature and timing of these items . a valuation reserve of $ 1.1 million was established in 2009 pertaining primarily to state tax benefits on net operating losses at the bank and unused capital loss carryforwards .
| general . net income for the year ended december 31 , 2013 was $ 70.5 million , compared to $ 67.3 million for the year ended december 31 , 2012 . basic and diluted earnings per share were $ 1.23 for the year ended december 31 , 2013 , compared to basic and diluted earnings per share of $ 1.18 for 2012 . earnings for year ended december 31 , 2013 was favorably impacted by the continued improvement in asset quality and related reductions in the provision for loan losses compared with the same period last year . in addition , growth in both average loans outstanding and non-interest bearing demand deposits has contributed to the improvement in earnings . net income for the year ended december 31 , 2013 was adversely impacted by the write-off of a deferred tax asset related to non-qualified stock options issued shortly after the company 's 2003 initial public offering , all of which expired unused in july 2013. the write-off of the related $ 3.9 million deferred tax asset resulted in a $ 3.2 million charge to income tax expense and a $ 735,000 charge to equity in the third quarter of 2013. this write-off reduced both basic and diluted earnings per share for the year ended december 31 , 2013 by $ 0.06. net interest income . net interest income decreased $ 1.3 million to $ 216.0 million for 2013 , from $ 217.3 million for 2012 . the average interest rate spread declined 6 basis points to 3.19 % for 2013 , from 3.25 % for 2012 . the net interest margin decreased 7 basis points to 3.31 % for 2013 , compared to 3.38 % for 2012 .
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leases in february 2016 , the fasb issued asu 2016-02 , `` leases ( topic 842 ) `` . this update requires an entity to recognize lease assets and lease liabilities on the balance sheet and to disclose key information about the entity 's leasing arrangements . asu 2016-02 is effective for annual reporting periods , and interim periods therein , beginning after december 15 , 2018 , with early application permitted . a modified retrospective approach is required . the company is currently evaluating the impact of the adoption of asu 2016-02 on the company 's consolidated financial statements but anticipates that it will result in significant right of use assets and related liabilities as all of the company 's retail locations and the majority of our supply chain facilities are currently categorized as operating leases . contracts with customers in may 2014 , the fasb issued asu 2014-09 , `` revenue from contracts with customers `` . this update requires an entity to recognize revenue to depict the story_separator_special_tag the following discussion and analysis should be read in conjunction with part ii , item 6 , `` selected financial data '' and our consolidated financial statements and related notes appearing elsewhere in this annual report on form 10-k. this annual report on form 10-k contains forward-looking statements within the meaning of the private securities litigation reform act of 1995. see `` forward-looking statements '' and part i , item 1a . `` risk factors '' . the company is a leading omni-channel sporting goods retailer offering an extensive assortment of authentic , high-quality sports equipment , apparel , footwear and accessories through a blend of dedicated associates , in-store services and unique specialty shop-in-shops . the company also owns and operates golf galaxy , field & stream , and dick 's team sports hq . the company offers its products through a content-rich ecommerce platform that is integrated with its store network and provides customers with the convenience and expertise of a 24-hour storefront . when used in this annual report on form 10-k , unless the context otherwise requires or specifies , any reference to `` year '' is to the company 's fiscal year . the primary factors that have historically influenced the company 's profitability include the growth in its number of stores and selling square footage , the integration of ecommerce with its brick and mortar stores , growth in consolidated same store sales , which include the company 's ecommerce business , and strong gross profit margins . over the last five years , the company has grown from 518 dick 's sporting goods stores at the end of fiscal 2012 to 716 dick 's sporting goods stores at the end of fiscal 2017 . the company plans to reduce its rate of new store growth over the next few years in an effort to leverage the significant flexibility within our existing real estate portfolio to capitalize on future real estate opportunities over the near and intermediate term as those leases come up for renewal . in recent years , the company has innovated its ecommerce sites and applications with customer experience enhancements , new releases of its mobile and tablet apps , and the development of omni-channel capabilities that integrate the company 's online presence with its brick and mortar stores , including ship-from-store ; buy-online , pick-up in-store ; return-to-store and multi-faceted marketing campaigns . additionally , the company transitioned to an insourced ecommerce platform during the first quarter of fiscal 2017. the company 's ecommerce sales penetration to total net sales has increased from approximately 5 % in fiscal 2012 to 12.4 % in fiscal 2017. on average , over 80 % of the company 's ecommerce sales are generated within brick and mortar store trade areas . the retail industry as a whole is dynamic , and the sporting goods category has faced significant disruption . our business has been impacted by this disruption , as several traditional sporting goods competitors have gone out of business and those that remain , along with certain of our vendors , have become increasingly promotional . vendors have also broadened their distribution into department stores and family footwear channels . also , weak customer demand for firearms and other hunting merchandise across the industry has resulted in slower growth . fiscal 2017 was also a year where we noted a lack of innovative new products within the sporting goods industry . to respond to these challenges , we increased our promotional activities to drive market share to our stores and online , which had a negative impact on our gross profit margin . we also implemented a new merchandising and vendor strategy to better serve customers and remove cost and complexity from our business and undertook expense reduction efforts to better align our talent and financial resources within our key growth areas . although we believe there is a stronger innovation pipeline from certain vendors and our own private brands in 2018 as well as better alignment of inventory in supply chains with sales trends , we expect some of the other challenges to persist in 2018. we see meaningful opportunity to drive improvements across our business and are focused on enhancing our omni-channel capabilities and elevating the customer experience across our omni-channel platform . we plan to focus on long-term strategic investments , including investments in our supply chain , digital capabilities , the development of dick 's team sports hq , improvements in the customer experience in stores and online , the continued development and marketing of our private brands , and continuing to attract and retain knowledgeable and skilled associates . the company 's senior management focuses on certain key indicators to monitor the company 's performance including : consolidated same store sales performance – our management considers same store sales , which consists of both brick and mortar and ecommerce sales , to be an important indicator of our current performance . story_separator_special_tag the 3.5 % increase in consolidated same store sales contributed $ 245.6 million of the increase in net sales during fiscal 2016. the remaining $ 405.4 million increase in net sales was attributable to new stores . the 3.5 % increase in consolidated same store sales consisted of a 3.7 % increase at dick 's sporting goods and a 0.2 % increase at golf galaxy . ecommerce sales penetration was 11.9 % of total net sales during fiscal 2016 compared to 10.3 % of total net sales during fiscal 2015 , representing an increase of approximately 26 % in ecommerce sales . the increase in consolidated same store sales was driven by broad-based increases across our hardlines , apparel and footwear categories . the same store sales increase at dick 's sporting goods was driven by an increase in transactions of approximately 2.1 % and an increase in sales per transaction of approximately 1.6 % . income from operations income from operations decreased $ 85.3 million to $ 449.9 million in fiscal 2016 from $ 535.2 million in fiscal 2015. gross profit increased 8.4 % to $ 2,365.8 million in fiscal 2016 from $ 2,182.9 million in fiscal 2015 , but decreased as a percentage of net sales by 16 basis points compared to fiscal 2015. given the continuing consolidation that was occurring in the sporting goods industry , the company conducted a thorough review of its business , including its merchandising strategy , vendor structure and its stores during fiscal 2016. as a result of this review , the company implemented a new merchandising and vendor strategy to better serve its customers . during fiscal 2016 , the company recognized a $ 46.4 million inventory write-down , or 59 basis points , to reflect merchandise that did not fit with its go forward merchandising strategy to its net realizable value . apart from the inventory write-down , merchandise margin expanded by 61 basis points when compared to fiscal 2015 , which was primarily driven by lower promotional activity during fiscal 2016. the improvement in merchandise margin was partially offset by higher shipping expenses during fiscal 2016 resulting from the growth and increased penetration of ecommerce sales as compared to the company 's total net sales . occupancy costs increased $ 68.4 million from fiscal 2015 but leveraged slightly compared to fiscal 2015. our occupancy costs , which after the cost of merchandise represent our largest expense within cost of goods sold , are generally fixed in nature and fluctuate based on the number of stores that we operate . as a percentage of net sales , occupancy costs increased at a slightly lower rate than the 9.0 % increase in net sales during fiscal 2016. sg & a expenses increased 16.3 % to $ 1,875.6 million in fiscal 2016 from $ 1,613.1 million in fiscal 2015 , and increased as a percentage of net sales by 149 basis points . fiscal 2016 included $ 49.1 million of charges for asset write-downs , impairments and merger and integration costs . fiscal 2015 included a litigation settlement charge of $ 7.9 million . the company 's comprehensive review of its business referenced above resulted in the closure of three dick 's sporting goods stores . the company also closed ten golf galaxy stores that were located in close proximity to an acquired golfsmith store that was better positioned to serve our customers . further , the company impaired assets of 12 stores and wrote-down the carrying value of a corporate aircraft held for sale to its fair market value . fiscal 2016 charges also included tsa and golfsmith integration costs . apart from the enumerated items affecting both fiscal 2016 and 2015 , sg & a expenses increased as a percentage of net sales by 98 basis points . this increase was due primarily to higher administrative payroll , incentive compensation and benefit costs and 28 higher store payroll costs as the company continued to invest to enhance the shopping experience within its stores compared to fiscal 2015. pre-opening expenses increased to $ 40.3 million in fiscal 2016 from $ 34.6 million in fiscal 2015. pre-opening expenses in any period fluctuate depending on the timing and number of store openings and relocations . fiscal 2016 included costs incurred by the company to convert tsa and golfsmith stores to dick 's sporting goods and golf galaxy stores totaling $ 5.1 million . pre-opening rent expenses for our self-developed store sites will generally exceed those for sites built to our specifications by our landlords , as we commence recognition of rent expense when we take possession of a site as opposed to when we commence occupancy under the lease term . other ( income ) expense other income increased to $ 14.4 million in fiscal 2016 compared to $ 0.3 million of expense in fiscal 2015. the company recognizes investment income / expense to reflect changes in deferred compensation plan investment values with a corresponding charge / reduction to sg & a expenses for the same amount . the company recognized investment income totaling $ 7.2 million during fiscal 2016 compared to an investment loss of $ 1.7 million during fiscal 2015 , primarily driven by an overall improvement in the equity markets , which impacted the deferred compensation plan investment values . fiscal 2016 also included a $ 2.9 million benefit from a multi-year sales tax refund as well as a $ 4.0 million gain for the company 's share of profits from the liquidation of former golfsmith stores . income taxes the company 's effective tax rate was 37.3 % for fiscal 2016 compared to 37.8 % for fiscal 2015 primarily due to the partial reversal of a valuation allowance resulting from realization of capital gains in fiscal 2016. liquidity and capital resources overview the company has a $ 1.25 billion senior secured revolving credit facility ( the `` credit facility '' ) , which also provides for up to $ 150 million in the form of letters of credit .
| executive summary earnings per diluted share of $ 3.01 for the 53 weeks ended february 3 , 2018 increased 17.6 % compared to earnings per diluted share of $ 2.56 during the 52 weeks ended january 28 , 2017. net income for fiscal 2017 totaled $ 323.4 million compared to $ 287.4 million in fiscal 2016. fiscal 2017 net income includes : ◦ $ 2.2 million , net of tax , or $ 0.02 per diluted share , of costs incurred by the company to convert tsa stores to dick 's sporting goods stores ; ◦ $ 12.0 million , net of tax , or $ 0.11 per diluted share , of income from a contract termination payment ; ◦ $ 4.4 million , net of tax , or $ 0.04 per diluted share , of costs attributable to a corporate restructuring ; ◦ $ 5.0 million , net of tax , or $ 0.05 per diluted share , of income from a multi-year sales tax refund ; ◦ $ 7.2 million , net of tax , or $ 0.07 per diluted share , of transition costs incurred to enhance the company 's scorecard loyalty program ; and ◦ $ 4.2 million , net of tax , or $ 0.04 per diluted share , of costs for a litigation contingency . fiscal 2016 net income included $ 62.3 million , net of tax , or $ 0.56 per diluted share , of costs for asset write-downs , impairments and merger and integration costs . net sales increased 8.4 % to $ 8,590.5 million in fiscal 2017 from $ 7,922.0 million in fiscal 2016 , due primarily to growth of our store network , as well as the inclusion of the 53 rd week of sales during fiscal 2017. consolidated same store sales decreased 0.3 % on a 52-week to 52-week comparative basis . ecommerce sales increased approximately 13 % on a 52-week to 52-week comparative basis and penetration in fiscal 2017 increased to 12.4 % of total net sales compared to 11.9
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7 does not include the acquisition of timber and timberlands , all of which were acquired by the timberlands segment . 8 real estate capital expenditures include development expenditures of $ 7.3 million , $ 5.0 million and $ 0 for the year ended december 31 , 2019 , 2018 and 2017 , respectively . 64 all of our timberlands , wood products facilities and other assets are located within the continental united states . geographic information regarding our revenues for the years ended december story_separator_special_tag introduction the following discussion and analysis should be read in conjunction with part i - item 1. business and item 8. financial statements and supplementary data . our operations are organized into three business segments : timberlands , wood products and real estate . the operating results of our timberlands , wood products and real estate business segments have been and will continue to be influenced by a variety of factors , including the cyclical nature of the forest products industry , changes in timber prices and in harvest levels from our timberlands , competition , timberland valuations , demand for our non-strategic timberland for higher and better use purposes , credit availability including homebuyers ' ability to qualify for mortgages , availability of labor and developable land , lumber prices , weather conditions , the efficiency and level of capacity utilization of our wood products manufacturing operations , changes in our principal expenses such as log costs , asset dispositions or acquisitions and other factors . see part i ‑ item 1a . risk factors for additional information . our timberlands segment supplies our wood products segment with a portion of its wood fiber needs . these intersegment revenues are based on prevailing market prices and typically represent a significant portion of the timberland segment 's total revenues . our other segments generally do not generate intersegment revenues . in the discussion of our consolidated results of operations , our revenues and expenses are reported after elimination of intersegment revenues and expenses . in the business segment discussions , each segment 's revenues and expenses , as applicable , are presented before elimination of intersegment revenues and expenses . non-gaap measures to supplement our financial statements presented in accordance with generally accepted accounting principles in the united states ( gaap ) , we use certain non-gaap measures on a consolidated basis , including adjusted ebitdda and cash available for distribution ( cad ) , which are defined and further explained and reconciled to the nearest gaap measure in the liquidity and performance measures section below . our definitions of these non-gaap measures may differ from similarly titled measures used by others . these non-gaap measures should be considered supplemental to and not a substitute for , financial information prepared in accordance with gaap . adjusted ebitdda is a non-gaap measure that management uses in evaluating performance , allocating resources between segments , and that investors can use to evaluate the operational performance of the assets under management . it removes the impact of specific items that management believes do not directly reflect the core business operations on an ongoing basis . this measure should not be considered in isolation from and is not intended to represent an alternative to , our results reported in accordance with gaap . management believes that this non-gaap measure , when read in conjunction with our gaap financial statements , provides useful information to investors by facilitating the comparability of our ongoing operating results over the periods presented , the ability to identify trends in our underlying business and the comparison of our operating results against analyst financial models and operating results of other public companies that supplement their gaap results with non-gaap financial measures . our definition of ebitdda and adjusted ebitdda may be different from similarly titled measures reported by other companies . we define ebitdda as net income ( loss ) before interest expense , income taxes , basis of real estate sold , depreciation , depletion and amortization . adjusted ebitdda further excludes certain specific items that are considered to hinder comparison of the performance of our businesses either year-on-year or with other businesses . see note 5 : segment information of the notes to the consolidated financial statements for information related to the use of segment adjusted ebitdda . 26 business and economic conditions affecting our operations the demand for timber is directly affected by the underlying demand for lumber and other wood-products , as well as by the demand for pulp , paper and packaging . our timberlands and wood products segments are impacted by demand for new homes in the united states and by repair and remodeling activity . during the first half of 2019 , united states ( u.s. ) single family housing starts remained tepid as a result of affordability concerns . further , extended inclement weather across the country in the first half of 2019 impacted building conditions and delayed the normal start of the building season . building conditions improved in the second half of the year with seasonally adjusted annual rate of single-family starts for december 2019 above 1.1 million units . growth in 2020 is forecasted as builders ' renewed focus on smaller , more affordable homes which are expected to attract a wider array of buyers . lumber demand is also expected to benefit from continued , modest growth in repair and remodel activity . average lumber prices increased modestly during 2019 but remain significantly below 2018 levels as many buyers continued to maintain low inventories . we believe higher lumber demand , combined with industry production curtailments announced in 2019 will positively impact pricing in 2020. we expect to ship just over 1.1 billion board feet during 2020. in our timberlands segment , we index a significant portion of our idaho sawlogs to the price of lumber under long-term supply agreements . the northern region experienced a decline in sawlog pricing during 2019 because of lower average lumber prices . story_separator_special_tag also , during 2018 we recorded a tax benefit of $ 5.0 million primarily related to deducting contributions to our qualified pension plans at the higher 2017 income tax rate . total adjusted ebitdda total adjusted ebitdda for 2019 was $ 178.9 million compared to $ 297.2 million for 2018. the decrease in total adjusted ebitdda was driven primarily by decreased lumber pricing year over year , including the effect on indexed idaho sawlogs . these decreases were partially offset by increased lumber shipments , increased sawlog prices in the southern region , two large rural land sales in arkansas and increased residential and commercial sales at chenal valley . refer to the business segments results below for further discussions on activities for each of our segments . see liquidity and performance measures for a reconciliation of total adjusted ebitdda to net income , the closest comparable gaap measure , for each of the periods presented . 2018 compared with 2017 revenues revenues for 2018 were $ 974.6 million , an increase of $ 296.0 million compared to 2017. this increase includes revenue of $ 265.3 million from over 10 months of deltic sales following the merger . revenues also increased year over year as we experienced overall higher realizations on sawlogs in the northern region due to the effect 29 of higher lumber prices on indexed idaho sawlogs during the first half of the year and we sold 8,000 acres of non-strategic timberlands in minnesota during 2018 to a conservation entity . cost of goods sold cost of goods sold increased $ 238.3 million compared with the same period in 2017 , primarily due to the addition of the deltic operations in 2018 resulting in additional operating costs and increased depletion , depreciation and amortization . in addition , basis of land sold increased compared to 2017 due to the mix of sales along with the sales of non-strategic deltic timberlands and sales of development land in chenal valley following the deltic merger . selling , general and administrative expenses sg & a expenses for 2018 were $ 59.9 million compared with $ 50.0 million in 2017 primarily due to the acquired deltic operations . deltic merger-related costs merger-related costs for 2018 were $ 22.1 million compared to $ 3.4 million for 2017. merger-related costs included $ 12.2 million for investment banking fees , legal fees , accounting and appraisal fees and other costs related to filing the joint proxy/prospectus for the merger in 2018. restructuring costs were $ 9.9 million in 2018 , consisting primarily of termination benefits , which included accelerated share-based payment costs for qualifying terminations . avery landing during 2017 , we accrued an additional $ 5.0 million for a total accrual of $ 6.0 million related to avery landing proceeding , which was settled in april 2018. see note 21 : commitments and contingencies in the notes to consolidated financial statements . lumber price swap in april 2017 , we entered into a lumber price swap to fix the price on a total of 36 million board feet ( mmbf ) of southern yellow pine with an effective date of july 1 , 2017 and a termination date of december 31 , 2017. under the contract , beginning in july 2017 , cash settlement on 6 mmbf occurred each month . changes in the fair value of the derivative were recorded directly into income as it was not designated as a hedge . we did not enter into lumber price swaps during 2018. see note 15 : derivative instruments in the notes to consolidated financial statements . interest expense , net interest expense , net was $ 35.2 million , compared with $ 27.0 million for the same period in 2017. the $ 8.2 million increase was primarily due to assumption of $ 230.0 million in long-term debt assumed or refinanced in connection with the deltic merger , including $ 29.0 million of revenue bonds associated with the deltic mdf facility . refer to note 14 : debt in the notes to consolidated financial statements for a more detailed discussion of our borrowings . income tax provision provision for income taxes for 2018 was $ 19.2 million compared with $ 32.0 million for 2017. income taxes are primarily due to income or loss generated from our potlatchdeltic trs . for 2018 , the potlatchdeltic trs 's income before income tax was $ 100.3 million compared to $ 59.5 million in 2017. the increase in the potlatchdeltic trs 's income before income tax was primarily the result of higher lumber prices and the acquired deltic wood products operations . on december 22 , 2017 , the tax act was enacted , which contained significant changes to corporate taxation . the primary impact of the tax act in 2018 was a reduction to our potlatchdeltic trs 's effective tax rate , resulting in an estimated $ 10.1 million tax savings in 2018. during 2018 , we also recorded a tax benefit primarily related to deducting contributions to our qualified pension plans made in 2018 at the higher 2017 income tax rate discussed above . in addition to the higher corporate tax rate in 2017 , the income 30 tax provision for 2017 included a $ 10.7 million charge as a result of remeasured deferred tax assets , net at the lower tax rate . total adjusted ebitdda total adjusted ebitdda for 2018 was $ 297.2 million , an increase of $ 101.4 million compared to 2017. the increase in total adjusted ebitdda was driven primarily by increased southern harvests , higher lumber prices and increased wood product segment volumes due to the addition of deltic operations . refer to the story_separator_special_tag cellspacing= '' 0 '' style= '' border-collapse : collapse ; width:100 % ; '' > log costs per unit : i ncreased log costs in the southern region more than offset the impact of lower indexed logs in idaho driving the unfavorable log costs per unit year on year .
| business segments results below for further discussions on activities for each of our segments . see liquidity and performance measures for a reconciliation of total adjusted ebitdda to net income , the closest comparable gaap measure , for each of the periods presented . business segment results timberlands segment replace_table_token_5_th 1 prior to elimination of intersegment fiber revenues of $ 114.9 million , $ 115.9 million and $ 71.4 million in 2019 , 2018 and 2017 , respectively . 2 management uses adjusted ebitdda to evaluate the performance of the company . see note 5 : segment information in the notes to consolidated financial statements . 31 timberlands segment statistics replace_table_token_6_th 1 sawlog and pulpwood sales prices are on a delivered basis , which includes contracted logging and hauling costs charged to the customer . stumpage sales provide our customers the right to harvest standing timber . as such , the customer contracts the logging and hauling and bears such costs . timberlands adjusted ebitdda the following table summarizes adjusted ebitdda variances for the year ended december 31 , 2019 , compared with the year ended december 31 , 2018 and for the year ended december 31 , 2018 , compared with the year ended december 31 , 2017 : replace_table_token_7_th 32 2019 compared with 2018 timberlands adjusted ebitdda for 2019 was $ 134.0 million , a decrease of $ 35.8 million compared with the same period in 2018 primarily as a result of the following : sales price and mix : sawlog prices in the northern region declined 20.2 % , to $ 95 per ton resulting from the effect of lower lumber prices on idaho sawlogs that are indexed to lumber and a decline in cedar prices .
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in other cases , story_separator_special_tag management 's discussion and analysis should be read in conjunction with the company 's consolidated financial statements and notes thereto , contained in item 8 , `` financial statements and supplementary data '' and the other financial and statistical information contained in this report . special note regarding forward-looking statements this report on form 10-k contains certain “ forward-looking statements ” within the meaning of the private securities litigation reform act of 1995 , including statements concerning plans , objectives , future events or performance and assumptions and other statements that are other than statements of historical fact . forward-looking statements may be identified by reference to a future period or periods or by use of forward-looking terminology such as “ anticipates , ” “ believes , ” “ expects , ” “ intends , ” “ may , ” “ plans , ” “ pursue , ” “ views ” and similar terms or expressions . various statements contained in item 7 - “ management 's discussion and analysis of financial condition and results of operations ” and item 7a - “ quantitative and qualitative disclosures about market risk , ” including , but not limited to , statements related to management 's views on the banking environment and the economy , competition and market expansion opportunities , the interest rate environment , credit risk and the level of future non-performing assets and charge-offs , potential asset and deposit growth , future non-interest expenditures and non-interest income growth , and borrowing capacity are forward-looking statements . the company cautions readers that such forward-looking statements reflect numerous assumptions and involve a number of risks and uncertainties that could cause the company 's actual results to differ materially from those expressed in , or implied by the forward-looking statement . any forward-looking statements in this report are based on information available to the company as of the date of this report and the company undertakes no obligation to publicly update or otherwise revise any forward-looking statement , whether as a result of new information , future events or otherwise , except as required by applicable law . the following important factors , among others , could cause the company 's results for subsequent periods to differ materially from those expressed in any forward-looking statement made herein : ( i ) changes in interest rates could negatively impact net interest income ; ( ii ) changes in the business cycle and downturns in the local , regional or national economies , including deterioration in the local real estate market , could negatively impact credit and or asset quality and result in credit losses and increases in the company 's allowance for loan losses ; ( iii ) changes in consumer spending could negatively impact the company 's credit quality and financial results ; ( iv ) increasing competition from larger regional and out-of-state banking organizations as well as non-bank providers of various financial services could adversely affect the company 's competitive position within its market area and reduce demand for the company 's products and services ; ( v ) deterioration of securities markets could adversely affect the value or credit quality of the company 's assets and the availability of funding sources necessary to meet the company 's liquidity needs ; ( vi ) technology related risk , including technological changes and technology service interruptions or failure could adversely impact the company 's operations and increase technology-related expenditures ; ( vii ) cyber-security risk , including security breaches and identity theft could impact the company 's reputation , increase regulatory oversight and impact the financial results of the company ; ( viii ) increases in employee compensation and benefit expenses could adversely affect the company 's financial results ; ( ix ) changes in laws and regulations that apply to the company 's business and operations , including without limitation the dodd-frank act , the jumpstart our business startups act ( the `` jobs act '' ) , the basel iii rules adopted by the federal banking regulators and the additional regulations that will be forthcoming as a result thereof , could cause the company to incur additional costs and adversely affect the company 's business environment , operations and financial results ; ( x ) changes in accounting standards , policies and practices , as may be adopted or established by the regulatory agencies , the financial accounting standards board ( the “ fasb ” ) or the public company accounting oversight board could negatively impact the company 's financial results ; ( xi ) our ability to enter new markets successfully and capitalize on growth opportunities , including the receipt of required regulatory approvals ; ( xii ) future regulatory compliance costs , including any increase caused by new regulations imposed by the consumer finance protection bureau ; and ( xiii ) the risks and uncertainties described in the documents that the company files or furnishes to the sec , including those discussed under `` risk factors '' above in item 1a , which could have a material adverse effect on the company 's business , financial condition and results of operations . therefore , the company cautions readers not to place undue reliance on any such forward-looking information and statements . 39 overview executive summary net income for the year ended december 31 , 2016 , was $ 18.8 million , an increase of $ 2.6 million , or 16 % , compared to the year ended december 31 , 2015 . diluted earnings per share were $ 1.70 for the year ended december 31 , 2016 , an increase of 10 % , compared to the year ended december 31 , 2015 . in 2016 , earnings per share includes the dilutive effect from june 23 rd to december 31 st of the outstanding shares issued in the company 's recent equity offering . the increase in our 2016 earnings of 16 % compared to 2015 is largely driven by our growth over the last twelve months . story_separator_special_tag increases in expenses over the prior year primarily related to the company 's strategic growth and market expansion initiatives , particularly increases in salaries and benefits and technology expenses . sources and uses of funds the company 's primary sources of funds are customer and brokered deposits , federal home loan bank ( `` fhlb '' ) borrowings , current earnings and proceeds from the sales , maturities and pay-downs on loans and investment securities . the company may also , from time to time , utilize overnight borrowings from correspondent banks . additionally , funding for the company may be generated through equity transactions , including the dividend reinvestment and direct stock purchase plan or exercise of stock options , and occasionally the issuance of debt securities or the sale of new stock . during the second quarter of 2016 , the company completed an offering of shares of its common stock through a rights offering to its existing stockholders and a supplemental community offering ( `` share offering '' ) , raising approximately $ 20.0 million in new capital ( $ 19.7 million , net of offering costs ) , and contributed the net proceeds to the bank . the company 's sources of funds are intended to be used to originate loans , purchase investment securities , conduct operations , expand the branch network , and pay dividends to stockholders . the investment portfolio is primarily used to provide liquidity , manage the company 's asset-liability position and to invest excess funds , providing additional sources of revenue . total investments , one of the key components of earning assets , amounted to $ 374.8 million at december 31 , 2016 , and comprised 15 % of total assets at december 31 , 2016 compared to 13 % of total assets at december 31 , 2015 . since december 31 , 2015 , investments increased $ 74.4 million , or 25 % . enterprise 's main asset strategy is to grow loans , the largest component of interest-earning assets , with a focus on high-quality commercial loans . total loans increased $ 162.8 million , since december 31 , 2015 , and amounted to $ 2.02 billion at december 31 , 2016 , comprising 80 % of total assets at december 31 , 2016 , compared to 81 % at december 31 , 2015 . total commercial loans amounted to $ 1.74 billion , or 86 % of gross loans , at december 31 , 2016 , which was consistent with the composition at december 31 , 2015 . management 's preferred strategy for funding asset growth is to grow relationship-based deposit balances , preferably transactional deposits ( comprised of demand deposit accounts , checking accounts and traditional savings accounts ) . asset growth in excess of transactional deposits is typically funded through non-transactional deposits ( comprised of money market accounts , commercial tiered rate or `` investment savings '' accounts and term certificates of deposit ) and wholesale funding ( brokered deposits and borrowed funds ) . at december 31 , 2016 , customer deposits ( total deposits excluding brokered deposits ) amounted to $ 2.21 billion , an increase of $ 298.2 million , or 16 % , over december 31 , 2015 balances . non-brokered deposit growth since december 31 , 2015 , occurred in all deposit categories with the largest growth noted in money markets and checking accounts . wholesale funding amounted to $ 70.0 million at december 31 , 2016 , compared to $ 160.4 million at december 31 , 2015 , a decrease of $ 90.4 million , or 56 % . wholesale funding included fhlb advances of $ 10.7 million and $ 40.7 million at 41 december 31 , 2016 and december 31 , 2015 , respectively , and brokered deposits of $ 59.4 million and $ 106.8 million at december 31 , 2016 and december 31 , 2015 , respectively . at december 31 , 2015 , the company also had an overnight borrowing of $ 13.0 million with a correspondent bank . borrowed fund balances , fhlb advances and other borrowings , have declined $ 43.0 million since december 31 , 2015 . brokered deposits , comprised solely of cds , have decreased $ 47.4 million , or 44 % , during the year ended december 31 , 2016 . the company 's level of wholesale funding has declined in 2016 as deposit growth has exceeded loan growth . opportunities and risks the company 's ability to achieve its long-term strategic growth and market share objectives will depend in part upon the company 's continued success in differentiating itself in the market place and its ability to strengthen its competitive position . enterprise faces robust competition to attract and retain customers within existing and neighboring geographic markets . national and larger regional banks and financial institutions have a local presence in the company 's market area . these larger institutions have certain competitive advantages , including greater financial resources and the ability to make larger loans to a single borrower . numerous local savings banks , commercial banks , cooperative banks and credit unions also compete in the company 's market area . the expanded commercial lending capabilities of credit unions and the shift to commercial lending by traditional savings banks means that both of these types of traditionally consumer-orientated institutions now compete for the company 's targeted commercial customers . in addition , the non-taxable status of credit unions allows them certain advantages as compared to taxable institutions such as enterprise . competition for loans , deposits and cash management services , investment advisory assets , and insurance business also comes from other businesses that provide financial services , including consumer finance companies , mortgage brokers and lenders , private lenders , insurance companies , securities brokerage firms , institutional mutual funds , registered investment advisors , internet based banks , non-bank electronic payment and funding channels , and other financial intermediaries .
| results of operations comparison of years ended december 31 , 2015 and 2014 unless otherwise indicated , the reported results are for the year ended december 31 , 2015 with the “ comparable year ” or “ prior year ” being the year ended december 31 , 2014. average yields are presented on a tax equivalent basis . net income the company earned net income in 2015 of $ 16.1 million compared to $ 14.7 million for 2014 , an increase of 10 % . diluted earnings per share for 2015 was $ 1.55 compared to $ 1.44 for the prior year , which represented an increase of 8 % . the company 's 2015 growth contributed to increases in net interest income , non-interest expense and the allowance for loan losses as compared to 2014. this growth and other items impacting the company 's net income are discussed further below . net interest income the company 's net interest income for the year ended december 31 , 2015 was $ 78.3 million compared to $ 71.2 million for the year ended december 31 , 2014 , an increase of $ 7.1 million , or 10 % . the increase in net interest income over the comparable year was due primarily to loan growth , partially offset by a decrease in margin . net interest margin the company 's margin was 3.97 % for the year ended december 31 , 2015 compared to 4.02 % for the prior year . margin was 3.97 % for the quarter ended december 31 , 2015 , which is relatively consistent with the quarterly margin at september 30 , 2015 of 3.98 % . interest and dividend income total interest and dividend income for the year ended december 31 , 2015 was $ 83.5 million , an increase of $ 7.0 million , or 9 % , from the prior year .
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the company reimburses eitb for the rent for that office , the average amount of which is $ 370 per month . yu-cheng yang , the company 's sole director , is the sole director of eitb . yu-hsiang chia is the branch manager of eitb . mr. chia , also , holds 2,700,000 shares of the company 's common stock . 10 emperor star international trade co. , ltd. , ( “ emperor star ” ) , was incorporated on november 16 , 2015 under the laws of taiwan . the company is in the business of marketing and distribution of various products , including detergents , nutrition supplements , and skin care products . on may 3 , 2017 , the company entered into and closed a share purchase and sale agreement ( the “ purchase agreement ” ) with emperor star and the shareholder of emperor star to acquire all issued and outstanding shares of emperor star in consideration of $ 30,562 in cash . as a result of the purchase , emperor star becomes the company 's wholly owned subsidiary . upon consummation of the purchase , the company has assumed the business of emperor star and ceased to be a shell company . yu-hsiang chia currently serves as the officer and director of emperor star . mr. chia , also , holds 2,700,000 shares of the company 's common stock . we have never been a party to any bankruptcy , receivership or similar proceeding , nor have we undergone any material reclassification , merger , consolidation , purchase or sale of a significant amount of assets not in the ordinary course of business . we plan to market and distribute in taiwan skin care products manufactured by a.c. ( usa ) , inc. , which is located in the city of industry , california ( “ a.c. ” ) . we intend to market and distribute those skin care products to resellers who will recognize the needs of their targeted customers and who identify with those customers . our strategy will be to target spas , department stores and specialty stores that sell similar skin products . the skin care products that we will distribute are designed to address various skin care needs . those products include moisturizers , serums , cleansers , toners , body care , exfoliators , acne and oil correctors , facial masks , cleansing devices and sun care products . a number of those products are developed for use on particular areas of the body , such as the face or hands or around the eyes . effective may 3 , 2017 , we entered into a definitive agreement under which eos acquired all issued and outstanding shares of emperor star international trade co. , ltd. ( “ emperor star ” ) , a taiwanese corporation . the acquisition was carried out in accordance with a share purchase and sale agreement dated may 3 , 2017 ( the “ purchase agreement ” ) among our company and mr. yang yu cheng in consideration of usd $ 30,562 in cash . upon consummation of the purchase , the company has assumed the business of emperor star and ceased to be a shell company . emperor star was incorporated in taiwan in november 2015. the company distributes highly innovative personal care products and ecologically friendly cleaning products in taiwan with plans to expand distribution to china , malaysia , and thailand . emperor star 's product line includes anti-aging products that address the key signs of aging to reinvigorate and provide youthful energy and nutrition supplements . the company also distributes a line of ecologically friendly cleaning products that gently wash fruits and vegetables , laundry , dishes , and more . critical accounting policies and estimates principles of consolidation the accompanying unaudited consolidated financial statements , including the accounts of eos inc. and its wholly owned subsidiaries in taiwan , have been prepared in conformity with accounting principles generally accepted in the united states of america . since the company and emperor star are entities under mr. yu cheng yang 's common control prior to the acquisition of emperor star , the transaction is accounted for as a restructuring transaction . all the assets and liabilities of emperor star were transferred to the company at their respective carrying amounts on the date of transaction . the company has recast prior period financial statements to reflect the conveyance of emperor star 's common shares as if the restructuring transaction had occurred as of the earliest date of the financial statements . all material intercompany accounts , transactions , and profits have been eliminated in consolidation . the nature of and effects on earnings per share ( eps ) of nonrecurring intra-entity transactions involving long-term assets and liabilities is not required to be eliminated and eps amounts have been recast to include the earnings ( or losses ) of the transferred net assets . the functional currency of the subsidiaries in taiwan is the new taiwan dollars , however the accompanying unaudited consolidated financial statements have been translated and presented in united states dollars ( $ ) . in the accompanying unaudited consolidated financial statements and notes , “ $ ” , “ us $ ” and “ u.s . dollars ” mean united states dollars , and “ nt $ ” and “ nt dollars ” mean new taiwan dollars . story_separator_special_tag the total amounts for such employee benefits , which were expensed as incurred , were $ 1,629 and $ 1,863 for the years ended december 31 , 2017 and 2016 , respectively . other than the above , the company does not provide any other post-retirement or post-employment benefits . fair value measurements fasb asc 820 , “ fair value measurements ” defines fair value for certain financial and nonfinancial assets and liabilities that are recorded at fair value , establishes a framework for measuring fair value and expands disclosures about fair value measurements . it requires that an entity measure its financial instruments to base fair value on exit price , maximize the use of observable units and minimize the use of unobservable inputs to determine the exit price . it establishes a hierarchy which prioritizes the inputs to valuation techniques used to measure fair value . this hierarchy increases the consistency and comparability of fair value measurements and related disclosures by maximizing the use of observable inputs and minimizing the use of unobservable inputs by requiring that observable inputs be used when available . observable inputs are inputs that reflect the assumptions market participants would use in pricing the assets or liabilities based on market data obtained from sources independent of the company . unobservable inputs are inputs that reflect the company 's own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances . the hierarchy prioritizes the inputs into three broad levels based on the reliability of the inputs as follows : · level 1 – inputs are quoted prices in active markets for identical assets or liabilities that the company has the ability to access at the measurement date . valuation of these instruments does not require a high degree of judgment as the valuations are based on quoted prices in active markets that are readily and regularly available . · level 2 – inputs other than quoted prices in active markets that are either directly or indirectly observable as of the measurement date , such as quoted prices for similar assets or liabilities ; quoted prices in markets that are not active ; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities . · level 3 – valuations based on inputs that are unobservable and not corroborated by market data . the fair value for such assets and liabilities is generally determined using pricing models , discounted cash flow methodologies , or similar techniques that incorporate the assumptions a market participant would use in pricing the asset or liability . the carrying values of certain assets and liabilities of the company , such as cash and cash equivalents , inventory , advance to suppliers , prepaid expenses , accounts payable , accrued expenses , and due to shareholders , approximate fair value due to their relatively short maturities . net income ( loss ) per share basic income ( loss ) per share is computed by dividing net income by weighted average number of shares of common stock outstanding during each period . diluted income per share is computed by dividing net loss by the weighted average number of shares of common stock , common stock equivalents , and potentially dilutive securities outstanding during each period . at december 31 , 2017 and 2016 , the company does not have any outstanding common stock equivalents ; therefore , a separate computation of diluted loss per share is not presented . 13 income taxes the company accounts for income taxes in accordance with asc 740 , income taxes , which requires that the company recognize deferred tax liabilities and assets based on the differences between the financial statement carrying amounts and the tax basis of assets and liabilities , using enacted tax rates in effect in the years the differences are expected to reverse . deferred income tax benefit ( expense ) results from the change in net deferred tax assets or deferred tax liabilities . a valuation allowance is recorded when , in the opinion of management , it is more likely than not that some or all of any deferred tax assets will not be realized . concentration of credit risk the company 's financial instruments that are exposed to concentrations of credit risk consist primarily of cash and cash equivalents and restricted cash . the company places its cash and temporary cash investments in high quality credit institutions , but these investments may be in excess of taiwan central deposit insurance corporation 's insurance limits . the company does not enter into financial instruments for hedging , trading or speculative purposes . concentration of credit risk with respect to trade and notes receivables is limited due to the wide variety of customers and markets in which the company transacts business , as well as their dispersion across many geographical areas . the company performs ongoing credit evaluations of its customers and generally does not require collateral , but does require advance deposits on certain transactions . customers : the company performs ongoing credit evaluations of its customers ' financial condition and generally , requires no collateral . for the year ended december 31 , 2017 , four customers accounted for more than 10 % of the company 's total revenues , represented approximately 99.8 % of its total revenues , and 100 % of accounts receivable in aggregate at december 31 , 2017. replace_table_token_3_th * related party transactions ( see note 2 ) .
| results of operations the following presents the consolidated results of the company for the years ended december 31 , 2017 and december 31 , 2016. net revenue : net revenue was $ 1,509,880 for the year ended december 31 , 2017 , representing an increase of $ 1,228,769 , or 437.11 % , as compared to $ 281,111 for the year ended december 31 , 2016. the increase was primarily due to the increase in sales of nutrition supplements and skin care products . cost of sales : cost of sales was $ 277,707 for the year ended december 31 , 2017 , representing an increase of $ 146,475 , or 111.61 % , as compared to $ 131,232 for the year ended december 31 , 2016. the increase was mainly due to the increase in sales . gross profit : gross profit was $ 1,232,173 for the year ended december 31 , 2017 , compared to $ 149,879 for the year ended december 31 , 2016. gross profit as a percentage of net sales was approximately 81.60 % for the year ended december 31 , 2017 , compared to approximately 53.31 % in the same period in 2016. the change in gross profit margin was due to more skin care products with higher yield margin sold during the year ended december 31 , 2017. selling , general and administrative expenses : selling , general and administrative expenses has decreased to $ 351,040 for the year ended december 31 , 2017 , representing a 12.51 % decrease , compared to $ 401,273 for the year ended december 31 , 2016. the decrease in selling , general and administrative expenses was mainly attributable to the decrease in payroll expenses and advertising expenses .
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survey data for midstream oil and gas , broader energy , and general industry companies with revenues of around $ 2 billion ( roughly the same as combined gross revenues for legacy crestwood and legacy inergy pre-merger ) . in story_separator_special_tag our management 's discussion and analysis of financial condition and results of operations should be read in conjunction with our consolidated financial statements and the accompanying footnotes . this report , including information included or incorporated by reference herein , contains forward-looking statements concerning the financial condition , results of operations , plans , objectives , future performance and business of our company and its subsidiaries . these forward-looking statements include : statements that are not historical in nature , including , but not limited to : ( i ) our expectation that we will grow our business through both organic growth projects and acquisitions ; ( ii ) our belief that anticipated cash from operations , cash distributions from entities that we control , and borrowing capacity under our credit facility will be sufficient to meet our anticipated liquidity needs for the foreseeable future ; ( iii ) our belief that we do not have material potential liability in connection with legal proceedings that would have a significant financial impact on our consolidated financial condition , results of operations or cash flows ; ( iv ) our belief that our assets , and crestwood midstream 's assets , will continue to benefit from the development of unconventional shale plays as significant supply basins ; and ( vi ) our belief that the crestwood merger will produce certain commercial synergies and other benefits ; and statements preceded by , followed by or that contain forward-looking terminology including the words “ believe , ” “ expect , ” “ may , ” “ will , ” “ should , ” “ could , ” “ anticipate , ” “ estimate , ” “ intend ” or the negation thereof , or similar expressions . forward-looking statements are not guarantees of future performance or results . they involve risks , uncertainties and assumptions . actual results may differ materially from those contemplated by the forward-looking statements due to , among others , the following factors : our ability to successfully implement our business plan for our assets and operations ; governmental legislation and regulations ; industry factors that influence the supply of and demand for crude oil , natural gas and ngls ; industry factors that influence the demand for services in the markets ( particularly unconventional shale plays ) in which we provide services ; weather conditions ; the availability of crude oil , natural gas and ngls , and the price of those commodities , to consumers relative to the price of alternative and competing fuels ; economic conditions ; costs or difficulties related to the integration of our existing businesses and acquisitions ; environmental claims ; operating hazards and other risks incidental to the provision of midstream services , including gathering , compressing , treating , processing , fractionating , transporting and storing crude oil , ngls and natural gas ; interest rates ; and the price and availability of debt and equity financing . we have described under item 1a , risk factors , additional factors that could cause actual results to be materially different from those described in the forward-looking statements . other factors that we have not identified in this report could also have this effect . overview we are a master limited partnership that manages , owns and operates crude oil , natural gas and ngl midstream assets and operations . headquartered in houston , texas , we are a fully-integrated midstream solution provider that specializes in connecting shale-based energy supplies to key demand markets . we manage and conduct a substantial portion of our operations through crestwood midstream , a growth-oriented mlp that owns and operates gathering , processing , storage , and transportation assets in the most prolific shale plays across the united states . we own the general partnership interest , idrs and approximately 4 % of the limited partner interests of crestwood midstream as of december 31 , 2013 . 48 strategic business combination in 2013 , we completed a series of related transactions that transferred control of us to crestwood holdings and combined the management and operations of the inergy midstream and legacy crestwood . the strategic rationale behind the business combination included , among other things , commercial synergies that would enable us to significantly expand the mix of midstream services we are able to offer our customers ; diversified cash flows and asset base ; increased scale to accelerate opportunities to reduce leverage and improve creditworthiness ; and , increased scale to better take advantage of growth opportunities , in terms of both organic growth projects and third-party acquisitions . we have already realized ( and expect to continue to realize ) many of these anticipated merger benefits , and we continue to believe this strategic combination enhances our consolidated position as a diversified , high-growth midstream “ pure play ” focused on crude and liquids-rich opportunities . our company we provide broad-ranging services to customers across the crude oil , ngl and natural gas sector of the energy value chain . our midstream infrastructure is geographically located in or near significant supply basins , especially developed and emerging liquids-rich and crude oil shale plays , across the united states . we own or control : natural gas facilities with approximately 2.5 bcf/d of gathering capacity , 471 mmcf/d of processing capacity , 79.4 bcf of working gas storage capacity , and 1.0 bcf/d of firm transmission capacity ; ngl facilities with approximately 24,000 bbls/d of fractionation capacity and 2.8 million barrels of storage capacity ; crude oil facilities with approximately 100,000 bbls/d of gathering capacity , 960,000 barrels of storage capacity and 120,000 bbls/d of rail loading capacity ; and 7 terminal facilities and a transportation fleet of approximately 557 truck/trailer units and 1,071 rail units that can transport more than 330,000 bbls/d of ngls . story_separator_special_tag we do not take title to natural gas or ngls under our fixed-fee contracts , whereas under our percent-of-proceeds contracts , we take title to the residue gas , ngls and condensate and remit a portion of the sale proceeds to the producer based on prevailing commodity prices . our election to enter primarily into fixed-fee contracts minimizes our g & p segment 's commodity price exposure and provides us more stable operating performance and cash flows . for the year ended december 31 , 2013 , the net revenues from our percent-of-proceeds contracts accounted for approximately 2 % of our gross profit ( defined as revenues less costs of product/services sold ) in our g & p operations . ngl and crude services our ngl and crude services segment consists of our proprietary ngl and crude supply and logistics business , crude oil gathering systems and rail terminals , ngl processing , fractionation and storage facilities , and us salt . we have facilities located in and around some of the most prolific crude oil shales and premium demand markets in north america . we utilize these facilities to provide gathering , storage and terminal services to our anchor customers , and we utilize our crude oil and ngl assets on a portfolio basis to provide integrated supply and logistics solutions to producers , refiners and other customers . our ngl and crude services operations primarily include : supply and logistics business . our proprietary ngl and crude oil supply and logistics business utilizes assets under our ownership or control to effectively provide supply “ flow assurance ” to producers , refiners and other customers . we are able to offer services that ensure uninterruptible ngl and crude oil supply flows at attractive economic values by optimizing our fleet of rail and rolling stock ( including approximately 290 tractors , 458 transports and 7 truck terminals ) , west coast ngl operations , ngl storage facilities , and leased storage capacity at major crude and ngl hubs ; 50 bakken shale - arrow . we own and operate substantial crude oil , natural gas and produced water gathering systems ( the arrow system ) located on the fort berthold indian reservation in the core of the bakken shale in mckenzie and dunn counties , north dakota . the arrow system consists of more than 485 miles of gathering pipeline , including approximately 153 miles of crude oil gathering lines , 171 miles of natural gas gathering lines and 164 miles of produced water gathering lines . we purchased the arrow system in november 2013 ; bakken shale - colt hub . we own and operate the colt hub , which is one the largest crude oil rail terminals in the bakken shale based on actual throughput and which complements our recent arrow acquisition . located approximately 60 miles away from arrow 's central delivery point , the colt hub interconnects with the arrow system through the hiland and tesoro pipeline systems . the hub , which can be sourced by numerous pipeline systems or truck , is capable of loading up to 120,000 bbls/d and has 960,000 barrels of crude oil storage capacity ; prb niobrara shale . we own a 50.01 % ownership interest in prbic , which owns an early stage crude oil rail terminal in douglas county , wyoming . we account for our interest in prbic as an equity investment . the terminal , which when completed will provide unit train takeaway-solutions for crude producers in the prb niobrara , is supported by a long-term contract with a major oil producer under which the producer has committed to deliver a minimum volume of crude oil to the rail facility for throughput ; west coast ngl business . our west coast ngl business provides processing , fractionation , storage , transportation and marketing services to producers , refiners and other customers . located near bakersfield , california , our west coast facilities include 24 million gallons of aboveground ngl storage capacity , 25 mmcf/d of natural gas processing capacity , 12,000 bbls/d of ngl fractionation capacity , 8,000 bbls/d of butane isomerization capacity , and ngl rail and truck take-away options ; ngl storage facilities . we own and operate the seymour storage facility , which has 21 million gallons of underground ngl storage capacity and 1.2 million gallons of aboveground “ bullet ” storage capacity , and the bath storage facility , which has 1.7 million barrels of underground ngl storage capacity ; and us salt . our salt production business , which has a plant near watkins glen , new york , is capable of producing more than 400,000 tons of evaporated salt products annually . us salt 's solution mining process creates underground caverns that can be developed into natural gas and ngl storage capacity . the prbic joint venture is also an example of how the crestwood merger is delivering commercial synergies , as this opportunity resulted from a combination of the crude rail terminal and ngl logistics experience of inergy midstream and legacy crestwood 's relationships with rki and jackalope . the cash flows from our supply and logistics business ( including our ngl processing , fractionation and storage facilities ) represent sales to creditworthy customers typically under contracts with durations of one year or less , and tend to be seasonal in nature due to customer profiles and their tendencies to purchase ngls during peak winter periods . the cash flows from the arrow operations are primarily fee-based with creditworthy counterparties under 10-to-20 year contracts , and can be impacted in the short term by changing commodity prices , seasonality and weather fluctuations . the cash flows from our bakken shale colt hub are predominantly fee-based with creditworthy counterparties under three-to-five year contracts , and are generally economically stable and not significantly affected in the short term by changing commodity prices , seasonality or weather fluctuations .
| segment results below is a discussion of the factors that impacted ebitda by segment for the three years ended december 31 , 2013 , 2012 and 2011 . gathering and processing : revenues for our gathering and processing ( `` g & p '' ) segment increased by approximately $ 51.7 million ( or 22 % ) during the year ended december 31 , 2013 compared to the same period in 2012 , although our g & p segment 's ebitda decreased by $ 14.5 million for that same period . the decrease in ebitda was primarily the result of a $ 31.4 million loss on contingent consideration recorded during 2013. this non-cash accrual reflects the fair value of an earn-out premium associated with the original acquisition of our marcellus g & p assets from antero in 2012. this earn-out provision allows antero to receive an additional $ 40 million payment during the first quarter of 2015 if gathering volumes exceed a certain threshold in the acquisition agreements , which was based on original acquisition forecasts . based on our current forecasts , we believe our marcellus gathering volumes will exceed that threshold in 2014 . 56 partially offsetting this decrease in ebitda year-over-year was a $ 22.3 million increase in the operating margin ( defined as operating revenues less costs of product/services sold and operating and administrative expense ) due to a 21 % increase in gathering volumes and an increase in compression volumes in 2013 compared to 2012. we gathered approximately 365 bcf of natural gas on our g & p systems in 2013 , compared to 301 bcf in 2012 , which was primarily driven by our acquisition of assets from antero and devon corporation ( “ devon ” ) in 2012 and continued expansion of our assets in the marcellus shale in order to capitalize on increased producer activity .
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the new standard also requires presentation on the face of the financial statements of reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statement where the components of net income and the components of other comprehensive income are presented . this new standard is effective on a retrospective basis for the company beginning in the first quarter of fiscal year 2012 , however early adoption is permitted . the company does not expect this new standard to significantly impact its consolidated financial statements . 2. net income ( loss ) per share prior to the company 's ipo , net story_separator_special_tag the following discussion and analysis of the financial condition and results of our operations should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this report . this discussion contains forward-looking statements that involve risks and uncertainties . our actual results could differ materially from those discussed below . factors that could cause or contribute to such differences include , but are not limited to , those identified below , and those discussed in the section titled risk factors included elsewhere in this report . overview we are a provider of highly integrated , radio-frequency analog and mixed-signal semiconductor solutions for broadband communications applications . our high performance radio-frequency , or rf , receiver products capture and process digital and analog broadband signals to be decoded for various applications . these products include both rf receivers and rf receiver systems-on-chip , or socs , which incorporate our highly integrated radio system architecture and the functionality necessary to demodulate broadband signals . our current products enable the display of broadband video content in a wide range of electronic devices , including cable and terrestrial set top boxes , digital televisions , mobile handsets , personal computers , netbooks and in-vehicle entertainment devices . our net revenue has grown from approximately $ 600,000 in fiscal 2006 to $ 71.9 million in fiscal 2011. in 2010 and 2011 , our net revenue was derived from sales of global digital rf receiver products for digital set top box applications , automotive navigation displays , mobile handsets , cable modems and gateways and digital televisions . our ability to achieve revenue growth in the future will depend , among other factors , on our ability to further penetrate existing markets ; our ability to expand our target addressable markets by developing new and innovative products ; and our ability to obtain design wins with device manufacturers , in particular manufacturers of set top boxes and cable modems and gateways for the cable industry . substantially all of our sales have been to customers outside the united states . sales to customers in asia accounted for 90 % , 97 % and 99 % of net revenue in the years ended december 31 , 2011 , 2010 and 2009 , respectively . the majority of our sales to these and other customers are through distributors based in asia . although we actually sell the products to and are paid by the distributors , we refer to these end customers as our customers . because many of our customers or their oem manufacturers are located in asia , we anticipate that a majority of our revenue will continue to come from sales to customers in that region . although a large percentage of our sales are made to customers in asia , we believe that a significant number of the systems designed by these customers and incorporating our semiconductor products are then sold to end users outside asia . for example , we believe revenue generated from sales of our digital terrestrial set top box products during the years ended december 31 , 2011 and 2010 related principally to sales to asian set top box manufacturers delivering products into european markets . to date , all of our sales have been denominated in united states dollars . a significant portion of our net revenue has historically been generated by a limited number of customers . our three largest customers collectively represented 32 % of net revenue for the year ended december 31 , 2011. for certain customers , we sell multiple products into disparate end user applications such as modules for televisions , in-vehicle or automotive applications and mobile handsets . our business depends on winning competitive bid selection processes , known as design wins , to develop semiconductors for use in our customers ' products . these selection processes are typically lengthy , and as a result , our sales cycles will vary based on market served , whether the design-win is with an existing or a new customer and whether our product being designed in our customer 's device is a first generation or subsequent generation product . our customers ' products can be complex and , if our engagement results in a design win , can require significant time to define , design and result in volume production . because the sales cycle for our 40 products is long , we can incur significant design and development expenditures in circumstances where we do not ultimately recognize any revenue . we do not have any long-term purchase commitments with any of our customers , all of whom purchase our products on a purchase order basis . once one of our products is incorporated into a customer 's design , however , we believe that our product is likely to remain a component of the customer 's product for its life cycle because of the time and expense associated with redesigning the product or substituting an alternative chip . product life cycles in our target markets will vary by application . for example , in the digital set top box market a design-in can have a product life cycle of 18 to 24 months . in the automotive sector , the product life cycle of a design-in can range from 36 to 60 months . story_separator_special_tag inventory valuation we continually assess the recoverability of our inventory based on assumptions about demand and market conditions . forecasted demand is determined based on historical sales and expected future sales . we value our inventory at the lower of standard cost ( which approximates actual cost on a first-in , first-out basis ) or its current estimated market value . we reduce our inventory to the estimated lower of cost or market value on a part-by-part basis to account for its obsolescence or lack of marketability . reductions are calculated as the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions . if actual market conditions are less favorable than those projected by management , additional inventory write-downs may be required that may adversely affect our operating results . if actual market conditions are more favorable , we may have higher gross profits when products are sold . intangible assets technologies acquired or licensed from other companies are capitalized and amortized over the greater of the terms of the agreement , or estimated useful life , not to exceed three years . impairment of long-lived assets we regularly review the carrying amount of our long-lived assets , as well as the useful lives , to determine whether indicators of impairment may exist which warrant adjustments to carrying values or estimated useful lives . an impairment loss would be recognized when the sum of the expected future undiscounted net cash flows is less than the carrying amount of the asset . should impairment exist , the impairment loss would be measured based on the excess of the carrying amount of the asset over the asset 's fair value . 42 income taxes we provide for income taxes utilizing the asset and liability approach of accounting for income taxes . under this approach , deferred taxes represent the future tax consequences expected to occur when the reported amounts of assets and liabilities are recovered or paid . the provision for income taxes generally represents income taxes paid or payable for the current year plus the change in deferred taxes during the year . deferred taxes result from the differences between the financial and tax bases of our assets and liabilities and are adjusted for changes in tax rates and tax laws when changes are enacted . valuation allowances are recorded to reduce deferred tax assets when a judgment is made that is considered more likely than not that a tax benefit will not be realized . a decision to record a valuation allowance results in an increase in income tax expense or a decrease in income tax benefit . if the valuation allowance is released in a future period , income tax expense will be reduced accordingly . the calculation of tax liabilities involves dealing with uncertainties in the application of complex global tax regulations . the impact of an uncertain income tax position is recognized at the largest amount that is more likely than not to be sustained upon audit by the relevant taxing authority . an uncertain income tax position will not be recognized if it has less than a 50 % likelihood of being sustained . if the estimate of tax liabilities proves to be less than the ultimate assessment , a further charge to expense would result . in assessing the realizability of deferred tax assets , management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized . the ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible . we will continue to assess the need for a valuation allowance on the deferred tax asset by evaluating both positive and negative evidence that may exist . any adjustment to the net deferred tax asset valuation allowance would be recorded in the income statement for the period that the adjustment is determined to be required . stock-based compensation we measure the cost of employee services received in exchange for equity incentive awards , including stock options , employee stock purchase rights and restricted stock units , based on the grant date fair value of the award . we use the black-scholes valuation model to calculate the fair value of stock options and employee stock purchase rights granted to employees . we calculate the fair value of restricted stock units based on the fair market value of our class a common stock on the grant date . stock-based compensation expense is recognized over the period during which the employee is required to provide services in exchange for the award , which is usually the vesting period . we recognize compensation expense over the vesting period using the straight-line method and classify these amounts in the statements of operations based on the department to which the related employee reports . we account for stock options issued to non-employees in accordance with authoritative guidance for equity based payments to non-employees . stock options issued to non-employees are accounted for at their estimated fair value determined using the black-scholes option-pricing model . the fair value of options granted to non-employees is re-measured as they vest , and the resulting increase in value , if any , is recognized as expense during the period the related services are rendered . we calculate the fair value of restricted stock units issued to non-employees based on the fair market value of our class a common stock on the grant date and the resulting stock-based compensation expense is recognized over the period during which the non-employee is required to provide services in exchange for the award , which is usually the vesting period . story_separator_special_tag replace_table_token_7_th research and development expense for 2011 was $ 40.2 million , an increase of $ 12.4 million , or 45 % , from 2010. this increase was primarily attributable to an increase in the number of new rf receiver soc product development and existing product enhancement initiatives .
| results of operations the following describes the line items set forth in our consolidated statements of operations . net revenue . net revenue is generated from sales of our rf receivers and rf receiver socs . a majority of our end customers purchase products indirectly from us through distributors . although we actually sell the products to and are paid by the distributors , we refer to these end customers as our customers . 43 cost of net revenue . cost of net revenue includes the cost of finished silicon wafers processed by third-party foundries ; costs associated with our outsourced packaging and assembly , test and shipping ; costs of personnel , including stock-based compensation , and equipment associated with manufacturing support , logistics and quality assurance ; amortization of certain production mask costs ; cost of production load boards and sockets ; and an allocated portion of our occupancy costs . research and development . research and development expense includes personnel-related expenses , including stock-based compensation , new product engineering mask costs , prototype integrated circuit packaging and test costs , computer-aided design software license costs , intellectual property license costs , reference design development costs , development testing and evaluation costs , depreciation expense and allocated occupancy costs . research and development activities include the design of new products , refinement of existing products and design of test methodologies to ensure compliance with required specifications . all research and development costs are expensed as incurred . selling , general and administrative . selling , general and administrative expense includes personnel-related expenses , including stock-based compensation , distributor and other third-party sales commissions , field application engineering support , travel costs , professional and consulting fees , legal fees , depreciation expense and allocated occupancy costs . interest income . interest income consists of interest earned on our cash , cash equivalents and investment balances . interest expense .
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at december 31 , 2014 , the company had $ 222.1 million of available borrowings under the revolving credit facility , net of $ 27.9 million to secure its outstanding letters of credit . the credit facilities contain a number of covenants that restrict the ability of the company and its restricted subsidiaries to take certain specified actions , subject to certain significant exceptions , including : creating liens ; incurring indebtedness ; making investments and acquisitions ; engaging in mergers and other fundamental changes ; making dispositions ; making restricted payments , including dividends and distributions ; and consummating transactions with affiliates . under the credit facilities , the company will be required to maintain a consolidated first lien secured net leverage ratio of no greater than 3.00 to 1.00 and an interest coverage ratio of no less than 3.00 to 1.00 . additionally , the credit facilities contain customary affirmative covenants for credit facilities of this kind and customary events of default ( subject , in certain cases , to story_separator_special_tag story_separator_special_tag style= '' line-height:120 % ; padding-bottom:8px ; text-align : justify ; text-indent:24px ; font-size:10pt ; '' > we believe our reserves represent the best estimate at this time of the costs required to clean up the identified sites . although the adjustment to the reserves is significant , the associated spending will be spread over 20 years . these changes are not anticipated to have a material impact on our cash flows in 2015. see note 13 — liabilities for disposed operations for more information . outlook we expect the 2015 cellulose specialties market to face a combination of industry oversupply and weaker end-market demand . our cellulose specialties volumes in 2015 are forecasted to be comparable to the last couple years with prices 7 to 8 percent below 2014. despite the difficult environment and aggressive pricing offered by competitors , we expect to maintain or increase our share of cellulose specialties volume at each of our top ten customers in 2015. this success is largely due to our differentiated , high-quality product and long-term customer relationships . we expect to generate ebitda between $ 200 million and $ 220 million in 2015. in 2015 , we expect our effective tax rate to be between 33 and 34 percent and capital expenditures of $ 75 to $ 80 million . for a reconciliation of ebitda to net income , see item 7 — management 's discussion and analysis of financial condition and results of operations — performance and liquidity indicators . critical accounting policies and use of estimates the preparation of financial statements requires us to make estimates , assumptions and judgments that affect our assets , liabilities , revenues and expenses , and to disclose contingent assets and liabilities in our consolidated financial statements . we base these estimates and assumptions on historical data and trends , current fact patterns , expectations and other sources of information management believes are reasonable . actual results may differ from these estimates . principals of consolidation prior to the separation , our results of operations , financial position and cash flows consisted of rayonier 's performance fibers business . our financial statements are presented as if the performance fibers business had been combined with the company for all periods presented . all intercompany transactions are eliminated . the statements of income for periods prior to the separation include allocations of certain costs from rayonier related to the operations of the performance fibers business . the statements of income also include expense allocations for certain corporate functions historically performed by rayonier and not allocated to its operating segments . management believes the methodologies employed for the allocation of costs were reasonable in relation to the historical reporting of rayonier , but may not necessarily be indicative of costs had we operated on a stand-alone basis during the periods prior to the separation , nor what the costs may be in the future . revenue recognition rayonier advanced materials generally recognizes sales when the following criteria are met : ( i ) persuasive evidence of an agreement exists , ( ii ) delivery has occurred , ( iii ) the price to the buyer is fixed and determinable and ( iv ) collectibility is reasonably assured . generally , title passes upon delivery to the agreed upon location . based on the time required to reach each location , customer orders are generally received in one period with the corresponding revenue recognized in a subsequent period . as such , there could be substantial variation in orders received and revenue recognized from period to period . depreciation of long-lived assets depreciation expense is computed using the units-of-production method for our plants and equipment and the straight-line method on all other property , plant and equipment over the useful economic lives of the assets involved . the total units of production used to calculate depreciation expense is determined by factoring annual production days , based on normal production conditions , by the economic useful life of the asset involved . on average , the units-of-production and straight line methodologies accounted for approximately 93 percent and 7 percent of depreciation expense , respectively . the physical life of equipment , however , may be shortened by economic obsolescence caused by environmental regulation , competition or other causes . we depreciate our non-production assets , including office , lab and transportation equipment , using the straight-line depreciation method over 3 to 25 years . buildings and land improvements are depreciated using the straight-line method over 15 to 35 years and 5 to 30 years , respectively . management believes these depreciation methods are the most appropriate , versus other generally accepted accounting methods , as they most closely match revenues with expenses . gains and losses on the retirement of assets are included in operating income . long-lived assets are reviewed annually for impairment or whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable . story_separator_special_tag new accounting standards see note 1 — separation and basis of presentation for a discussion of recently issued accounting pronouncements that may affect our financial results and disclosures in future periods . summary of our results of operations for the three years ended december 31 : replace_table_token_5_th 20 results of operations , year ended december 31 , 2014 versus december 31 , 2013 replace_table_token_6_th total net sales were $ 89 million lower , or approximately nine percent , in 2014 , primarily reflecting an eight percent cellulose specialties price decline from 2013 pricing . cellulose specialties sales volumes decreased from the prior year period due to timing of customer receipts which impacted revenue recognition . replace_table_token_7_th ( a ) computed based on contribution margin . for 2014 , operating income and margin percentage declined $ 226 million and 21 percent , respectively , from the prior year . the price decrease was primarily due to lower cellulose specialties prices . higher costs also impacted current year operating results , including a $ 96 million increase in environmental reserves and impairment charges related to our disposed operations and $ 20 million more in one-time separation and legal costs . higher wood and energy costs as well as additional depreciation related to the start-up of the cse project also negatively impacted 2014 costs . we incurred $ 22 million of interest expense in 2014 related to the debt issued in the second quarter of 2014. see note 6 — debt for additional information . no interest expense was allocated to us in 2013 by rayonier . our effective tax rate for 2014 was 21.8 percent , compared with 23.9 percent for 2013 . the effective tax rate differs from the federal statutory rate of 35 percent primarily due to the reversal of a tax reserve related to the taxability of the cellulosic biofuel producer credit ( “ cbpc ” ) and the benefit of domestic manufacturing production deductions . see note 12 — income taxes for additional information . results of operations , year ended december 31 , 2013 versus december 31 , 2012 replace_table_token_8_th total sales decreased $ 48 million , or four percent , primarily due to lower production as a result of the extended shutdown associated with the cse project . this was partially offset by cellulose specialties sales prices which rose three percent as a result of annual price negotiations . commodity products prices declined five percent reflecting weakness in the market . replace_table_token_9_th ( a ) computed based on contribution margin . operating income and margin percentage declined $ 53 million and four percent , respectively , from the prior year . the increase in cellulose specialties pricing was offset by lower volumes and higher wood cost due to wet weather . our effective tax rate for 2013 was 23.9 percent , compared to 29.3 percent for 2012 . the effective tax rate declined as the tax benefit from the alternative fuel mixture credit ( “ afmc ” ) for cbpc exchange was higher in 2013 than 2012 and the law 21 provided a research credit for 2012 ( retroactive ) and 2013 which reduced our 2013 tax provision . see note 12 — income taxes for additional information . liquidity and capital resources our operations have historically produced stable cash flows , which is our primary source of liquidity and capital resources . on june 26 , 2014 , we arranged a revolving credit facility with a borrowing capacity of $ 250 million . the credit facility contains customary covenants and events of default . indebtedness under the revolving credit facility bears interest at either ( a ) a base rate or ( b ) an adjusted libor rate , in each case , plus an applicable margin . entering into the revolving credit facility also resulted in customary fees , including administrative agent fees , upfront fees and other costs . the revolving credit facility expires june 2019 . we incurred approximately $ 950 million of new debt to effect the separation . the debt consisted of $ 325 million of term loans , borrowings of $ 75 million under our revolving credit facility and $ 550 million of senior notes . approximately , $ 906 million of borrowings from the debt issuance was distributed to rayonier . the debt agreements contain various customary covenants . at december 31 , 2014 , we were in compliance with all covenants . our debt 's non-guarantors had no assets , revenues , covenant ebitda or liabilities . we believe our cash flow and availability under our revolving credit facility , as well as our ability to access the capital markets , if necessary or desirable , will be adequate to fund our operations and anticipated long-term funding requirements , including capital expenditures , dividend payments , defined benefit plan contributions and repayment of debt maturities . a summary of liquidity and capital resources is shown below ( in millions of dollars ) : replace_table_token_10_th ( a ) cash and cash equivalents consisted of cash , money market deposits , and time deposits with original maturities of 90 days or less . ( b ) availability under the revolving credit facility is reduced by stand-by letters of credit of approximately $ 28 million . ( c ) see note 6 — debt for additional information . cash flows ( in millions of dollars ) the following table summarizes our cash flows from operating , investing and financing activities for each of the three years ended december 31 : replace_table_token_11_th cash provided by operating activities cash provided by operating activities in 2014 decreased $ 70 million primarily due to lower sales prices and higher costs . cash provided by operating activities in 2013 decreased $ 47 million due primarily to the lower volumes as a result of the completion of the cse project . cash used for investing activities cash used for investing activities in 2014 decreased $ 161 million primarily due to the completion of the cse project in 2013 and lower capital expenditures .
| overview general we are the leading global producer of cellulose specialties , a natural polymer , used as a raw material to manufacture a broad range of consumer-oriented products such as cigarette filters , liquid crystal displays , impact-resistant plastics , thickeners for food products , pharmaceuticals , cosmetics , high-tenacity rayon yarn for tires and industrial hoses , food casings , paints and lacquers . in addition , we produce commodity products , primarily commodity viscose and absorbent materials . commodity viscose is a raw material for the manufacture of viscose staple fibers which are used in woven applications such as textiles for clothing and other fabrics , and in non-woven applications such as baby wipes , cosmetic and personal wipes , industrial wipes and mattress ticking . absorbent materials , typically referred to as fluff fibers , are used as an absorbent medium in products such as disposable baby diapers , feminine hygiene products , incontinence pads , convalescent bed pads , industrial towels and wipes and non-woven fabrics . our production facilities in jesup , georgia and fernandina beach , florida , have a combined annual cellulose specialties production capacity of approximately 675,000 metric tons of cellulose specialties . due to market dynamics , we are currently utilizing 70 percent of that capacity to produce cellulose specialties . we are producing commodity products with the remaining capacity . our products are sold throughout the world to companies for use in various industrial applications and to produce a wide variety of products . approximately 56 percent of our sales are to export customers , primarily in asia and europe . our top ten customers represent more than 75 percent of our sales . cost of sales includes the cost of wood , chemicals , energy , depreciation , manufacturing overhead and transportation used to manufacture and deliver our products .
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forward-looking statements can also be identified by words such as “ will , ” “ believe , ” “ could , ” “ should , ” “ would , ” “ may , ” “ anticipate , ” “ intend , ” “ plan , ” “ estimate , ” “ expect , ” “ project ” or the negative of these terms or other similar expressions . forward-looking statements are not guarantees of future performance and our actual results may differ significantly from the results discussed in the forward-looking statements . factors that might cause such differences include , but are not limited to , those discussed in part i , item 1a of this annual report under the heading “ risk factors , ” which are incorporated herein by reference . the following discussion should be read in conjunction with the consolidated financial statements and notes thereto included in part ii , item 8 of this annual report . we assume no obligation to revise or update any forward-looking statements for any reason , except as required by law . each of the terms the “ company , ” “ identiv , ” “ we ” and “ us ” as used herein refers collectively to identiv , inc. and its wholly-owned subsidiaries , unless otherwise stated . overview identiv , inc. is a global provider of physical security and secure identification . our products , software , systems , and services address the markets for physical and logical access control , video analytics and a wide range of radio frequency identification ( “ rfid ” ) -enabled applications . customers in government , enterprise , consumer , education , healthcare , banking , retail , transportation and other sectors rely on our security and identification solutions . our mission is to make the physical world digital and secure . our platform to deliver on our mission can be deployed through internet of things ( “ iot ” ) devices , mobile , client/server , cloud , web , dedicated hardware and software-defined architectures . our solutions encompass what we believe to be the most complete set of technologies in the industry . we are a one-stop shop for software delivering physical security management , video surveillance , logical access , analytics and identities ; and devices spanning access readers , panels , processing appliances , and identity cards . we provide services to deliver optimized total solutions , serving as a single-point provider for our customers rather than several separate vendors that the customer would otherwise have to coordinate and manage . segments we have organized our operations into two reportable business segments , principally by solution families : premises and identity . our premises segment includes our solutions to address the premises security market for government and enterprise , including access control , video surveillance , analytics , customer experience and other applications . our identity segment includes products and solutions enabling secure access to information serving the logical access and cyber security market , and protecting assets and objects in the iot with rfid . trends in our business geographic net revenue , based on each customer 's ship-to location , for the years ended december 31 , 2019 and 2018 is as follows ( in thousands ) : replace_table_token_1_th 24 net revenue trends net revenue in 2019 was $ 83.8 million , an increase of 7 % compared with $ 78.1 million in 2018. net revenue in our premises segment , which accounted for 50 % of our net revenue , was $ 41.6 million in 2019 , an increase of 20 % compared with $ 34.6 million in 2018. net revenue in our identity segment , which represented 50 % of our net revenue , was $ 42.2 million in 2019 , a decrease of 3 % compared with $ 43.6 million in 2018. net revenue in the americas net revenue in the americas was $ 61.4 million in 2019 , accounting for 73 % of total net revenue , an increase of 2 % compared with $ 60.2 million in 2018. net revenue from our premises solution represented approximately 60 % of our net revenue in the americas region . net revenue in our premises segment in the americas in 2019 increased 20 % compared with 2018 primarily due to higher sales of physical access control solutions products , software and related support services . net revenue from our identity segment decreased 17 % in 2019 compared with 2018 primarily due to the planned reduction in lower margin access card sales , partially offset by higher sales of rfid transponder products . as a general trend , u.s. federal agencies continue to be subject to security improvement mandates under programs such as homeland security presidential directive-12 ( “ hspd-12 ” ) and reiterated in memoranda from the office of management and budget ( “ omb m-11-11 ” ) . we believe that our solution for trusted physical access is an attractive offering to help federal agency customers move towards compliance with federal directives and mandates . to address our sales opportunities in the united states in general and with our u.s. government customers in particular , we focus on a strong u.s. sales organization and our sales presence in washington d.c. net revenue in europe , the middle east , and asia-pacific net revenue in europe , the middle east , and asia-pacific was approximately $ 22.4 million in 2019 , accounting for 27 % of total net revenue , an increase of 24 % compared with 2018 primarily as a result of higher sales in both regions . net revenue in these regions are very dependent on the completion of large projects and the timing of orders placed by some of our customers . sales of identity readers and rfid and nfc products and tags comprise a significant proportion of our net revenue in these regions . story_separator_special_tag no gilti tax was provided with respect to earnings of foreign subsidiaries due to a net foreign tested loss position . the net effect of all changes was an income tax provision of $ 0.2 million recorded in 2018. liquidity and capital resources as of december 31 , 2019 , our working capital , defined as current assets less current liabilities , was $ 11.7 million , a decrease of $ 1.0 million compared to $ 12.7 million as of december 31 , 2018. as of december 31 , 2019 , our cash balance was $ 9.4 million . on february 8 , 2017 , we entered into loan and security agreements ( each , a “ loan and security agreement ” ) with east west bank ( “ ewb ” ) and vll7 and vll8 . the loan and security agreement with ewb provided for a $ 10.0 million revolving loan facility , and the loan and security agreement with vll7 and vll8 provided for a term loan in an aggregate principal amount of $ 10.0 million . on february 6 , 2019 , we amended our loan and security agreement with ewb , which increased the revolving loan facility from $ 16.0 million to $ 20.0 million , lowered the interest rate from prime rate plus 1.0 % to prime rate plus 0.75 % , extended the maturity date to february 8 , 2021 , and amended certain financial covenants , including covenants with respect to minimum ebitda levels . on january 28 , 2020 , we entered into an amendment ( the “ twelfth amendment ” ) to our loan and security agreement with ewb , which provided a new term loan facility ( “ ewb term loan ” ) in a principal amount of $ 4.5 million and reduced the revolving loan facility under the loan and security agreement from $ 20.0 million to $ 15.5 million . the ewb term loan has an interest rate equal to the prime rate plus 2.25 % , will amortize beginning february 1 , 2020 , with principal in the amount of $ 250,000 due monthly through the first anniversary of the term loan , and the remainder due on such first anniversary . in addition , certain definitions in the loan and security agreement were amended pursuant to the twelfth amendment , including the definition of ebitda and borrowing base , and a new fixed charge coverage ratio financial covenant was added . upon repayment of the new term loan in full , the revolving loan facility will be increased to $ 20.0 million and the fixed charge coverage ratio financial covenant will no longer apply . see note 9 , financial liabilities , in the accompanying notes to our consolidated financial statements for more information . as of december 31 , 2019 , we were in compliance with all financial covenants under the revolving loan facility and the ewb term loan after giving effect to the amendment of certain financial covenants pursuant to the twelfth amendment . 30 on december 20 , 2017 , we entered into a securities purchase agreement with each of 21 april fund , ltd. and 21 april fund , lp ( collectively , the “ pu rchasers ” ) , in which we , through a private placement , agreed to issue and sell an aggregate of up to 5,000,000 shares of series b non-voting convertible preferred stock . the purchasers purchased an aggregate of 3,000,000 preferred shares at a price of $ 4.0 0 per share in cash at the initial closing of the transaction . on may 30 , 2018 , we completed the second closing of the private placement of 2,000,000 preferred shares at a price of $ 4.00 per share . the total purchase price paid to us was $ 20.0 million , of which $ 12.0 million was paid at the initial closing and $ 8.0 million at the second closing . we are required to use the proceeds from the issuance of the preferred shares to pay off existing debt obligations and to fund future acquisitions of technology , bu siness and other assets . see note 11 , stockholders ' equity , in the acc ompanying notes to our consolidated financial statements for more information . as our previously unremitted earnings have been subjected to u.s. federal income tax , we expect any repatriation of these earnings to the u.s. would not incur significant additional taxes related to such amounts . however , our estimates are provisional and subject to further analysis . generally , most of our foreign subsidiaries have accumulated deficits and cash and cash equivalents that are held outside the united states are typically not cash generated from earnings that would be subject to tax upon repatriation if transferred to the united states . we have access to the cash held outside the united states to fund domestic operations and obligations without any material income tax consequences . as of december 31 , 2019 , the amount of cash included at such subsidiaries was $ 1.7 million . we have not , nor do we anticipate the need to , repatriate funds to the united states to satisfy domestic liquidity needs arising in the ordinary course of business , including liquidity needs associated with our domestic debt service requirements we have historically incurred operating losses and negative cash flows from operating activities , and we may continue to incur losses in the future . as of december 31 , 2019 , we had a total accumulated deficit of $ 405.5 million . during the year ended december 31 , 2019 , we had a net loss of $ 1.2 million . we believe our existing cash balance , together with cash generated from operations and available credit under our loan and security agreement will be sufficient to satisfy our working capital needs to fund operations for the next twelve months . we may also use cash to acquire or invest in complementary businesses , technologies , services or products that would change our cash requirements .
| results of operations the following table includes segment net revenue and segment net profit information by business segment and reconciles gross profit to results of operations before income taxes and noncontrolling interest . replace_table_token_2_th 26 the following table sets forth our statements of operations as a percentage of net revenue for the periods indicated ( in thousands ) : replace_table_token_3_th fiscal 2019 compared with fiscal 2018 net revenue net revenue in 2019 was $ 83.8 million , an increase of 7 % compared with $ 78.1 million in 2018. net revenue was higher in 2019 driven by higher sales across both segments . net revenue in our premises segment of $ 41.6 million in 2019 increased 20 % from $ 34.6 million in 2018. the increase w as primarily due higher sales of physical access control solutions products , software and related support services . net revenue in our identity segment of $ 42.2 million in 2019 decreased 3 % from $ 43.6 million in 2018. the decrease was primarily due to the planned reduction of lower margin access card sales , offset by higher sales of rfid transponder products . gross profit gross profit for 2019 was $ 36.7 million , or 44 % of net revenue , compared to $ 33.3 million or 43 % of net revenue in 2018. gross profit represents net revenue less direct cost of product sales , manufacturing overhead , other costs directly related to preparing the product for sale including freight , scrap , inventory adjustments and amortization , where applicable .
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in addition , story_separator_special_tag the following discussion compares the company 's financial condition at december 31 , 2015 to its financial condition at december 31 , 2014 and the results of operations for the years ended december 31 , 2015 , 2014 , and 2013. this discussion should be read in conjunction with the consolidated financial statements and the notes thereto appearing in item 8 of part ii of this annual report . performance overview the company recorded net income of $ 7.11 million for 2015 , net income of $ 5.05 million for 2014 , and a net loss of $ 9.6 million for 2013. the basic and diluted income per share was $ 0.56 for 2015 , $ 0.46 for 2014 , and a diluted loss per common share of $ 1.14 for 2013. when comparing 2015 to 2014 and 2013 , earnings were significantly improved due to an increase in net interest income , a decline in the provision for credit losses , and the reduction of noninterest expenses . total assets were $ 1.135 billion at december 31 , 2015 , a $ 34.7 million , or 3.2 % , increase when compared to the $ 1.100 billion at december 31 , 2014. the increase in total assets was mainly the result of significant loan growth of $ 84.4 million . investment securities decreased $ 24.4 million and cash and cash equivalents decreased $ 22.4 million to partially fund the loan growth for 2015. total deposits increased $ 26.5 million , or 2.8 % , to $ 975 million at december 31 , 2015. the increase in deposits was mainly due to an increase in noninterest-bearing deposits of $ 35.9 million as well as an increase in interest-bearing transaction accounts of $ 14.0 million and money market and savings accounts of $ 18.4 million , offset by a decline in time deposits of $ 41.8 million . total stockholders ' equity increased $ 6.5 million , or 4.6 % , to $ 147.0 million , or 12.95 % of total assets at december 31 , 2015. critical accounting policies the company 's consolidated financial statements are prepared in accordance with gaap and follow general practices within the industries in which it operates . application of these principles requires management to make estimates , assumptions , and judgments that affect the amounts reported in the financial statements and accompanying notes . these estimates , assumptions , and judgments are based on information available as of the date of the financial statements ; accordingly , as this information changes , the financial statements could reflect different estimates , assumptions , and judgments . certain policies inherently have a greater reliance on the use of estimates , assumptions , and judgments and as such have a greater possibility of producing results that could be materially different than originally reported . estimates , assumptions , and judgments are necessary when assets and liabilities are required to be recorded at fair value , when a decline in the value of an asset not carried on the financial statements at fair value warrants an impairment write-down or valuation reserve to be established , or when an asset or liability needs to be recorded contingent upon a future event . carrying assets and liabilities at fair value inherently results in more financial statement volatility . the fair values and the information used to record valuation adjustments for certain assets and liabilities are based on quoted market prices , collateral value or are provided by other third-party sources , when available . the most significant accounting policies that the company follows are presented in note 1 to the consolidated financial statements . these policies , along with the disclosures presented in the notes to the financial statements and in this discussion , provide information on how significant assets and liabilities are valued in the financial statements and how those values are determined . based on the valuation techniques used and the sensitivity of financial statement amounts to the methods , assumptions , and estimates underlying those amounts , management has determined that the accounting policies with respect to the allowance for credit losses , goodwill and other intangible assets , deferred tax assets , and fair value are critical accounting policies . these policies are considered critical because they relate to accounting areas that require the most subjective or complex judgments , and , as such , could be most subject to revision as new information becomes available . the allowance for credit losses represents management 's estimate of credit losses inherent in the loan portfolio as of the balance sheet date . determining the amount of the allowance for credit losses is considered a critical accounting estimate because it requires significant judgment and the use of estimates related to the amount and timing of expected future cash flows on impaired loans , estimated losses on pools of homogeneous loans based on historical loss experience , and consideration of current economic trends and conditions , all of which may be susceptible to significant change . the loan portfolio also represents the largest asset type on the consolidated balance sheets . note 1 to the consolidated financial statements describes the methodology used to determine the allowance for credit losses . a discussion of the factors driving changes in the amount of the allowance for credit losses is included in the asset quality - provision for credit losses and risk management section below . goodwill represents the excess of the cost of an acquisition over the fair value of the net assets acquired . other intangible assets represent purchased assets that also lack physical substance but can be distinguished from goodwill because of contractual or other legal rights or because the asset is capable of being sold or exchanged either on its own or in combination with a related contract , asset or liability . goodwill and other intangible assets are required to be recorded at fair value . determining fair value is subjective , requiring the use of estimates , assumptions and management judgment . story_separator_special_tag the tax-equivalent adjustment amounts used in the above table to compute yields aggregated $ 80 thousand in 2015 , $ 91 thousand in 2014 and $ 103 thousand in 2013 . ( 2 ) average loan balances include nonaccrual loans . ( 3 ) interest income on loans includes amortized loan fees , net of costs , and all are included in the yield calculations . ( 4 ) in 2013 , interest on money market and savings deposits includes an adjustment to expense related to interest rate caps and the hedged deposits from the promontory insured network deposits program associated with them . this adjustment increased interest expense by $ 695 thousand for 2013. the interest rate caps were terminated in june of 2013. on a tax-equivalent basis , total interest income was $ 39.0 million for 2015 compared to $ 38.4 million for 2014. the increase in interest income for 2015 compared to 2014 was primarily due to the increase in the average balance and yield on taxable investment securities . interest income on taxable securities increased $ 645 thousand or 21.8 % in 2015 compared to 2014 due to an increase in the average balance of $ 33.8 million as well as an increase in the average rate of 6 basis points . these increases were due to the redeployment of lower yielding interest bearing deposits . for 2015 compared to 2014 , average loans increased $ 40.7 million and the yield earned on loans decreased 27 basis points . as a result of these counterbalancing changes , interest income on loans remained relatively unchanged between 2015 and 2014. excluding average nonaccrual loans , the yield on loans would have been 4.97 % , 5.07 % and 5.30 % for 2015 , 2014 , and 2013 , respectively . 32 on a tax equivalent basis , total interest income was $ 38.4 million for 2014 compared to $ 41.5 million for 2013. the decrease in 2014 compared to 2013 was due to a decrease in average balance and yield earned on loans due to weak loan demand despite a low rate environment . the decrease in interest income on loans was partially offset by an increase in the average balance of taxable investment securities resulting from the investment proceeds from the company 's common stock offering in the second quarter of 2014. as a percentage of total average earning assets , loans , investment securities , federal funds sold and interest-bearing deposits were 72.2 % , 22.4 % , 0.3 % and 5.1 % , respectively , for 2015 which reflected an increase in higher-yielding earning assets when compared to 2014. the comparable percentages for 2014 were 71.1 % , 20.0 % , 0.2 % , and 8.7 % , respectively , and for 2013 were 76.4 % , 13.8 % , 0.4 % and 9.4 % , respectively . when comparing 2015 to 2014 , the overall increase in average balances of earning assets produced $ 2.4 million more in interest income and the decrease in yields on earning assets produced $ 1.8 million less in interest income , as seen in the rate/volume variance analysis below . when comparing 2014 to 2013 , the overall decrease in average balances of earning assets produced $ 2.2 million less in interest income and the decrease in yields on earning assets produced $ 844 thousand less in interest income , as seen in the rate/volume variance analysis below . the following table sets forth the average balance of the components of average earning assets as a percentage of total average earning assets for the year ended december 31. replace_table_token_10_th interest expense was $ 3.3 million for 2015 compared to $ 4.2 million for 2014. the decline in interest expense for 2015 was primarily due to lower expense on certificates of deposit and other time deposits . interest expense on certificates of deposit and other time deposits declined $ 941 thousand in 2015 when compared to 2014 , the result of a decrease of $ 37.7 million in average balances and a decline of 18 basis points on rates paid on these deposits . the decrease in average certificates of deposit and other time deposits reflected a decrease in the company 's liquidity needs and the lower rates reflected current market conditions . the decrease in average certificates of deposit and other time deposits was mostly transitioned to non-interest bearing and money market and savings deposits which reflected average increases of $ 33.2 million and $ 18.1 million , respectively . interest expense was $ 4.2 million for 2014 compared to $ 6.5 million for 2013. the decline in interest expense for 2014 relative to 2013 was primarily due to lower expense on money market and savings deposits certificates of deposit and other time deposits . interest expense on money market and savings deposits declined $ 811 thousand in 2014 when compared to 2013 , even with an increase of $ 3.8 million in average balances , due to a decrease of 37 basis points on rates paid on these deposits . the increase in balances of money market and savings deposits was primarily due to the decline in certificates of deposit and other time deposits , and the lower rates on all interest bearing liabilities were primarily due to current market conditions which reflects depositors finding more value in liquidity as non-interest bearing deposits also increased $ 17.8 million . interest expense on certificates of deposit and other time deposits declined $ 1.4 million when compared to 2013 due to a decrease of $ 46 million in average certificates of deposit and other time deposits and a decrease of 46 basis points on rates paid on these deposits . during 2015 , lower rates on interest-bearing liabilities produced $ 545 thousand less in interest expense and decreased volume produced $ 354 thousand less in interest expense , as shown in the table below .
| review of financial condition asset and liability composition , capital resources , asset quality , market risk , interest sensitivity and liquidity are all factors that affect our financial condition . the following sections discuss each of these factors . assets interest-bearing deposits with other banks and federal funds sold we invest excess cash balances ( i.e. , the excess cash remaining after funding loans and investing in securities with deposits and borrowings ) in interest-bearing accounts and federal funds sold offered by our correspondent banks . these liquid investments are maintained at a level that management believes is necessary to meet current liquidity needs . total interest-bearing deposits with other banks and federal funds sold decreased $ 13.3 million from $ 72.0 million at december 31 , 2014 to $ 58.7 million at december 31 , 2015. average interest-bearing deposits with other banks and federal funds sold decreased $ 32.4 million in 2015 and decreased $ 9.7 million in 2014. the decline in both the 2015 and 2014 period-end and average balances for these assets reflected a reduction in excess liquidity . 35 investment securities the investment portfolio is structured to provide us with liquidity and also plays an important role in the overall management of interest rate risk . investment securities available for sale are stated at estimated fair value based on quoted prices and may be sold as part of the asset/liability management strategy or which may be sold in response to changing interest rates . net unrealized holding gains and losses on these securities are reported net of related income taxes as accumulated other comprehensive income , a separate component of stockholders ' equity . investment securities in the held to maturity category are stated at cost adjusted for amortization of premiums and accretion of discounts . we have the intent and current ability to hold such securities until maturity .
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” for a more complete discussion of the factors that could affect our future results , see “ item 1a . risk factors. ” any discrepancies included in this filing between totals and the sums of percentages and dollar amounts presented , or between rounded dollar amounts , are due to rounding . tax equivalent presentation all references to net interest income , net interest margin , interest income on loans other than loans acquired with deteriorated credit quality , yield on loans acquired with deteriorated credit quality and the related non-gaap adjusted measure of each item are presented on a fully-tax equivalent basis unless otherwise noted . overview we are a full-service regional bank holding company focused on relationship-based business and agribusiness banking . we serve our customers through 158 branches in attractive markets in seven states : south dakota , iowa , nebraska , colorado , arizona , kansas and missouri . during the fiscal year , we have consolidated our branch network by a net of 5 branches . we do not believe these reductions will have a material impact on our revenue in future periods and expect that we will achieve some cost savings in future periods as a result of the closures which could be used to fund the opening of branches in new markets . we were established more than 70 years ago and have achieved strong market positions by developing and maintaining extensive local relationships in the communities we serve . by leveraging our business and agribusiness focus , presence in attractive markets , highly efficient operating model and robust approach to risk management , we have achieved significant and profitable growth—both organically and through disciplined acquisitions . we provide financial results based on a fiscal year ending september 30 as a single reportable segment . the principal sources of our revenues and cash flows are : ( i ) interest and fees earned on loans made or held by our bank ; ( ii ) interest on fixed income investments held by our bank ; ( iii ) fees on wealth management services ; ( iv ) service charges on deposit accounts maintained at our bank ; ( v ) gain on the sale of loans held for sale ; ( vi ) securities gains ; and ( vii ) merchant and card fees . our principal expenses are : ( i ) interest expense on deposit accounts and other borrowings ; ( ii ) salaries and employee benefits ; ( iii ) data processing costs primarily associated with maintaining our bank 's loan and deposit functions ; ( iv ) occupancy expenses for maintaining our bank 's facilities ; ( v ) professional fees ; ( vi ) business development ; ( vii ) fdic insurance assessments ; and ( viii ) other real estate owned expenses . the largest component contributing to our net income is net interest income , which is the difference between interest earned on earning assets ( primarily loans and investments ) and interest paid on interest bearing liabilities ( primarily deposit accounts and other borrowings ) . one of management ' principal functions is to manage the spread between interest earned on earning assets and interest paid on interest bearing liabilities in an effort to maximize net interest income while maintaining an appropriate level of interest rate risk . net income was $ 109.1 million for fiscal year 2015 , an increase of $ 4.1 million , or 3.9 % , compared to fiscal year 2014 . the increase was mainly attributable to an increase in net interest income and a decline in noninterest expense , partially offset by an increase in provision for loan losses off historical lows in 2014. our efficiency ratio , which measures our ability to manage noninterest expenses , remained strong during the year at 48.0 % , lower than the previous year due to an increase in total revenue and a decline in noninterest expense . for more information on our efficiency ratio , including a reconciliation to the most directly comparable gaap financial measure , see `` —non-gaap financial measures '' below . 61 net interest margin , which measures our ability to maintain interest rates on interest earning assets above those of interest bearing liabilities , was 3.94 % , 4.02 % and 3.99 % , respectively , for fiscal years 2015 , 2014 and 2013 . adjusted net interest margin , which adjusts for the realized gain ( loss ) on interest rate swaps , was 3.68 % , 3.79 % and 3.81 % , respectively , for the same periods . we believe our adjusted net interest margin is more representative of our underlying performance and is the measure we use internally to evaluate our results . net interest margin and adjusted net interest margin declined compared to fiscal years 2014 and 2013 primarily due to reduced asset yields . pricing on new loans continued to be impacted by competitive pressures in the market and the continued near-zero benchmark interest rate environment , while investment portfolio yields have also declined . these reductions in asset yields were partially offset by reductions in the cost of deposits over the same periods , due to a continued favorable change in deposit mix . for more information on our adjusted net interest margin , including a reconciliation to the most directly comparable gaap financial measure , see `` —non-gaap financial measures '' below . story_separator_special_tag according to a united states department of agriculture ( `` usda '' ) report released october 5 , 2015 , the percentage of the corn crop rated fair , good or excellent was 96 % for south dakota , 93 % for nebraska and 96 % for iowa , while the same metrics for soybeans were 97 % , 94 % and 95 % , respectively . commodity prices , borrower-specific conditions and borrowers ' financial management will all contribute to credit outcomes for the 2015 growing season for the company 's agriculture borrowers , however , management believes that favorable overall crop conditions and higher expected yields should partially offset the impact of lower commodity prices . see “ item 1a . risk factors—risks related to our business—our business may be adversely affected by conditions in the financial markets and economic conditions generally and in our states in particular. ” interest rates net interest income is our largest source of income and is the difference between the interest income we receive from interest-earning assets ( e.g . , loans and investment securities ) and the interest expense we pay on interest-bearing liabilities ( e.g . , deposits and borrowings ) . the level of net interest income is primarily a function of the average balance of interest-earning assets , the average balance of interest-bearing liabilities and the spread between the yield on such assets and the cost of such liabilities . these factors are influenced by both the pricing and mix of interest-earning assets and interest-bearing liabilities . interest rates can be volatile and are highly sensitive to many factors beyond our control , such as economic conditions , the policies of various governmental and regulatory agencies and , in particular , the monetary policy of the fomc . the cost of our deposits and short-term borrowings is largely based on short-term interest rates , the level of which is driven primarily by the federal reserve 's actions . however , the yields generated by our loans and securities are typically driven by longer-term interest rates , which are dictated by the market or , at times , the federal reserve 's actions , and generally vary from day to day . the level of net interest income is therefore influenced by movements in such interest rates , the changing mix in our funding sources and the pace at which such movements occur . in 2014 and 2015 , short-term and long-term interest rates were very low by historical standards , with many benchmark rates , such as the federal funds rate and one- and three-month libor , near zero . further declines in the yield curve or a decline in longer-term yields relative to short-term yields ( a flatter yield curve ) would have an adverse impact on our net interest margin and net interest income . increases in the yield curve or an increase in longer-term yields relative to short-term yields ( a steeper yield curve ) would have a positive impact on our net interest margin and net interest income . see “ item 1a . risk factors—risks related to our business—we are subject to interest rate risk ” and “ quantitative and qualitative disclosures about market risk. ” asset quality and loss-sharing arrangements our asset quality remained strong during fiscal year 2015 with nonperforming assets continuing to decrease from fiscal year 2014. we continue to run off assets from our acquisition of tierone bank that are not part of our core lending business , including non-owner-occupied cre loans and construction and development loans , particularly those outside our footprint . at september 30 , 2015 , we had approximately $ 177.2 million of loans acquired as part of the tierone bank acquisition , representing 2.4 % of our overall loan portfolio . the majority of our loans acquired from tierone bank are subject to loss-sharing arrangements with the fdic where we are indemnified by the fdic for 80 % of our losses associated with any covered loans . our ability to seek indemnification under the commercial loss-sharing arrangement terminated in june 2015 while the single-family loss-sharing arrangement , which covered $ 97.0 million in loans at september 30 , 2015 , terminates in june of 2020. the amount of reimbursement we receive as a result of these 63 indemnity payments , and the amount of income derived from the underlying loans , has decreased over time as the volume of covered loans we continue to hold declines . to date , we have not had any indemnity claims arising from the fdic loss-sharing arrangements rejected by the fdic . future indemnity claims may be denied if we fail to comply with the requirements of our loss-sharing arrangements with the fdic , which could result in additional losses and charge-offs related to these loans . see “ item 1a . risk factors—risks related to our fdic-assisted acquisition of tierone bank—our ability to obtain reimbursement under the loss-sharing agreements on covered assets depends on our compliance with the terms of the loss-sharing agreements. ” banking laws and regulations we are subject to extensive supervision and regulation under federal and state banking laws . see “ item 1. business—supervision and regulation ” and “ item 1a . risk factors—risks related to the regulatory oversight of our business. ” financial institutions have been subject to increased regulatory scrutiny in recent years as significant structural changes in the bank regulatory framework have been adopted in response to the recent financial crisis . in particular , federal bank regulators have increased regulatory expectations generally and with respect to consumer compliance , economic sanctions , anti-money laundering and bank secrecy act requirements . as a result of these heightened expectations , we may incur additional costs associated with legal compliance that may affect our financial results in the future . payment of interest on demand deposits . in addition , effective july 2011 , the dodd-frank act repealed the prohibition restricting depository institutions from paying interest on demand deposits , such as checking accounts .
| results of op erations—fiscal years ended september 30 , 2015 , 2014 and 2013 overview the following table highlights certain key financial and performance information for fiscal years 2015 , 2014 and 2013 : for the fiscal year ended september 30 , 2015 2014 2013 ( dollars in thousands , except per share amounts ) operating data : interest and dividend income ( fte ) $ 369,957 $ 357,139 $ 353,175 interest expense 29,884 32,052 39,161 noninterest income 33,890 39,781 59,832 noninterest expense 186,794 200,222 208,590 provision for loan losses 19,041 684 11,574 net income 109,065 104,952 96,243 earnings per common share $ 1.90 $ 1.81 $ 1.66 performance ratios : net interest margin ( fte ) 3.94 % 4.02 % 3.99 % adjusted net interest margin ( fte ) ( 1 ) 3.68 % 3.79 % 3.81 % return on average total assets 1.12 % 1.14 % < div
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incubation agreement on january 18 , 2016 , the company and plants to paper , llc ( “ ptp ” ) , a new jersey limited liability company , executed an incubation agreement . ptp owned the patent pending application 62/245,153 ( the “ patent ” ) with the title being “ rolling papers and blunt wraps made from 100 % marijuana . ” ptp agreed to transfer its ownership rights in the patent application to the company , as well as ptp 's medical marijuana / cannabis/hemp industry incubator program . the company agreed to supply management services and to fund the early stage development of ptp . the incubation agreement was for a period of twelve months . ptp will provide the company with 20 % of the outstanding membership shares of ptp in exchange for its services . the costs of patent registrations in the united states and other countries will be the liability of ptp . on february 1 , 2017 , the agreement was modified for the following items : a ) to provide 25 % of the outstanding membership shares of ptp ; b ) require that the patent be assigned to ptp ; and c ) acknowledge that the ownership rights have not been transferred to the company as of that date . to-date , ownership rights have not been transferred . this agreement expired on january 18 , 2017. sales representation contract on december 22 , 2016 , the company and nuaxon bioscience , inc. ( “ nuaxon ” ) , a delaware corporation , executed a sales representation contract . nuaxon is a manufacturer and distributor for bulk extracts , rebel herbs brand products , and intelligence tree brand products . the contract story_separator_special_tag this annual report on form 10-k contains forward-looking statements within the meaning of rule 175 of the securities act of 1933 , as amended , and rule 3b-6 of the securities act of 1934 , as amended , that involve substantial risks and uncertainties . these forward-looking statements are not historical facts , but rather are based on current expectations , estimates and projections about our industry , our beliefs and our assumptions . words such as “ anticipate , ” “ expects , ” “ intends , ” “ plans , ” “ believes , ” “ seeks ” and “ estimates ” and variations of these words and similar expressions are intended to identify forward-looking statements . these statements are not guarantees of future performance and are subject to risks , uncertainties and other factors , some of which are beyond our control and difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements . you should not place undue reliance on these forward-looking statements , which apply only as of the date of this form 10-k. investors should carefully consider all of such risks before making an investment decision with respect to the company 's stock . the following discussion and analysis should be read in conjunction with our consolidated financial statements and summary of selected financial data for freedom leaf inc. such discussion represents only the best present assessment from our management . description of company freedom leaf inc. ( “ freedom leaf ” and the “ company ” ) began as a media company in 2013 and has since steadily evolved into a multinational , vertically-integrated corporation primarily focused on the development and sale of premium hemp-based nutraceutical health , wellness and longevity products to a rapidly growing international market . the company cultivates , researches , and manufactures hemp products with operations leafceuticals europe s.l.u . and leafceuticals inc . the company then markets and sells plant-based wellness products under the freedom leaf , irie , and hempology brands . market awareness , customer relationships and distribution channels are reinforced in carefully-targeted demographic niches through the company 's multiple global media properties , including marijuana news , lamarihuana.com , marihuana-medicinal.com , and freedom leaf magazine . the company also cross-markets via b2b and b2c entities such as cicero transact llc , through international affiliate marketing programs under the tierra sciences global brand , and through a nationwide marketing initiative with ksw marketing group . 19 the following management discussion and analysis should be read in conjunction with the consolidated financial statements and accompanying notes included in this form 10-k. comparison of the year ended june 30 , 2018 to the year ended june 30 , 2017 story_separator_special_tag times , serif ; margin : 0pt 0 ; text-align : justify '' > use of estimates . the preparation of consolidated financial statements in conformity with accounting principles generally accepted in the united states of america requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period . actual results could differ from those estimates . significant estimates in the accompanying consolidated financial statements include the amortization period for intangible assets , valuation and impairment valuation of intangible assets , depreciable lives of the web site and property and equipment , valuation of warrant and beneficial conversion feature debt discounts , valuation of share-based payments and the valuation allowance on deferred tax assets . changes in accounting principles . no significant changes in accounting principles were adopted during fiscal 2018 and 2017. derivatives . the company evaluates its convertible debt , options , warrants or other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for . the result of this accounting treatment is that under certain circumstances the fair value of the derivative is marked-to-market each balance sheet date and recorded as a liability . story_separator_special_tag in the event that the fair value is recorded as a liability , the change in fair value is recorded in the statement of operations as other income or expense . 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 . 21 impairment of long-lived assets . the company accounts for long-lived assets in accordance with the provisions of statement of financial accounting standards asc 360-10 , “ accounting for the impairment or disposal of long-lived assets ” . this statement requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable . recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset . if such assets are considered to be impaired , the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets . assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell . fair value of financial instruments and fair value measurements . the company measures their financial assets and liabilities in accordance with generally accepted accounting principles . for certain of our financial instruments , including cash , accounts payable , accrued expenses escrow liability and short-term loans the carrying amounts approximate fair value due to their short maturities . we have adopted accounting guidance for financial and non-financial assets and liabilities . the adoption did not have a material impact on our results of operations , financial position or liquidity . this standard defines fair value , provides guidance for measuring fair value and requires certain disclosures . this standard does not require any new fair value measurements , but rather applies to all other accounting pronouncements that require or permit fair value measurements . this guidance does not apply to measurements related to share-based payments . this guidance discusses valuation techniques , such as the market approach ( comparable market prices ) , the income approach ( present value of future income or cash flow ) , and the cost approach ( cost to replace the service capacity of an asset or replacement cost ) . the guidance utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels . the following is a brief description of those three levels : level 1 : observable inputs such as quoted prices ( unadjusted ) in active markets for identical assets or liabilities . level 2 : inputs other than quoted prices that are observable , either directly or indirectly . these include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active . level 3 : unobservable inputs in which little or no market data exists , therefore developed using estimates and assumptions developed by us , which reflect those that a market participant would use . 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 operating classes 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 . 22 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
| results of operations revenue . for the year ended june 30 , 2018 , our revenue was $ 411,272 , compared to $ 817,457 for the same period in 2017. this decrease in revenue was attributable to the decrease of license sales offset by increases in product sales . the company shifted its focus in 2018 from licensing to the sale of products through its acquisitions . operating expenses : direct costs of revenue . for the year ended june 30 , 2018 , direct costs of revenue were $ 311,590 compared to $ 124,290 for the same period in 2017. as a percent of revenue , direct costs of revenue were 76 % and 15 % , respectively , for 2018 and 2017. this increase in direct costs of revenue was attributable to the shift from license revenues , which have low direct cost , to product sales . the margin of 76 % is not indicative of the future . general and administrative expenses . for the year ended june 30 , 2018 , general and administrative expenses were $ 3,212,590 compared to $ 1,462,936 for the same period in 2017. the increase was due to the increase in operations , primarily the acquisitions , and bad debt expense ( $ 754,717 compared to $ 0 for the years ended june 30 , 2018 and 2017 , respectively ) . the increase in general and administrative expenses is not indicative of future increases . management projects that these expenses , excluding bad debt expense , to remain consistent based on the current operations . other income ( expense ) .
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we have determined that an excess cash flow payment is not required for 2011. scheduled maturities of long-term debt scheduled maturities of long-term debt as of september 30 , 2011 were : replace_table_token_30_th scheduled maturities shown in the table above are as of september 30 , 2011. in november 2011 story_separator_special_tag the following discussion should be read in conjunction with the audited consolidated financial statements and related notes included in item 8 , financial statements and supplementary data , as well as with a general understanding of our business as discussed in item 1 , business. references to notes to consolidated financial statements in this discussion and analysis refer to said notes included in item 8 noted above . references to years in this discussion refer to our fiscal year , unless the context otherwise indicates a calendar year . our fiscal year ends september 30. prior to fiscal 2010 , our fiscal year ended on the sunday closest to september 30. fiscal 2010 consisted of the periods september 28 , 2009 to june 15 , 2010 and from june 16 , 2010 to september 30 , 2010. fiscal 2009 ended september 27 , 2009. acquisition of the company on june 16 , 2010 , bway parent , through bway intermediate acquired all of the outstanding capital stock of bway holding , including the settlement of outstanding stock options , for approximately $ 508.2 million . see acquisition of bway holding under note 1 , general of notes to consolidated financial statements . as a result of the acquisition , our gross debt increased approximately 64 % or $ 270.2 million immediately following the transaction . see liquidity and capital resources below for a discussion of the debt increase . overview we believe we are a leading north american manufacturer of general line rigid metal and plastic containers . we estimate that the majority of our 2011 net sales were generated from the sale of products in which we hold a leading market share position . in 2011 , our total net sales were $ 1.2 billion . our metal packaging segment generated 59.7 % of net sales and our plastic packaging segment generated the remaining 40.3 % of net sales . we believe that our metal and plastic packaging products , which as of september 30 , 2011 , we manufactured in our 23 strategically located facilities located in the united states , canada and puerto rico , are complementary and often serve the same customers . our segments the markets in which we participate can generally be placed into two broad categories : north american general line rigid metal containers and north american general line rigid plastic containers . for financial reporting purposes , we have identified two reportable business segments : metal packaging and plastic packaging . we differentiate the segments based on the nature of the products which are manufactured from different primary raw materials , generally in separate manufacturing facilities . our primary products within each of these segments include : metal packaging : general line rigid metal containers made from steel , including paint cans and components , aerosol cans , steel pails , oblong cans , a variety of other specialty cans and ammunition boxes . our customers use our metal containers to package paint , household and personal care products , automotive after-market products , paint thinners , driveway and deck sealants and other end-use products . in 2011 , net sales for this segment were $ 693.6 million . plastic packaging : general line rigid plastic containers made from plastic resin , including injection-molded plastic pails , blow-molded tight-head containers , hybrid and all-plastic paint cans , bottles and drums . our customers use our plastic container products to package petroleum products , agricultural chemicals , other chemical applications , paint , ink , edible oils , high-solid coatings , roofing mastic , adhesives , driveway sealants and other end-use products . in 2011 , net sales for this operating segment were $ 467.9 million . 28 factors affecting our results of operations in the first quarter of fiscal 2011 , we acquired plastican and phoenix container . in this discussion and analysis , we refer to these acquisitions as the recent acquisitions. in the first quarter of fiscal 2010 , we acquired ball plastics and in the fourth quarter of 2009 , we acquired central can . due to the integration of the ball plastics and central can acquisitions into our existing business and the commonality of customers and products , we are unable to provide a meaningful discussion of their distinct impact in this discussion and analysis . revenue our revenue primarily consists of net sales , which are revenues generated from products sold to external customers , reduced for customer credits , sales returns and allowances and earned quantity discounts . our net sales depend in large part on the varying economic and other conditions of the end-markets affecting our customers . approximately one-third of our sales are to customers that package products for housing related markets , the largest of which is architectural paint and coatings . our sales to these customers are affected by changes in those markets . approximately two-thirds of our sales are to customers that serve a relatively broad range of products and markets , which have historically exhibited steady growth . demand for our products may change due to changes in general economic conditions , the housing market , consumer confidence , weather , commodity prices , employment and personal income growth , each of which is beyond our control . we determine selling prices for our metal packaging products primarily based on the cost of steel , coatings and inks and for our plastic packaging products based on the cost of resin , colorant , fitting and labeling . selling prices for all products are affecting by costs associated with labor , rent , freight , utilities and operating supplies , volume , order size , length of production runs and competition . story_separator_special_tag historically , we have been able to procure sufficient quantities of raw materials , even during periods of tightened supply , to produce products to meet customer demand . however , we can not assure that we may be able to do so in the future . 30 to reduce our overall cost of raw materials , we may periodically purchase additional quantities of steel and resin in advance of price increases , each as may be available . other acquisitions one of our business objectives is growth through strategic business acquisitions . this objective includes both add-on acquisitions in our core markets and acquisitions offering organic growth . the results of operations related to acquisitions are included in the consolidated financial statements from the date of acquisition . for a discussion of recent acquisitions , see note 3 , recent acquisitions , of notes to consolidated financial statements . restructuring initiatives from time to time , we undertake certain restructuring initiatives . for a discussion of current restructuring initiatives , see note 16 , restructuring , of notes to consolidated financial statements . story_separator_special_tag new roman '' > fiscal 2010 metal packaging net sales increased 11.2 % to $ 656.1 million , and fiscal 2010 plastic packaging net sales increased 19.2 % to $ 374.8 million . metal packaging net sales and plastic packaging net sales each increased from 2009 primarily due to an increase in volume , including volume related to the acquisitions . difference between net sales and cost of products sold ( excluding depreciation and amortization ) 2011 the difference between consolidated net sales and the cost of products sold ( excluding depreciation and amortization ) as a percentage of net sales decreased to 13.8 % in 2011 from 15.2 % in 2010. excluding the impact of the 2011 acquisitions , the difference between net sales and cost of products sold ( excluding depreciation and amortization ) as a percentage of net sales decreased to 14.7 % . this decrease was primarily attributable to the magnitude of raw material cost increases relative to the pass through effect of such changes on selling prices . the difference between metal packaging net sales and cost of products sold ( excluding depreciation and amortization ) as a percentage of net sales increased to 19.5 % from 18.3 % . excluding the impact of recent acquisitions , the difference between net sales and cost of products sold ( excluding depreciation and amortization ) as a percentage of net sales increased to 19.9 % primarily due to higher selling prices related to the pass-through of higher raw material costs . 33 the difference between plastic packaging net sales and cost of products sold ( excluding depreciation and amortization ) as a percentage of net sales decreased to 5.4 % from 10.2 % . excluding the impact of recent acquisitions , the difference between net sales and cost of products sold ( excluding depreciation and amortization ) as a percentage of net sales decreased to 6.1 % and continues to be adversely impacted by the timing and magnitude of increase in the cost of resin , as selling price increases resulting from the pass-through of resin cost changes lagged the cost increases . 2010 the difference between net sales and the cost of products sold ( excluding depreciation and amortization ) as a percentage of net sales decreased to 15.2 % from 16.5 % . excluding the impact of $ 3.7 million of amortization of non-cash inventory purchase accounting adjustments and $ 1.5 million of stock-based compensation recognized due to the merger , the fiscal 2010 percentage was 15.7 % . in the metal packaging segment , the difference between net sales and the cost of products sold ( excluding depreciation and amortization ) as a percentage of net sales increased to 18.3 % from 16.8 % . excluding the impact of $ 3.2 million of amortization of non-cash inventory purchase accounting adjustments in fiscal 2010 , the fiscal 2010 percentage was 18.8 % . the increase was primarily attributable to the effect of higher volume and to benefits from cost reduction and productivity initiatives . in the plastic packaging segment , the difference between net sales and the cost of products sold ( excluding depreciation and amortization ) as a percentage of net sales decreased to 10.2 % from 15.8 % . excluding the impact of $ 0.5 million of amortization of non-cash inventory purchase accounting adjustments in fiscal 2010 , the fiscal 2010 percentage was 10.4 % . in 2010 , higher sales associated with the recent acquisitions and volume , partially offset by productivity and lower spending , contributed to an increase in metal packaging and plastic packaging cost of products sold ( excluding depreciation and amortization ) . plastic packaging segment cost of products sold ( excluding depreciation and amortization ) also increased due to higher resin costs . the difference between net sales and cost of products sold ( excluding depreciation and amortization ) as a percentage of net sales for the plastic packaging segment was adversely impacted by the timing and magnitude of increases in the cost of resin . increases in plastic packaging segment selling prices , due to the pass through of resin cost changes , lagged the cost increases . in the period from june 16 , 2010 to september 30 , 2010 , metal packaging and plastic packaging cost of products sold ( excluding depreciation and amortization ) included $ 3.2 million and $ 0.5 million , respectively , of amortization of non-cash purchase accounting adjustments to inventory . corporate undistributed expenses related to cost products sold corporate undistributed expenses related to cost of products sold in 2011 and in the predecessor periods were primarily related to stock-based compensation expense . in 2010 , corporate undistributed expenses in cost of products sold included $ 1.7 million of costs associated with the merger .
| results of operations in our discussion of results of operations , we discuss the mathematical difference of net sales and cost of products sold ( excluding depreciation and amortization ) and that difference as a percentage of net sales . we also discuss segment earnings . we define segment earnings as segment net sales less segment cost of products sold and segment related selling expenses . segment cost of products sold excludes segment depreciation and amortization . we exclude depreciation and amortization expense from our presentation of cost of products sold because management excludes it from operating results when evaluating segment and overall performance . management believes the resulting measurement provides useful information to evaluate the contribution of net sales to earnings before interest , taxes , depreciation and amortization ( ebitda ) , a primary performance measure used by management . we sometimes refer to periods prior to consummation of the merger as predecessor periods or to the company as predecessor. we sometimes refer to the periods from and after the consummation of the merger as successor periods or to the company as successor. we have separated our historical financial results into the predecessor and successor periods , which is required under generally accepted accounting principles when there is a change in accounting basis as occurred when purchase accounting was applied to the acquisition of predecessor following the merger . management believes the merger did not affect the fundamentals of the business and may discuss results of operations for the predecessor and successor periods of 2010 on a combined basis when appropriate . although management views 2010 on a combined basis for purposes of evaluating operating results , the reader is cautioned that these are considered to be separate periods for financial reporting purposes and they should be evaluated separately as applicable .
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the company performed its fiscal 2010 annual goodwill impairment test as of june 27 , 2010. key assumptions used to determine the fair value of each reporting unit as of the fiscal 2010 annual testing date were : ( a ) expected cash flow for the period from 2011 to 2016 ; and ( b ) a discount rate story_separator_special_tag the following discussion should be read in conjunction with our consolidated financial statements and the related notes and other financial information appearing elsewhere in this form 10-k. this form 10-k contains forward-looking statements that involve risks and uncertainties . our actual results may differ materially from those indicated in forward-looking statements . see forward-looking statements and item 1a risk factors. overview central garden & pet company is a leading innovator , marketer and producer of quality branded products . we are one of the largest suppliers in the pet and lawn and garden supplies industries in the united states . the total pet industry is estimated to be approximately $ 30 billion in annual retail sales . we estimate the annual retail sales of the pet supplies and super premium pet food markets in the categories in which we participate to be approximately $ 15 billion . the total lawn and garden industry in the united states is estimated to be approximately $ 21 billion in annual retail sales . we estimate the annual retail sales of the lawn and garden supplies markets in the categories in which we participate to be approximately $ 6 billion . our pet supplies products include products for dogs and cats , including edible bones , premium healthy edible and non-edible chews , super premium dog and cat food and treats , leashes , collars , toys , pet carriers , grooming supplies and other accessories ; products for birds , small animals and specialty pets , including food , cages and habitats , toys , chews and related accessories ; animal and household health and insect control products ; products for fish , reptiles and other aquarium-based pets , including aquariums , furniture and lighting fixtures , pumps , filters , water conditioners , food and supplements , and information and knowledge resources ; and products for horses and livestock . these products are sold under a number of brand names including adams , altosid , aqueon ® , avoderm ® , biospot ® , coralife ® , farnam ® , four paws ® , interpet , kaytee ® , kent marine ® , nylabone ® , oceanic systems ® , pet select ® , pre strike ® , pinnacle ® , super pet ® , tfhtm , zilla ® and zodiac ® our lawn and garden products include proprietary and non-proprietary grass seed ; wild bird feed , bird feeders , bird houses and other birding accessories ; weed , grass , ant and other herbicide , insecticide and pesticide products ; and decorative outdoor lifestyle and lighting products including pottery , trellises and other wood products and holiday lighting . these products are sold under a number of brand names including : amdro ® , gki/bethlehem lighting ® , grant 's ® , ironite ® , lilly miller ® , matthews four seasons , new england pottery ® , norcal pottery ® , pennington ® , over ' n out ® , sevin ® , smart seed ® and the rebels ® . in fiscal 2011 , our consolidated net sales were $ 1.6 billion , of which our lawn and garden segment , or garden products , accounted for approximately $ 777 million and our pet segment , or pet products , accounted for approximately $ 851 million . in fiscal 2011 , our branded product sales were approximately $ 1.4 billion , or approximately 84 % of total sales , sales of other manufacturers ' products were approximately 16 % of total sales , and our gross profit margins were 30.3 % . in fiscal 2011 , our income from operations was $ 85.2 million , of which garden products accounted for $ 50.0 million and pet products accounted for $ 77.6 million , before corporate expenses and eliminations of $ 42.4 million . recent developments fiscal 2011 operating performance . although we experienced increased sales in fiscal 2011 , rising input costs , a change in sales mix due to competitive pressures and unfavorable weather resulted in increased expenses and lower gross margins . story_separator_special_tag style= '' font-family : times new roman '' > 33 2011 compared to $ 409 million in fiscal 2010 , and increased borrowing rates . our average interest rates for fiscal 2011 and 2010 were 8.1 % and 6.8 % , respectively . interest expense in fiscal 2010 included $ 3.9 million related to the tender for our 2013 subordinated notes and the issuance of our 2018 subordinated notes debt outstanding on september 24 , 2011 was $ 435.6 million compared to $ 400.3 million as of september 25 , 2010. other income other income increased $ 0.2 million from $ 0.4 million in fiscal 2010 to $ 0.6 million in fiscal 2011. the increase was due primarily to higher earnings from an investment accounted for under the equity method investment of accounting . income taxes our effective income tax rate in fiscal 2011 increased to 40.8 % , compared to 37.0 % in fiscal 2010. the increase in our effective tax rate was due primarily to our reduced ability to use tax benefits due to the decrease in fiscal 2011 income and increased tax valuation allowances . fiscal 2010 compared to fiscal 2009 net sales net sales for fiscal 2010 decreased $ 90.7 million , or 5.6 % , to $ 1,523.6 million from $ 1,614.3 million in fiscal 2009. the decline was due to a $ 108.4 million , or 7.9 % , decrease in our branded product sales offset by a $ 17.7 million , or 7.2 % , increase in the sales of other manufacturers ' products . story_separator_special_tag additionally , our average interest rates for fiscal 2010 and 2009 were 6.8 % and 4.4 % , respectively . debt outstanding on september 25 , 2010 was $ 400.3 million compared to $ 408.1 million as of september 26 , 2009. we expect our interest expense to increase to at least $ 34 million in fiscal 2011 and thereafter as a result of our issuance of the 2018 notes in fiscal 2010. other income other income increased $ 0.3 million from $ 0.1 million in fiscal 2009 to $ 0.4 million in fiscal 2010. the increase was due primarily to higher earnings from an investment accounted for under the equity method of accounting . 35 income taxes our effective income tax rate in fiscal 2010 was 37.0 % , compared to 35.0 % in fiscal 2009. our 2009 tax expense rate was lower than the 2010 rate due primarily to the added utilization of research and development tax credits and state tax settlements in fiscal 2009. inflation our revenues and margins are dependent on various economic factors , including rates of inflation or deflation , energy costs , consumer attitudes toward discretionary spending , currency fluctuations , and other macro-economic factors which may impact levels of consumer spending . historically , in certain fiscal periods , we have been adversely impacted by rising input costs related to domestic inflation , particularly relating to grain and seed prices , fuel prices and the ingredients used in our garden fertilizer and chemicals , and many of our other inputs . rising costs have made it difficult for us to increase prices to our retail customers at a pace to enable us to maintain margins . in fiscal 2009 , 2010 and 2011 , our business was negatively impacted by low consumer confidence , as well as other macro-economic factors . in fiscal 2011 , we were impacted by rapidly rising raw materials costs . we are continuing to seek selective price increases to mitigate the impact of the increasing raw materials costs . weather and seasonality our sales of lawn and garden products are influenced by weather and climate conditions in the different markets we serve . additionally , our garden products ' business is highly seasonal . in fiscal 2011 , approximately 67 % of garden products ' net sales and 60 % of our total net sales occurred during our second and third fiscal quarters . substantially all of garden products ' operating income is typically generated in this period , which has historically offset the operating loss incurred during the first fiscal quarter of the year . liquidity and capital resources we have financed our growth through a combination of internally generated funds , bank borrowings , supplier credit , and sales of equity and debt securities to the public . historically , our business has been seasonal and our working capital requirements and capital resources tracked closely to this seasonal pattern . during the first fiscal quarter , accounts receivable reach their lowest level while inventory , accounts payable and short-term borrowings begin to increase . during the second fiscal quarter , receivables , accounts payable and short-term borrowings increase , reflecting the build-up of inventory and related payables in anticipation of the peak lawn and garden selling season . during the third fiscal quarter , inventory levels remain relatively constant while accounts receivable peak and short-term borrowings start to decline as cash collections are received during the peak selling season . during the fourth fiscal quarter , inventory levels are at their lowest , and accounts receivable and payables are substantially reduced through conversion of receivables to cash . we service two broad markets : pet supplies and lawn and garden supplies . our pet supplies businesses involve products that have a year round selling cycle with a slight degree of seasonality . as a result , it is not necessary to maintain large quantities of inventory to meet peak demands . on the other hand , our lawn and garden businesses are highly seasonal with approximately 67 % of garden products ' net sales occurring during the second and third fiscal quarters . for many manufacturers of garden products , this seasonality requires them to ship large quantities of their product well ahead of the peak consumer buying periods . to encourage distributors to carry lawn and garden products , industry practice has been for manufacturers to give extended credit terms and or promotional discounts . cash provided by operating activities decreased $ 84.2 million from $ 135.2 million in fiscal 2010 to $ 51.0 million in fiscal 2011. the decrease was due primarily to an increase in working capital , principally inventory , 36 and to lower earnings in fiscal 2011. our working capital accounts increased approximately $ 54 million from fiscal year end 2010. this increase was due primarily to increased inventory , resulting primarily from higher input costs , decreased sales of garden controls products and our acquisition of certain assets of a manufacturer of premium fertilizer . net cash used in investing activities increased $ 14.9 million from approximately $ 41.3 million in fiscal 2010 to approximately $ 56.2 million in fiscal 2011. the increase in cash used in investing activities in fiscal 2011 was due primarily to our acquisition of certain assets of a privately-held maker of premium fertilizer for the professional and retail markets for approximately $ 23 million in cash in our garden products business .
| financial summary : net sales for fiscal 2011 increased $ 105 million , or 7 % , to $ 1.6 billion . net earnings for fiscal 2011 were $ 28 million , or $ 0.50 per share on a diluted basis , a decrease of $ 18 million and $ 0.20 per share on a diluted basis , compared to fiscal 2010 . 30 gross margin decreased 350 basis points in fiscal 2011 to 30.3 % , due primarily to rising raw material input costs . selling , general & administrative expenses increased $ 14.6 million , or 3.7 % , to $ 408.7 million in fiscal 2011 , but decreased as a percentage of net sales to 25.1 % from 25.9 % . we generated cash flows from operating activities of approximately $ 51.0 million during fiscal 2011 and had a cash balance of approximately $ 12.0 million at september 24 , 2011. senior credit facility on june 8 , 2011 , we amended our credit agreement dated june 25 , 2010 to increase the aggregate principal borrowing amount from $ 275 million to $ 375 million , extend the maturity date to june 8 , 2016 , and reduce the interest rates , commitment fees and interest coverage requirements . repurchase of company stock . during fiscal 2011 , we repurchased $ 108.7 million of our common stock which consisted of 3.3 million shares of our voting common stock ( cent ) at an aggregate cost of approximately $ 30.2 million , or approximately $ 9.10 per share and 8.6 million shares of our non-voting class a common stock ( centa ) at an aggregate cost of approximately $ 78.5 million , or approximately $ 9.08 per share .
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product revenue represented 30 % of total revenue for the year ended december 31 , 2018. there was no product revenue for the years ended december 31 , 2017 and 2016. we have not generated any revenues based on the sale of fda or nmpa approved products . in the future , we may generate revenue from product sales and from collaboration agreements in the form of license fees , milestone payments , reimbursements for collaboration services and royalties on product sales . we expect that any revenues we generate will fluctuate from quarter to quarter as a result of the uncertain timing and amount of such payments and sales . total revenue increased $ 82.0 million , or 63 % for the year ended december 31 , 2018 compared to the year ended december 31 , 2017 , and decreased $ 52.2 million , or 28 % , for the year ended december 31 , 2017 compared to the year ended december 31 , 2016 , for the reasons discussed in the sections below . 111 license revenue replace_table_token_9_th * recast to reflect the adoption of the new revenue standards . see note 2 to the consolidated financial statements . comparison of the years ended december 31 , 2018 and 2017 license revenue increased $ 12.3 million , or 124 % for the year ended december 31 , 2018 compared to the year ended december 31 , 2017 due to an increase in the license revenue recognized under our collaboration agreement with astellas , partially offset by a decrease in the license revenue recognized under our collaboration agreement astrazeneca . license revenue recognized under our collaboration agreements with astellas for the year ended december 31 , 2018 represented the allocated revenue related to a $ 15.0 million regulatory milestone associated with astellas ' expected nda submission in japan that was included in the transaction price during the second quarter of 2018 when this milestone became probable of being achieved . license revenue recognized under our collaboration agreements with astrazeneca for the year ended december 31 , 2018 represented the allocated revenue related to a $ 6.0 million milestone associated with fibrogen china 's receipt of marketing authorization from the nmpa for roxadustat , and a $ 6.0 million milestone associated with fibrogen china 's receipt of first manufacturing approval for a product in the field in the territory . comparatively , l icense revenue recognized under our collaboration agreements with astrazeneca for the year ended december 31 , 2017 was related to a $ 15.0 million regulatory milestone payment . in 2017 , the nmpa accepted our nda for registration of roxadustat for anemia in dd ckd and ndd-ckd patients . this nda submission triggered a $ 15.0 million milestone payment .. comparison of the years ended december 31 , 2017 and 2016 license revenue decreased $ 40.7 million , or 80 % for the year ended december 31 , 2017 compared to the year ended december 31 , 2016 due to decreases in the license revenue recognized under both of our collaboration agreements with astrazeneca and with astellas . license revenue recognized under our collaboration agreements with astrazeneca decreased due to the impact of $ 15.0 million milestone revenue during the third quarter of 2017 , as compared to an upfront payment of $ 62.0 million during the second quarter of 2016. the revenue was also impacted by the extension of the estimated joint development service period for the astrazeneca agreements , for revenue recognition purposes , from the end of 2018 to the end of 2020. we made this extension in the third quarter of 2016 due to the approval of the development budget for the treatment of anemia in patients with mds . license revenue recognized under our collaboration agreements with astellas decreased primarily due to a $ 10.0 million of development milestone revenue recorded during the second quarter of 2016 , with no corresponding milestones in the current year periods . development and other revenue replace_table_token_10_th 112 * recast to reflect the adoption of the new revenue standards . see note 2 to the consolidated financial statements . comparison of the years ended december 31 , 2018 and 2017 development revenue recognized under our collaboration agreements with astrazeneca increased $ 4.0 million , or 4 % for the year ended december 31 , 2018 compared to the year ended december 31 , 2017 , primarily due to the allocated revenue related to the above mentioned total of $ 12.0 million milestone payments during the fourth quarter of 2018. development revenue recognized under our collaboration agreements with astellas increased $ 0.8 million , or 4 % for the year ended december 31 , 2018 compared to the year ended december 31 , 2017 , primarily due to the allocated revenue related to the above mentioned $ 15.0 million associated with the regulatory milestone of nda submission in japan in the second quarter of 2018. comparison of the years ended december 31 , 2017 and 2016 collaboration services and other revenue decreased $ 11.5 million , or 9 % , for the year ended december 31 , 2017 compared to the year ended december 31 , 2016 , primarily due to a decrease in the development revenue recognized under our collaboration agreements with astrazeneca from the impact of the extension of the estimated joint development service period for the astrazeneca agreements , for revenue recognition purposes , from the end of 2018 to the end of 2020. we made this extension in the third quarter of 2016 due to the approval of the development budget for the treatment of anemia in patients with mds . development revenue for the year ended december 31 , 2017 was also impacted by the allocation of the upfront payment of $ 62.0 million during the second quarter of 2016. product revenue as described above , the japan amendment obligates astellas to purchase api from us to conduct commercial scale manufacturing validation story_separator_special_tag product revenue represented 30 % of total revenue for the year ended december 31 , 2018. there was no product revenue for the years ended december 31 , 2017 and 2016. we have not generated any revenues based on the sale of fda or nmpa approved products . in the future , we may generate revenue from product sales and from collaboration agreements in the form of license fees , milestone payments , reimbursements for collaboration services and royalties on product sales . we expect that any revenues we generate will fluctuate from quarter to quarter as a result of the uncertain timing and amount of such payments and sales . total revenue increased $ 82.0 million , or 63 % for the year ended december 31 , 2018 compared to the year ended december 31 , 2017 , and decreased $ 52.2 million , or 28 % , for the year ended december 31 , 2017 compared to the year ended december 31 , 2016 , for the reasons discussed in the sections below . 111 license revenue replace_table_token_9_th * recast to reflect the adoption of the new revenue standards . see note 2 to the consolidated financial statements . comparison of the years ended december 31 , 2018 and 2017 license revenue increased $ 12.3 million , or 124 % for the year ended december 31 , 2018 compared to the year ended december 31 , 2017 due to an increase in the license revenue recognized under our collaboration agreement with astellas , partially offset by a decrease in the license revenue recognized under our collaboration agreement astrazeneca . license revenue recognized under our collaboration agreements with astellas for the year ended december 31 , 2018 represented the allocated revenue related to a $ 15.0 million regulatory milestone associated with astellas ' expected nda submission in japan that was included in the transaction price during the second quarter of 2018 when this milestone became probable of being achieved . license revenue recognized under our collaboration agreements with astrazeneca for the year ended december 31 , 2018 represented the allocated revenue related to a $ 6.0 million milestone associated with fibrogen china 's receipt of marketing authorization from the nmpa for roxadustat , and a $ 6.0 million milestone associated with fibrogen china 's receipt of first manufacturing approval for a product in the field in the territory . comparatively , l icense revenue recognized under our collaboration agreements with astrazeneca for the year ended december 31 , 2017 was related to a $ 15.0 million regulatory milestone payment . in 2017 , the nmpa accepted our nda for registration of roxadustat for anemia in dd ckd and ndd-ckd patients . this nda submission triggered a $ 15.0 million milestone payment .. comparison of the years ended december 31 , 2017 and 2016 license revenue decreased $ 40.7 million , or 80 % for the year ended december 31 , 2017 compared to the year ended december 31 , 2016 due to decreases in the license revenue recognized under both of our collaboration agreements with astrazeneca and with astellas . license revenue recognized under our collaboration agreements with astrazeneca decreased due to the impact of $ 15.0 million milestone revenue during the third quarter of 2017 , as compared to an upfront payment of $ 62.0 million during the second quarter of 2016. the revenue was also impacted by the extension of the estimated joint development service period for the astrazeneca agreements , for revenue recognition purposes , from the end of 2018 to the end of 2020. we made this extension in the third quarter of 2016 due to the approval of the development budget for the treatment of anemia in patients with mds . license revenue recognized under our collaboration agreements with astellas decreased primarily due to a $ 10.0 million of development milestone revenue recorded during the second quarter of 2016 , with no corresponding milestones in the current year periods . development and other revenue replace_table_token_10_th 112 * recast to reflect the adoption of the new revenue standards . see note 2 to the consolidated financial statements . comparison of the years ended december 31 , 2018 and 2017 development revenue recognized under our collaboration agreements with astrazeneca increased $ 4.0 million , or 4 % for the year ended december 31 , 2018 compared to the year ended december 31 , 2017 , primarily due to the allocated revenue related to the above mentioned total of $ 12.0 million milestone payments during the fourth quarter of 2018. development revenue recognized under our collaboration agreements with astellas increased $ 0.8 million , or 4 % for the year ended december 31 , 2018 compared to the year ended december 31 , 2017 , primarily due to the allocated revenue related to the above mentioned $ 15.0 million associated with the regulatory milestone of nda submission in japan in the second quarter of 2018. comparison of the years ended december 31 , 2017 and 2016 collaboration services and other revenue decreased $ 11.5 million , or 9 % , for the year ended december 31 , 2017 compared to the year ended december 31 , 2016 , primarily due to a decrease in the development revenue recognized under our collaboration agreements with astrazeneca from the impact of the extension of the estimated joint development service period for the astrazeneca agreements , for revenue recognition purposes , from the end of 2018 to the end of 2020. we made this extension in the third quarter of 2016 due to the approval of the development budget for the treatment of anemia in patients with mds . development revenue for the year ended december 31 , 2017 was also impacted by the allocation of the upfront payment of $ 62.0 million during the second quarter of 2016. product revenue as described above , the japan amendment obligates astellas to purchase api from us to conduct commercial scale manufacturing validation
| financial highlights replace_table_token_6_th * recast to reflect the adoption of the new revenue standards . see note 2 to the consolidated financial statements . 106 our revenue for the year ended december 31 , 2018 increased compared to the prior year primarily due to the $ 64.8 million product revenue for api delivered during 2018 , under the amendment to the collaboration agreement with astellas for roxadustat for the treatment of anemia in japan ( “ japan agreement ” ) , to conduct commercial scale manufacturing validation for roxadustat drug product in anticipation of commercial launch in japan . in addition , we recognized substantially the entire $ 15.0 million regulatory milestone associated with an nda submission during 2018 in japan that was included in the transaction price and allocated to performance obligations under the japan agreement in the second quarter of 2018. moreover , during the fourth quarter of 2018 , a $ 6.0 million milestone payable was triggered under the collaboration agreements with astrazeneca upon our receipt of marketing authorization from the nmpa for roxadustat , a first-in-class hypoxia-inducible factor prolyl hydroxylase inhibitor , for the treatment of anemia caused by ckd in patients on dialysis . another $ 6.0 million milestone payable was triggered under the collaboration agreement with astrazeneca upon our receipt of first manufacturing approval for a product in the field in the territory , which allows production for phase iv clinical studies , patients ' early experience programs , donation programs , as well as to supply products for testing and assessments required prior to launch . approximately $ 9.9 million of the total $ 12.0 million milestone payables was recognized as revenue during the fourth quarter of 2018 from performance obligations satisfied or partially satisfied .
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based on that evaluation , our ceo and cfo concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the securities exchange act of 1934 is recorded , processed , summarized and reported within the time periods specified in the securities and exchange commission 's rules and forms . report on internal control over financial reporting our management is responsible for establishing and maintaining adequate internal control over financial reporting , as defined in rules 13a-15 ( f ) and 15d-15 ( f ) under the exchange act . internal control over financial reporting is a process designed by , or under the supervision of , our ceo and cfo and effected by our board of directors , management and other personnel , to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles . our management , under the supervision and with the participation of our ceo and cfo , conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in internal control — integrated framework ( 2013 ) issued by the committee of sponsoring organizations ( coso ) . based on such evaluation , management concluded that our internal control over financial reporting was effective as of december 31 , 2016 . this annual report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting . management 's report was not subject to attestation requirements by our independent registered public accounting firm pursuant to rules of the securities and exchange commission that permit us to provide only management 's report in this annual report . changes in internal control over financial reporting there were no changes in our internal control over financial reporting identified in management 's evaluation pursuant to rule 13a-15 ( d ) or 15d-15 ( d ) of the act during the three months ended december 31 , 2016 that materially affected , or are reasonably likely to materially affect , our internal control over financial reporting . inherent limitations on effectiveness of controls our management , including our ceo and cfo , do not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all errors and all fraud . a control system , no matter how well designed and operated , can provide only reasonable , not absolute , assurance that the control system 's objectives will be met . the design of a control system must reflect the fact that there are resource constraints , and the benefits of controls must be considered relative to their costs . further , because of the inherent limitations in all control systems , no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud , if any , have been detected . these inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of a simple error or mistake . controls can also be circumvented by the individual acts of some persons , by collusion of two or more people , or by management override of the controls . the design of any system of controls is based in part on certain assumptions about the likelihood of future events , and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions . projections of any evaluation of control effectiveness 46 to future periods are subject to risks . over time , controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures . item 9b : other information not applicable . part iii item 10 : directors , executive officers and corporate governance the following table sets forth the names and ages of all of our directors and executive officers . our officers are appointed by , and serve at the pleasure of , the board of directors . name age position r. daniel brdar 57 chief executive officer , president and director timothy w. burns , cpa 42 chief financial officer , secretary and treasurer william c. alexander 61 chief technology officer and director ryan o'keefe 49 senior vice president , business development mark l. baum , j.d . 44 director lon e. bell , ph.d. 76 interim chairman of the board david b. eisenhaure 71 director the remaining information required by this item is incorporated herein by reference from our definitive proxy statement , involving the election of directors , to be filed pursuant to regulation 14a with the sec not later than 120 days after the end of the fiscal year covered by this form 10-k ( or definitive proxy statement ) . item 11 : executive compensation the information required by this item is incorporated by reference from our definitive proxy statement . item 12 : security ownership of certain beneficial owners and management and related shareholder matters securities authorized for issuance under equity compensation plans the table below provides information , as of december 31 , 2016 , regarding the plan under which our equity securities are authorized for issuance to officers , directors , employees , consultants , independent contractors and advisors . story_separator_special_tag we account for income taxes using an asset and liability approach that allows for the recognition and measurement of deferred tax assets based upon the likelihood of realization of tax benefits in future years . under the asset and liability approach , deferred taxes are provided for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes . a valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before we are able to realize their benefits , or that future deductibility is uncertain . tax benefits from an uncertain tax position are recognized only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities , based on the technical merits of the position . stock-based compensation . we apply financial accounting standards board ( “ fasb ” ) accounting standards codification ( “ asc ” ) 718 , “ stock compensation , ” when recording stock based compensation . the fair value of each stock option award is estimated on the date of grant using the commonly used black-scholes option valuation model . the assumptions used in the black-scholes model are as follows : grant price — the grant price is determined based on the closing share price on the date of grant . risk-free interest rate — the risk free interest rate is based on the implied yield available on us treasury securities at the time of grant with an equivalent term of the expected life of the award . expected lives — as permitted by sab 107 , due to our insufficient history of option activity , we utilize the simplified approach to estimate the options ' expected term , calculated as the midpoint between the vesting period and the contractual life of the award . expected volatility — volatility is estimated based on the historical volatilities of comparable companies . 25 expected dividend yield — dividend yield is based on current yield at the grant date or the average dividend yield over the historical period . we have never declared or paid dividends and have no plans to do so in the foreseeable future . we use a monte carlo simulation pricing model to determine the fair value of performance stock units ( “ psus ” ) . a typical monte carlo exercise simulates a distribution of stock prices to yield an expected distribution of stock prices during and at the end of the performance period . the simulations are repeated many times in order to derive a probabilistic assessment of stock performance . the stock-paths are simulated using assumptions which include expected stock price volatility and risk-free interest rate . we account for stock issued to non-employees in accordance with the provisions of fasb asc 505-50 “ equity based payments to non-employees. ” fasb asc 505-50 states that equity instruments that are issued in exchange for the receipt of goods or services should be measured at the fair value of the consideration received or the fair value of the equity instruments issued , whichever is more reliably measurable . the measurement date occurs as of the earlier of ( a ) the date at which a performance commitment is reached or ( b ) absent a performance commitment , the date at which the performance necessary to earn the equity instruments is complete ( that is , the vesting date ) . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > were $ 391,088 and $ 791,605 , respectively , and cash outflows for the acquisition of intangible assets in the years ended december 31 , 2016 and 2015 were $ 359,904 and $ 630,136 , respectively . financing activities in the year ended december 31 , 2016 resulted in cash inflows of $ 32,275 primarily related to net proceeds from the exercise of options and warrants . in the year ended december 31 , 2015 financing activities resulted in cash inflows of $ 16,578,233 , related primarily to the issuance of 2,225,825 shares of common stock shares at a public offering price of $ 7.75. net cash proceeds after offering-related expenses were $ 15,924,405. in addition , we received $ 653,828 in net proceeds from the exercise of options and warrants . in march 2017 , we completed a private placement for an aggregate 5,220,826 shares of common stock and 708,430 shares of preferred stock together with warrants to purchase 5,929,256 shares of common stock at a price of $ 2.535 per unit . a unit is comprised of either one share of common stock and related warrant or one share of preferred stock and related warrant . the aggregate gross proceeds were approximately $ 15 million and estimated net cash proceeds were approximately $ 13.6 million after offering fees and expenses , including the placement agent fee of approximately $ 1.1 million . we will file a registration statement on form s-3 and expect to utilize net proceeds from the offering for working capital and general corporate purposes . on december 1 , 2014 , we filed a form s-3 shelf registration statement with the securities and exchange commission . the registration statement allows us to offer up to an aggregate $ 75 million of common stock , preferred stock , warrants to purchase common stock or preferred stock or any combination thereof and provides us with the flexibility over three years to potentially raise additional equity in a public or private offering on commercial terms . after the may 2015 follow-on offering , $ 58 million is available to the company under the registration statement . off-balance sheet transactions we do not have any off-balance sheet transactions . trends , events and uncertainties research and development of new technologies is , by its nature , unpredictable . although we will undertake development efforts
| results of operations comparison of the year ended december 31 , 2016 to the year ended december 31 , 2015 revenues . revenues for the year ended december 31 , 2016 of $ 1,628,740 were $ 2,631,169 , or 62 % , lower than the $ 4,259,909 we earned in revenues for the year ended december 31 , 2015 . the decrease in revenue was driven by disruption in the market for stand-alone storage . the significant decline in revenues was a result of delays in awards under california 's sgip , which provides economic incentives for energy storage projects . the cpuc delayed announcing the 2016 awards as it examined and ultimately revised the award solicitation process and other aspects of the sgip . the revised sgip was not finalized until july 1 , 2016 , which delayed the determination of project winners and the processing of the related awards . these delays caused a temporary disruption in the market that impacted 2016 and likely , at least , part of 2017 as awarded projects may not be commissioned and installed until many months after the award is granted . cost of revenues . cost of revenues for the year ended december 31 , 2016 of $ 1,939,712 was $ 1,932,960 , or 50 % , lower than the $ 3,872,672 cost of revenues for the year ended december 31 , 2015 due to lower unit sales volumes and , to a lesser extent , production overhead , partially offset by charges of $ 334,889 associated with excess and obsolete , or e & o , inventory in connection with the end-of-life of our ibc-30 battery converter and $ 116,448 to increase our warranty reserve related primarily to our ibc-30 battery converter . we expect to sell-through existing inventory and not manufacture additional units of this product . gross profit ( loss ) .
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our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors , including those discussed under cautionary note regarding forward-looking statements and item 1a.risk factors and elsewhere in this report . overview montauk is a renewable energy company specializing in the recovery and processing of biogas from landfills and other non-fossil fuel sources for beneficial use as a replacement to fossil fuels . we develop , own , and operate rng projects , using proven technologies that supply rng into the transportation industry and use rng to produce renewable electricity . we are one of the largest u.s. producers of rng , having participated in the industry for over 30 years . we established our operating portfolio of 12 rng and three renewable electricity projects through self-development , partnerships , and acquisitions that span six states . biogas is produced by microbes as they break down organic matter in the absence of oxygen ( during a process called anaerobic digestion ) . our two current sources of commercial scale biogas are lfg and adg , which is produced inside an airtight tank used to breakdown organic matter , such as livestock waste . we typically secure our biogas feedstock through long-term fuel supply agreements and property lease agreements with biogas site hosts . once we secure long-term fuel supply rights , we design , build , own , and operate facilities that convert the biogas into rng or use the processed biogas to produce renewable electricity . we sell the rng and renewable electricity through a variety of short- , medium- , and long-term agreements . because we are capturing waste methane and making use of a renewable source of energy , our rng and renewable electricity generate valuable environmental attributes , which we are able to monetize under federal and state initiatives . factors affecting revenue our total operating revenues include renewable energy and related sales of environmental attributes . renewable energy sales primarily consist of the sale of biogas , including lfg and adg , which is either sold or converted to renewable electricity . environmental attributes are generated and monetized from the renewable energy . we report revenues from two operating segments : renewable natural gas and renewable electricity generation . corporate relates to additional discrete financial information for the corporate function ; primarily used as a shared service center for maintaining functions such as executive , accounting , treasury , legal , human resources , tax , environmental , engineering , and other operations functions not otherwise allocated to a segment . as such , the corporate entity is not determined to be an operating segment but is discretely disclosed for purposes of reconciliation to the company 's consolidated financial statements . renewable natural gas revenues : we record revenues from the production and sale of rng and the generation and sale of the environmental attributes derived from rng , such as rins and lcfs credits . our rng revenues from environmental attributes are recorded net of a portion of environmental attributes shared with off-take counterparties as consideration for such counterparties using the rng as a transportation fuel . -62- we monetize a portion of our rng production under fixed-price and counterparty sharing agreements , which provide floor prices in excess of commodity indices and sharing percentages of the monetization of environmental attributes . under these sharing arrangements , we receive a portion of the profits derived from counterparty monetization of the environmental attributes in excess of the floor prices . renewable electricity generation revenues : we record revenues from the production and sale of renewable electricity and the generation and sale of the environmental attributes , such as recs , derived from renewable electricity . all of our renewable electricity production is monetized under fixed-price ppas from our existing operating projects . corporate revenues : corporate reports realized and unrealized gains or losses under our gas hedge programs . corporate also relates to additional discrete financial information for the corporate function ; primarily used as a shared service center for maintaining functions such as executive , accounting , treasury , legal , human resources , tax , environmental , engineering and other operations functions not otherwise allocated to a segment . our revenues are priced based on published index prices which can be influenced by factors outside our control , such as market impacts on commodity pricing and regulatory developments . with our royalty payments structured as a percentage of revenue , royalty payments fluctuate with changes in revenues . due to these factors , we place a primary focus on managing production volumes and operating and maintenance expenses as these factors are more controllable by us . rng production our rng production levels are subject to fluctuations based on numerous factors , including : disruptions to production : disruptions to waste placement operations at our active landfill sites , severe weather events , failure or degradation of our or a landfill operator 's equipment or interconnection or transmission problems could result in a reduction of our rng production . we strive to proactively address any issues that may arise through preventative maintenance , process improvement and flexible redeployment of equipment to maximize production and useful life . in november 2019 , our mccarty facility lost production capacity of one of its engines due to its failure . production was not restored until march 2020 when a replacement was commissioned . we recorded $ 3.9 million as a gain on insurance proceeds related to the replacement of property and business interruption . in october 2020 , california wildfires forced our bowerman facility to temporarily shut down . while production resumed in november 2020 , our fourth quarter 2020 bowerman revenues were approximately 20.0 % lower than the prior year period . we expect 2021 first quarter revenues for our bowerman facility to be approximately 16 % less than the 2020 first quarter revenues . story_separator_special_tag under fasb asc 718 , the company accelerated all previously unvested stock-based compensation expense of approximately $ 2.1 million in january 2021. the company 's board of directors approved grants of restricted stock , non-qualified stock option , and restricted share unit awards under the company 's equity and incentive compensation plan on january 28 , 2021. the company will account for stock-based compensation related to these equity awards under fasb asc 718. for more information , see note 21 to our audited consolidated financial statements . depreciation and amortization : expenses related to the recognition of the useful lives of our intangible and fixed assets . we spend significant capital to build and own our facilities . in addition to development capital , we annually reinvest to maintain these facilities . impairment loss : expenses related to reductions in the carrying value ( s ) of fixed and or intangible assets based on periodic evaluations whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable . transaction costs : transaction costs primarily consist of expenses incurred for due diligence and other activities related to potential acquisitions and other strategic transactions . key operating metrics total operating revenues reflect both sales of renewable energy and sales of related environmental attributes . as a result , our revenues are primarily affected by unit production of rng and renewable electricity , production of environmental attributes , and the prices at which we monetize such production . set forth below is an overview of these key metrics : production volumes : we review performance by site based on unit of production calculations for rng and renewable electricity , measured in terms of mmbtu and mwh , respectively . while unit of production measurements can be influenced by schedule facility maintenance schedules , the metric is used to measure the efficiency of operations and the impact of optimization improvement initiatives . we monetize a majority of our rng commodity production under variable-price agreements , based on indices . a portion of our renewable natural gas segment commodity production is monetized under fixed-priced contracts . our renewable electricity generation segment commodity production is primarily monetized under fixed-priced ppas . production of environmental attributes : we monetize environmental attributes derived from our production of rng and renewable electricity . we carry-over a portion of the rins generated from rng production to the following year and monetize the carried over rins in such following calendar year . a majority of our renewable natural gas segment environmental attributes are self-monetized , though a portion are generated and monetized by third parties under counterparty sharing agreements . a majority of our renewable electricity generation segment environmental attributes are monetized as a component of our fixed-price ppas . average realized price per unit of production : our profitability is highly dependent on the commodity prices for natural gas and electricity , and the environmental attribute prices for rins , lcfs credits , and recs . realized prices for environmental attributes monetized in a year may not correspond directly with that year 's production as attributes may be carried over and subsequently monetized . realized prices for environmental attributes monetized in a year may not correspond directly to index prices due to the forward selling of commitments . -65- the following table summarizes the key operating metrics described above , which metrics we use to measure performance . replace_table_token_6_th ( 1 ) rins are generated in the month that the gas dispensed to generate rins , which occurs the month after the gas is produced . volumes under fixed/floor-price arrangements generate rins which we do not self-market . ( 2 ) one mmbtu of rng has the same energy content as 11.727 gallons of ethanol , and thus may generate 11.727 rins under the rfs program . ( 3 ) represents rins available to be self-marketed by us during the reporting period . ( 4 ) represents gas production which has not been dispensed to generate rins . -66- story_separator_special_tag company 's rng facilities for 2020 were $ 16.4 million , a decrease of $ 0.1 million ( 0.6 % ) compared to $ 16.5 million in 2019. royalties , transportation , gathering and production fuel expenses increased as a percentage of rng revenues to 19.8 % for 2020 from 19.6 % in 2019. a site commissioned during 2020 contributed $ 0.1 million to the total while a site commissioned during 2019 contributed an additional $ 0.7 million during 2020. exclusive of the effects of the development sites , royalty related costs for 2020 were $ 15.5 million , a decrease of $ 1.0 million ( 5.8 % ) compared to $ 16.5 million in 2019. renewable electricity expenses operating and maintenance expenses for our renewable electricity facilities in 2020 were $ 9.8 million , a decrease of $ 1.1 million ( 10.1 % ) compared to $ 10.9 million in 2019. we reported the results of pico within the renewable electricity generation segment until october 2020. of the total , pico contributed $ 1.4 million in 2020 and , exclusive of pico , renewable electricity facility operating and maintenance expenses decreased by $ 1.3 million ( 13.2 % ) . the decrease is related increasing preventative maintenance intervals at our bowerman facility to mitigate increased condensate removal costs . additionally , our exit from our monmouth facility reduced operating and maintenance expenses in 2020 by $ 0.6 million . royalties , transportation , gathering and production fuel expenses for our renewable electricity facilities for 2020 were $ 1.7 million , a decrease of $ 0.7 million ( 30.2 % ) compared to $ 2.4 million in 2019 and as a percentage of renewable electricity generation segment , revenues decreased from 12.4 % to 10.5 % .
| results of operations comparison of years ended december 31 , 2020 and 2019 the following table summarizes our revenues , expenses and net income for the periods set forth below : replace_table_token_7_th revenues for the years ended december 31 , 2020 and 2019 total revenues in 2020 were $ 100.4 million , a decrease of $ 5.3 million ( 5.0 % ) compared to $ 105.7 million in 2019. the primary driver for this decrease related to a 16.1 % decrease in renewable electricity from our election to end the contract and exit our monmouth facility and california wildfires impacting power generation at our bowerman facility . to a lesser extent , decreased realized average rin prices offset increased rins sold , leading to an overall 1.1 % decrease in rng revenues . renewable natural gas revenues we produced 5.7 million mmbtu of rng during 2020 , an increase of over the 5.4 million mmbtu ( 7.2 % ) produced in 2019. of this increase , 0.2 million mmbtu of rng were produced from development site commissioned during 2019. less than 0.1 million mmbtu of rng were produced from development sites commissioned during 2020. wellfield improvement initiatives at our apex site yielded an increase of 0.1 million mmbtus over the prior year period . our mccarty site was unfavorably impacted by the loss of one of its engines leading to a reduction in 2020 of ( 0.1 ) million mmbtus over the 2019 period . revenues from the renewable natural gas segment in 2020 were $ 83.2 million , a decrease of $ 0.9 million 1.1 % compared to $ 84.2 million in 2019. average commodity pricing for natural gas for 2020 was 3.0 % higher than the prior year . during 2020 , we self-monetized 39.3 million rins , representing a 2.5 million increase ( 6.8 % ) compared to 36.8 million in 2019. the increase was primarily related to increased mmbtu production over the prior year period .
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the company distributes electronic components to original equipment manufacturers ( `` oems '' ) and contract manufacturers ( `` cms '' ) through its global components business segment and provides enterprise computing solutions to value-added resellers ( `` vars '' ) and managed service providers ( `` msps '' ) through its global ecs business segment . for 2018 , approximately 70 % of the company 's sales were from the global components business segment and approximately 30 % 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 expand its geographic reach . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > increase d 13.8 % compared with the year-earlier period , with double-digit sales growth in arrow 's core businesses across all three regions ( americas , emea , and asia ) , as well as high double digit growth coming from arrow 's strategic investment in digital and sustainable technology solutions businesses . the increase for 2018 is attributable to suppliers awarding additional business to the company , and reflects strong growth in the industrial , aerospace and defense verticals year over year . adjusted for the impact of changes in foreign currencies and acquisitions , the company 's global components business segment sales increase d by 12.2 % in 2018 , compared with the year-earlier period . in the global ecs business segment , sales for 2018 increase d 7.2 % compared with the year-earlier period . growth was driven by infrastructure software , security , storage , and industry-standard servers . adjusted for the impact of changes in foreign currencies , acquisitions , and dispositions , the company 's global ecs business segment sales increase d by 8.0 % in 2018 , compared with the year-earlier period . 21 following is an analysis of net sales by business segment for the years ended december 31 ( in millions ) : replace_table_token_6_th * the sum of the components for sales , as adjusted , may not agree to totals , as presented , due to rounding . consolidated sales for 2017 increase d by $ 3.1 billion , or 13.1 % , compared with the year-earlier period . the increase in 2017 was driven by an increase in global components business segment sales of $ 2.9 billion , or 19.0 % , and an increase in global ecs business segment sales of $ 145.1 million , or 1.8 % , compared with the year-earlier period . adjusted for the impact of changes in foreign currencies and acquisitions , the company 's consolidated sales increased by 12.1 % in 2017 , compared with the year-earlier period . in the global components business segment , sales for 2017 increase d 19.0 % compared with the year-earlier period , with double-digit sales growth in arrow 's core business across all three regions ( americas , emea , and asia ) , as well as high double digit growth coming from arrow 's strategic investments in its digital and sustainable technology solutions businesses . the increase for 2017 is attributable to suppliers awarding additional business to the company , and reflects strong growth in the industrial , transportation , aerospace and defense , consumer , and communications verticals year over year . adjusted for the impact of changes in foreign currencies and acquisitions , the company 's global components business segment sales increased by 18.2 % in 2017 , compared with the year-earlier period . in the global ecs business segment , sales growth for 2017 was increased 1.8 % compared with the year-earlier period , with declining revenue in the first half of the year offset by growth in the second half of the year . adjusted for the impact of changes in foreign currencies and acquisitions , the company 's global ecs business segment sales increase d by 0.6 % in 2017 , compared with the year-earlier period . 22 gross profit following is an analysis of gross profit for the years ended december 31 ( in millions ) : replace_table_token_7_th the company recorded gross profit of $ 3.7 billion and $ 3.4 billion for 2018 and 2017 , respectively . the increase in gross profit was primarily due to increased demand and supplier awards in the components business . gross profit margins for 2018 decreased by approximately 10 basis points , compared with the year-earlier period , primarily due to declining margins in the global ecs business attributable to less favorable business mix . declines were mostly offset by improving margins in the global components business . following is an analysis of gross profit for the years ended december 31 ( in millions ) : replace_table_token_8_th the company recorded gross profit of $ 3.4 billion and $ 3.1 billion for 2017 and 2016 , respectively . the increase in gross profit was primarily due to increased demand and supplier awards in the components business . gross profit margins for 2017 decreased by approximately 80 basis points , compared with the year-earlier period , primarily due to an increase in lower margin distribution services in the americas and emea components businesses . the increase in supplier awards initially drive lower margin fulfillment volume . selling , general , and administrative expenses and depreciation and amortization following is an analysis of operating expenses for the years ended december 31 ( in millions ) : replace_table_token_9_th * the sum of the components for operating expenses , as adjusted , may not agree to totals , as presented , due to rounding . 23 selling , general , and administrative expenses increase d by $ 141.0 million , or 6.5 story_separator_special_tag also included is a charge of $ 3.6 million related to restructuring and integration actions taken in prior periods . included in restructuring , integration , and other charges for 2016 are other expenses of $ 24.9 million , which include the following charges and credits . in 2016 , the company recorded additional expenses of $ 11.8 million to increase its accrual for the wyle environmental obligation ( see note 15 ) , acquisition related charges of $ 8.7 million related to contingent consideration for acquisitions completed in prior years , and a fraud loss , net of insurance recoveries , of $ 4.3 million . also in 2016 , the company released a $ 2.4 million legal reserve . as of december 31 , 2018 , 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 . operating income following is an analysis of operating income for the years ended december 31 ( in millions ) : replace_table_token_11_th * the sum of the components for consolidated operating income , as adjusted , may not agree to totals , as presented , due to rounding . the company recorded operating income of $ 1.1 billion , or 3.9 % of sales , in 2018 compared with operating income of $ 945.7 million , or 3.6 % of sales , in 2017 . included in operating income for 2018 and 2017 were the previously discussed identifiable intangible asset amortization of $ 49.4 million and $ 50.1 million , respectively , and restructuring , integration , and other charges of $ 60.4 million and $ 74.6 million , respectively . included in operating income for 2018 and 2017 is a loss on disposition of businesses , net of $ 3.6 million and $ 21.0 million , respectively . excluding these items , operating income , as adjusted , was $ 1.3 billion , or 4.2 % of sales , in 2018 compared with operating income , as adjusted , of $ 1.1 billion , or 4.1 % of sales , in 2017 . operating margins , as 25 adjusted , increased 10 bps compared with the year-earlier period , despite a 10 basis point decrease in gross margins due to the company 's ability to efficiently manage operating costs . following is an analysis of operating income for the years ended december 31 ( in millions ) : replace_table_token_12_th * the sum of the components for consolidated operating income , as adjusted , may not agree to totals , as presented , due to rounding . the company recorded operating income of $ 945.7 million , or 3.6 % of sales , in 2017 compared with operating income of $ 876.8 million , or 3.7 % of sales , in 2016 . included in operating income for 2017 and 2016 were the previously discussed identifiable intangible asset amortization of $ 50.1 million and $ 54.9 million , respectively , and restructuring , integration , and other charges of $ 74.6 million and $ 61.4 million , respectively . included in operating income for 2017 is a loss on disposition of businesses , net of $ 21.0 million . excluding these items , operating income , as adjusted , was $ 1.1 billion , or 4.1 % of sales , in 2017 compared with operating income , as adjusted , of $ 993.1 million , or 4.2 % of sales , in 2016 . operating margins , as adjusted , remained consistent compared with the year-earlier period , despite an 80 basis point decrease in gross margins due to the company 's ability to efficiently manage operating costs . gain ( loss ) on investments , net during 2018 and 2017 , the company recorded a net loss of $ 14.2 million and $ 6.6 million related to changes in fair value of certain investments , respectively . during 2016 , the company recorded a gain of $ 2.9 million related to changes in fair value of certain investments . loss on disposition of businesses , net during 2018 and 2017 the company recorded a loss on disposition of businesses , net of $ 3.6 million and $ 21.0 million , respectively , related to the sale of two non-strategic businesses . loss on extinguishment of debt during 2017 , the company recorded a loss on extinguishment of debt of $ 59.5 million related to the redemption of the company 's 6.875 % senior debenture due 2018 and refinance of a portion of the company 's 6.00 % notes due april 2020 , 5.125 % notes due march 2021 , and 7.50 % notes due january 2027. pension settlements during 2018 the company recorded settlement expense of $ 1.7 million upon terminating a defined benefit plan acquired in a prior period acquisition . on december 31 , 2018 , the wyle defined benefit plan was terminated by the company with estimated plan settlement expected to occur in 2019. the company has made other arrangements with the participants in the plan and is terminating the plan to reduce administrative burdens . prior to the termination of the plan , the company adopted an amendment to the wyle defined benefit plan that provided eligible plan participants with the option to receive an early distribution of their pension benefits . the settlement loss is expected to be approximately $ 25,500 . benefit payments of $ 60,530 are expected to be paid in 2019. during 2017 and 2016 , the company entered into a settlement for a portion of its wyle defined benefit plan . the company recorded pension settlement expense of $ 16.7 million and $ 12.2 million during 2017 and 2016 , respectively .
| executive summary consolidated sales for 2018 increase d by 11.8 % , compared with the year-earlier period , due to a 13.8 % increase in global components business segment sales and a 7.2 % increase in global ecs business segment sales . adjusted for the change in foreign currencies , acquisitions , and dispositions , consolidated sales increase d 10.9 % compared with the year-earlier period . net income attributable to shareholders increase d to $ 716.2 million in 2018 compared with $ 402.2 million in the year-earlier period . the following items impacted the comparability of the company 's results for the years ended december 31 , 2018 and 2017 , all amounts are before tax except for amounts related to the effects of the tax act . restructuring , integration , and other charges of $ 60.4 million in 2018 and $ 74.6 million in 2017 ; identifiable intangible asset amortization of $ 49.4 million in 2018 and $ 50.1 million in 2017 ; net loss on investments of $ 14.2 million in 2018 and $ 6.6 million in 2017 ; loss on disposition of businesses , net , of $ 3.6 million in 2018 and $ 21.0 million in 2017 ; loss on extinguishment of debt of $ 59.5 million in 2017 ; pension settlement of $ 1.7 million in 2018 and $ 16.7 million in 2017 ; and income tax benefit of $ 28.3 million in 2018 and expense of $ 124.7 million in 2017 , related to the tax act . excluding the aforementioned items , net income attributable to shareholders increase d to $ 781.0 million in 2018 compared with $ 674.5 million in the year-earlier period .
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we expressly disclaim any responsibility to update our forward-looking statements , whether as a result of new information , future events or otherwise . accordingly , investors should use caution in relying on past forward-looking statements , which are based on results and trends at the time they are made , to anticipate future results or trends . some of the risks and uncertainties that may cause our actual results , performance or achievements to differ materially from those expressed or implied by forward-looking statements include , among others , the following : ● general risks affecting the real estate industry ( including , without limitation , the inability to enter into or renew leases , dependence on tenants ' financial condition , and competition from other developers , owners and operators of real estate ) ; ● risks associated with the availability and terms of financing and the use of debt to fund acquisitions and developments ; ● failure to manage effectively our growth and expansion into new markets or to integrate acquisitions successfully ; ● risks and uncertainties affecting property development and construction ( including , without limitation , construction delays , cost overruns , inability to obtain necessary permits and public opposition to such activities ) ; ● risks associated with downturns in the national and local economies , increases in interest rates and volatility in the securities markets ; ● costs of compliance with the americans with disabilities act and other similar laws and regulations ; ● potential liability for uninsured losses and environmental contamination ; ● risks associated with our dependence on key personnel whose continued service is not guaranteed ; and ● the other risk factors identified in this form 10-k , including those described under the part i , item 1a . “ risk factors ” . the risks included herein are not exhaustive . other sections of this report , including part i , item 1a . risk factors , include additional factors that could adversely affect our business and financial performance . moreover , we operate in a very competitive and rapidly changing environment . new risk factors emerge from time to time and it is not possible for management to predict all such risk factors , nor can we assess the impact of all such risk factors on our business or the extent to which any factor , or combination of factors , may cause actual results to differ materially from those contained in any forward-looking statements . given these risks and uncertainties , investors should not place undue reliance on forward-looking statements as a prediction of actual results . investors should also refer to our quarterly reports on form 10-q for future periods and current reports on form 8-k as we file them with the sec , and to other materials we may furnish to the public from time to time through forms 8-k or otherwise . overview our primary business is in real estate holdings and investment in mortgage receivables . land held for development or sale is our sole operating segment . at december 31 , 2017 , our land consisted of 131.1 acres of land held subject to sales contract . all of our land holdings are located in farmers branch , texas . the principal source of revenue for the company is interest income on over $ 14.0 million of note receivables due from related parties . since april 30 , 2011 , pillar is the company 's external advisor and cash manager under a contractual arrangement that is reviewed annually by our board of directors . pillar 's duties include , but are not limited to , locating , evaluating and recommending real estate and real estate-related investment opportunities . pillar also arranges , for ior 's benefit , debt and equity financing with third party lenders and investors . as the contractual advisor , pillar is compensated by ior under an advisory agreement . the company has no employees . employees of pillar render services to ior in accordance with the terms of the advisory agreement . this advisory agreement is more fully described in part iii , item 10. directors , executive officers and corporate governance – the advisor . pillar also serves as an advisor and cash manager to arl and tci . 9 we have historically engaged in and may continue to engage in certain business transactions with related parties , including but not limited to asset acquisition , dispositions and financings . transactions involving related parties can not be presumed to be carried out on an arm 's length basis due to the absence of free market forces that naturally exist in business dealings between two or more unrelated entities . related party transactions may not always be favorable to our business and may include terms , conditions and agreements that are not necessarily beneficial to or in our best interest . critical accounting policies we present our financial statements in accordance with generally accepted accounting principles in the united states ( “ gaap ” ) . the accompanying consolidated financial statements include our accounts , our subsidiaries , generally all of which are wholly-owned , and all entities in which we have a controlling interest . as of december 31 , 2017 , ior is not the primary beneficiary of a vie . the company does not have any entities in which we have less than a controlling financial interest or entities where it is not deemed to be the primary beneficiary . story_separator_special_tag the capitalized costs include pre-construction costs essential to the development of the property , development costs , construction costs , interest costs , real estate taxes , salaries and related costs and other costs incurred during the period of development . we consider a construction project as substantially completed and held available for occupancy upon the receipt of certificates of occupancy , but no later than one year from cessation of major construction activity . we cease capitalization on the portion ( 1 ) substantially completed and ( 2 ) occupied or held available for occupancy , and we capitalize only those costs associated with the portion under construction . recognition of revenue our revenues are composed largely of interest income on notes receivable . revenue recognition on the sale of real estate sales and the associated gains or losses of real estate assets are recognized in accordance with the provisions of asc 360-20 , “ property , plant and equipment – real estate sale ” . the specific timing of a sale is measured against various criteria in asc 360-20 related to the terms of the transaction and any continuing involvement in the form of management or financial assistance associated with the properties . if the sales criteria for the full accrual method are not met , we defer some or all of the revenue or gain recognition and account for the continued operations of the property by applying the finance , leasing , deposit , installment or cost recovery methods , as appropriate , until the full revenue recognition sales criteria are met . non-performing notes receivable the company considers a note receivable to be non-performing when the maturity date has passed without principal repayment and the borrower is not making interest payments in accordance with the terms of the agreement . interest recognition on notes receivable we record interest income as earned in accordance with the terms of the related loan agreements . allowance for estimated losses we assess the collectability of notes receivable on a periodic basis , of which the assessment consists primarily of an evaluation of cash flow projections of the borrower to determine whether estimated cash flows are sufficient to repay principal and interest in accordance with the contractual terms of the note . we recognize impairments on notes receivable when it is probable that principal and interest will not be received in accordance with the contractual terms of the loan . the amount of the impairment to be recognized generally is based on the fair value of the partnership 's real estate that represents the primary source of loan repayment . ( see note 3 , below , notes and interest receivable from related parties , for details on our notes receivable . ) fair value measurement the company applies the guidance in asc 820 , fair value measurements and disclosures , to the valuation of real estate assets . these provisions define fair value as the price that would be received to sell an asset or paid to transfer a liability in a transaction between market participants at the measurement date , establish a hierarchy that prioritizes the information used in developing fair value estimates and require disclosure of fair value measurements by level within the fair value hierarchy . the hierarchy gives the highest priority to quoted prices in active markets ( level 1 measurements ) and the lowest priority to unobservable data ( level 3 measurements ) , such as the reporting entity 's own data . 11 the valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date and includes three levels defined as follows : level 1—unadjusted quoted prices for identical and unrestricted assets or liabilities in active markets . level 2—quoted prices for similar assets and liabilities in active markets , and inputs that are observable for the asset or liability , either directly or indirectly , for substantially the full term of the financial instrument . level 3—unobservable inputs that are significant to the fair value measurement . a financial instrument 's categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement . management reviews the carrying values of our properties and mortgage notes receivable at least annually and whenever events or a change in circumstances indicates that impairment may exist . impairment is considered to exist if the future cash flow from a property ( undiscounted and without interest ) is less than the carrying amount of the property . the property review generally includes : ( 1 ) selective property inspections ; ( 2 ) a review of the property 's current rents compared to market rents ; ( 3 ) a review of the property 's expenses ; ( 4 ) a review of maintenance requirements ; ( 5 ) a review of the property 's cash flow ; ( 6 ) discussions with the manager of the property ; and ( 7 ) a review of properties in the surrounding area . for notes receivable , impairment is considered to exist if it is probable that all amounts due under the terms of the note will not be collected . the note receivable review includes an evaluation of the collateral property securing such note . if impairment is found to exist , a provision for loss is recorded by a charge against earnings . related parties we apply asc 805 , business combinations , to evaluate business relationships .
| results of operations the following discussion is based on our consolidated financial statements consolidated statement of operations , for the years ended december 31 , 2017 , 2016 , and 2015 from part ii , item 8. financial statements and supplementary data and is not meant to be an all-inclusive discussion of the changes in our net income applicable to common shares . instead , we have focused on significant fluctuations within our operations that we feel are relevant to obtain an overall understanding of the change in income applicable to common shareholders . our current operations consist of land held subject to a sales contract . our operating expenses consist primarily of general and administrative costs such as audit and legal fees and administrative fees paid to a related party . we also have other income and expense items . we receive interest income from the funds deposited with our advisor at a rate of prime plus 1.0 % . we have receivables from related parties which also provide interest income . 12 comparison of the year ended december 31 , 2017 to the year ended december 31 , 2016 we had a net income applicable to common shares of $ 1.5 million or $ 0.36 per diluted earnings per share for the year ended december 31 , 2017 , compared to a net income applicable to common shares of $ 2.1 million or $ 0.50 per diluted earnings per share for the same period ended 2016. revenue land held subject to a sales contract is our sole operating segment .
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this report contains cautionary statements identifying important factors that could cause actual results to differ materially from those projected herein , and in any other statements made by company officials in communications with the financial community and contained in documents filed with the securities and exchange commission ( sec ) . forward-looking statements are not based on historical information and relate to future operations , strategies , financial results or other developments . furthermore , forward-looking information is subject to numerous assumptions , risks and uncertainties . in particular , statements containing words such as “ expect , ” “ anticipate , ” “ believe , ” “ goal , ” “ objective , ” “ may , ” “ should , ” “ estimate , ” “ intends , ” “ projects , ” “ will , ” “ assumes , ” “ potential , ” “ target ” or similar words as well as specific projections of future results , generally qualify as forward-looking . aflac undertakes no obligation to update such forward-looking statements . we caution readers that the following factors , in addition to other factors mentioned from time to time , could cause actual results to differ materially from those contemplated by the forward-looking statements : difficult conditions in global capital markets and the economy governmental actions for the purpose of stabilizing the financial markets defaults and credit downgrades of securities in our investment portfolio exposure to significant financial and capital markets risk fluctuations in foreign currency exchange rates significant changes in investment yield rates credit and other risks associated with aflac 's investment in perpetual securities differing judgments applied to investment valuations significant valuation judgments in determination of amount of impairments taken on our investments limited availability of acceptable yen-denominated investments concentration of our investments in any particular single-issuer or sector concentration of business in japan decline in creditworthiness of other financial institutions deviations in actual experience from pricing and reserving assumptions subsidiaries ' ability to pay dividends to aflac incorporated changes in law or regulation by governmental authorities ability to attract and retain qualified sales associates and employees decreases in our financial strength or debt ratings ability to continue to develop and implement improvements in information technology systems interruption in telecommunication , information technology and other operational systems , or a failure to maintain the security , confidentiality or privacy of sensitive data residing on such systems changes in u.s. and or japanese accounting standards failure to comply with restrictions on patient privacy and information security inability to recognize tax benefits associated with capital loss carryforwards level and outcome of litigation ability to effectively manage key executive succession catastrophic events including , but not necessarily limited to , epidemics , pandemics , tornadoes , hurricanes , earthquakes , tsunamis , acts of terrorism and damage incidental to such events ongoing changes in our industry events that damage our reputation failure of internal controls or corporate governance policies and procedures 32 md & a overview management 's discussion and analysis of financial condition and results of operations ( md & a ) is intended to inform the reader about matters affecting the financial condition and results of operations of aflac incorporated and its subsidiaries for the three-year period ended december 31 , 2013 . as a result , the following discussion should be read in conjunction with the related consolidated financial statements and notes . this md & a is divided into the following sections : our business performance highlights critical accounting estimates results of operations , consolidated and by segment analysis of financial condition , including discussion of market risks of financial instruments capital resources and liquidity , including discussion of availability of capital and the sources and uses of cash our business aflac incorporated ( the parent company ) and its subsidiaries ( collectively , the company ) primarily sell supplemental health and life insurance in the united states and japan . the company 's insurance business is marketed and administered through american family life assurance company of columbus ( aflac ) , which operates in the united states ( aflac u.s. ) and as a branch in japan ( aflac japan ) . most of aflac 's policies are individually underwritten and marketed through independent agents . aflac u.s. markets and administers group products through continental american insurance company ( caic ) , branded as aflac group insurance . our insurance operations in the united states and our branch in japan service the two markets for our insurance business . story_separator_special_tag style= '' line-height:120 % ; font-size:10pt ; '' > replace_table_token_12_th our policy liabilities , which are determined in accordance with applicable guidelines as defined under gaap and actuarial standards of practice , include two components that involve analysis and judgment : future policy benefits and unpaid policy claims , which accounted for 77 % and 4 % of total policy liabilities as of december 31 , 2013 , respectively . future policy benefits provide for claims that will occur in the future and are generally calculated as the present value of future expected benefits to be incurred less the present value of future expected net benefit premiums . we calculate future policy benefits based on assumptions of morbidity , mortality , persistency and interest . these assumptions are generally established at the time a policy is issued . the assumptions used in the calculations are closely related to those used in developing the gross premiums for a policy . as required by gaap , we also include a provision for adverse deviation , which is intended to accommodate adverse fluctuations in actual experience . unpaid policy claims include those claims that have been incurred and are in the process of payment as well as an estimate of those claims that have been incurred but have not yet been reported to us . we compute unpaid policy claims 35 on a non-discounted basis using statistical analyses of historical claims payments , adjusted for current trends and changed conditions . story_separator_special_tag likewise , if it is later determined that it is more likely than not that those deferred tax assets would be realized , the previously provided valuation allowance would be reversed . future economic conditions and market volatility , including increases in interest rates or widening credit spreads , can adversely impact the company 's tax planning strategies and in particular the company 's ability to utilize tax benefits on previously recognized capital losses . our judgments and assumptions are subject to change given the inherent uncertainty in predicting future performance and specific industry and investment market conditions . interest rates and credit spreads in both the united states and japan are not the only factors that impact the company 's unrealized gain/loss position and the evaluation of a need for a valuation allowance on the company 's deferred tax asset , but they do have a direct and significant effect on both . in the second quarter of 2013 , we recorded a valuation allowance of $ 237 million related to the deferred tax assets associated with our unrealized investment losses recorded in other comprehensive income . the rise in interest rates in both the united states and japan in the second quarter was a significant factor that contributed to the need for the valuation allowance at that time . we released the $ 237 million valuation allowance in the third quarter of 2013 because it was more likely than not that the deferred tax assets related to unrealized investment losses would be realized in the future . in the third quarter , the decline in interest rates in japan and narrowing of credit spreads in the united states were able to offset continued increases in interest rates in the united states resulting in the release of the valuation allowance in the third quarter . based on our methodology described above for evaluating the need for a valuation allowance , we have determined that it is more likely than not that our deferred tax assets will be realized in the future , therefore we have not recorded a valuation allowance as of december 31 , 2013. see note 10 of the notes to the consolidated financial statements for additional information . 37 new accounting pronouncements during the last three years , various accounting standard-setting bodies have been active in soliciting comments and issuing statements , interpretations and exposure drafts . for information on new accounting pronouncements and the impact , if any , on our financial position or results of operations , see note 1 of the notes to the consolidated financial statements . results of operations the following discussion includes references to our performance measures , operating earnings and operating earnings per diluted share , that are not based on accounting principles generally accepted in the united states of america ( “ gaap ” ) . operating earnings is the measure of segment profit or loss we use to evaluate segment performance and allocate resources . consistent with gaap accounting guidance for segment reporting , operating earnings is our measure of segment performance . aflac believes that an analysis of operating earnings is vitally important to an understanding of our underlying profitability drivers and trends of our insurance business . furthermore , because a significant portion of our business is conducted in japan , we believe it is equally important to understand the impact of translating japanese yen into u.s. dollars . aflac defines operating earnings ( a non-gaap financial measure ) as the profits derived from operations . operating earnings includes interest cash flows associated with notes payable but excludes items that can not be predicted or that are outside of management 's control , such as realized investment gains and losses ( securities transactions , impairments , and derivative and hedging activities ) , nonrecurring items , and other non-operating income ( loss ) from net earnings . aflac 's derivative activities include : foreign currency , interest rate and credit default swaps in variable interest entities that are consolidated ; foreign currency swaps associated with certain senior notes and our subordinated debentures ; foreign currency forwards used in hedging foreign exchange risk and options on interest rate swaps ( or interest rate swaptions ) used in hedging interest rate risk on u.s. dollar-denominated securities in aflac japan 's portfolio ; and foreign currency forwards and options used to hedge certain portions of forecasted cash flows denominated in yen . our management uses operating earnings to evaluate the financial performance of aflac 's insurance operations because realized investment gains and losses and other and nonrecurring items tend to be driven by general economic conditions and events or related to infrequent activities not directly associated with our insurance operations , and therefore may obscure the underlying fundamentals and trends in aflac 's insurance operations . the following table is a reconciliation of items impacting operating and net earnings and operating and net earnings per diluted share for the years ended december 31. reconciliation of operating earnings to net earnings replace_table_token_15_th ( 1 ) excludes a gain of $ 6 , after tax , in 2013 related to the interest rate component of the change in fair value of foreign currency swaps on notes payable which is classified as an operating gain when analyzing segment operations amounts prior to 2012 have been adjusted for the adoption of accounting guidance on january 1 , 2012 related to deferred policy acquisition costs . realized investment gains and losses our investment strategy is to invest in fixed-income securities to provide a reliable stream of investment income , which is one of the drivers of the company 's profitability . this investment strategy incorporates asset-liability matching 38 ( alm ) to align the expected cash flows of the portfolio to the needs of the company 's liability structure . we do not purchase securities with the intent of generating capital gains or losses .
| performance highlights reflecting the weaker yen/dollar exchange rate , total revenues were $ 23.9 billion in 2013 , compared with $ 25.4 billion in 2012 . net earnings in 2013 were $ 3.2 billion , or $ 6.76 per diluted share , compared with $ 2.9 billion , or $ 6.11 per diluted share , in 2012 . results for 2013 included pretax net realized investment gains of $ 399 million ( $ 259 million after-tax ) , compared with net realized investment losses of $ 349 million ( $ 226 million after-tax ) in 2012 . net investment gains in 2013 consisted of $ 199 million ( $ 129 million after-tax ) of other-than-temporary impairment losses ; $ 262 million of net gains ( $ 170 million after-tax ) from the sale or redemption of securities ; and $ 336 million of net gains ( $ 218 million after-tax ) from valuing derivatives . shareholders ' equity included a net unrealized gain on investment securities and derivatives of $ 1.0 billion at december 31 , 2013 , compared with a net unrealized gain of $ 2.6 billion at december 31 , 2012 . in june 2013 , the parent company issued $ 700 million of senior notes through a u.s. public debt offering . we entered into cross-currency interest rate swaps to economically convert the dollar-denominated principal and interest on the senior notes we issued into yen-denominated obligations . in march 2013 , the parent company and aflac entered into a five-year senior unsecured revolving credit facility agreement with a syndicate of financial institutions that provides for borrowings of 50 billion yen or the equivalent of japanese yen in u.s. dollars . for further information regarding these transactions , see note 9 of the notes to the consolidated financial statements and the capital resources and liquidity section of this md & a .
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fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and related notes thereto included in item 8 “ financial statements and supplementary data ” in this annual report on form 10-k. this discussion contains forward-looking statements that involve risks and uncertainties . our actual results could differ materially from those discussed below . factors that could cause or contribute to such differences include , but are not limited to , those identified below and those discussed in the section titled “ risk factors ” included elsewhere in this annual report on form 10-k. story_separator_special_tag 10-k. key metrics we review a number of metrics , including the key metrics discussed below , to evaluate our business , measure our performance , identify trends affecting our business , formulate business plans and make strategic decisions . monetizable daily active usage or users ( mdau ) . we define mdau as people , organizations , or other accounts who logged in or were otherwise authenticated and accessed twitter on any given day through twitter.com or twitter applications that are able to show ads . we believe that mdau , and its related growth , is the best way to measure our success against our objectives and to show the size of our audience and engagement . average mdau for a period represents the number of mdau on each day of such period divided by the number of days for such period . changes in mdau are a measure of changes in the size of our daily logged in or otherwise authenticated active total accounts . to calculate the year-over-year change in mdau , we subtract the average mdau for the three months ended in the previous year from the average mdau for the same three months ended in the current year and divide the result by the average mdau for the three months ended in the previous year . additionally , our calculation of mdau is not based on any standardized industry methodology and is not necessarily calculated in the same manner or comparable to similarly titled measures presented by other companies . in the three months ended december 31 , 2020 , we had 192 million average mdau , which represents an increase of 27 % from the three months ended december 31 , 2019. the increase was driven by global conversation around current events and ongoing product improvements . in the three months ended december 31 , 2020 , we had 37 million average mdau in the united states and 155 million average mdau in the rest of the world , which represent increases of 21 % and 28 % , respectively , from the three months ended december 31 , 2019. in 2020 , mdau growth benefited from product improvements , increased global conversation around covid-19 , the run-up to u.s. elections , and other current events . the surge in mdau in 2020 driven by current events such as the covid-19 pandemic is expected to lead to slower year-over-year growth rates starting in the first quarter of 2021 through the end of the year . 39 for additional information on how we calculate changes in mdau and factors that can affect this metric , see the section titled “ note regarding key metrics. ” 40 changes in ad engagements and changes in cost per ad engagement . we define an ad engagement as an interaction with one of our pay-for-performance advertising products . ad engagements with our advertising products are based on the completion of an objective set out by an advertiser such as expanding , retweeting , liking or replying to a promoted tweet , viewing an embedded video , downloading or engaging with a promoted mobile application , clicking on a website link , signing up for marketing emails from advertisers , following the account that tweets a promoted tweet , or completing a transaction on an external website . we believe changes in ad engagements is one way to measure engagement with our advertising products . cost per ad engagement is an output of our ads auction process , and will vary from one period to another based on geographic performance , auction dynamics , the strength of demand for various ad formats , and campaign objectives . in the three months ended december 31 , 2020 , ad engagements increased 35 % from the three months ended december 31 , 2019 , driven by strong growth in ad impressions due to our growing audience and increased demand for ads . in the three months ended december 31 , 2020 , cost per ad engagement decreased by 3 % compared to the three months ended december 31 , 2019 , which was largely a function of supply outstripping demand . results of operations the following tables set forth our consolidated statement of operations data for each of the periods presented ( in thousands ) : replace_table_token_2_th 41 ( 1 ) costs and expenses include stock-based compensation expense as follows ( in thousands ) : replace_table_token_3_th ( 2 ) we received a draft complaint from the federal trade commission and recorded $ 150.0 million in general and administrative expenses in the consolidated statements of operations in the second quarter of 2020. refer to note 16 of the notes to consolidated financial statements included in part ii , item 8 of this annual report on form 10-k for further information . ( 3 ) in 2020 , we recognized a provision for income taxes of $ 1.10 billion related to the establishment of a valuation allowance against deferred tax assets of a foreign subsidiary . in 2019 , we recorded an income tax benefit of $ 1.21 billion related to the establishment of deferred tax assets from intra-entity transfers of intangible assets . story_separator_special_tag infrastructure costs consist primarily of data center costs related to our co-located facilities , which include lease and hosting costs , related support and maintenance costs and energy and bandwidth costs , public cloud hosting costs , as well as depreciation of servers and networking equipment ; and personnel-related costs , including salaries , benefits and stock-based compensation , for our operations teams . tac consists of costs we incur with third parties in connection with the sale to advertisers of our advertising products that we place on third-party publishers ' websites , and applications or other offerings collectively resulting from acquisitions . certain elements of our cost of revenue are fixed and can not be reduced in the near term . replace_table_token_6_th 2020 compared to 2019 . in 2020 , cost of revenue increased by $ 229.3 million compared to 2019. the increase was attributable to a $ 122.9 million increase in infrastructure costs and $ 106.4 million increase in other direct costs , primarily driven by an increase in traffic acquisition costs , and depreciation and amortization expense mainly related to additional server and acquired intangible assets . we plan to continue to scale the capacity and enhance the capability and reliability of our infrastructure to support mdau growth and increased activity on our platform . we expect that cost of revenue will increase in absolute dollar amounts and vary as a percentage of revenue . research and development research and development expenses consist primarily of personnel-related costs , including salaries , benefits and stock-based compensation , for our engineers and other employees engaged in the research and development of our products and services . in addition , research and development expenses include amortization of acquired intangible assets , allocated facilities costs , and other supporting overhead costs . replace_table_token_7_th 2020 compared to 2019 . in 2020 , research and development expenses increased by $ 190.7 million compared to 2019. the increase was attributable to a $ 115.1 million increase in personnel-related costs mainly driven by an increase in employee headcount as we continue to focus our investments on engineering , product , design , and research , a $ 54.5 million net increase in facilities costs and other administrative expenses , and a $ 21.1 million decrease in the capitalization of costs associated with developing software for internal use . we plan to continue to invest in key areas of our business to ensure that we have an appropriate level of engineering , product management and design personnel and related resources to support our research and development efforts on key priorities . we expect that research and development expenses will increase in absolute dollar amounts and vary as a percentage of revenue . 44 sales and marketing sales and marketing expenses consist primarily of personnel-related costs , including salaries , commissions , benefits and stock-based compensation for our employees engaged in sales , sales support , business development and media , marketing , corporate communications and customer service functions . in addition , marketing and sales-related expenses also include advertising costs , market research , trade shows , branding , marketing , public relations costs , amortization of acquired intangible assets , allocated facilities costs , and other supporting overhead costs . replace_table_token_8_th 2020 compared to 2019 . in 2020 , sales and marketing expenses decreased by $ 26.0 million compared to 2019. the decrease was attributable to a $ 67.8 million decrease in marketing and sales-related expenses , primarily due to reduced marketing campaigns and customer events , and travel during the covid-19 pandemic , offset by a $ 41.8 million net increase in facilities costs and other administrative expenses . we continue to evaluate key areas in our business to ensure we have an appropriate level of sales and marketing expenses to execute on our key priorities and objectives . we expect that sales and marketing expenses will increase in absolute dollar amounts and vary as a percentage of revenue . general and administrative general and administrative expenses consist primarily of personnel-related costs , including salaries , benefits and stock-based compensation , for our executive , finance , legal , information technology , human resources and other administrative employees . in addition , general and administrative expenses include fees and costs for professional services , including consulting , third-party legal and accounting services and facilities costs and other supporting overhead costs that are not allocated to other departments . replace_table_token_9_th 2020 compared to 2019 . in 2020 , general and administrative expenses increased by $ 202.6 million compared to 2019. the increase was attributable to a $ 150.0 million legal accrual related to an ongoing federal trade commission ( ftc ) matter recorded in the second quarter of 2020 , a $ 80.9 million increase in personnel-related costs mainly driven by an increase in employee headcount , and a $ 13.7 million increase in professional service fees , offset by a net decrease of $ 42.0 million in facilities costs and other administrative expenses . we plan to continue to invest in general and administrative functions to ensure we have an appropriate level of support for our key objectives . absent one-time general and administrative expenses such as the $ 150.0 million expense recorded for the ftc matter in 2020 , we expect that general and administrative expenses will increase in absolute dollar amounts and vary as a percentage of revenue . interest expense interest expense consists primarily of interest expense incurred in connection with the $ 935.0 million principal amount of 0.25 % convertible senior notes due in 2019 , or the 2019 notes , which we repaid at maturity in september 2019 , the $ 954.0 million principal amount of 1.00 % convertible senior notes due in 2021 , or the 2021 notes , the $ 1.15 billion principal amount of 0.25 % convertible senior notes due in 2024 , or the 2024 notes , the $ 700.0 million principal amount of 3.875 % senior notes due in 2027 , or the 2027 notes , and the $ 1.0 billion principal amount of 0.375
| fy 2020 highlights total revenue was $ 3.72 billion , an increase of 7 % , compared to 2019. advertising revenue totaled $ 3.21 billion , an increase of 7 % , compared to 2019. data licensing and other revenue totaled $ 509.0 million , an increase of 9 % , compared to 2019. u.s. revenue totaled $ 2.08 billion , an increase of 7 % , compared to 2019. international revenue totaled $ 1.64 billion , an increase of 8 % , compared to 2019. total ad engagements increased 23 % compared to 2019. cost per engagement decreased 13 % compared to 2019. net loss was $ 1.14 billion in 2020 , which was inclusive of a $ 1.10 billion provision for income taxes related to the establishment of a valuation allowance against deferred tax assets . net income was $ 1.47 billion in 2019 , which was inclusive of a $ 1.21 billion benefit from income taxes related to the establishment of deferred tax assets from the intra-entity transfer of intangible assets . cash , cash equivalents and short-term investments in marketable securities totaled $ 7.47 billion as of december 31 , 2020. average monetizable daily active usage ( mdau ) was 192 million for the three months ended december 31 , 2020 , an increase of 27 % year over year . fy 2020 overview and covid-19 update the covid-19 pandemic has resulted in public health responses including travel bans , restrictions , social distancing requirements , and shelter-in-place orders , which have impacted our business , operations , and financial performance in different ways . following the start of the pandemic , we saw increased use of twitter as people sought to stay informed and connect with others , and in the fourth quarter of 2020 , our year-over-year growth in mdau remained strong , driven by global conversations related to current events and ongoing product improvements .
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actual results may differ materially from those included in such forward-looking statements . factors that could cause actual results to differ materially include those set forth under “ risk factors , ” as well as those otherwise discussed in this section and elsewhere in this annual report . see “ forward-looking statements and industry data. ” business overview the following discussion and analysis is intended to provide an investor with a narrative of our financial results and an evaluation of our financial condition and results of operations . the discussion should be read in conjunction with our consolidated financial statements and notes thereto for the year ended december 31 , 2020 , both appearing elsewhere in this annual report . headquartered in rockville , maryland , ceva is the leading licensor of wireless connectivity and smart sensing technologies . we offer digital signal processors , ai processors , wireless platforms and complementary software for sensor fusion , image enhancement , computer vision , voice input and artificial intelligence , all of which are key enabling technologies for a smarter , more connected world . these ip products are licensed to customers who embed them into their system-on-chip ( soc ) and microcontroller designs to create power-efficient , intelligent and connected devices . our customers include many of the world 's leading semiconductor and original equipment manufacturer ( oem ) companies targeting a wide variety of iot end markets , including mobile , pc , consumer , automotive , robotics , industrial and medical . our ultra-low-power ips are enabled by our own dsps and controllers and are deployed in devices for smart sensing and connectivity workloads . our smart sensing portfolio includes advanced technologies for cameras , microphones , sensor hubs and inertial measurement units ( imu ) . our camera platforms incorporate dsp cores , coprocessors and software technologies for ai , computer vision and imaging . our microphone technologies incorporate dsp cores and software technologies for noise cancellation , echo cancellation and voice recognition . our sensor hub dsps serve as a hub for ai and dsp processing workloads associated with a wide range of sensors including camera , radar , lidar , time-of-flight , microphones and inertial measurement units ( imus ) . our imu technologies include processor agnostic software supporting sensor processing of accelerometers , gyroscopes , magnetometers , optical flow , as well as environmental sensors in devices . our connectivity portfolio includes lte and 5g mobile broadband platforms for handsets and base station ran , nb-iot for low bit rate cellular and bluetooth and wi-fi technologies for wireless iot . ceva is a sustainable and environmentally conscious company , adhering to our code of business conduct and ethics . as such , we emphasize and focus on environmental preservation , recycling , the welfare of our employees and privacy – which we promote on a corporate level . at ceva , we are committed to social responsibility , values of preservation and consciousness towards these purposes . we believe that our licensing business is robust with a diverse customer base and a myriad of target markets . our state-of-the-art technology has shipped in more than 12 billion chips to date for a wide range of end markets . every second , more than forty devices sold worldwide are powered by ceva . we believe the adoption of our wireless connectivity and smart sensing products beyond our incumbency in the handset baseband market continues to progress . reflecting this trend , during 2020 , we concluded fifty-five licensing deals , the majority of which were for these applications . we continue to experience strong demand for our products and expand our market reach into new areas . in the fourth quarter , we signed twenty-one licensing agreements , including a strategic agreement for our connectivity technologies with a tier 1 smartphone oem . we also concluded agreements broadly across our connectivity and sensing products , illustrating the industry demand for our diverse ip portfolio . we believe the following key elements represent significant growth drivers for the company : ● ceva is an incumbent player in the largest space of the semiconductor industry – mobile handsets . our customers use our technologies for baseband and voice processing . our key customers currently have a strong foothold in low-tier lte smartphones and feature phones markets which continue to experience strong momentum . 31 ● the royalty we derive from premium-tier smartphones is higher on average than that of mid and low-tier smartphones due to more dsp content that bears a higher royalty average selling price ( “ asp ” ) . looking ahead , we believe our pentag platform for 5g handsets and 5g iot endpoints is the most comprehensive baseband processor ip in the industry today and provides newcomers and incumbents with a low entry barrier solution to address the need for power 5g processing for smartphones , fixed wireless and a range of connected devices such as robots , cars , smart cities and other devices for industrial applications . ● our specialization and technological edge in signal processing platforms for 5g base station ran , including remote radio units ( rru ) , active antenna units ( aau ) , base band units ( bbu ) and distributed units ( du ) put us in a strong position to capitalize on the growing 5g ran across its new form factors such as v-ran , c-ran and o-ran , as well as small cells and private networks . ● our broad bluetooth , wi-fi and nb-iot ips allow us to expand further into the high volume iot applications and substantially increase our value-add . our addressable market size for bluetooth , wi-fi and nb-iot is expected to be more than 9 billion devices annually by 2022 based on abi research and ericsson mobility reports . story_separator_special_tag while the impact from covid-19 on our financial results for the year ended december 31 , 2020 was not material as set forth in the below section discussing the results of operations , we are currently unable to determine or predict the nature , duration or scope of the overall impact the pandemic will have on our business , results of operations , liquidity or capital resources for the year 2021. for example , as of the date of this filing , while we see positive activity in our licensing and pipeline of deals , customers in the semiconductor space from whom we collect royalties are experiencing more pressure on their operations due to , among other reasons , longer manufacturing lead times as a result of covid-19 related disruptions . we will continue to closely monitor the effects of the ongoing pandemic on our operations , employees and customers . critical accounting policies , estimates and assumptions our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the united states ( u.s. gaap ) . these accounting principles require us to make certain estimates , judgments and assumptions . we believe that the estimates , judgments and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates , judgments and assumptions are made . these estimates , judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements , as well as the reported amounts of revenues and expenses during the periods presented . to the extent there are material differences between these estimates , judgments or assumptions and actual results , our financial statements will be affected . the significant accounting policies that we believe are the most critical to aid in fully understanding and evaluating our reported financial results include the following : ● revenue recognition ; 33 ● business combinations and valuation of goodwill and other acquired intangible assets ; ● income taxes ; ● equity-based compensation ; and ● impairment of marketable securities . in many cases , the accounting treatment of a particular transaction is specifically dictated by u.s. gaap and does not require management 's judgment in its application . there are also areas in which management 's judgment in selecting among available alternatives would not produce a materially different result . revenue recognition significant management judgments and estimates must be made and used in connection with the recognition of revenue in any accounting period . material differences in the amount of revenue in any given period may result if these judgments or estimates prove to be incorrect or if management 's estimates change on the basis of development of business or market conditions . management 's judgments and estimates have been applied consistently and have been reliable historically . effective as of january 1 , 2018 , we have followed the provisions of accounting standards codification ( “ asc ” ) topic 606 , revenue from contracts with customers ( “ asc 606 ” ) . the guidance provides a unified model to determine how revenue is recognized . see note 2 to our consolidated financial statements for the year ended december 31 , 2020 for further information regarding revenue recognition . the following is a description of principal activities from which we generate revenue . revenues are recognized when control of the promised goods or services are transferred to the customers in an amount that reflects the consideration that we expect to receive in exchange for those goods or services . we determine revenue recognition through the following steps : ● identification of the contract with a customer ; ● identification of the performance obligations in the contract ; ● determination of the transaction price ; ● allocation of the transaction price to the performance obligations in the contract ; and ● recognition of revenue when , or as , we satisfy a performance obligation . we enter into contracts that can include various combinations of products and services , as detailed below , which are generally capable of being distinct and accounted for as separate performance obligations . we generate our revenues from ( 1 ) licensing intellectual properties , which in certain circumstances are modified for customer-specific requirements , ( 2 ) royalty revenues and ( 3 ) other revenues , which include revenues from support , training and sale of development systems and chips . we license our ip to semiconductor companies throughout the world . these semiconductor companies then manufacture , market and sell custom-designed chipsets to oems of a variety of consumer electronics products . we also license our technology directly to oems , which are considered end users . we account for our ip license revenues and related services , which provide our customers with rights to use our ip , in accordance with asc 606. a license may be perpetual or time limited in its application . in accordance with asc 606 , we recognize revenue from ip license at the time of delivery when the customer accepts control of the ip , as the ip is functional without professional services , updates and technical support . we have concluded that our ip license is distinct as the customer can benefit from the software on its own . 34 most of our contracts with customers contain multiple performance obligations . for these contracts , we account for individual performance obligations separately , if they are distinct . the transaction price is allocated to the separate performance obligations on a relative standalone selling price basis . stand-alone selling prices of ip license are typically estimated using the residual approach . stand-alone selling prices of services are typically estimated based on observable transactions when these services are sold on a standalone basis .
| results of operations the following table presents line items from our consolidated statements of income ( loss ) as percentages of our total revenues for the periods indicated : replace_table_token_7_th discussion and analysis below we provide information on the significant line items in our consolidated statements of income ( loss ) for each of the past three fiscal years , including the percentage changes year-on-year , as well as an analysis of the principal drivers of change in these line items from year-to-year . revenues total revenues replace_table_token_8_th we derive a significant amount of revenues from a limited number of customers . sales to spreadtrum represented 14 % , 15 % and 15 % of our total revenues for 2020 , 2019 and 2018 , respectively . sales to intel represented 15 % , 19 % and 19 % of our total revenues for 2020 , 2019 and 2018 , respectively . generally , the identity of our other customers representing 10 % or more of our total revenues varies from period to period , especially with respect to our licensing customers as we generate licensing revenues generally from new customers on a quarterly basis . with respect to our royalty revenues , four royalty paying customers each represented 10 % or more of our total royalty revenues for 2020 , and collectively represented 72 % of our total royalty revenues for 2020. three royalty paying customers each represented 10 % or more of our total royalty revenues for 2019 , and collectively represented 73 % of our total royalty revenues for 2019. three royalty paying customers each represented 10 % or more of our total royalty revenues for 2018 , and collectively represented 76 % of our total royalty revenues for 2018. we expect that a significant portion of our future revenues will continue to be generated by a limited number of customers . the concentration of our customers is explainable in part by consolidation in the semiconductor industry .
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these forward-looking statements can be identified by the use of words such as “ believes , ” “ expects , ” “ plans , ” “ may , ” “ will , ” “ would , ” “ could , ” “ should , ” “ anticipates , ” “ estimates , ” “ project , ” “ intend , ” or “ outlook ” or other variations of these words . these statements , including without limitation those relating to telesat , are not guarantees of future performance and involve risks and uncertainties that are difficult to predict or quantify . actual events or results may differ materially as a result of a wide variety of factors and conditions , many of which are beyond our control . for a detailed discussion of these and other factors and conditions , please refer to the risk factors section above , the commitments and contingencies section below and to our other periodic reports filed with the securities and exchange commission ( “ sec ” ) . we operate in an industry sector in which the value of securities may be volatile and may be influenced by economic and other factors beyond our control . we undertake no obligation to update any forward-looking statements . 43 overview business loral has one operating segment consisting of satellite-based communications services . loral participates in satellite services operations primarily through its ownership interest in telesat , a leading global satellite operator . telesat provides its satellite and communication services from a fleet of satellites that occupy canadian and other orbital locations . loral holds a 62.7 % economic interest and a 32.7 % voting interest in telesat as of december 31 , 2017. our economic interest decreased from 62.8 % to 62.7 % in march 2016 when certain telesat employees exercised share appreciation rights related to a total of 178,642 stock options granted under telesat 's share-based compensation plan and received 129,400 non-voting participating preferred shares . at december 31 , 2017 , telesat , with approximately $ 3.0 billion of backlog , provided satellite services to customers from its fleet of 15 in-orbit geostationary satellites . in addition , telesat owns the canadian ka-band payload on the viasat-1 satellite and has two other geostationary satellites under construction . in january 2018 , an additional satellite was launched into low earth orbit as part of telesat 's plan to deploy an advanced , global leo constellation that will deliver low latency fiber-like broadband to commercial and government users worldwide . telesat also manages the operations of additional satellites for third parties . the satellite services business is capital intensive and the build-out of a satellite fleet requires substantial time and investment . once the investment in a satellite is made , the incremental costs to maintain and operate the satellite are relatively low over the life of the satellite , with the exception of in-orbit insurance . telesat has been able to generate a large contracted revenue backlog by entering into long-term contracts with some of its customers for all or substantially all of a satellite 's life . historically , this has resulted in revenue from the satellite services business being fairly predictable . telesat 's desirable spectrum rights , commitment to providing the highest level of customer service , deep technical expertise and culture of innovation have enabled it to successfully develop its business to date . leveraging these strengths and building on its existing contractual revenue backlog , telesat 's focus is on profitably growing its business by increasing the utilization of its in-orbit satellites and , in a disciplined manner , deploying expansion satellite capacity where strong market demand is anticipated . telesat currently has two geostationary satellites , telstar 18 vantage and telstar 19 vantage , under construction . telesat believes that it is well positioned to serve its customers and the markets in which it participates . telesat actively pursues opportunities to develop new satellites , particularly in conjunction with current or prospective customers who will commit to long-term service agreements prior to the time the satellite construction contract is signed . however , while telesat regularly pursues these opportunities , it does not procure additional or replacement satellites until it believes there is a demonstrated need and a sound business plan for such satellite capacity . in 2018 , telesat remains focused on increasing utilization of its existing satellites , the construction and launch of its new satellites , the development of its global leo constellation and identifying and pursuing opportunities to invest in expansion satellite capacity , all while maintaining operating discipline . on november 17 , 2016 , telesat entered into amended senior secured credit facilities which provide for term loan borrowings of $ 2.43 billion which mature on november 17 , 2023 and revolving credit borrowings of up to $ 200 million ( or canadian dollar equivalent ) which mature on november 17 , 2021. telesat also issued , through a private placement , $ 500 million of 8.875 % senior notes which mature on november 17 , 2024. on november 17 , 2016 , telesat repaid all outstanding amounts under its former senior secured credit facilities and its 6.0 % senior notes . on february 1 , 2017 , telesat amended the senior secured credit facilities to effectively reprice the then outstanding term loan borrowings of $ 2.424 billion . 44 telesat 's operating results are subject to fluctuations as a result of exchange rate variations . during 2017 , approximately 52 % of telesat 's revenues , 42 % of its operating expenses , 100 % of its interest expense and a majority of its capital expenditures were denominated in u.s. dollars . the most significant impact of variations in the exchange rate is on the u.s. dollar denominated indebtedness and cash and short-term investments . as of december 31 , 2017 , telesat 's u.s. dollar denominated debt totaled $ 2.9 billion . story_separator_special_tag if a telesat ipo is expected to proceed under unfavorable terms or at an unfavorable price , we may withdraw our demand for a telesat ipo . 45 depending upon the outcome of the strategic initiatives discussed above , we may assert certain claims against psp for actions we believe violated our rights relating to the affairs of telesat under the telesat shareholders agreement and otherwise . in response to our claims , psp has informed us that it believes that it may have claims against us , although we are not aware of the legal or factual basis for any such claims . we and psp have agreed that , pending the outcome of our discussions relating to telesat , it would be beneficial to delay the commencement of any action relating to either party 's claims and have entered into an agreement ( the “ tolling agreement ” ) which preserves the parties ' rights to assert against one another legal claims relating to telesat . we also included telesat as a party to the tolling agreement because , as a technical matter of canadian law and for purposes of potentially seeking equitable relief , telesat may be a necessary party . there can be no assurance that if the tolling agreement lapses that we and psp will not pursue legal claims against one another relating to telesat . if we pursue claims against psp , there can be no assurance that our claims will be successful or that the relief we seek will be granted . if psp pursues claims against us , there can be no assurance that psp will not prevail on its claims . loral may , from time to time , explore and evaluate other possible strategic transactions and alliances which may include joint ventures and strategic relationships as well as business combinations or the acquisition or disposition of assets . in order to pursue certain of these opportunities , additional funds are likely to be required . there can be no assurance that we will enter into additional strategic transactions or alliances , nor do we know if we will be able to obtain the necessary financing for transactions that require additional funds on favorable terms , if at all . in connection with the acquisition of our ownership interest in telesat in 2007 , loral has agreed that , subject to certain exceptions described in the shareholders agreement , for so long as loral has an interest in telesat , it will not compete in the business of leasing , selling or otherwise furnishing fixed satellite service , broadcast satellite service or audio and video broadcast direct to home service using transponder capacity in the c-band , ku-band and ka-band ( including in each case extended band ) frequencies and the business of providing end-to-end data solutions on networks comprised of earth terminals , space segment , and , where appropriate , networking hubs . story_separator_special_tag style= '' width : 34 % ; text-align : center '' > 47 the current tax provision for the year ended december 31 , 2017 included our anticipated income tax liability related to the cash distribution received from telesat after use of amt credits and nol carryforwards and ftcs from telesat . upon receiving the cash distribution from telesat in the first quarter of 2017 , we recorded a current tax liability of $ 53.0 million . during 2017 , we made tax payments of $ 12.5 million , primarily with respect to the distribution , and commenced a tax study to determine the allowable amount of ftcs that could be utilized to minimize our cash tax liability . after completing our analysis in the fourth quarter of 2017 , we reduced our current tax liability to approximately $ 2.0 million and established a deferred tax asset of $ 104.9 million for the carryforward of unused ftcs . since , at the current time , sufficient positive evidence does not exist to support full recovery of the ftc carryforward , we recorded a full valuation allowance against this deferred tax asset during the year ended december 31 , 2017. as of december 31 , 2017 , we had no income taxes payable and a current income tax receivable of $ 11.1 million , primarily related to recovery of tax payments previously made on the cash distribution . for each period presented , the statute of limitations for the assessment of additional tax expired with regard to several of our federal and state uncertain tax positions ( “ utps ” ) and certain other utps were settled . as a result , the reduction to our liability for utps provided a current tax benefit including the reversal of previously recognized interest and penalties , partially offset by an additional provision for the potential payment of interest on our remaining utps . subsequent to the sale , to the extent that profitability from operations is not sufficient to realize the benefit from our remaining net deferred tax assets , we would generate sufficient taxable income from the appreciated value of our telesat investment in order to prevent federal net operating losses from expiring and realize the benefit of all remaining deferred tax assets . see critical accounting matters — taxation below for discussion of our accounting method for income taxes . equity in net income ( loss ) of affiliates replace_table_token_10_th the following is a reconciliation of the changes in our investment in telesat for the years ended december 31 , 2017 and 2016 : replace_table_token_11_th as of december 31 , 2016 , we held a 62.7 % economic interest and a 32.7 % voting interest in telesat . loral 's equity in net income of telesat is based on our proportionate share of telesat 's results in accordance with u.s. gaap and in u.s. dollars . the amortization of telesat fair value adjustments applicable to the loral skynet assets and liabilities acquired by telesat in 2007 is proportionately eliminated in determining our share of the net income or loss of telesat .
| consolidated operating results please refer to critical accounting matters set forth below in this section . 2017 compared with 2016 and 2016 compared with 2015 the following compares our consolidated results for 2017 , 2016 and 2015 as presented in our financial statements : general and administrative expenses replace_table_token_6_th general and administrative expenses increased by $ 1.2 million for the year ended december 31 , 2017 as compared to the year ended december 31 , 2016 primarily due to a $ 0.8 million increase in professional fees and a $ 0.3 million decrease in pension charges allocated to xtar . general and administrative expenses increased by $ 0.2 million for the year ended december 31 , 2016 as compared to the year ended december 31 , 2015 primarily due to $ 0.8 million of income earned during the year ended december 31 , 2015 under the viasat-1 revenue share arrangement with telesat which expired in december 2015 ( see note 14 to the financial statements ) and a $ 0.3 million increase in professional fees , partially offset by pension charges to xtar of $ 0.4 million for the year ended december 31 , 2016 , a $ 0.3 million reduction in accrued expenses and a $ 0.2 million reduction in consulting charges . 46 interest and investment income replace_table_token_7_th interest and investment income for 2017 , 2016 and 2015 consists primarily of interest on our cash balance . the increase from 2016 to 2017 was the result of interest income earned on the cash distribution of $ 242.7 million received from telesat in the first quarter of 2017. other expense replace_table_token_8_th other expense for the year ended december 31 , 2017 was primarily related to strategic initiatives and settlement and litigation expenses resulting from certain arbitration and legal proceedings with our former russian joint venture partner . other expense for the years ended december 31 , 2016 and 2015 was primarily comprised of expenses related to the evaluation of strategic initiatives .
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this allowed us to mitigate credit risk associated with the covid-19 pandemic , while supporting retail sales through our third-party partnerships . we delivered the following financial and operational results in fiscal year 2021 : fiscal year 2021 financial highlights : grew cash and third-party credit sales by 32 % , reflecting strong demand for home-related products and our ability to serve a broader customer segment ; same store sales declined 12.8 % for the fiscal year , primarily due to a nearly 22.9 % decline in sales financed by conn 's in-house credit because of tighter underwriting associated with the covid-19 crisis ; increased e-commerce sales by $ 13.7 million , or 109.4 % during fiscal year 2021 , compared to the prior fiscal year period ; improved net cash provided by operating activities to $ 462.1 million for the fiscal year 2021 as compared to $ 80.1 million for fiscal year 2020 ; reduced overall debt balance by $ 416.6 million as compared to january 31 , 2020 , representing the lowest level in seven fiscal years ; carrying value of customer accounts receivable 60+ days past due at january 31 , 2021 24 % lower than the prior fiscal year period ; and carrying value of re-aged customer accounts receivable at january 31 , 2021 33 % lower than the prior fiscal year period . management 's response to the covid-19 pandemic : we responded to the covid-19 pandemic by focusing on protecting the health and safety of our customers , employees , and communities . we made adjustments to respond to national , state and local restrictions on retail sales activities , including some such restrictions that uniquely affected consumer retail companies with in-person sales and purchases . despite these unprecedented challenges , the company continued to offer , sell and deliver essential home merchandise as consumers also adjusted to the societal and economic impacts of the pandemic . throughout fiscal year 2021 , the company successfully executed the following operational changes in the face of the pandemic : instituted health and safety measures , including enhanced cleaning in our stores and offices , a mask requirement for in-store personnel , and social distancing ; 40 kept a majority of stores open while observing local and state emergency declaration restrictions ; temporarily increased hourly wages by $ 2 per hour to support our front-line employees and implemented a work from home program for our corporate teams ; implemented payment deferral programs to provide relief to credit customers who were economically impacted by covid-19 ; and tightened underwriting standards to control delinquencies and charge-offs , which included reducing originations of higher risk applicants , selectively increasing down payments and lowering credit limits despite the challenges presented by covid-19 during the fiscal year 2021 , we believe we are at an inflection point in our growth strategy and have identified the following strategic priorities for fiscal year 2022 : increase net income by improving performance across our core operational financial metrics : same store sales , retail margin , portfolio yield , charge-off rate and interest expense ; grow sales by leveraging the best mix of conn 's in-house financing and our multiple third-party credit options ; increase e-commerce sales by accelerating investments in our digital and e-commerce offerings ; continue to refine and enhance our underwriting platform ; and open 9 to 11 stores in our current geographic footprint to leverage our existing infrastructure . results of operations the following tables present certain financial and other information , on a consolidated basis : replace_table_token_4_th supplementary operating segment information operating segments are defined as components of an enterprise that engage in business activities and for which discrete financial information is available that is evaluated on a regular basis by the chief operating decision maker to make decisions about how to allocate resources and assess performance . we are a leading specialty retailer and offer a broad selection of quality , branded durable consumer goods and related services in addition to a proprietary credit solution for our core credit-constrained consumers . we have two operating segments : ( i ) retail and ( ii ) credit . our operating segments complement one another . the retail segment operates primarily through our stores and website and its product offerings include furniture and mattresses , home appliances , consumer electronics and home office products from leading global brands across a wide range of price points . our credit segment offers affordable financing solutions to a large , under-served population of credit-constrained consumers who typically have limited credit alternatives . our operating segments provide customers the opportunity to comparison shop across brands with confidence in our competitive prices as well as affordable monthly payment options , next 41 day delivery and installation in the majority of our markets , and product repair service . we believe our large , attractively merchandised retail stores and credit solutions offer a distinctive value proposition compared to other retailers that target our core customer demographic . the operating segments follow the same accounting policies used in our consolidated financial statements . we evaluate a segment 's performance based upon operating income ( loss ) . sg & a includes the direct expenses of the retail and credit operations , allocated corporate overhead expenses , and a charge to the credit segment to reimburse the retail segment for expenses it incurs related to occupancy , personnel , advertising and other direct costs of the retail segment which benefit the credit operations by sourcing credit customers and collecting payments . the reimbursement received by the retail segment from the credit segment is calculated using an annual rate of 2.5 % multiplied by the average outstanding portfolio balance for each applicable period . story_separator_special_tag during the year ended january 31 , 2020 , we wrote-off $ 1.1 million of debt issuance costs related to an amendment of our revolving credit facility that effected the resignation of bank of america , n.a . as agent and lender , and replaced it with jpmorgan chase bank , n.a . as agent . provision ( benefit ) for income taxes replace_table_token_14_th the decrease in the income tax expense for the year ended january 31 , 2021 compared to the year ended january 31 , 2020 was primarily driven by a $ 93.6 million decrease of pre-tax book income at the statutory rate of 21 % . in addition , a benefit of $ 14.9 million was also recognized for the year ended january 31 , 2021 as a result of net operating loss provisions within the cares act that provide for a five year carryback of losses . 45 year ended january 31 , 2020 compared to the year ended january 31 , 2019 revenues . the following table provides an analysis of retail net sales by product category in each period , including rsa commissions and service revenues , expressed both in dollar amounts and as a percent of total net sales : replace_table_token_15_th ( 1 ) the total change in sales of repair service agreement commissions includes retrospective commissions , which are not reflected in the change in same store sales . the decrease in product sales for the year ended january 31 , 2020 was primarily due to a decrease in same store sales of 8.2 % , partially offset by new store growth . the decrease in same store sales was 14.0 % in markets impacted by hurricane harvey and 7.1 % in markets not impacted by hurricane harvey . we believe the decrease in markets impacted by hurricane harvey were impacted by rebuilding efforts during the year ended january 31 , 2019. the decrease in same store sales reflects a combination of significant price deflation for premium large screen televisions and an increase in production by second- and third-tier manufacturers , which has made cash purchases of large screen televisions more accessible to our core customer , negatively impacted same store sales during the year ended january 31 , 2020. in addition , underwriting adjustments made during the year ended january 31 , 2020 further negatively impacted same store sales . the following table provides the change of the components of finance charges and other revenues : replace_table_token_16_th the increase in interest income and fees was due to an increase in the yield rate to 21.8 % for the year ended january 31 , 2020 from 21.3 % for the year ended january 31 , 2019 , an increase of 50 basis points , and by an increase of 2.7 % in the average outstanding balance of the customer accounts receivable portfolio . the increase in the yield rate resulted from the origination of our higher-yielding direct loan product , which represented approximately 75 % of our fiscal year 2020 originations . in addition , insurance income contributed to an increase in credit revenue over the prior year period primarily due to an increase in insurance retrospective income for the year ended january 31 , 2020 . 46 the following table provides key portfolio performance information : replace_table_token_17_th retail gross margin replace_table_token_18_th the decrease in retail gross margin was primarily driven by higher margins realized in fiscal year 2019 due to the one-time benefit of increases in appliance retail pricing related to tariff adjustments and the associated forward purchases of inventory , coupled with increased logistics costs to help support future growth in fiscal year 2020. the decrease was partially offset by an increase in retrospective income on our rsas for the year ended january 31 , 2020. selling , general and administrative expense replace_table_token_19_th the sg & a increase in the retail segment was primarily due to an increase in new store occupancy costs , compensation costs and advertising expense , partially offset by a decrease in the corporate overhead allocation . the sg & a increase in the credit segment was primarily due to an increase in general operational expenses and third-party legal expenses related to collection efforts on charged off accounts . as a percent of average total customer portfolio balance , sg & a for the credit segment for the year ended january 31 , 2020 remained flat at 10.0 % as compared to the year ended january 31 , 2019. the decrease in the corporate overhead allocation made to each of the segments was driven by a decrease in employee incentive compensation costs . provision for bad debts replace_table_token_20_th the provision for bad debts increased to $ 205.2 million for the year ended january 31 , 2020 from $ 198.1 million for the year ended january 31 , 2019 , an increase of $ 7.1 million . the increase was driven by a greater increase in the allowance for bad debts during the year ended january 31 , 2020 compared to the year ended january 31 , 2019 , and by a year-over-year increase in 47 net charge-offs of $ 2.8 million . the increase in the allowance for bad debts for the year ended january 31 , 2020 was primarily driven by a year-over-year increase in the incurred loss rate , first payment default and delinquency rates compared to the year ended january 31 , 2019 , partially offset by an increase in customer recovery rate . charges and credits replace_table_token_21_th during the year ended january 31 , 2020 , we recognized $ 3.2 million in impairments from the exiting of certain leases upon the relocation of three distribution centers into one facility . these facility closure costs were offset by a $ 0.7 million gain from increased sublease income related to the consolidation of our corporate headquarters and a $ 0.6 million gain from the sale of a cross-dock .
| executive summary total revenues were $ 1.39 billion for fiscal year 2021 compared to $ 1.54 billion for fiscal year 2020 , a decrease of $ 157.7 million or 10.2 % . retail revenues were $ 1.07 billion for fiscal year 2021 compared to $ 1.16 billion for fiscal year 2020 , a decrease of $ 98.9 million or 8.5 % . the decrease in retail revenue was primarily driven by a decrease in same store sales of 12.8 % and a decrease in rsa commissions , partially offset by new store sales growth . the decrease in same store sales reflects proactive tightening of underwriting standards , reductions in store hours , state mandated stay-at-home orders and industry wide supply chain disruptions in certain product categories , each of which was the result of the covid-19 pandemic . credit revenues were $ 320.9 million for the fiscal year 2021 compared to $ 379.6 million for fiscal year 2020 , a decrease of $ 58.7 million or 15.5 % . the decrease in credit revenue was primarily due to a decrease of 11.0 % in the average outstanding balance of the customer accounts receivable portfolio , a decrease in insurance commissions due to a decline in the balance of sale of our in-house credit financing and a decrease in insurance retrospective income . the yield rate for the year ended january 31 , 2021 was 21.7 % compared to 21.8 % for the year ended january 31 , 2020. retail gross margin for fiscal year 2021 was 37.2 % , a decrease of 280 basis points from the 40.0 % reported in fiscal year 2020. the year-over-year decrease in retail gross margin was primarily driven by the impact of fixed logistics costs on lower sales , a decrease in rsa commissions and retrospective income and a shift in sales from higher margin products to lower margin products .
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2015 — acquisition and related integration costs of $ 38 million are costs incurred for the journal transactions and other acquisitions , such as investment banking , legal and accounting fees , as well as costs to integrate the acquired operations . we recorded a $ 24.6 million non-cash charge to reduce the carrying value of our goodwill story_separator_special_tag the consolidated financial statements and notes to consolidated financial statements are the basis for our discussion and analysis of financial condition and results of operations . you should read this discussion in conjunction with those financial statements . forward-looking statements our annual report on form 10-k contains certain forward-looking statements related to the company 's businesses that are based on management 's current expectations . forward-looking statements are subject to certain risks , trends and uncertainties , including changes in advertising demand and other economic conditions that could cause actual results to differ materially from the expectations expressed in forward-looking statements . such forward-looking statements are made as of the date of this document and should be evaluated with the understanding of their inherent uncertainty . a detailed discussion of principal risks and uncertainties that may cause actual results and events to differ materially from such forward-looking statements is included in the section titled “ risk factors. ” the company undertakes no obligation to publicly update any forward-looking statements to reflect events or circumstances after the date the statement is made . executive overview the e.w . scripps company ( “ scripps ” ) is a diverse media enterprise , serving audiences and businesses through a portfolio of local and national media brands . our local media division is one of the nation 's largest independent tv station ownership groups , with 33 television stations in 24 markets and a reach of nearly one in five u.s. television households . we have affiliations with all of the “ big four ” television networks . in our national media division , we operate national media brands including podcast industry-leader , midroll ; next-generation national news network ; newsy , and four over-the-air broadcast networks , the katz networks . we also operate an award-winning investigative reporting newsroom in washington , d.c. , and serve as the longtime steward of one of the nation 's largest , most successful and longest-running educational programs , the scripps national spelling bee . on october 2 , 2017 , we acquired the katz networks for $ 292 million , which is net of a 5 % minority interest we owned prior to the transaction . katz owns and operates four national broadcast networks — bounce , grit , escape and laff . we financed the acquisition with $ 300 million in new debt . newsy , our national news network focused on younger audiences , launched a major expansion into the cable and satellite marketplace , kicked off by scripps ' acquisition of carriage contracts from the retirement living television cable network in 2017. at the end of 2017 , we began a comprehensive restructuring of our local and national media brands to position the company for improved performance and continued growth . the reorganization , effective december 31 , 2017 , includes merging local television and digital operations into a local media division and the national brands into a national media division . in the third quarter , we began a deep analysis of our operating divisions and corporate cost structure , our non-core assets and the opportunities for our national content brands . we are committed to improving operating performance in our local media business , supporting the growth ahead with our national businesses and serving our audiences with news and information across all media platforms . we also announced plans at the end of 2017 to sell our radio station group , with kalil & co. retained to handle the process . on february 15 , 2018 , we announced that we will initiate a quarterly dividend . shareholders of record as of march 1 , 2018 , will receive a 5 cent per share dividend , payable on march 26 , 2018. while we intend to pay regular quarterly dividends for the foreseeable future , all subsequent dividends will be reviewed quarterly and declared at the discretion of the board of directors . f-4 results of operations the trends and underlying economic conditions affecting operating performance and future prospects differ for each of our business segments . accordingly , you should read the following discussion of our consolidated results of operations in conjunction with the discussion of the operating performance of our individual business segments that follows . story_separator_special_tag million of revenues from the acquired national media operations . retransmission and carriage revenues , excluding the impact of the acquired stations , increased almost $ 70 million due to the renewal of retransmission agreements with higher rates and contractual rate increases . rate increases from the renewal of contracts covering 3 million households were effective at the beginning of 2016 and contracts covering an additional 3 million households were effective in the fourth quarter of 2016. employee compensation and benefits increased 8.6 % in 2016 , primarily driven by the full year impact of the acquired stations and acquired national media operations . programming expense increased 49 % in 2016 , primarily due to the full year impact of the acquired stations and higher network affiliation fees . programming costs of the acquired stations was $ 9.1 million of the increase year-over-year . the remainder of the increase for the year was from higher network affiliation license fees of $ 47 million , which was partially offset by lower syndicated programming expense . other expenses increased approximately 16 % in 2016 compared to prior year , most of which was driven by the full year impact of the acquired stations and the acquired national media operations . story_separator_special_tag news is the primary focus of our locally-produced programming . the operating performance of our local media group is most affected by local and national economic conditions , particularly conditions within the automotive , services and retail categories , and by the volume of advertising purchased by campaigns for elective office and political issues . the demand for political advertising is significantly higher in the third and fourth quarters of even-numbered years . operating results for our local media segment were as follows : replace_table_token_9_th 2017 compared with 2016 revenues total local media revenues decreased 6.8 % in 2017. core advertising , which includes local and national spot revenues , as well as revenues from our digital sites , decreased by $ 6.6 million in 2017. the decrease was from weakness in our retail , food stores , media and auto categories , offset by improvement in communications , home improvement and services . political revenues decreased by $ 92 million year-over-year in a non-presidential election year . retransmission revenues increased by almost $ 39 million as a result of contractual rate increases , more than offsetting a slight decline in subscribers . retransmission contracts with cable and satellite television systems with 3 million subscribers were renewed in the fourth quarter of 2016. while we had not previously seen any significant declines in subscribers reported to us by cable and satellite television operators , we began to see declines as second quarter subscriber counts were reported to us in the third quarter . other revenues increased from an additional $ 3 million of fees we receive for a news production and services agreement . upon the acquisition of katz , we no longer receive carriage fees from the katz networks which accounted for $ 8 million of other revenue in 2017. costs and expenses employee compensation and benefits increased 2.1 % in 2017 , primarily from merit increases and higher benefit costs . f-9 programming expense , which includes our network affiliation fees and other programming costs , increased nearly 15 % in 2017 primarily due to $ 22 million of higher network affiliation license fees and the cost of producing our new show , pickler & ben . network affiliation fees have been increasing industry-wide due to higher rates on renewals , as well as contractual rate increases , and we expect that they may continue to increase over the next several years . 2016 compared with 2015 the company completed its acquisition of the journal television stations on april 1 , 2015. the inclusion of operating results from this transaction for the periods subsequent to the acquisitions impacts the comparability of the local media division operating results . revenues total local media revenues increased 31 % in 2016. the comparability of year-over-year revenues was impacted by $ 49 million of revenues from the acquired stations . increased retransmission revenues and higher political revenues in a presidential-election year drove most of the remaining year-over-year increase . retransmission revenues , excluding the full year impact of the acquired stations , increased almost $ 70 million due to the renewal of retransmission agreements with higher rates and contractual rate increases . rate increases from the renewal of contracts covering 3 million households were effective at the beginning of 2016 and contracts covering an additional 3 million households were effective in the fourth quarter of 2016. costs and expenses employee compensation and benefits increased 4.3 % in 2016. the increase was primarily from $ 15.9 million of incremental compensation and benefits from the full year impact of the acquired stations for the first quarter of 2016. programming expense increased 47 % in 2016 primarily due to the full year impact of the acquired stations and higher network fees . programming costs of the acquired stations accounted for $ 9.1 million of the year-over-year increase . the remainder of the increase was from higher network affiliation license fees of $ 47 million , partially offset by lower syndicated programming expense . other expenses increased nearly 15 % in 2016 primarily due to higher general operating expenses and the full year impact of the acquired stations . f-10 national media — our national media segment is comprised of the operations of our national media businesses including over-the-air broadcast networks , katz , our podcast business , midroll , next generation national news network , newsy , and other national brands . our national media group earns revenue primarily through the sale of advertising . operating results for our national media segment were as follows : replace_table_token_10_th our national media businesses , katz , cracked and midroll , were acquired on october 2 , 2017 , april 12 , 2016 and july 22 , 2015 , respectively . the inclusion of operating results from these businesses for the periods subsequent to the acquisitions impacts the comparability of our national media segment operating results . 2017 compared with 2016 revenues revenues increased 187 % , or $ 52 million , in 2017. the revenues from katz reflect the three months of revenues since our acquisition . excluding the results of katz , revenues increased over 40 % year-over-year , driven by midroll and newsy . midroll 's revenues increased from advertising growth from existing podcasts , as well as adding new titles to its portfolio primarily through shows in our podcast network . newsy 's revenues increased primarily from the growth of advertising of over-the-top platforms , as well as the new revenues from expansion into cable in the fourth quarter of 2017. the increase in other revenue is primarily from growth in our lifestyle brands . cost and expenses costs and expenses increased 135 % in 2017 , primarily due to the impact of katz . excluding the results of katz , expenses increased approximately 41 % for the year . employee compensation and benefits increased due to the impact of the katz acquisition , as well as hiring people for our other national media businesses . programming expense includes the amortization of programming for katz , podcast production costs and other programming costs .
| consolidated results of operations consolidated results of operations were as follows : replace_table_token_7_th in the fourth quarter of 2017 , we began the process to divest our radio business . as of december 31 , 2017 , we have classified the radio segment as held for sale in our consolidated balance sheets and reported its results of operations in discontinued operations in our consolidated statements of operations . katz , cracked and midroll were acquired on october 2 , 2017 , april 12 , 2016 and july 22 , 2015 , respectively , and are collectively referred to as the “ acquired national media operations. ” the company completed its acquisition of the journal television stations on april 1 , 2015 , which are referred to as the “ acquired stations. ” the inclusion of operating results from these businesses for the periods subsequent to their acquisitions impacts the comparability of our consolidated and segment operating results . 2017 compared with 2016 operating revenues were comparable year-over-year . we had higher retransmission and carriage revenues of $ 39 million and revenues in our national media group increased more than $ 52 million . the increase in our national media group revenues include $ 41 million of revenues from katz . these increases were offset by $ 92 million of lower political revenues from our local media group in a non-political year . f-5 employee compensation and benefits increased 7.0 % in 2017 , primarily driven by the expansion of our national media group , including almost $ 5 million related to katz . programming expense increased nearly 30 % in 2017 , primarily due to $ 22 million of higher network affiliation fees and additional programming cost from katz . network affiliation fees increased due to contractual rate increases . other expenses increased 6.9 % in 2017 compared to the prior year , most of which was driven by katz .
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in may 2014 , the financial accounting standards board ( fasb ) issued asu 2014-09 , revenue from contracts with customers , which eliminated the transaction-specific and industry-specific revenue recognition guidance under current gaap and replaced it with a principles-based approach for determining revenue recognition . the new guidance sets forth the steps to be followed to recognize revenue : ( i ) identify the contract ( s ) with a customer , ( ii ) identify the performance obligations in the contract , ( iii ) determine the transaction price , ( iv ) story_separator_special_tag management 's overview we reported net income attributable to stewart of $ 11.4 million ( $ 0.48 per diluted share ) for the fourth quarter 2018 , compared to net income attributable to stewart of $ 15.1 million ( $ 0.64 per diluted share ) for the fourth quarter 2017. pretax income before noncontrolling interests for the fourth quarter 2018 was $ 19.7 million compared to pretax income before noncontrolling interests of $ 17.5 million for the fourth quarter 2017. fourth quarter 2018 results included : $ 3.0 million of third-party advisory expenses related to the fnf merger transaction included in other operating expenses within the ancillary services and corporate segment , $ 4.0 million of net unrealized losses relating to changes in fair value of equity securities investments ( which were being recorded to other comprehensive income prior to the adoption of a new accounting standard in 2018 ) , $ 1.2 million of litigation expense related to a 2013 lender services acquisition included in other operating expenses within the ancillary services and corporate segment , $ 1.0 million of executive severance expenses included in employee costs within the title and ancillary services and corporate segments , and $ 0.8 million of office closure costs included in other operating expenses within the title segment . fourth quarter 2017 results included : $ 2.9 million of third party advisory expenses relating to the strategic alternatives review included in other operating expenses within the ancillary services and corporate segment , $ 3.5 million of office closure costs ( primarily lease termination and litigation expenses ) included in other operating expenses within the title segment , $ 1.0 million of acquisition integration expenses included in other operating expenses within the title segment , $ 1.7 million of executive severance and retention expenses included in employee costs within the title and ancillary services and corporate segments , and $ 6.6 million of net income tax benefits related to the effects of the tax cuts and jobs act ( the 2017 act ) , which was enacted in december 2017. summary results of the title segment are as follows ( $ in millions , except pretax margin ) : replace_table_token_3_th title operating revenues in the fourth quarter 2018 decreased 10 % compared to the prior year quarter as direct title and independent agency revenues decreased 7 % and 12 % , respectively . included in investment income and other net gains were $ 4.0 million of net unrealized losses relating to changes in fair value of equity securities investments in the fourth quarter 2018 , as compared to $ 3.3 million of net realized gains from the sale of investments available-for-sale in the fourth quarter 2017. the segment 's pretax income improved to $ 29.5 million in the fourth quarter 2018 , compared to $ 27.0 million in the fourth quarter 2017 , as a result of the lower overall title operating expenses offsetting the segment 's reduced revenues . 16 included in the non-commercial domestic revenues for the fourth quarter are revenues from purchase transactions , which decreased $ 5.0 million , and centralized title operations ( processing primarily refinancing and default title orders ) , which declined $ 5.7 million compared to the fourth quarter 2017. these declines were primarily due to the lower purchase and refinancing closed orders , which , in total , decreased 16 % in the fourth quarter 2018 compared to the prior year quarter . total fourth quarter 2018 commercial revenues decreased $ 5.9 million , or 8 % , compared to the fourth quarter 2017. fourth quarter 2018 commercial fee per file increased 3 % to approximately $ 10,300 due to increased transaction sizes , while domestic residential fee per file increased 11 % to approximately $ 2,300 as a result of the mix shift to more purchase transactions . commercial and domestic residential fees per file for the full year 2018 increased to $ 8,600 ( 22 % ) and $ 2,200 ( 8 % ) , respectively , compared to last year . replace_table_token_4_th gross revenues from independent agency operations declined 12 % in the fourth quarter 2018 , as compared to last year 's quarter , primarily as a result of reductions in generally high agency volume states , which include new york , texas , florida and california . the independent agency remittance rate of 17.8 % in the fourth quarter 2018 remained comparable to the prior year quarter . summary results of the ancillary services and corporate segment are as follows ( $ in millions ) : replace_table_token_5_th fourth quarter 2018 segment revenues improved 8 % compared to the prior year quarter , primarily due to increased revenues from search services . excluding the non-operating charges noted above for the segment , the fourth quarter 2018 pretax loss would have been $ 5.2 million , compared to $ 5.6 million in the prior year quarter . additionally , the segment 's results for the fourth quarter 2018 and 2017 included approximately $ 5.5 million and $ 5.1 million , respectively , of net expenses attributable to parent company and corporate operations ( excluding the non-operating charges ) . 17 critical accounting estimates actual results can differ from our accounting estimates . while we do not anticipate significant changes in our estimates , there is a risk that such changes could have a material impact on our consolidated financial condition or results of operations for future periods . story_separator_special_tag these incurred losses are typically more severe in terms of dollar value compared with traditional title policy claims since the independent agency is often able , over time , to conceal misappropriation of escrow funds relating to more than one transaction through the constant volume of funds moving through its escrow accounts . in declining real estate markets , lower transaction volumes result in a lower incoming volume of funds , making it more difficult to cover up the misappropriation with incoming funds . thus , when the defalcation is discovered , it often relates to several transactions . in addition , the overall decline in an independent agency 's revenues , profits and cash flows increases the agency 's incentive to improperly utilize the escrow funds from real estate transactions . for the three years ended december 31 , 2018 , our net title losses due to independent agency defalcations were immaterial . internal controls relating to independent agencies include , but are not limited to , periodic audits , site visits and reconciliations of policy inventories and premiums . the audits and site visits cover examination of the escrow account bank reconciliations and an examination of a sample of closed transactions . in some instances , the scope of our review is limited by attorney agencies that cite client confidentiality . certain states have mandated annual reviews of agencies by their underwriter . we also determine whether our independent agencies have appropriate internal controls as defined by the american land title association 's best practices and us . however , even with adequate internal controls in place , their effectiveness can be circumvented by collusion or improper override of the controls by management at the independent agencies . to aid in the selection of independent agencies to review , we have developed an agency risk model that aggregates data from different areas to identify possible issues . this is not a guarantee that all independent agencies with deficiencies will be identified . in addition , we are typically not the only underwriter for which an independent agency issues policies , and independent agencies may not always provide complete financial records for our review . agency revenues we recognize revenues on title insurance policies written by independent agencies when the policies are reported to us . in addition , where reasonable estimates can be made , we accrue for revenues on policies issued but not reported until after period end . we believe that reasonable estimates can be made when recent and consistent policy issuance information is available . our estimates are based on historical reporting patterns and other information about our independent agencies . we also consider current trends in our direct operations and in the title industry . in this accrual , we are not estimating future transactions ; we are estimating revenues on policies that have already been issued by independent agencies but not yet reported to or received by us . we have consistently followed the same basic method of estimating unreported policy revenues for more than 10 years . 19 our accruals for revenues on unreported policies from independent agencies were not material to our consolidated financial statements as of december 31 , 2018 and 2017 . the differences between the amounts our independent agencies have subsequently reported to us compared to our estimated accruals are substantially offset by any differences arising from prior years ' accruals and have been immaterial relative to consolidated assets and stockholders ' equity during each of the three prior years . we believe our process provides the most reliable estimate of the unreported revenues on policies and appropriately reflects the trends in agency policy activity . goodwill impairment goodwill is not amortized , but is reviewed annually during the third quarter using june 30 balances , or whenever occurrences of events indicate a potential impairment at the reporting unit level . we evaluate goodwill based on four reporting units with goodwill balances - direct operations , agency operations , international operations and ancillary services . we have an option to assess qualitative factors to determine whether it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount . in performing the qualitative assessment , we consider factors that include macroeconomic conditions , industry and market considerations , overall actual and expected financial performance , market perspective on the company , as well as other relevant events and circumstances determined by management . we evaluate the weight of each factor to determine whether an impairment more-likely-than-not exists . if we decide not to use a qualitative assessment or if the reporting unit fails the qualitative assessment , we perform the quantitative impairment analysis . the quantitative analysis involves the comparison of the fair value of each reporting unit to its carrying amount . the goodwill impairment is calculated as the excess of the reporting unit 's carrying amount over the estimated fair value and is charged to current operations . while we are responsible for assessing whether an impairment of goodwill exists , we utilize inputs from third-party appraisers in performing the quantitative analysis . we estimate the fair value using a combination of the income approach ( discounted cash flow ( dcf ) technique ) and the market approach ( guideline company and precedent transaction analyses ) . the dcf model utilizes historical and projected operating results and cash flows , initially driven by estimates of changes in future revenue levels , and risk-adjusted discount rates . our projected operating results are primarily driven by anticipated mortgage originations , which we obtain from projections by industry experts , for our title reporting units and expected contractual revenues for our ancillary services reporting unit . fluctuations in revenues , followed by our ability to appropriately adjust our employee count and other operating expenses , or large and unanticipated adjustments to title loss reserves , are the primary reasons for increases or decreases in our projected operating results .
| results of operations a comparison of our consolidated results of operations for 2018 to 2017 and 2017 to 2016 is discussed as follows . factors contributing to fluctuations in our results of operations are presented in the order of their monetary significance , and we have quantified , when necessary , significant changes . results from our ancillary services and corporate segment are included in year-to-year discussions and , when relevant , are discussed separately . our employee costs and certain other operating expenses are sensitive to inflation . title revenues . direct title revenue information is presented below : replace_table_token_8_th 22 revenues from direct title operations in 2018 decreased $ 29.2 million , or 3 % , compared to 2017 , primarily as a result of lower non-commercial domestic and international revenues , which were partially offset by higher commercial revenues . non-commercial domestic revenues include revenues from purchase transactions and centralized title operations ( processing primarily refinancing and default title orders ) , which decreased 2 % and 48 % , respectively , primarily due to the lower purchase and refinancing orders . total commercial revenues increased $ 11.3 million , or 5 % , as influenced by our continued focus on delivering quality service and underwriting to our commercial customers . total international revenues declined $ 12.2 million , or 10 % , primarily due to lower transaction volumes from our canada operations , partially offset by growth from our united kingdom operations . revenues from direct title operations in 2017 decreased $ 31.9 million , or 4 % , compared to 2016 , primarily as a result of overall declines in refinancing and purchase transaction revenues , partially offset by higher commercial and international revenues . revenues from purchase transactions and centralized title operations decreased 7 % and 26 % , respectively , primarily as a result of lower purchase and refinancing orders closed . total commercial revenues improved $ 18.3 million , or 9 % , primarily driven by a higher domestic commercial fee per file and increased input from our international operations . total international revenues improved $ 12.6
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revenue recognition real estate on january 1 , 2019 , the company adopted the lease accounting standards under topic 842 including the package of practical expedients for all leases that commenced before the effective date of january 1 , 2019. accordingly , the company ( i ) did not reassess whether any expired or existing contracts are or contain leases , ( ii ) did not reassess the lease classification for any expired or existing lease , and ( iii ) did not reassess initial direct costs story_separator_special_tag the following discussion and analysis should be read in conjunction with our accompanying consolidated financial statements and the notes thereto . also , see “ forward-looking statements ” preceding part i of this annual report on form 10-k. overview we were formed on october 8 , 2008 as a maryland corporation , elected to be taxed as a real estate investment trust ( “ reit ” ) beginning with the taxable year ended december 31 , 2010 and intend to operate in such manner . kbs capital advisors llc ( “ kbs capital advisors ” ) was our advisor since inception through october 31 , 2019. on october 31 , 2019 , kbs capital advisors ceased to serve as our advisor or have any advisory responsibility to us immediately following the filing of our quarterly report on form 10-q for the period ending september 30 , 2019 with the sec , which was filed on november 8 , 2019. on november 1 , 2019 , we entered into a new advisory agreement with pacific oak capital advisors , llc ( “ pacific oak capital advisors ” ) , which was renewed on november 1 , 2020. the advisory agreement is currently effective through november 1 , 2021 ; however , we or pacific oak capital advisors may terminate the advisory agreement without cause or penalty upon providing 60 days ' written notice . 64 as our advisor , pacific oak capital advisors manages our day-to-day operations and our portfolio of investments . pacific oak capital advisors also has the authority to make all of the decisions regarding our investments , subject to the limitations in our charter and the direction and oversight of our board of directors . pacific oak capital advisors also provides asset-management , marketing , investor-relations and other administrative services on our behalf . we have sought to invest in and manage a diverse portfolio of real estate-related loans , opportunistic real estate , real estate-related debt securities and other real estate-related investments . we conduct our business primarily through our operating partnership , of which we are the sole general partner . on january 8 , 2009 , we filed a registration statement on form s-11 with the sec to offer a minimum of 250,000 shares and a maximum of 140,000,000 shares of common stock for sale to the public , of which 100,000,000 shares were registered in our primary offering and 40,000,000 shares were registered under our dividend reinvestment plan . we ceased offering shares of common stock in our primary offering on november 14 , 2012. we sold 56,584,976 shares of common stock in the primary offering for gross offering proceeds of $ 561.7 million . we continue to offer shares of common stock under the dividend reinvestment plan . as of december 31 , 2020 , we had sold 6,851,969 shares of common stock under the dividend reinvestment plan for gross offering proceeds of $ 76.5 million . also as of december 31 , 2020 , we had redeemed 24,041,545 of the shares sold in our offering for $ 287.6 million . as of december 31 , 2020 , we had issued 25,976,746 shares of common stock in connection with special dividends . additionally , on december 29 , 2011 and october 23 , 2012 , we issued 220,994 shares and 55,249 shares of common stock , respectively , for $ 2.0 million and $ 0.5 million , respectively , in private transactions exempt from the registration requirements pursuant to section 4 ( 2 ) of the securities act of 1933 , as amended . on march 2 , 2016 , pacific oak strategic opportunity ( bvi ) holdings , ltd. ( “ pacific oak strategic opportunity bvi ” ) , our wholly owned subsidiary , filed a final prospectus with the israel securities authority for a proposed offering of up to 1,000,000,000 israeli new shekels of series a debentures ( the “ series a debentures ” ) at an annual interest rate not to exceed 4.25 % . on march 1 , 2016 , pacific oak strategic opportunity bvi commenced the institutional tender of the series a debentures and accepted application for 842.5 million israeli new shekels . on march 7 , 2016 , pacific oak strategic opportunity bvi commenced the public tender of the series a debentures and accepted 127.7 million israeli new shekels . in the aggregate , pacific oak strategic opportunity bvi accepted 970.2 million israeli new shekels ( approximately $ 249.2 million as of march 8 , 2016 ) in both the institutional and public tenders at an annual interest rate of 4.25 % . pacific oak strategic opportunity bvi issued the series a debentures on march 8 , 2016. the terms of the series a debentures require five equal principal installment payments annually on march 1st of each year from 2019 to 2023. on february 16 , 2020 , pacific oak strategic opportunity bvi issued 254.1 million israeli new shekels ( approximately $ 74.1 million as of february 16 , 2020 ) of series b debentures ( the “ series b debentures ” ) to israeli investors pursuant to a public offering registered with the israel securities authority . the series b debentures bears interest at the rate of 3.93 % per year . story_separator_special_tag as of december 31 , 2020 , we have had six primary sources of capital for meeting our cash requirements : proceeds from the primary portion of our initial public offering ; proceeds from our dividend reinvestment plan ; proceeds from our bond offerings in israel ; debt financing ; proceeds from the sale of real estate and the repayment of real estate-related investments ; and cash flow generated by our real estate and real estate-related investments . we sold 56,584,976 shares of common stock in the primary portion of our initial public offering for gross offering proceeds of $ 561.7 million . we ceased offering shares in the primary portion of our initial public offering on november 14 , 2012. we continue to offer shares of common stock under the dividend reinvestment plan . as of december 31 , 2020 , we had sold 6,851,969 shares of common stock under the dividend reinvestment plan for gross offering proceeds of $ 76.5 million . to date , we have invested all of the net proceeds from our initial public offering in real estate and real estate-related investments . we intend to use our cash on hand , proceeds from asset sales , proceeds from debt financing , cash flow generated by our real estate operations and real estate-related investments and proceeds from our dividend reinvestment plan as our primary sources of immediate and long-term liquidity . 66 our investments in real estate generate cash flow in the form of rental revenues and tenant reimbursements , which are reduced by operating expenditures and corporate general and administrative expenses . cash flow from operations from our real estate investments is primarily dependent upon the occupancy levels of our properties , the net effective rental rates on our leases , the collectibility of rent and operating recoveries from our tenants and how well we manage our expenditures . as of december 31 , 2020 , our office properties were collectively 76 % occupied , our residential home portfolio was 94 % occupied and our apartment property was 90 % occupied . as of january 2021 , we collected 95.1 % of total charged rent for the month of december . our hotel properties generate cash flow in the form of room , food , beverage and convention services , campground and other revenues , which are reduced by hotel expenses , capital expenditures , debt service payments , the payment of asset management fees and corporate general and administrative expenses . cash flow from operations from our hotel properties are primarily dependent upon the occupancy levels of our hotels , the average daily rates and how well we manage our expenditures . the following table provides summary information regarding our hotel properties , which were acquired in the merger , from the merger closing on october 5 , 2020 through december 31 , 2020 : replace_table_token_15_th investments in real estate equity securities generate cash flow in the form of dividend income , which is reduced by asset management fees . as of december 31 , 2020 , we had three investments in real estate equity securities outstanding with a total carrying value of $ 97.9 million . under our charter , we are required to limit our total operating expenses to the greater of 2 % of our average invested assets or 25 % of our net income for the four most recently completed fiscal quarters , as these terms are defined in our charter , unless the conflicts committee has determined that such excess expenses were justified based on unusual and non-recurring factors . operating expenses for the four fiscal quarters ended december 31 , 2020 did not exceed the charter-imposed limitation . for the year ended december 31 , 2020 , our cash needs for capital expenditures , redemptions of common stock and debt servicing were met with proceeds from dispositions of real estate and undeveloped land , proceeds from debt financing , proceeds from our dividend reinvestment plan and cash on hand . operating cash needs during the same period were met through cash flow generated by our real estate and real estate-related investments and cash on hand . as of december 31 , 2020 , we had outstanding debt obligations in the aggregate principal amount of $ 1.1 billion , with a weighted-average remaining term of 1.5 years . as of december 31 , 2020 , we had a total of $ 538.1 million of debt obligations scheduled to mature within 12 months of that date . in order to satisfy obligations as they mature , we plan to utilize extension options available in the respective loan agreements , may seek to refinance certain debt instruments , may market one or more properties for sale or may negotiate a turnover of one or more secured properties back to the related mortgage lender . based upon these plans , we believe we will have sufficient liquidity to continue as a going concern . there can be no assurance as to the certainty or timing of any of our plans . we have elected to be taxed as a reit and intend to operate as a reit . to maintain our qualification as a reit , we are required to make aggregate annual distributions to our stockholders of at least 90 % of our reit taxable income ( computed without regard to the dividends paid deduction and excluding net capital gain ) . our board of directors may authorize distributions in excess of those required for us to maintain reit status depending on our financial condition and such other factors as our board of directors deems relevant . we have not established a minimum distribution level .
| results of operations overview as of december 31 , 2019 , we consolidated six office properties , one office portfolio consisting of four office buildings and 14 acres of undeveloped land , one apartment property , three investments in undeveloped land with approximately 1,000 developable acres , one residential home portfolio consisting of 993 single-family homes and owned five investments in unconsolidated joint ventures and three investments in real estate equity securities . as of december 31 , 2020 , we consolidated nine office properties , one office portfolio consisting of four office buildings and 14 acres of undeveloped land , two apartment properties , two hotel properties , one residential home portfolio consisting of 1,766 single-family homes and three investments in undeveloped land with approximately 1,000 developable acres and owned four investments in unconsolidated joint ventures and three investments in real estate equity securities . additionally , as of december 31 , 2020 , we had entered into a consolidated joint venture to develop one office/retail property . our results of operations for the year ended december 31 , 2020 may not be indicative of those in future periods due to acquisition and disposition activities . additionally , the occupancy in our properties has not been stabilized . as of december 31 , 2020 , our office properties were collectively 76 % occupied , our residential home portfolio was 94 % occupied and our apartment properties were 90 % occupied . however , due to the amount of near-term lease expirations , we do not put significant emphasis on annual changes in occupancy ( positive or negative ) in the short run . our underwriting and valuations are generally more sensitive to “ terminal values ” that may be realized upon the disposition of the assets in the portfolio and less sensitive to ongoing cash flows generated by the portfolio in the years leading up to an eventual sale .
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the following important factors , among others , could cause the company 's results for subsequent periods to differ materially from those expressed in any forward-looking statement made herein : ( i ) changes in interest rates could negatively impact net interest income ; ( ii ) changes in the business cycle and downturns in the local , regional or national economies , including deterioration in the local real estate market , could negatively impact credit and or asset quality and result in credit losses and increases in the company 's allowance for loan losses ; ( iii ) changes in consumer spending could negatively impact the company 's credit quality and financial results ; ( iv ) increasing competition from larger regional and out-of-state banking organizations as well as non-bank providers of various financial services could adversely affect the company 's competitive position within its market area and reduce demand for the company 's products and services ; ( v ) deterioration of securities markets could adversely affect the value or credit quality of the company 's assets and the availability of funding sources necessary to meet the company 's liquidity needs ; ( vi ) changes in technology could adversely impact the company 's operations and increase technology-related expenditures ; ( vii ) increases in employee compensation and benefit expenses could adversely affect the company 's financial results ; ( viii ) changes in laws and regulations that apply to the company 's business and operations , including without limitation the dodd-frank act , the jumpstart our business startups act ( the `` jobs act '' ) , the basel iii rules adopted by the federal banking regulators and the additional regulations that will be forthcoming as a result thereof , could adversely affect the company 's business environment , operations and financial results ; ( ix ) changes in accounting standards , policies and practices , as may be adopted or established by the regulatory agencies , the financial accounting standards board ( the “ fasb ” ) or the public company accounting oversight board could negatively impact the company 's financial results ; ( x ) our ability to enter new markets successfully and capitalize on growth opportunities ; ( xi ) future regulatory compliance costs , including any increase caused by new regulations imposed by the consumer finance protection bureau ; ( xii ) changes to the regulatory capital requirements mandated under rulemaking pursuant to basel iii ; and ( xiii ) some or all of the risks and uncertainties described above in item 1a could be realized , which could have a material adverse effect on the company 's business , financial condition and results of operation . therefore , the company cautions readers not to place undue reliance on any such forward-looking information and statements . any forward-looking statements contained in this form 10-k are made as of the date hereof , and we undertake no duty , and specifically disclaim any duty , to update or revise any such statements , whether as a result of new information , future events or otherwise , except as required by applicable law . overview story_separator_special_tag generated through the issuance of debt securities or equity transactions , including the dividend reinvestment and direct stock purchase plan , exercise of stock options , and occasionally the sale of new shares of the company 's common stock . these funds are used to originate loans , purchase investment securities , conduct operations , expand the branch network , and pay dividends to stockholders . the investment portfolio is primarily used to provide liquidity , manage the company 's asset-liability position and to invest excess funds . total investments , one of the key components of earning assets , amounted to $ 245.1 million at december 31 , 2014 , and comprised 12 % of total assets at both december 31 , 2014 and december 31 , 2013 . since december 31 , 2013 , investments increased $ 29.7 million , or 14 % . enterprise 's main asset strategy is to grow loans , the largest component of earning assets , with a focus on high-quality commercial loans . total loans increased $ 148.5 million , or 10 % , since december 31 , 2013 and amounted to $ 1.67 billion , or 83 % of total assets at december 31 , 2014 , which is relatively consistent with december 31 , 2013 . total commercial loans amounted to $ 1.43 billion , or 86 % of gross loans at december 31 , 2014 , which was in line with the composition at december 31 , 2013 . management 's preferred strategy for funding asset growth is to grow low-cost deposits ( comprised of demand deposit accounts , interest and business checking accounts and traditional savings accounts ) . asset growth in excess of low cost deposits is typically funded through `` higher cost '' deposits ( comprised of money market accounts , commercial tiered rate or “ investment savings ” accounts and term certificates of deposit ) and wholesale funding ( brokered deposits and borrowed funds ) . at december 31 , 2014 , total deposits , excluding brokered deposits , amounted to $ 1.68 billion , representing , an increase of $ 98.9 million , or 6 % , over december 31 , 2013 balances . this increase was due primarily to increases in checking account balances of $ 64.8 million , or 10 % , and money market account balances of $ 55.9 million , or 10 % , partially offset by a decrease of $ 21.5 million , or 11 % , in cd balances . story_separator_special_tag the company 's ability to maintain or increase investment assets under management is subject to a number of factors , including competition from investment management companies and alternative investment options , fluctuations in financial markets and various economic conditions , among others . the company 's investment services are distinguished from the competition by a client-centric open architecture approach in which clients work with a dedicated portfolio manager to hand-select funds with styles that match the client 's investment goals . the company 's investment advisory team consists of licensed professionals adept in a number of financial and investment disciplines dedicated to providing personalized investment service to each client . the company 's goal is to design and maintain portfolios that provide the income , growth potential , and risk tolerances that match the clients ' comfort levels and exceeds their financial expectations . management continues to undertake significant strategic initiatives , including investments in employee training and development , marketing and public relations , technology and electronic delivery methods , ongoing improvements and renovations of existing facilities and the ongoing development of recent branches . industry consolidation also provides management the opportunity to recruit experienced banking professionals with market knowledge who complement the enterprise sales and service culture . while management recognizes that such investments increase expenses in the short-term , enterprise believes that such initiatives are a necessary investment in the long-term growth and earnings of the company and are reflective of the opportunities in the current marketplace for community banks such as enterprise . however , lower than expected returns on these investments , such as slower than anticipated loan and deposit growth in new branches and or lower 38 than expected fee or other income generated from new technology or initiatives , could decrease anticipated revenues and net income on such investments in the future . any prolonged deterioration of the general economic environment could weaken the local new england economy and have adverse repercussions on local industries , leading to increased unemployment and mortgage foreclosures , deterioration of local commercial real estate values , and other unforeseen consequences , which could have a severe negative impact on the company 's financial condition , capital position , liquidity , and performance . in addition , the loan portfolio consists primarily of commercial real estate , commercial and industrial , and commercial construction loans . these types of loans are typically larger and are generally viewed as having more risk of default than owner occupied residential real estate loans or consumer loans . any significant deterioration in the credit quality of the commercial loan portfolio or underlying collateral values due to a downturn in the economic environment could have a material adverse effect on the company 's financial condition and results of operations . the risk of loss due to customers ' non-payment of loans or lines of credit is called “ credit risk. ” credit risk management is reviewed below in this item 7 under the headings “ credit risk , '' `` asset quality ” and “ allowance for loan losses. ” the value of the investment portfolio as a whole , or individual securities held , including restricted fhlb capital stock , could be negatively impacted by any sustained volatility in the financial markets or in credit markets , or fundamental deterioration in credit quality of the individual security , fund or issuer , which could possibly result in the recognition of additional otti charges in the future . in addition , a sustained low interest rate environment could negatively impact the company 's net interest income and results of operation . interest rate risk is reviewed in more detail under the heading item 7a , “ quantitative and qualitative disclosures about market risk , ” below . liquidity management is the coordination of activities so that cash needs are anticipated and met , readily and efficiently . liquidity management is reviewed further below in this item 7 under the heading “ liquidity. ” federal banking agencies require the company and the bank to meet minimum capital requirements . for information regarding the current capital requirements applicable to the company and the bank and their respective capital levels at december 31 , 2014 , and the recently adopted changes to the regulatory capital framework , see the sections within item 1 , `` business , '' entitled “ capital resources ” and `` capital requirements '' and `` new capital requirements under basel iii '' within `` supervision and regulation '' and note 9 , `` stockholders ' equity '' to the consolidated financial statements contained in item 8 `` financial statements and supplementary data . '' at december 31 , 2014 , both the company and the bank were categorized as “ well capitalized ; ” however , future unanticipated charges against capital , or changes in regulatory requirements such as basel iii discussed below , could impact those regulatory capital designations . in addition , any further changes in government regulation or oversight , including , but not limited to the implementation by the federal regulatory agencies of the various requirements contained in the dodd-frank act , new consumer financial protection laws enacted by the consumer financial protection bureau , and rules under basel iii , could affect the company in substantial and unpredictable ways , including , but not limited to , subjecting the company to additional operating , governance and compliance costs , potentially influence the company 's business decisions , or potential loss of revenue due to the impact of an enhanced regulatory structure on the banking industry as a whole .
| executive summary the company continued to focus on organic growth while management remained committed to planning for our future by investing in our branch network , technology , progressive product capabilities and , most importantly , in our enterprise team , our customers and our communities . management believes that the company 's growth and operating results for 2014 continued to be driven by the collective efforts and contributions of our dedicated enterprise team through active community involvement , relationship building and a customer-focused mindset , market expansion , and our progressive product and service offerings . 35 at december 31 , 2014 , total assets exceeded $ 2.0 billion and increased $ 172.3 million , or 9 % , since december 31 , 2013 . in 2014 , total loans increased by $ 148.5 million , or 10 % , deposits , excluding brokered deposits , increased by $ 98.9 million , or 6 % , and average deposits , excluding brokered deposits , increased $ 124 million , or 8 % , compared to december 31 , 2013 . net income for the year ended december 31 , 2014 was $ 14.7 million , an increase of $ 1.1 million , or 8 % , compared to the year ended december 31 , 2013 . diluted earnings per share were $ 1.44 for the year ended december 31 , 2014 , an increase of 6 % compared to the year ended december 31 , 2013 . the company 's 2014 growth contributed to increases in net interest income , non-interest income and non-interest expenses as compared to 2013 . net income also benefited from an increase in net gains on sales of investment securities and a lower loan loss provision , as compared to the year ended december 31 , 2013 .
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this section provides an analysis of our financial results for the year ended december 31 , 2020 compared to the year ended december 31 , 2019. for the discussion and analysis covering the year ended december 31 , 2019 compared to the year ended december 31 , 2018 , please refer to “ management 's discussion and analysis of financial condition and results of operations ” in part ii , item 7 of our annual report on form 10-k for the year ended december 31 , 2019 , as filed with the sec on february 28 , 2020. overview we are a global provider of instruments , systems , subsystems and process control solutions that measure , monitor , deliver , analyze , power and control critical parameters of advanced manufacturing processes to improve process performance and productivity for our customers . our products are derived from our core competencies in pressure measurement and control , flow measurement and control , gas and vapor delivery , gas composition analysis , electronic control technology , reactive gas generation and delivery , power generation and delivery , vacuum technology , lasers , photonics , optics , precision motion control , vibration control and laser-based manufacturing systems solutions . we also provide services relating to the maintenance and repair of our products , installation services and training . our primary served markets include semiconductor , industrial technologies , life and health sciences , research and defense . recent events impact of covid-19 the world health organization formally declared the outbreak of covid-19 a pandemic in march 2020. we have devoted considerable resources to address the impact of the pandemic on our employees and their families , our customers and our community , as well as on our business , which has had to adapt to changes in our manufacturing capacity , disruptions to our supply chain , fluctuations in demand for our products and services and the imposition of government mandates . in january 2020 , we created a global covid-19 task force to manage our response to the pandemic , as it had begun to impact our operations in china and in anticipation that it could affect us globally . as described in additional detail in “ human capital—health and safety and pandemic response ” in part i , item 1 of this annual report on form 10-k , we have taken a range of actions to protect our employees and maintain our operations , focusing on the following key areas : ensuring the health and safety of our workforce by : expediting social distancing and facility sanitation measures establishing a work-from-home policy and a return-to-work policy implementing and applying key safety precautions maintaining continuity of operations by : securing critical components amid disruptions to our supply chain addressing rapid changes in workforce availability to ensure timely response to our customers ' needs harnessing our global services footprint to respond to the repair and maintenance needs of our customers while our operations and financial performance in certain areas of our business have been negatively impacted by the covid-19 pandemic , the negative impact on our financial results for year ended december 31 , 2020 was minimal due to strong demand for our products from our semiconductor customers . beginning in late 2020 and continuing into 2021 , various countries , including the united states , started providing vaccines for covid-19 . although this is a positive step in combating the virus , it is unclear if or when the global vaccination rate will reach a point of collective immunity and reduce the transmission rate of the virus . the situation remains dynamic and there remains significant uncertainty as to the length and severity of the pandemic , the continued actions that may be taken by government authorities , the impact on our business and on the business of our customers and suppliers , the long-term economic implications and the other factors identified in “ risk factors ” in part i , item 1a of this annual report on form 10-k. we believe the longer the covid-19 pandemic continues , the greater the adverse impact the pandemic could have on our business , financial condition and operating results . we will continue to evaluate the nature and extent of the impact of the covid-19 pandemic to our business , financial condition and operating results . 35 acquisitions on february 1 , 2019 , we completed our acquisition of esi . at the effective time of the esi merger and pursuant to the terms and conditions of the merger agreement , each share of esi 's common stock that was issued and outstanding immediately prior to the effective time of the esi merger was converted into the right to receive $ 30.00 in cash , without interest and subject to deduction of any required withholding tax . we paid the former esi stockholders aggregate consideration of approximately $ 1.03 billion , excluding related transaction fees and expenses , and non-cash consideration related to the exchange of share-based awards of approximately $ 31 million for a total purchase consideration of approximately $ 1.06 billion . we funded the payment of the aggregate cash consideration with a combination of our available cash on hand and the proceeds from our 2019 incremental term loan facility , as defined and as described further below . segments and markets the vacuum & analysis segment provides a broad range of instruments , components and subsystems which are derived from our core competencies in pressure measurement and control , flow measurement and control , gas and vapor delivery , gas composition analysis , electronic control technology , reactive gas generation and delivery , power generation and delivery , and vacuum technology . the light & motion segment was created in conjunction with the newport merger . the light & motion segment provides a broad range of instruments , components and subsystems which are derived from our core competencies in lasers , photonics , optics , precision motion control and vibration control . story_separator_special_tag on an on-going basis , we evaluate our estimates and judgments , including those related to revenue recognition , pension plan valuations , inventory , warranty costs , stock-based compensation expense , intangible assets , goodwill and other long-lived assets , in-process research and development and income taxes . we base our estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . we believe the following critical accounting policies affect the most significant judgments , assumptions and estimates we use in preparing our consolidated financial statements : revenue recognition . we account for revenue using accounting standards codification 606 ( “ asc 606 ” ) . we apply asc 606 using the following steps : identify the contract with a customer identify the performance obligations in the contract 37 determine the transaction price allocate the transaction price to performance obligations in the contract recognize revenue when or as we satisfy a performance obligation revenue under asc 606 is recognized when or as obligations under the terms of a contract with our customer has been satisfied and control has transferred to the customer . the majority of our performance obligations , and associated revenue , are transferred to customers at a point in time , generally upon shipment of a product to the customer or receipt of the product by the customer and without significant judgments . installation services are not significant and are usually completed in a short period of time ( normally less than two weeks ) and therefore , recorded at a point in time when the installation services are completed , rather than over time as they are not material . extended warranty , service contracts , and repair services , which are transferred to the customer over time , are recorded as revenue as the services are performed . for repair services , we make an accrual at each quarter end based upon historical repair times within our product groups to record revenue based upon the estimated number of days completed to date , which is consistent with ratable recognition . customized products with no alternative future use to us , and that have an enforceable right to payment for performance completed to date , are also recorded over time . we consider this to be a faithful depiction of the transfer to the customer of revenue over time as the work is performed or service is delivered , ratably over time . the adjustments for custom products were not material for 2020 or 2019. revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services . performance obligations promised in a contract are identified based on the products or services that will be transferred to the customer that are both capable of being distinct , whereby the customer can benefit from the product or service either on its own or together with other resources that are readily available from third parties or from us , and are distinct in the context of the contract , whereby the transfer of the product or service is separately identifiable from other promises in the contract . sales , value add , and other taxes we collect concurrent with revenue-producing activities are excluded from revenue . our normal payment terms are 30 to 60 days but vary by the type and location of our customers and the products or services offered . the time between invoicing and when payment is due is not significant . for certain products and services and customer types , we require payment before the products or services are delivered to , or performed for , the customer . none of our contracts as of december 31 , 2020 contained a significant financing component . we periodically enter into contracts with our customers in which a customer may purchase a combination of goods and or services , such as products with installation services or extended warranty obligations . these contracts include multiple promises that we evaluate to determine if the promises are separate performance obligations . once we determine the performance obligations , we then determine the transaction price , which includes estimating the amount of variable consideration to be included in the transaction price , if any . to the extent the transaction price includes variable consideration , we estimate the amount of variable consideration that should be included in the transaction price utilizing either the expected value method or the most likely amount method depending on the method we expect to better predict the amount of consideration to which it will be entitled . there are no constraints on the variable consideration recorded . we then allocate the transaction price to each performance obligation in the contract based on a relative stand-alone selling price charged separately to customers or using an expected cost-plus margin method . the corresponding revenues are recognized when or as the related performance obligations are satisfied , which are noted above . the impact of variable consideration has been immaterial . we sometimes sell separately-priced service contracts and extended warranty contracts related to certain of our products , especially our laser products . the separately priced contracts generally range from 12 to 60 months . we normally receive payment at the inception of the contract or beginning of an annual period and recognize revenue over the term of the agreement in proportion to the costs expected to be incurred in satisfying the obligations under the contract . we monitor and track the amount of product returns , provide for sales return allowances and reduce revenue at the time of shipment for the estimated amount of such future returns , based on historical experience .
| results of operations the following table sets forth , for the periods indicated , the percentage of total net revenues of certain line items included in our consolidated statements of operations and comprehensive income data : replace_table_token_2_th year ended december 31 , 2020 compared to 2019 net revenues replace_table_token_3_th net product revenues increased $ 403.5 million in 2020 , compared to 2019 , due to an increase of $ 437.1 million in net product revenues from our semiconductor customers , primarily due to higher volume increases that were a function of strong demand for semiconductor capital equipment across memory , foundry and logic manufacturing applications , partially offset by a decrease of $ 33.6 million in net product revenues from customers in our advanced markets . net service revenues consisted mainly of fees for services related to the maintenance and repair of our products , sales of spare parts , and installation and training . service revenues increased $ 26.7 million in 2020 , compared to 2019 , due to an increase of $ 20.3 million in net service revenues from our semiconductor customers and an increase of $ 6.4 million in net service revenues from customers in our advanced markets . total international net revenues , including product and service , were $ 1.3 billion in 2020 compared to $ 1.0 billion for 2019. the increase in 2020 was primarily due to increases in net revenues in china , germany , israel , japan and south korea . 42 the following table sets forth our net revenues by reportable segment : net revenues replace_table_token_4_th net revenues for our vacuum & analysis segment increased $ 415.4 million in 2020 , compared to 2019 , due to a volume increase of $ 436.2 million from our semiconductor customers , offset by a decrease of $ 20.8 million from our advanced market customers , primarily from customers in our industrial technologies market .
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fair value is based upon either quoted market prices , or in certain cases where there is limited activity in the market for a particular instrument , assumptions are made to determine their fair value . see note 19 of the notes to consolidated financial statements for a further discussion . transfers of debt securities from the available-for-sale category to the held-to-maturity category are made at fair value at the date of transfer . the unrealized holding gain or loss at the date of transfer remains in accumulated other comprehensive income and in the carrying value of the held-to-maturity investment security . premiums or discounts on investment securities are amortized or accreted using the effective interest method over the life of the security as an adjustment of yield . unrealized holding gains or losses that remain in accumulated other comprehensive income are amortized or accreted over the remaining life of the security as an adjustment of yield , offsetting the related amortization of the premium or accretion of the discount . f- 18 center bancorp , inc. and subsidiaries notes to consolidated financial statements note 5 — investment securities – ( continued ) the following table presents information for investments in securities available-for-sale and held-to-maturity at december 31 , 2012 , based on scheduled maturities . actual maturities can be expected to differ from scheduled maturities due to prepayment or early call options of the story_separator_special_tag the purpose of this analysis is to provide the reader with information relevant to understanding and assessing the corporation 's results of operations for each of the past three years and financial condition for each of the past two years . in order to fully appreciate this analysis , the reader is encouraged to review the consolidated financial statements and accompanying notes thereto appearing under item 8 of this report , and statistical data presented in this document . cautionary statement concerning forward-looking statements see item 1 of this annual report on form 10-k for information regarding forward-looking statements . critical accounting policies and estimates the accounting and reporting policies followed by the corporation conform , in all material respects , to u.s. gaap . in preparing the consolidated financial statements , management has made estimates , judgments and assumptions that affect the reported amounts of assets and liabilities as of the dates of the consolidated statements of condition and results of operations for the periods indicated . actual results could differ significantly from those estimates . the corporation 's accounting policies are fundamental to understanding this md & a . the most significant accounting policies followed by the corporation are presented in note 1 of the notes to consolidated financial statements . the corporation has identified its policies on the allowance for loan losses , other-than-temporary impairment of securities , income tax liabilities and goodwill and other identifiable intangible assets to be critical because management must make subjective and or complex judgments about matters that are inherently uncertain and could be most subject to revision as new information becomes available . additional information on these policies can be found in note 1 of the notes to consolidated financial statements . allowance for loan losses and related provision the allowance for loan losses represents management 's estimate of probable loan losses inherent in the loan portfolio . determining the amount of the allowance for loan losses is considered a critical accounting estimate because it requires significant judgment and the use of estimates related to the amount and timing of expected future cash flows on impaired loans , estimated losses on pools of homogeneous loans based on historical loss experience , and consideration of current economic trends and conditions , all of which may be susceptible to significant change . the loan portfolio also represents the largest asset type on the corporation 's consolidated statements of condition . the evaluation of the adequacy of the allowance for loan losses includes , among other factors , an analysis of historical loss rates by loan category applied to current loan totals . however , actual loan losses may be higher or lower than historical trends , which vary . actual losses on specified problem loans , which also are provided for in the evaluation , may vary from estimated loss percentages , which are established based upon a limited number of potential loss classifications . the allowance for loan losses is established through a provision for loan losses charged to expense . management believes that the current allowance for loan losses will be adequate to absorb loan losses on existing loans that may become uncollectible based on the evaluation of known and inherent risks in the loan portfolio . the evaluation takes into consideration such factors as changes in the nature and size of the portfolio , overall portfolio quality , and specific problem loans and current economic conditions which may affect the borrowers ' ability to pay . the evaluation also details historical losses by loan category and the resulting loan loss rates which are projected for current loan total amounts . loss estimates for specified problem loans are also detailed . all of the factors considered in the analysis of the adequacy of the allowance for loan losses may be subject to change . to the extent actual outcomes differ from management estimates , additional provisions for loan losses may be required that could materially adversely impact earnings in future periods . additional information can be found in note 1 of the notes to consolidated financial statements . 32 other-than-temporary impairment of securities securities are evaluated on at least a quarterly basis , and more frequently when market conditions warrant such an evaluation , to determine whether a decline in their value is other-than-temporary . fasb asc 320-10-65 , clarifies the interaction of the factors that should be considered when determining whether a debt security is other-than-temporarily impaired . story_separator_special_tag as a result , the federal reserve kept overnight borrowing rates at zero to 25 basis points throughout 2012. short-term interest rates remained lower than longer term rates , resulting in a somewhat improved steepening of the yield curve . historically , such an improvement in yield curve has benefitted the corporation 's net interest income , which is the corporation 's primary source of income . the corporation was proactive with its balance sheet strategies throughout 2012 in order to reduce further exposure to interest rates through a reduction in higher cost funding and non-core balances in the deposit mix coupled with an improvement in the earning asset mix . the corporation 's progress in growing and improving its balance sheet earning asset mix has helped to expand its spread and margin . the corporation 's net income in 2012 was $ 17.5 million or $ 1.05 per fully diluted common share , compared with net income of $ 13.9 million or $ 0.80 per fully diluted common share in 2011. the growth in earnings performance in 2012 ( as well as in 2011 ) was primarily attributable to earnings from core operations . earnings for 2012 and associated operating performance was characterized by solid revenue growth , strong organic loan generation and a continuation of our stable and favorable asset quality profile . earnings were positively impacted by growth in net interest income , primarily from an increase in the average balance of earning assets of $ 216.7 million , which was partially offset by a decline of 40 basis points in yield . the decline in yield on earning assets was somewhat offset by a decline of 20 basis points from a lower cost of funds as compared to 2011 , and reductions in loan loss provisions , oreo expense , fdic insurance , occ assessments and operating overhead . for the year ended december 31 , 2012 , net interest income on a fully taxable equivalent basis amounted to $ 45.4 million , compared to $ 40.6 million for the same period in 2011. for 2012 , interest income increased by $ 4.4 million while interest expense decreased by $ 401,000 from last year . compared to 2011 , for 2012 , as noted above average interest earning assets increased $ 216.7 million while net interest spread and margin decreased on a tax-equivalent basis by 20 basis points and 21 basis points , respectively . for 2012 , the corporation 's net interest margin decreased to 3.32 percent as compared to 3.53 percent for 2011. net interest margins reflected improvement in the fourth quarter of 2012 , as prior action on reducing the cost of funds coupled with offsetting compression primarily as result of a continued high liquidity pool carried during the periods took root and started to abate further compression . the corporation still expects an improvement in margin , principally given the continued volume of asset deployment into loans from cash and elimination of temporary factors holding the margin down . total non-interest income declined as a percentage of total revenue , which is the sum of interest income and non-interest income , in 2012 largely due to a reduction in net securities gains ; $ 2.0 million in 2012 as compared to $ 3.6 million in net securities gains in 2011. for the twelve months ended december 31 , 2012 , total other income decreased $ 268,000 as compared with the twelve months ended december 31 , 2011 , from $ 7.5 million to $ 7.2 million . excluding net securities gains and losses and the bargain gain on acquisition of $ 899,000 in the respective periods , the corporation recorded total other income of $ 4.3 million and $ 3.8 million in the twelve months ended december 31 , 2012 and 2011 , respectively . for the twelve months ended december 31 , 2012 , total other expense increased $ 1.8 million , or 7.5 percent , compared to the year ended december 31 , 2011. excluding a repurchase agreement termination fee and acquisition cost , the increase was $ 260,000 and 1.1 percent . increases primarily included salaries and employee benefits of $ 1.0 million , $ 40,000 in occupancy and equipment , $ 55,000 in marketing and advertising and $ 107,000 in computer expense . these increases were partially offset by decreases of $ 558,000 in fdic insurance expense , $ 79,000 in professional and consulting fees , $ 19,000 in stationery and printing expense , $ 248,000 in oreo expense and $ 82,000 in all other expenses . the corporation ' s efficiency ratio for the twelve months ended december 31 , 2012 was 46.9 percent as compared to 53.7 percent in 2011 . 34 our continued performance put the corporation at a competitive advantage while the competition for deposits in the corporation 's marketplace remained intense . the corporation expanded its client base and market share , as customers seek safety through high quality organizations to satisfy liquidity and safety and soundness , which became paramount in light of the protracted financial crisis . with that competitive advantage , the corporation continues to move forward with momentum in expanding our presence in key markets . with the acquisition of saddle river valley bank and the opening of our englewood office , we are working to solidify and expand the service relationship with our new customers . we remain excited by the potential to create incremental shareholder value from our strategic growth . we believe that this type of sequential earnings performance demonstrates the corporation 's commitment to achieving meaningful growth in earnings performance , an essential component of providing consistent and favorable long-term returns to our shareholders . however , while we continue to see an improvement in balance sheet strength and core earnings performance , we still remain cautious about the credit stability of the broader markets .
| results of operations net income for the year ended december 31 , 2012 was $ 17,507,000 as compared to $ 13,926,000 earned in 2011 and $ 7,004,000 earned in 2010 , an increase of 25.7 percent from 2011 to 2012. for 2012 , the basic and fully diluted earnings per common share was $ 1.05 per share as compared with $ 0.80 per share in 2011 and $ 0.43 per share in 2010. for the year ended december 31 , 2012 , the corporation 's return on average stockholders ' equity ( “ roe ” ) was 11.69 percent and its return on average assets ( “ roa ” ) was 1.14 percent . the corporation 's return on average tangible stockholders ' equity ( “ roate ” ) was 13.18 percent for 2012. the comparable ratios for the year ended december 31 , 2011 , were roe of 10.73 percent , roa of 1.05 percent , and roate of 12.33 percent . see the discussion and reconciliation of roate , which is a non-gaap financial measure , under item 6 of this annual report on form 10-k. earnings for 2012 benefitted from increases in net interest income and one time increases to non interest income and from decreases in the provision for loan loss . the increase in non-interest expenses was due to increases in salaries and benefits , occupancy expenses , marketing and advertising expenses and computer expenses , together with costs related to the acquisition of saddle river valley bank and repurchase agreement prepayment and termination fees to terminate certain fixed rate long-term borrowings from citi global market and the fhlb . these increases were partially offset by reductions in fdic insurance , oreo expenses and professional and consulting expenses .
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the company 's primary subsidiary is the bank , and the company 's other direct and indirect operating subsidiaries are bethesda leasing , llc , eagle insurance services , llc , and ecv . this discussion and analysis should be read in conjunction with the audited consolidated financial statements and notes thereto , appearing elsewhere in this report . caution about forward looking statements . this report contains forward looking statements within the meaning of section 27a of the securities act of 1933 , as amended ( the `` securities act '' ) , and section 21e of the securities exchange act of 1934 , as amended ( the `` exchange act '' ) . these forward looking statements represent plans , estimates , objectives , goals , guidelines , expectations , intentions , projections and statements of our beliefs concerning future events , business plans , objectives , expected operating results and the assumptions upon which those statements are based . forward looking statements include without limitation , any statement that may predict , forecast , indicate or imply future results , performance or achievements , and are typically identified with words such as `` may , '' `` could , '' `` should , '' `` will , '' `` would , '' `` believe , '' `` anticipate , '' `` estimate , '' `` expect , '' `` intend , '' `` plan , '' or words or phases of similar meaning . these forward looking statements are based largely on our expectations and are subject to a number of known and unknown risks and uncertainties that are subject to change based on factors which are , in many instances , beyond our control . actual results , performance or achievements could differ materially from those contemplated , expressed , or implied by the forward looking statements . the following factors , among others , could cause our financial performance to differ materially from that expressed in such forward looking statements : the strength of the united states economy , in general , and the strength of the local economies in which we conduct operations ; geopolitical conditions , including acts or threats of terrorism , actions taken by the united states or other governments in response to acts or threats of terrorism and or military conflicts , which could impact business and economic conditions in the united states and abroad ; the effects of , and changes in , trade , monetary and fiscal policies and laws , including interest rate policies of the federal reserve board , inflation , interest rate , market and monetary fluctuations ; the timely development of competitive new products and services and the acceptance of these products and services by new and existing customers ; results of examinations of us by our regulators , including the possibility that our regulators may , among other things , require us to increase our allowance for credit losses , to write-down assets or to hold more capital ; changing bank regulatory conditions , policies or programs , whether arising as new legislation or regulatory initiatives , that could lead to restrictions on activities of banks generally , or our subsidiary bank in particular , more restrictive regulatory capital requirements , increased costs , including deposit insurance premiums , regulation or prohibition of certain income producing activities or changes in the secondary market for loans and other products ; the willingness of customers to substitute competitors ' products and services for our products and services ; the impact of changes in financial services policies , laws and regulations , including laws , regulations and policies concerning taxes , banking , securities and insurance , and the application thereof by regulatory bodies ; 39 the effect of changes in accounting policies and practices , as may be adopted from time-to-time by bank regulatory agencies , the securities and exchange commission , the public company accounting oversight board or the financial accounting standards board ; technological and social media changes ; cybersecurity breaches and threats that cause the bank to sustain financial losses ; the effect of acquisitions we may make , including , without limitation , the failure to achieve the expected revenue growth and or expense savings from such acquisitions ; the growth and profitability of noninterest or fee income being less than expected ; changes in the level of our nonperforming assets and charge-offs ; changes in consumer spending and savings habits ; unanticipated regulatory or judicial proceedings ; and the factors discussed under the caption `` risk factors '' in this report . if one or more of the factors affecting our forward looking information and statements proves incorrect , then our actual results , performance or achievements could differ materially from those expressed in , or implied by , forward looking information and statements contained in this report . you should not place undue reliance on our forward looking information and statements . we will not update the forward looking statements to reflect actual results or changes in the factors affecting the forward looking statements . general the company is a growth-oriented , one-bank holding company headquartered in bethesda , maryland , which is currently celebrating seventeen years of successful operations . the company provides general commercial and consumer banking services through the bank , its wholly owned banking subsidiary , a maryland chartered bank which is a member of the federal reserve system . the company was organized in october 1997 , to be the holding company for the bank . the bank was organized in 1998 as an independent , community oriented , full service banking alternative to the super regional financial institutions , which dominate the company 's primary market area . the company 's philosophy is to provide superior , personalized service to its customers . the company focuses on relationship banking , providing each customer with a number of services and becoming familiar with and addressing customer needs in a proactive , personalized fashion . story_separator_special_tag during 2015 , the company enhanced its marketplace positioning by remaining proactive in growing client relationships and expanding its presence in the northern virginia sub-market with the acquisition of virginia heritage completed october 31 , 2014. the company has had the financial resources to meet , and has remained committed to meeting , the credit needs of its community , resulting in substantial growth in the bank 's loan portfolio during 2015. furthermore , the company 's capital position was enhanced in 2015 41 by very strong and consistent earnings and a successful common stock offering in march 2015. the company believes its strategies of remaining growth-oriented , retaining a talented staff and maintaining focus on seeking quality lending and deposit relationships has proven successful and is evidenced in its financial and performance ratios . additionally , the company believes such focus and strategy of relationship building has fostered future growth opportunities , as the company 's reputation in the marketplace has continued to grow . at december 31 , 2015 , the company had total assets of approximately $ 6.08 billion , total loans of $ 5.00 billion , total deposits of $ 5.16 billion and twenty one branches in the washington , d.c. metropolitan area . operating in the economic environment of 2015 , the bank was able to produce above average growth as compared to local peer banks in both deposits and loans . additionally , the bank was able to grow its net interest spread earnings substantially , maintain an above average net interest margin , retain a solid position regarding asset quality , and generate enhanced operating leverage due in part from the merger , as well as to its seasoned and professional staff . the company increased its net income in each quarter of 2015 , continuing a trend of consecutive quarterly increases dating to the first quarter of 2009. critical accounting policies the company 's consolidated financial statements are prepared in accordance with gaap and follow general practices within the banking industry . application of these principles requires management to make estimates , assumptions , and judgments that affect the amounts reported in the financial statements and accompanying notes . these estimates , assumptions and judgments are based on information available as of the date of the consolidated financial statements ; accordingly , as this information changes , the consolidated financial statements could reflect different estimates , assumptions , and judgments . certain policies inherently have a greater reliance on the use of estimates , assumptions and judgments and , as such , have a greater possibility of producing results that could be materially different than originally reported . estimates , assumptions , and judgments are necessary when assets and liabilities are required to be recorded at fair value , when a decline in the value of an asset not carried on the financial statements at fair value warrants an impairment write-down or a valuation reserve to be established , or when an asset or liability needs to be recorded contingent upon a future event . carrying assets and liabilities at fair value inherently results in more financial statement volatility . the fair values and the information used to record valuation adjustments for investment securities available-for-sale are based either on quoted market prices or are provided by other third-party sources , when available . the company 's investment portfolio is categorized as available-for-sale with unrealized gains and losses net of income tax being a component of shareholders ' equity and accumulated other comprehensive income . business combinations are accounted for by applying the acquisition method in accordance with accounting standards codification ( `` asc '' ) topic 805 , `` business combinations. `` under the acquisition method , identifiable assets acquired and liabilities assumed , and any non-controlling interest in the acquiree at the acquisition date are measured at their fair values as of that date , and are recognized separately from goodwill . results of operations of the acquired entities are included in the consolidated statement of income from the date of acquisition . adjustments to fair value for credit and current interest rate considerations at the date of acquisition are subsequently amortized to interest income and interest expense based on the remaining life of the asset or liability . ongoing assessments of fair value are made at each balance sheet date . the allowance for credit losses is an estimate of the losses that may be sustained in our loan portfolio . the allowance is based on two principles of accounting : ( a ) asc topic 450 , `` contingencies , '' which requires that losses be accrued when they are probable of occurring and are estimable and ( b ) asc topic 310 , `` receivables , '' which requires that losses be accrued when it is probable that the company will not collect all principal and interest payments according to the contractual terms of the loan . the loss , if 42 any , can be determined by the difference between the loan balance and the value of collateral , the present value of expected future cash flows , or values observable in the secondary markets . three components comprise our allowance for credit losses : a specific allowance , a formula allowance and a nonspecific or environmental factors allowance . each component is determined based on estimates that can and do change when actual events occur . the specific allowance allocates a reserve to identified impaired loans . impaired loans are assigned specific reserves based on an impairment analysis . under asc topic 310 , `` receivables , '' a loan for which reserves are individually allocated may show deficiencies in the borrower 's overall financial condition , payment record , support available from financial guarantors and for the fair market value of collateral . when a loan is identified as impaired , a specific reserve is established based on the company 's assessment of the loss that may be associated with the individual loan .
| results of operations overview due to the merger completed in 2014 , the company incurred various merger-related expenses in 2014 , which make it difficult for readers to analyze the company 's core operating earnings . for comparison purposes , the company provides parenthetically in the discussion below the operating amounts and ratios which it feels are more useful to the reader . for a reconciliation of these non-gaap financial measures to the gaap equivalents , please refer to the selected financial data appearing at item 6 of this report . for the year ended december 31 , 2015 , the company 's net income was $ 84.2 million , a 55 % increase ( 46 % on an operating basis ) over the $ 54.3 million ( $ 57.7 million on an operating basis ) for the year ended 44 december 31 , 2014. net income available to common shareholders for the year ended december 31 , 2015 was $ 83.6 million , as compared to $ 53.6 million ( $ 57.1 million on an operating basis ) for the same period in 2014 , a 56 % increase ( 46 % on an operating basis ) . net income available to common shareholders in 2015 was $ 2.54 per basic common share and $ 2.50 per diluted common share , as compared to $ 2.01 per basic common share and $ 1.95 per diluted common share ( $ 2.14 per basic common share and $ 2.08 per diluted common share on an operating basis ) for 2014 , a 26 % increase per basic and a 28 % increase per diluted common share ( 19 % increase per basic and 21 % per diluted common share on an operating basis ) . for the year ended december 31 , 2015 , the company reported a return on average assets ( `` roaa '' ) of 1.49 % as compared to 1.31 % ( 1.40 % on an operating basis ) for the year ended december 31 , 2014 , while the return on average common equity ( `` roace '' ) was 12.32
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this resulted in a $ 12.4 million reduction in the purchase price and this 59 american axle & manufacturing holdings , inc. notes to consolidated financial statements ( continued ) portion of the cash paid to acquire mpg has been reflected as an operating cash outflow in our consolidated statement of cash flows for the year ended december 31 , 2017. included in net sales and net income attributable to aam for the period from the acquisition date on april 6 , 2017 through december 31 , 2017 was $ 2,022 million and approximately $ 320 million , respectively , attributable to mpg . the $ 320 million of net income attributable to mpg in 2017 included a tax benefit of approximately $ 227 million as a result of remeasuring our net deferred tax liabilities in the u.s. subsequent to the enactment of the tax cuts and jobs act . for the year ended december 31 , 2017 story_separator_special_tag company overview we are a global tier i supplier to the automotive , commercial and industrial markets . we design , engineer , validate and manufacture driveline , metal forming , powertrain and casting products , employing over 25,000 associates , operating at nearly 90 facilities in 17 countries , to support our customers on global and regional platforms with a continued focus on delivering operational excellence , technology leadership and quality . we are a primary supplier of driveline components to general motors company ( gm ) for its full-size rear-wheel drive ( rwd ) light trucks and suvs manufactured in north america , supplying a significant portion of gm 's rear axle and four-wheel drive and all-wheel drive ( 4wd/awd ) axle requirements for these vehicle platforms . we also supply gm with various products from each of our metal forming , powertrain and casting segments . sales to gm were approximately 41 % of our consolidated net sales in 2018 , 47 % in 2017 , and 67 % in 2016 . we also supply driveline system products for fca us llc ( fca ) for heavy-duty ram full-size pickup trucks and its derivatives , the awd jeep cherokee , and a passenger car driveshaft program . in addition , we sell various products to fca from each of our metal forming , powertrain and casting segments . sales to fca were approximately 13 % of our consolidated net sales in 2018 , 14 % in 2017 and 18 % in 2016 . our acquisition of mpg in 2017 has significantly increased the diversification in our product portfolio , and accelerated customer diversification initiatives . as a result of our acquisition of mpg , sales to gm and fca as a percentage of consolidated net sales has been reduced . industry trends there are a number of significant trends affecting the markets in which we compete . intense competition , volatility in fuel , steel , metallic and other commodity prices and significant pricing pressures remain . at the same time , there is a focus on investing in future products that will incorporate the latest technology and meet changing customer demands . the continued advancement of technology and product innovation , as well as the capability to source programs on a global basis , are critical to attracting and retaining business in our global markets . increase in demand for electrification and electronic integration the electrification of vehicles continues to expand , largely driven by government regulations related to emissions , such as the corporate average fuel economy standards , as well as consumer demand for greater vehicle performance , enhanced functionality , increased electronic content and vehicle connectivity , and affordable convenience options . as electronic components become an increasingly larger focus for oems and suppliers , the industry will likely continue to see the addition of new market entrants from non-traditional automotive companies , including increased competition from technology companies . an area of focus will be the product development cycle and bridging the gap between the shorter development cycles of it hardware and software and the longer development cycles of traditional powertrain components . our e-aam hybrid and electric driveline systems , vectrac torque vectoring technology and tracrite ® differential technology , are examples of aam 's enhanced capabilities in electronic integration . evolution of the automotive industry as demand for car-sharing , ride-sharing and autonomous vehicles increases oems are increasingly focused on offering their own car-sharing rental businesses and ride-sharing services , in addition to selling vehicles . car-sharing typically allows consumers to rent a car for a short period of time , while ride-sharing matches people to available carpools or other services that provide on-demand rides with the use of an online application . with continued urbanization , population growth and increased government regulations to ease congestion , it is expected that the markets for these services will continue to grow , which could cause a shift in the type of vehicles utilized . as such , many oems are exploring and expanding their own car-sharing and ride-sharing efforts . another trend developing is the expectation that autonomous , self-driving cars will become more common with continued advancements in technology . autonomous vehicles present many possible benefits , such as a reduction in deadly traffic collisions caused by human error and reduced traffic congestion , but there are also foreseeable challenges such as liability for damage and software reliability . the increased integration of electronics and vehicle 22 connectivity that will likely be required in autonomous vehicle developments will provide an opportunity for suppliers , such as aam , with advanced capabilities in this area to be competitive in this expanding market . global automotive production and industry consolidation as our customers design their products for global markets , they will continue to require global support from their suppliers . for this reason , it is critical that suppliers maintain a global presence in these markets in order to compete for new contracts . story_separator_special_tag also during 2018 , we initiated actions to exit operations at manufacturing facilities in our driveline , metal forming and powertrain segments . as a result of these actions , we were required to assess the associated long-lived assets for impairment . based on our analysis , assets that were not to be redeployed to other aam facilities were determined to be fully impaired resulting in total charges of $ 30.0 million in 2018. in 2017 , we incurred severance charges of approximately $ 2.0 million , as well as other implementation costs , including professional fees , of approximately $ 13.9 million , and asset impairment charges of $ 1.5 million . in 2016 , severance charges were approximately $ 0.6 million , while implementation costs were $ 10.2 million and asset impairment charges were $ 4.5 million . in 2017 , we completed our acquisitions of mpg and usm mexico . during 2018 we incurred $ 1.2 million of acquisition-related costs , acquisition-related severance costs of $ 0.5 million , and $ 33.0 million of integration expenses associated with these acquisitions . this compares to $ 40.7 million of acquisition-related costs , $ 7.2 million of acquisition-related severance charges , and $ 45.4 million of integration expenses associated with these acquisitions for the year ended december 31 , 2017. acquisition-related costs primarily consist of advisory , legal , accounting , valuation and certain other professional or consulting fees incurred . also included in acquisition-related costs in 2017 was a one-time charge of approximately $ 20 million for mpg stock-based compensation that was accelerated and settled as a result of the acquisition . integration expenses reflect costs incurred for information technology systems , ongoing operational activities , and consulting fees incurred in conjunction with the acquisitions . we expect to incur additional integration charges of approximately $ 15 million to $ 25 million in 2019 , as we further the integration of mpg . in 2019 , we plan to initiate a new global restructuring program ( the 2019 program ) to further streamline our business by consolidating our four existing business units into three business units . this will occur through the disaggregation of our powertrain business unit , with a portion moving into our driveline business unit and a portion moving into our metal forming business unit . the primary objectives of this consolidation are to finalize the integration of mpg in a timely manner , align aam 's product and process technologies , and to achieve efficiencies within our corporate and business unit support teams to reduce cost in our business . we did not incur any charges under the 2019 program during 2018. we expect to incur approximately $ 25 million to $ 35 million of total restructuring charges in 2019 , including costs incurred under the 2019 program . gain on sale of business in april 2018 , we completed the sale of the aftermarket business associated with our powertrain segment for approximately $ 50 million . as a result , we recorded a $ 15.5 million pre-tax gain , which is disclosed in the gain on sale of business line item of our consolidated statement of operations for the year ended december 31 , 2018. operating income operating income was $ 106.4 million in 2018 as compared to $ 543.0 million in 2017 and $ 380.7 million in 2016 . operating margin was 1.5 % in 2018 as compared to 8.7 % in 2017 and 9.6 % in 2016 . the changes in operating income and operating margin in 2018 , 2017 and 2016 were due to the factors discussed 25 in net sales , cost of goods sold , sg & a , amortization of intangible assets , goodwill impairment , restructuring and acquisition-related costs and gain on sale of business above . interest expense interest expense was $ 216.3 million in 2018 , $ 195.6 million in 2017 and $ 93.4 million in 2016 . the change in interest expense in 2018 , as compared to 2017 , is primarily attributable to additional interest expense incurred on borrowings outstanding under our senior secured credit facilities entered into in april 2017 , as well as on $ 700.0 million aggregate principal amount of 6.25 % senior notes due 2025 and $ 500.0 million in aggregate principal amount of 6.50 % senior notes due 2027 , which were issued in march 2017. the change in interest expense in 2017 , as compared to 2016 , primarily reflects the interest incurred on these additional borrowings in 2017. the weighted-average interest rate of our total debt outstanding was 5.8 % in 2018 and 2017 , and 6.6 % in 2016 . we expect our interest expense in 2019 to be approximately $ 215 million to $ 225 million . investment income investment income was $ 2.0 million in 2018 and $ 2.9 million in 2017 and 2016 . investment income includes interest earned on cash and cash equivalents during the period . other income ( expense ) following are the components of other income ( expense ) for 2018 , 2017 and 2016 : debt refinancing and redemption costs in march 2018 , we made a tender offer for our 6.25 % notes due 2021. under this tender offer , we retired $ 383.1 million of the 6.25 % notes due 2021. we redeemed the remaining $ 16.9 million of the 6.25 % notes due 2021 during the second quarter of 2018. as a result of the tender and subsequent redemption , we expensed $ 2.5 million for the write-off of the remaining unamortized debt issuance costs that we had been amortizing over the expected life of the borrowing and $ 8.0 million in tender premiums . in may 2018 , we voluntarily redeemed a portion of our 6.625 % notes due 2022. this resulted in a principal payment of $ 100 million , and a payment of $ 0.8 million in accrued interest .
| results of operations net sales net sales increased to $ 7,270.4 million in 2018 as compared to $ 6,266.0 million in 2017 and $ 3,948.0 million in 2016 . the increase in sales in 2018 , as compared to 2017 , reflects an increase of approximately $ 738 million related to the inclusion of twelve months of mpg sales in 2018 , as compared to nine months of mpg sales in 2017 , as the acquisition was completed in april 2017. the increase in sales also reflects higher production volumes related to crossover vehicles and increased production volumes from program launches associated with our new business backlog . this was partially offset by the impact of lower full-size truck sales as a result of a decision by our largest customer to in-source a portion of a replacement program that launched in 2018 , and a reduction in production volumes for certain north american light truck programs we support as we prepared for program changeovers in 2018. net sales were also impacted by an increase in metal market pass-throughs to our customers and the impact of foreign exchange related to translation adjustments totaling approximately $ 67 million . the impact of our acquisition of mpg on net sales in 2017 was approximately $ 2,022 million . excluding the impact of our acquisition of mpg , our sales in 2017 , as compared to 2016 , reflect an increase in production volumes for the light truck and suv programs we support , as well as the impact of program launches from our new business backlog and an increase in metal market pass-throughs to our customers , partially offset by the impact of annual productivity price-downs for certain programs .
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overview surmodics , inc. and subsidiaries ( referred to as “ surmodics , ” the “ company , ” “ we , ” “ us , ” “ our ” and other like terms ) is a leading provider of surface modification technologies for intravascular medical devices and chemical components for in vitro diagnostic ( “ ivd ” ) immunoassay tests and microarrays . surmodics is pursuing development and commercialization of highly differentiated medical devices that are designed to address unmet clinical needs and engineered to the most demanding requirements . this key growth strategy leverages the combination of the company 's expertise in proprietary surface technologies , along with enhanced device design , development , and manufacturing capabilities . the company mission remains to improve the detection and treatment of disease . product development our business model for our whole-product solutions strategy within our medical device segment is to design , develop and manufacture highly differentiated products that incorporate our proprietary catheter , balloon , thrombectomy and or surface modification coating technologies to improve patient outcomes and reduce procedure costs , while maintaining patient safety . we are focused on developing devices that meet the needs of a spectrum of care settings ranging from hospitals , to ambulatory surgery centers , to office-based interventional labs in order to provide improved care and address unmet needs in the treatment of peripheral artery disease ( “ pad ” ) and other vascular diseases . 34 below is a brief summary of our pipeline of medical device products under development and recently commercialized , grouped by product platform . drug-coated balloons surveil tm dcb – paclitaxel-coated dcb to treat pad in the superficial femoral artery . in fiscal 2018 , we entered into an agreement ( the “ abbott agreement ” ) with abbott vascular , inc. ( “ abbott ” ) that provides abbott with exclusive worldwide commercialization rights to the surveil dcb product . patient 12-month follow-up visits in the transcend pivotal clinical trial have successfully concluded , and we have achieved a sufficient level of follow-up visits to evaluate the primary endpoints . in fiscal 2021 , we expect to submit the final clinical report to the fda for premarket approval ( “ pma ” ) . in the third quarter of fiscal 2020 , we received conformité européenne mark ( “ ce mark ” ) approval , which is a prerequisite for commercialization of the surveil dcb in the european union ( e.u. ) . the timeline for commercialization of the surveil dcb in the e.u . is to be determined at the discretion of abbott , subject to the terms of the abbott agreement . avess tm dcb – paclitaxel-coated dcb for the treatment of arteriovenous ( “ av ” ) fistulae commonly associated with hemodialysis . in fiscal 2019 , we commenced and completed enrollment in a first in-human , 12-patient clinical study of our avess dcb . in fiscal 2020 , initial study results were received and demonstrated promising early safety data and performance insights , with greater than 90 % of treated patients free from revascularization at six months . we plan to further evaluate initial study results in conjunction with relevant transcend study data when it is available . sundance tm dcb – sirolimus-coated dcb for the treatment of below-the-knee pad . we commenced the swing first-in-human , 35-patient clinical study of our sundance dcb in the third quarter of fiscal 2020. we expect to complete enrollment in the swing clinical study in the second half of fiscal 2021. radial access sublime radial access platform – access and therapeutic devices designed to provide radial ( wrist ) access to the peripheral vasculature . in fiscal 2019 , we received fda 510 ( k ) clearance for our sublime guide sheath , which enables the performance of lower extremity interventions from the radial artery . in the third quarter of fiscal 2020 , we received fda 510 ( k ) clearance for the sublime radial-access 0.014 ” percutaneous transluminal angioplasty ( “ pta ” ) balloon catheter for treatment of lesions in arteries below the knee . an important precursor to commercialization of our radial access platform is establishment of product performance experience through physician evaluations in real-world case settings . these evaluations are designed to assess the human use factors and performance of these devices . we are targeting the first half of fiscal 2021 to initiate product evaluation activities for our sublime guide sheath and 0.014 ” pta balloon catheter products . in the fourth quarter of fiscal 2020 , we froze the design of our sublime 0.018 ” pta balloon catheter , and we expect to pursue fda 510 ( k ) clearance for this product in fiscal 2021. thrombectomy pounce thrombectomy platform – mechanical thrombectomy technology designed to remove thrombus or emboli ( clots ) from the vasculature . the pounce technology platform has the potential to extend to other vascular indications beyond arterial with further development . in the fourth quarter of fiscal 2020 , we received fda 510 ( k ) clearance on our first thrombectomy device , the pounce thrombus retrieval system , intended for the non-surgical removal of thrombi and emboli ( clots ) from the peripheral arterial vasculature . we expect to initiate product evaluation activities for our pounce thrombus retrieval system in the second half of fiscal 2021 to assess human-use factors and product performance prior to commercialization . specialty catheters telemark – coronary/peripheral support microcatheter . in fiscal 2019 , we executed an agreement with medtronic plc ( “ medtronic ” ) to distribute our telemark microcatheter in the u.s . and europe for coronary applications . shipment of initial u.s. orders of our telemark microcatheter commenced early in fiscal 2020. in the third quarter of fiscal 2020 , we obtained ce mark for our telemark microcatheter and shipped initial european orders . 0.014 ” and 0.018 ” low-profile pta balloon dilation catheters – s pecialty pta balloon catheters for difficult-to-treat lesions . story_separator_special_tag however , we expect that differences in the rates of delivery and utilization of elective procedures in response to cms recommendations and the pandemic will have an adverse impact , which may be material , on our future revenues , profitability and cash flows . the extent and duration of that impact will depend upon the extent of procedure postponements and the duration of the pandemic . story_separator_special_tag study for our avess dcb . these decreases were partly offset by fiscal 2020 expenses related to our swing first-in-human clinical study for the sundance dcb , manufacturing readiness activities for our sublime radial access platform , and continued investments in human capital within our r & d team . r & d expense increased $ 11.9 million to 53 % of revenue in fiscal 2019 , compared to 50 % of revenue in fiscal 2019 , primarily due to expense related to the transcend clinical trial for our surveil dcb , as well as pre-commercial manufacturing and inventory-related costs for our surveil dcb , as we established manufacturing capabilities for this product . additionally , we continued to increase investment into development of our radial access and thrombectomy device platforms , as well as development and clinical study activities related to our sundance and avess dcbs . internal r & d costs include employee costs , supplies , materials , facilities and overhead related to the design , development , testing and pursuit of regulatory approval for our products , including clinical costs . selling , general and administrative expense . selling , general and administrative ( “ sg & a ” ) expense increased by $ 4.4 million to 30 % of revenue in fiscal 2020 , compared to 24 % of revenue in fiscal 2019. the increase in sg & a expense in fiscal 2020 was primarily driven by personnel and other investments to support product development and strategic initiatives . also contributing to the increase in sg & a expense in fiscal 2020 was a $ 0.6 million reduction to expense in fiscal 2019 resulting from a claim that was settled for less than the amount we had reserved . in fiscal 2019 , sg & a expense decreased by $ 0.2 million to 24 % of revenue , compared to 30 % of revenue in fiscal 2018. in fiscal 2019 , increases in compensation-related sg & a costs were more than offset by a $ 0.6 million benefit from a customer claim which was settled in fiscal 2019 for less than the amount reserved in fiscal 2018 . acquired in-process r & d . we acquired certain intellectual property assets in fiscal 2019 that resulted in a charge to acquired in-process r & d expense totaling $ 0.9 million in fiscal 2019. in fiscal 2018 , we acquired an innovative thrombectomy technology platform from embolitech , llc . as a result , we recognized acquired in-process r & d expense totaling $ 7.9 million in fiscal 2018 , representing the present value of upfront and probable future payments expected to be made under the agreement . acquisition related intangible asset amortization . we have previously acquired certain intangible assets through business combinations , which are amortized over periods ranging from six to 14 years . amortization expense on acquired intangible assets was generally consistent for fiscal 2020 , 2019 and 2018. contingent consideration ( gain ) expense . we recorded ( $ 0.2 ) million contingent consideration gain in fiscal 2019 and $ 0.7 million contingent consideration expense in fiscal 2018 from changes in the estimated fair value of our contingent consideration obligations stemming from fiscal 2016 business acquisitions . ( gain ) expense in each fiscal year related to changes in the probability and timing of achieving certain revenue and operational milestones , as well as expense for the passage of time ( i.e . accretion ) . in the first quarter of fiscal 2020 , we completed the final contingent consideration payment of $ 3.2 million to the sellers of normedix , inc. ( “ normedix ” ) . 38 other ( expense ) income . major classifications of other ( expense ) income we re as follows : replace_table_token_4_th investment income in fiscal 2020 declined relative to the prior year commensurate with a decline in interest rates . investment income increased in fiscal 2019 relative to the prior year as a result of an increase in average investment principal stemming from the $ 35 million of total payments received related to the abbott agreement in fiscal 2019 and 2018 . fiscal 2020 and 2019 interest expense included accreted expense on liabilities related to our acquisitions of certain in-process r & d technology assets in fiscal 2019 and 2018. foreign currency ( losses ) gains result primarily from the impact of u.s. to euro exchange rate fluctuations on certain intercompany obligations , as well as on euro-denominated contingent consideration liabilities outstanding in fiscal 2019 and 2018 related to the creagh medical acquisition . foreign exchange ( losses ) gains reflect ( strengthening ) weakening of the euro relative to the u.s. dollar in each respective period . in fiscal 2020 , we recognized a $ 0.5 million impairment loss on our investment in viacyte , inc. to reduce the carrying value to zero . income tax benefit . we recorded an income tax benefit of $ 2.6 million , less than $ 0.1 million and $ 3.1 million in fiscal 2020 , 2019 and 2018 , respectively . in march 2020 , the coronavirus aid , relief and economic security act ( the “ cares act ” ) was enacted and included significant business tax provisions . in particular , the cares act modified the rules associated with net operating losses ( “ nols ” ) . in fiscal 2020 , we recorded a discrete tax benefit of $ 1.7 million as a result of our ability under the cares act to carry back nols incurred to periods when the statutory tax rate was 35 % versus our current tax rate of 21 % .
| results of operations fiscal years ended september 30 , 2020 , 2019 and 2018 revenue . fiscal 2020 revenue was $ 94.9 million , a ( $ 5.2 ) million or ( 5 % ) decrease from fiscal 2019 revenue . fiscal 2019 revenue was $ 100.1 million , a $ 18.7 million or 23 % increase from fiscal 2018 revenue of $ 81.3 million . the following is a summary of revenue by reportable segment . replace_table_token_2_th medical device . revenue in our medical device segment was $ 71.4 million in fiscal 2020 , a ( 9 % ) decline from $ 78.4 million in fiscal 2019. the decrease in fiscal 2020 revenue was primarily driven by the expiration of our fourth-generation hydrophilic coating patents and the impact of covid-19 . product revenue increased by $ 2.8 million in fiscal 2020 , compared to the prior year , largely driven by recently commercialized medical device products , partly offset by softness in orders in the second half of fiscal 2020 as our customers managed inventory in response to reductions in procedures due to covid-19 . royalties and license fee revenue decreased ( 16 % ) , or ( $ 7.8 ) million , compared to fiscal 2019. royalties revenue decreased to $ 28.6 million in fiscal 2020 , compared to $ 34.8 million in fiscal 2019. royalties revenue in fiscal 2020 declined by approximately $ 5.5 million due to the previously communicated expiration of our fourth-generation hydrophilic patents . in addition , royalties revenue in fiscal 2020 was impacted by the reduction in procedures as a result of covid-19 , as well as by $ 1.0 million in revenue recognized in fiscal 2019 associated with the extension of an existing hydrophilic coating technology license .
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. in addition , the plans allow participants to voluntarily defer receipt of a portion of their income these benefits are provided to attract and retain senior managers with total rewards programs that are competitive with comparable companies health & welfare benefits medical , dental , vision , life insurance and disability benefits generally available to all full-time employees with supplemental executive long-term disability these benefits story_separator_special_tag overview the following discussions of financial condition and results of operations should be read in conjunction with the accompanying audited financial statements and notes to such statements and the cautionary statement regarding forward-looking statements found in part i , item 1a of this form 10-k. this discussion contains forward-looking statements based on current expectations , assumptions , estimates and projections of our management . actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors , as more fully described in the cautionary statement and elsewhere in this form 10-k. chs inc. ( chs , we or us ) is a diversified company , which provides grain , foods and energy resources to businesses and consumers on a global basis . as a cooperative , we are owned by farmers , ranchers and their member cooperatives across the united states . we also have preferred stockholders that own shares of our 8 % cumulative redeemable preferred stock . we provide a full range of production agricultural inputs such as refined fuels , propane , farm supplies , animal nutrition and agronomy products , as well as services , which include hedging , financing and insurance . we own and operate petroleum refineries and pipelines and market and distribute refined fuels and other energy products under the cenex ® brand through a network of member cooperatives and independent retailers . we purchase grains and oilseeds directly and indirectly from agricultural producers primarily in the midwestern and western united states . these grains and oilseeds are either sold to domestic and international customers , or further processed into a variety of grain-based food products . the consolidated financial statements include the accounts of chs and all of our wholly-owned and majority-owned subsidiaries , primarily the national cooperative refinery association ( ncra ) , which is in our energy segment . all significant intercompany accounts and transactions have been eliminated . we have aligned our segments based on an assessment of how our businesses operate and the products and services they sell . our three segments : energy , ag business and processing , create vertical integration to link producers with consumers . our energy segment produces and provides primarily for the wholesale distribution of petroleum products and transports those products . our ag business segment purchases and resells grains and oilseeds originated by our country operations business , by our member cooperatives and by third parties , and also serves as wholesaler and retailer of crop inputs . our processing segment converts grains and oilseeds into value-added products . corporate and other primarily represents our business solutions operations , which consists of commodities hedging , insurance and financial services related to crop production . summary data for each of our segments for the fiscal years ended august 31 , 2010 , 2009 and 2008 , is provided in item 6 selected financial data. except as otherwise specified , references to years indicate our fiscal year ended august 31 , 2010 , or ended august 31 of the year referenced . corporate administrative expenses are allocated to all three segments , and corporate and other , based on either direct usage for services that can be tracked , such as information technology and legal , and other factors or considerations relevant to the costs incurred . many of our business activities are highly seasonal and operating results will vary throughout the year . overall , our income is generally lowest during the second fiscal quarter and highest during the third fiscal quarter . our segments are subject to varying seasonal fluctuations . for example , in our ag business segment , our retail agronomy , wholesale crop nutrients and country operations businesses generally experience higher volumes and income during the spring planting season and in the fall , which corresponds to harvest . also in our ag business segment , our grain marketing operations are subject to fluctuations in volume and earnings based on producer harvests , world grain prices and demand . our energy segment generally experiences higher volumes and profitability in certain operating areas , such as refined products , in the summer and early fall when gasoline and diesel fuel usage is highest and is subject to global supply and demand forces . other 31 energy products , such as propane , may experience higher volumes and profitability during the winter heating and crop drying seasons . our revenues , assets and cash flows can be significantly affected by global market prices for commodities such as petroleum products , natural gas , grains , oilseeds , crop nutrients and flour . changes in market prices for commodities that we purchase without a corresponding change in the selling prices of those products can affect revenues and operating earnings . commodity prices are affected by a wide range of factors beyond our control , including the weather , crop damage due to disease or insects , drought , the availability and adequacy of supply , government regulations and policies , world events , and general political and economic conditions . while our revenues and operating results are derived from businesses and operations which are wholly-owned and majority-owned , a portion of our business operations are conducted through companies in which we hold ownership interests of 50 % or less and do not control the operations . we account for these investments primarily using the equity method of accounting , wherein we record our proportionate share of income or loss reported by the entity as equity income from investments , without consolidating the revenues and expenses of the entity in our consolidated statements of operations . story_separator_special_tag the average month-end market price per bushel of spring wheat , soybeans and corn decreased approximately $ 1.05 , $ 0.50 and $ 0.10 , respectively , when compared to the prices of those same grains for fiscal 2009. volumes increased 8 % during fiscal 2010 compared with fiscal 2009. wheat , corn , durum and distillers dried grains reflected the largest volume increases , partially offset by decreased volumes of soybeans , compared to fiscal 2009. wholesale crop nutrient revenues in our ag business segment totaled $ 1.6 billion and $ 2.0 billion during the years ended august 31 , 2010 and 2009 , respectively . of the wholesale crop nutrient revenues decrease of $ 474.3 million ( 23 % ) , $ 550.2 million is attributable to decreased average fertilizer selling prices , partially offset by $ 75.9 million due to increased volumes during fiscal 2010 compared to fiscal 2009. the average sales price of all fertilizers sold reflected a decrease of $ 117 per ton ( 26 % ) compared with fiscal 2009. volumes increased 4 % during the year ended august 31 , 2010 compared to fiscal 2009. our ag business segment non-grain and non-wholesale crop nutrients product revenues of $ 1.8 billion decreased by $ 68.4 million ( 4 % ) during fiscal 2010 compared to fiscal 2009 , primarily due to decreased revenues of retail crop nutrients , feed and processed sunflower products , partially offset by increased prices in retail energy and seed products . other revenues within our ag business segment , which primarily includes grain handling and service revenues , of $ 186.8 million during fiscal 2010 , decreased $ 22.6 million ( 11 % ) when compared to fiscal 2009. our processing segment revenues , after elimination of intersegment revenues , of $ 1.1 billion decreased $ 80.1 million ( 7 % ) during the year ended august 31 , 2010 compared to fiscal 2009. because our wheat milling and packaged foods operations are conducted through non-consolidated joint ventures , sales revenues reported in our processing segment consist entirely of revenues generated in our oilseed processing operations . 34 our oilseed operation net revenues decreased $ 80.1 million , primarily from a decrease in the average selling price of oilseed refined products , partially offset by increases in refined and processed volumes , as compared to fiscal 2009. typically , changes in average selling prices of oilseed products are primarily driven by the average market prices of soybeans . cost of goods sold . consolidated cost of goods sold of $ 24.4 billion for the year ended august 31 , 2010 compared to $ 24.8 billion for the year ended august 31 , 2009 , which represents a $ 452.5 million ( 2 % ) decrease . our energy segment cost of goods sold , after elimination of intersegment costs , of $ 8.1 billion increased by $ 1.3 billion ( 19 % ) during the year ended august 31 , 2010 compared to fiscal 2009. the increase in cost of goods sold is primarily due to increased per unit costs for refined fuels products . specifically , the average cost of refined fuels increased $ 0.28 per gallon ( 15 % ) , while volumes decreased by 5 % compared to fiscal 2009. on average , we process approximately 55,000 barrels of crude oil per day at our laurel , montana refinery and 80,000 barrels of crude oil per day at ncra 's mcpherson , kansas refinery . the average cost increase is primarily related to higher input costs at our two crude oil refineries coupled with higher average prices for the refined products that we purchased for resale compared to fiscal 2009. the aggregate average per unit cost of crude oil purchased for the two refineries increased 24 % compared to fiscal 2009. renewable fuels marketing costs increased $ 496.0 million ( 84 % ) , mostly from a 79 % increase in volumes , in addition to an increase in the average cost of $ 0.05 per gallon ( 3 % ) , when compared to fiscal 2009. the average cost of propane decreased $ 0.13 per gallon ( 11 % ) , while volumes increased 8 % compared to fiscal 2009. the increase in propane volumes primarily reflects increased demand caused by an improved crop drying season and an earlier home heating season . our ag business segment cost of goods sold , after elimination of intersegment costs , of $ 15.2 billion decreased $ 1.7 billion ( 10 % ) during the year ended august 31 , 2010 compared to fiscal 2009. grain cost of goods sold in our ag business segment totaled $ 11.8 billion and $ 12.7 billion during the years ended august 31 , 2010 and 2009 , respectively . the cost of grains and oilseed procured through our ag business segment decreased $ 0.9 billion ( 8 % ) compared to fiscal 2009. this is primarily the result of a $ 1.06 ( 15 % ) decrease in the average cost per bushel , partially offset by a 9 % net increase in bushels purchased as compared to fiscal 2009. wheat , corn , durum and distillers dried grains reflected the largest volume increases , partially offset by decreased volumes of soybeans , compared to fiscal 2009. wholesale crop nutrients cost of goods sold in our ag business segment totaled $ 1.5 billion and $ 2.1 billion during the years ended august 31 , 2010 and 2009 , respectively . of this decrease of $ 0.6 billion ( 29 % ) , approximately $ 92 million is due to the net change in the lower-of-cost or market adjustments on inventories during fiscal 2009 as compared to fiscal 2010 , as previously discussed .
| results of operations comparison of the years ended august 31 , 2010 and 2009 general . we recorded income before income taxes of $ 583.8 million in fiscal 2010 compared to $ 503.7 million in fiscal 2009 , an increase of $ 80.1 million ( 16 % ) . these results reflected increased pretax earnings in our ag business and processing segments , while our energy segment and corporate and other reflected decreased pretax earnings . our energy segment generated income before income taxes of $ 234.4 million for the year ended august 31 , 2010 compared to $ 418.7 million in fiscal 2009. this decrease in earnings of $ 184.3 million ( 44 % ) is primarily from lower margins on refined fuels mostly from our ncra and laurel , montana refineries . in addition , during fiscal 2009 , we sold 180,000 shares of our nymex holdings common stock for proceeds of $ 16.1 million and recorded a pretax gain of $ 15.7 million . earnings in propane , lubricants , renewable fuels marketing and transportation businesses improved during fiscal 2010 compared to fiscal 2009 , while our petroleum equipment operations experienced lower earnings . 32 our ag business segment generated income before income taxes of $ 269.3 million for the year ended august 31 , 2010 compared to $ 73.7 million in fiscal 2009 , an increase in earnings of $ 195.6 million ( 265 % ) . earnings from our wholesale crop nutrients business were $ 124.1 million higher during fiscal 2010 compared to fiscal 2009. the market for crop nutrients products fell significantly during fiscal 2009 as declining fertilizer prices , an input to grain production , followed the declining grain prices .
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the available facility amount is subject to borrowing base constraints and , beginning on december 15 , 2014 , outstanding borrowings will be constrained by an amortization schedule . the first required payment could be as early as march 31 , 2015 , subject to the level of outstanding borrowings and the borrowing base constraints . the facility has a final maturity date story_separator_special_tag the following discussion and analysis contains forward-looking statements that involve risks and uncertainties . our actual results may differ materially from those discussed in the forward-looking statements as a result of various factors , including , without limitation , those set forth in `` cautionary statement regarding forward-looking statements '' and `` item 1a . risk factors . '' the following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the notes thereto included elsewhere in this annual report on form 10-k. overview we are a leading independent oil and gas exploration and production company focused on frontier and emerging areas along the atlantic margin . our assets include existing production and other major development projects offshore ghana , as well as exploration licenses with significant hydrocarbon potential offshore ireland , mauritania , morocco ( including western sahara ) and suriname . we were incorporated pursuant to the laws of bermuda as kosmos energy ltd. in january 2011 to become a holding company for kosmos energy holdings . pursuant to the terms of a corporate reorganization that was completed immediately prior to the closing of kosmos energy ltd. 's ipo on may 16 , 2011 , all of the interests in kosmos energy holdings were exchanged for newly issued common shares of kosmos energy ltd. as a result , kosmos energy holdings became wholly owned by kosmos energy ltd. recent developments debt our commercial debt facility ( `` facility '' ) provides a revolving-credit and letter of credit facility with a total commitment of $ 1.5 billion . the availability period for the revolving-credit facility , as amended in april 2013 , expires on december 15 , 2014 and the letter of credit sublimit expires on the final maturity date . the available facility amount is subject to borrowing base constraints and , beginning on december 15 , 2014 , outstanding borrowings will also be constrained by an amortization schedule . the first required payment could be as early as march 31 , 2015 , subject to the level of outstanding borrowings and the borrowing base constraints . in september 2013 , as part of the normal borrowing base determination process , the availability under the facility was reduced to $ 1.2 billion . as of december 31 , 2013 , borrowings under the facility totaled $ 900.0 million , the undrawn availability under the facility was $ 309.5 million and there were no letters of credit drawn under the facility . in april 2013 , the availability under the corporate revolver was increased from $ 260.0 million to $ 300.0 million by additional commitments from existing and new financial institutions . in july 2013 , we entered into a revolving letter of credit facility agreement ( `` lc facility '' ) . the size of the lc facility is $ 100.0 million , with additional commitments up to $ 50.0 million being available if the existing lender increases its commitments or if commitments from new financial institutions are added . the lc facility provides that we shall maintain cash collateral in an amount equal to at least 75 % of all outstanding letters of credit under the lc facility , provided that during the period of any breach of certain financial covenants , the required cash collateral amount shall increase to 100 % . the fees associated with outstanding letters of credit issued will be 0.5 % per annum . the lc facility has an availability period which expires on june 1 , 2016. we may voluntarily cancel any commitments available under the lc facility at any time . as of december 31 , 2013 , there were six outstanding letters of credit totaling $ 42.0 million under the lc facility . 74 rig agreement in june 2013 , we signed a long-term rig agreement with a subsidiary of atwood oceanics , inc. for the new build drillship `` atwood achiever . '' currently under construction , the rig is expected to commence drilling operations in the second half of 2014. the rig 's capabilities include drilling to total depths of up to 40,000 feet ( 12,200 meters ) , and in water depths of up to 12,000 feet ( 3,660 meters ) . the rig agreement covers an initial period of three years at a day rate of approximately $ 0.6 million , with an option to extend the agreement for an additional three-year term . ghana during 2013 , we had eight liftings of oil totaling 7,778 mbbl from the jubilee field production resulting in revenues of $ 851.2 million . our average realized price was $ 109.44 per barrel . we previously received an approval for the phase 1a pod of the jubilee field , and production from phase 1a commenced in late 2012. the phase 1a program includes the drilling of up to eight additional wells consisting of up to five production wells and three water injection wells . five wells ( three producers and two injectors ) are online . program execution is expected to be completed in 2014. in january 2013 , we relinquished the discovery area associated with the banda discovery on the wctp block , as we do not consider this discovery to be commercially viable . as the exploration phase of the wctp pa has expired , we no longer have any rights to this discovery area ( unless we enter into a new petroleum agreement with the ghana ministry of energy and the ghana national petroleum company covering this and other relinquished areas of the wctp block ) . story_separator_special_tag ireland in april 2013 , the company entered into a farm-in agreement with antrim energy inc. , whereby kosmos acquired a 75 % participating interest and operatorship , covering licensing option 11/5 offshore the west coast of ireland . as part of the agreement , kosmos will reimburse a portion of previously-incurred exploration costs , as well as carry the partner on future 3d seismic costs . in april 2013 , the company entered into a farm-in agreement with europa oil & gas ( holdings ) plc , whereby kosmos acquired an 85 % participating interest and operatorship , covering licensing option 11/7 and 11/8 offshore the west coast of ireland . as part of the agreement , kosmos will reimburse a portion of previously incurred exploration costs , as well as carry the partner on future 76 3d seismic costs . contingent upon an election by kosmos and our partner to enter into a subsequent exploration drilling phase on one or both of the blocks , kosmos will also fund 100 % of the costs of the first exploration well on each block , subject to an investment cap of $ 90.0 million and $ 110.0 million , respectively , on each block . in july 2013 , ireland granted us frontier exploration licenses 1-13 , 2-13 , and 3-13 pursuant to licensing options 11/5 , 11/7 and 11/8 . the term of each contract is 15 years unless surrendered or revoked , and is divided into an initial phase of three years , and three subsequent phases of four years each . relinquishment of 25 % of the existing area is required at the end of the first phase and 50 % of the existing area at the end of the second phase . three months before the end of each phase , we must propose a work program for the subsequent phase for the approval of the minister of communications , energy and natural resources . the second phase work program must include an exploration well . the contract area must be surrendered if a second exploration well has not been commenced by the end of the third phase . upon entering these frontier exploration licenses , we and the other block partners relinquished approximately 25 % of the acreage covered by the licensing options . we completed a 3d seismic data acquisition program of approximately 5,000 square kilometers over these blocks in october 2013. the processing of this seismic data is expected to be completed in 2014. mauritania in may 2013 , we completed a 2d seismic data acquisition program on approximately 6,000 line-kilometers , covering blocks c8 , c12 and c13 offshore mauritania . in november 2013 , we completed a 3d seismic program of approximately 10,300 square kilometers over portions of blocks c8 and c12 . the processing of this seismic data is expected to be completed in 2014. suriname in august 2013 , we completed a 2d seismic program of approximately 1,400 line kilometers over a portion of block 42 , outside of the existing 3d seismic survey . processing and interpretation of the data continues . cameroon drilling of the sipo-1 exploration well on the ndian river block was completed in may 2013. oil and gas shows evidenced during drilling indicated a working petroleum system ; however , the well failed to encounter commercial reservoirs and accordingly was plugged and abandoned . total well and other related costs of $ 75.6 million are included in exploration expenses in the accompanying consolidated statement of operations for the year ended december 31 , 2013. during 2013 , we took all actions required to voluntarily relinquish all of the area under the ndian river block and fako block in cameroon . 77 story_separator_special_tag size= '' 2 '' > oil and gas production costs increased by $ 11.6 million during the year ended december 31 , 2012 as compared to the year ended december 31 , 2011 , primarily due to $ 44.5 million of workover costs related to acid stimulations on jubilee field wells , offset by a decrease due to the purchase of the fpso in december 2011. during the year ended december 31 , 2012 , the amortization of costs capitalized in connection with the purchase of the fpso were expensed as depletion . our average production cost per barrel was $ 16.11 and $ 13.99 for the years ended december 31 , 2012 and 2011 , respectively . 81 exploration expenses . exploration expenses decreased by $ 28.1 million during the year ended december 31 , 2012 , as compared to the year ended december 31 , 2011. during the year ended december 31 , 2012 , we incurred $ 53.9 million for seismic costs for morocco , suriname , ghana and cameroon ; $ 32.2 million of unsuccessful well costs , primarily related to the ghana teak-4a appraisal well and ghana okure-1 exploration well ; and $ 9.9 million of new business costs . during the year ended december 31 , 2011 , we incurred $ 32.8 million for seismic costs and $ 91.3 million of unsuccessful well costs , primarily related to the cameroon n'gata-1 , ghana makore-1 , ghana banda-1 and ghana odum exploration wells . general and administrative . general and administrative costs increased by $ 45.9 million during the year ended december 31 , 2012 , as compared to the year ended december 31 , 2011 , primarily due to increases in non-cash expenses of $ 32.4 million for equity-based compensation and an increase in staffing . total non-cash general and administrative costs were $ 83.4 million and $ 51.0 million for the years ended december 31 , 2012 and 2011 , respectively . depletion and depreciation . depletion and depreciation increased $ 45.2 million during the year ended december 31 , 2012 , as compared with the year ended december 31 , 2011 , primarily due to an increase in the cost basis of our oil and gas properties related to the purchase of the fpso and an increase in the number of completed wells .
| results of operations all of our results , as presented in the table below , represent operations from the jubilee field in ghana . certain operating results and statistics for the years ended december 31 , 2013 , 2012 and 2011 are included in the following table : replace_table_token_12_th 78 the discussion of the results of operations and the period-to-period comparisons presented below analyze our historical results . the following discussion may not be indicative of future results . year ended december 31 , 2013 vs. 2012 replace_table_token_13_th oil and gas revenue . oil and gas revenue increased by $ 183.3 million during the year ended december 31 , 2013 as compared to the year ended december 31 , 2012 , primarily due to an increase in sales volumes . we lifted and sold approximately 7,778 mbbl at an average realized price per barrel of $ 109.44 in 2013 and approximately 5,905 mbbl at an average realized price per barrel of $ 113.12 in 2012. oil and gas production . oil and gas production costs increased by $ 1.7 million during the year ended december 31 , 2013 as compared to the year ended december 31 , 2012. the change is due to an increase in routine operating expenses offset by a reduction in workover and rig equipment costs . during the year ended december 31 , 2013 , we incurred workover costs for two water injection wells . during the year ended december 31 , 2012 , we incurred workover costs related to acid jobs for six producing wells . exploration expenses .
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2013 acquisitions during 2013 , we completed five acquisitions for consideration consisting of : ( 1 ) cash of $ 158.5 million ; ( 2 ) 365 llc units valued at $ 4.1 million ; ( 3 ) warrants for the purchase of 126 llc units valued at $ 0.6 million ; and ( 4 ) the assumption of vested options valued at $ 0.2 million . 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 included in `` financial statements and supplementary data . '' some of the information contained in this discussion and analysis , including information with respect to our plans and strategy for our business , includes forward-looking statements involving significant risks and uncertainties . as a result of many factors , such as those set forth in `` risk factors , '' our actual results may differ materially from the results described in , or implied by , these forward-looking statements . ( throughout this discussion and analysis , dollars are in millions , unless otherwise noted . ) overview we are the global market leader in domain name registration . securing a domain is a necessary first step to creating a digital identity and our domain products often serve as the starting point in our customer relationships . as of december 31 , 2015 , more than 93 % of our customers had purchased a domain from us and we had approximately 62 million domains under management . according to verisign 's domain name industry brief , we had 20 % of the world 's domains registered as of september 30 , 2015 . we also offer hosting , presence and business application products enhancing our value proposition to our customers by enabling them to create , manage and syndicate their , or their customers ' , digital identities . while these products are often purchased in conjunction with , or subsequent to , an initial domain registration , they are also frequently the starting points in our customer relationships . as we have grown , our hosting , presence and business applications products have become increasingly important parts of our business , constituting over 48 % of total bookings in 2015 . financial highlights below are our key financial highlights for the year ended december 31 , 2015 . all comparisons are to the year ended december 31 , 2014 . total revenue of $ 1,607.3 million , an increase of 15.9 % , or approximately 17.3 % on a constant currency basis ( 1 ) . international revenue of $ 414.7 million , an increase of 19.0 % , or approximately 24.4 % on a constant currency basis ( 1 ) . total bookings ( 2 ) , a non-gaap financial measure , of $ 1,914.2 million , an increase of 14.3 % , or approximately 17.5 % on a constant currency basis ( 1 ) . net loss was $ 120.4 million . adjusted ebitda ( 1 ) , a non-gaap financial measure , of $ 337.4 million increased 24.3 % . total customers of 13.8 million increased 8.7 % . average revenue per user of $ 121 increased 6.3 % . cash and cash equivalents were $ 348.0 million . operating cash flow was $ 259.4 million . capital expenditures were $ 55.8 million . ( 1 ) discussion of constant currency is set forth in `` quantitative and qualitative disclosures about market risk . '' ( 2 ) total bookings and adjusted ebitda are non-gaap financial measures . reconciliations of total bookings to total revenue and adjusted ebitda to net loss , the most directly comparable gaap financial measures , are set forth in `` selected financial data—reconciliation of non-gaap financial measures . '' 58 our financial model we have developed a stable and predictable business model driven by efficient customer acquisition , high customer retention rates and increasing lifetime spend . we grew our total customers from 11.6 million as of december 31 , 2013 to 13.8 million as of december 31 , 2015 , primarily through a combination of brand advertising , direct marketing efforts and customer referrals . in each of the five years ended december 31 , 2015 , our customer retention rate exceeded 85 % and our retention rate for customers who had been with us for over three years was approximately 90 % . we believe the breadth and depth of our product offerings and the high quality and responsiveness of our customer care team build strong relationships with our customers and are key to our high level of customer retention . we generate bookings and revenue from sales of product subscriptions , including domain products , hosting and presence offerings and business applications , as described below . we offer our product subscriptions on a variety of terms , which are typically one year , but can range from monthly terms to multi-annual terms of up to ten years depending on the product . we use total bookings as a performance measure , since we typically collect payment at the time of sale and recognize revenue ratably over the term of our customer contracts . accordingly , we believe total bookings is an indicator of the expected growth in our revenue and the operating performance of our business . domains . we generated 52 % of our 2015 total bookings from the sale of domain products , primarily from domain name registrations and renewals , domain add-ons such as privacy and aftermarket sales . total bookings from domains grew an average of 12 % annually for the three years ended december 31 , 2015 . hosting and presence . we generated 37 % of our 2015 total bookings from the sale of hosting and presence products , primarily from a variety of web-hosting offerings , website builder products , ssl certificates and e-commerce products . these products generally have higher margins than domains . story_separator_special_tag hosting and presence revenue increased $ 127.3 million , or 33.4 % , from $ 380.6 million in 2013 to $ 507.9 million in 2014 . the increase primarily resulted from a $ 72.8 million increase in revenue from new and existing customers , $ 41.1 million of incremental revenue from businesses acquired in the fourth quarter of 2013 and a $ 13.3 million reduction in the impact of purchase accounting . business applications . business applications revenue increased $ 37.5 million , or 47.7 % , from $ 78.6 million in 2013 to $ 116.1 million in 2014 . the increase primarily resulted from a $ 33.4 million increase in revenue from new and existing customers , a $ 3.1 million reduction in the impact of purchase accounting and $ 1.0 million of incremental revenue from businesses acquired in the fourth quarter of 2013 . costs and operating expenses cost of revenue costs of revenue are the direct costs we incur in connection with selling an incremental product to our customers . substantially all cost of revenue relates to domain registration fees paid to the various domain registries and to icann , payment processing fees and third-party commissions . similar to our billing practices , we pay domain costs at the time of purchase for the life of each customer subscription , but recognize the costs of service ratably over the term of our customer contracts . the terms of registry pricing are established by agreements between registries and registrars , and can vary significantly depending on the tld . we expect cost of revenue to increase in absolute dollars in future periods as we expand our domains business and customer base . cost of revenue may increase or decrease as a percentage of total revenue , depending on the mix of products sold in a particular period and the sales and marketing channels used . replace_table_token_13_th 2015 compared to 2014 . cost of revenue increased $ 47.5 million , or 9.2 % , from $ 518.4 million in 2014 to $ 565.9 million in 2015 . this increase was primarily attributable to a $ 25.4 million increase in domain registration costs driven by the 4.6 % increase in domains under management as well as higher costs associated with new gtld registrations , a $ 12.1 million increase in software licensing fees primarily related to increased sales of our email and productivity solutions and a $ 5.1 million increase in payment processing fees due to the overall bookings increase . 2014 compared to 2013 . cost of revenue increased $ 44.5 million , or 9.4 % , from $ 473.9 million in 2013 to $ 518.4 million in 2014 . this increase was primarily attributable to a $ 32.5 million increase in domain registration costs as a result of a 3.5 % increase in domains under management , a $ 6.1 million increase in payment processing fees due to the overall bookings increase and a $ 5.4 million increase in third-party commissions , primarily attributable to our afternic business acquired in the fourth quarter of 2013 . technology and development technology and development expenses represent the costs associated with the creation , development and distribution of our products and websites . these expenses primarily consist of personnel costs associated with the design , development , deployment , testing , operation and enhancement of our products , as well as costs associated with the data centers and systems infrastructure supporting those products , excluding depreciation expense . we expect technology and development expense to 64 increase in absolute dollars as we continue to enhance existing products , develop new products and geographically diversify our data center footprint . technology and development expenses may increase or decrease as a percentage of total revenue depending on our level of investment in additional personnel and the expansion of our global infrastructure footprint . our investments in additional technology and development expenses are made to enhance our integrated technology infrastructure and support our new and enhanced product offerings , international expansion and the overall growth of our business . replace_table_token_14_th 2015 compared to 2014 . technology and development expenses increased $ 19.4 million , or 7.7 % , from $ 250.8 million in 2014 to $ 270.2 million in 2015 . the increase was primarily attributable to an $ 13.7 million increase in compensation-related costs for our technology and development employees ( including a $ 7.8 million increase in equity-based compensation ) , a $ 2.7 million increase in data center rent related to the continued growth of our business and a $ 2.1 million increase in technology-related professional fees to support our internal development team and expedite delivery of product enhancements to our customers . 2014 compared to 2013 . technology and development expenses increased $ 44.8 million , or 21.7 % , from $ 206.0 million in 2013 to $ 250.8 million in 2014 . the increase was primarily attributable to an $ 18.9 million increase in compensation costs driven primarily by employee headcount increases during the second half of 2013 , of which $ 6.4 million relates to our media temple business acquired in the fourth quarter of 2013 and $ 5.7 million relates to an increase in equity-based compensation expense . the remaining increase was primarily due to an $ 11.2 million increase in data center rent , of which $ 8.7 million relates to our media temple business , and a $ 9.6 million increase in technology-related professional fees to support our internal development team and expedite delivery of product enhancements to our customers . marketing and advertising marketing and advertising expense represent the costs associated with attracting and acquiring customers , primarily consisting of fees paid to third parties for marketing and advertising campaigns across television and radio , search engines , online display , social media and spokesperson and event sponsorships . these expenses also include personnel costs and affiliate program commissions .
| results of operations the following tables set forth our results of operations for the periods presented and as a percentage of our total revenue for those periods . the period-to-period comparison of financial results is not necessarily indicative of future results . replace_table_token_9_th 61 replace_table_token_10_th comparison of years ended december 31 , 2015 , 2014 and 2013 revenue we generate substantially all of our revenue from sales of product subscriptions , including domain registrations and renewals , hosting and presence offerings and business applications . our subscription terms are typically one year but can range from monthly terms to multi-annual terms of up to 10 years depending on the product . we generally collect the full amount of subscription fees at the time of sale , but recognize revenue ratably over the applicable contract term . domains revenue primarily consists of revenue from the sale of domain registration subscriptions , domain add-ons and aftermarket domain sales . domain registrations provide a customer with the exclusive use of a domain during the applicable contract term . after the contract term expires , unless renewed , the customer can no longer access the domain . hosting and presence revenue primarily consists of revenue from the sale of subscriptions to our website hosting products , website building products , online visibility products , security products and an online shopping cart . business applications revenue primarily consists of revenue from the sale of subscriptions for email accounts , online calendar , online data storage , third-party productivity applications and email marketing tools . revenue is presented net of refunds , and we maintain a reserve to provide for refunds granted to customers . our reserve is an estimate based on historical refund experience . refunds reduce deferred revenue at the time they are granted and result in a reduced amount of revenue recognized over the applicable subscription terms compared to the amount originally expected .
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the performance obligations are expected to be satisfied , and the corresponding revenue to be recognized , over the following story_separator_special_tag forward-looking statements this discussion contains “ forward-looking statements ” within the meaning of the private securities litigation reform act of 1995. these statements reflect our current views with respect to future events and financial performance . the words “ believe , ” “ expect , ” “ anticipate , ” “ intend , ” “ estimate , ” “ forecast , ” “ project , ” “ should ” and similar expressions are intended to identify “ forward-looking statements ” within the meaning of the private securities litigation reform act of 1995. all forecasts and projections in this document are “ forward-looking statements , ” and are based on management 's current expectations or beliefs of the company 's near-term results , based on current information available pertaining to the company , including the risk factors noted under item 1a in this form 10-k. from time to time , we also may provide oral and written forward-looking statements in other materials we release to the public , such as press releases , presentations to securities analysts or investors , or other communications by the company . any or all of our forward-looking statements in this report and in any public statements we make could be materially different from actual results . accordingly , we wish to caution investors that any forward-looking statements made by or on behalf of the company are subject to uncertainties and other factors that could cause actual results to differ materially from such statements . these uncertainties and other risk factors include , but are not limited to , the risks and uncertainties set forth under item 1a in this form 10-k. we wish to caution investors that other factors might in the future prove to be important in affecting the company 's results of operations . new factors emerge from time to time ; it is not possible for management to predict all such factors , nor can it assess the impact of each such factor on the business or the extent to which any factor , or a combination of factors , may cause actual results to differ materially from those contained in any forward-looking statements . we undertake no obligation to update publicly or revise any forward-looking statements , whether as a result of new information , future events or otherwise . 16 overview we are a leader in the design and development of value-added glass and metal products and services . our four reporting segments are : architectural framing systems , architectural glass , architectural services and large-scale optical technologies ( lso ) . during fiscal 2020 , we continued to focus on strategies to diversify and strengthen our revenue streams , through geographies , markets and project sizes served , in addition to focusing on good project selection , in order to improve the stability of our business throughout an economic cycle . we also focused on driving productivity , good cost management and integration/synergy activities , throughout our operations . we continue to execute a balanced capital allocation approach to invest in the business for growth and margin expansion while also returning capital to shareholders . fiscal 2020 story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > fiscal 2019 compared to fiscal 2018 . net sales improved 6.4 percent , or $ 43.6 million , over fiscal 2018 . the inclusion of efco for the full fiscal year contributed approximately 60 percent of the growth . remaining growth was driven by increased order activity in our other businesses within this segment . operating margin declined 180 basis points over fiscal 2018 , driven by the inclusion of a full year of efco at lower operating margins . in addition , we recorded a $ 3.1 million impairment charge on an indefinite-lived intangible asset at efco during fiscal 2019 . architectural glass replace_table_token_8_th fiscal 2020 compared to fiscal 2019 . fiscal 2020 net sales increased 5.4 percent , or $ 20.0 million , over the prior year , due to improved volume and mix , with lower large project revenue due to increased foreign competition , offset by growth in mid-size projects . operating margin increased 90 basis points for the fiscal year ended 2020 compared to the prior year period , as a result of improved factory productivity and volume leverage and cost control . this improvement was partially offset by 160 basis points of start-up costs related to our new manufacturing facility for the segment 's small projects growth initiative . this facility is now fully operational . fiscal 2019 compared to fiscal 2018 . fiscal 2019 net sales decreased 4.4 percent , or $ 16.9 million , over fiscal 2018 due to changes in timing of customer orders , as well as volume declines stemming from operational challenges in the second and third fiscal quarters . operating margin declined 400 basis points , largely due to increased labor costs , lower productivity and higher cost of quality due to challenges in ramping-up production in a tight labor market to meet higher than expected order intake and customer demand . in the second half of fiscal 2019 , we made progress on improving productivity and controlling costs . architectural services replace_table_token_9_th fiscal 2020 compared to fiscal 2019 . net sales decreased 6.0 percent , or $ 17.2 million , compared to the prior year , as a result of lower volumes due to timing of project activity . operating margin decreased 190 basis points over the prior year , due primarily to reduced leverage on the lower project volume and project mix . fiscal 2019 compared to fiscal 2018 . net sales increased 33.9 percent , or $ 72.6 million , over fiscal 2018 , due to strong project execution on maturing projects . operating margin improved 580 basis points over the prior year , due to volume leverage and strong project performance . story_separator_special_tag covid-19 consideration . while we believe we have adequate sources of liquidity to continue to fund our business for at least the next 12 months , the extent to which the evolving covid-19 situation may impact our results of operations or liquidity is uncertain . to date , we have experienced some delays in commercial construction projects due to covid-19 . while the construction and construction-related industries are considered an `` essential service '' in most jurisdictions in which we operate , site closures or project delays have occurred and increased social distancing and health-related precautions are required on many work sites , which may cause additional project delays and additional costs to be incurred . within the lso segment , we also experienced the temporary closure of many of our customer 's retail locations and we temporarily shut down our factories in this segment to comply with government `` stay in place '' orders . we expect this global pandemic to have an impact on our revenue and our results of operations , the size and duration of which we are currently unable to predict . at this time , we do not expect that the impact from the coronavirus outbreak will have a significant effect on our liquidity . we are proactively taking steps to increase available cash on hand including , but not limited to , targeted reductions in discretionary operating expenses and capital expenditures . given the speed and frequency of continuously evolving developments with respect to this pandemic , we can not reasonably estimate the magnitude of the impact to our results of operations , liquidity or financial position . to the extent that our customers and suppliers are adversely impacted by the coronavirus outbreak , this could reduce the availability , or result in delays , of materials or supplies , or delays in customer payments , which in turn could materially interrupt our business operations and or impact our liquidity . off-balance sheet arrangements . we have no off-balance sheet arrangements at february 29 , 2020 or march 2 , 2019 . outlook we are not providing annual guidance for fiscal 2021 at this time , given the rapidly evolving covid-19 pandemic and the uncertain potential impact on our business . recently issued accounting pronouncements see note 1 of the notes to consolidated financial statements within item 8 of this form 10-k for information pertaining to recently issued accounting pronouncements , incorporated herein by reference . 21 critical accounting policies our analysis of operations and financial condition is based on our consolidated financial statements prepared in accordance with u.s. gaap . preparation of these consolidated financial statements requires us to make estimates and assumptions affecting the reported amounts of assets and liabilities at the date of the consolidated financial statements , reported amounts of revenues and expenses during the reporting period and related disclosures of contingent assets and liabilities . in developing these estimates and assumptions , a collaborative effort is undertaken involving management across the organization , including finance , sales , project management , quality , risk , legal and tax , as well as outside advisors , such as consultants , engineers , lawyers and actuaries . our estimates are evaluated on an ongoing basis and are drawn from historical experience and other assumptions that we believe to be reasonable under the circumstances . actual results could differ under other assumptions or circumstances . we consider the following items in our consolidated financial statements to require significant estimation or judgment . revenue recognition we generate revenue from the design , engineering and fabrication of architectural glass , curtainwall , window , storefront and entrance systems , and from installing those products on commercial buildings . we also manufacture value-added glass and acrylic products . due to the diverse nature of our operations and various types of contracts with customers , we have businesses that recognize revenue over time and businesses that recognize revenue at a point in time . we believe the most significant areas of estimation and judgment relate to over-time revenue recognition on longer-term contracts . we have three businesses which operate under long-term , fixed-price contracts , representing approximately 31 percent of our total revenue in fiscal 2020 . the contracts for these businesses have a single , bundled performance obligation , as these businesses generally provide interrelated products and services and integrate these products and services into a combined output specified by the customer . the customer obtains control of this combined output , generally integrated window systems or installed window and curtainwall systems , over time . we measure progress on these contracts following an input method , by comparing total costs incurred to-date to the total estimated costs for the contract , and record that proportion of the total contract price as revenue in the period . contract costs include materials , labor and other direct costs related to contract performance . we believe this method of recognizing revenue is consistent with our progress in satisfying our contract obligations . due to the nature of the work required under these long-term contracts , the estimation of costs incurred and remaining to complete on a project is subject to many variables and requires significant judgment . it is common for these contracts to contain potential bonuses or penalties which are generally awarded or charged upon certain project milestones or cost or timing targets , and can be based on customer discretion . we estimate variable consideration at the most likely amount to which we expect to be entitled . we include estimated amounts in the transaction price to the extent that it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved . our estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on our assessments of anticipated performance and all information ( historical , current and forecasted ) that is reasonably available to us .
| summary of results : consolidated net sales were $ 1.4 billion , a decrease of 1 percent over fiscal 2019 . operating income was $ 87.8 million , an increase of 31 percent from $ 67.3 million in the prior year . diluted eps was $ 2.32 , compared to $ 1.63 in the prior year , an increase of 42 percent . adjusted operating income was $ 90.0 million , a decrease of 22.6 percent compared to the prior year , and adjusted diluted eps was $ 2.38 in fiscal 2020 , a decrease of 22.3 percent compared to the prior year . refer to the table below for details of these adjusted amounts . adjusted operating income and adjusted earnings per diluted share ( adjusted diluted eps ) are supplemental non-gaap measures provided by the company to assess performance on a more comparable basis from period-to-period by excluding amounts that management does not consider part of core operating results . management uses these non-gaap measures to evaluate the company 's historical and prospective financial performance , measure operational profitability on a consistent basis , and provide enhanced transparency to the investment community . these non-gaap measures should be viewed in addition to , and not as an alternative to , the reported financial results of the company prepared in accordance with gaap . other companies may calculate these measures differently , thereby limiting the usefulness of the measures for comparison with other companies . replace_table_token_4_th results of operations net sales replace_table_token_5_th fiscal 2020 compared to fiscal 2019 net sales in fiscal 2020 decreased by 1.1 percent compared to fiscal 2019 , driven by expected project timing-related decreases within the architectural services segment and by lower volumes at certain businesses within the architectural framing systems segment , partially offset by improved volume in the architectural glass segment .
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our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements , whether due to error or fraud , and performing procedures that respond to those risks . such procedures included examining , on a test basis , evidence regarding the amounts and disclosures in the consolidated financial statements . our audits also included evaluating the accounting principles used and significant estimates made by management , as well as evaluating the overall presentation of the consolidated financial statements . we believe that our audits provide a reasonable basis for our opinion . supplemental information the supplementary information contained in schedule ii ( the supplemental information ) has been subjected to audit procedures performed in conjunction with the audit of the company 's consolidated financial statements . the supplemental information is the responsibility of the company 's management . our audit procedures included determining whether the supplemental information reconciles to the consolidated financial statements or the underlying accounting and other records , as applicable , and performing procedures to test the completeness and accuracy of the information presented in the supplemental information . in forming our opinion on the supplemental information , we evaluated whether the supplemental information , including its form and content , is presented in conformity with rule 17a-5 under the securities exchange act of 1934. in our opinion , the supplementary information contained in schedule ii is fairly stated , in all material respects , in relation to the consolidated financial statements as a whole . we , or a firm acquired by us in 2012 , have continuously served as auditor for the two predecessors of the company since 2007 and 2011 , respectively . / s/ hutchinson and bloodgood llp glendale , california march 29 , 2019 f- 1 fat brands inc. consolidated balance sheets ( dollars in thousands , except share data ) replace_table_token_9_th the accompanying notes are an integral part of these consolidated financial statements . f- 2 fat brands inc. consolidated statements of operations ( dollars in thousands , except share data ) for the fiscal year ended december 30 , 2018 and the period beginning march 21 , 2017 ( inception ) through december 31 , 2017 replace_table_token_10_th the accompanying notes are an integral part of these consolidated financial statements f- 3 fat brands inc. consolidated statement of stockholders ' equity ( dollars in thousands , except share data ) replace_table_token_11_th the accompanying notes are an integral part of these consolidated financial statements . f- 4 fat brands inc. consolidated statement of cash flows ( dollars in thousands ) for the fiscal year ended december 30 , 2018 and the period beginning march 21 , 2017 ( inception ) through december 31 , 2017 replace_table_token_12_th the accompanying notes are an integral part of these consolidated financial statements . f- 5 notes to consolidated financial statements note 1. organization and relationships fat brands inc. ( the “ company ” ) was formed on march 21 , 2017 as a wholly-owned subsidiary story_separator_special_tag executive overview business overview fat brands inc. , formed in march 2017 as a wholly-owned subsidiary of fog cutter capital group , inc. ( “ fccg ” ) , is a leading multi-brand restaurant franchising company that develops , markets , and acquires predominantly fast casual restaurant concepts around the world . as a franchisor , we generally do not own or operate restaurant locations , but rather generate revenue by charging franchisees an initial franchise fee as well as ongoing royalties . this asset light franchisor model provides the opportunity for strong profit margins and an attractive free cash flow profile while minimizing restaurant operating company risk , such as long-term real estate commitments or capital investments . our scalable management platform enables us to add new stores and restaurant concepts to our portfolio with minimal incremental corporate overhead cost , while taking advantage of significant corporate overhead synergies . the acquisition of additional brands and restaurant concepts as well as expansion of our existing brands are key elements of our growth strategy . as of december 30 , 2018 , the company currently owns seven restaurant brands : fatburger , buffalo 's cafe , buffalo 's express , hurricane grill & wings , ponderosa and bonanza steakhouses , and yalla mediterranean , that have over 340 locations open and more than 200 under development in 32 countries . operating segments with minor exceptions , our operations are comprised exclusively of franchising a growing portfolio of restaurant brands . our growth strategy is centered on expanding the footprint of existing brands and acquiring new brands through a centralized management organization which provides substantially all executive leadership , marketing , training and accounting services . while there are variations in the brands , the nature of our business is fairly consistent across our portfolio . consequently , our management assesses the progress of our operations as a whole , rather than by brand or location , which has become more significant as the number of brands has increased . our chief operating decision maker ( “ codm ” ) is our chief executive officer . our codm reviews financial performance and allocates resources at an overall level on a recurring basis . therefore , management has determined that the company has one operating and reportable segment . story_separator_special_tag serif ; margin : 0 ; text-align : center '' > ( in thousands ) for the fiscal years ended replace_table_token_4_th operating activities net cash provided by operating activities increased $ 338,000 in 2018 compared to the 2017 fiscal year . there were variations in the components of the cash from operations between the two periods . story_separator_special_tag the company may prepay all or a portion of the outstanding principal and accrued unpaid interest under the loan agreement at any time upon prior notice to the lender , subject to a prepayment penalty of 10 % in the first year and 5 % in the second year of the term loan . as of december 30 , 2018 , the total principal amount due under the term loan was $ 16,400,000. the company recognized interest expense on the term loan of $ 3,301,000 for the fiscal year ended december 30 , 2018 as well as $ 222,000 in accretion expense , related to warrants issued in conjunction with the term loan , and $ 217,000 for amortization of debt offering costs . subsequent to the end of the fiscal year , on january 29 , 2019 , the company refinanced the term loan . the company as borrower , and its subsidiaries and affiliates as guarantors , entered into a new loan and security agreement ( the “ loan and security agreement ” ) with the lion fund , l.p. and the lion fund ii , l.p. ( “ lion ” ) . pursuant to the loan and security agreement , the company borrowed $ 20.0 million from lion , and utilized the proceeds to repay the existing $ 16.0 million term loan from fb lending , llc plus accrued interest and fees , and provide additional general working capital to the company . the term loan under the loan and security agreement matures on june 30 , 2020. interest on the term loan accrues at an annual fixed rate of 20.0 % and is payable quarterly . the company may prepay all or a portion of the outstanding principal and accrued unpaid interest under the loan and security agreement at any time upon prior notice to lion without penalty , other than a make-whole provision providing for a minimum of six months ' interest . capital expenditures as of december 30 , 2018 , we do not have any material commitments for capital expenditures . 38 critical accounting policies and estimates royalties : in addition to franchise fee revenue , we collect a royalty calculated as a percentage of net sales from our franchisees . royalties are recognized as revenue when the related sales are made by the franchisees . royalties collected in advance of sales are classified as deferred income until earned . franchise fees : franchise fee revenue from the sale of individual franchises is recognized over the term of the individual franchise agreement . unamortized non-refundable deposits collected in relation to the sale of franchises are recorded as deferred franchise fees . the franchise fee may be adjusted at management 's discretion or in a situation involving store transfers . deposits are non-refundable upon acceptance of the franchise application . in the event a franchisee does not comply with their development timeline for opening franchise stores , the franchise rights may be terminated , and franchise fee revenue is recognized for non-refundable deposits . store opening fees : we recognize store opening fees of $ 45,000 and $ 60,000 for domestic and international stores , respectively , from the up-front fees collected from franchisees . the remaining balance of the up-front fees are then amortized as franchise fees over the life of the franchise agreement . if the fees collected are less than the respective store opening fee amounts , the full up-front fees are recognized at opening . the $ 45,000 and $ 60,000 are based on our out-of-pocket costs for each store opening and are primarily comprised of labor expenses associated with training , store design , and supply chain setup . international fees recognized are higher due to the additional cost of travel . advertising : we require advertising payments based on a percent of net sales from franchisees . we also receive , from time to time , payments from vendors that are to be used for advertising . advertising funds collected are required to be spent for specific advertising purposes . advertising revenue and associated expense is recorded on the statement of operations . assets and liabilities associated with the related advertising fees are consolidated on the company 's balance sheet . goodwill and other intangible assets : goodwill and other intangible assets with indefinite lives , such as trademarks , are not amortized but are reviewed for impairment annually , or more frequently if indicators arise . no impairment has been identified for the year ended december 30 , 2018. income taxes : we account for income taxes under the asset and liability method . under this method , deferred tax assets and liabilities are determined based on the differences between financial reporting and tax reporting bases of assets and liabilities and are measured using enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse . realization of deferred tax assets is dependent upon future earnings , the timing and amount of which are uncertain . we utilize a two-step approach to recognize and measure uncertain tax positions . the first step is to evaluate the 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 upon tax authority examination , 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 the ultimate settlement . share-based compensation : we have a stock option plan which provides for options to purchase shares of our common stock .
| results of operations we operate on a 52-week or 53-week fiscal year ending on the last sunday of the calendar year . in a 52-week fiscal year , each quarter contains 13 weeks of operations . in a 53-week fiscal year , each of the first , second and third quarters includes 13 weeks of operations and the fourth quarter includes 14 weeks of operations , which may cause our revenue , expenses and other results of operations to be higher due to an additional week of operations . the 2018 fiscal year was a 52-week year and the 2017 fiscal year was a 53-week year . results of operations of fat brands inc. the following table summarize key components of our consolidated results of operations for the fiscal year ended december 30 , 2018 and for the period beginning march 21,2017 ( inception ) through december 31 , 2017 , which includes the consolidated operating results of fatburger , buffalo 's and ponderosa for the period from october 20 , 2017 ( acquisition ) through december 31 , 2017. because 2017 consisted of only a partial year of operations , meaningful comparisons with the 2018 fiscal year can not be made . 34 ( in thousands ) for the fiscal years ended replace_table_token_3_th net loss - net loss for the 2018 fiscal year totaled $ 1,798,000 consisting of revenues of $ 18,367,000 less general and administrative expenses of $ 14,131,000 ; other expense of $ 6,309,000 and income tax benefit of $ 275,000. net loss for the period from march 21 , 2017 ( inception ) through december 31 , 2017 ( the “ 2017 fiscal year ” ) totaled $ 613,000 consisting of revenues of $ 2,173,000 less general and administrative expenses of $ 2,123,000 ; other expense of $ 256,000 and income taxes of $ 407,000. revenues – our revenues consist of royalty fees , franchise fees , store opening fees , restaurant sales and management fees .
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we deliver next-generation information , analytics , and solutions to customers in business , finance , and government , improving their operational efficiency and providing deep insights that lead to well-informed , confident decisions . we have more than 50,000 business and government customers , including 80 percent of the fortune global 500 and the world 's leading financial institutions . headquartered in london , we are committed to sustainable , profitable growth . to best serve our customers , we are organized into the following four industry-focused segments : financial services , which includes our financial information , solutions , and processing product offerings ; transportation , which includes our automotive and maritime & trade product offerings ; resources , which includes our upstream and downstream product offerings ; and consolidated markets & solutions , which includes our product design , economics & country risk ( “ ecr ” ) , and tmt benchmarking product offerings . we believe that this sales and operating model helps our customers do business with us by providing a cohesive , consistent , and effective product , sales , and marketing approach by segment . our recurring fixed revenue and recurring variable revenue represented approximately 85 percent of our total revenue in 2019 . our recurring revenue is generally stable and predictable , and we have long-term relationships with many of our customers . our business has seasonal aspects . our first quarter generally has our lowest quarterly levels of revenue and profit . we also experience event-driven seasonality in our business ; for instance , we typically hold our annual ceraweek , world petrochemical , and tpm conferences in the second quarter of each year . another example is the biennial release of the bpvc engineering standard , which generates revenue for us predominantly in the third quarter of every other year . the most recent bpvc release was in the third quarter of 2019. during 2019 , we focused our efforts on increasing revenue and adjusted ebitda profit margin , innovating and developing new product offerings , rebalancing our asset portfolio , and updating our capital allocation policy . we delivered 6 percent organic revenue growth during 2019 and increased our adjusted ebitda profit margin by 130 basis points . we continued to introduce or enhance many of our product offerings , and we strengthened our product portfolio by acquiring agribusiness . we divested the majority of our tmt market intelligence assets portfolio in august 2019 , and we divested our a & d business line on december 2 , 2019. during 2019 , we termed out most of our debt , repurchased $ 500 million of our common shares , and de-levered to a 2.9x leverage ratio , which is within our capital policy target leverage ratio of 2.0-3.0x . for 2020 , we expect to focus our efforts on the following actions : increase in geographic , product , and customer penetration . we believe there are continued opportunities to add new customers and to increase the use of our products and services by existing customers . we plan to add new customers and build our relationships with existing customers by leveraging our existing sales channels , broad product portfolio , global footprint , and industry expertise to anticipate and respond to the changing demands of our end markets . introduce innovative offerings and enhancements . in recent years , we have launched several new product offerings addressing a wide array of customer needs , and we expect to continue to innovate using our existing data sets and industry expertise , converting core information to higher value advanced analytics . our investment priorities are primarily in energy , automotive , and financial services , and we intend to continue to invest across our business to increase our customer value proposition . balance capital allocation . we will continue to manage to our capital policy target leverage ratio , and we have updated our capital policy to reflect our intent to return 50 to 75 percent of our annual capital capacity to shareholders through share repurchases and a quarterly dividend . we will continue to evaluate the long-term potential and strategic fit of our asset portfolio , and we will also continue to evaluate potential mergers and acquisitions , focused primarily on targeted transactions in our core end markets that will allow us to continue to build out our strategic position . 34 key performance indicators we believe that revenue growth , adjusted ebitda ( both in dollars and margin ) , and free cash flow are key financial measures of our success . adjusted ebitda and free cash flow are financial measures that are not recognized terms under u.s. generally accepted accounting principles ( “ non-gaap ” ) . revenue growth . we review year-over-year revenue growth in our segments as a key measure of our success in addressing customer needs . we measure revenue growth in terms of organic , acquisitive , and foreign currency impacts . we define these components as follows : organic – we define organic revenue growth as total revenue growth from continuing operations for all factors other than acquisitions and foreign currency movements . we drive this type of revenue growth through value realization ( pricing ) , expanding wallet share of existing customers through up-selling and cross-selling efforts , securing new customer business , and through the sale of new or enhanced product offerings . acquisitive – we define acquisitive revenue as the revenue generated from acquired products and services from the date of acquisition to the first anniversary date of that acquisition . this type of growth comes as a result of our strategy to purchase , integrate , and leverage the value of assets we acquire . we also include the impact of divestitures in this metric . foreign currency – we define the foreign currency impact on revenue as the difference between current revenue at current exchange rates and current revenue at the corresponding prior period exchange rates . story_separator_special_tag in 2017 , we completed two acquisitions for a total purchase price of approximately $ 0.4 billion . our consolidated financial statements include the results of operations and cash flows for these business combinations beginning on their respective dates of acquisition . for a more detailed description of our recent acquisition activity , see “ item 8 - financial statements and supplementary data - notes to consolidated financial statements - note 3 ” in part ii of this form 10-k. global operations approximately 40 percent of our revenue is transacted outside of the united states ; however , only about 20 percent of our revenue is transacted in currencies other than the u.s. dollar . as a result , a strengthening u.s. dollar relative to certain currencies has historically resulted in a negative impact on our revenue ; conversely , a weakening u.s. dollar has historically resulted in a positive impact on our revenue . the largest foreign currency exposures for revenue are the british pound , euro , and canadian dollar . the impact of foreign currency movements on operating income is mitigated due to offsetting revenue and operating expense exposures denominated in currencies other than the u.s. dollar . our largest net foreign currency exposures are the indian rupee , euro , canadian dollar , and singapore dollar . see “ quantitative and qualitative disclosures about market risk – foreign currency exchange rate risk ” for additional discussion of the impacts of foreign currencies on our operations . pricing information we customize many of our sales offerings to meet individual customer needs and base our pricing on a number of factors , including various price segmentation models which utilize customer attributes , value attributes , and other data sources . attributes can include a proxy for customer size ( e.g. , barrels of oil equivalent and annual revenue ) , industry , users , usage , breadth of the content to be included in the offering , and multiple other factors . because of the level of offering customization we employ , it is difficult for us to evaluate pricing impacts on a period-to-period basis with absolute certainty . this analysis is further complicated by the fact that the offering sets purchased by customers are often not constant between periods . as a result , we are not able to precisely differentiate between pricing and volume impacts on changes in revenue comprehensively across the business . 36 other items cost of operating our business . we incur our cost of revenue primarily through acquiring , managing , and delivering our offerings . these costs include personnel , information technology , data acquisition , and occupancy costs , as well as royalty payments to third-party information providers . our sales , general , and administrative expense includes wages and other personnel costs , commissions , corporate occupancy costs , and marketing costs . a large portion of our operating expenses are not directly commensurate with volume sold , particularly in our recurring revenue business model . stock-based compensation expense . we issue equity awards to our employees primarily in the form of restricted stock units and performance stock units , for which we record cost over the respective vesting periods . the typical vesting period is three years . as of november 30 , 2019 , we had approximately 8.2 million unvested rsus/rsas and 0.4 million unvested stock options outstanding . critical accounting policies and estimates our consolidated financial statements are prepared in accordance with u.s. gaap . in applying u.s. gaap , we make significant estimates and judgments that affect our reported amounts of assets , liabilities , revenue , and expense , as well as disclosure of contingent assets and liabilities . we believe that our accounting estimates and judgments are reasonable when made , but in many instances , alternative estimates and judgments would also be acceptable . in addition , changes in the accounting estimates are reasonably likely to occur from period to period . accordingly , actual results could differ significantly from our estimates . to the extent that there are material differences between these estimates and actual results , our financial condition or results of operations will be affected . we base our estimates on historical experience and other assumptions that we believe are reasonable , and we evaluate these estimates on an ongoing basis . we refer to accounting estimates of this type as critical accounting policies and estimates , which are discussed further below . revenue recognition . most of our offerings are provided under agreements containing standard terms and conditions . approximately 85 percent of our 2019 revenue was derived from recurring revenue arrangements , which generally are initially deferred and then recognized ratably over the contract term . these recurring revenue arrangements typically do not require any significant judgments about when revenue should be recognized . a limited number of recurring revenue arrangements and certain non-recurring revenue arrangements contain multiple performance obligations . we apply judgment in identifying the separate performance obligations to be delivered under the arrangement and allocating the transaction price based on the estimated standalone selling price of each performance obligation . business combinations . we apply the purchase method of accounting to our business combinations . all of the assets acquired , liabilities assumed , and contingent consideration are allocated based on their estimated fair values . fair value determinations involve significant estimates and assumptions about several highly subjective variables , including future cash flows , discount rates , and expected business performance . there are also different valuation models and inputs for each component , the selection of which requires considerable judgment . our estimates and assumptions may be based , in part , on the availability of listed market prices or other transparent market data . these determinations will affect the amount of amortization expense recognized in future periods . we base our fair value estimates on assumptions we believe are reasonable , but recognize that the assumptions are inherently uncertain .
| results of operations total revenue total revenue for 2019 increased 10 percent compared to the same period of 2018 . total revenue for 2018 increased 11 percent compared to the same period of 2017 . the table below displays the percentage point change in revenue due to organic , acquisitive , and foreign currency factors when comparing 2019 to 2018 and 2018 to 2017 . replace_table_token_1_th organic revenue growth in 2019 and 2018 was attributable to both recurring and nonrecurring revenue growth . the recurring-based business represented 85 percent of total revenue in 2019 , compared to 84 percent and 83 percent of total revenue in 2018 and 2017 , respectively . the recurring-based business increased 6 percent organically in 2019 and 2018 , led in each year by financial services and transportation offerings , with resources also contributing to the organic growth . the non-recurring business increased 6 percent organically in 2019 and 2018 , led by transportation and resources offerings , with financial services offerings also contributing to the organic growth in 2019. the non-recurring revenue increase in 2019 was also partially due to the timing of the biennial cycle of the bpvc standard , which contributed approximately $ 8 million of growth in the 2019 results . acquisition-related revenue growth for 2019 was primarily due to the ipreo acquisition in the third quarter of 2018 , as well as the agribusiness acquisition in the third quarter of 2019 , partially offset by the tmt market intelligence assets divestiture in the third quarter of 2019. acquisition-related revenue growth for 2018 was primarily due to the ipreo acquisition in the third quarter of 2018 and the am acquisition in the fourth quarter of 2017. foreign currency movements had a slightly negative effect on our 2019 revenue growth and a slightly positive impact on our 2018 revenue growth .
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· level 3 – prices or valuation techniques requiring inputs that are both significant to the fair value measurement and unobservable . our financial instruments include cash and cash equivalents , marketable securities , short-term investments , accounts payable and certain other current assets and liabilities . due to the short-term nature of our cash and cash equivalents , short-term investments , accounts payable and certain other current assets and liabilities , we believe that their carrying amounts approximate fair value . our marketable securities are classified as available-for-sale . accordingly , these securities are carried at fair value , which is based upon quoted market prices in an active market and included in level 1 of the fair value hierarchy . our other investments , comprised of midas gold shares , are accounted for using the fair value option based on quoted market prices in an active market and are included in level 1 of the fair value hierarchy . the mill equipment is accounted for using a third-party valuation and is included in level 3 of the fair value hierarchy . 57 recent accounting pronouncements leases in february 2016 the fasb issued asu no . 2016-02 , leases . the new standard establishes a right-of-use ( “ rou ” ) model that requires a lessee to record an rou asset and a lease liability on the balance sheet for all leases with terms longer than 12 months . leases will be classified as either finance or operating , with classification affecting the pattern of expense recognition in the income statement . the new standard is effective for interim and annual periods beginning after december 15 , 2018. a modified retrospective transition approach is required for lessees for capital and operating leases existing at , or entered into , after the beginning of the earliest comparative period presented in the financial statements , with certain practical expedients available . based upon our initial review , we expect to recognize additional operating liabilities of approximately $ 185 on adoption , with corresponding rou assets of the same amount , based on the present value of the remaining lease payments . nonemployee share-based payments the fasb issued asu no . 2018-07 , compensation - stock compensation ( topic 718 ) - improvements to nonemployee share-based payment accounting . asu no . 2018-07 , supersedes the guidance for equity-based payments to nonemployees ( topic asc 505-50 ) . under the new standard , an entity should treat equity-based payments to nonemployees the same as stock-based compensation to employees in most cases . the new guidance is effective for interim and annual periods beginning after december 15 , 2018 , with early adoption permitted . effective july 1 , 2018 , the company adopted the new guidance . the company performed an assessment of the standard and the impacts on the company 's consolidated financial statements and disclosures . based on our analysis , adoption of the standard has not materially changed the company 's expense recognition and disclosures . revenue recognition new fasb guidance issued under asu no . 2014-09 , revenue from contracts with customers ( topic 606 ) , as amended , is effective for interim and annual periods beginning after december 15 , 2017. under asu no . 2014-09 , an entity should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services . asu no . 2014-09 also requires additional disclosure about the nature , amount , timing , and uncertainty of revenue and cash flows arising from customer contracts . this includes significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract . effective january 1 , 2018 , the company adopted the new guidance modified retrospectively . the company performed an assessment of the revised guidance and the impacts on the company 's consolidated financial statements and disclosures . we also evaluated the potential for future variable consideration from option payments , net smelter return royalties ( “ nsr ” ) , and other production related payments , and determined that there is no impact to the company 's current accounting . the company determined that the adoption of this guidance will primarily impact the timing of revenue recognition on certain option agreements based on the company 's determination of when control is transferred for accounting purposes . based on the contracts outstanding as of december 31 , 2017 , there was no cumulative effect adjustment required to be recognized at january 1 , 2018. under the company 's adoption approach , results for reporting periods beginning after january 1 , 2018 , will be presented in the consolidated financial statements under the new guidance , while prior period amounts will not be adjusted and continue to be reported under the guidance in effect for those periods . currently , proceeds received from option agreements are ascribed to recovery of the carrying value of the related project until the carrying value reaches zero . after that , any additional proceeds received will be recognized as a contract liability until control has transferred to the buyer or the related contract has terminated . none of the projects which could provide the company with future variable consideration are currently in production , and in all cases , we believe there is low probability of future production from these projects . accordingly , the company believes its nsrs and other production related payments are fully constrained , and the company did not record a receivable for them . when it 58 becomes probable that a project which could provide the company with an nsr or other production related payments could begin production , the company will evaluate the accounting treatment at that time . item 8. financial statements and supplementary data . management 's report on internal control story_separator_special_tag · level 3 – prices or valuation techniques requiring inputs that are both significant to the fair value measurement and unobservable . our financial instruments include cash and cash equivalents , marketable securities , short-term investments , accounts payable and certain other current assets and liabilities . due to the short-term nature of our cash and cash equivalents , short-term investments , accounts payable and certain other current assets and liabilities , we believe that their carrying amounts approximate fair value . our marketable securities are classified as available-for-sale . accordingly , these securities are carried at fair value , which is based upon quoted market prices in an active market and included in level 1 of the fair value hierarchy . our other investments , comprised of midas gold shares , are accounted for using the fair value option based on quoted market prices in an active market and are included in level 1 of the fair value hierarchy . the mill equipment is accounted for using a third-party valuation and is included in level 3 of the fair value hierarchy . 57 recent accounting pronouncements leases in february 2016 the fasb issued asu no . 2016-02 , leases . the new standard establishes a right-of-use ( “ rou ” ) model that requires a lessee to record an rou asset and a lease liability on the balance sheet for all leases with terms longer than 12 months . leases will be classified as either finance or operating , with classification affecting the pattern of expense recognition in the income statement . the new standard is effective for interim and annual periods beginning after december 15 , 2018. a modified retrospective transition approach is required for lessees for capital and operating leases existing at , or entered into , after the beginning of the earliest comparative period presented in the financial statements , with certain practical expedients available . based upon our initial review , we expect to recognize additional operating liabilities of approximately $ 185 on adoption , with corresponding rou assets of the same amount , based on the present value of the remaining lease payments . nonemployee share-based payments the fasb issued asu no . 2018-07 , compensation - stock compensation ( topic 718 ) - improvements to nonemployee share-based payment accounting . asu no . 2018-07 , supersedes the guidance for equity-based payments to nonemployees ( topic asc 505-50 ) . under the new standard , an entity should treat equity-based payments to nonemployees the same as stock-based compensation to employees in most cases . the new guidance is effective for interim and annual periods beginning after december 15 , 2018 , with early adoption permitted . effective july 1 , 2018 , the company adopted the new guidance . the company performed an assessment of the standard and the impacts on the company 's consolidated financial statements and disclosures . based on our analysis , adoption of the standard has not materially changed the company 's expense recognition and disclosures . revenue recognition new fasb guidance issued under asu no . 2014-09 , revenue from contracts with customers ( topic 606 ) , as amended , is effective for interim and annual periods beginning after december 15 , 2017. under asu no . 2014-09 , an entity should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services . asu no . 2014-09 also requires additional disclosure about the nature , amount , timing , and uncertainty of revenue and cash flows arising from customer contracts . this includes significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract . effective january 1 , 2018 , the company adopted the new guidance modified retrospectively . the company performed an assessment of the revised guidance and the impacts on the company 's consolidated financial statements and disclosures . we also evaluated the potential for future variable consideration from option payments , net smelter return royalties ( “ nsr ” ) , and other production related payments , and determined that there is no impact to the company 's current accounting . the company determined that the adoption of this guidance will primarily impact the timing of revenue recognition on certain option agreements based on the company 's determination of when control is transferred for accounting purposes . based on the contracts outstanding as of december 31 , 2017 , there was no cumulative effect adjustment required to be recognized at january 1 , 2018. under the company 's adoption approach , results for reporting periods beginning after january 1 , 2018 , will be presented in the consolidated financial statements under the new guidance , while prior period amounts will not be adjusted and continue to be reported under the guidance in effect for those periods . currently , proceeds received from option agreements are ascribed to recovery of the carrying value of the related project until the carrying value reaches zero . after that , any additional proceeds received will be recognized as a contract liability until control has transferred to the buyer or the related contract has terminated . none of the projects which could provide the company with future variable consideration are currently in production , and in all cases , we believe there is low probability of future production from these projects . accordingly , the company believes its nsrs and other production related payments are fully constrained , and the company did not record a receivable for them . when it 58 becomes probable that a project which could provide the company with an nsr or other production related payments could begin production , the company will evaluate the accounting treatment at that time . item 8. financial statements and supplementary data . management 's report on internal control
| results from operations summary through 2018 , we continued to improve the economics of the mt todd gold project at a relatively low cost . in august 2018 , we announced the results of tests of the second stage grinding circuit undertaken , under the direction of resource development inc. these tests suggest that the mt todd ore can be efficiently ground to a finer final product size with lower power consumption than estimated in the pfs . leaching the finer final product size material has again confirmed higher recoveries at finer grind sizes . based on these initial results , we are now undertaking additional testing to : confirm results over a broad range of feed grades ; justify design changes ; and support an update of the project economics . we believe that the results of these ongoing grinding and leaching tests indicate that gold recoveries exceeding 90 % may be achieved for the mt todd gold project , as compared to 86.4 % assumed in our january 2018 pfs . analysis indicates that each 1 % improvement in gold recoveries could add approximately 0.5 % to mt todd 's after-tax irr , and approximately $ 25 million to after-tax npv5 % . 51 consolidated net loss for the year ended december 31 , 2018 was $ 8,714 or $ 0.09 per basic share . consolidated net loss for the year ended december 31 , 2017 was $ 12,035 or $ 0.12 per basic share . the principal components of our 2018 net loss and these year-over-year changes are discussed below . the company has $ 13,198 of working capital and no debt . exploration , property evaluation and holding costs exploration , property evaluation and holding costs , including fixed cash costs , cash discretionary programs , and non-cash stock-based compensation , were $ 4,803 and $ 6,931 during the years ended december 31 , 2018 and 2017 , respectively .
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overview the company was incorporated in the state of illinois in 1962 and is the successor to employment offices doing business since 1893. the company provides the following distinctive services : ( a ) professional placement services specializing in the placement of information technology , engineering , and accounting professionals for direct hire and contract staffing , and ( b ) temporary staffing services in light industrial staffing . the company provides staffing services through a network of branch offices located in major metropolitan areas throughout the united states . the company 's professional staffing services provide information technology , engineering and accounting professionals to clients on either a regular placement basis or a temporary contract basis . the company 's industrial staffing business provides weekly temporary staffing for light industrial clients in ohio and pennsylvania . management has implemented a strategy which included cost reduction efforts as well as identifying strategic acquisitions , financed primarily through the issuance of common stock and convertible debt , to improve the overall profitability and cash flows of the company . we believe our current segments complement one another and position us for future growth . as of july 7 , 2013 , the company 's board of directors determined that the best course of action related to its agricultural division was to terminate its operations , to liquidate its assets , and to focus the business on the light industrial and professional divisions . on july 7 , 2013 , all staffing was discontinued and the entire operations of the agricultural division were discontinued as of august 1 , 2013. all employees have been terminated , a one-time expense of approximately $ 150,000 was recognized as of september 30 , 2013 and an additional expense of $ 230,000 was recognized related to uncollected accounts receivable as of september 30 , 2014 . 13 story_separator_special_tag collect approximately $ 265,000 of receivables from a certain customer , however all assets have been fully reserved and the company does not expect there to be any additional expenses related to this discontinued operation in the future . taxes there were no credits for income taxes as a result of the pretax losses incurred during the periods because there was not sufficient assurance that future tax benefits would be realized . liquidity and capital resources the following table sets forth certain consolidated statements of cash flows data from continuing operations ( in thousands ) : replace_table_token_7_th as of september 30 , 2014 , the company had cash and cash equivalents of $ 168,000 , which was a decrease of approximately $ 193,000 from approximately $ 361,000 at september 30 , 2013. negative working capital at september 30 , 2014 was approximately $ 909,000 , as compared to negative working capital of approximately $ 781,000 for september 30 , 2013. the company 's current ratio was approximately 88 % , a decrease of approximately 3 % from the prior year . shareholders ' equity as of september 30 , 2014 , was approximately $ 2,065,000 which represented approximately 21 % of total assets . the net loss for the year ended september 30 , 2014 , was approximately $ 1,355,000. net cash provided by ( used in ) operating activities for the years ended september 30 , 2014 and 2013 was approximately $ 286,000 and ( $ 1,071,000 ) , respectively . the fluctuation is due to the decrease in revenue and resulting decrease in account receivable , which were off-set by significant decreases in overall operating liabilities . net cash used in investing activities for the years ended september 30 , 2014 and 2013 was ( $ 371,000 ) and ( $ 345,000 ) respectively . these uses related primarily to acquisition payments and purchasing of fixed assets . net cash flow used in financing activities for the year ended september 30 , 2014 was approximately ( $ 108,000 ) compared to $ 1,413,000 provided by the same in the year ended september 30 , 2013. at the end of fiscal year 2013 , the company changed lenders and was able to significantly increase its borrowing with this new lender . during fiscal year 2014 , the company sold common stock for cash of approximately $ 470,000 and entered into a new subordinated convertible note for cash of approximately $ 517,000. this was off-set by a decrease in net short term borrowings related to an overall lower accounts receivable balance . all of the company 's office facilities are leased . as of september 30 , 2014 , future minimum lease payments under non-cancelable lease commitments having initial terms in excess of one year , including closed offices , totaled approximately $ 1,019,000. on april 22 , 2013 , the company finalized an amendment to the asset purchase agreement by and among dmcc staffing , llc , an ohio limited liability company , rffg of cleveland , llc an ohio limited liability company ( each a seller and together , sellers ) , the company , and triad personnel services , inc. , an illinois corporation and wholly owned subsidiary of the company ( buyer ) . 16 the company agreed to pay the sellers additional cash consideration of between $ 550,000 and $ 650,000 depending on the length of payment terms and 1,100,000 shares of common stock , in full satisfaction of all amounts owed to seller , related to the asset purchase agreement . the company issued 1,100,000 shares of common stock on july 2 , 2013 , which was valued at approximately $ 330,000. during the year ended september 30 , 2013 , the company paid $ 200,000 of the cash consideration noted above . the company has accrued $ 350,000 at september 30 , 2013 , for the balance of the liability , however has elected to pay the remaining amount over two years . the total payments over the two years will be approximately $ 450,000 with the additional $ 100,000 to be recorded as interest expense . story_separator_special_tag in addition , as discussed above , the company entered into the acf facility to provide working capital financing . on march 31 , 2014 , the company entered into a securities purchase agreement ( the spa ) with aracle spf i , llc ( aracle ) pursuant to which aracle has the right to acquire up to 12 units ( the units ) , for $ 50,000 per unit , with each unit consisting of 250,000 shares of common stock of the company and 125,000 common stock purchase warrants . the warrants are exercisable 6 months after issuance , have a term of 4 years , and have an exercise price of $ 0.25 per warrant share . the spa contains standard representations , warranties , and covenants . in addition , the spa contains a price adjustment mechanism that requires the company , with certain exceptions , to issue additional shares of common stock to the investor in the event the company , within 12 months of the initial closing under the spa , issues certain equity securities at a price per share less than $ 0.20 , provided , however , as long as the company is listed on the nyse mkt the total number of shares issuable under the foregoing adjustment provision may not exceed 19.9 % of the company 's outstanding shares of common stock on march 30 , 2014. further , in the event the company is delisted from nyse mkt while aracle owns at least 51 % of the shares issued to it under the spa , the company shall issue an additional 3,000,000 shares to aracle , and the 12 month price adjustment period shall be extended to 36 months . the company agreed to appoint two new members to the company 's board of directors within 60 days of the initial closing , which new members are subject to the prior approval of aracle . the company granted aracle piggyback registration rights with respect to the shares and the shares of common stock underlying the warrants . the warrants do not include any price protection clause . concurrently with entering into the spa , the company and aracle conducted an initial closing thereunder , in which aracle purchased 9.5 units for $ 475,000. on april 16 , 2014 , the company , aracle and a second institutional investor entered into certain securities purchase agreements ( spa ) pursuant to which the investors purchased 2.5 units for $ 125,000. the company incurred certain expenses related to the spa 's and the closings thereunder of approximately $ 130,000 , which were paid from the proceeds for net proceeds of approximately $ 470,000. on august 7 , 2014 , the company issued a convertible note ( the note ) with an original principal balance of $ 632,500 to brio capital master fund ltd ( brio ) , for a purchase price of $ 550,000. the note matures on february 6 , 2016 , and is payable in thirteen monthly installments of $ 48,654 , commencing in the sixth month post-closing . brio has the right , however not the obligation , six months after closing , to convert all or any part of the outstanding note into the company 's common stock at an initial conversion price of $ 0.20 per share . after six months from closing , the conversion price will have a one-time reset to the lower of $ 0.20 or 90 % of the average of the 3 lowest closing prices for the previous 10 trading days , subject to a floor of $ 0.14 per share . the company can force conversion if the company 's common stock trades at 250 % greater than the conversion price for 20 consecutive trading days . 18 in addition to the note , the company issued a warrant to purchase up to 2,371,875 shares of the company common stock . the warrant is exercisable at $ 0.25 per share , vests 6 months after the closing , and expires 5 years thereafter . in recent years , the company has incurred significant losses and negative cash flows from operations . management has implemented a strategy which included cost reduction efforts as well as identifying strategic acquisitions , financed primarily through the issuance of common stock , to improve the overall profitability and cash flows of the company . management believes with current cash flow from operations , the preferred offering and the availability under the acf facility , the company will have sufficient liquidity for the next 12 months . off-balance sheet arrangements as of september 30 , 2014 and 2013 , and during the two years then ended , there were no transactions , agreements or other contractual arrangements to which an unconsolidated entity was a party , under which the company ( a ) had any direct or contingent obligation under a guarantee contract , derivative instrument or variable interest in the unconsolidated entity , or ( b ) had a retained or contingent interest in assets transferred to the unconsolidated entity . critical accounting policies the consolidated financial statements are prepared in conformity with accounting principles generally accepted in the united states of america and the rules of the united states securities and exchange commission . the following accounting policies are considered by management to be critical because of the judgments and uncertainties involved , and because different amounts would be reported under different conditions or using different assumptions . estimates and assumptions management makes estimates and assumptions that can affect the amounts of assets and liabilities reported as of the date of the consolidated financial statements , as well as the amounts of reported revenues and expenses during the periods presented . those estimates and assumptions typically involve expectations about events to occur subsequent to the balance sheet date , and it is possible that actual results could ultimately differ from the estimates . if differences were to occur in a subsequent period , the company would recognize those differences when they became known .
| results of operations net revenues consolidated net revenues are comprised of the following : replace_table_token_4_th consolidated net revenues decreased approximately $ 6,693 or 14 % compared with the same period last year . in fiscal year 2013 there was an increase in revenue for work performed related to hurricane sandy and during fiscal year 2014 certain offices were closed and other customers were terminated as they were not performing , resulting in an overall decrease of revenue during fiscal year 2014 of approximately 14 % . management has taken significant action during the course of the year to improve both revenue growth and profitability . the current management of the company believes that the changes will eliminate several of the ongoing issues and strengthen the company 's revenue potential . cost of contract services consolidated cost of contract services are comprised of the following : replace_table_token_5_th cost of services includes wages and related payroll taxes and employee benefits of the company 's employees while they work on contract assignments . cost of contract services for the year ended september 30 , 2014 , decreased by approximately 18 % to approximately $ 26 million compared with the prior year of approximately $ 32 million . cost of contract services , as a percentage of contract revenue , for the year ended september 30 , 2014 , decreased by 3 % to 66 % compared to 69 % in the prior year . the most significant decrease in costs of contract services was the result of the decrease in revenue . in addition , there was a significant decrease in our workers compensation rates for the state of ohio , the rate was decreased by approximately 25 % as of july 1 , 2014 and in both years there was a rebate received from the ohio bureau of workers compensation . the overall decrease in workers compensation expense from fiscal year 2014 to fiscal year 2013 was approximately $ 450,000 .
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executive vice president , chief financial officer and treasurer march 14 , 2017 joseph w. pooler , jr. ( principal financial officer ) / s / n eil s ubin director march 14 , 2017 neil subin 81 this page intentionally left blank 82 institutional financial markets , inc. index to financial statements page report of independent registered public accounting firm f- 2 consolidated balan ce sheets as of december 31 , 2016 and 201 5 f- 3 consolidated statements of operations and comprehensive income / ( loss ) for the years ended december 31 , 201 6 , 201 5 , and 201 4 f- 4 consolidated statement of changes in equity for the years ended december 31 , 2016 , 201 5 , and 2 01 4 f- 5 consolidated statements of cash flows for the years ended december 31 , 201 6 , 201 5 , and 2014 f- 6 notes to consolidated financial statements as of december 31 , 201 6 f- 7 schedules to consolidated financial statements : i. condensed financial information of registrant f- 67 f- 1 report story_separator_special_tag “ management 's discussion and analysis of financial condition and results of operations ” is based on our consolidated financial statements , which have been prepared in accordance with u.s. gaap . 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 disclosures of contingent assets and liabilities . on a regular basis , we evaluate these estimates , including fair value of financial instruments . these estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances . actual results may differ from these estimates . all amounts in this disclosure are in thousands ( except share and per share data ) unless otherwise noted . overview we are a financial services company specializing in fixed income markets . we were founded in 1999 as an investment firm focused on small-cap banking institutions , but have grown to provide an expanding range of capital markets and asset management services . we are organized into three business segments : capital markets , asset management , and principal investing . · capital markets : our capital markets business segment consists primarily of fixed income sales , trading , matched book repo financing , new issue placements in corporate and securitized products , and advisory services . our fixed income sales and trading group provides trade execution to corporate investors , institutional investors , mortgage originators , and other smaller broker-dealers . we specialize in a variety of products , including but not limited to : corporate bonds , abs , mbs , cmbs , rmbs , cdos , clos , cbos , cmos , municipal securities , tbas and other forward agency mbs contracts , sba loans , u.s. government bonds , u.s. government agency securities , brokered deposits and cds for small banks , and hybrid capital of financial institutions including trups , whole loans , and other structured financial instruments . we also offer execution and brokerage services for equity products . we carry out our capital market activities primarily through our subsidiaries : jvb in the united states and ccfl in europe . · asset management : our asset management business segment manages assets within cdos , managed accounts , and investment funds ( collectively , “ investment vehicles ” ) . a cdo is a form of secured borrowing . the borrowing is secured by different types of fixed income assets such as corporate or mortgage loans or bonds . the borrowing is in the form of a securitization , which means that the lenders are actually investing in notes backed by the assets . in the event of default , the lenders will have recourse only to the assets securing the loan . our asset management business segment includes our fee-based asset management operations , which include on-going base and incentive management fees . as of december 31 , 2016 , we had approximately $ 3.67 billion in aum of which 93.8 % , or $ 3.44 billion , was in cdos . almost all of our asset management revenue is earned from the management of cdos . we have not completed a new securitization since 2008. as a result , our asset management revenue has declined from its historical highs as the assets of the cdos decline as a result of maturities , repayments , auction call redemptions , and defaults . we do not expect to complete any securitizations in the future so we expect our asset management revenue from cdos to continue to decline in the future . · principal investing : our principal investing business segment is comprised of investments that we have made using our own capital excluding investments we make to support our capital markets business segment . these investments are a component of our other investments , at fair value in our consolidated balance sheet . we generate our revenue by business segment primarily through the following activities . capital markets : o ur trading activities , which include execution and brokerage services , securities lending activities , riskless trading activities , as well as gains and losses ( unrealized and realized ) and income and expense earned on securities classified as trading ; and n ew issue and advisory revenue comprised of ( a ) new issue revenue associated with originating , arranging , or placing newly created financial instruments ; and ( b ) revenue from advisory services . 40 asset management : a sset management fee s for our on-going asset management services provided to various investment vehicles , which may include fees both senior and subordinate to the securities issued by the investment vehicle ; and i ncentive management fees earned based on the performance of the various investment vehicles . story_separator_special_tag the value of these investments is impacted by the performance of the underlying loans in these clos as well as the overall clo market . margin pressures in fixed income brokerage business performance in the financial services industry in which we operate is highly correlated to the overall strength of the economy and financial market activity . overall market conditions are a product of many factors beyond our control and can be unpredictable . these factors may affect the financial decisions made by investors , including their level of participation in the financial markets . in turn , these decisions may affect our business results . with respect to financial market activity , our profitability is sensitive to a variety of factors including the volatility of the equity and fixed income markets , the level and shape of the various yield curves , and the volume and value of trading in securities . m argins and volumes in certain products and markets within the fixed income brokerage business continue to decrease materially as competition has increased and general market activity has declined . further , we continue to expect that competition will increase over time , resulting in continued margin pressure . our response to this margin compression has included : ( i ) building a diversified fixed income trading platform ; ( ii ) expanding our european advisory and new issue capabilities ; ( iii ) acquiring new product lines ; ( iv ) building a hedging execution and funding operation to service mortgage originators ; and ( v ) monit oring our fixed costs . our cost management initiatives are ongoing . however , there can be no certainty that these efforts will be sufficient . if insufficient , we will likely see a decline in profitability . u.s. housing market in recent years , our mortgage group has grown in significance to our capital markets segment and our company overall . the mortgage group primarily earns revenue by providing hedging execution , securities financing , and trade execution services to mortgage originators and other investors in mortgage backed securities . therefore , this group 's revenue is highly dependent on the volume of mortgage originations in the u.s. origination activity is highly sensitive to interest rates , the u.s. job market , housing starts , sale activity of existing housing stock , as well as the general health of the u.s. economy . in addition , any new regulation that impacts us government agency mortgage backed security issuance activity , residential mortgage underwriting standards , or otherwise impacts mortgage originators will impact our business . we have no control over these external factors and there is no effective way for us to hedge against these risks . our mortgage group 's volumes and profitability will be highly impacted by these external factors . legislation affecting the financial services industry in july 2010 , the federal government passed the dodd-frank wall street reform and consumer protection act ( the “ dodd-frank act ” ) . the dodd-frank act significantly restructures and intensifies regulation in the financial services industry , with provisions that include , among other things , the creation of a new systemic risk oversight body ( i.e . , the financial stability oversight council ) , expansion of the authority of existing regulators , increased regulation of and restrictions on otc derivatives markets and transactions , broadening of the reporting and regulation of executive compensation , expansion of the standards for market participants in dealing with clients and customers , and regulation of fiduciary duties owed by municipal advisors or conduit borrowers of municipal securities . in addition , section 619 of the dodd-frank act ( known as the “ volker rule ” ) and section 716 of the dodd-frank act ( known as the “ swaps push-out rule ” ) limit proprietary trading of certain securities and swaps by certain banking entities . although we are not a banking entity and are not otherwise subject to these rules , some of our clients and many of our counterparties are banks or entities affiliated with banks and will be subject to these restrictions . these sections of the dodd-frank act and the regulations that are adopted to implement them could negatively affect the swaps and securities markets by reducing their depth and liquidity and thereby affect pricing in these markets . further , the dodd-frank act as a whole and the intensified regulatory environment will likely alter certain business practices and change the competitive landscape of the financial services industry , which may have an adverse effect on our business , financial condition and results of operations . we will continue to monitor all applicable developments in the implementation of dodd-frank and expect to adapt successfully to any new applicable legislative and regulatory requirements . 42 recent events issuance of $ 15,000 of convertible notes and termination of sale of european operations on march 10 , 2017 , the operating llc issued a convertible note in the aggregate principal amount of $ 15,000 to dgc family fintech trust , a trust established by daniel g cohen , the president and chief executive of our european operations and vice chairman of our board of directors . the convertible note was issued in exchange for $ 15,000 in cash . the note has a 5 - year maturity and calls for quarterly interest only payments . interest accrues at 8 % per annum . the note is convertible at the option of the holder thereof , in whole or in part at any time prior to maturity , into units of membership interests of the operating llc at a conversion price of $ 1.45 per unit . pursuant to the note , we agreed to pay to dgc family fintech trust a $ 600 transaction fee ( the “ transaction fee ” ) .
| consolidated results of operations the following section provides a comparative discussion of our consolidated results of operations for the specified periods . the period-to-period comparisons of financial results are not necessarily indicative of future results . year ended december 31 , 2016 compared to the year ended december 31 , 2015 the following table sets forth information regarding our consolidated results of operations for the years ended december 31 , 2016 and 2015 . replace_table_token_6_th revenues revenues increased by $ 9,192 , or 20 % , to $ 55,348 for the year ended december 31 , 2016 , as compared to $ 46,156 for the year ended december 31 , 2015 . as discussed in more detail below , the change was comprised of ( i ) an increase of $ 8,079 in net trading ; ( ii ) a decrease of $ 1,088 in asset management revenue ; ( iii ) a decrease of $ 2,388 in new issue and advisory revenue ; and ( iv ) an increase of $ 4,589 in principal transactions and other income . 44 net trading net trading revenue increased by $ 8,079 , or 26 % , to $ 39,105 for the year ended december 31 , 2016 , as compared to $ 31,026 for the year ended december 31 , 2015 . the following table shows the detail by trading group . replace_table_token_7_th our net trading revenue includes unrealized gains on our trading investments , as of the applicable measurement date that may never be realized due to changes in market or other conditions not in our control . this may adversely affect the ultimate value realized from these investments . in addition , our net trading revenue also includes realized gains on certain proprietary trading positions . our ability to derive trading gains from such trading positions is subject to overall market conditions .
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we also have other businesses which do not represent a reportable business segment and are conducted by various direct and indirect subsidiaries of avista corp. see `` part i , item 1. business – company overview '' for further discussion of our business segments . the following table presents net income ( loss ) attributable to avista corp. shareholders for each of our business segments ( and the other businesses ) for the year ended december 31 ( dollars in thousands ) : replace_table_token_13_th executive level summary overall results net income attributable to avista corp. shareholders was $ 115.9 million for 2017 , a decrease from $ 137.2 million for 2016 . the decrease in earnings was due to a decrease in earnings at avista utilities and an increase in losses at our other businesses . these were partially offset by an increase in earnings at ael & p for 2017. avista utilities ' earnings decreased for 2017 primarily due to costs related to the pending acquisition by hydro one ( see further discussion at `` pending acquisition by hydro one '' below ) , which are not being passed through to customers . further , since a significant portion of these acquisition costs are not deductible for income tax purposes , earnings reflect the full amount of such costs . excluding acquisition costs , there was a slight increase in other operating expenses , primarily due to an increase in generation and distribution maintenance costs and transmission operating costs . in addition , there were increases in depreciation and amortization and interest expense . our 2016 requests for general rate increases in washington were denied . see further discussion at `` 2016 washington general rate cases '' below and `` regulatory matters '' for additional discussion surrounding these requests and all of our other general rate cases . in addition to the increases in costs described above , there was an increase in income tax expense during 2017 , primarily due to recent changes in the federal income tax law , which is discussed at `` federal income tax law changes '' below . the increase in costs was partially offset by an increase in gross margin ( operating revenues less resource costs ) as a result of general rate 34 avista corporation increases in idaho and oregon , customer growth and lower electric resource costs . see `` results of operations – overall – non-gaap financial measures '' for further discussion of gross margin . ael & p earnings increased for 2017 resulting from an increase in revenue due to a general rate increase , higher electric loads and a slight increase in residential and commercial customers . during 2017 , there was a customer refund charge related to a settlement agreement in ael & p 's electric general rate case which partially offset the increased revenues . there was also an increase in operating expenses for 2017 and a decrease in afudc and capitalized interest due to the construction of an additional back-up generation plant completed in 2016. the increase in losses at our other businesses for 2017 was primarily related to an increase in income tax expense resulting from the new federal income tax law . there were also renovation expenses and increased compliance costs at one of our subsidiaries as well as impairment charges associated with two of our equity investments . more detailed explanations of the fluctuations are provided in the results of operations and business segment discussions ( avista utilities , ael & p , and the other businesses ) . 2016 washington general rate cases in december 2016 , the wutc issued an order related to our washington electric and natural gas general rate cases that were originally filed in february 2016. the wutc order denied the company 's proposed electric and natural gas rate increase requests totaling $ 43.0 million . accordingly , our electric and natural gas retail rates remained unchanged in washington state for 2017. as a result of the above wutc decision , for 2017 we expected to earn below our authorized return on equity ( roe ) and we expected to experience earnings contraction of $ 0.20 to $ 0.30 per diluted share as compared to 2016 actual results . however , our actual 2017 earnings were not as negatively affected as we anticipated primarily due to lower resource costs , which resulted from higher than normal hydroelectric generation and lower than forecasted natural gas prices . our resource optimization activities also contributed to lower resource costs . our original expectation for the energy recovery mechanism ( erm ) in washington was to be in an expense position within the 90 percent customers/10 percent shareholders sharing band , whereas actual results were a benefit position within the 75 percent customers/25 percent shareholders sharing band . this represented a change of approximately $ 12 million for our portion of the erm . in addition to lower resource costs , we had lower than expected other operating expenses ( not including the hydro one acquisition costs ) due to lower pension and medical expenses , lower labor costs due to more of the workforce being utilized for capital projects versus non-capital projects , and lower hardware and software information technology maintenance resulting from the timing of capital projects . we also had lower than expected depreciation expense and net financing expenses . the lower costs described above were offset during 2017 by the hydro one acquisition costs and the effect of federal income tax law changes , which were not contemplated in our original expectations for 2017. pending acquisition by hydro one on july 19 , 2017 , avista corp. entered into a merger agreement that provides for avista corp. to become an indirect , wholly-owned subsidiary of hydro one . story_separator_special_tag the impact of the tax law changes going forward may differ from the amounts above due to , among other things , changes in interpretations and assumptions the company has made ; federal tax regulations , guidance or orders that may be issued by the u.s. department of the treasury , internal revenue service , and our regulatory commissions ; and actions the company may take as a result of the tax law changes . overall , we expect a net benefit to our customers as a result of tax law changes ; however , because of the tcja and the changes to our accumulated deferred income tax balances , our net utility property for regulatory purposes ( rate base ) is likely to increase in future periods , which would increase our annual revenue requirements and offset some of the benefits to customers from tax rate reductions . rate base is likely to increase because , for ratemaking purposes , net deferred tax liabilities are netted against our rate base . because most of the provisions of the tcja are effective as of january 1 , 2018 ( including a reduction of the income tax rate to 21 percent ) , but our customers ' rates continue to have the 35 percent corporate tax rate built in from prior general rate cases , we filed petitions in december 2017 with the wutc and opuc requesting orders authorizing the deferral of the accounting impact of the change in federal income tax expense caused by the enactment of the tcja . the ipuc on its own ordered deferred accounting for all jurisdictional utilities in january 2018. we are requesting to defer the impact of the change in federal income tax expense beginning in january 2018 forward until all benefits are properly captured through the deferral process and refunded to customers through tariffs to be reviewed and implemented in future rate proceedings . the ipuc has requested a report on the estimated overall benefit to customers related to the impacts of the tcja by march 30 , 2018. the wutc has issued a bench request in our 2017 electric and natural gas general rate cases requesting such information by february 28 , 2018 . 36 avista corporation although it is unclear when or how capital markets , credit rating agencies , the ferc or state public utility commissions may respond to this legislation , we expect that certain financial metrics used by credit rating agencies to evaluate the company will be negatively impacted as a result of the tcja . this is primarily due to our expectation that future cash flows from operations will be negatively impacted going forward for the following reasons : because of accelerated depreciation , including bonus depreciation , and other tax deductions , we have paid less in actual cash taxes than what was being collected from customers . the temporary timing differences between cash paid as income taxes and tax expense recorded for gaap resulted in the recording of a net deferred tax liability . this temporary timing difference from prior years will ultimately reverse with taxable income and corresponding income taxes increasing in future years ; lowering the corporate tax rate to 21 percent resulted in excess deferred taxes , which must be returned to customers using the aram discussed above . this will result in a reduction of future revenue as we refund the excess deferred taxes to customers ; lowering the tax rate to 21 percent will result in customers ' future rates having an embedded 21 percent tax rate rather than the 35 percent tax rate , which will result in lower future revenue ( which will be offset by lower actual tax expenses ) ; and the loss of the bonus depreciation tax deduction for 2018 and 2019 results in less depreciation as a tax deduction in those years , which will increase our taxable income and result in us having to pay taxes earlier than we had projected under the old tax law . there may be other material adverse effects resulting from the legislation that we have not yet identified . these effects have resulted in moody 's placing a negative outlook on our crdedit rating and could result in moody 's taking further negative action or other credit rating agencies taking similar action . these actions by credit rating agencies may make it more difficult and costly for us to issue future debt securities and could increase borrowing costs under our credit facilities . see `` note 11 of the notes to consolidated financial statements '' and `` risk factors '' for additional information regarding the tcja and its specific impacts to our financial statements . regulatory matters general rate cases we regularly review the need for electric and natural gas rate changes in each state in which we provide service . we will continue to file for rate adjustments to : seek recovery of operating costs and capital investments , and seek the opportunity to earn reasonable returns as allowed by regulators . with regards to the timing and plans for future filings , the assessment of our need for rate relief and the development of rate case plans takes into consideration short-term and long-term needs , as well as specific factors that can affect the timing of rate filings . such factors include , but are not limited to , in-service dates of major capital investments and the timing of changes in major revenue and expense items . avista utilities washington general rate cases 2015 general rate cases in january 2016 , we received an order ( order 05 ) that concluded our electric and natural gas general rate cases that were originally filed with the wutc in february 2015. new electric and natural gas rates were effective on january 11 , 2016. the wutc-approved rates were designed to provide a 1.6 percent , or $ 8.1 million decrease in electric base revenue , and a 7.4 percent , or $ 10.8 million increase in natural gas base revenue .
| pc petition for judicial review on march 18 , 2016 , pc filed in thurston county superior court a petition for judicial review of the wutc 's order 05 and order 06 described above that concluded our 2015 electric and natural gas general rate cases . in its petition for judicial review , pc seeks judicial review of five aspects of order 05 and order 06 , alleging , among other things , that ( 1 ) the wutc exceeded its statutory authority by setting rates for our natural gas and electric services based on amounts for utility plant and facilities that are not `` used and useful '' in providing utility service to customers ; ( 2 ) the wutc acted arbitrarily and capriciously in granting an attrition adjustment for our electric operations after finding that the we did not meet the newly articulated standard regarding attrition adjustments ; ( 3 ) the wutc erred in applying the `` end results test '' to set rates for our electric operations that are not supported by the record ; ( 4 ) the wutc did not correct its calculation of our electric rates after significant errors were brought to its attention ; and ( 5 ) the wutc 's calculation of our electric rates lacks substantial evidence . pc is requesting that the court ( 1 ) vacate or set aside portions of the wutc 's orders ; ( 2 ) identify the errors contained in the wutc 's orders ; ( 3 ) find that the rates approved in order 05 and reaffirmed in order 06 are unlawful and not fair , just and reasonable ; ( 4 ) remand the matter to the wutc for further proceedings consistent with these rulings , including a determination of our revenue requirement for electric and natural gas services ; and ( 5 ) find the customers are entitled to a refund .
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rayonier intends to adopt asu no . 2016-09 in the company 's first quarter 2017 form 10-q . upon adoption , additional excess tax benefits and tax deficiencies will be recorded to income tax ( expense ) benefit in the consolidated statements of income and comprehensive income . the company does not expect adoption to have any other material impact on the consolidated financial statements . 65 rayonier inc. and subsidiaries notes to consolidated financial statements ( continued ) ( dollar amounts in thousands unless otherwise stated ) in march 2016 , the fasb issued asu no . 2016-05 , derivatives and hedging ( topic 815 ) : effective of derivative contract novations on existing hedge accounting relationships , which clarifies that a change in the counterparty to a derivative instrument that has been designated as the hedging instrument under topic 815 does not , in and of itself , require de-designation of that hedging relationship provided that all other hedge accounting criteria continue to be met . asu no . 2016-05 is effective for annual reporting periods beginning after december 15 , 2016 , and interim periods within those fiscal years . early adoption is permitted , including adoption in an interim period . rayonier intends to adopt asu no . 2016-05 in the company 's first quarter 2017 form 10-q and does not expect it to have a material impact on the consolidated financial statements . in february 2016 , the fasb issued asu no . 2016-02 , leases ( topic 842 ) , which requires lessees to recognize most leases on their balance sheets related to the rights and obligations created by those leases . asu no . 2016-02 also requires additional qualitative and quantitative disclosures related to the nature , timing and uncertainty of cash flows arising from leases . asu no . 2016-02 is effective for annual reporting periods beginning after december 15 , 2018 , including interim periods within that reporting period . asu no . 2016-02 is required to be applied retrospectively to all periods presented beginning in the period of adoption . early adoption is permitted . the company is currently evaluating the impact of adopting this new guidance on the consolidated financial statements . in september 2015 , the fasb issued asu no . 2015-16 , business combinations ( topic 805 ) - simplifying the accounting for measurement-period adjustments . asu no . 2015-16 requires that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined . the acquirer must record , in the same period 's financial statements , the effect on earnings of changes in depreciation , amortization , or other income effects , if any , as a result of the change in the provisional amounts , calculated as if the accounting had been completed at the acquisition date . asu no . 2015-16 is effective for annual periods beginning after december 15 , 2015 , including interim periods within that reporting period . asu no . 2015-16 should be applied prospectively to adjustments to provisional amounts that occur after the effective date . rayonier adopted asu no . 2015-16 during the year ended december 31 , 2016. see note 3 — timberland acquisitions for additional information . in may 2015 , the fasb issued asu no . 2015-07 , fair value measurement ( topic 820 ) – disclosures for investments in certain entities that calculate net asset value per share ( or its equivalent ) . asu no . 2015-07 requires that investments for which the fair value is measured at nav using the practical expedient ( investments in funds measured at nav ) under “ fair value measurements and disclosures ” ( topic 820 ) be excluded from the fair value hierarchy . asu no . 2015-07 is effective for annual reporting periods beginning after december 15 , 2015 , including interim periods within that reporting period . asu no . 2015-07 is required to be applied retrospectively to all periods presented beginning in the period of adoption . early adoption is permitted . rayonier adopted asu no . 2015-07 as of december 31 , 2016 in this annual report on form 10-k. see note 15 — employee benefit plans for additional information . in august 2014 , the fasb issued asu no . 2014-15 , presentation of financial statements – going concern ( subtopic 205-40 ) – disclosure of uncertainties about an entity 's ability to continue as a going concern . asu no . 2014-15 requires management of all entities to evaluate whether there are conditions and events that raise substantial doubt about the entity 's ability to continue as a going concern within one year after the financial statements are issued . management is required to make certain disclosures if it concludes that substantial doubt exists or when its plans alleviate substantial doubt about the entity 's ability to continue as a going concern . asu no . 2014-15 is effective for annual reporting periods ending after december 15 , 2016 and for annual periods and interim periods thereafter . rayonier adopted asu no . 2014-15 as of december 31 , 2016 and the implementation of the new standard did not result in additional disclosure in this annual report on form 10-k. 66 rayonier inc. and subsidiaries notes to consolidated financial statements ( continued ) ( dollar amounts in thousands unless otherwise stated ) in may 2014 , the fasb and the international accounting standards board ( “ iasb ” ) jointly issued asu no . story_separator_special_tag cash used for investing activities cash used for investing activities increased $ 116.8 million versus the prior year primarily due to a $ 65.1 million increase in acquisitions , net of proceeds from large dispositions , a $ 6.1 million increase in real estate investment costs , a $ 5.4 million increase in the construction costs for the rayonier office building , a $ 1.4 million increase in capital expenditures and a $ 31.3 million change in restricted cash . cash provided by financing activities cash provided by financing activities in 2016 reflects the cash provided by the $ 300 million incremental term loan agreement with cobank , a $ 2.1 million decrease in dividend payments and the repayment of approximately $ 105 million outstanding on the company 's revolving credit facility . in 2015 , cash used for financing activities included repurchases of common stock of $ 100 million . restricted cash at december 31 , 2016 , the company had approximately $ 71.7 million of proceeds from real estate sales classified as restricted cash which were deposited with a like-kind exchange ( “ lke ” ) intermediary as well as cash held in escrow for a real estate sale . these funds can be used for acquiring suitable timberland replacement property , or if the lke purchases are not completed , returned to the company after 180 days and reclassified as available cash . credit ratings both our ability to obtain financing and the related costs of borrowing are affected by our credit ratings , which are periodically reviewed by the rating agencies . as of december 31 , 2016 , our credit ratings from s & p and moody 's were “ bbb- ” and “ baa3 , ” respectively , with both services listing our outlook as “ stable. ” strategy we continuously evaluate our capital structure . our strategy is to maintain a weighted-average cost of capital competitive with other timberland reits and timos , while maintaining an investment grade debt rating as well as retaining the flexibility to actively pursue capital allocation opportunities as they become available . overall , we believe we have adequate liquidity and sources of capital to run our businesses efficiently and effectively and to maximize the value of our timberland and real estate assets under management . 45 expected 2017 expenditures capital expenditures in 2017 are forecasted to be between $ 62 million and $ 67 million , excluding any strategic timberland acquisitions we may make . capital expenditures are expected to be primarily comprised of seedling planting , fertilization and other silvicultural activities , property taxes , lease payments , allocated overhead and other capitalized costs . aside from capital expenditures , we may also acquire timberland as we actively evaluate acquisition opportunities . real estate development investments in 2017 are expected to be between $ 15 million and $ 20 million . expected real estate development investments are primarily related to wildlight , our mixed-use community development project located north of jacksonville at the interchange of i-95 and state road a1a . we are currently constructing a new headquarters building located in the wildlight development project . this new office will allow us to consolidate three existing leased offices in jacksonville and fernandina beach , florida into one location and also serve as a catalyst for the wildlight project . we expect the construction cost of this building will be approximately $ 13 million , of which we expect to incur $ 6 million in 2017. our 2017 dividend payments are expected to be approximately $ 123 million assuming no change in the quarterly dividend rate of $ 0.25 per share or material changes in the number of shares outstanding . future share repurchases , if any , will depend on the company 's liquidity and cash flow , as well as general market conditions and other considerations including capital allocation priorities . we made no discretionary pension contributions in 2016 or 2015 . we have approximately $ 0.3 million of pension contribution requirements in 2017 and may make discretionary contributions in the future . cash income tax payments in 2017 are expected to be minimal . 46 performance and liquidity indicators the discussion below is presented to enhance the reader 's understanding of our operating performance , liquidity , ability to generate cash and satisfy rating agency and creditor requirements . this information includes two measures of financial results : adjusted earnings before interest , taxes , depreciation , depletion and amortization ( “ adjusted ebitda ” ) , and cash available for distribution ( “ cad ” ) . these measures are not defined by generally accepted accounting principles ( “ gaap ” ) and the discussion of adjusted ebitda and cad is not intended to conflict with or change any of the gaap disclosures described above . management considers these measures to be important to estimate the enterprise and shareholder values of the company as a whole and of its core segments , and for allocating capital resources . in addition , analysts , investors and creditors use these measures when analyzing our operating performance , financial condition and cash generating ability . management uses adjusted ebitda as a performance measure and cad as a liquidity measure . adjusted ebitda and cad as defined may not be comparable to similarly titled measures reported by other companies . adjusted ebitda is defined as earnings before interest , taxes , depreciation , depletion , amortization , the non-cash cost of land and improved development , costs related to shareholder litigation , the gain on foreign currency derivatives , large dispositions , costs related to the spin-off of the performance fibers business , discontinued operations , internal review and restatement costs and the gain related to consolidation of the new zealand joint venture . below is a reconciliation of net income to adjusted ebitda for the five years ended december 31 ( in millions of dollars )
| results of operations for an analysis of changes in adjusted ebitda from the prior year . cad is a non-gaap measure of cash generated during a period which is available for dividend distribution , repurchase of the company 's common shares , debt reduction and strategic acquisitions . we define cad as cash provided by operating activities adjusted for capital spending ( excluding timberland acquisitions ) , large dispositions , cash provided by discontinued operations and working capital and other balance sheet changes . in compliance with sec requirements for non-gaap measures , we reduce cad by mandatory debt repayments which results in the measure entitled “ adjusted cad. ” adjusted cad generated in any period is not necessarily indicative of the amounts that may be generated in future periods . 47 below is a reconciliation of cash provided by operating activities to adjusted cad for the five years ended december 31 ( in millions ) : replace_table_token_31_th replace_table_token_32_th replace_table_token_33_th ( a ) capital expenditures exclude timberland acquisitions and purchases of additional interest in the new zealand jv . ( b ) previously reported cad for 2014 and 2013 has been restated to exclude large dispositions . large dispositions are defined as transactions involving the sale of timberland that exceed $ 20 million in size and do nothave any identified hbu premium relative to timberland value .
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the exercise price of the options in novacopper was determined based on the relative fair values of novacopper and novagold based on the volume weighted-average trading prices on the toronto stock exchange for the five trading days commencing on the sixth trading day following the effective date . all other terms of the options remained the same . a total of 2,189,040 options to acquire novacopper shares were granted under the plan of arrangement on april 30 , 2012. story_separator_special_tag this management 's discussion and analysis ( md & a ) of novacopper inc. ( novacopper or the company ) is dated february 7 , 2013 and provides an analysis of novacopper 's audited financial results for the year ended november 30 , 2012 compared to the year ended november 30 , 2011. the following information should be read in conjunction with our november 30 , 2012 audited consolidated financial statements and related notes which were prepared in accordance with united states generally accepted accounting principles ( u.s . gaap ) . novacopper adopted u.s. gaap on december 1 , 2012 applied retrospectively . previously , we reported under canadian generally accepted accounting principles ( canadian gaap ) . there were no measurement differences on adoption at december 1 , 2012. a summary of the u.s. gaap accounting policies are outlined in note 2 of the audited consolidated financial statements . all amounts are in united states dollars unless otherwise stated . scott petsel , p.geo. , an employee , upper kobuk mineral projects manager , and a qualified person under national instrument 43-101 standards of disclosure for mineral projects ( ni 43-101 ) , has approved the scientific and technical information in the md & a . novacopper 's shares are listed on the toronto stock exchange ( tsx ) and the nyse-mkt under the symbol ncq . additional information related to novacopper is available on sedar at www.sedar.com and on edgar at www.sec.gov . description of business novacopper is a base metals exploration company focused on exploring and developing the ambler mining district located in alaska , u.s.a. novacopper conducts its operations through a wholly-owned subsidiary , novacopper us inc. ( novacopper us ) . our upper kobuk mineral projects or ukmp projects consist of the 100 % owned ambler lands which hosts the arctic copper-zinc-lead-gold-silver project and the bornite carbonate-hosted copper project located on the bornite lands acquired through a collaborative long-term agreement with nana regional corporation , inc. ( nana ) , a regional alaska native corporation . novacopper is primarily focused on developing copper properties in the ambler mining district , some of which also have significant zinc , gold and silver resources . in addition , novacopper 's principal properties are located in alaska , a region with low geopolitical risk that has a long history of mining , established permitting standards and governments supportive of resource development . novacopper draws on the expertise of its management and board of directors with their years of experience at novagold resources inc. ( novagold ) . we are focused on continuing to identify high-grade mineralization with additional exploration being executed in 2013 . 69 novacopper was formed in 2011 by novagold to hold the ukmp projects , and was spun-out to shareholders by novagold through a plan of arrangement effective april 30 , 2012. novagold shareholders received one novacopper common share for every six common shares of novagold held on the effective date . story_separator_special_tag bornite reports at a 1.0 % copper cut-off grade , inferred resources of 43.1 million tonnes of 2.54 % cu or 2,409 million pounds of contained copper . resources are stated as potentially being economically viable in an underground mining scenario based on a projected metal price of $ 2.75 per pound copper and total site operating costs of $ 60.00 per tonne . 71 see cautionary note to united states investors concerning reserve and resource estimates. novacopper also continued to optimize development opportunities at the arctic deposit by completing metallurgical test work programs . outlook on february 5 , 2013 the company announced an updated resource at bornite totaling 43.1 million tonnes of 2.54 % cu . this resource incorporates a new resource at the south reef zone from drilling completed in 2012 with the resource at the ruby creek zone previously announced on july 18 , 2012. the company has an approved budget of $ 16.0 million for its 2013 exploration program , technical reviews , formal studies and general and administrative costs . we plan to focus the 2013 technical program on drilling and engineering to demonstrate potential synergies for a combined arctic and bornite mining scenario . we will also continue to focus efforts on community relations and workforce development strategies , working closely with nana on these efforts . we plan to sign a memorandum of understanding with the alaska industrial development and export authority ( aidea ) as the next step to advancing the road into the ambler mining district . the state of alaska and aidea are working on initiating permitting for the road which is expected to provide access to novacopper 's ukmp projects . we do not currently generate operating cash flows . at november 30 , 2012 , we had cash and cash equivalents of $ 22.2 million and working capital of $ 21.2 million . at february 7 , 2013 , we had approximately $ 19.1 million of cash and cash equivalents . at present , we believe that the current cash and cash equivalent balances as of november 30 , 2012 are sufficient to cover the anticipated expenditures on exploration activities and general and administrative costs for 2013. additional capital will be necessary to conduct additional exploration drilling and engineering studies on our properties to advance our projects to a positive production decision . based on anticipated but not committed expenditures on our projects , we are likely to require financing within the next twelve to eighteen months . story_separator_special_tag during the first quarter of 2011 , we recorded a $ 0.3 million accretion expense as a result of accretion relating to payments owing on the ambler land acquisition due in january 2011 and 2012. during the second quarter of 2011 , we had mineral property expenses of $ 2.4 million as a result of the start-up of the exploration field season during the third quarter of 2011 , we had mineral property expenses of $ 5.6 million as the full quarter was during the exploration field season and accretion expense of $ 0.5 million due to an early payment of payments owing on the ambler land acquisition . during the fourth quarter of 2011 , novacopper incurred $ 1.3 million in general and administrative expenses as a result of general expenses that were incurred as part of novacopper incurring management fees from novagold . during the first quarter of 2012 , we recorded expenses of $ 0.6 million in mineral property expenses in preparation activities for field season and ongoing engineering studies . during the second quarter of 2012 , novacopper had stock-based compensation expense of $ 5.5 million , $ 0.7 million for general and administrative and $ 0.7 million for salaries expense recorded as a result of the completion of the spin-out from novagold . during the third quarter of 2012 , mineral property expenses of $ 9.1 million were recorded as a larger exploration program was conducted than previous years during which the third quarter encompasses the majority of the field season . additionally , stock-based compensation expense of $ 2.0 million was recognized due to the vesting of previously granted stock options . during the fourth quarter of 2012 , mineral property expenses of $ 3.1 million were recorded for the end of the 2012 field season . stock-based compensation expense of $ 1.9 million was also recognized due to the vesting of previously granted stock options . 73 the company 's properties are not yet in production ; consequently , the company believes that its loss ( and consequent loss per common share ) is not a primary concern to investors in the company . liquidity and capital resources at november 30 , 2012 , novacopper had $ 22.2 million in cash and cash equivalents . we expended $ 19.9 million on operating activities during the twelve-month period ended november 30 , 2012 , compared with expenditures of $ 9.7 million for operating activities for the same period in 2011. a majority of cash spent on operating activities during both periods was expended on mineral property expenses , which also accounts for the significant increase similar to our earlier discussions . as the exploration field season in the ambler district is between may and early october of each year , a significant portion of the mineral property expenses and operating activities are incurred during this time frame . the remaining increase in operating activities from 2011 to 2012 is mostly due to expenditures in the period for general and administrative and salaries expense for which there was no comparative spending in 2011. during the year ended november 30 , 2012 , $ 43.8 million in cash from financing activities was generated compared with $ 15.1 million in the same period in 2011. cash of $ 40.0 million was received from novagold in april 2012 with the completion of the plan of arrangement . additional funding of $ 3.8 million was received to fund operating expenses incurred up to april 30 , 2012 compared with $ 15.1 million in operating expense funding provided in the same period in 2011. the decrease in funding relates to five months of funding in 2012 compared to nine months of funding in 2011. in 2011 , a portion of the total $ 39.1 million in funding received from novagold repaid the remaining $ 24.0 million note payable on the purchase of the ambler lands . during the year , the company expended $ 1.6 million on investing activities compared with $ 1.4 million in 2011. in 2011 , the company 's focus was on building a camp and acquiring equipment to assist in that effort . in 2012 , the company spent a comparable amount on acquiring additional equipment to maintain and improve road access and expand sleeping capacity of its camp . based on the current exploration budget outlined under outlook , we have sufficient working capital for the next twelve months . the company expects that it will undertake financing within the next twelve to eighteen months to fund its exploration activity and general corporate expenses . there is no assurance the company will be able to complete such financings on favourable terms or at all . contractual obligations contractual obligated undiscounted cash flow requirements as at november 30 , 2012 are as follows . replace_table_token_14_th ( a ) amounts due to related parties consist of current accounts payable owing to novagold under its services agreement . off-balance sheet arrangements the company has no material off-balance sheet arrangements or operating leases at this time . it expects to enter into an operating lease for office space and related equipment in the next twelve months . 74 outstanding share data at february 7 , 2013 , novacopper had 52,767,511 common shares issued and outstanding . at february 7 , 2013 , novacopper had 6,064,994 stock options with a weighted-average exercise price of $ 3.11 , 2,076,541 novagold arrangement options with a weighted-average exercise price of $ 4.22 , and 1,295,500 restricted share units and 750,000 deferred share units outstanding . related party transactions expenses to april 30 , 2012 were funded by novagold and its affiliates . novagold is a company with directors in common . during the year ended november 30 , 2012 , novagold and its affiliates provided management and office services totaling $ 0.7 million to novacopper , including rental of office space and a one-time set-up fee of $ 49,000 pursuant to a services agreement .
| property review novacopper 's principal assets , the ukmp projects , are located in the ambler mining district in northwest alaska . our ukmp projects comprises a total of approximately 352,900 acres ( 142,831 hectares ) consisting of the ambler and bornite lands . arctic project the ambler lands , which hosts the high-grade copper-zinc-lead-gold-silver arctic project and other mineralized targets within a 65 kilometer long volcanogenic massive sulfide ( vms ) belt , are owned by novacopper us . the ambler lands , comprising of a number of deposits , most significantly the arctic deposit , are located in northwestern alaska comprising 112,058 acres ( 45,348 hectares ) of federal patented mining claims and state of alaska mining claims , within which vms mineralization has been found . on january 11 , 2010 , novagold purchased 100 % of the ambler lands . as consideration , novagold , issued 931,098 common shares with a fair value of $ 5.0 million and agreed to make cash payments to the vendor of $ 12.0 million each in january 2011 and january 2012 , respectively , for total consideration of $ 29.0 million . the january 2011 payment was made by novagold on january 7 , 2011 and the january 2012 payment was made in advance by novagold on august 5 , 2011. total fair value of the consideration was $ 26.5 million , including transaction costs associated with the acquisition of $ 0.1 million . the vendor retained a 1 % net smelter return royalty that the owner of the property can purchase at any time for a one-time payment of $ 10.0 million . under u.s. gaap , we have accounted for the ambler lands as a mineral property with acquisition costs capitalized and exploration costs expensed in accordance with our accounting policies .
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in consideration for the exclusive license , we paid $ 3.0 million in cash to qimr berghofer , which was recorded as research and development expense in our statement of operations and comprehensive loss . under the research and development collaboration agreement , we are required to reimburse the cost of agreed upon development activities . these payments are expensed as incurred and resulted in research and development ex pense story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with our audited consolidated and combined financial statements and related notes included elsewhere in this annual report on form 10-k. this discussion and other parts of this annual report contain forward-looking statements that involve risk and uncertainties , such as statements of our plans , objectives , expectations and intentions . as a result of many factors , including those factors set forth in the “ risk factors ” section of this annual report , our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . overview we are a clinical-stage biopharmaceutical company focused on developing meaningful therapies for patients with severe and life-threatening diseases that have been underserved by scientific innovation . we have two groups of product candidates : ( a ) allogeneic or third-party derived antigen-specific t-cells , and ( b ) molecularly targeted biologics . 64 t-cells are a type of white blood cell , and cytotoxic t-cells , otherwise known as cytotoxic t lymphocytes , or ctls , have the ability to kill cancer cells . our t-cell product candidates arise from a platform technology designed to produce off-the-shelf , partially human leukocyte antigen , or hla , matched cellular therapeutics . we licensed rights to these product candidates from memorial sloan kettering cancer center , or msk , in june 2015. our initial t-cell product candidates target viral- or cancer-speci fic antigens and are designed to harness the body 's immune system to counteract specific viral infections and cancers . our most advanced t-cell product candidate , ebv-ctl , is in phase 2 clinical trials for malignancies associated with epstein barr virus , o r ebv , including ebv-associated post-transplant lymphoproliferative disorders , or ebv-ptld . ebv-ptld is a cancer affecting some patients who have received an allogeneic hematopoietic cell transplant , or hct , a solid organ transplant , or sot , or are otherwi se immunocompromised . our second t-cell product candidate , cmv-ctl , is in phase 2 clinical trials for cytomegalovirus , or cmv , an infection that occurs in some patients who have received an hct or sot or are otherwise immunocompromised . our third t-cell pr oduct candidate , wt1-ctl , targets cancers expressing the antigen wilms tumor 1 , or wt1 , and is currently in phase 1 clinical trials . in addition , we entered into a sponsored research collaboration with msk to discover and develop additional t-cell product candidates . in october 2015 , we entered into exclusive license and research agreements with another academic institution . these agreements enable us to access a technology complementary to that which was licensed from msk and to pursue development of ebv a nd cmv-ctls for other indications such as nasopharyngeal carcinoma , or npc , gastric cancer , and multiple sclerosis , or ms. we are working with this academic institution on the submission to the fda of one or more inds for these new indications . our molecularly targeted product candidates are biologics that inhibit myostatin and activin , members of the transforming growth factor-beta , or tgf-ß , protein superfamily , which play roles in the growth and maintenance of muscle and many other body tissues . our lead molecularly targeted product candidate is stm 434. we commenced a phase 1 clinical trial of stm 434 for ovarian cancer and other solid tumors in 2014. we have five additional molecularly targeted product candidates that modulate the tgf-ß pathway in preclinical development . in february 2015 , the u.s. food and drug administration , or fda , granted breakthrough therapy designation for ebv-ctl in the treatment of rituximab-refractory ebv-ptld after hct . breakthrough therapy designation is an fda process designed to accelerate the development and review of drugs intended to treat a serious condition when early trials show that the drug may be substantially better than current treatment . in june 2015 , we met with the fda to discuss late-stage development to support a potential approval in this indication . based on guidance from the fda , we submitted a special protocol assessment , or spa , for a single arm pivotal trial in rituximab-refractory ebv-ptld after hct . we received feedback from the fda regarding this spa in which the fda indicated that a single arm trial with response rate as the primary endpoint may provide an adequate basis for approval but it would be unlikely to grant an spa for our proposed trial . we intend to continue the dialogue with the fda regarding this trial design under breakthrough therapy designation and expect to initiate this pivotal trial towards the end of 2016. additionally , we also intend to initiate a randomized pivotal trial in patients with ebv-ptld after sot towards the end of 2016. in february 2016 , the fda granted orphan drug designation for ebv-ctl for the treatment of patients with ebv-ptld after hct or sot . we expect to meet with the fda in the middle of 2016 to discuss late phase development with cmv-ctl to support approval . while we evaluate the path to registration for both ebv-ctl and cmv-ctl in these initial indications , we intend to concurrently explore the clinical utility of these t-cell product candidates or other cellular therapies in other relevant disease states to expand their potential applicability . in addition , we believe that t-cells can be directed at a broad range of other targets to create future product candidates . story_separator_special_tag as a result of the recapitalization , nina , pinta and santa maria became wholly owned subsidiaries of atara effective march 31 , 2014. the recapitalization was accounted for as a combination of businesses under common control and the assets and liabilities of nina , pinta and santa maria were recorded by atara at their historical carrying amounts on march 31 , 2014. beginning march 31 , 2014 , our financial statements are presented on a consolidated basis , with all intercompany transactions eliminated . except as otherwise noted , all share and per share amounts presented in this “ management 's discussion and analysis of financial condition and results of operations ” give effect to the recapitalization . revenues to date , we have not generated any revenues . we do not expect to receive any revenues from any product candidates that we develop until we obtain regulatory approval and commercialize our products or enter into collaborative agreements with third parties . 66 research and development expenses the largest component of our total operating expenses since inception has been our investment in research and development activities , including the preclinical and clinical development of our product candidates . research and development expenses consist of costs incurred in performing research and development activities , including compensation and benefits for research and development employees , including stock-based compensation , an allocation of facility and overhead expenses , expenses incurred under agreements with contract research organizations and investigative sites that conduct clinical trials and preclinical studies , the costs of acquiring and manufacturing clinical trial materials and other supplies and costs associated with product development efforts , preclinical activities and regulatory operations . research and development costs are expensed as incurred . we plan to increase our research and development expenses for the foreseeable future as we continue the development of our product candidates . our current planned research and development activities include the following : · advancing ebv-ctl into phase 3 clinical trials for the treatment of ebv-ptld after hct and sot ; · developing cmv-ctl in refractory cmv infection after hct ; · continuing development of wt1-ctl in relapsed refractory multiple myeloma , including plasma cell leukemia ; · collaborating with msk in the discovery and development of additional t-cell programs ; · expanding our licensed t-cell platforms into other indications or viral targets ; · completing our phase 1 clinical trial of stm 434 ; · process development and manufacturing of drug supply to support clinical trials and ind-enabling studies ; · evaluating our other molecularly targeted product candidates and advancing them into the clinic as appropriate ; and · leveraging our relationships and experience to in-license or acquire additional product candidates or technologies . in addition , we believe it is important to invest in the development of new product candidates to continue to build the value of our product candidate pipeline and our business . we plan to continue to advance our most promising early product candidates into preclinical development with the objective to advance these early-stage programs to human clinical trials over the next several years . our expenditures on current and future preclinical and clinical development programs are subject to numerous uncertainties in timing and cost to completion . the duration , costs , and timing of clinical trials and development of our product candidates will depend on a variety of factors , including : · the scope , rate of progress , and expenses of our ongoing as well as any additional clinical trials and other research and development activities ; · future clinical trial results ; · uncertainties in clinical trial enrollment rates or discontinuation rates of patients ; · potential additional safety monitoring or other studies requested by regulatory agencies ; · significant and changing government regulation ; and · the timing and receipt of any regulatory approvals . the process of conducting the necessary clinical research to obtain fda approval is costly and time consuming and the successful development of our product candidates is highly uncertain . the risks and uncertainties associated with our research and development projects are discussed more fully in the section of this report titled “ 1a . risk factors. ” as a result of these risks and uncertainties , we are unable to determine with any degree of certainty the duration and completion costs of our research and development projects , or if , when , or to what extent we will generate revenues from the commercialization and sale of any of our product candidates that obtain regulatory approval . we may never succeed in achieving regulatory approval for any of our product candidates . 67 general and administrative expenses general and administrative expenses consist primarily of personnel costs , allocated facilities costs and other expenses for outside professional services , including legal , patent costs , human resources , and audit and accounting services . personnel costs consist of salaries , benefits and stock-based compensation . we anticipate that our general and administrative expenses will continue to increase in the future as we increase our headcount to support our continued research and development and potential commercialization of our product candidates . interest and other income , net interest and other income , net consists primarily of interest earned on our cash , cash equivalents and short-term investments . 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 consolidated and combined financial statements , which have been prepared in accordance with gaap . the preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets , liabilities and expenses . on an on-going basis , we evaluate our critical accounting policies and estimates .
| results of operations comparison of the years ended december 31 , 2015 , 2014 and 2013 research and development expenses research and development expenses for the periods indicated were as follows : replace_table_token_3_th research and development costs paid to amgen in 2014 comprise a $ 1.0 million milestone payment and $ 0.1 million for clinical services . the payments to amgen in 2013 relate to the purchase of clinical supplies . amgen is no longer considered as a related party as it has no significant influence on our operations . research and development expenses by program for the periods indicated were as follows : replace_table_token_4_th ebv-ctl costs were $ 1.0 million in 2015 as compared to zero in 2014 , primarily due to development work undertaken following our exercise of the option to license this program from msk in june 2015 ( see below ) . we anticipate that ebv-ctl costs will increase significantly in 2016 due to the initiation of additional clinical trials for this product candidate . cmv-ctl costs were $ 0.1 million in 2015 as compared to zero in 2014 , primarily due to outside services costs associated with the program . we anticipate cmv-ctl costs to increase in 2016 due to support of our ongoing phase 2 clinical trials . 70 other t-cell program expenses increased by $ 7.1 million in 2015 as compared to 2014 , primarily due to the cash payment to msk of $ 4.5 million to exercise our option to license certain t-cell programs in june 2015 , and $ 3.0 million paid to qimr berghofer for an exclusive , worldwide license to de velop and commercialize allogeneic ctl therapy programs utilizing technology and know-how developed by qimr berghofer .
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f-16 boingo wireless , inc. notes to the consolidated financial statements ( continued ) ( story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read together with `` selected consolidated financial data '' and our audited consolidated financial statements and accompanying notes included elsewhere in this filing . this discussion contains forward-looking statements , based on current expectations and related to our plans , estimates , beliefs and anticipated future financial performance . these statements involve risks and uncertainties and 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 `` risk factors , '' `` forward-looking statements '' and elsewhere in this filing . overview we believe we are the leading global provider of neutral-host commercial mobile wi-fi internet solutions and indoor das services in the world . our software applications and solutions enable individuals to access our extensive global wi-fi networks that cover approximately 1.5 million hotspots . we operate 38 das networks containing approximately 23,500 nodes . our offerings provide compelling cost and performance advantages to our customers and partners . we grew revenue from $ 159.3 million in 2016 to $ 204.4 million in 2017 , an increase of 28.3 % . we grew revenue from $ 139.6 million in 2015 to $ 159.3 million in 2016 , an increase of 14.1 % . we generated a net loss attributable to common stockholders of $ 19.4 million in 2017 compared to $ 27.3 million in 2016. adjusted ebitda increased from $ 40.8 million in 2016 to $ 68.9 million in 2017 , an increase of 68.9 % . for a discussion of adjusted ebitda and a reconciliation of net loss attributable to common stockholders to adjusted ebitda , see footnote 1 to `` selected financial data '' in part ii , item 6. the proliferation of smartphones , tablets , laptops , wearables , and other wi-fi enabled devicesin conjunction with the increased consumption of high-bandwidth activities like video , online gaming , streaming , cloud-based applications and mobile appshas created a demand for high-speed , high-bandwidth internet access in public places both large and small . these data intensive activities are driving a global surge in mobile internet data traffic that is expected to increase nearly seven-fold between 2016 and 2021 , according to cisco 's 2017 visual networking index . we believe these trends present us with opportunities to generate significant growth in revenue and profitability . critical accounting policies and estimates the preparation of financial statements in conformity with accounting principles generally accepted in the united states of america ( `` gaap '' ) and rules and regulations of the united states securities and exchange commission ( `` sec '' ) requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities , as well as the disclosure of contingent assets and liabilities , at the date of the financial statements . such estimates and assumptions also affect the reported amounts of revenues and expenses during the reporting period . although we believe these estimates are reasonable , actual results could differ from these estimates . on a regular basis , we evaluate our assumptions , judgments and estimates . we also discuss our critical accounting policies and estimates with the audit committee of the board of directors . we believe that the assumptions and estimates associated with revenue recognition , goodwill , measuring recoverability of long-lived assets , stock-based compensation and income taxes have the greatest potential impact on our consolidated financial statements . therefore , we believe the accounting policies discussed below are paramount to understanding our historical and future performance , as these policies relate to the more significant areas involving our management 's judgments , assumptions and estimates . 34 revenue recognition we generate revenue from several sources including : ( i ) das customers that are telecom operators under long-term contracts for access to our das at our managed and operated locations , ( ii ) military and retail customers under subscription plans for month-to-month network access that automatically renew , and military and retail single-use access from sales of hourly , daily or other single-use access plans , ( iii ) arrangements with wholesale wi-fi customers that provide software licensing , network access , and or professional services fees , and ( iv ) display advertisements and sponsorships on our walled garden sign-in pages . software licensed by our wholesale wi-fi platform services customers can only be used during the term of the service arrangements and has no utility to them upon termination of the service arrangement . we recognize revenue when an arrangement exists , services have been rendered , fees are fixed or determinable , no significant obligations remain related to the earned fees and collection of the related receivable is reasonably assured . revenue is presented net of any sales and value added taxes . revenue generated from access to our das networks consists of build-out fees and recurring access fees under certain long-term contracts with telecom operators . build-out fees paid upfront are generally deferred and recognized ratably over the term of the estimated customer relationship period , once the build-out is complete . periodically , we install and sell wi-fi and das networks to customers where we do not have service contracts or remaining obligations beyond the installation of those networks and we recognize build-out fees for such projects as revenue when the installation work is completed and the network has been accepted by the customer . minimum monthly access fees for usage of the das networks are non-cancellable and generally escalate on an annual basis . these minimum monthly access fees are recognized ratably over the term of the telecom operator agreement . the initial term of our contracts with telecom operators generally range from five to twenty years and the agreements generally contain renewal clauses . revenue from das network access fees in excess of the monthly minimums is recognized when earned . story_separator_special_tag when we determine that the carrying value of a long-lived asset may not be recoverable based upon the existence of one or more of these indicators , we determine the recoverability by comparing the carrying amount of the asset to net future undiscounted cash flows that the asset is expected to generate or other indices of fair value . we would then recognize an impairment charge equal to the amount by which the carrying amount exceeds the fair market value of the asset . stock-based compensation stock-based compensation consists of stock options and restricted stock units ( `` rsus '' ) , which are granted to employees and non-employees . we recognize compensation expense equal to the grant date fair value on a straight-line basis , net of forfeitures , over the employee requisite service period . we recognize stock-based compensation expense for performance-based rsus when we believe that it is probable that the performance objectives will be met . the grant date fair value of our stock option awards is determined using the black-scholes option pricing model . income taxes income taxes are provided based on the liability method , which results in income tax assets and liabilities arising from temporary differences . temporary differences are differences between the tax basis of assets and liabilities and their reported amounts in the financial statements that will result in taxable or deductible amounts in future years . the liability method requires the effect of tax rate changes on current and accumulated deferred income taxes to be reflected in the period in which the rate change was enacted . the liability method also requires that deferred tax assets be reduced by a valuation allowance unless it is more likely than not that the assets will be realized . we may recognize the tax benefit from uncertain tax positions only if it is at least more likely than not that the tax position will be sustained on examination by the taxing authorities , based on the technical merits of the position . the tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than 50 % likelihood of being realized upon settlement with the taxing authorities . we establish valuation allowances when necessary to reduce deferred tax assets to the amounts expected to be realized . we evaluate the need for , and the adequacy of , valuation allowances based on the expected realization of our deferred tax assets . the factors used to assess the likelihood of realization include historical earnings , our latest forecast of taxable income and available tax planning strategies that could be implemented to realize the net deferred tax assets . our effective tax rates are primarily affected by changes in our valuation allowances , the amount of our taxable income or losses in the various taxing jurisdictions in which we operate , the amount of federal and state net operating losses and tax credits , the extent to which we can utilize these net operating loss carryforwards and tax credits and certain benefits related to stock option activity . recent accounting pronouncements information regarding recent accounting pronouncements is contained in note 2 `` significant accounting policies '' to the accompanying consolidated financial statements included in part ii , item 8 , which is incorporated herein by this reference . 37 key business metrics in addition to monitoring traditional financial measures , we also monitor our operating performance using key performance indicators . our key performance indicators follow : replace_table_token_9_th das nodes . this metric represents the number of active das nodes as of the end of the period . a das node is a single communications endpoint , typically an antenna , which transmits or receives radio frequency signals wirelessly . this measure is an indicator of the reach of our das network . we are experiencing strong customer demand from telecom operators to gain access to our das networks ; accordingly , we expect to continue to invest in securing , building out and upgrading our das networks to meet this demand . subscribersmilitary and subscribersretail . these metrics represent the number of paying customers who are on a month-to-month subscription plan at a given period end . military subscribers have increased as we deploy our service on new military bases . we also expect to see modest increases in military subscribers as we increase signups for new customers on existing military bases through targeted marketing and by continuing to build the boingo brand in the military vertical . retail subscribers have continued to decline as we have expanded our product offerings and enhanced our focus on our wholesale and advertising service offerings . connects . this metric shows how often individuals connect to our global wi-fi network in a given period . the connects include wholesale and retail customers in both customer pay locations and customer free locations where we are a paid service provider or receive sponsorship or promotion fees . we count each connect as a single connect regardless of how many times that individual accesses the network at a given venue during their 24 hour period . this measure is an indicator of paid activity throughout our network . key components of our results of operations revenue our revenue consists of das revenue , military revenue , retail revenue , wholesale wi-fi revenue , and advertising and other revenue . das . we generate revenue from telecom operator partners that pay us network build-out fees , inclusive of network upgrades , and access fees for our das and small cell networks . military and retail . we generate revenue from sales to military and retail individuals of month-to-month network access subscriptions that automatically renew , primarily through charge card transactions . we also generate revenue from sales of hourly , daily or other single-use access to military and retail individuals primarily through charge card transactions . wholesale wi-fi .
| results of operations the following tables set forth our results of operations for the specified periods . replace_table_token_10_th depreciation and amortization expense depreciation expense increased $ 19.9 million , or 40.4 % , in 2017 , as compared to 2016 , and depreciation expense increased $ 10.9 million , or 28.5 % , in 2016 , as compared to 2015 , primarily due to increased depreciation and amortization expense from our increased fixed assets for our das build-out projects , wi-fi networks , and software development in those periods . stock-based compensation expense stock-based compensation expense increased $ 1.4 million , or 11.0 % , in 2017 , as compared to 2016 , primarily due to stock-based compensation expense related to our performance-based rsus . stock- 41 based compensation expense increased $ 3.4 million , or 36.3 % , in 2016 , as compared to 2015 , primarily due to additional stock-based compensation expenses for rsus granted in 2015 and 2016. in 2016 , our compensation committee determined to adjust its practice of making annual long-term equity grants and instead adopted a compensation cycle whereby it granted equity awards to our chief executive officer and chief financial officer covering the number of shares it might otherwise have granted in 2016 through 2018 , with `` cliff '' vesting dates in 2019. these grants were made to focus our chief executive officer and chief financial officer on the company 's overall long-term corporate and strategic goals , eliminate intervening quarterly vesting dates that force them to sell shares in the market to cover taxes triggered upon vesting , and strengthen the company 's ability to retain our senior management team over the next three years . as a result of these larger-than-usual rsu grants , the compensation committee does not intend to grant additional equity awards to our chief executive officer and chief financial officer until 2019. we issue rsus that vest over a specified service period . we also issue performance-based rsus to executive personnel .
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101.ins xbrl instance document 101.sch xbrl taxonomy extension schema document 101.cal xbrl taxonomy extension calculation linkbase document 101.lab xbrl taxonomy extension label linkbase document 101.pre xbrl taxonomy extension presentation linkbase document 101.def xbrl taxonomy extension definition linkbase document management contract or compensatory plan or arrangement required to be filed as an exhibit to this form 10-k. page 44 story_separator_special_tag results of operations overview schmitt industries , inc. ( the company ) , an oregon corporation , designs , manufactures and sells high precision test and measurement products for two main business segments : the balancer segment and the measurement segment . for the balancer segment , the company designs , manufactures and sells computer-controlled vibration detection , balancing and process control systems for the worldwide machine tool industry , particularly for grinding machines . through its wholly owned subsidiary , schmitt measurement systems , inc. , an oregon corporation , the company designs , manufactures and sells laser and white light sensors for distance , dimensional and area measurement for a wide variety of commercial applications and ultrasonic measurement products that accurately measure the fill levels of tanks holding propane , diesel and other tank-based liquids and transmit that data via satellite to a secure web site for display ( the measurement segment ) . in addition , the measurement segment includes laser-based microroughness measurement products for the semiconductor wafer and hard disk drive industries and for other industrial applications and laser-based surface analysis and measurement products , which can be used for a variety of scientific applications . the company also provides sales and service for europe and asia through its wholly owned subsidiary , schmitt europe limited ( sel ) , located in coventry , england and through its sales representative office located in shanghai , china . for the fiscal year ended may 31 , 2017 ( fiscal 2017 ) , total sales increased $ 712,290 , or 6.1 % , to $ 12,397,643 from $ 11,685,353 in the fiscal year ended may 31 , 2016 ( fiscal 2016 ) . balancer segment sales focus throughout the world on end-users , rebuilders and original equipment manufacturers of grinding machines with the target geographic markets of north america , asia , and europe . balancer segment sales increased $ 119,728 , or 1.7 % , to $ 7,082,474 in fiscal 2017 as compared to $ 6,962,746 in fiscal 2016. sales to customers in asia increased $ 146,509 , or 6.8 % , to $ 2,300,682 in fiscal 2017 as compared to $ 2,154,173 in fiscal 2016. sales to customers in north america decreased $ 127,477 , or 3.7 % , to $ 3,337,215 in fiscal 2017 as compared to $ 3,464,692 in fiscal 2016 as a result of lower sales level in the first half of fiscal 2017. europe sales for fiscal 2017 were $ 1,261,387 , which was consistent with sales levels of $ 1,259,868 experienced in fiscal 2016 and sales to customer in other parts of the world increased $ 99,177 , or 118.0 % , from $ 84,013 in fiscal 2016 to $ 183,190 in fiscal 2017. the product lines in the measurement segment include the acuity laser-based distance measurement and dimensional sizing laser sensors and the xact ultrasonic-based remote tank monitoring products . total measurement segment sales increased $ 592,562 , or 12.5 % , to $ 5,315,169 for fiscal 2017 as compared to $ 4,722,607 for fiscal 2016. the overall increase in sales in the measurement segment is primarily attributed to page 17 an increase in sales and related monitoring revenues associated with our xact product line of $ 665,524 , or 37.6 % , from $ 1,771,271 in fiscal 2016 to $ 2,436,795 in fiscal 2017. our acuity product line also recorded an increase in sales of $ 70,219 , or 2.9 % , from $ 2,401,465 in fiscal 2016 to $ 2,471,684 in fiscal 2017. these increases in sales were offset by a decrease of $ 143,181 in sales of products in our sms and lasercheck product lines . during fiscal 2017 , the company made the decision to no longer focus on and eventually phase out the sms and lasercheck product lines , which have historically been included in the measurement segment . operating expenses decreased $ 429,278 , or 6.8 % , to $ 5,874,491 in fiscal 2017 to $ 6,303,769 in fiscal 2016. general , administrative and sales expenses decreased $ 397,770 , or 6.6 % , to $ 5,618,327 in fiscal 2017 as compared to $ 6,016,097 in the prior fiscal year . net loss was $ 1,073,364 , or $ ( 0.36 ) per fully diluted share , for the year ended may 31 , 2017 as compared to net loss of $ 1,515,189 , or $ ( 0.51 ) per fully diluted share , for the year ended may 31 , 2016. critical accounting policies revenue recognition the company recognizes revenue for sales and billing for freight charges upon delivery of the product to the customer at a fixed or determinable price with a reasonable assurance of collection , passage of title to the customer as indicated by shipping terms and fulfillment of all significant obligations , pursuant to the guidance provided by accounting standards codification topic 605. for sales to all customers , including manufacturer representatives , distributors or their third-party customers , these criteria are met at the time product is shipped . when other significant obligations remain after products are delivered , revenue is recognized only after such obligations are fulfilled . in addition , judgments are required in evaluating the credit worthiness of our customers . story_separator_special_tag credit is not extended to customers and revenue is not recognized until we have determined that collectability is reasonably assured . the company estimates customer product returns based on historical return patterns and reduces sales and cost of sales accordingly . allowance for doubtful accounts the company maintains credit limits for all customers based upon several factors , including but not limited to financial condition and stability , payment history , published credit reports and use of credit references . management performs various analyses to evaluate accounts receivable balances to ensure recorded amounts reflect estimated net realizable value . this review includes accounts receivable agings , other operating trends and relevant business conditions , including general economic factors , as they relate to the company 's domestic and international customers . if these analyses lead management to the conclusion that potential significant accounts are uncollectible , a reserve is provided . inventories inventories are valued at the lower of cost or market with cost determined on the average cost basis . costs included in inventories consist of materials , labor and manufacturing overhead , which are related to the purchase or production of inventories . write-downs , when required , are made to reduce excess inventories to their net realizable values . such estimates are based on assumptions regarding future demand and market conditions . if actual conditions become less favorable than the assumptions used , an additional inventory write-down may be required . deferred taxes the company applies the asset and liability method in recording income taxes , under which deferred income tax assets and liabilities are determined , based on the differences between the financial reporting and tax bases of assets and liabilities and are measured using currently enacted tax rates and laws . additionally , deferred tax assets are evaluated and a valuation allowance is established if it is more likely than not that all or a portion of the deferred tax asset will not be realized . management continues to review the level of the valuation allowance on a quarterly basis . there can be no assurance that the company 's future operations will produce sufficient earnings so that the deferred tax assets can be fully utilized . intangible assets intangible and other long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of the asset may not be recoverable . recoverability is page 18 determined by comparing the forecasted future undiscounted net cash flows from the operations to which the assets relate , based on management 's best estimates using the appropriate assumptions and projections at the time , to the carrying amount of the assets . if the carrying value is determined to be in excess of future operating cash flows , the asset is considered impaired and a loss is recognized equal to the amount by which the carrying amount exceeds the estimated fair value of the assets . recently issued accounting pronouncements refer to note 2 of the notes to consolidated financial statements for a discussion of recently issued accounting pronouncements . story_separator_special_tag reporting , offset by tax credits related to research and experimentation expenses . net income ( loss ) net loss was $ 1,073,364 , or $ ( 0.36 ) per fully diluted share , for fiscal 2017 as compared to net loss of $ 1,515,189 , or $ ( 0.51 ) per fully diluted share , for the year ended may 31 , 2016. net loss for fiscal 2017 was the result of the combination of lower sales of sbs products in north america in the first half of the fiscal year , lower overall margins and decreases in sales associated with our sms and lasercheck product lines . net loss for the year ended may 31 , 2016 was $ 1,515,189 , or $ ( 0.51 ) per fully diluted share , as compared to net loss of $ 93,669 , or $ ( 0.03 ) per fully diluted share , for the year ended may 31 , 2015. net loss for fiscal 2016 was primarily the result of the decline in sales to our customers in china , other asia markets and north america within the balancer segment , lower sales in the sms product line and higher operating expenses . liquidity and capital resources the company 's working capital decreased $ 814,895 to $ 5,510,812 as of may 31 , 2017 compared to $ 6,325,707 as of may 31 , 2016. cash and cash equivalents decreased $ 121,079 from $ 988,686 as of may 31 , 2016 to $ 867,607 as of may 31 , 2017. cash used in operating activities was $ 148,288 in fiscal 2017 as compared to cash used in operations of $ 819,808 in fiscal 2016 and cash provided by operating activities of $ 390,146 in fiscal 2015. the amount of cash used in or provided by operating activities was primarily impacted by the amount of the net loss in each of the fiscal years , the timing of collections of accounts receivable , shifts in the level of inventories , and the timing of payments of accounts payable . at may 31 , 2017 , accounts receivable increased $ 245,291 to $ 2,344,373 compared to $ 2,099,082 as of may 31 , 2016. the increase in accounts receivable was due to an increase in sales in the second half of fiscal 2017 and the timing of collections . inventories decreased $ 523,254 to $ 4,204,723 as of may 31 , 2017 as compared to $ 4,727,977 as of may 31 , 2016 as a result of increased level of sales occurring during the second half of fiscal 2017 and timing of deliveries of products from our suppliers . at may 31 , 2017 , total current liabilities increased $ 398,257 to $ 2,028,957 as compared to $ 1,630,700 at may 31 , 2016 as a result of timing of payments
| discussion of operating results replace_table_token_3_th sales sales in the balancer segment increased $ 119,728 , or 1.7 % , to $ 7,082,474 for fiscal 2017 as compared to $ 6,962,746 for fiscal 2016. this increase was primarily attributed to stronger sales in asia and other regions of the world , offset by lower shipments into north america in the early part of fiscal 2017. sales to customers in asia increased $ 146,509 , or 6.8 % , to $ 2,300,682 in fiscal 2017 as compared to $ 2,154,173 in fiscal 2016. sales to customers in north america decreased $ 127,477 , or 3.7 % , to $ 3,337,215 in fiscal 2017 as compared to $ 3,464,692 in fiscal 2016 as a result of lower sales level in the first half of fiscal 2017. europe sales for fiscal 2017 were $ 1,261,387 , which was consistent with sales levels of $ 1,259,868 experienced in fiscal 2016 and sales to customer in other parts of the world increased $ 99,177 , or 118.0 % , from $ 84,013 in fiscal 2016 to $ 183,190 in fiscal 2017. the levels of demand for our balancer products in any of these geographic markets can not be forecasted with any certainty given current economic trends and the historical volatility experienced in this market . the product lines in the measurement segment include the acuity laser-based distance measurement and dimensional sizing laser sensors and the xact ultrasonic-based remote tank monitoring products .
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, and sound story_separator_special_tag story_separator_special_tag in addition , state and federal regulators periodically review the waterstone bank allowance for loan losses . such regulators have the authority to require waterstone bank to recognize additions to the allowance at the time of their examination . income taxes . the company and its subsidiaries file consolidated federal , combined state income tax , and separate state income tax returns . the provision for income taxes is based upon income in the consolidated financial statements , rather than amounts reported on the income tax return . deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases as well as for net operating loss carry forwards . deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled . the effect on deferred tax assets and liabilities of a change in tax rates is recognized as income or expense in the period that includes the enactment date . - 40 - under generally accepted accounting principles , a valuation allowance is required to be recognized if it is “ more likely than not ” that a deferred tax asset will not be realized . the determination of the realizability of deferred tax assets is highly subjective and dependent upon judgment concerning management 's evaluation of both positive and negative evidence , the forecasts of future income , applicable tax planning strategies , and assessments of current and future economic and business conditions . examples of positive evidence may include the existence of taxes paid in available carry-back years as well as the probability that taxable income will be generated in future periods . examples of negative evidence may include cumulative losses in a current year and prior two years and general business and economic trends . positions taken in the company 's tax returns are subject to challenge by the taxing authorities upon examination . the benefit of uncertain tax positions are initially recognized in the financial statements only when it is more likely than not that the position will be sustained upon examination by the tax authorities . such tax positions are both initially and subsequently measured as the largest amount of tax benefit that has a greater than 50 % likelihood of being realized upon settlement with the tax authority , assuming full knowledge of the position and all relevant facts . interest and penalties on income tax uncertainties are classified within income tax expense in the income statement . fair value measurements . the company determines the fair value of its assets and liabilities in accordance with asc 820. asc 820 establishes a standard framework for measuring and disclosing fair value under generally accepted accounting principles . a number of valuation techniques are used to determine the fair value of assets and liabilities in the company 's financial statements . the valuation techniques include quoted market prices for investment securities , appraisals of real estate from independent licensed appraisers and other valuation techniques . fair value measurements for assets and liabilities where limited or no observable market data exists are based primarily upon estimates , and are often calculated based on the economic and competitive environment , the characteristics of the asset or liability and other factors . therefore , the valuation results can not be determined with precision and may not be realized in an actual sale or immediate settlement of the asset or liability . additionally , there are inherent weaknesses in any calculation technique , and changes in the underlying assumptions used , including discount rates and estimates of future cash flows , could significantly affect the results of current or future values . significant changes in the aggregate fair value of assets and liabilities required to be measured at fair value or for impairment are recognized in the income statement under the framework established by generally accepted accounting principles . recent accounting pronouncements . refer to note 1 of our consolidated financial statements for a description of recent accounting pronouncements including the respective dates of adoption and effects on results of operations and financial condition . comparison of consolidated waterstone financial , inc. financial condition at december 31 , 2018 and at december 31 , 2017 total assets . total assets increased by $ 109.0 million , or 6.0 % , to $ 1.92 billion at december 31 , 2018 from $ 1.81 billion at december 31 , 2017. the increase in total assets primarily reflects an increase in cash and cash equivalents and loans receivable , partially offset by a decrease in securities available for sale and loans held for sale . funding needed for loan originations was provided by deposit growth and additional long-term fhlb debt in 2018. cash and cash equivalents . cash and cash equivalents increased $ 37.5 million to $ 86.1 million at december 31 , 2018 from $ 48.6 million at december 31 , 2017. the increase in cash and cash equivalents primarily reflects increases in deposits and long-term fhlb borrowings along with the decrease in securities available for sale and loans held for sale . offsetting those increases to cash and cash equivalents , we used cash to fund loans held for investment , pay dividends , and repurchase shares since december 31 , 2017. securities available for sale . securities available for sale decreased by $ 14.0 million to $ 185.7 million at december 31 , 2018 from $ 199.7 million at december 31 , 2017. the decrease was due to paydowns in mortgage related securities and maturities of debt securities exceeding security purchases during the year . loans held for sale . story_separator_special_tag compensation , payroll taxes , and other employee benefits expense increased $ 890,000 due primarily to an increase in health insurance , salaries expense , and variable compensation offset by lower stock based compensation expenses . occupancy , office furniture , and equipment increased due primarily to increased snow removal , maintenance and repair expense , and computer supplies . advertising expense increased in order to promote our deposit offers . professional fees increased due to consulting expenses throughout the year . real estate owned expense decreased as there was a decrease in writedowns , decrease in management expense , and an increase in gain on sale of real estate owned . other noninterest expense decreased resulting from a decrease in loan origination and fdic assessment expenses . income tax expense decreased $ 5.0 million to $ 7.3 million for the year ended december 31 , 2018. the decrease was primarily due to a lower federal income tax rate and the deferred tax revaluation in 2017. as a result of the tax cuts and jobs act that was enacted into law on december 22 , 2017 , the company revalued its net deferred tax asset to reflect the reduction in its federal corporate income tax rate from 35 % to 21 % . this revaluation resulted in a one-time income tax expense of approximately $ 2.7 million during the fourth quarter of 2017. comparison of mortgage banking segment operations for the years ended december 31 , 2018 and 2017 net income from our mortgage banking segment decreased $ 3.8 million to $ 5.8 million for the year ended december 31 , 2018 compared to $ 9.6 million for the year ended december 31 , 2017. we originated $ 2.60 billion in mortgage loans held for sale during the year ended december 31 , 2018 , which was an increase of $ 52.2 million , or 2.0 % , from the $ 2.55 billion originated during the year ended december 31 , 2017. the increase in loan production volume was driven by a 4.1 % increase in mortgage purchase products offset by a 14.0 % decrease in refinance products . total mortgage banking income decreased $ 6.7 million , or 5.5 % , to $ 115.4 million during the year ended december 31 , 2018 compared to $ 122.1 million during the year ended december 31 , 2017. margins decreased approximately 7.9 % for the year ended december 31 , 2018 compared to december 31 , 2017. our overall margin can be affected by the mix of both loan type ( conventional loans versus governmental ) and loan purpose ( purchase versus refinance ) . conventional loans include loans that conform to fannie mae and freddie mac standards , whereas governmental loans are those loans guaranteed by the federal government , such as a federal housing authority or u.s. department of agriculture loan . loans originated for the purchase of a residential property , which generally yield a higher margin than loans originated for refinancing existing loans , comprised 90.6 % of total originations during the year ended december 31 , 2018 , compared to 88.8 % of total originations during the year ended december 31 , 2017. the mix of loan type trended slightly towards more conventional loans and less governmental loans comprising 69.7 % and 30.3 % of all loan originations , respectively , during the year ended december 31 , 2018 , compared to 64.5 % and 35.5 % of all loan originations , respectively , during the year ended december 31 , 2017. during the year ended december 31 , 2018 , mortgage servicing rights related to $ 148.7 million in loans receivable with a book value of $ 1.0 million were sold at a gain of $ 417,000. during the year ended december 31 , 2017 , mortgage servicing rights related to $ 295.1 million in loans receivable with a book value of $ 2.3 million were sold at a gain of $ 178,000 . - 42 - total compensation , payroll taxes and other employee benefits decreased $ 95,000 , or 0.1 % , to $ 80.0 million for the year ended december 31 , 2018 compared to $ 80.1 million for the year ended december 31 , 2017. the decrease primarily related to less commission expense , branch manager pay , and bonus expense . offsetting those decreases , salary and health insurance increased with the additional branch network with the new mexico branch acquisition . occupancy , office furniture , and equipment expense increased as the number of branches increased with the addition of the new mexico branches . advertising expense increased as branches sought to generate origination volumes . professional fees decreased primarily as there was less legal expenses during the year . other noninterest expense decreased primarily due to lower branch overhead expense , provision for loan sale losses , and servicing fees . waterstone mortgage corporation originates loans in various states . the states where we originate greater than 10 % of total activity are florida and wisconsin . comparison of consolidated waterstone financial , inc. results of operations for the years ended december 31 , 2018 and 2017 replace_table_token_19_th - 43 - average balance sheets , interest and yields/costs the following table set forth average balance sheets , annualized average yields and costs , and certain other information for the periods indicated . non-accrual loans were included in the computation of the average balances of loans receivable and held for sale . the yields set forth below include the effect of deferred fees , discounts and premiums that are amortized or accreted to interest income or expense . yields on interest-earning assets are computed on a fully tax-equivalent yield , where applicable . replace_table_token_20_th ( 1 ) includes net deferred loan fee amortization income of $ 622,000 , $ 689,000 and $ 720,000 for the years ended december 31 , 2018 , 2017 and 2016 , respectively . ( 2 ) includes available for sale securities .
| overview the following discussion and analysis is presented to assist the reader in understanding and evaluating of the company 's financial condition and results of operations . it is intended to complement the consolidated financial statements , footnotes , and supplemental financial data appearing elsewhere in this form 10-k and should be read in conjunction therewith . the detailed discussion in the sections below focuses on the results of operations for the years ended december 31 , 2018 , 2017 , and 2016 and the financial condition as of december 31 , 2018 compared to the financial condition as of december 31 , 2017. as described in the notes to consolidated financial statements , we have two reportable segments : community banking and mortgage banking . the community banking segment provides consumer and business banking products and services to customers . consumer products include loan products , deposit products , and personal investment services . business banking products include loans for working capital , inventory and general corporate use , commercial real estate construction loans , and deposit accounts . the mortgage banking segment , which is conducted through waterstone mortgage corporation , consists of originating residential mortgage loans primarily for sale in the secondary market . our community banking segment generates the significant majority of our consolidated net interest income and requires the significant majority of our provision for loan losses . our mortgage banking segment generates the significant majority of our noninterest income and a majority of our noninterest expenses . we have provided below a discussion of the material results of operations for each segment on a separate basis for the years ended december 31 , 2018 , 2017 , and 2016 , which focuses on noninterest income and noninterest expenses . we have also provided a discussion of the consolidated operations of waterstone financial , which includes the consolidated operations of waterstone bank and waterstone mortgage corporation , for the same periods .
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in march 2011 , we received eu regulatory approval under the ce mark and medical devices directive for our flagship product , cytosorb , as an extracorporeal cytokine filter indicated for use in clinical situations where cytokines are elevated . the goal of cytosorb is to prevent or treat organ failure by reducing cytokine storm and the potentially deadly systemic inflammatory response syndrome in diseases such as sepsis , trauma , burn injury , acute respiratory distress syndrome , pancreatitis , liver failure , and many others . organ failure is the leading cause of death in the icu , and remains a major unmet medical need , with little more than supportive care therapy ( e.g. , mechanical ventilation , dialysis , vasopressors , fluid support , ecmo , etc . ) as treatment options . by potentially preventing or treating organ failure , cytosorb may improve clinical outcome , including survival , while reducing the need for costly icu treatment , thereby potentially saving significant healthcare costs . cytosorb is also being used during and after cardiac surgery to remove inflammatory mediators , such as cytokines and free hemoglobin , which can lead to post-operative complications including multiple organ failure . in january 2018 , the company received approval for the first cytosorb label extension increasing treatment time from six hours to 24 hours . in may 2018 , the company received the second label extension for cytosorb covering use of the device for the removal of bilirubin and myoglobin in the treatment of liver failure and trauma , respectively . our ce mark enables cytosorb to be sold throughout all 28 countries of the eu . in addition , many countries outside the eu accept ce mark approval for medical devices , but may also require registration with or without additional clinical studies . the broad approved indication enables cytosorb to be used “ on-label ” in diseases where cytokines are elevated including , but not limited to , critical illnesses such as those mentioned above , autoimmune disease flares , cancer cachexia , and many other conditions where cytokine-induced inflammation plays a detrimental role . as part of the ce mark approval process , we completed our randomized , controlled , european sepsis trial amongst fourteen trial sites in germany in 2011 , with enrollment of 100 patients with predominately septic shock and respiratory failure . the trial established that cytosorb was safe in this critically-ill population , and that it was able to broadly reduce key cytokines in the blood of these patients . we plan to conduct larger , prospective studies in septic patients in the future to confirm the european sepsis trial findings . in addition to ce mark approval , we also achieved iso 13485:2016 full quality systems certification , an internationally recognized quality standard designed to ensure that medical device manufacturers have the necessary comprehensive management systems in place to safely design , develop , manufacture and distribute medical devices in the eu . we manufacture cytosorb at our manufacturing facilities in new jersey for sale and for additional clinical studies . we also established general reimbursement for cytosorb in germany . we have also been assigned a specific procedure code for cytokine removal in switzerland for our cytosorb device that became effective january 1 , 2019 and is pending reimbursement valuation assignment . from september 2011 through june 2012 , we began a controlled market release of cytosorb in select geographic territories in germany with the primary goal of preparing for commercialization of cytosorb in germany in terms of manufacturing , reimbursement , logistics , infrastructure , marketing , contacts , and other key issues . 68 in late june 2012 , following the establishment of our european subsidiary , cytosorbents europe gmbh , we began the commercial launch of cytosorb in germany with the hiring of dr. christian steiner as vice president of sales and marketing and three additional sales representatives . the fourth quarter of 2012 represented the first full quarter of direct sales with the full sales team in place . during this period , we expanded our direct sales efforts to include both austria and switzerland . in march 2016 , we established cytosorbents switzerland gmbh , a wholly-owned subsidiary of cytosorbents europe gmbh , to conduct marketing and direct sales in switzerland . this subsidiary began operations during the second quarter of 2016. in 2017 , we further expanded our direct sales efforts into belgium and luxemburg . on march 5 , 2019 , the company announced the expansion of direct sales of cytosorb for all applications to poland and the netherlands , and critical care applications to sweden , denmark and norway . as part of this effort , the company established cytosorbents poland sp . z.o.o. , a wholly-owned subsidiary of cytosorbents europe gmbh . at the end of 2018 , we had hundreds of kols in our commercialized territories worldwide in critical care , cardiac surgery , and blood purification who were either using cytosorb or supporting its use in clinical practice or clinical trials . as of february 11 , 2019 , our european sales , marketing and clinical support team includes 29 direct sales people , one contract sales person and 22 sales support staff . we have complemented our direct sales efforts with sales to distributors and or corporate partners . in 2013 , we reached agreements with distributors in the united kingdom , ireland , turkey , russia , and the netherlands . in 2014 , we announced distribution of cytosorb in the middle east , including saudi arabia , the united arab emirates , kuwait , bahrain , and oman ( the gcc ) and yemen , iraq , and jordan through an exclusive agreement with techno orbits . in december 2014 , we entered into an exclusive agreement with smart medical solutions s.r.l. , to distribute cytosorb for critical care applications in romania and the neighboring republic of moldova . in 2015 , we announced exclusive distribution agreements with aferetica s.r.l . story_separator_special_tag under the terms of the agreement , terumo has exclusive rights to distribute the cytosorb cardiopulmonary bypass ( “ cpb ” ) procedure pack for intra-operative use during cardiac surgery in france , sweden , denmark , norway , finland and iceland . terumo launched the product in these six countries in december 2016. in march 2017 , we entered into a partnership with dr. reddy 's laboratories ltd. for the south african market . under the terms of the agreement , dr. reddy 's has the exclusive right to distribute cytosorb for intensive care , cardiac surgery , and other hospital applications in south africa . this is a multi-year agreement and is subject to annual minimum purchases of cytosorb to maintain exclusivity . we continuously evaluate other potential distributor and strategic partner networks in other countries where we are approved to market the device . concurrent with our commercialization plans , we intend to conduct or support additional clinical studies in sepsis , cardiac surgery , and other critical care diseases to generate additional clinical data to expend the scope of clinical experience for marketing purposes , to increase the number of treated patients , and to support potential future publications . we have completed a single arm , dose ranging trial in germany amongst several clinical trial sites to evaluate the safety and efficacy of cytosorb when used 24 hours per day for seven days , each day with a new device , and are conducting final statistical analysis of the data . patients are being stratified for age , cytokine levels , and co-morbid illnesses in this matched pairs analysis . the publication for this study is currently under preparation . 70 in addition , we now have more than 50 investigator-initiated studies planned , enrolling or completed in germany , austria , switzerland , the netherlands , hungary , the united kingdom , india , and the u.s. approximately 20 of these studies are currently enrolling patients . others have been completed . these trials , which are funded and supported by well-known university hospitals and kols , are the equivalent of phase ii clinical studies . they have provided and will continue to provide invaluable information regarding the success of the device in the treatment of sepsis , cardiac surgery , trauma , and many other indications , and if successful , will be integral in helping to drive additional usage and adoption of cytosorb . in february 2015 , the u.s. food and drug administration ( the “ fda ” ) approved our investigational device exemption ( “ ide ” ) application to commence a planned u.s. cardiac surgery feasibility study called refresh i ( reduction of free hemoglobin ) amongst 20 patients and three u.s. clinical sites . the fda subsequently approved an amendment to the protocol , expanding the trial to a 40 patient randomized controlled study ( 20 treatment , 20 control ) in eight clinical centers . refresh i represented the first part of a larger clinical trial strategy intended to support the approval of cytosorb in the u.s. for intra-operative use during cardiac surgery . the refresh i study was designed to evaluate the safety and feasibility of cytosorb when used intra-operatively with a heart-lung machine to reduce plasma free hemoglobin ( pfhb ) and cytokines in patients undergoing complex cardiac surgery . the study was not powered to measure effect on clinical outcomes . the length , complexity and invasiveness of these procedures cause hemolysis and inflammation , leading to high levels of plasma free hemoglobin , cytokines , activated complement , and other substances . these inflammatory mediators are correlated with the incidence of serious post-operative complications such as kidney injury , renal failure and other organ dysfunction . the goal of cytosorb is to actively remove these inflammatory and toxic substances as they are being generated during the surgery and reduce complications . enrollment was completed with 46 patients . a total of 38 patients were evaluable for pfhb and completed all aspects of the study . the primary safety and efficacy endpoints of the study were the assessment of serious device related adverse events and the change in plasma free hemoglobin levels , respectively . on october 5 , 2016 , we announced positive top-line safety data . in addition , following a detailed review of all reported adverse events in a total of 46 enrolled patients , the dsmb found no serious device related adverse events with the cytosorb device , achieving the primary safety endpoint of the trial . in addition , the therapy was well-tolerated and technically feasible , implementing easily into the cardiopulmonary bypass circuit without the need for an additional external blood pump . this study represents the first randomized controlled trial demonstrating the safety of intra-operative cytosorb use in patients undergoing high risk cardiac operations . investigators of the refresh i trial submitted an abstract with data , including free hemoglobin data , from the refresh i trial which was selected for a podium presentation at the american association of thoracic surgery conference on may 1 , 2017. on may 5 , 2017 , we announced additional refresh i data , including data from the study on the reduction of pfhb and activated complement , and disclosed that investigators of the study have submitted a manuscript of the refresh i trial for publication . in december 2017 , the fda approved our ide application for our refresh 2-aki study , permitting us to conduct this pivotal trial designed to provide the key safety and efficacy data needed to support united states regulatory approval for cytosorb in cardiac surgery , which we plan to pursue via the premarket approval ( pma ) pathway . the refresh 2-aki trial is a randomized , controlled , multi-center , clinical trial designed to evaluate intraoperative cytosorb use as a therapy to reduce the incidence and severity of aki , as measured by kidney disease improving global outcomes ( kdigo ) criteria , following complex cardiac surgery .
| results of operations our financial statements have been presented on the basis that it is a going concern , which contemplates the realization of revenues and the satisfaction of liabilities in the normal course of business . we have incurred losses from inception of operations . these factors raise substantial doubt about our ability to continue as a going concern . comparison of the year ended december 31 , 2018 and 2017 revenues : for the year ended december 31 , 2018 , we generated total revenue , which includes product revenue and grant income , of approximately $ 22,504,000 as compared to revenues of approximately $ 15,151,000 for the year ended december 31 , 2017 , an increase of approximately $ 7,353,000 , or 49 % . revenue from product sales was approximately $ 20,252,000 for the year ended december 31 , 2018 , as compared to approximately $ 13,382,000 in the year ended december 31 , 2017 , an increase of approximately $ 6,870,000 or 51 % . this increase was primarily driven by increases in both direct and distributor sales from both new customers and repeat orders from existing customers . in addition , approximately $ 792,000 of this increase was due to the increase in the average euro to u.s. dollar exchange rate for the year ended december 31 , 2018 as compared to the year ended december 31 , 2017. grant income increased by approximately $ 483,000 , or 27 % , to approximately $ 2,251,000 in 2018 from $ 1,768,000 in 2017 as a result of increased revenue received from existing grants and revenue received from a new grant awarded in 2018. cost of revenue : for the years ended december 31 , 2018 and 2017 , cost of revenue was approximately $ 7,489,000 and $ 5,518,000 , respectively , an increase of approximately $ 1,971,000 , or 36 % .
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the assets for the excess plan aggregate $ 1,052,000 and $ 932,000 as of december 31 , 2017 and 2016 , respectively , and are recorded in other assets in our consolidated balance sheets ( see note 9 fair value measurements ) . the following table sets forth the defined benefit plans ' funded status and amounts recognized in our consolidated balance sheets as of december 31 : replace_table_token_13_th the following table presents the amounts recognized in our consolidated balance sheets as of december 31 : replace_table_token_14_th amounts recognized in accumulated other comprehensive loss that have not yet been recognized as components of net periodic benefit ( expense ) at december 31 are as follows : replace_table_token_15_th the components of net periodic pension benefit for our defined benefit pension plans for the years ended december 31 , 2017 , 2016 and 2015 are as follows : replace_table_token_16_th for the year ending december 31 , 2018 , we expect to recognize the following amount as a component of net periodic benefit ( expense ) which is included in accumulated other comprehensive loss as of december 31 , 2017 : actuarial loss $ 146,000 38 the principal assumptions used to determine the net periodic pension benefit for the years ended december 31 , 2017 , 2016 and 2015 , and the actuarial value of the benefit obligation at december 31 , 2017 and 2016 ( the measurement dates ) for our pension plans are as follows : replace_table_token_17_th historically , we used a single weighted-average discount rate approach to determine the pension benefit obligation and the subsequent years ' interest cost component of the net periodic pension benefit . the weighted-average discount rate was determined by matching estimated benefit payment cash flows to a yield curve derived from long-term , high-quality corporate bond curves . this method represented the constant annual rate that would be required to discount all future benefit payments related to past service from the date of expected future payment to the measurement date . as of december 31 , 2015 , we elected to use a refined method , known as the spot rate approach , to determine the benefit obligation and the subsequent years ' interest cost component of the net periodic pension benefit . this method uses individual spot rates along the yield story_separator_special_tag the following discussion is based upon and should be read together with the consolidated financial statements and notes thereto included elsewhere in this document . we classify our revenues as admissions , event-related , broadcasting and other . admissions revenue includes ticket sales for all of our events . event-related revenue includes amounts received from sponsorship fees ; luxury suite rentals ; hospitality tent rentals and catering ; concessions and vendor commissions for the right to sell concessions and souvenirs at our facilities ; sales of programs ; track rentals ; broadcasting rights other than domestic television broadcasting revenue and other event-related revenues . additionally , event related revenue includes amounts received for the use of our property and a portion of the concession sales we manage from the firefly music festival and the big barrel country music festival ( in 2015 only ) . broadcasting revenue includes rights fees obtained for domestic television broadcasts of events held at our speedway . revenues pertaining to specific events are deferred until the event is held . concession and souvenir revenues are recorded at the time of sale . revenues and related expenses from barter transactions in which we provide sponsorship packages in exchange for goods or services are recorded at fair value . barter transactions accounted for $ 612,000 , $ 400,000 and $ 721,000 of total revenues for the years ended december 31 , 2017 , 2016 and 2015 , respectively . expenses that are not directly related to a specific event are expensed as incurred . expenses that specifically relate to an event are deferred until the event is held , at which time they are expensed . these expenses include prize and point fund monies and sanction fees paid to nascar , a majority of our marketing expenses and other expenses associated with the promotion of our racing events . 11 our operating results reflect a decrease in admissions revenue . in 2016 and 2015 , much of this was weather related . however , management believes that our admissions revenue may continue to be negatively impacted if consumer and corporate spending continues to be impacted by high food and health-care costs , underemployment , difficult housing and credit markets , increasing interest rates , and other economic factors that can adversely impact recreational and entertainment spending . the strength and duration of recovery in the united states economy remains uncertain . changes in governmental taxing , regulatory , spending and other policies could also significantly impact consumer spending , economic recovery and our future results . much of our total revenues are generated under long-term contracts , and much of our future revenues are already contracted under nascar 's television broadcasting rights agreements . as discussed further below in liquidity and capital resources , nascar is operating under an expanded multi-year , multi-platform broadcasting rights agreement for the years 2015 through 2024. management believes the attractive demographics surrounding motorsports continue to provide opportunities for increasing our number of longer-term sponsorship partners . story_separator_special_tag style= '' margin:0in 0in .0001pt ; text-indent : .25in ; '' > earnings before income taxes were $ 6,390,000 in 2016 as compared to $ 8,599,000 in 2015. excluding the income from assets held for sale in 2015 , the accelerated depreciation on retired assets in 2016 and 2015 , and the costs to remove long-lived assets in 2016 and 2015 , our adjusted earnings before income taxes were $ 6,801,000 in 2016 as compared to $ 7,955,000 in 2015. replace_table_token_1_th net earnings were $ 3,801,000 in 2016 as compared to $ 5,285,000 in 2015. excluding the income from assets held for sale in 2015 , story_separator_special_tag the amended closing date under the agreement was july 27 , 2015 ; therefore , the agreement expired by its terms . accordingly , we recorded as income from assets held for sale the remaining deposits of $ 1,867,000 in the third quarter of 2015. on august 17 , 2017 , we entered into an agreement with an entity owned by panattoni development company relative to the sale of approximately 147 acres at a purchase price of $ 35,000 per acre . on january 22 , 2018 , we entered into an amendment to that agreement whereby the purchaser was required to deposit into escrow the remainder of the purchase price . the total purchase price of $ 5,151,300 has now been placed into escrow . in accordance with the terms of the amendment , closing will occur within three business days after the plat for the property has been fully executed by all required regulatory authorities , which is expected to occur in the first quarter of 2018. on september 1 , 2017 , we also awarded to the purchaser a three year option for 88.03 additional acres at a purchase price of $ 55,000 per acre . on february 9 , 2018 , we amended the option agreement to extend its term and to add additional acreage to the option . the option is for three years beginning on the earliest to occur of march 1 , 2018 or the date of closing of the initial 147 acres , but is only operative once closing occurs under the purchase agreement for the initial 147 acres . an additional 86.45 acres were added to the option at a purchase price of $ 66,685 per acre and an additional 50.51 acres were added at a purchase price of $ 35,000 per acre . the option may only be exercised for all of the 224.99 acres at one time for a total purchase price of $ 12,374,418. we will continue with our effort to sell the remaining nashville superspeedway property . as of december 31 , 2016 , all of the assets of nashville superspeedway were previously reported as assets held for sale in our consolidated balance sheets . while management remains committed to selling the nashville property , with the exception of the 147 acres discussed above , we no longer believe it is probable that the remaining property will be sold within the next twelve months . as such , we reclassified $ 23,545,000 to long term assets and $ 2,455,000 representing 147 acres of the total nashville superspeedway property was reported as assets held for sale in our consolidated balance sheets at december 31 , 2017. in addition , the december 31 , 2016 consolidated balance sheet was retrospectively adjusted to conform to the current-period presentation . 15 we promoted six racing events in 2017 and 2016 ( five national series events and one regional series event ) , all of which were sanctioned by nascar and held at our dover international speedway facility . we have entered into five year sanction agreements with nascar for each of the five national series events for 2016-2020. nascar 's regional series events are sanctioned on an annual basis . broadcasting revenues continue to be a significant long-term revenue source for our business . management believes this long-term contracted revenue helps stabilize our financial strength , earnings and cash flows . also , nascar ratings can impact attendance at our events and sponsorship opportunities . a substantial portion of our profits in recent years has resulted from television revenues received from nascar under its agreements with various television networks , which is expected to continue for the foreseeable future . our share of these television broadcast revenues and purse and sanction fees are fixed under our nascar sanction agreements through the year 2020. we are obligated to conduct events in the manner stipulated under the terms and conditions of these sanctioning agreements . nascar is operating under a ten-year , multi-platform agreement with fox sports media group ( fox ) for the broadcasting and digital rights to 16 nascar cup series races , 14 xfinity series races and the entire camping world truck series ( along with practice and qualifying ) from 2015 through 2024. the agreement includes tv everywhere rights that allow live-streaming of all fox races , before and after race coverage , in-progress and finished race highlights , and replays of fox-televised races to a fox sports-affiliated website which began in 2013. the agreement also allows re-telecast of races on a fox network and via video-on-demand for 24 hours and other ancillary programming , including a nightly nascar news and information show and weekend at-track shows . nascar and fox deportes , the number one us latino sports network , have teamed up to provide our sport 's most expansive spanish-language broadcast offering ever with coverage of 15 nascar cup series races which started in 2013. nascar also operates under a ten-year comprehensive agreement with nbc sports group granting nbcuniversal ( nbc ) exclusive rights to 20 nascar cup series races , 19 nascar xfinity series events , select nascar regional & touring series events and other live content which began in 2015. further , nbc has been granted spanish-language rights , certain video-on-demand rights and exclusive tv everywhere ' rights for its nascar cup series and nascar xfinity series events . looking forward , our sanction agreements with nascar contain annual increases of between 3 and 4 percent in media rights fees for each sanctioned event conducted , and provide a specific percentage of media rights fees to be paid to competitors . the sanction agreements also provide for annual increases in sanction fees and non-media rights related prize and point fund monies ( to be paid to competitors ) of between 4 and 4.5 percent annually over the term of the agreements .
| results of operations year ended december 31 , 2017 vs. year ended december 31 , 2016 admissions revenue was $ 6,657,000 in 2017 as compared to $ 6,937,000 in 2016. the $ 280,000 decrease was related to lower attendance at our 2017 spring nascar event weekend at dover international speedway . event-related revenue increased slightly to $ 8,303,000 in 2017 as compared to $ 8,264,000 in 2016. broadcasting revenue increased to $ 31,775,000 in 2017 as compared to $ 30,658,000 in 2016 due to contractual increases in nascar 's broadcasting rights agreement . operating and marketing expenses were $ 28,764,000 in 2017 as compared to $ 28,197,000 in 2016. the increase was primarily related to higher purse and sanction fees , and other event expenses for our 2017 nascar event weekends , partially offset by lower employee costs . general and administrative expenses decreased slightly to $ 7,314,000 in 2017 from $ 7,399,000 in 2016. costs to remove long-lived assets related to costs associated with the removal and disposal of grandstand seating at our dover facility . these assets had been removed as of the end of the first quarter of 2017 and no further costs were incurred . depreciation expense increased to $ 3,566,000 in 2017 as compared to $ 3,433,000 in 2016 as a result of capital spending in 2017 and 2016. the 2017 expense also includes $ 186,000 of accelerated depreciation as a result of the decision to not complete certain improvements at our dover facility .
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presentation of information the discussion that follows includes a comparison of our results of operations and liquidity and capital resources for the fiscal years ended december 31 , 2018 and 2019. for a discussion of changes from the fiscal year ended december 31 , 2017 to the fiscal year ended december 31 , 2018 , refer to management 's discussion and analysis of financial condition and results of operations in part ii , item 7 of our annual report on form 10-k for the year ended december 31 , 2018 ( filed march 6 , 2019 ) . overview-introduction we are a holding company of specialty electrical construction service providers that was established in 1995 through the merger of long-standing specialty contractors . through our subsidiaries , we serve the electric utility infrastructure , commercial and industrial construction markets . we manage and report our operations through two electrical contracting service segments : transmission and distribution ( “ t & d ” ) and commercial and industrial ( “ c & i ” ) . we have operated in the transmission and distribution industry since 1891. we are one of the largest u.s. contractors servicing the t & d sector of the electric utility industry and provide t & d services throughout the united states and western canada . our t & d customers include many of the leading companies in the electric utility industry . we have provided electrical contracting services for commercial and industrial construction since 1912. our c & i segment provides services in the united states and in western canada . our c & i customers include facility owners and general contractors . we believe that we have a number of competitive advantages in both of our segments , including our skilled workforce , extensive centralized fleet , proven safety performance and reputation for timely completion of quality work that allows us to compete favorably in our markets . in addition , we believe that we are better capitalized than some of our competitors , which provides us with valuable flexibility to take on additional and more complex projects . we had revenues for the year ended december 31 , 2019 of $ 2.071 billion compared to $ 1.531 billion for the year ended december 31 , 2018. for the year ended december 31 , 2019 , net income attributable to myr group inc. was $ 37.7 million compared to $ 31.1 million for the year ended december 31 , 2018. overview-segments transmission and distribution segment . our t & d segment provides comprehensive solutions to customers in the electric utility industry . our t & d segment generally serves the electric utility industry as a prime contractor to customers such as investor-owned utilities , cooperatives , private developers , government-funded utilities , independent power producers , independent transmission companies , industrial facility owners and other contractors . we have long-standing relationships with many of our t & d customers who rely on us to construct and maintain reliable electric and other utility infrastructure . our t & d segment provides a broad range of services on electric transmission and distribution networks and substation facilities , which include design , engineering , procurement , construction , upgrade , maintenance and repair services , with a particular focus on construction , maintenance and repair . our t & d services include the construction and maintenance of high voltage transmission lines , substations , lower voltage underground and overhead distribution systems , renewable power facilities and limited gas construction services . we also provide many services to our customers under multi-year master service agreements ( “ msas ” ) and other variable-term service agreements . 36 for the year ended december 31 , 2019 , our t & d revenues were $ 1.134 billion , or 54.8 % , of our revenue , compared to $ 893.1 million , or 58.3 % , of our revenue for the year ended december 31 , 2018 and $ 879.4 million , or 62.7 % , of our revenue for the year ended december 31 , 2017. revenues from transmission projects represented 68.1 % , 62.6 % , and 68.5 % of t & d segment revenue for the years ended december 31 , 2019 , 2018 and 2017 , respectively . our t & d segment also provides restoration services in response to hurricanes , ice storms or other storm related events , which typically account for less than 5 % of our annual revenues in 2019 , 2018 and 2017. measured by revenues in our t & d segment , we provided 49.7 % , 40.5 % and 31.4 % of our t & d services under fixed-price contracts during the years ended december 31 , 2019 , 2018 and 2017 , respectively . we also provide many services to our customers under multi-year maintenance service agreements and other variable service agreements . commercial and industrial segment . our c & i segment provides a wide range of services including design , installation , maintenance and repair of commercial and industrial wiring , the installation of traffic networks and the installation of bridge , roadway and tunnel lighting . in our c & i segment , we generally provide our electric construction and maintenance services as a subcontractor to general contractors in the c & i industry as well as directly to facility owners . we have a diverse customer base with many long-standing relationships . we concentrate our efforts on projects where our technical and project management expertise are critical to successful and timely execution . the majority of c & i contracts cover electrical contracting services for airports , hospitals , data centers , hotels , stadiums , convention centers , renewable energy projects , manufacturing plants , processing facilities , waste-water treatment facilities , mining facilities and transportation control and management systems . story_separator_special_tag project schedules , particularly in connection with larger , multi-year projects , can also create fluctuations in our revenues . other market and industry factors , such as changes to our customers ' capital spending plans or delays in regulatory approvals can affect project schedules . changes in technology , tax and other incentives and new or changing regulatory requirements affecting the industries we serve can impact demand for our services . while we actively monitor economic , industry and market factors affecting our business , we can not predict the impact such factors may have on our future results of operations , liquidity and cash flows . as a result of economic , industry and market factors , our operating results in any particular period or year may not be indicative of the results that can be expected for any other period or for any other year . overview-seasonality and nature of our work environment although our revenues are primarily driven by spending patterns in our customers ' industries , our revenues and results of operations , particularly those derived from our t & d segment , can be subject to seasonal variations . these variations are influenced by weather , daylight hours , availability of system outages from utilities , and holidays . during the winter months , demand for our t & d work may be high , but our work can be delayed due to inclement weather . during the summer months , the demand for our t & d work may be affected by fewer available system outages , due to peak electrical demands caused by warmer 38 weather , which limits our ability to perform electrical line service work . during the spring and fall months , the demand for our t & d work may increase due to improved weather conditions and system availability ; however , extended periods of rain and other severe weather can affect the deployment of our crews and efficiency of operations . furthermore , our work is performed under a variety of conditions in different locations , including but not limited to , difficult terrain , sites which may have been exposed to harsh and hazardous conditions , and in large urban centers where delivery of materials and availability of labor may be impacted . we also provide storm restoration services to our t & d customers . these services tend to have a higher profit margin . however , storm restoration service work that is performed under an msa typically has similar rates to other work under the agreement . in addition , deploying employees on storm restoration work may , at times , delay work on other transmission and distribution work . storm restoration service work is unpredictable and can affect results of operations . outlook our business is directly impacted by the level of spending on t & d infrastructure and the level of c & i electrical construction activity across the united states and western canada . we are optimistic about infrastructure spending and believe that improving industry activity will continue in both our transmission and distribution market segments and the drivers for utility investment will remain intact . we believe that regulatory reform , state renewable portfolio standards , the aging of the electric grid , and the general improvement of the economy will positively impact the level of spending by our customers in all of the markets we serve . although competition remains strong , we see these trends as positive factors for us in the future . we continue to expect long-term growth in the transmission market , although the timing of large bids and subsequent construction will likely continue to be highly variable from year to year . the electric grid is aging and requires significant upgrades and maintenance to meet current and future demands for electricity . over the past several years , many utilities have begun to implement plans to improve reliability of their transmission systems and reduce congestion . these utilities have started or planned new construction , line upgrades and maintenance projects on their transmission systems . we believe that our customers remain committed to the expansion and strengthening of their transmission infrastructure , with planning , engineering and funding for many of their projects already in place . state renewable portfolio standards , which set required or voluntary standards for how much electricity is to be generated from renewable energy sources , as well as general environmental concerns , continue to drive the development of renewable energy projects . the economic feasibility of renewable energy projects , and therefore the attractiveness of investment in the projects , may depend on the availability of tax incentive programs or the ability of the projects to take advantage of such incentives . renewable energy-related construction contracts , depending on the type , may benefit both the t & d and c & i business segments . we believe there is an ongoing need for utilities to sustain investment in their transmission systems to improve reliability , reduce congestion and connect to new sources of renewable generation . the timing of multi-year transmission project awards and substantial construction activity is difficult to predict due to regulatory requirements and the permitting needed to commence construction . significant construction on any large , multi-year projects awarded in 2020 will not likely occur until 2021. bidding and construction activity for small to medium-size transmission projects and upgrades remains strong , and we expect this trend to continue , primarily due to reliability and economic drivers . we also believe the need for distribution services will continue to grow . because of reduced spending by united states utilities on their distribution systems for several years , we believe there is a need for sustained investment by utilities on their distribution systems to properly maintain or meet reliability requirements . in 2019 , we continued to see increased bidding activity in some of our electric distribution markets , as economic conditions improved in those areas .
| segment results the following table sets forth , for the periods indicated , statements of operations data by segment , segment net sales as a percentage of total net sales and segment operating income as a percentage of segment net sales : replace_table_token_10_th transmission & distribution revenues for our t & d segment for the year ended december 31 , 2019 were $ 1.134 billion compared to $ 893.1 million for the year ended december 31 , 2018 , an increase of $ 241.3 million , or 27.0 % . the increase in revenue was primarily due to an increase in revenue on small- to medium-sized transmission and distribution projects . revenues from transmission projects represented 68.1 % and 62.6 % of t & d segment revenue for the years ended december 31 , 2019 and 2018 , respectively . additionally , for the year ended december 31 , 2019 , measured by revenue in our t & d segment , we provided 49.7 % of our t & d services under fixed-price contracts , as compared to 40.5 % for the year ended december 31 , 2018. operating income for our t & d segment for the year ended december 31 , 2019 was $ 73.6 million compared to $ 57.2 million for the year ended december 31 , 2018 , an increase of $ 16.4 million , or 28.5 % . the increase in t & d operating income from the prior year was primarily due to higher revenue on transmission and distribution projects , better than anticipated productivity on certain projects , a favorable claim settlement , and successful change order negotiations . this improvement from the prior year was partially offset by lower margins and changes in estimates of gross profit on certain projects . these estimate changes were primarily due to inclement weather on certain projects and an increase in non-reimbursable cost on a project .
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contractual obligations as of december 31 , 2004 , the registrant did not have any contractual obligations or commercial commitments . story_separator_special_tag `` > for 2004 was lower than 2002 by approximately 7 % , a result of four main factors that transpired over the 2002 and 2003 periods : per-diem rental rates declined in response to the reduction in container prices ; the leasing company converted lease agreements with several shipping lines from master to long-term leases , providing greater revenue stability but at lower lease rates than those earned under master leases ; the leasing company initiated new term leases for older equipment resulting in lower per-diem rates , while significantly reducing off-hire container inventory levels ; and , interest rates , which influence per-diem rental rates , declined world wide . additionally , the combined per-diem rental rate for the registrant 's fleet of refrigerated containers for 2004 compared to 2003 , declined by 4 % . although favorable market conditions currently exist for container lessors , current market conditions may negatively impact the shipping lines . sharply rising and volatile oil prices , combined with the increase in charter rates for ships , higher steel prices and the related increase in new container prices , have created a concern for both the shipping lines and , therefore , the leasing companies . although the majority of the top 20 shipping lines have experienced strong profit growth during 2004 , other shipping lines are facing increased financial pressures , especially those shipping lines that rely on operating their containerships via short-term charters . current conditions appear to favor the larger more established shipping lines , which have witnessed increases in freight rates due to the strong demand experienced in their respective trade routes . however , some regional intra-asian shipping lines have struggled to remain profitable , due primarily to the rising charter rates for ships , over capacity and lower freight rates , and have cut back services in certain routes in an attempt to reduce rising costs . additionally , the delivery of new containerships in 2006 and their additional tonnage capacity will present additional risk for the shipping lines . the registrant , ccc and the leasing company continue to monitor the aging of lease receivables , collections and the credit exposure to various existing and new customers . the financial impact of losses from shipping lines may eventually influence the demand for leased containers , as some shipping lines may experience additional financial difficulties , consolidate , or become insolvent . industry analysts are expressing concern that the current program of new shipbuilding may create over capacity within the shipping industry once the new container ships scheduled to be delivered during 2006 and 2007 are placed in service . based on current orders , industry analysts predict that the world 's containership fleet will exceed 10 million teu by the end of 2007 , compared to less than 7 million teu at the beginning of 2004. over capacity may contribute to a reduction in profitability for shipping lines , which in turn could have adverse implications for container lessors , including a decline in the demand for leased containers and a reduction in container per-diem rental rates . lastly , concerns remain regarding the world 's major economies , including the volatility of oil prices , the rate of world economic growth and the related growth of containerized trade volumes , inflation concerns and its impact on interest rates , us trade and budget deficits , the unpredictability of china 's economy , performance of global stock markets , geopolitical concerns arising from uncertainties within the middle east and asia , threats of terrorism , as well as new container production levels , all of which may have an impact on the current demand for leased containers . year ended december 31 , 2004 compared to the year ended december 31 , 2003 net lease revenue was $ 668,599 for the year ended december 31 , 2004 compared to $ 672,306 for the prior year . the decrease was due to a $ 170,557 decline in gross rental revenue ( a component of net lease revenue ) from the year ended december 31 , 2003. gross rental revenue was impacted by the registrant 's smaller fleet size , partially offset by an increase in fleet utilization rates . other components of net lease revenue , including rental equipment operating expenses , management fees , and reimbursed administrative expenses , were lower by a combined $ 166,850 when compared to 2003 , and partially offset the decline in gross lease revenue . the decrease in direct operating expense was attributable to the registrant 's higher fleet utlization rates during 2004 and its impact on activity-based expenses such as storage and handling which declined by a combined $ 81,369. also , contributing to the decline in direct operating expenses were declines in repositioning , and repair and maintenance expenses . depreciation expense of $ 647,205 in 2004 declined by $ 226,819 when compared to 2003 , a direct result of the registrant 's aging and declining fleet size . other general and administrative expenses amounted to $ 92,848 in 2004 , an increase of $ 5,013 or 6 % when compared to 2003 . 17 net loss on disposal of equipment for 2004 was $ 494,799 , as compared to a net loss of $ 392 , 950 for 2003. the change was a result of two primary factors : the registrant 's disposal of 719 containers in 2004 , as compared to 885 containers during 2003. these disposals resulted in a net loss of $ 100,265 during 2004 , story_separator_special_tag the leasing company 's credit committee meets quarterly to analyze the performance of existing customers and to recommend actions taken in order to minimize credit risk . the leasing company derives an allowance for doubtful accounts from specific amounts provided against known probable losses plus an additional amount based on historical loss experience . however , the registrant may be subject to an unexpected loss in net lease revenue resulting from sub-lessees of its containers that default under their container lease agreements with the leasing company . new accounting pronouncements in november 2004 , the fasb issued sfas no . 151 inventory costs an amendment of arb no . 43 , chapter 4 ( sfas 151 ) . sfas 151 amends the guidance in arb no . 43 , chapter 4 inventory pricing , to clarify the accounting for abnormal amounts of idle facility expense , freight , handling costs , and wasted material ( spoilage ) . sfas 151 will not have any impact on the financial statements of the registrant . in december 2004 , the fasb issued sfas no . 153 exchanges of nonmonetary assets an amendment of apb opinion no . 29 ( sfas 153 ) . this statement amends opinion 29 to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance . a nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange . the registrant does not expect the introduction of sfas 153 to have any impact on its financial statements . inflation the registrant believes inflation has not had a material adverse affect on the results of its operations . risk factors that could affect future results because of the following factors , as well as other variables affecting the registrant 's operating results , past financial performance may not be a reliable indicator of future performance , and historical trends should not be used to anticipate results or trends in future periods . dependence of the container leasing business on the volume of world trade and other factors . containers , particularly marine dry cargo containers , are relatively simple , and fungible items of capital equipment . while one distinguishing characteristic of container leasing companies is the level of service they provide to lessees , fundamentally the success of the container leasing business depends upon the level of demand for leased containers . while there is continuing demand from customers to transport their cargo in containers rather than by break-bulk methods , this demand , in turn , largely depends upon levels of world trade and the supply of containers relative to demand . when the volume of 19 world trade decreases , container leasing companies are particularly apt to suffer since container lessees , most of which also have their own fleets of containers , generally reduce the number of leased containers in their fleets in favor of utilizing their fleet of owned containers . in addition , average daily revenue per leased container unit can decrease significantly as the volume of world trade decreases and the supply of available containers exceeds the level of demand . such factors can cause a material reduction in a leasing company 's revenues . furthermore , the increased availability of capital combined with low interest rates may provide an incentive for shipping lines to reduce their demand for leased containers in favor of purchasing them . as a result , the registrant 's container leasing operations could be negatively affected by future fluctuations in world trade and other factors , including , without limitation , the supply and pricing of new and used containers , economic conditions in the shipping industry , fluctuations in interest rates and currency valuations , and other economic considerations that are inherently unpredictable and beyond the control of the registrant , ccc and the leasing company . risks of ownership and leasing of special purpose containers . a portion of the registrant 's container portfolio consists of refrigerated containers . unlike dry cargo containers , these special purpose containers are built for specific market demands . as such , the markets for the leasing of special purpose containers are narrower than the market for dry cargo containers . lessors in these markets are thus more sensitive to fluctuations in the demand for and supply of such containers . moreover , the ownership of refrigerated containers entails risks of mechanical breakdown and technological obsolescence not otherwise present in the ownership of dry cargo containers . risk of terrorism involving containers . since september 11 , 2001 , the world 's governments , maritime authorities , and the maritime industry , have devoted increasing attention to enhancing the security of the global container transport chain . these efforts have included the maritime transportation security act of 2003 passed by congress and initiatives by the united states such as the container security initiative and customs-trade partnership against terrorism program . efforts to date have focused on increasing port security and container inspections , developing and implementing a program of sealing containers with mechanical and electronic seals from the point of loading to final delivery of the container , identifying shippers , storing cargo information in electronic format , and related measures . the task is immense , and the efforts undertaken to date are preliminary . the industry is well aware of the dire consequences should a terrorism incident occur involving the use of a cargo container . in any such event , the impact on global trade and the world economy could be immediate and materially adverse , specifically impacting the registrant 's operations with high insurance costs , additional costs to implement or adopt container related security devices and measures , and ultimately , a loss of container leasing revenue .
| results of operations market overview pursuant to the limited partnership agreement of the registrant , all authority to administer the business of the registrant is vested in ccc . a leasing agent agreement ( agreement ) exists between the registrant and the leasing company , whereby the leasing company has the responsibility to manage the leasing operations of all equipment owned by the registrant . pursuant to the agreement , the leasing company is responsible for leasing , managing and re-leasing the registrant 's containers to ocean carriers , and has full discretion over which ocean carriers and suppliers of goods and services it may deal with . the leasing agent agreement permits the leasing company to use the containers owned by the registrant , together with other containers owned or managed by the leasing company and its affiliates , as part of a single fleet operated without regard to ownership . the primary component of the registrant 's results of operations is net lease revenue . net lease revenue is determined by deducting direct operating expenses , management fees and reimbursed administrative expenses from gross lease revenues billed by the leasing company from the leasing of the registrant 's containers . net lease revenue is directly related to the size , utilization and per-diem rental rates of the registrant 's fleet . direct operating expenses are direct costs associated with the registrant 's containers . direct operating expenses may be categorized as follows : activity-related expenses include agents costs and depot costs such as repairs , maintenance and handling . inventory-related expenses for off-hire containers , comprising of storage and repositioning costs . these costs are sensitive to the quantity of off-hire containers as well as the frequency at which containers are re-delivered . legal and other expenses include legal costs related to the recovery of containers and doubtful accounts , insurance and provisions for doubtful accounts .
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our actual results may differ materially from those we currently anticipate as a result of the factors we describe under “ risk factors ” and elsewhere in this annual report on form 10-k and other risks as well as other factors that are not currently known to us , that we currently consider immaterial or that are not specific to us , such as general economic conditions . overview we are a home care services provider operating in three segments : personal care , hospice and home health . our services are principally provided in-home under agreements with federal , state and local government agencies , managed care organizations , commercial insurers and private individuals . our consumers are predominantly “ dual eligible , ” meaning they are eligible to receive both medicare and medicaid benefits . managed care revenues accounted for 38.6 % , 37.8 % and 33.9 % of our revenue during the years ended december 31 , 2020 , 2019 and 2018 , respectively . a summary of our financial results for 2020 , 2019 and 2018 is provided in the table below . replace_table_token_9_th as of december 31 , 2020 , we provided our services in 22 states through approximately 214 offices . for the years ended december 31 , 2020 , 2019 and 2018 , we served approximately 66,000 , 61,000 and 57,000 discrete individuals , respectively . our personal care segment also includes staffing services , with clients including assisted living facilities , nursing homes and hospice facilities . covid-19 pandemic on january 31 , 2020 , the hhs secretary declared a national public health emergency due to a novel coronavirus . in march 2020 , the world health organization declared the outbreak of covid-19 , the disease caused by this novel coronavirus , a pandemic . this disease continues to spread throughout the united states and other parts of the world . state and local governments , together with public health officials , have recommended and mandated precautions to mitigate the spread of the virus , including closures of and limitations on public facilities , parks , schools , restaurants , many businesses and other locations of public assembly . as a result , covid-19 continues to affect the overall economic conditions in the united states . although many of the restrictions have eased across the country , some areas are re-imposing closures and other restrictions as a result of increasing rates of covid-19 infection in recent months . as vaccines are being distributed across the country , the fda continues to facilitate the development of therapeutics to combat covid-19 as well as provide oversight for the development of additional vaccines . there are no reliable estimates of how long the pandemic will last , how many people are likely to be affected by it or the duration or types of restrictions that will be imposed or re-imposed as the situation is continuously evolving . for these and other reasons , we are unable to predict the long-term impact of the pandemic on our business at this time . we continue to monitor the impacts on our operations , and have taken precautions intended to minimize the risk to our consumers , patients , caregivers and employees . we have created a covid-19 response team that is responsible for creating and communicating policy , training and the latest covid-19 updates to all employees . most employees in our headquarters in frisco , tx , and our support center in downers ' grove , il , continue to work remotely , and we do not believe this arrangement has had a material impact on our ability to maintain business operations . for the year ended december 31 , 2020 , covid-19 expenses were approximately $ 7.8 million , which were mostly offset by $ 4.9 million of temporary rate increases from certain payors in our personal care segment and $ 1.4 million related to the utilization of a portion of the provider relief funds received in november 2020 and included in cost of service revenues on the consolidated statements of income . as of december 31 , 2020 , the company deferred the recognition of $ 4.2 million of payments received from payors for covid-19 reimbursement , included within accrued expenses , which will be recognized if we incur specific expenses such as additional ppe or will be returned as stipulated if covid-19 expenses are not incurred . three of our primary markets , new mexico , new york and illinois , have been significantly affected by the pandemic , with high numbers of cases reported . however , relevant authorities have universally designated our services as “ essential , ” exempting our services and providers from many of the 41 restrictions described above . in addition , the impact of the travel restrictions and social distancing requirements on the company 's operations for our consumer population has been minimal . for example , in our personal care services segment , we provide non-medical assistance with activities of daily living , primarily to persons who are at increased risk of hospitalization or institutionalization , such as the elderly , chronically ill or disabled . most of these consumers are largely confined t o their homes , and a significant number of our caregivers provide services to only one consumer , often a family member . we have implemented several new procedures to further reduce the risk of covid-19 transmission , including a new screening process for bo th the caregiver and the consumer and the expansion of the use of ppe from our hospice and home health segments to include our personal care segment . we are not able to reasonably predict the total costs we will incur related to the covid-19 pandemic , and such costs could be substantial . according to the centers for disease control and prevention , older adults and people with certain underlying medical conditions are at a higher risk for serious illness from covid-19 . story_separator_special_tag recoupment of these payments was due to begin in august , but cms has delayed the recoupment process for these payments , based on amended repayment terms imposed by the caa , enacted october 1 , 2020 , until one year after payment was issued . in april 2020 , queen city hospice received an amount equal to $ 10.8 million pursuant to the medicare accelera ted and advance payment program . queen city hospice did not repay the funds prior to the completion of our acquisition of queen city hospice , however , queen city hospice intends to repay such funds in march 2021 , prior to any cms recoupment and before any interest accrues . the cares act and related legislation also include other provisions offering financial relief , for example temporarily lifting the medicare sequester , which would have otherwise reduced payments to medicare providers by 2 % , from may 1 , 2020 , through march 31 , 2021 ( but also extending sequestration through 2030 ) . the medicare sequester relief resulted in an increase of $ 0.2 million to home health net service revenues and $ 1.3 million to hospice net service revenues for the year ended december 31 , 2020. additional financial relief under the cares act includes a temporary 6.2 % increase in the fmap intended to broadly support the solvency of state medicaid programs . the cares act also provides for certain federal income and other tax changes , including the deferral of the employer portion of social security payroll taxes . the company received a cash benefit of approximately $ 7.1 million related to the deferral of employer payroll taxes for 2020 under the cares act , for the period april 2 , 2020 through june 30 , 2020. effective july 1 , 2020 , the company began paying its deferred portion of employer social security payroll taxes and expects to repay the $ 7.1 million in 2021. as the covid-19 pandemic has progressed , the federal government is considering additional stimulus measures , federal agencies continue to issue related regulations and guidance , and the public health emergency continues to evolve . we continue to assess the potential impact of covid-19 and government responses to the pandemic , including the enactment and implementation of the cares act , the ppphce act , the caa and other stimulus legislation , on our business , results of operations , financial condition and cash flows . acquisitions in addition to our organic growth , we have grown through acquisitions that have expanded our presence in current markets or facilitated our entry into new markets where in-home care has been moving to managed care organizations . on june 1 , 2019 , we completed the acquisition of vip for approximately $ 29.9 million . with the purchase of vip , we expanded our personal care services in the state of new york and into the new york city metropolitan area . we funded this acquisition through the delayed draw term loan portion of our credit facility and available cash . on august 1 , 2019 , we completed the acquisition of alliance for approximately $ 23.5 million . additionally , we acquired the assets of foremost home care ( “ foremost ” ) for approximately $ 1.4 million . we funded these acquisitions through a combination of our revolving credit facility and available cash . with the purchase of alliance , we expanded our personal care , home health and hospice operations in the state of new mexico . the addition of foremost supported our growth strategy in the new york city market area . on october 1 , 2019 , we completed the acquisition of hospice partners for approximately $ 135.6 million including the amount of acquired excess cash held by hospice partners at the closing of the acquisition ( approximately $ 5.5 million ) . we funded the acquisition with a portion of the net proceeds of our public offering . with the purchase of hospice partners , we expanded our hospice operations through 21 locations in idaho , kansas , missouri , oregon , texas and virginia . hospice partners also launched a palliative care program in texas in 2018. on july 1 , 2020 , we completed the acquisition of a plus for approximately $ 14.5 million , including the amount of excess cash held by a plus at the closing of the acquisition ( approximately $ 2.8 million ) , with funding provided by available cash . with the purchase of a plus , we expanded our personal care services in the state of montana . on november 1 , 2020 , we completed the acquisition of county homemakers for approximately $ 15.8 million , including the amount of acquired excess cash held by county homemakers at the closing of the acquisition ( approximately $ 1.1 million ) , with funding provided by available cash . with the purchase of county homemakers , we expanded our personal care services in the state of pennsylvania . on december 4 , 2020 , we completed the acquisition of queen city hospice for approximately $ 194.8 million , including the amount of acquired excess cash held by queen city hospice at the closing of the acquisition ( approximately $ 15.4 million ) . with the purchase of queen city hospice , we expanded our hospice services in the state of ohio . additionally , on december 1 , 2020 , we completed the acquisition of sunlife home care for approximately $ 1.7 million . with the purchase of sunlife home care , we expanded our personal care services in the state of arizona . we funded these acquisitions through a combination of our revolving credit facility and available cash . 43 revenue by payor and significant states our payor clients are principally federal , state and local governmental agencies and managed care organizations . the federal , state and local programs under which the agencies operate are subject to legislative and budgetary changes and other risks that can influence reimbursement rates .
| results of operations year ended december 31 , 2020 compared to year ended december 31 , 2019 the following table sets forth , for the periods indicated , our consolidated results of operations . replace_table_token_14_th 48 net service revenues increased by 17.9 % to $ 764.8 million for the year ended december 31 , 2020 compared to $ 648.8 million in 2019. the increase was due to an increase in same store growth of 5.9 % a nd an 8.1 % increase in revenues per billable hour for the year ended december 31 , 2020 in our personal care segment . in addition , net service revenue increased by $ 47.7 million and $ 1.8 million from our hospice and home health segments , respectively , for the year ended december 31 , 2020 compared to 2019. the increase in our hospice segment was primarily due to an increase in average daily census , partially attributed to the acquisitions of alliance on august 1 , 2019 and hospice partners on october 1 , 2019. the increase in our home health segment was primarily due to an increase in total visits partially related to the acquisition of alliance on august 1 , 2019. gross profit , expressed as a percentage of net service revenues , increased to 29.6 % for the year ended december 31 , 2020 , from 27.6 % in 2019. the increase was mainly attributed to the full-year effect in 2020 of the acquisition of our relatively higher margin hospice segment businesses in 2019. general and administrative expenses increased to $ 169.7 million for the year ended december 31 , 2020 compared to $ 133.9 million in 2019. the increase in general and administrative expenses was primarily due to acquisitions that resulted in an increase in administrative employee wages , taxes and benefit costs of $ 24.0 million , an increase in data processing of $ 1.9 million and an increase in rent expense of $ 3.1 million .
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