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see non-gaap financial measures and supporting schedules for reconciliation of our non-gaap financial measures to the comparable gaap financial measures . we make statements in this section that are forward-looking statements within the meaning of the federal securities laws . see the section in this annual report on form 10-k entitled forward-looking statements in part i for a complete discussion of forward-looking statements , including certain risk factors that may cause our actual results , performance or achievements to differ materially from those expressed or implied by the following discussion . overview care investment trust inc. ( all references to care , the company , we , us , and our means care investment trust inc. and its subsidiaries ) is an equity reit that invests in healthcare facilities including assisted-living , independent-living , memory care , skilled nursing and other healthcare-related real estate assets in the united states of america ( the u.s. ) . the company was incorporated in maryland in march 2007 and completed its initial public offering on june 22 , 2007. as of december 31 , 2012 , we maintain a geographically-diversified investment portfolio consisting of approximately $ 2.5 million ( 2 % ) in an unconsolidated joint venture that owns real estate , approximately $ 125.1 million ( 94 % ) in wholly-owned real estate and approximately $ 5.5 million ( 4 % ) in a loan investment . as of december 31 , 2012 , care 's portfolio of assets consists of wholly-owned real estate of senior housing facilities , including assisted living , independent living and memory care facilities , as well as a joint-venture that owns an assisted / independent living facility and a loan investment secured by skilled nursing facilities , as well as collateral relating to assisted living facilities and a multifamily property . our wholly-owned senior housing facilities are leased , under triple-net leases , which require the tenants to pay all property-related expenses . as a reit , we are generally not subject to income taxes . to maintain our reit status , we are required to distribute on an annual basis dividends equal to at least 90 % of our reit taxable income , as defined by the code , to our stockholders , among other requirements . if we fail to qualify as a reit in any taxable year , we would be subject to federal income tax on our taxable income at regular corporate tax rates . transactions in 2012 and 2011 in may 2011 , with our prior consent , senior management concepts , llc ( smc ) sold three of the four properties in our smc portfolio . we received approximately $ 6.6 million of gross proceeds consisting of approximately $ 5.2 million representing a return of our preferred equity investment in the three sold properties , approximately $ 0.9 million representing our 10 % common equity interest in the three sold properties and approximately $ 0.4 million that satisfied all outstanding delinquent preferred return and default interest payments owed us . in conjunction with the sale of the three properties , we returned a security deposit of approximately $ 0.4 million that was held by us as payment collateral for those facilities . we received approximately $ 12,000 in excess of the then-current cost basis of our investment . in september 2011 , the company acquired three assisted living and memory care facilities located in virginia from affiliates of greenfield senior living , inc. ( greenfield ) . the aggregate purchase price for the three properties was $ 20.8 million , of which approximately $ 15.5 million was funded with the proceeds of a first mortgage bridge loan ( the bridge loan ) with keybank n. a . ( keybank ) , and the balance with cash on hand . concurrent with the acquisition , the properties were leased to three wholly-owned affiliates of greenfield , which are responsible for operating each of the properties pursuant to a triple-net master lease ( the greenfield master lease ) . the initial term of the greenfield master lease is 12 years with two renewal options of ten years each . rent payments during the first year of the lease are approximately $ 1.7 million , with annual rental increases of 2.75 % during the initial term of the lease . at the end of the initial term , greenfield , subject to certain conditions , holds a one-time purchase option that provides the right to acquire all three of the properties at the then fair market value . greenfield has guaranteed the obligations of the tenants under the greenfield master lease . in november 2011 , care consummated the sale of its preferred interest in a nine property medical office portfolio ( the cambridge portfolio ) for total cash consideration of approximately $ 42.0 million , which included approximately $ 1.2 million of income allocable to our preferred distribution of cash flow from operations . pursuant to an amendment to the omnibus agreement entered into in october 2011 , the company granted to cambridge holdings llc and its affiliates ( cambridge ) the option to purchase all of care 's interest in the medical office portfolio at any time up to december 9 , 2011 , for an amount equal to the sum of the company 's $ 40.0 million preferred investment plus its accrued but unpaid preferred return of approximately $ 2.0 million . in connection with the sale , the remaining 200,000 operating partnership units and a warrant to purchase 300,000 shares of the company 's common stock previously issued to cambridge were canceled and the omnibus agreement was terminated by mutual consent of the parties . in april 2012 , care refinanced the bridge loan for the greenfield properties by entering into three separate non-recourse loans ( each a greenfield loan and collectively the greenfield loans ) with keycorp real estate capital markets , inc. ( keycorp ) for an aggregate amount of approximately $ 15.7 million . story_separator_special_tag at december 31 , 2008 , in connection with our decision to reposition ourselves from a mortgage reit to a traditional direct property ownership reit ( referred to as an equity reit ) and as a result of existing market conditions , we transferred our portfolio of mortgage loans to locom because we were no longer certain that we would hold our portfolio of loans either until maturity or for the foreseeable future . if the fair value of a loan held at locom during the predecessor period was lower than its amortized cost , changes in fair value ( gains and losses ) were reported as changes in the valuation allowance on the consolidated statement of operations . the valuation allowance is based on management 's estimate of probable losses considering delinquencies , loss experience and collateral quality . loans previously written down may be written up based upon subsequent recoveries in value , but not above their cost basis . our loan investment was restructured as of november 1 , 2011 and now provides for an increasing floating rate of interest during the term of the loan based on a spread over the libor set at inception of the restructured loan . interest on our mortgage loan is recognized , on an effective interest method basis assuming that libor remains constant in accordance with asc topic 310 receivables ( asc 310 ) . receivables are evaluated for collectability if principal and interest for a loan becomes more than 90 days past due . the principal amortization portion of payments received is applied to the carrying value . in conjunction with the restructuring of our remaining mortgage loan investment , we were required to make a determination of expected receipts , exclusive of interest , over the remaining term of this asset in accordance with asc 310. based on estimates , we believe that we will receive approximately $ 5.8 million in payments , other than interest payments or prepayments , between the date of restructuring and the maturity date of november 1 , 2016 which is approximately equal to our current carrying value as of the date of the restructuring . we periodically review our loans held for investment for impairment . impairment losses are taken for impaired loans based on the fair value of collateral and a recoverability analysis on an individual loan basis . the fair value of the collateral may be determined by an evaluation of operating cash flow from the property during the projected holding period , and or estimated sales value computed by applying an expected capitalization rate to the current net operating income of the specific property , less selling costs . whichever method is used , other factors considered relate to geographic trends and project diversification , the size of the portfolio and current economic conditions . when it is probable that we will be unable to collect all amounts contractually due , the loan would be considered impaired . interest income is generally recognized using the effective interest method or on a basis approximating a level rate of return over the term of the loan . nonaccrual loans are those on which the accrual of interest has been suspended . loans are placed on nonaccrual status and considered nonperforming when full payment of principal and interest is in doubt , or when principal or interest is 90 days or more past due or if cash collateral , if any , is insufficient to cover principal and interest . interest accrued but not collected at the date a loan is placed on nonaccrual status is reversed against interest income . in addition , the amortization of net deferred loan fees is suspended . interest income on nonaccrual loans may be recognized only to the extent it is received in cash . however , where there is doubt regarding the ultimate collectability of loan principal , cash receipts on such nonaccrual loans are applied to reduce the carrying value of such loans . nonaccrual loans may be returned to accrual status when repayment is reasonably assured and there has been demonstrated performance under the terms of the loan or , if applicable , the restructured terms of such loan . the company did not have any loans on non-accrual status as of december 31 , 2012 or 2011. we rely on significant subjective judgments and assumptions derived by our management and our advisor ( i.e. , discount rates , expected prepayments , market comparables , etc . ) regarding the above items . there may be a material impact to these consolidated financial statements if such judgments or assumptions are subsequently determined to be incorrect . real estate and identified intangible assets real estate and identified intangible assets are carried at cost , net of accumulated depreciation and amortization . betterments , major renewals and certain costs directly related to the improvement and leasing of real estate are capitalized . maintenance and repairs are charged to operations as incurred . depreciation is provided on a straight-line basis over the assets ' estimated useful lives , which range from 9 to 40 years . amortization is provided on a straight-line basis over the life of the in-place leases . upon the acquisition of real estate , we assess the fair value of acquired assets ( including land , buildings and improvements , personal property and identified intangible assets such as above and below market leases , acquired in-place leases and customer relationships ) and acquired liabilities in accordance with asc 805 15 business combinations ( asc 805 ) , and asc 350 intangibles goodwill and other ( asc 350 ) , and we allocate purchase price based on these assessments . we assess fair value based on estimated cash flow projections that utilize appropriate discount and capitalization rates and available market information . estimates of future cash flows are based on a number of factors including the historical operating results , leases in place , known trends , and market/economic conditions that may affect the property .
| results of operations comparison of the years ended december 31 , 2012 and 2011 revenue during the year ended december 31 , 2012 , we recognized approximately $ 13.8 million of rental revenue and approximately $ 1.5 million of reimbursable income on the bickford and greenfield portfolios , as compared with approximately $ 12.4 million of rental revenue and approximately $ 1.3 million of reimbursable income related to the bickford and greenfield portfolios , from the date of acquisition , for the comparable period in 2011. our acquisition of the greenfield portfolio in september 2011 accounts for the increase in rental revenue and reimbursable income during the year ended 2012 as compared to the comparable period in 2011. we earned interest income on our loan investment of approximately $ 0.7 million and $ 0.8 million for the year ended december 31 , 2012 and 2011 , respectively . the decrease of approximately $ 0.1 million in income is a result of our loan investment carrying a lower average outstanding principal loan balance during 2012 , as compared with the comparable period during 2011 , as a result of scheduled principal payments and prepayments received . the impact of the reduction in the outstanding principal balance is partially offset by the increase in the applicable interest rate for the year ended december 31 , 2012 which resulted from a restructuring of the loan in november 2011. we recognized interest income for year ended december 31 , 2012 at an effective interest rate based on libor in effect at the inception of the restructured loan and using a weighted average spread of 7.20 % . for the year ended december 31 , 2011 , the effective yield was 6.25 % .
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this discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties . our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors , including those set forth under the sections contained in this form 10-k entitled item 1a . “ risk factors ” ; item 7 . “ management 's discussion and analysis of financial condition and results of operations ” ; and item 7a . “ quantitative and qualitative disclosure about market risk ” . see “ special note regarding forward-looking statements ” below . forward-looking statements the information in this discussion contains forward-looking statements and information within the meaning of section 27a of the securities act and section 21e of the exchange act , which are subject to the “ safe harbor ” created by those sections . these forward-looking statements include , but are not limited to , statements concerning our strategy , future operations , future financial position , future revenues , projected costs , prospects and plans and objectives of management . the words “ anticipates , ” “ believes , ” “ estimates , ” “ expects , ” “ intends , ” “ may , ” “ plans , ” “ projects , ” “ will , ” “ would ” and similar expressions are intended to identify forward-looking statements , although not all forward-looking statements contain these identifying words . we may not actually achieve the plans , intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements . actual results or events could differ materially from the plans , intentions and expectations disclosed in the forward-looking statements that we make . these forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from those in the forward-looking statements , including , without limitation , the risks set forth under the sections contained in this form 10-k entitled item 1a . “ risk factors ” ; item 7 . “ management 's discussion and analysis of financial condition and results of operations ” ; and item 7a . “ quantitative and qualitative disclosure about market risk ” and in our other filings with the sec . the forward-looking statements are applicable only as of the date on which they are made , and we do not assume any obligation to update any forward-looking statements . 60 overview we are a medical technology company focused on improving patient safety and aesthetic outcomes , initially in the breast aesthetics and reconstruction market . our line of silicone gel-filled breast implants , branded as motiva implants , is the centerpiece of our motivaimagine medical technology platform . post-market surveillance data , which was not generated in connection with the u.s. food and drug administration , or fda , pma approval study and was self-collected rather than collected at mandatory follow-ups , and published third-party data indicates that motiva implants show low rates of adverse events ( including rupture , capsular contracture , and safety related reoperations ) that we believe compare favorably with those of our competitors . we believe the proprietary technologies that differentiate our motiva implants enable improved safety and aesthetic outcomes and have helped drive our revenue growth . our motivaimagine platform enables surgical techniques that we promote as motiva branded surgeries . we have developed other complementary products and services on our motivaimagine platform , which are aimed at further enhancing patient outcomes . we have devoted a majority of our resources since inception to developing our motiva implants , which we began selling in october 2010. we have incurred net losses in each year since inception , and we have financed our operations primarily through equity financings and debt financings . our revenue for the year ended december 31 , 2018 and 2017 was $ 61.2 million and $ 34.7 million , respectively , an increase of $ 26.5 million , or 76.5 % . net losses decreased to $ 21.1 million for the year ended december 31 , 2018 from $ 34.9 million for the year ended december 31 , 2017 . as of december 31 , 2018 , we had an accumulated deficit of $ 89.0 million . our cash balance as of december 31 , 2018 was $ 52.6 million . on july 23 , 2018 , the company completed its initial public offering , or ipo , whereby it sold a total of 4,272,568 common shares at $ 18.00 per share including 557,291 shares sold to underwriters for the exercise of their option to purchase additional shares . the company received net proceeds from the ipo of approximately $ 70.1 million , after deducting underwriting discounts and commissions of $ 5.4 million and deferred offering costs of $ 1.5 million . we have made and continue to make significant investments in additional manufacturing capacity , marketing , customer service , and a direct sales force in certain territories like brazil and several countries in europe in order to drive and support further adoption of our motiva implants . we expect that we will continue to incur losses at least in the near term as we expand our organization to support planned sales growth , while also continuing to invest in research and development of our products , clinical trials to enable regulatory approval in the united states , and in other commercialization efforts . we also expect to incur significant additional expenditures as a public company . as a result of these and other factors , we expect to continue to incur net losses in the intermediate term and may need to raise additional capital through equity and debt financings in order to fund our operations . our operating results may fluctuate on a quarterly or annual basis in the future , and our growth or operating results may not be consistent with predictions made by securities analysts , if any . if we are unable to achieve our revenue growth objectives , we may not be able to achieve profitability . story_separator_special_tag due to our history of losses , we maintain a full valuation allowance for deferred tax assets including net operating loss carry-forwards , r & d tax credits , capitalized r & d and other book versus tax differences . story_separator_special_tag style= '' line-height:120 % ; font-size:10pt ; padding-left:24px ; '' > ▪ the costs of r & d activities we undertake to develop and expand our products ; ▪ the costs of commercialization activities , including sales , marketing and manufacturing ; ▪ the level of working capital required to support our growth ; and ▪ our need for additional personnel , information technology or other operating infrastructure to support our growth and operations as a public company . we may need to raise additional capital to execute our business plan . if we are unable to raise additional capital when desired , or on terms acceptable to us , our business , results of operations , and financial condition would be adversely affected . 65 cash flows the following table sets forth the primary sources and uses of cash for each of the years presented below : replace_table_token_4_th net cash used in operating activities net cash used in operating activities of $ 33.9 million for the year ended december 31 , 2018 was comprised of a net loss of $ 21.1 million and $ 15.9 million change in fair value of financial instruments , partially offset by $ 2.8 million of non-cash depreciation expense , $ 7.3 million of share-based compensation expense , and $ 3.3 million of non-cash interest expense due to accretion of debt discounts , as well as changes in operating assets and liabilities of $ 14.0 million . net cash used in operating activities of $ 32.0 million for the year ended december 31 , 2017 was comprised of net loss of $ 34.9 million , partially offset by $ 1.9 million of non-cash depreciation expense , $ 2.4 million change in fair value of financial instruments , $ 3.3 million of share-based compensation expense , and $ 7.1 million of non-cash interest expense due to accretion of debt discounts , as well as changes in operating assets and liabilities of $ 14.3 million . net cash used in investing activities net cash used in investing activities of $ 5.7 million for the year ended december 31 , 2018 primarily consisted of $ 4.0 million in cash used in asset acquisitions and $ 1.7 million in purchases of property and equipment . net cash used in investing activities of $ 0.8 million for the year ended december 31 , 2017 primarily consisted of $ 0.9 million in purchases of property and equipment partially offset by changes in restricted cash of $ 0.1 million . net cash provided by financing activities net cash provided by financing activities of $ 81.5 million for the year ended december 31 , 2018 primarily reflected $ 71.5 million in proceeds received from the issuance of common shares in the ipo , net of underwriters ' discount , $ 16.1 million in proceeds received from the issuance of ordinary shares prior to the ipo , $ 0.6 million in proceeds received for stock option exercises and $ 0.1 million in proceeds received for warrant exercises , which was partially offset by $ 5.1 million repayment of related party notes payable , $ 1.5 million deferred equity issuance costs and $ 0.3 million in repayment on capital leases . net cash provided by financing activities of $ 43.0 million for the year ended december 31 , 2017 primarily reflected $ 38.5 million in borrowing , net of debt issuance costs , under the madryn credit agreement and $ 27.8 million in proceeds received for issuance of ordinary shares partially offset by $ 15.0 million in repayment of perceptive debt , $ 2.4 million in payment for repurchase of share warrants , $ 4.5 million used to repurchase shares and $ 0.9 million in payments of deferred offering costs . indebtedness notes payable related party in august 2015 , we entered into agreements with all of the class z redeemable convertible preferred shareholders to exchange their outstanding shares and accumulated dividends for notes payable with a principal balance of $ 4.3 million . the notes bore interest at a simple rate of 7 % per annum with a maturity date of march 31 , 2020. the notes became due and payable on july 23 , 2018 when the company successfully completed the 66 ipo . we repaid the balance due of $ 5.1 million , including accrued interest of $ 0.9 million , in august 2018. madryn debt on august 24 , 2017 , we entered into a credit agreement , or the madryn credit agreement , with madryn health partners , lp , or madryn , as administrative agent , and a syndicate of lenders , or the lenders . the madryn credit agreement provides for up to $ 55.0 million credit facility , $ 30.0 million ( term a ) of which became available upon signing . the madryn credit agreement matures on june 30 , 2023. terms b and c under the madryn credit agreement become available to us for an additional $ 25.0 million , subject to us achieving certain revenue milestones . we met these milestones and borrowed an additional $ 5.0 million ( term b-1 ) on october 31 , 2017 and $ 5.0 million ( term b-2 ) on december 15 , 2017 bringing up the total outstanding principal balance to $ 40.0 million as of december 31 , 2017. as of june 15 , 2018 , we became eligible to , but have not to date , draw down an additional $ 5.0 million ( term b-3 ) under the amended credit agreement , and an additional $ 10.0 million ( term c ) may become available on june 30 , 2020 if a written notice is submitted to the lenders . the availability of each tranche is also conditioned on the company having advanced the maximum loan amount under each prior tranche .
| consolidated results of operations the following table set forth our results of operations for the years presented , in dollars : replace_table_token_1_th 63 comparison of the year december 31 , 2018 and 2017 replace_table_token_2_th revenue revenue increased $ 26.5 million , or 76.5 % , to $ 61.2 million for the year ended december 31 , 2018 as compared to $ 34.7 million for the year ended december 31 , 2017 . the increase was primarily due to increased sales of motiva implants , with the increase driven by greater market penetration in existing geographies , commencement of sales in new geographies , and the addition of direct markets including brazil where we started generating revenue during the third quarter of fiscal 2017 and germany and spain where we went direct during the fourth quarter of fiscal 2018. as of december 31 , 2018 , our sales organization included 67 employees and contractors as compared to 46 individuals at december 31 , 2017. cost of revenue and gross margin cost of revenue increased $ 8.1 million , or 47.8 % , to $ 25.1 million for the year ended december 31 , 2018 compared to $ 17.0 million for the year ended december 31 , 2017 . the increase was due to higher sales volume of motiva implants . the gross margin increased to 59.0 % for the year ended december 31 , 2018 compared to 51.0 % for the year ended december 31 , 2017 primarily due to an increase in production volume that spread our fixed manufacturing costs over a larger number of units and the addition of direct market revenues with generally higher average selling prices .
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from december 31 , 2018 to december 31 , 2019 , available-for-sale securities increased $ 31,979,117 ( 37 % ) . the company increased investment purchases during the year to better utilize excess cash as interest rates fluctuations provided favorable buying opportunities throughout 2019. during 2019 , the company purchased $ 75,518,385 of investments while having sales , calls and principal payments received of $ 45,419,951. the company had net unrealized gains of $ 1,092,554 at december 31 , 2019 compared to unrealized losses of $ 1,836,406 at december 31 , 2018. from december 31 , 2018 to december 31 , 2019 , net loans receivable decreased by $ 57,566,204 ( 7 % ) to $ 720,732,402. during the year , commercial loans decreased $ 22,301,936 ( 7 % ) , permanent 1-4 family loans decreased $ 13,587,079 ( 10 % ) , construction loans decreased $ 11,245,444 ( 13 % ) , commercial real estate loans decreased $ 22,301,936 ( 7 % ) and consumer and other loans decreased $ 2,424,832 ( 7 % ) . increased competition in our markets , expected loan paydowns on acquired loans and several large unexpected paydowns on other relationships occurred in 2019 leading to a decline in overall loan balances . the company continues to focus its lending efforts in the commercial , one-to-four family residential , consumer lending and small business lending categories . as of december 31 , 2019 , management identified loans totaling $ 11,968,000 as impaired with a related allowance for loan losses of $ 1,096,000. impaired loans decreased by $ 8,584,000 during 2019 , compared to the balance of $ 20,552,000 at december 31 , 2018. the reduction is primarily due to two relationships with impaired loans paying off during the year . from december 31 , 2018 to december 31 , 2019 , the allowance for loan losses decreased $ 387,982 ( 5 % ) to $ 7,607,587. in addition to the provision for loan losses of $ 200,000 recorded by the company during the year ended december 31 , 2019 , loan charge-offs of specific loans ( previously classified as nonperforming ) exceeded recoveries by $ 587,849 for the year ended december 31 , 2019. the decrease in the allowance is primarily due to decreased loan balances during 2019 and reserves on a few specific problem credits . the allowance for loan losses , as a percentage of gross loans outstanding ( excluding mortgage loans held for sale ) , as of december 31 , 2019 and december 31 , 2018 was 1.04 % and 1.02 % , respectively . the allowance for loan losses , as a percentage of nonperforming loans outstanding , as of december 31 , 2019 and december 31 , 2018 was 76.1 % and 61.1 % , respectively . management believes the allowance for loan losses is at a level to be sufficient in providing for potential loan losses in the bank 's existing loan portfolio . in accordance with generally accepted accounting principles for acquisition accounting , the loans acquired through the hometown acquisition were recorded at fair value ; therefore , there was no allowance associated with these loans . management continues to evaluate the allowance need on the acquired loans factoring in the net remaining discount of $ 960,451 at december 31 , 2019. goodwill remained at $ 1,434,982 and core deposit intangible decreased $ 477,000 ( 16 % ) to $ 2,503,910 as of december 31 , 2019 due to expected amortization . these amounts are due to the hometown acquisition and are further discussed in note 6 to the notes to the consolidated financial statements . operating lease right-of-use assets ( rou ) of $ 9,052,941 were recorded during 2019 compared to no amounts recorded as of december 31 , 2018. these amounts were recognized due to the company 's implementation of new lease accounting standards for operating leases further described in note 8 of the notes to the consolidated financial statements . the recorded assets and liabilities will be amortized over the life of the lease term . bank-owned life insurance ( boli ) increased $ 4,500,364 ( 22 % ) from $ 20,198,074 as of december 31 , 2018 to $ 24,698,438 as of december 31 , 2019 primarily due to $ 4,000,000 in new or additional policies purchased on certain key members of management during the third quarter of 2019 . 48 from december 31 , 2018 to december 31 , 2019 , deposits increased $ 71,787,710 ( 10 % ) to $ 821,406,532. checking and savings transaction balances increased by $ 97,336,664 and certificates of deposit decreased $ 25,548,954. the increase in transaction balances is primarily due to the addition of new public fund customers and increased balances from commercial depositors during 2019. overall , brokered deposits decreased $ 10,484,000 during 2019. the company utilizes brokered certificates of deposit as a tool to manage cost of funds and to efficiently match changes in liquidity needs based on loan growth . federal home loan bank advances decreased $ 40,300,000 ( 38 % ) from $ 105,300,000 as of december 31 , 2018 to $ 65,000,000 as of december 31 , 2019. excess funds obtained from deposit growth initiatives were utilized during the year to decrease borrowings . subordinated debentures decreased $ 6,295,829 ( 29 % ) from $ 21,760,829 to $ 15,465,000 as of december 31 , 2019. the decrease is due to the full redemption of the hometown trust i debentures acquired as part of the hometown acquisition in 2018. note payable to bank increased $ 6,200,000 ( 124 % ) when compared to december 31 , 2018 due to the company increasing its existing note with another financial institution . the additional funds were used to fully redeem the hometown trust i debentures discussed above . story_separator_special_tag the company 's net interest income decreased $ 1,626,596 ( 5 % ) primarily due to the decrease in overall average balances of loans , reduced loan accretion amounts included in income and increases in interest-bearing liabilities . refer to the tables in the “ average balances , interest and average yields ” section ( pages 51 and 52 ) for additional information on components of net interest income . provision for loan losses . provisions for loan losses are charged or credited to earnings to bring the total allowance for loan losses to a level considered adequate by the company to provide for potential loan losses in the existing loan portfolio . when making its assessment , the company considers prior loss experience , volume and type of lending , local banking trends and impaired and past due loans in the company 's loan portfolio . in addition , the company considers general economic conditions and other factors related to collectability of the company 's loan portfolio . based on its internal analysis and methodology , management recorded a provision for loan losses of $ 200,000 and $ 1,225,000 for the years ended december 31 , 2019 and 2018 , respectively . the company 's decrease in the provision for loan losses was primarily due to the decreased loan balances and maintaining general portfolio reserves at a level deemed appropriate in accordance with its methodology . the bank will continue to monitor its allowance for loan losses and make future additions based on economic and regulatory conditions . management may need to increase the allowance for loan losses through charges to the provision for loan losses if anticipated growth in the bank 's loan portfolio increases or other circumstances warrant . see further discussions of the allowance for loan losses under “ financial condition ” above . 52 although the bank maintains its allowance for loan losses at a level which it considers to be sufficient to provide for potential loan losses in its existing loan portfolio , there can be no assurance that future loan losses will not exceed internal estimates . in addition , the amount of the allowance for loan losses is subject to review by regulatory agencies which can order the establishment of additional loan loss provisions . non-interest income . non-interest income increased $ 552,953 ( 8 % ) due to a few significant factors . the company had continued growth in sba lending that led to increased gains on the sale of sba loans by $ 199,308 ( 24 % ) . gains on mortgage loans sold increased $ 191,787 ( 9 % ) , a reduction in losses on foreclosed assets by $ 125,498 ( 35 % ) and increased realized gains from the sale of investment securities of $ 97,655 ( 1,207 % ) were all positive impacts on non-interest income when compared to 2018. the increases in income above were offset by reduced service charge income of $ 298,088 ( 15 % ) compared to 2018. non-interest expense . non-interest expense decreased $ 1,960,199 ( 7 % ) due to a few significant factors noted below . merger expenses related to the hometown acquisition decreased $ 3,637,986 ( 99 % ) during 2019. the one-time costs incurred in 2018 related to legal , accounting and investment advisory fees , as well as the cost incurred for the termination of software contracts . salaries and employee benefits increased $ 1,189,104 ( 8 % ) which was primarily due to having a full year of costs associated with hometown employees which continued our expansion in the joplin , missouri market along with increases in other key areas of commercial banking , operations and technology . the company 's occupancy expense increased $ 511,234 ( 13 % ) primarily due to the company 's continued enhancements in facilities ( including signage ) and significant investments in new technologies . a full year of occupancy expense on facilities acquired during the hometown acquisition in the joplin , missouri market also played a factor in the increased expense . income taxes . the provision for income taxes decreased $ 171,655 ( 9 % ) over 2018 which is primarily due to the impact of lower effective tax rates and the use of tax credits earned as part of low-income housing programs . cash dividends paid . the company paid dividends of $ 0.13 per share on april 19 , 2019 to stockholders of record as of april 9 , 2019 , $ 0.13 per share on july 18 , 2019 , to stockholders of record as of july 8 , 2019 , and $ 0.13 per share on october 18 , 2019 , to stockholders of record as of october 8 , 2019. the company also declared a cash dividend of $ 0.15 per share on december 20 , 2019 , which was paid on january 16 , 2020 , to stockholders of record on january 6 , 2020. during 2019 , 2018 and 2017 , the company paid $ 2,313,661 , $ 2,132,221 and $ 1,767,486 in dividends on common stock . 53 results of operations - comparison of year ended december 31 , 201 8 and december 31 , 201 7 interest rates replace_table_token_27_th the bank charges borrowers and pays depositors interest rates that are largely a function of the general level of interest rates . the above table sets forth the weekly average interest rates for the 52 weeks ending december 31 , 2018 and december 31 , 2017 as reported by the federal reserve . the bank typically indexes its adjustable rate commercial loans to prime and its adjustable rate mortgage loans to the one-year treasury rate . the ten-year treasury rate is a proxy for 30-year fixed rate home mortgage loans .
| general guaranty federal bancshares , inc. ( the “ company ” ) is a delaware corporation organized on december 30 , 1997 that operates as a one-bank holding company . guaranty bank ( the “ bank ” ) is a wholly-owned subsidiary of the company . the primary activity of the company is to oversee its investment in the bank . the company engages in few other activities , and the company has no significant assets other than its investment in the bank . for this reason , unless otherwise specified , references to the company include the operations of the bank . the company 's principal business consists of attracting deposits from the general public and using such deposits to originate multi-family , construction , agriculture , small business administration ( “ sba ” ) , commercial real estate loans , mortgage loans secured by one- to four-family residences , and consumer and business loans . the company also uses these funds to purchase government sponsored mortgage-backed securities , us government and agency obligations , and other permissible securities . when cash outflows exceed inflows , the company uses borrowings and brokered deposits as additional financing sources . the company derives revenues principally from interest earned on loans and investments and , to a lesser extent , from fees charged for services . general economic conditions and policies of the financial institution regulatory agencies , including the missouri division of finance ( “ mdf ” ) and the federal deposit insurance corporation ( “ fdic ” ) , significantly influence the company 's operations . interest rates on competing investments and general market interest rates influence the company 's cost of funds . lending activities are affected by the interest rates at which such financing may be offered . the company intends to focus on commercial , one- to four-family residential and consumer lending throughout southwestern missouri .
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our priority has been to support our clinician partners , protect the well-being of our employees , and maintain continuous access to our life-saving technologies while offering front-line in-hospital support . our manufacturing operations have continued to respond to impacts related to covid-19 , and we have been able to supply our technologies around the world . across the organization , we are proactively managing inventory , assessing alternative logistics options , and closely monitoring the supply of components . tavr and surgical procedure volumes varied greatly since the middle of march 2020 by geography , and even by hospital , as patients and their physicians analyzed the trade-off between aortic stenosis and their concern for covid-19 . in the last few weeks of the first quarter of 2020 , procedure volumes related to our tavr and surgical products dropped significantly . beginning in the second quarter of 2020 , procedure volumes improved . in the second quarter of 2020 , we also started to progressively resume patient enrollment in all clinical trials that were voluntarily paused or slowed at the end of the first quarter of 2020. while we saw improvements to pre-covid levels when we resumed enrollment , procedure volumes and enrollment in our clinical trials have since been negatively impacted due to a resurgence of covid-19 in late 2020. even though health systems adapted to the challenge , the resurgence of covid-19 late in 2020 continued to impact these patients who need care . in critical care , there was greater demand in europe and the united states for our pressure monitoring products , but demand for other critical care products began to decrease at the end of the first quarter of 2020 due to covid-19 , and that trend continued through the fourth quarter of 2020. despite the challenges associated with covid-19 , our net sales for 2020 were $ 4.4 billion , representing an increase of $ 38.3 million over 2019 , driven by sales growth of our tavr products . 22 our gross profit increase in 2020 was driven by a charge of $ 73.1 million recorded in 2019 , primarily comprised of the write off of inventory related to strategic decisions regarding our tavr portfolio , including the decision to discontinue our centera program . the decrease in our diluted earnings per share in 2020 was driven by an after-tax charge of $ 305.1 million to settle certain patent litigation related to transcatheter mitral and tricuspid repair products . healthcare environment , opportunities , and challenges the medical technology industry is highly competitive and continues to evolve . our success is measured both by the development of innovative products and the value we bring to our stakeholders . we are committed to developing new technologies and providing innovative patient care , and we are committed to defending our intellectual property in support of those developments . while some evidence collection was slowed due to the covid-19 pandemic , we and the clinical community are committed to continuing our trials and generating robust evidence . in 2020 , we invested 17.3 % of our net sales in research and development . the following is a summary of important developments during 2020 : in response to the urgent covid-19 response around the globe , we temporarily paused new enrollments in our active pivotal clinical trials of transcatheter mitral and tricuspid therapies , which began resuming in the second quarter of 2020 ; we received ce mark for the edwards pascal transcatheter valve repair system for the treatment of european patients with tricuspid regurgitation ; we received chinese regulatory approval for the edwards sapien 3 transcatheter heart valve for the treatment of severe , symptomatic aortic stenosis patients at high risk for or unable to undergo open-heart surgery ; we reached an agreement with abbott to settle all outstanding patent disputes between the companies in cases related to transcatheter mitral and tricuspid repair products ; we received fda approval for the konect resilia aortic valved conduit , the first ready-to-implant solution for bio-bentall procedures , a complex surgery that involves replacement of a patient 's aortic valve , aortic root , and the ascending aorta . we treated our first patient in the restore clinical trial , which will evaluate the safety and effectiveness of the investigational harpoon beating heart mitral valve repair system in the united states and canada . we are dedicated to generating robust clinical , economic , and quality of life evidence increasingly expected by patients , clinicians , and payors in the current healthcare environment , with the goal of encouraging the adoption of innovative new medical therapies that demonstrate superior outcomes . story_separator_special_tag roman ' , sans-serif ; font-size:10pt ; font-weight:400 ; line-height:120 % '' > the increase in r & d expenses in 2020 compared to 2019 was due primarily to a ) investments in our transcatheter mitral and tricuspid therapies and our aortic valve replacement programs and b ) costs associated with discontinuing our sutrafix program . these increases were partially offset by a ) decreased spending on transcatheter aortic valve clinical trials and b ) decreased performance-based compensation . intellectual property litigation expenses , net we incurred intellectual property litigation expenses , including settlements and external legal costs , of $ 405.4 million and $ 33.4 million during 2020 and 2019 , respectively . on july 12 , 2020 , we reached an agreement with abbott laboratories and its direct and indirect subsidiaries ( `` abbott '' ) to , among other things , settle all outstanding patent disputes between the companies ( the “ settlement agreement ” ) in cases related to transcatheter mitral and tricuspid repair products . see note 18 to the `` consolidated financial statements `` for additional information . the settlement agreement resulted in us recording an estimated $ 367.9 million pre-tax charge and related liability in june 2020 related to past damages . in addition , we will incur royalty expenses through may 2024 totaling an estimated $ 100 million . story_separator_special_tag the irs began its examination of the 2015 and 2016 tax years during the fourth quarter of 2018 and later added the 2017 tax year to this audit cycle during the first quarter of 2019. the irs audit field work for the 2015 through 2017 tax years was substantially completed during the fourth quarter of 2020 , except for transfer pricing matters . as a result , certain intercompany transactions covering tax years 2015 through 2020 that were not resolved under the apa program remain subject to irs examination , and those transactions and related tax positions remain uncertain as of december 31 , 2020. the irs has signaled that it may be preparing proposed audit adjustments related to these intercompany transactions for the 2015 through 2017 tax years which , if issued , could be provided to us during 2021. we have considered this information in our evaluation of our reserves for uncertain tax positions . these unresolved transfer pricing matters , net of any correlative repatriation tax adjustment , may be significant to our consolidated financial statements . based on the information currently available and numerous possible outcomes , we can not reasonably estimate what , if any , changes to our existing uncertain tax positions may occur in the next 12 months and , therefore , have continued to record the gross uncertain tax positions as a long-term liability . we intend to file to renew the apa between the united states and switzerland for the years 2021 and forward . in addition , we executed other apas as follows : during 2017 , an apa between the united states and japan covering tax years 2015 through 2019 ; and during 2018 , apas between japan and singapore and between switzerland and japan covering tax years 2015 through 2019. we have filed to renew these apas related to japan for the years 2020 and forward . the execution of some or all of these apas depends on a number of variables outside of our control . we have received tax incentives in certain non-u.s. tax jurisdictions , the primary benefit for which will expire in 2029. the tax reductions as compared to the local statutory rates were $ 189.2 million ( $ 0.30 per diluted share ) and $ 157.6 million ( $ 0.25 per diluted share ) for the years ended december 31 , 2020 and 2019 , respectively . liquidity and capital resources our sources of cash liquidity include cash and cash equivalents , short-term investments , amounts available under credit facilities , and cash from operations . we believe that these sources are sufficient to fund the current requirements of working capital , capital expenditures , and other financial commitments for the next twelve months from the financial statement issuance date . however , we periodically consider various financing alternatives and may , from time to time , seek to take advantage of favorable interest rate environments or other market conditions . the tax cuts and jobs act of 2017 ( the `` 2017 act '' ) , which was signed into law on december 22 , 2017 , included extensive changes to the international tax regime . the 2017 act required a deemed repatriation of post-1986 undistributed foreign earnings and profits . the one-time transition tax liability , as adjusted , is payable in five remaining annual installments , as outlined in the contractual obligations table below . as of december 31 , 2020 , we had a remaining tax obligation of $ 238.7 million related to the deemed repatriation . see note 17 to the `` consolidated financial statements `` for additional information about the one-time transition tax . as of december 31 , 2020 , cash and cash equivalents and short-term investments held in the united states and outside the united states were $ 618.8 million and $ 783.8 million , respectively . during 2020 , we repatriated cash of $ 600.0 million . we 30 assert that $ 1.1 billion of our foreign earnings continue to be permanently reinvested and our intent is to repatriate $ 599.8 million of our foreign earnings as of december 31 , 2020. on july 12 , 2020 , we reached the settlement agreement with abbott to settle all outstanding patent disputes between the companies in cases related to transcatheter mitral and tricuspid repair products . the settlement agreement resulted in us recording an estimated $ 367.9 million pretax charge in june 2020 related to past damages . in addition , we will incur royalty expenses through may 2024 totaling an estimated $ 100 million . we made a one-time $ 100.0 million payment to abbott in july 2020 , and will make quarterly payments in future years . for further information , see notes 3 and 18 to the `` consolidated financial statements. `` on april 18 , 2019 , we acquired casmed for an aggregate cash purchase price of $ 2.45 per share of common stock , or $ 100.8 million . for more information , see note 8 to the `` consolidated financial statements. `` certain of our business acquisitions involve contingent consideration arrangements . payment of additional consideration in the future may be required , contingent upon the acquired company reaching certain performance milestones , such as attaining specified revenue levels or obtaining regulatory approvals . for further information , see note 8 to the `` consolidated financial statements. `` we have a five-year credit agreement ( `` the credit agreement '' ) which matures on april 28 , 2023. the credit agreement provides up to an aggregate of $ 750.0 million in borrowings in multiple currencies . subject to certain terms and conditions , we may increase the amount available under the credit agreement by up to an additional $ 250.0 million in the aggregate . as of december 31 , 2020 , there were no borrowings outstanding under the credit agreement . the credit agreement is unsecured and contains various financial and other covenants , including a maximum leverage ratio , as defined in the credit agreement .
| results of operations net sales by major regions ( dollars in millions ) replace_table_token_3_th international net sales include the impact of foreign currency exchange rate fluctuations . the impact of foreign currency exchange rate fluctuations on net sales is not necessarily indicative of the impact on net income due to the corresponding effect of foreign currency exchange rate fluctuations on international manufacturing and operating costs , and our hedging activities . for more information , see `` quantitative and qualitative disclosures about market risk . '' 23 net sales by product group ( dollars in millions ) replace_table_token_4_th transcatheter aortic valve replacement the increase in net sales of tavr products was due primarily to higher sales of the edwards sapien 3 ultra system following its regulatory approval in the united states ( december 2018 ) and in europe ( november 2018 ) . the adoption of the edwards sapien 3 ultra system continued to be very positive in 2020. however , our sales in 2020 were negatively impacted by the covid-19 pandemic , and these challenges have continued in early 2021. our procedure volumes dropped significantly beginning in march 2020 due to covid-19 , and began to steadily improve beginning in may 2020. in the first quarter of 2020 , to ensure the safety of our employees and clinician partners from the threat of covid-19 , we decided to pause proctoring at centers that were not already trained on the edwards sapien 3 ultra system . in the second quarter of 2020 , we resumed proctoring . 24 transcatheter mitral and tricuspid therapies the increase in net sales of tmtt products was due primarily to sales in europe of the edwards pascal transcatheter valve repair system , which received ce mark in february 2019. our sales in 2020 were negatively impacted by the covid-19 pandemic .
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during fiscal 2019 , we deferred revenue of $ 7.9 million related to promotional programs and recognized $ 7.3 million of previously deferred revenue related to promotional programs story_separator_special_tag this management 's discussion and analysis of financial condition and results of operations ( `` md & a '' ) , which contains forward-looking statements , should be read in conjunction with our audited consolidated financial statements and related notes in part iv , item 15 of this report , the “ risk factors ” included in part i , item 1a of this report and the cautionary statements included throughout this report . the inclusion of supplementary analytical and related information herein may require us to make estimates and assumptions to enable us to fairly present , in all material respects , our analysis of trends and expectations with respect to our results of operations and financial position . the following md & a includes a discussion comparing our results in fiscal 2020 to fiscal 2019. for a discussion comparing our results from fiscal 2019 to fiscal 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 fiscal year ended december 31 , 2019 , filed with the sec on march 11 , 2020. covid-19 pandemic the company is subject to risks and uncertainties as a result of the outbreak of , and local , state and federal governmental responses to , the covid-19 pandemic which was declared a national public health emergency on march 13 , 2020. we experienced significant disruptions to our business due to suggested and mandated social distancing and shelter-in-place orders , which resulted in the temporary closure of a number of restaurants across our portfolio while the remaining locations shifted to an off-premise only operating model on an interim basis . in our initial response to the covid-19 pandemic , the company and its board of directors implemented the following measures to preserve liquidity and enhance financial flexibility : ● eliminated non-essential capital expenditures and expenses ; ● suspended new unit development ; ● reduced board , executive and corporate support staff compensation ; ● furloughed approximately 41,000 hourly staff members ; ● engaged in discussions with our landlords regarding ongoing rent obligations , including the potential deferral , abatement and or restructuring of rent otherwise payable during the period of the covid-19 pandemic related closure ; ● increased borrowings under our revolving credit facility ; ● raised additional equity capital ; and ● suspended the dividend on our common stock and share repurchases . in late april 2020 , certain jurisdictions began allowing the reopening of restaurant dining rooms , and we began to reopen dining rooms across our concepts the second week of may . during the third quarter of fiscal 2020 , we called back to work a majority of our staff members who were previously furloughed , and restored board , executive and corporate support staff compensation . in addition , we resumed new unit development on a limited basis and will continue to evaluate the pace and quantity of new unit development . restrictions on the type of operating model and occupancy capacity continue to change , and these restrictions increased in many of our markets during the fourth quarter of fiscal 2020 with the surge in covid-19 cases . the following table presents the number of restaurants and their operating model as of february 17 , 2021 : replace_table_token_6_th ( 1 ) on average , the cheesecake factory restaurants with reopened dining rooms were operating at 50 % capacity . 40 we can not predict how long the covid-19 pandemic will last or whether it will reoccur , what additional restrictions may be enacted , to what extent we can maintain off-premise sales volumes or if individuals will be comfortable returning to our dining rooms during or following social distancing protocols and what long-lasting effects the covid-19 pandemic may have on the restaurant industry as a whole . the extent of the reopening process , along with the potential impact of the covid-19 pandemic on consumer spending behavior , will determine the significance of the impact to our operating results and financial position . these considerable developments triggered the need to perform interim impairment assessments of our long-lived assets , goodwill and other intangible assets and a revaluation of contingent consideration associated with the acquisition of frc in addition to our annual impairment testing . future changes in estimates could further impact the carrying value of these items . ( see notes 7 and 8 for further discussion of impairment of long-lived and intangible assets , respectively . see note 3 for further discussion of the revaluation of contingent consideration . ) see item 1a - risk factors - risks related to the covid-19 pandemic . general the cheesecake factory incorporated is a leader in experiential dining . we are culinary forward and relentlessly focused on hospitality . we currently own and operate 294 restaurants throughout the united states and canada under brands including the cheesecake factory® , north italia® and a collection within our fox restaurant concepts business . internationally , 27 the cheesecake factory® restaurants operate under licensing agreements . our bakery division operates two facilities that produce quality cheesecakes and other baked products for our restaurants , international licensees and third-party bakery customers . overview our strategy is driven by our commitment to customer satisfaction and is focused primarily on menu innovation , service and operational execution to continue to differentiate ourselves from other restaurant concepts , as well as to drive competitively strong performance that is sustainable . financially , we are focused on prudently managing expenses at our restaurants , bakery facilities and corporate support center , and leveraging our size to make the best use of our purchasing power . story_separator_special_tag 44 depreciation and amortization expenses as a percentage of revenues , depreciation and amortization expenses were 4.6 % in fiscal 2020 compared to 3.5 % in fiscal 2019 primarily due to sales deleverage . impairment of assets and lease termination expenses during fiscal 2020 , we recorded $ 219.3 million of impairment of assets and lease termination expenses primarily related to the impairment of goodwill , trade names , trademarks and licensing agreements associated with the acquisition and long-lived assets for one the cheesecake factory , one north italia , two other frc and six other restaurants , as well as lease termination costs and accelerated depreciation for one the cheesecake factory and seven other restaurants , of which one closed in fiscal 2019 , four closed in fiscal 2020 , one closed in early fiscal 2021 and two are anticipated to close in fiscal 2021 and 2022. in fiscal 2019 , we recorded $ 18.2 million of impairment of assets and lease termination expenses related to the impairment of long-lived assets for two the cheesecake factory and two other restaurants , as well as lease termination costs and accelerated depreciation for two other restaurants . see notes 7 and 8 of notes to consolidated financial statements in part 1v , item 15 of this report for further discussion of our long-lived and intangible assets , respectively . acquisition-related costs we recorded $ 2.7 million and $ 5.3 million of costs in fiscal 2020 and fiscal 2019 , respectively , to effect and integrate the acquisition . acquisition-related contingent consideration , compensation and amortization ( benefit ) /expenses in fiscal 2020 , we recorded a benefit of $ 3.9 million in acquisition-related contingent consideration , compensation and amortization ( benefit ) /expenses , reflecting a $ 5.7 million decrease in the fair value of the contingent consideration and compensation liabilities primarily related to the impact of the covid-19 pandemic , partially offset by an increase of $ 1.4 million in the deferred consideration liability and $ 0.4 million in amortization of acquired definite-lived licensing agreements . in fiscal 2019 , we recorded $ 1.0 million of acquisition-related expenses related to changes in the fair value of the deferred and contingent consideration and compensation liabilities , as well as amortization of acquired definite-lived licensing agreements . preopening costs preopening costs were $ 10.5 million for fiscal 2020 compared to $ 13.1 million for fiscal 2019. we opened seven restaurants in fiscal 2020 comprised of one the cheesecake factory , one north italia , two other frc and three other locations compared to nine restaurants in fiscal 2019 comprised of five the cheesecake factory , one north italia and three other locations . preopening costs include all costs to relocate and compensate restaurant management staff members during the preopening period , costs to recruit and train hourly restaurant staff members , and wages , travel and lodging costs for our opening training team and other support staff members . also included are expenses for maintaining a roster of trained managers for pending openings , the associated temporary housing and other costs necessary to relocate managers in alignment with future restaurant opening and operating needs , and corporate travel and support activities . preopening costs can fluctuate significantly from period to period based on the number and timing of restaurant openings and the specific preopening costs incurred for each restaurant . gain/ ( loss ) on investments in unconsolidated affiliates we recorded a $ 39.2 million net gain on investments in unconsolidated affiliates in fiscal 2019 comprised of a $ 52.7 million gain on our investments in north italia and flower child upon acquisition of the remaining equity interests in these concepts , partially offset by our share of pre-acquisition losses incurred by these concepts which were driven primarily by impairment of assets and acquisition-related expenses . there was no corresponding amount in fiscal 2020 as we acquired the outstanding equity interests in these concepts in the fourth quarter of fiscal 2019 . 45 interest and other expense , net interest and other expense , net was $ 8.6 million in fiscal 2020 compared to $ 2.5 million in fiscal 2019. this variance was primarily due to increased borrowings on our credit facility to effect the acquisition and enhance our financial flexibility in response to the covid-19 pandemic . income tax ( benefit ) /provision our effective income tax rate was 28.8 % and 9.3 % in fiscal 2020 and fiscal 2019 , respectively . the increase resulted primarily from a lower proportion of employment credits and non-taxable gains on our investments in variable life insurance contracts used to support our non-qualified deferred compensation plan in relation to pre-tax ( loss ) /income , as well as a benefit arising from the expected carryback of our anticipated fiscal 2020 loss to prior years when the federal statutory rate was 35 % . these factors were partially offset by a lower proportion of state taxes benefit as compared to state taxes expense in relation to pre-tax ( loss ) /income . ( see note 20 of notes to consolidated financial statements in part iv , item 15 of this report for further discussion of income taxes . ) non-gaap measures adjusted net ( loss ) /income and adjusted diluted net ( loss ) /income per share are supplemental measures of our performance that are not required by or presented in accordance with gaap . these non-gaap measures may not be comparable to similarly titled measures used by other companies and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with gaap . we calculate these non-gaap measures by eliminating from net ( loss ) /income and diluted net ( loss ) /income per common share the impact of items we do not consider indicative of our ongoing operations .
| results of operations the following table presents , for the periods indicated , information from our consolidated statements of ( loss ) /income expressed as percentages of revenues . replace_table_token_7_th fiscal 2020 compared to fiscal 2019 revenues revenues decreased 20.1 % to $ 1,983.2 million for fiscal 2020 compared to $ 2,482.7 million for fiscal 2019 , primarily due to a decline in comparable restaurant sales , reflecting the impact of the covid-19 pandemic , partially offset by additional revenue related to the acquired restaurants and new restaurant openings . the cheesecake factory comparable sales declined by 28.2 % , or $ 601.9 million , from fiscal 2019 , driven by a decline in customer traffic of 41.5 % , partially offset by average check growth of 13.3 % ( based on an increase of 3.1 % in menu pricing and a 10.2 % positive change in mix ) . we implemented effective menu price increases of approximately 1.5 % in both the first and third quarters of fiscal 2020. sales through the off-premise channel comprised approximately 43 % of our restaurant sales during fiscal 2020 as compared to 16 % in fiscal 2019 as most of our restaurants shifted to an off-premise-only model at the beginning of the covid-19 pandemic and consumer behavior shifted toward off-premise dining throughout the pandemic . we account for each off-premise order as one customer for traffic measurement purposes . therefore , average check is higher as most off-premise orders are for more than one customer . in turn , the high mix of sales in the off-premise channel was the primary driver of the positive change in mix and also contributed to the decline in traffic , along with the broader impact of the covid-19 pandemic .
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we believe that our audits provide a reasonable basis for our opinion . in our opinion , the financial statements referred to above present fairly , in all story_separator_special_tag the following discussion and analysis covers the financial condition and results of operations of our predecessor , qualitytech , lp , and its successor , qts realty trust , inc. you should read the following discussion and analysis in conjunction with the qts realty trust , inc. 's and qualitytech , lp 's consolidated financial statements and related notes and “ risk factors ” contained elsewhere in this form 10-k. some of the information contained in this discussion and analysis or set forth elsewhere in this form 10-k , including information with respect to our business and growth strategies , our expectations regarding the future performance of our business and the other non-historical statements contained herein are forward-looking statements . see “ special note regarding forward-looking statements. ” this form 10-k contains stand-alone audited and unaudited financial statements and other financial data for each of qts and the operating partnership . we believe it is important to show both qts and the operating partnership 's financial statements and for investors to understand the few differences between them in the context of how qts and the operating partnership operate as a consolidated company . see “ explanatory note ” for an explanation of these few differences . for purposes of the presentation of qts ' financial data in this item 7 , the operating results for the period from october 15 , 2013 through december 31 , 2015 include the financial data of qts realty trust , inc. and its majority owned subsidiaries , which includes the operating results of the operating partnership . the “ historical predecessor ” financial statements for the periods ended october 14 , 2013 , december 31 , 2012 , and december 31 , 2011 include the financial data of qualitytech , lp and its majority owned subsidiaries . since the financial data presented in this item 7 does not contain any differences between qts and the operating partnership , all periods presented reflect the operating results of the operating partnership . overview we are a leading owner , developer and operator of state-of-the-art , carrier-neutral , multi-tenant data centers . our data centers are facilities that house the network and computer equipment of multiple customers and provide access to a range of communications carriers . we have a fully integrated platform through which we own and operate our data centers and provide a broad range of it infrastructure solutions . we refer to our spectrum of core data center products as our “ 3cs , ” which consists of custom data center , colocation and cloud and managed services . we believe that we own and operate one of the largest portfolios of multi-tenant data centers in the united states , as measured by gross square footage , and have the capacity to more than double our leased raised floor without constructing or acquiring any new buildings . we operate a portfolio of 24 data centers located throughout the united states , canada , europe and the asia-pacific region . within the u.s. , we are located in some of the top u.s. data center markets plus other high-growth markets . our data centers are highly specialized , full-service , mission-critical facilities used by our customers to house , power and cool the networking equipment and computer systems that support their most critical business processes . we believe that our data centers are best-in-class and engineered to adhere to the highest specifications commercially available to customers , providing fully redundant , high-density power and cooling sufficient to meet the needs of major national and international companies and organizations . this is in part reflected by our operating track record of “ five-nines ” ( 99.999 % ) reliability and by our diverse customer base of more than 1,000 customers , including financial institutions , healthcare companies , government agencies , communications service providers , software companies and global internet companies . 72 on june 16 , 2015 , we completed the acquisition of 100 % of the outstanding stock of carpathia hosting , inc. ( “ carpathia ” ) , a virginia-based colocation , cloud and managed services provider , for approximately $ 366.7 million ( based on the preliminary assessment of the fair value of assets acquired and liabilities assumed ) . upon completion of this acquisition , we assumed all of the assets and liabilities of carpathia acquisition , inc. in addition , carpathia acquisition , inc. and its subsidiaries , including carpathia , became indirect , wholly-owned subsidiaries of us . carpathia is a provider of colocation , hybrid cloud services and infrastructure-as-a-service ( iaas ) servicing enterprise customers and federal agencies , with a customer base of approximately 230 customers as of june 16 , 2015. carpathia utilizes eight domestic data centers located in dulles , virginia ; phoenix , arizona ; san jose , california ; harrisonburg , virginia and ashburn , virginia , and five international data centers located in toronto , canada ; amsterdam , netherlands ; london , united kingdom ; hong kong and sydney , australia . qts is a maryland corporation formed on may 17 , 2013. on october 15 , 2013 , qts completed its ipo of its class a common stock , $ 0.01 par value per share . its class a common stock trades on the new york stock exchange under the ticker symbol “ qts. ” concurrently with the completion of the ipo , we consummated a series of transactions pursuant to which qts became the sole general partner and majority owner of quality tech , lp , our operating partnership . qts contributed the net proceeds of the ipo to the operating partnership in exchange for units of limited partnership interest . as of december 31 , 2015 , qts owned an approximate 85.8 % ownership interest in the operating partnership . story_separator_special_tag we define booked-not-billed as our customer leases that have been signed , but for which lease payments have not yet commenced . 74 factors that may influence future results of operations and cash flows revenue . our revenue growth will depend on our ability to maintain the historical occupancy rates of leasable raised floor , lease currently available space , lease new capacity that becomes available as a result of our development and redevelopment activities , attract new customers and continue to meet the ongoing technological requirements of our customers . as of december 31 , 2015 , we had in place customer leases generating revenue for approximately 91 % of our leasable raised floor . our ability to grow revenue also will be affected by our ability to maintain or increase rental , cloud and managed services rates at our properties . future economic downturns , regional downturns or downturns in the technology industry could impair our ability to attract new customers or renew existing customers ' leases on favorable terms , or at all , and could adversely affect our customers ' ability to meet their obligations to us . negative trends in one or more of these factors could adversely affect our revenue in future periods , which would impact our results of operations and cash flows . we also at times may elect to reclaim space from customers in a negotiated transaction where we believe that we can redevelop and or re-lease that space at higher rates , which may cause a decrease in revenue until the space is re-leased . leasing arrangements . as of december 31 , 2015 , 22 % of our mrr came from customers which individually occupied greater than or equal to 6,600 square feet of space ( or approximately 1 mw of power ) and which had metered power . as of december 31 , 2015 , approximately 34 % of our mrr came from c1 customers that are subject to the metered power model . under the metered power model , the customer pays us a fixed monthly rent amount , plus reimbursement of certain other operating costs , including actual costs of sub-metered electricity used to power its data center equipment and an estimate of costs for electricity used to power supporting infrastructure for the data center , expressed as a factor of the customer 's actual electricity usage . fluctuations in our customers ' utilization of power and the supplier pricing of power do not significantly impact our results of operations or cash flows under the metered power model . these leases generally have a minimum term of five years . as of december 31 , 2015 , 78 % of our mrr was leased to customers which individually occupied less than 6,600 square feet of space , many of whom are billed on a gross lease basis . our c2/c3 customers are billed under a gross lease model and as of december 31 , 2015 , represented 66 % of our mrr . under a gross lease , the customer pays us a fixed rent on a monthly basis , and does not separately reimburse us for operating costs , including utilities , maintenance , repair , property taxes and insurance , as reimbursement for these costs is factored into mrr . however , if customers access more utility costs than their leases permit , we are able to charge these customers for overages . for leases under the gross lease model , fluctuations in our customers ' utilization of power and the prices our utility providers charge us will impact our results of operations and cash flows . our leases on a gross lease basis generally have a term of three years or less . scheduled lease expirations . our ability to minimize rental churn and customer downgrades at renewal and renew , lease and re-lease expiring space will impact our results of operations and cash flows . leases which have commenced billing representing approximately 15 % of our total leased raised floor in both years are scheduled to expire during the years ending december 31 , 2016 ( including all month-to-month leases ) and 2017 , respectively . these leases also represented approximately 35 % and 21 % , respectively , of our annualized rent as of december 31 , 2015. at expiration , as a general matter , based on current market conditions , we expect that expiring rents will be at or below the then-current market rents . acquisitions , redevelopment and financing . our revenue growth also will depend on our ability to acquire and redevelop and subsequently lease data center space at favorable rates . we generally fund the cost of data center acquisition and redevelopment from our net cash provided by operations , credit facilities , other unsecured and secured borrowings or the issuance of additional equity . we believe that we have sufficient access to capital from our current cash and cash equivalents , and borrowings under our credit facilities to fund our redevelopment projects . operating expenses . our operating expenses generally consist of direct personnel costs , utilities , property and ad valorem taxes , insurance and site maintenance costs and rental expenses on our ground and building leases . in particular , our buildings require significant power to support the data center operations conducted in them . although substantially all of our long-term leases—leases with a term greater than three years—contain reimbursements for certain operating expenses , we will not in all instances be reimbursed for all of the property operating expenses we incur . we also incur general and administrative expenses , including expenses relating to senior management , our in-house sales and marketing organization , cloud and managed services support personnel and legal , human resources , accounting and other expenses related to professional services . we also will incur additional expenses arising from being a publicly traded company , including employee equity-based compensation . increases or decreases in our operating expenses will impact our results of operations and cash flows .
| results of operations year ended december 31 , 2015 compared to year ended december 31 , 2014 changes in revenues and expenses for the year ended december 31 , 2015 compared to the year ended december 31 , 2014 are summarized below ( in thousands ) : replace_table_token_31_th * not applicable for comparison 76 revenues . total revenues for the year ended december 31 , 2015 were $ 311.1 million compared to $ 217.8 million for the year ended december 31 , 2014. the increase of $ 93.3 million , or 43 % , was primarily due to the acquisitions of carpathia and the princeton facility , which , combined , contributed $ 57.6 million in incremental revenue for the year ended december 31 , 2015 , as well as organic growth in our customer base and placing additional square footage into service in conjunction with the development and expansion of our dallas-fort worth , richmond , atlanta-suwanee and atlanta-metro data centers , which contributed $ 35.7 million to this increase . the increase of $ 86.6 million , or 44 % , in combined rental and cloud and managed services revenue was primarily due to the acquisitions of carpathia and the princeton facility , which contributed $ 54.5 million in combined rental and cloud and managed services revenue for the year ended december 31 , 2015 , as well as newly leased space and increases in rents from previously leased space , net of downgrades at renewal and rental churn , which contributed $ 32.1 million to the increase . as of december 31 , 2015 , our data centers were approximately 91 % occupied and billing based on leasable raised floor of approximately 839,000 square feet , with approximately 761,000 square feet occupied and paying rent , with an average annualized rent of $ 433 per leased raised floor square foot including cloud and managed services revenue , or $ 337 per leased raised floor square foot excluding cloud and managed services revenue .
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on june 22 , 2017 , dr. joslyn , mr. sullivan and dr. handfield were awarded stock options of 14,000 , 17,500 and 14,000 shares , respectively under the 2012 equity incentive plan . the exercise price for these options was $ 3.70 per share and was based on the closing price on the grant date . these options are subject to vesting in three annual installments of approximately 4,666 , 5,833 , and 4,666 shares , respectively , provided that each of dr. joslyn , mr. sullivan and dr. , handfield continued their employment with the company through such dates . under sec rules relating to executive compensation disclosure , the amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions . fair values relating story_separator_special_tag the following information should be read in conjunction with the financial statements , including the notes thereto , included elsewhere in this form 10-k. this discussion contains certain forward-looking statements that involve risks and uncertainties . our actual results and the timing of certain events could differ materially from those discussed in these forward-looking statements as a result of certain factors , including , but not limited to , those set forth herein and elsewhere in this form 10-k. overview we are focused on becoming a leader in developing novel antibiotics against infectious disease and on developing effective treatments for oral mucositis . our oral mucositis product candidate-clinical in june of 2015 , we entered into a worldwide exclusive channel collaboration agreement ( oral mucositis ecc ) with intrexon corporation ( intrexon ) and intrexon actobiotics nv , a wholly-owned subsidiary of intrexon , pursuant to which we obtained certain exclusive rights to ag013 as a potential treatment of oral mucositis , or om for cancer patients , which we intend to continue to develop . ag013 , is an oral rinsing solution designed to deliver human trefoil factor 1 ( htff1 ) to protect and regenerate damaged mucosal lining of the oral cavity . om results in a painful inflammation and mucosal ulceration in the lining of the oral cavity , throat and esophagus and is one of the most commonly reported adverse events associated with cancer chemotherapy . approximately 770,000 patients annually in the us are at an increased risk of developing om according to cancer statistics provided by the center for disease control ( cdc ) in 2017. om has a negative effect on patient well-being and if severe , negatively affects adherence to a patient 's cancer treatment regimen . at present , we are not aware of any drug that is approved to prevent the condition broadly and current therapies are primarily palliative in nature , only addressing symptom relief but not treating the underlying causes of the condition . in a phase 1b clinical trial in 25 cancer patients with om , ag013 was safe and well tolerated . data published in the journal cancer showed a 35 % reduction of the duration of ulcerative om in the ag013-treated patients versus the placebo-treated patients . furthermore , close to 30 % of the patients treated with ag013 were full responders while all placebo-treated patients developed ulcerative om . additionally , in a phase 1 pharmacokinetic ( pk ) study in 10 healthy volunteers , ag013 bacteria adhered to the buccal mucosa and actively secrete protein locally , resulting in homogeneous exposure of the entire mucosal surface up to 24 hours after administration of the rinse . during the first quarter of 2016 , we conducted a confirmatory animal study on ag013 . ag013 has been granted orphan drug status in the european union . in november of 2016 , the united states food and drug administration ( the fda ) granted fast track designation for ag013 , and we believe it may be eligible for biologic license application exclusivity as well . we have developed a phase 2 protocol for ag013 with the fda under the fast track designation . the study will be a double blind , placebo controlled , evaluation of daily ag013 , administered three times a day , oral rinse for the duration of the cancer treatment . the study is expected to enroll between 160-180 evaluable patients receiving chemoradiation over 7 to 9 weeks . the primary endpoint is a reduction , compared to the placebo , in the number of days of severe oral mucositis . in addition , a number of secondary endpoints will also be evaluated . in august of 2016 , we received feedback from the fda in response to our type c meeting and the pursuit of a phase 2 trial on ag013 for the treatment of oral mucositis in head and neck cancer patients . we filed an investigational new drug ( ind ) update in march 2017 and we initiated the phase 2 study with ag013 in the united states in 2017 with the expectation that we will expand the trial into europe in 2018. we have announced that the first patient has been dosed in the phase 2 clinical trial of ag013 for the treatment of om . the phase 2 clinical trial of ag013 is a double-blind , placebo-controlled study that will be conducted at approximately 45 clinical sites across the united states and europe , and is expected to enroll up to 200 patients . the purpose of the study is to evaluate the efficacy , safety and tolerability and pharmacokinetics of orally administered ag013 compared to placebo for reducing om in patients undergoing chemo-radiation for the treatment of head and neck cancer , as measured by the duration , time to development , and overall incidence of om . presently , the phase 2 clinical study is enrolling patients in the united states . our antibiotic product candidate-preclinical members of our scientific team discovered that a certain bacterial strain produces mu1140 , a molecule belonging to the novel class of antibiotics known as lantibiotics . lantibiotics , such as mu1140 , are highly modified peptide antibiotics made by a small group of gram positive bacterial species . story_separator_special_tag each issued and outstanding share of series c preferred stock entitles the holder of record to receive dividends at the annual rate of twelve percent 60 ( 12 % ) ( the initial rate ) of its stated value , payable by issuing additional shares of series c preferred stock within thirty days after the end of each calendar year and pro-rata for partial years . on january 25 , 2018 we paid a dividend on our series c preferred stock to intrexon of 1.733 shares for the portion of the 2017 the series c preferred was outstanding . the initial rate shall be subject to increase to twenty percent ( 20 % ) automatically , after may 10 , 2019 , if the series c preferred stock is not earlier redeemed by us . amended our exclusive channel collaboration agreements with intrexon . in connection with the series b preferred stock financing and the intrexon debt conversion agreement , on november 8 , 2017 , we amended ( i ) our lantibiotic ecc and the lantibiotic stock issuance agreement ( together the lantibiotic program ) and ( ii ) our oral mucositis ecc and oral mucositis stock issuance agreement ( together the oral mucositis program ) . the lantibiotic program was revised as follows : consolidated all historical , and yet to be achieved , research and development milestones into a single milestone payment of $ 25 million to intrexon , payable within 6 months of first regulatory approval of a nda or a bla and provided for a payment of $ 5.0 million to intrexon within 6 months of regulatory approval of any subsequent supplemental nda resulting in an expanded new indication or nda of a subsequent lantibiotic from the lantibiotic library ; reduced the royalty rate from 25 % of product profit to 10 % of net sales ; reduced the sublicense revenue percentage from 50 % to 25 % ; revised the form of milestone payments from being share based or cash at our election to only cash ; and committed that diligent efforts ( as defined in the lantibiotic ecc ) in pursuing the lantibiotic program would be deemed satisfied in 2018 provided that at least $ 1,200,000 was expended for the advancement of the lantibiotic program . the oral mucositis program was revised as follows : consolidated all historical , and yet to be achieved , research and development milestones into a single milestone payment to intrexon of $ 27.5 million payable within 6 months of first regulatory approval of a nda or bla and provided for a payment of $ 5.0 million to intrexon within 6 months of regulatory approval of any subsequent supplemental nda resulting in an expanded new indication or nda of a subsequent ag013 product ; reduced sublicense revenue percentage from 50 % to 25 % . revised the definition of field in the oral mucositis ecc to reflect and clarify that oragenics has the worldwide exclusive rights to the treatment of oral mucositis regardless of its cause . received nyse notification of regained listing compliance . following consummation of the series b preferred stock financing and debt conversion , on november 10 , 2017 , we received notification from nyse american that the company is back in compliance with all of the nyse american continued listing standards . amended our articles of incorporation . on december 29 , 2017 , we amended our amended and restated articles of incorporation to increase the number of authorized shares of our common stock from 250,000,000 shares to 450,000,000 ( unadjusted for reverse stock split referenced below ) . the purpose of the increase in the number of authorized shares of our common stock is to provide flexibility in connection with our future financing efforts . consummated a reverse stock split . on january 19 , 2018 we effected a one for ten reverse stock split of our authorized and outstanding common stock , by filing articles of amendment to our articles of incorporation . as a result of the reverse stock split ( i ) proportionate adjustments have been made to the per share exercise price and or the number of shares issuable upon the exercise or vesting of all stock options and warrants issued by us and outstanding immediately prior to the effective time , which resulted in a proportionate decrease in the number of shares of our common stock reserved for issuance upon exercise or vesting of such stock options and warrants , and , in the case of stock options and warrants , a proportionate increase in the exercise price of all such stock options and warrants ; ( ii ) proportionate adjustments have been made to the conversion price applicable to outstanding shares of series a and series b convertible preferred stock ; ( iii ) the number of shares authorized for future grant under our equity incentive/compensation plans immediately prior to the effective time have been reduced proportionately ; and ( iv ) the number of authorized shares of common stock as recently increased have been reduced from 450,000,000 shares to 45,000,000 shares . about us we were incorporated in november 1996 and commenced operations in 1999. we consummated our initial public offering in june 2003. we have devoted substantially all of our available resources to our discovery efforts comprising research and development , clinical trials for our product candidates , protection of our intellectual property and the general and administrative support of these operations as well as to the commercialization of our consumer probiora3 products . we have generated limited revenues from grants 61 and from our recently disposed of consumer probiora3 product business through june 30 , 2016 , and have principally funded our operations through the sale of debt and equity securities , including the exercise of warrants issued in connection with these financing transactions . prior to 2008 , our revenues were derived solely from research grants .
| results of operations : replace_table_token_3_th for the three months ended december 31 , 2017 and 2016 research and development . research and development expenses were $ 815,307 for the three months ended december 31 , 2017 compared to $ 1,775,875 in the same period in 2016 ; a decrease of $ 960,568 , or 54.09 % . this decrease was primarily due to decreases in costs associated with work under the ecc 's , salary and salary related costs , postage and delivery , insurance , and patents costs of $ 734,726 , $ 210,759 , $ 5,713 , $ 5,255 , and $ 5,107 , respectively . general and administrative . general and administrative expenses were $ 597,076 for the three months ended december 31 , 2017 compared to $ 932,033 in the same period in 2016 ; a decrease of $ 334,957 , or 35.94 % . this decrease was primarily due to decreases in salary and salary related costs , consultant , non-employee stock based compensation expense , and board of director costs of $ 191,066 , $ 109,398 , $ 24,785 , and $ 10,125 , respectively . other income ( expense ) . other income ( expense ) was $ ( 48,350 ) for the three months ended december 31 , 2017 compared to $ 23,725 in the same period in 2016 ; a change of $ 72,075. the net change was primarily attributable to a decrease in interest income of $ 14,086 , an increase in interest expense of $ 50,599 due to increased levels of borrowing in 2017 and an increase in miscellaneous income of $ 8,500. discontinued operations . on june 22 , 2016 , we sold the assets constituting our consumer probiotic business and as such have accounted for such business as a discontinued operation . profit from discontinued operations was $ -0- for the three months ended december 31 , 2017 compared to $ 9,386 for the three months ended december 31 , 2016 . 66 for the years ended december 31 , 2017 and 2016 research and development .
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30 on july 6 , 2012 , we acquired substantially all of the assets of airport metals ( australia ) pty ltd. , a subsidiary of samuel son & co. , limited , through our newly-formed subsidiary bralco metals ( australia ) pty ltd. ( `` airport metals '' ) . airport metals , based in melbourne , operates as a stocking distributor of aircraft materials and supplies . airport metals had net sales of $ 2.8 million for the year ended december 31 , 2013. on april , 27 , 2012 , through our wholly owned subsidiary precision strip , inc. ( `` psi '' ) , we acquired the assets of the worthington steel vonore , tennessee plant , a processing facility owned by worthington industries , inc. the vonore plant operates as a psi location which processes and delivers carbon steel , aluminum and stainless steel products on a `` toll '' basis , processing the metal for a fee without taking ownership of the metal . the vonore location had net sales of $ 2.7 million for the year ended december 31 , 2013. on april 3 , 2012 , we acquired all the issued and outstanding limited liability company interests of national specialty alloys , llc ( `` nsa '' ) , a global specialty alloy processor and distributor of premium stainless steel and nickel alloy bars and shapes , headquartered in houston , texas with additional locations in anaheim , california ; buford , georgia ; tulsa , oklahoma and mexico city , mexico . nsa had net sales of $ 77.2 million for the year ended december 31 , 2013. on february 1 , 2012 , through our wholly owned subsidiary diamond manufacturing company , we acquired mckey perforating co. , inc. ( `` mckey '' ) , headquartered in new berlin , wisconsin and its subsidiary , mckey perforated products co. , inc. , located in manchester , tennessee . mckey provides a full range of metal perforating and fabrication services to customers located primarily in the u.s. mckey had net sales of $ 18.9 million for the year ended december 31 , 2013. internal growth activities we continued to maintain our focus on internal growth by opening new facilities , building or expanding existing facilities and adding processing equipment with total capital expenditures of $ 168.0 million in 2013 , with the majority of this spent on growth activities . we added and upgraded processing equipment to enable us to provide higher quality services to our existing and potential customers . we also built or purchased 19 new facilities in 2013 and expanded and reconfigured certain other facilities . in addition to gaining market share from these growth activities , we also improved our operating efficiencies . 31 results of operations the following table sets forth certain income statement data for each of the three years ended december 31 ( dollars are shown in millions and certain amounts may not calculate due to rounding ) : replace_table_token_10_th ( 1 ) gross profit , calculated as net sales less cost of sales , and gross profit margin , calculated as gross profit divided by net sales , are non-gaap financial measures as they exclude depreciation and amortization expense associated with the corresponding sales . the majority of our orders are basic distribution with no processing services performed . for the remainder of our sales orders , we perform `` first-stage '' processing , which is generally not labor intensive as we are simply cutting the metal to size . because of this , the amount of related labor and overhead , including depreciation and amortization , is not significant and is excluded from our cost of sales . therefore , our cost of sales is primarily comprised of the cost of the material we sell . we use gross profit and gross profit margin as shown above as measures of operating performance . gross profit and gross profit margin are important operating and financial measures as their fluctuations can have a significant impact on our earnings . gross profit and gross profit margin , as presented , are not necessarily comparable with similarly titled measures for other companies . year ended december 31 , 2013 compared to year ended december 31 , 2012 net sales replace_table_token_11_th replace_table_token_12_th replace_table_token_13_th 32 tons sold and average selling price per ton sold amounts exclude our toll processing sales . same-store amounts exclude the results of our 2013 and 2012 acquisitions . our consolidated sales and tons are up significantly in 2013 compared to 2012 , mainly due to our acquisition of metals usa in april of 2013. metals usa contributed $ 1.24 billion of net sales . in general , business activity in most all of our end markets was flat in 2013 compared to 2012 as our same-store tons sold increased by only 0.9 % in 2013 compared to 2012 , consistent with industry data reported by the metals service center institute ( `` msci '' ) , which was up 0.3 % during the same period . during the 2013 fourth quarter we experienced a normal seasonal slowdown , however the fall-off from the 2013 third quarter was less than typical . one end market that grew for us in 2013 as compared to 2012 was auto , primarily through our toll processing businesses in the u.s. and mexico . our other major industries that performed reasonably well were aerospace and farm equipment . the energy ( oil and gas ) market , although down from 2012 and 2011 levels , still continues to be one of our strongest . non-residential construction , our largest end market , exhibited slight improvement , although at significantly reduced demand levels from its peak in 2006. since we primarily purchase and sell our inventories in the `` spot '' market , the changes in our average selling prices generally fluctuate in accordance with the changes in the costs of the various metals we purchase . the mix of products sold can also have an impact on our average selling prices . story_separator_special_tag same-store amounts exclude the results of our 2012 and 2011 acquisitions . in general , business activity in most all of our end markets was better in 2012 than in 2011 , albeit , the improvement in tons shipped decreased sequentially in each of the first three quarters of 2012 and in the fourth quarter declined due to extended holiday related closures at many of our customers . we also believe that certain of our customers reduced purchasing activity near the end of the year as the u.s. economy approached the `` fiscal cliff '' . the combination of extended holiday closures and the pending `` fiscal cliff '' concerns caused our fourth quarter demand to decline more than typical seasonal slowdowns . in 2012 , our strongest markets were aerospace , farm and heavy equipment , and auto ( through our toll processing businesses ) . the energy ( oil and gas ) market , although down from 2011 levels , still continued to be one of our strongest . non-residential construction , our largest end market , exhibited moderate improvement , although at significantly reduced demand levels from its peak in 2006. since we primarily purchase and sell our inventories in the `` spot '' market , the changes in our average selling prices generally fluctuate in accordance with the changes in the costs of the various metals we purchase . the mix of products sold can also have an impact on our average selling prices . our 2011 and 2012 acquisitions , particularly continental and nsa which specialize in various alloy steel products , favorably impacted our 2012 average selling prices as their specialty products have higher selling prices than our company average ; however , not enough to offset the overall decline in our selling prices . our 2012 average selling prices declined from 2011 due to lower mill pricing for most of our products as a result of decreases in raw material and scrap costs at the mills as well as high import levels and domestic overcapacity that needed to be absorbed in the marketplace . lower london metal exchange aluminum prices and reduced nickel surcharges were primarily responsible for the drop in common alloy aluminum and stainless steel prices , respectively . as a result of decreasing mill prices during most of 2012 , we sold most products at lower average selling prices compared to 2011 levels . our major product same-store selling prices decreased in 2012 from 2011 levels as follows : carbon steel down 3.9 % ; aluminum down 2.1 % ; stainless steel down 10.4 % ; and alloy up 2.6 % . as carbon steel sales represent slightly more than 50 % of our sales dollars , changes in carbon steel prices have a significant impact on changes in our overall average price per ton sold . 36 cost of sales replace_table_token_23_th the increase in cost of sales in 2012 compared to 2011 is due to increased tons sold , partially offset by lower product costs . see `` net sales '' above for trends in both demand and costs of our products . our inventory lifo valuation reserve adjustment , which is included in cost of sales and , in effect , reflects cost of sales at current replacement costs , resulted in a credit , or income , of $ 64.1 million in 2012 compared to a charge , or expense , of $ 85.3 million in 2011. our lifo valuation reserve as of december 31 , 2012 and 2011 was $ 138.8 million and $ 202.9 million , respectively . gross profit replace_table_token_24_th higher gross profit margins in 2012 contributed approximately 60 % of the total increase in our gross profit of $ 220.9 million . the remaining increase in gross profit was from higher sales levels . the improvement in our gross profit margin was primarily due to our ability to effectively manage our selling prices in an environment of declining mill prices . see `` net sales `` and `` cost of sales `` for discussion on product pricing trends and our lifo valuation reserve adjustments , respectively . expenses replace_table_token_25_th the additional expenses of our 2012 and 2011 acquisitions along with increases in certain warehouse and delivery expenses resulting from increased staffing levels due to improved demand and increased fuel and healthcare costs accounted for most of the increase in s , g & a expense during 2012 compared to 2011. our s , g & a expense as a percent of net sales increased as compared to 2011 primarily due to the lower selling prices in 2012 compared to 2011. the increase in depreciation and amortization expense was mainly due to our 2012 and 2011 acquisitions and depreciation expense from our recent capital expenditures . we recorded an impairment charge of $ 2.5 million related to one of our trade name intangible assets for the year ended december 31 , 2012 . 37 operating income replace_table_token_26_th the higher gross profit dollars generated on higher sales , offset by only moderate increases in s , g & a expenses and the contributions of our 2011 and 2012 acquisitions improved our operating income level in 2012. our operating income margin improved in 2012 mainly because of our improved gross profit margins and contributions from some of our 2012 and 2011 acquisitions , which produced higher operating returns due to the specialty nature of their products and processing services . other income and expense replace_table_token_27_th the change in other income ( expense ) , net in 2012 compared to 2011 was primarily due to higher foreign currency gains due to the weakening of the u.s. dollar in 2012 compared to 2011 and higher investment returns on our life insurance assets . income tax rate our effective income tax rate in 2012 was 33.0 % compared to our 2011 rate of 31.7 % .
| financial condition and results of operations overview although we faced challenging market conditions in 2013 , our teams in the field did an excellent job servicing their customers , allowing us to maintain our gross profit margins at 26 % . we also completed our largest acquisition to-date in april 2013 , with a transaction value of $ 1.25 billion , and generated strong cash flow to end the year with a healthy balance sheet and ample liquidity to continue our growth . our sales increased 9.3 % from 2012 mainly due to our acquisition of metals usa , with our tons sold up 21.4 % . unfortunately , however , metals pricing was 10 % lower in 2013 which had a significant impact on our profitability , resulting in lower net income in 2013 from 2012 despite the meaningful contributions from metals usa . we did see slight improvement in our same-store tons sold in 2013 , with more positive momentum in the second half that has continued into 2014. in 2013 , our sales to the auto industry , mainly through our toll processing operations , were up from 2012 levels . our sales into the aerospace and energy ( oil and gas ) end markets were strong in 2013 , though down from prior periods . non-residential construction remains our largest end market , and although we saw some indications of improving demand from some of our customers during 2013 , overall activity levels in the non-residential construction end market remain well below the peak levels in 2006. as mentioned , we acquired metals usa in april 2013 which contributed $ 1.24 billion to our 2013 sales . we also acquired haskins steel in november 2013 and , also in april , we acquired a real estate holding company that owns 18 real estate properties that we had been leasing .
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growth in unit volumes was partially offset by lower trade sales at our steel mill and changes in currency rates . higher unit volumes led to improved earnings and record earnings per share from continuing operations . earnings also benefited from cost improvements and the western pneumatic tube acquisition . in january 2012 we purchased western pneumatic tube , a leading provider to the aerospace industry of integral components for critical aircraft systems . this was our first significant acquisition since 2007 , and established for us a strong competitive position in a higher return , higher growth market . operating cash for the full year increased significantly on stronger earnings and improvements in working capital levels . we again generated more than enough cash from operations to comfortably fund dividends and capital expenditures , something we 've accomplished for over 20 years . 2012 marked the 41st consecutive annual dividend increase for the company , with a compound annual growth rate of 13 % over that time period . only two other s & p 500 companies can claim as high a rate of dividend growth for as many years . our financial profile remains strong . we ended 2012 with net debt to net capital slightly below the conservative end of our long-term targeted range . in august we issued $ 300 million of 10-year senior notes and used the proceeds to pay down commercial paper . we ended the year with the entire $ 600 million available under our existing commercial paper program and revolver facility . we assess our overall performance by comparing our total shareholder return ( tsr ) to that of peer companies on a rolling three-year basis . we target tsr in the top one-third of the s & p 500 over the long term . for the three years ended december 31 , 2012 , we generated tsr of 16 % per year on average . that places us in the top 37 % of the s & p 500 , just shy of our top one-third goal . these topics are discussed in more detail in the sections that follow . 25 part ii introduction total shareholder return total shareholder return ( tsr ) , relative to peer companies , is the key financial measure that we use to assess long-term performance . tsr is driven by the change in our share price and the dividends we pay [ tsr = ( change in stock price + dividends ) / beginning stock price ] . we seek to achieve tsr in the top one-third of the s & p 500 over the long-term through a balanced approach that employs all four tsr sources : revenue growth , margin expansion , dividends , and share repurchases . we monitor our tsr performance ( relative to the s & p 500 ) on a rolling three-year basis . for the three-year measurement period that ended december 31 , 2012 , we generated tsr of 16 % per year on average , compared to 11 % for the s & p 500 index . that places us in the top 37 % of the s & p 500 , just shy of our top one-third goal . our incentive programs reward improved return on investment . senior executives participate in a tsr-based incentive program ( based on our performance compared to the performance of a group of approximately 320 peers ) . business unit bonuses emphasize the achievement of higher returns on the assets under the unit 's direct control . customers we serve a broad suite of customers , with our largest customer representing approximately 6 % of our sales . many are companies whose names are widely recognized ; they include most manufacturers of furniture and bedding , a variety of other manufacturers , and many major retailers . major factors that impact our business many factors impact our business , but those that generally have the greatest impact are market demand , raw material cost trends , and competition . market demand market demand ( including product mix ) is impacted by several economic factors , with consumer confidence being most significant . other important factors include disposable income levels , employment levels , housing turnover , and interest rates . all these factors influence consumer spending on durable goods , and therefore affect demand for our components and products . some of these factors also influence business spending on facilities and equipment , which impacts approximately one-quarter of our sales . demand improved in several of our markets during 2012. as expected , we realized significant earnings leverage as unit volumes grew , and this led to improved margins . over the last few years we have significantly reduced our fixed cost structure , but purposely retained spare production capacity . accordingly , unit sales can increase appreciably without the need for large capital investment . we have meaningful operating leverage that should further benefit earnings as market demand continues to improve . with our current utilization levels , we should be able to readily accommodate over $ 4 billion in revenue ( assuming current sales mix ) . until our spare capacity is fully utilized , each additional $ 100 million of sales from incremental unit volume is expected to generate approximately $ 25 million to $ 35 million of additional pre-tax earnings . 26 part ii raw material costs in many of our businesses , we enjoy a cost advantage from buying large quantities of raw materials . this purchasing leverage is a benefit that many of our competitors generally do not have . still , our costs can vary significantly as market prices for raw materials ( many of which are commodities ) fluctuate . we typically have short-term commitments from our suppliers ; accordingly , our raw material costs generally move with the market . our ability to recover higher costs ( through selling price increases ) is crucial . when we experience significant increases in raw material costs , we typically implement price increases to recover the higher costs . story_separator_special_tag 2011 restructuring plan in december 2011 , we approved a restructuring plan to reduce our overhead costs and improve ongoing profitability . the activities primarily entailed the closure of four underperforming facilities . we incurred a $ 37 million pre-tax ( largely non-cash ) charge in the 4 th quarter of 2011 primarily related to this plan , which included $ 31 million of long-lived asset impairments and $ 6 million of other restructuring-related costs . during 2012 , we incurred an additional $ 2 million of restructuring-related costs and $ 1 million of long-lived asset impairments related to this plan . these activities were substantially complete by the end of 2012 and no significant additional costs related to the plan are expected . 28 part ii results of operations—2012 vs. 2011 demand improved in many of our markets during 2012. growth in unit volumes was partially offset by lower trade sales at our steel mill ( sales shifted from trade to intra-segment ) and changes in currency rates . earnings increased significantly , from $ 153 million in 2011 to $ 248 million in 2012. this improvement reflects several factors , including lower restructuring-related costs , higher unit volumes , benefits from special tax items , cost improvements , and earnings from the western pneumatic tube acquisition . further details about our consolidated and segment results are discussed below . consolidated results the following table shows the changes in sales and earnings during 2012 , and identifies the major factors contributing to the changes . replace_table_token_6_th improved demand in several of our markets led to higher sales in 2012. same location sales increased 1 % , with 3 % unit volume growth partially offset by a 2 % revenue decline from lower trade sales at our steel mill and changes in currency rates . unit volumes grew during the year in automotive , u.s. spring , adjustable bed , geo components , carpet underlay , and certain parts of our home furniture components business . the decrease in trade sales of steel rod during 2012 was largely offset by an increase in intra-segment rod sales , so total rod production for the year was roughly flat with 2011 . 29 part ii earnings increased significantly in 2012 due to several factors . operationally , these included higher unit volumes , cost improvements , and earnings from the western pneumatic tube acquisition . the other items detailed in the table above also collectively contributed to the earnings increase . in 2011 , earnings were reduced by restructuring-related costs primarily associated with the december 2011 plan discussed on page 28. in 2012 , earnings benefited from special tax items , which included the elimination of a valuation allowance on canadian deferred tax assets . lifo impact all of our segments use the first-in , first-out ( fifo ) method for valuing inventory . in our consolidated financials , an adjustment is made at the corporate level ( i.e . outside the segments ) to convert about 60 % of our inventories to the last-in , first-out ( lifo ) method . these are primarily our domestic , steel-related inventories . moderate inflation resulted in lifo expense of $ 14 million in 2011. in 2012 , lower commodity costs led to a lifo benefit of $ 15 million . for further discussion of inventories , see note a to the consolidated financial statements on page 71. interest and income taxes net interest expense in 2012 was $ 5 million higher than in 2011 , primarily due to the issuance in august 2012 of $ 300 million of long-term notes . the 2012 effective income tax rate of 18.5 % on continuing operations was lower than the 24.2 % incurred in 2011. the 2012 tax rate benefited from the fourth quarter release of a $ 38 million valuation allowance on certain canadian deferred tax assets ( primarily tax loss carryforwards ) . as a result of an increase in operating earnings in canada , the amalgamation of two canadian subsidiaries , and the restructuring of intercompany debt attributable in part to a change in canadian tax law , we now expect those carryforwards and other deferred tax assets to be utilized in future years . the 2012 tax rate also benefited from the second quarter recording of a $ 6 million deferred tax asset for the tax basis of a subsidiary which is likely to be realized in 2013. these benefits were partially offset by the fourth quarter accrual of $ 11 million of withholding taxes on earnings in china , which was required since we no longer have specific plans to reinvest all these earnings within china . we also experienced other , less significant , discrete tax items ( both favorable and unfavorable ) that substantially offset for the year . excluding the net impact of all these items , our 2012 effective tax rate would have been approximately 30 % . we expect an ongoing cash flow benefit of $ 3 million to $ 4 million per year for the next 10 to 15 years as the canadian tax loss carryforwards are utilized . the 2011 tax rate benefited from changes in our mix of earnings among taxing jurisdictions , one-time tax planning strategies , and the settlement of our 2004 through 2008 irs examination . as a result of the tax planning strategies and tax audit , we recognized tax benefits of $ 5 million in 2011. on january 2 , 2013 , president obama signed the american taxpayer relief act of 2012 , which retroactively extended certain corporate tax provisions . although several of these provisions will benefit our 2013 tax rate , we do not expect a material impact as a result of this legislation . 30 part ii segment results in the following section we discuss 2012 sales and earnings before interest and taxes ( ebit ) for each of our segments .
| effect if actual results differ from assumptions income taxes ( cont . ) at december 31 , 2012 and 2011 , we had $ 39 million and $ 14 million , respectively , of net deferred tax assets on our balance sheet related to operating loss and tax credit carryforwards . the ultimate realization of these deferred tax assets is dependent upon the amount , source , and timing of future taxable income . valuation allowances are established against future potential tax benefits to reflect the amounts we believe have no more than a 50 % probability of being realized . in addition , assumptions have been made regarding the non-repatriation of earnings from certain subsidiaries . those assumptions may change in the future , thereby affecting future period results for the tax impact of possible repatriation . the recovery of net operating losses ( nol 's ) has been closely evaluated for the likelihood of recovery based upon factors such as the age of losses , viable tax planning strategies , and future taxable earnings expectations . we believe that appropriate valuation allowances have been recorded as necessary . however , if earnings expectations or other assumptions change such that additional valuation allowances are required , we could incur additional tax expense . we assessed our ability to recover canadian nol 's and other deferred tax assets , and determined that previously recorded valuation allowances were no longer necessary . therefore , we recorded income of $ 38 million in the fourth quarter of 2012 related to this reversal . contingencies we evaluate various legal , environmental , and other potential claims against us to determine if an accrual or disclosure of the contingency is appropriate . if it is probable that an ultimate loss will be incurred , we accrue a liability for the reasonable estimate of the ultimate loss . our disclosure and accrual of loss contingencies ( i.e.
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internally developed estimates are based on : management 's judgment and experience in remediating our own and unrelated parties ' sites ; information available from regulatory agencies as to costs of remediation ; 85 waste management , inc. notes to consolidated financial statements ( continued ) the number , financial resources and relative degree of responsibility of other prps who may be liable for remediation of a specific site ; and the typical allocation of costs among prps , unless the actual allocation has been determined . estimating our degree of responsibility for remediation is inherently difficult . story_separator_special_tag this section includes a discussion of our results of operations for the three years ended december 31 , 2012. this discussion may contain forward-looking statements that anticipate results based on management 's plans that are subject to uncertainty . we discuss in more detail various factors that could cause actual results to differ from expectations in item 1a , risk factors . the following discussion should be read in light of that disclosure and together with the consolidated financial statements and the notes to the consolidated financial statements . overview our company is dedicated to three transformational goals that we believe will drive continued growth and leadership in a dynamic industry : know more about our customers and how to service them than anyone else ; use conversion and processing technology to extract more value from the materials we manage ; and continuously improve our operational efficiency . our strategy supports diversion from landfills and converting waste into valuable products as customers seek more economically and environmentally sound alternatives . we intend to pursue achievement of our long-term goals in the short-term through efforts to : grow our markets by implementing customer-focused growth , through customer segmentation and through strategic acquisitions , while maintaining our pricing discipline and increasing the amount of recyclable materials we manage each year ; grow our customer loyalty ; grow into new markets by investing in greener technologies ; and pursue initiatives that improve our operations and cost structure . these efforts will be supported by ongoing improvements in information technologies . we believe that execution of our strategy will provide long-term value to our stockholders . highlights of our financial results for 2012 include : revenues of $ 13.6 billion compared with $ 13.4 billion in 2011 , an increase of $ 271 million , or 2.0 % . this increase in revenues is primarily attributable to : increases associated with acquired businesses of $ 535 million , of which $ 314 million is related to oakleaf ; internal revenue growth from yield on our collection and disposal business of 0.8 % in the current year , which increased revenue by $ 86 million ; year-over-year increase in internal revenue growth from volume of $ 67 million , primarily from our recycling brokerage business and our material recovery facilities . additionally , revenues increased due to higher special waste volumes ; and increases from fuel surcharges and mandated fees of $ 33 million ; offset in large part by decreases from lower recyclable commodity prices , lower electricity prices and foreign currency translation totaling $ 446 million ; operating expenses of $ 8.9 billion , or 65.1 % of revenues , compared with $ 8.5 billion , or 63.8 % of revenues , in 2011. this increase of $ 338 million is due in large part to our acquisition of oakleaf , and related increases in subcontractor costs , as well as the impact of higher fuel prices on direct and indirect fuel costs , which have related revenue increases as noted above . this increase was partially offset by a decrease in customer rebates because of lower recyclable commodity prices ; selling , general and administrative expenses decreased $ 79 million , or 5.1 % , from $ 1,551 million in 2011 to $ 1,472 million in 2012 , primarily due to reductions in incentive compensation and long-term incentive plan expenses and a decrease in consulting costs due to the implementation of our initiatives focusing on procurement and operational and back-office efficiencies . these decreases were partially offset by increases to support our strategic plan to grow into new markets and expand service offerings , including the acquisition of oakleaf ; 31 income from operations of $ 1.9 billion , or 13.6 % of revenues , in 2012 compared with $ 2.0 billion , or 15.2 % of revenues , in 2011 ; net income of $ 817 million , or $ 1.76 per diluted share for 2012 , as compared with $ 961 million , or $ 2.04 per diluted share in 2011 ; and we returned $ 658 million to our shareholders through dividends in 2012 , compared with $ 637 million in 2011. the following explanation of certain notable items that impacted the comparability of our 2012 results with 2011 has been provided to support investors ' understanding of our performance . our 2012 results were affected by the following : the recognition of pre-tax impairment charges aggregating $ 109 million attributable primarily to facilities in our medical waste services business and investments in waste diversion technologies . these items had a negative impact of $ 0.17 on our diluted earnings per share ; the recognition of pre-tax restructuring costs aggregating $ 82 million primarily related to our july 2012 restructuring as well as integration costs associated with our acquisition of oakleaf . these items had a negative impact of $ 0.11 on our diluted earnings per share ; the recognition of a pre-tax charge of $ 10 million related to the withdrawal from an underfunded multiemployer pension plan and a pre-tax charge of $ 6 million resulting from a labor union dispute . story_separator_special_tag when comparing our cash flows from operating activities for the year ended december 31 , 2012 to the comparable period in 2011 , the decrease was primarily related to the impact of lower cash earnings , an increase in tax payments of $ 63 million year-over-year , the payment of $ 59 million to settle the liabilities associated with the termination of our forward starting swaps in september 2012 and unfavorable impacts of working capital changes . the decrease was partially offset by a favorable cash receipt of $ 72 million resulting from the termination of interest rate swaps in april 2012 . 33 when comparing our cash flows from operating activities for the year ended december 31 , 2011 to the comparable period in 2010 , the change is primarily attributable to decreases in our income tax payments , which positively affected our cash flow from operations , as well as a cash payment of $ 37 million made when our canadian hedges matured in december 2010. this increase was partially offset by a favorable cash benefit of $ 77 million resulting from a litigation settlement in april 2010 and a $ 65 million federal tax refund in the third quarter of 2010 related to the liquidation of a foreign subsidiary in 2009. the increase in capital expenditures is a result of our increased spending on compressed natural gas vehicles , related fueling infrastructure and growth initiatives , and the impact of timing differences associated with cash payments for the previous years ' fourth quarter capital spending . we generally use a significant portion of our free cash flow on capital spending in the fourth quarter of each year . a more significant portion of our fourth quarter 2011 and 2010 spending was paid in cash in 2012 and 2011 , respectively , than in the preceding year . acquisition of oakleaf global holdings on july 28 , 2011 , we paid $ 432 million , net of cash received of $ 4 million and inclusive of certain adjustments , to acquire oakleaf . oakleaf provides outsourced waste and recycling services through a nationwide network of third-party haulers . the operations we acquired generated approximately $ 580 million in revenues in 2010. we acquired oakleaf to advance our growth and transformation strategies and increase our national accounts customer base while enhancing our ability to provide comprehensive environmental solutions . for the year ended december 31 , 2011 , we incurred $ 1 million of acquisition-related costs , which were classified as selling , general and administrative expenses . for the year ended december 31 , 2011 , subsequent to the acquisition date , oakleaf recognized revenues of $ 265 million and net income of less than $ 1 million , which are included in our consolidated statement of operations . for the year ended december 31 , 2012 , oakleaf recognized revenues of $ 617 million and net losses of $ 29 million , which are included in the consolidated statement of operations . the following table shows adjustments since september 30 , 2011 to the allocation of the purchase price of oakleaf to the assets acquired and liabilities assumed based on their estimated fair value ; this allocation was finalized as of september 30 , 2012 ( in millions ) : replace_table_token_10_th the following table presents the final allocation of the purchase price to intangible assets ( amounts in millions , except for amortization periods ) : replace_table_token_11_th 34 goodwill of $ 328 million was calculated as the excess of the consideration paid over the net assets recognized and represents the future economic benefits arising from other assets acquired that could not be individually identified and separately recognized . goodwill is a result of expected synergies from combining the company 's operations with oakleaf 's national accounts customer base and vendor network . the vendor-hauler network expands our partnership with third-party service providers . in many cases we can provide vendor-haulers with opportunities to maintain and increase their business by utilizing our extensive post-collection network . we believe this will generate significant benefits for the company and for the vendor-haulers . goodwill has been assigned to our areas as they are expected to benefit from the synergies of the combination . goodwill related to this acquisition is not deductible for income tax purposes . the following pro forma consolidated results of operations have been prepared as if the acquisition of oakleaf occurred at january 1 , 2010 ( in millions , except per share amounts ) : replace_table_token_12_th subsequent event in january 2013 , we acquired greenstar , llc , an operator of recycling and resource recovery facilities . we paid cash consideration of $ 170 million , subject to post-closing adjustments . pursuant to the sale and purchase agreement , up to an additional $ 40 million is payable to the sellers during the period from 2014 to 2018 should greenstar , llc satisfy certain performance criteria over this period . basis of presentation of consolidated financial information indefinite-lived intangible assets impairment testing in july 2012 , the financial accounting standards board ( fasb ) amended authoritative guidance associated with indefinite-lived intangible assets testing . the amended guidance provides companies the option 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 indefinite-lived intangible asset is impaired . if , after assessing the totality of events or circumstances , an entity determines it is not more likely than not that the indefinite-lived intangible asset is impaired , then the entity is not required to take further action . the amendments are effective for indefinite-lived intangible impairment tests performed for fiscal years beginning after september 15 , 2012 ; however , early adoption was permitted . the company 's early adoption of this guidance in 2012 did not have an impact on our consolidated financial statements . additional information on impairment testing can be found in note 3 to the consolidated financial statements .
| summary of cash flow activity the following is a summary of our cash flows for the years ended december 31 ( in millions ) : replace_table_token_33_th net cash provided by operating activities the most significant items affecting the comparison of our operating cash flows in 2012 as compared with 2011 are summarized below : decrease in earnings our income from operations , excluding depreciation and amortization , decreased by $ 109 million , on a year-over-year basis . included in the $ 109 million decrease are the following items : higher charges in 2012 related to impairments and restructuring costs of $ 89 million and $ 48 million , respectively ; lower non-cash charges attributable to equity-based compensation expense and interest accretion and discount rate adjustments on environmental remediation liabilities and recovery assets of $ 16 million and $ 17 million , respectively ; and lower bonus expense of approximately $ 90 million in 2012 when compared with 2011 . increased income tax payments cash paid for income taxes , net of excess tax benefits associated with equity-based transactions , was approximately $ 63 million higher on a year-over-year basis as a result of the decrease in the bonus depreciation allowance from a deduction of 100 % of qualifying capital expenditures for property placed in service in 2011 to a deduction of 50 % of qualifying capital expenditures for property placed in service in 2012. see liquidity impacts of income tax items below for additional information .
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the company sells casual sportswear apparel , including knit tops and woven shirts , graphic t-shirts , fleece , jeans and woven pants , shorts , sweaters , and outerwear ; personal care products ; and accessories for men , women and kids under the abercrombie & fitch , abercrombie kids and hollister brands . the company 's fiscal year ends on the saturday closest to january 31 , typically resulting in a fifty-two week year , but occasionally giving rise to an additional week , resulting in a fifty-three week year . for purposes of this “ item 7. management 's discussion and analysis of financial condition and results of operations , ” the fifty-two week period ended january 30 , 2016 is compared to the fifty-two week period ended january 31 , 2015 and the fifty-two week period ended january 31 , 2015 is compared to the fifty-two week period ended february 1 , 2014 . during the first quarter of fiscal 2015 , the company substantially completed its transition to a branded organizational structure . in conjunction with the change , the company determined its brand-based operating segments to be abercrombie , which includes the company 's abercrombie & fitch and abercrombie kids brands , and hollister . these operating segments have similar economic characteristics , classes of consumers , products and production and distribution methods , and have been aggregated into one reportable segment . for fiscal 2015 , net sales decreased 6 % to $ 3.519 billion from $ 3.744 billion for fiscal 2014 . the gross profit rate was 61.3 % for fiscal 2015 , compared to 61.8 % for fiscal 2014 . operating income was $ 72.8 million for fiscal 2015 , compared to operating income of $ 113.5 million for fiscal 2014 . net income and net income per diluted share attributable to a & f was $ 35.6 million and $ 0.51 , respectively , for fiscal 2015 , compared to net income and net income per diluted share attributable to a & f of $ 51.8 million and $ 0.71 , respectively , for fiscal 2014 . excluding certain items , the adjusted non-gaap gross profit rate was 61.9 % , operating income was $ 136.5 million and net income and net income per diluted share attributable to abercrombie & fitch co. was $ 78.0 million and $ 1.12 , respectively , for fiscal 2015 , compared to an adjusted non-gaap gross profit rate of 61.8 % , operating income of $ 191.7 million and net income and net income per diluted share attributable to abercrombie & fitch co. of $ 112.3 million and $ 1.54 , respectively , for fiscal 2014 . as of january 30 , 2016 , the company had $ 588.6 million in cash and equivalents , and $ 293.3 million in gross borrowings outstanding under its term loan facility . net cash provided by operating activities was $ 309.9 million for fiscal 2015 . the company also used cash of $ 143.2 million for capital expenditures , $ 50.0 million to repurchase approximately 2.5 million shares of a & f 's common stock and $ 55.1 million to pay dividends during fiscal 2015 . reporting and use of gaap and non-gaap measures the company believes that the non-gaap financial measures presented in this `` item 7. management 's discussion and analysis of financial condition and results of operations '' are useful to investors as they provide the ability to measure the company 's operating performance as compared to historical periods , excluding the effect of certain items which the company believes do not reflect its future operating outlook . management used these non-gaap financial measures during the periods presented to assess the company 's performance and to develop expectations for future operating performance . in addition , the company provides certain financial information on a constant currency basis to enhance investors ' understanding of underlying business trends and operating performance . these non-gaap financial measures should be used in conjunction with , not as an alternative to , the company 's gaap financial results . such financial measures are presented on both a gaap and non-gaap basis under `` results of operations , '' with excluded items specifically identified . 22 the tables below reconcile certain gaap financial measures to non-gaap financial measures for fiscal 2015 and fiscal 2014 . replace_table_token_6_th replace_table_token_7_th ( 1 ) refer to `` results of operations '' for details on excluded items . 23 current trends and outlook 2015 was a year of tremendous change for abercrombie & fitch . we completed our transition to a brand-based organizational structure , strengthened our teams and improved our core processes . more importantly , we evolved our assortment and refocused our attention on our customer through greater accountability and empowerment at the store level , and through changes in our in-store experience . in addition , we continued to invest in direct-to-consumer and omnichannel and execute our store closure program . while we made progress across all of our strategic initiatives , our work to fulfill the potential of our brands is not done . our ongoing efforts to improve our business are focused on : putting the customer at the center of everything we do . delivering compelling and differentiated assortments . optimizing our brand reach and channel performance . defining clear positionings for our brands . continuing to improve efficiency and reduce expense . ensuring we are organized to succeed . as we look ahead to fiscal 2016 , it is likely to remain a challenging retail environment , but we believe our ongoing efforts are laying the foundation for future growth and profitability . for fiscal 2016 , we expect : flat to slightly positive comparable sales . adverse effects from foreign currency exchange rates on sales . a gross margin rate approximately flat to fiscal 2015 's adjusted non-gaap rate of 61.9 % , but up on a constant currency basis . slight leverage in operating expense relative to last year 's adjusted non-gaap rate of 58.3 % . story_separator_special_tag ( 2 ) includes charges related to lease terminations and store closures . ( 3 ) includes charges related to the company 's profit improvement initiative . stores and distribution expense as a percentage of net sales and adjusted non-gaap stores and distribution expense as a percent of net sales increased by approximately 10 basis points for fiscal 2015 compared to fiscal 2014 . the increase as a percentage of net sales was primarily due to the deleveraging effect from lower net sales and higher direct-to-consumer expense , partially offset by a benefit from expense reduction efforts . shipping and handling costs , including costs incurred to store , move and prepare the products for shipment and costs incurred to physically move the product to the customer , associated with direct-to-consumer operations were $ 115.0 million for fiscal 2015 compared to $ 108.1 million for fiscal 2014 . handling costs , including costs incurred to store , move and prepare the products for shipment to stores , were $ 44.5 million for fiscal 2015 compared to $ 52.2 million for fiscal 2014 . shipping and handling costs are included in stores and distribution expense on the consolidated statements of operations and comprehensive income ( loss ) . 26 marketing , general and administrative expense replace_table_token_11_th ( 1 ) includes charges related to certain proposed legal settlements . ( 2 ) includes charges related to the company 's profit improvement initiative . ( 3 ) includes legal , advisory and other charges related to certain corporate governance matters . marketing , general and administrative expense as a percentage of net sales and adjusted non-gaap marketing , general and administrative expense as a percentage of net sales increased by approximately 110 basis points for fiscal 2015 compared to fiscal 2014 . the increase in rate was primarily due to the deleveraging effect from lower net sales , higher compensation related expense and certain proposed legal settlement charges of $ 15.8 million , partially offset by the year-over-year impact of corporate governance matters related charges and expense reduction efforts . restructuring ( benefit ) charge the company recognized a restructuring benefit of $ 1.6 million for fiscal 2015 from better than expected lease exit terms associated with the restructuring of the gilly hicks brand . restructuring charges associated with the closure of the gilly hicks stand-alone stores for fiscal 2014 were $ 8.4 million . asset impairment the company incurred non-cash asset impairment charges of $ 18.2 million for fiscal 2015 , compared to $ 45.0 million for fiscal 2014 primarily related to stores whose asset carrying values were determined not to be recoverable and exceeded fair value . for fiscal 2015 , the non-cash asset impairment charges primarily related to the company 's abercrombie & fitch flagship store in hong kong as well as certain fixtures that were removed in connection with changes to the abercrombie and hollister store experiences . for fiscal 2014 , store-related asset impairment charges primarily related to the company 's abercrombie & fitch flagship store locations in tokyo , japan and seoul , korea , as well as nine hollister stores and nine abercrombie kids stores . additionally , the company incurred charges of approximately $ 11.3 million in fiscal 2014 to record the expected loss on the sale of the company-owned aircraft . other operating income , net replace_table_token_12_th ( 6 ) includes charges related to a release of cumulative translation adjustment as the company substantially completed the liquidation of its australian operations . other operating income , net was $ 6.4 million for fiscal 2015 compared to $ 15.2 million for fiscal 2014 . for fiscal 2015 , other operating income , net included income of $ 2.2 million related to insurance recoveries and $ 4.7 million related to gift card breakage , partially offset by losses of $ 1.5 million related to foreign currency transactions . for fiscal 2014 , other operating income , net included income of $ 10.2 million related to insurance recoveries and $ 5.8 million related to gift card breakage , and losses of $ 2.0 million related to foreign currency transactions . 27 operating income replace_table_token_13_th ( 1 ) includes net inventory write-down charges related to a decision to accelerate the disposition of certain aged merchandise . ( 2 ) includes impairment charges related to stores whose asset carrying values were determined not to be recoverable and exceeded fair value , for fiscal 2014 , a fair value adjustment to the company-owned aircraft , and for fiscal 2015 , certain store fixtures in connection with changes to the abercrombie and hollister store experiences . ( 3 ) includes charges related to certain proposed legal settlements . ( 4 ) includes accelerated depreciation and disposal charges related to the discontinued use of certain store fixtures . ( 5 ) includes charges related to the company 's profit improvement initiative . ( 6 ) includes charges related to lease terminations and store closures , including charges related to a release of cumulative translation adjustment as the company substantially completed the liquidation of its australian operations . ( 7 ) includes restructuring ( benefit ) charges associated with the closure of the gilly hicks stand-alone stores , net of better than expected lease exit terms . ( 8 ) includes legal , advisory and other charges related to certain corporate governance matters . operating income as a percentage of net sales decreased by approximately 100 basis points for fiscal 2015 compared to fiscal 2014 . the decrease in rate was primarily due to the deleveraging effect of lower net sales , higher direct-to-consumer costs and higher compensation related expense , partially offset by expense reduction efforts , an increase in average unit retail on a constant currency basis ( based on converting prior year sales at current year foreign currency exchange rates , divided by number of units sold ) , a decrease in average unit cost and the net year-over-year impact of certain items presented in the above table .
| summary of significant accounting policies , '' of the notes to consolidated financial statements included in “ item 8. financial statements and supplementary data ” of this annual report on form 10-k for additional information . ( 2 ) includes estimated interest payments based on the interest rate as of january 30 , 2016 and assuming normally scheduled principal payments . long-term debt obligations consist of principal payments under the term loan agreement . refer to note 11 , `` borrowings , `` of the notes to consolidated financial statements included in “ item 8. financial statements and supplementary data ” of this annual report on form 10-k for additional information . operating lease obligations consist primarily of non-cancelable future minimum lease commitments related to store operating leases . see note 2 , “ summary of significant accounting policies -- leased facilities , ” of the notes to consolidated financial statements included in “ item 8. financial statements and supplementary data ” of this annual report on form 10-k , for further discussion . excluded from the obligations above are amounts related to portions of lease terms that are currently cancelable at the company 's discretion . while included in the obligations above , in many instances , the company has options to terminate certain leases if stated sales volume levels are not met or the company ceases operations in a given country . operating lease obligations do not include common area maintenance ( “ cam ” ) , insurance , marketing or tax payments for which the company is also obligated . total expense related to cam , insurance , marketing and taxes was $ 171.7 million in fiscal 2015 . the purchase obligations category represents purchase orders for merchandise to be delivered during fiscal 2016 and commitments for fabric expected to be used during upcoming seasons . in addition , purchase obligations include agreements to purchase goods or services including information technology contracts and third-party distribution center service contracts .
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our diverse customer base utilizes lng as a fuel source in a variety of applications in the industrial , energy , mining , utilities and pipelines , commercial , and high horsepower transportation markets . our customers use lng as an alternative to traditional fuel sources , such as diesel , fuel oil , and propane , and as a means to lower fuel costs and reduce their environmental footprint . our customers also use lng as a “ virtual pipeline ” solution when natural gas pipelines are not available or are curtailed . stabilis seeks to provide our customers with safe , reliable and cost effective lng fueling and power delivery solutions . we provide multiple products and services to our customers , including : lng production and sales —stabilis builds and operates cryogenic natural gas processing facilities , called “ liquefiers ” , that convert natural gas into lng through a multiple stage cooling process . we currently own and operate a liquefier that can produce up to 100,000 lng gallons ( 379 cubic meters ) per day . we also purchase lng from third-party production sources which allows us to support customers in markets where we do not own liquefiers . we define “ small-scale ” lng production to include liquefiers that produce less than 1,000,000 lng gallons per day ( 3,788 cubic meters per day ) . 31 transportation and logistics services —stabilis offers our customers a “ virtual natural gas pipeline ” by providing them with turnkey lng transportation and logistics services in north america . we deliver lng to our customers ' work sites from both our own production facility and our network of 25 third-party production sources located throughout north america . we own a fleet of lng fueled trucks and cryogenic trailers to transport and deliver lng . we also outsource similar equipment and transportation services from qualified third-party providers as required to support our customer base . we define “ small-scale ” lng distribution to include distribution by trailer or tank container ( up to 15,000 lng gallons ) or marine vessels that carry less than 8,000,000 lng gallons ( approximately 30,000 cubic meters ) . cryogenic equipment rental —stabilis owns and operates a rental fleet of approximately 150 mobile lng storage and vaporization assets , including : transportation trailers , electric and gas-fired vaporizers , ambient vaporizers , storage tanks , and mobile vehicle fuelers . we also own several stationary storage and regasification assets . we believe this is one of the largest fleets of small-scale lng equipment in north america . our fleet consists primarily of trailer-mounted mobile assets , making delivery to and between customer locations more efficient . we deploy these assets on job sites to provide our customers with the equipment required to transport , store , and consume lng in their fueling operations . engineering and field support services —stabilis has experience in the safe , cost effective , and reliable use of lng in multiple customer applications . we have also developed many processes and procedures that we believe improve our customers ' use of lng in their operations . our engineers help our customers design and integrate lng into their fueling operations and our field service technicians help our customers mobilize , commission and reliably operate on the job site . stabilis generates revenue by selling and delivering lng to our customers . we also generate revenue by renting cryogenic equipment and providing engineering and field support services . we sell each product and service separately or as a bundle depending on the customer 's needs . lng pricing depends on market pricing for natural gas and competing fuel sources ( such as diesel , fuel oil , and propane among others ) , as well as the customer 's purchased volume , contract duration and credit profile . stabilis ' customers use natural gas in their operations for multiple reasons , including lower fuel cost , more stable fuel costs , reduced environmental emissions , and improved operating performance . we serve customers in a variety of end markets , including industrial , energy , mining , commercial , utilities and pipelines , and high horsepower transportation . we believe that lng consumption will continue to increase in these end markets in the future . power delivery solutions —as a result of the business combination with american electric , stabilis provides power delivery services and products for the oil and gas , marine vessel , power generation and broad industrial market segments in brazil , and builds electrical systems for sale in china through our 40 % interest in bomay . key operating data in evaluating our operating performance , our management focuses primarily on gallons delivered and plant utilization . stabilis supplies our customers with lng produced at our own liquefaction facility as well as lng produced at third-party facilities . we make the determination of lng supply sources based on the cost of lng , the transportation cost to deliver to regional customer locations , and the reliability of the supply source . the following table summarizes the volume of lng gallons delivered to our customers . replace_table_token_1_th utilization is an important measure used by management to assess operational output at our george west plant . utilization is calculated as actual gallons produced divided by capacity . for the year ended december 31 , 2019 , utilization was 69.6 % , compared to 48.9 % for the year ended december 31 , 2018 . the increase was primarily the result of expansion of our customer base in sand drying applications and increased demand from existing customers in mexico . 32 2019 and 2018 developments on july 26 , 2019 , the share exchange transaction with american electric and its subsidiaries was completed . story_separator_special_tag accordingly , management believes the business will generate sufficient cash flows from its operations to fund the business for the next 12 months . cash flows cash flows provided by ( used in ) our operating , investing and financing activities are summarized below ( in thousands ) : replace_table_token_5_th operating activities 37 net cash provided by operating activities totaled $ 4.1 million for the twelve months ended december 31 , 2019 compared to $ 0.4 million used in operating activities for the same period 2018 . the increase in net cash provided by operating activities of $ 4.5 million as compared to the prior year was primarily attributable to reduced operating losses and net working capital . investing activities net cash used in investing activities totaled $ 3.2 million and $ 69 thousand for the twelve months ended december 31 , 2019 and 2018 , respectively . the change was driven by the acquisitions of american electric and diversenergy . the company also purchased $ 2.1 million of equipment during the twelve months ended december 31 , 2019 , partially offset by proceeds from sales of equipment of $ 0.1 million . financing activities net cash provided by financing activities totaled $ 1.9 million and $ 0.1 million for the twelve months ended december 31 , 2019 and 2018 , respectively . the increase of $ 1.8 million compared to the prior year was primarily attributable to : a $ 0.1 million net increase in proceeds from short-term notes payable , and an increase in net proceeds of $ 1.8 million from related party long-term borrowings in 2019. sources of liquidity and capital resources our principal sources of liquidity have consisted of cash on hand , cash provided by our operations , and proceeds from asset sales . in addition , the company secured financing from a key vendor and obtained equipment financing from mg finance , a related party . future cash requirements uses of liquidity and capital resources we require cash to fund our operating expenses and working capital requirements , including costs associated with fuel sales , capital expenditures , debt repayments and repurchases , equipment purchases , maintenance of lng production facilities , mergers and acquisitions ( if any ) , pursuing market expansion , supporting sales and marketing activities , support of legislative and regulatory initiatives , and other general corporate purposes . while we believe we have sufficient liquidity and capital resources to fund our operations and repay our debt , we may elect to pursue additional financing activities such as refinancing existing debt , or debt or equity offerings to provide flexibility with our cash management . capital expenditures our business plan calls for approximately $ 3 million to $ 4 million in capital expenditures in 2020. these capital expenditures primarily relate to expansion plans in mexico . debt level and debt compliance we had total indebtedness of $ 7.6 million in principal as of december 31 , 2019 with the expected maturities as follows . replace_table_token_6_th we expect our total interest payment obligations relating to our indebtedness to be approximately $ 0.9 million for the year ending december 31 , 2020 . certain of the agreements governing our outstanding debt , which are discussed in note 10—debt to our consolidated financial 38 statements , have certain non-financial covenants with which we must comply . as of december 31 , 2019 , we were in compliance with all of these covenants . contractual obligations we are committed to make cash payments in the future pursuant to certain of our contracts . the following table summarizes certain contractual obligations in place as of december 31 , 2019 : replace_table_token_7_th _ ( 1 ) debt relates to the construction of a lng liquefaction plant in texas . principle and accrued interest at libor + 3 % are due annually . ( 2 ) obligation to related party is equipment leased from a subsidiary of the modern group , ltd. ( 3 ) operating lease obligations primarily relate to office lease space in colorado , texas and washington . colorado lease began in 2014 and will expire in 2021 , washington lease renewed in 2018 for an additional 4 year term and texas office lease begin in 2019 with expiration on january 31 , 2025. obligations can be found in note 13—commitments and contingencies to our notes to consolidated financial statements . contingencies in the normal course of our business , we become involved in various litigation matters . in addition , from time to time , we are involved in tax and other disputes with various government agencies . management has used estimates in determining our potential exposure to these matters and has recorded reserves in our financial statements related thereto as appropriate . it is possible that a change in estimate related to these exposures could occur , but we do not expect such changes in the estimated costs would have a material effect on our business , consolidated financial position or results of operations . off-balance sheet arrangements as of december 31 , 2019 , we had no transactions that met the definition of off-balance sheet arrangements that may have a current or future material effect on our consolidated financial position or operating results . new accounting standards see note 1—basis of presentation and summary of significant accounting policies to our notes to consolidated financial statements included elsewhere in this report for information on new accounting standards . critical accounting policies and estimates the discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements , which have been prepared in accordance with u.s. gaap . the preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities , disclosures of contingent assets and liabilities known to exist at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period .
| results of operations the following table reflects line items from the accompanying consolidated statements of operations for the year ended december 31 , 2019 ( the “ current year ” ) as compared to the year ended december 31 , 2018 ( the “ prior year ” ) : stabilis energy , inc. consolidated statements of operations replace_table_token_2_th 34 segment results the company 's revenues are derived from two operating segments : lng and power delivery . the company evaluates the performance of its segments based primarily on segment operating income . lng segment our lng segment supplies lng to the industrial , midstream , and oilfield sectors in north america and provides turnkey fuel solutions to help users of propane , diesel and other crude-based fuel products convert to lng . replace_table_token_3_th power delivery segment our power delivery segment provides power delivery solutions to the global energy industry through our subsidiary in brazil and our joint venture in china . replace_table_token_4_th 2019 compared to 2018 35 revenue lng product revenue . during the current year lng product revenues increase d $ 4.0 million or 13.4 % versus the prior year primarily attributable to growth in lng plant product sales of $ 5.4 million . key factors behind this growth were expansion of our customer base in sand drying applications and increased demand from existing customers in mexico . lng product revenue from distribution sales decreased $ 1.2 million related to decreased sales to oilfield customers . rental , service , and other revenue . rental , service and other revenues increase d by $ 5.7 million or 79.6 % in the current year compared to prior year primarily due to the completion of the share exchange transaction with american electric .
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business overview we are a leading global provider of outsourced aircraft and aviation operating services . we operate the world 's largest fleet of 747 freighters and provide customers a broad array of 747 , 777 , 767 and 737 aircraft for domestic , regional and international cargo and passenger operations . we provide unique value to our customers by giving them access to highly reliable modern production freighters that deliver the lowest unit cost in the marketplace combined with outsourced aircraft operating services that we believe lead the industry in terms of quality and global scale . our customers include express delivery providers , e-commerce retailers , the u.s. military , charter brokers , freight forwarders , direct shippers , airlines , manufacturers , sports teams and fans , and private charter customers . we provide global services with operations in africa , asia , australia , europe , the middle east , north america and south america . we believe that the following competitive strengths will allow us to capitalize on opportunities that exist in the global airfreight industry : market leader with leading-edge technology and differentiated , value-creating solutions the 747-8f and 777-200lrf aircraft are two of the most efficient long-haul wide-body commercial freighters available and we are currently the only operator offering both of these aircraft under acmi and cmi agreements . our operating model deploys our aircraft to drive maximum utilization and value from our fleet . the scale of our fleet enables us to have aircraft available globally to respond to our customers ' needs , both on a planned and ad hoc basis . we believe this provides us with a commercial advantage over our competitors that operate smaller and less flexible fleets . our dry leasing business is primarily focused on a portfolio of 777-200lrf aircraft , and our fleet of 767-300 freighter aircraft for regional and domestic applications . these aircraft are dry leased to customers on a long-term basis , which further diversifies our business mix and enhances our predictable , long-term revenue and earnings streams . stable base of contractual revenue and reduced operational risk our focus on providing long-term contracted aircraft and operating solutions to customers stabilizes our revenues and reduces our operational risk . acmi and cmi contracts with customers generally range from two to seven years , although some contracts have shorter or longer durations . our long-term charter programs provide customers with dedicated charter capacity generally ranging from one to three years . dry leasing contracts with customers generally range from five to twelve years . under these types of contracts , our customers assume fuel , demand and price risk resulting in reduced operational risk for aaww , while typically providing us with a guaranteed minimum level of revenue and target level of profitability . focus on asset optimization by managing the largest fleet of outsourced freighter aircraft , we achieve significant economies of scale in areas such as aircraft maintenance , crew efficiency , crew training , inventory management and purchasing . our mix of aircraft is closely aligned with our customer needs . by providing the broadest array of 747 , 777 , 767 and 737 aircraft for domestic , regional and international applications , we believe that we are well-suited to meet the current and anticipated requirements of our customers . we continually evaluate our fleet to ensure that we offer the most efficient and effective mix of aircraft to meet our customers ' needs . our service model is unique in that we offer a portfolio of operating solutions that complement our freighter aircraft businesses . we believe this allows us to improve the returns we generate from our asset base by allowing us to flexibly redeploy aircraft to meet changing market conditions , ensuring the maximum 34 utilization of our fleet . our charter services complement our acmi services by allowing us to increase aircraft utilization during open time and to react to changes in demand and yield in these segments . we have employees situated around the globe who closely monitor demand for commercial charter services in each region , enabling us to redeploy available aircraft quickly . we also endeavor to manage our portfolio to stagger contract terms , which mitigates our remarketing risks and aircraft down time . long-term strategic customer relationships and unique innovative service offerings we combine the global scope and scale of our efficient aircraft fleet with high-quality , cost-effective operations and premium customer service to provide unique , fully integrated and reliable solutions for our customers . we believe this approach results in customers that are motivated to seek long-term relationships with us . this has historically allowed us to command higher prices than our competitors in several key areas . these long-term relationships help us to build resilience into our business model . our customers have access to our innovative solutions , such as inter-operable crews , flight scheduling , fuel-efficiency planning , and maintenance spare coverage , which , we believe , set us apart from other participants in the outsourced aircraft and aviation operating services market . furthermore , we have access to valuable operating rights to restricted markets such as brazil , japan and china . we believe our freighter services allow our customers to effectively expand their capacity and operate dedicated freighter aircraft without simultaneously taking on exposure to fluctuations in the value of owned aircraft and , in the case of our acmi and long-term charter contracts , long-term expenses relating to crews and maintenance . dedicated freighter aircraft enable schedules to be driven by cargo rather than passenger demand ( for those customers that typically handle portions of their cargo operations via belly capacity on passenger aircraft ) , which we believe allows our customers to drive higher contribution from cargo operations . we are focused on providing safe , secure and reliable services . atlas , polar and southern air all have successfully completed the international air transport association 's operational safety audit ( iosa ) , a globally recognized safety and quality standard . story_separator_special_tag in response to these challenging times , we have : significantly reduced nonessential employee travel ; reduced the use of contractors ; limited ground staff hiring ; secured vendor pricing discounts for engine overhauls and other maintenance ; implemented a number of other cost reduction initiatives ; taken other actions , such as the sale of certain nonessential assets ; entered into a payroll support program agreement with the u.s. treasury ; and deferred payment of the employer portion of social security taxes as provided for under the cares act through the end of 2020. the continuation or worsening of the aforementioned and other factors could materially affect our results for the duration of the covid-19 pandemic . on february 15 , 2021 , the company and ibt completed the contractually mandated nine-month period for negotiations for a joint cba . all remaining open issues not resolved in negotiations will be determined in binding interest arbitration scheduled to begin in mid-march 2021. a new joint cba could be completed during 2021 and we expect that the labor costs arising from the new joint cba will be materially greater than the costs under our current cbas with atlas pilots and southern air pilots ( see note 14 to our financial statements for further discussion ) . we continually assess our aircraft requirements and will make adjustments to our capacity as necessary . some of these actions may involve grounding or disposing of aircraft or engines , which could result in asset impairments or other charges in future periods . our acmi results for 2020 , compared with 2019 , were impacted by increased flying from the following : in january 2019 , we entered into an agreement to operate three incremental 747-400 freighters for nippon cargo airlines on transpacific routes . the first two aircraft entered service in april and august 2019 , and the third aircraft entered service in october 2020. in march 2019 , we entered into agreements with amazon , which include cmi operation of five 737-800 freighter aircraft and up to 15 additional aircraft by may 2021. between may and december 2019 , we placed five aircraft into service . two additional 737-800 freighter aircraft entered service in september 2020 , and another aircraft entered service in october 2020. in june 2019 , we entered into a cmi agreement with dhl to operate two 777-200 freighter aircraft on key global routes , both of which entered service near the end of the second quarter of 2019. in june 2019 , we began flying a third 747-400 freighter for asiana cargo on transpacific routes following its return from dhl . in january 2020 , we entered into an acmi agreement with el al israel airline ltd. for a 747-400 freighter to provide additional capacity for its freight network . the aircraft entered service in january 2020 . 37 story_separator_special_tag training purposes . see note 6 to our financial statements for additional discussion . we may sell additional flight equipment , which could result in additional charges in future periods . transaction-related expenses in 2020 primarily related to professional fees in support of the payroll support program under the cares act ( see note 3 to our financial statements ) . 2019 primarily related to professional fees for a customer transaction with warrants ( see note 8 to our financial statements ) . non-operating expenses ( income ) the following table compares our non-operating expenses ( income ) ( in thousands ) : replace_table_token_12_th unrealized loss ( gain ) on financial instruments represents the change in fair value of a customer warrant liability ( see note 8 to our financial statements ) primarily due to changes in our common stock price . 41 other income , net increased $ 158.1 million primarily due to cares act grant income of $ 151.6 million ( see note 3 to our financial statements ) . income taxes . our effective income tax rates were an expense rate of 27.5 % for 2020 and a benefit rate of 38.0 % for 2019. the rate for 2020 differed from tax at the u.s. statutory rate primarily due to nondeductible changes in the fair value of a customer warrant liability ( see note 8 to our financial statements ) . the rate for 2019 differed from tax at the u.s. statutory rate primarily due to a tax benefit related to the favorable completion of an irs examination of our 2015 income tax return and , to a lesser extent , a tax benefit due to nontaxable changes in the fair value of a customer warrant liability . segments the following table compares the direct contribution for our reportable segments ( see note 13 to our financial statements for the reconciliation to operating income ) ( in thousands ) : replace_table_token_13_th acmi segment acmi direct contribution decreased $ 38.5 million , or 17.6 % , primarily due to higher pilot costs related to premium pay for pilots operating in certain areas significantly impacted by covid-19 and increased pay rates we provided to our pilots in may 2020. in addition , acmi direct contribution reflected higher heavy maintenance , including additional engine overhauls performed to take advantage of availability and opportunities for vendor pricing discounts . we also redeployed 747-400 aircraft to charter to support long-term charter programs with customers seeking to secure committed cargo capacity . partially offsetting these items was an increase in cmi flying , a reduction in aircraft rent and depreciation and an increase in aircraft utilization . charter segment charter direct contribution increased $ 410.3 million primarily due to an increase in commercial cargo yields , net of fuel , and demand for our services reflecting a reduction of available capacity in the market , the disruption of global supply chains due to the covid-19 pandemic and our ability to increase aircraft utilization . charter direct contribution also benefited from a reduction in aircraft rent and depreciation , the redeployment of 747-400 aircraft from acmi and the operation of a 777-200 freighter aircraft that was previously in our dry leasing business .
| results of operations the following discussion should be read in conjunction with our financial statements and other financial information appearing and referred to elsewhere in this report . for a discussion of our results of operations for the year ended december 31 , 2019 as compared to the year ended december 31 , 2018 , see item 7 of our annual report on form 10-k for the fiscal year ended december 31 , 2019 , filed with the securities and exchange commission on february 24 , 2020. years ended december 31 , 2020 and 2019 operating statistics the following tables compare our segment operating fleet ( average aircraft equivalents during the period ) and total block hours operated : replace_table_token_5_th * acmi average fleet excludes spare aircraft provided by cmi customers . * * out-of-service includes aircraft that are either temporarily parked or held for sale . block hours 2020 2019 inc/ ( dec ) % change total block hours * * * 344,821 321,140 23,681 7.4 % * * * includes acmi , charter and other block hours . 38 operating revenue the following table compares our operating revenue ( in thousands ) : replace_table_token_6_th acmi replace_table_token_7_th acmi revenue decreased $ 36.6 million , or 2.9 % , primarily due to decreased flying . the decrease in block hours flown was driven by the redeployment of 747-400 aircraft to charter to support long-term charter programs with customers seeking to secure committed cargo capacity , partially offset by an increase in cmi flying and aircraft utilization . in addition , block hours were negatively impacted from flight cancellations by certain of our acmi customers caused by the covid-19 pandemic . revenue per block hour was relatively unchanged . charter replace_table_token_8_th charter revenue increased $ 549.4 million , or 42.1 % , primarily due to increased flying and an increase in revenue per block hour .
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the restricted stock units vested on december 31 , 2009. the company amortized the fair value of these restricted stock units , totaling $ 67,500 , on a straight-line basis through december 31 , 2009. for the year ended june 30 , 2010 the company recognized $ 31,154 as stock-based compensation expense related to these restricted stock units . 46 palatin technologies , inc. and subsidiary notes to consolidated financial statements in connection with the vesting of restricted share units during the years ended june 30 , 2011 and 2010 , the company withheld 17,881 and 54,145 shares with aggregate values of $ 26,196 and $ 165,861 , respectively , in satisfaction of minimum tax withholding obligations . in july 2012 , the company granted 222,500 restricted stock units to its executive officers under the company 's 2011 stock plan . the company will amortize the fair value of these restricted stock units of $ 160,000 over the 24 months ending july 2014 . ( 10 ) income taxes the company has had no income tax expense or benefit since inception because of operating losses , except for amounts recognized for sales of new jersey state net operating loss carryforwards . deferred tax assets and liabilities are determined based on the estimated future tax effect of differences between the financial statement and tax reporting basis of assets and liabilities , as well as for net operating loss carryforwards and research and development credit carryforwards , given the provisions of existing tax laws . as of june 30 , 2012 , the company had federal and state net operating loss carryforwards of approximately $ 214,000,000 and $ 115,000,000 , respectively , which expire between 2012 and 2032 if not utilized . as of june 30 , 2012 , the company had federal research and development credits of approximately $ 6,400,000 that will begin to expire in 2012 , if not utilized . the tax reform act of 1986 ( the act ) provides for limitation on the use of net operating loss and research and development tax credit carryforwards following certain ownership changes ( as defined by the act ) that could limit the company 's ability to utilize these carryforwards . the company may have experienced various ownership changes , as defined by the act , as a result of past financings . accordingly , the company 's ability to utilize the aforementioned carryforwards may be limited . additionally , u.s. tax laws limit the time during which these carryforwards may be applied against future taxes ; therefore , the company may not be able to take full advantage of these carryforwards for federal income tax purposes . the company 's net deferred tax assets are as follows : replace_table_token_18_th in assessing the realizability of deferred tax assets , the company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized . the ultimate realization of deferred tax assets is dependent upon the generation of future taxable income and the application of loss limitation provisions related to ownership changes . due to the company 's history of losses , the deferred tax assets are fully offset by a valuation allowance as of june 30 , 2012 and 2011. the valuation allowance for the year ended june 30 , 2012 increased by $ 6,544,000 due primarily to the net loss for the fiscal year . during the years ended june 30 , 2012 , 2011 and 2010 , the company sold new jersey state net operating loss carryforwards , which resulted in the recognition of $ 1,068,233 , $ 637,391 , and $ 998,408 , respectively , in tax benefits . 47 palatin technologies , inc. and subsidiary notes to consolidated financial statements ( 11 ) consolidated quarterly financial data – unaudited the following tables provide quarterly data for the years ended june 30 , 2012 and 2011 : replace_table_token_19_th replace_table_token_20_th ( 12 ) subsequent event on july 3 , 2012 , the company closed on a private placement offering in which the company sold , for aggregate proceeds of $ 35,000,000 , 3,873,000 shares of its common stock , series a 2012 warrants to purchase up to 31,988,151 shares of common stock , and series b 2012 warrants to purchase up to 35,488,380 shares of common stock . the series a 2012 warrants are exercisable starting july 3 , 2012 at an exercise price of $ 0.01 per share , and expire ten years from the date of issuance . the series b 2012 warrants are exercisable at an exercise price of $ 0.01 per share if and when the company 's stockholders increase the number of its authorized shares of common stock , and expire ten years from the date of the authorized share increase . the holders may exercise the warrants on a cashless basis . the warrants are subject to a blocker provision prohibiting exercise of the warrants if the holder and its affiliates would beneficially own in excess of 9.99 % of the total number of shares of common stock of the company following such exercise ( as may be adjusted to the extent set forth in the warrant ) . the warrants also provide that in the event of a company controlled fundamental transaction ( as defined in the warrants ) , the company may , at the election of the warrant holder , be required to redeem all or a portion of the warrants at their fair value as defined in the warrants . story_separator_special_tag cumulative spending from inception to june 30 , 2011 on our bremelanotide , neutrospec ( a previously marketed imaging product on which all work is suspended ) and other programs ( which includes pl-3994 , other melanocortin receptor agonists , obesity and other discovery programs ) amounts to approximately $ 141.4 million , $ 55.6 million and $ 58.9 million , respectively . due to various risk factors described in this annual report , including the difficulty in currently estimating the costs and timing of future phase 1 clinical trials and larger-scale phase 2 and phase 3 clinical trials for any product under development , we can not predict with reasonable certainty when , if ever , a program will advance to the next stage of development or be successfully completed , or when , if ever , related net cash inflows will be generated . see item 1a - risk factors . 27 general and administrative – general and administrative expenses decreased to $ 4.8 million for fiscal 2011 compared to $ 4.9 million for fiscal 2010. the decrease is the result of reducing staffing levels pursuant to our strategic decision announced in september 2010 to focus resources and efforts on clinical trials of bremelanotide and pl-3994 and preclinical development of an inhaled formula of pl-3994 and a new peptide drug candidate for sexual dysfunction , offset by the granting of cash and equity bonuses to employees approved by our compensation committee in june 2011. income tax benefit – income tax benefits of $ 0.6 million in fiscal 2011 and $ 1.0 million in fiscal 2010 relate to the sale of new jersey state net operating loss carryforwards . the amount of such losses and tax credits that we are able to sell depends on annual pools and allocations established by the state of new jersey . liquidity and capital resources since inception , we have incurred net operating losses , primarily related to spending on our research and development programs . we have financed our net operating losses primarily through equity financings and amounts received under collaborative agreements . our product candidates are at various stages of development and will require significant further research , development and testing and some may never be successfully developed or commercialized . we may experience uncertainties , delays , difficulties and expenses commonly experienced by early stage biopharmaceutical companies , which may include unanticipated problems and additional costs relating to : · the development and testing of products in animals and humans ; · product approval or clearance ; · regulatory compliance ; · good manufacturing practices ; · intellectual property rights ; · product introduction ; · marketing , sales and competition ; and · obtaining sufficient capital . failure to enter into collaboration agreements and obtain timely regulatory approval for our product candidates and indications would impact our ability to increase revenues and could make it more difficult to attract investment capital for funding our operations . any of these possibilities could materially and adversely affect our operations and require us to curtail or cease certain programs . during fiscal 2012 , we used $ 15.5 million of cash for our operating activities , compared to $ 11.0 million used in fiscal 2011 and $ 5.7 million used in fiscal 2010. higher net cash outflows from operations in fiscal 2012 and 2011 resulted primarily from lower revenues and the increased costs relating to our on-going phase 2b clinical trial evaluating the efficacy and safety of bremelanotide for the treatment of fsd . net cash outflows from operations in fiscal 2010 were favorably impacted by the decrease in research and development expenses and the receipt of $ 5.0 million in additional payments from astrazeneca . our periodic accounts receivable balances will continue to be highly dependent on the timing of receipts from collaboration partners and the division of development responsibilities between us and our collaboration partners . during fiscal 2012 , cash provided by investing activities consisted mainly of $ 0.5 million from the sale of supplies and equipment . during fiscal 2011 , cash provided by investing activities was $ 3.4 million from the sale of available-for-sale investments . during fiscal 2010 , cash provided by investing activities consisted mainly of $ 45,000 from the sale of supplies and equipment . during fiscal 2012 , net cash used in financing activities was $ 35,000 , consisting entirely of payments on capital lease obligations . during fiscal 2011 , cash provided by financing activities was approximately $ 21.0 million , primarily from net proceeds pursuant to the completion of our firm commitment public offering that closed on march 1 , 2011 offset by payments on capital lease obligations of $ 23,000 and payment of withholding taxes related to restricted stock units of $ 26,000. the offering consisted of the sale of 23,000,000 units at a price to the public of $ 1.00 per unit . the units consisted of 23,000,000 shares of our common stock , series a 2011 warrants to purchase up to 2,000,000 shares of our common stock , and series b 2011 warrants to purchase up to 21,000,000 shares of our common stock . during fiscal 2010 , net cash provided by financing activities was $ 6.7 million , primarily reflecting the aggregate net proceeds of approximately $ 7.0 million from the sales in august 2009 , february 2010 and june 2010 of 948,485 units , 962,963 units and 1,000,000 units , respectively , in registered direct offerings . each unit from the august 2009 offering consisted of one share of common stock and a five-year warrant to purchase 0.35 shares of common stock .
| results of operations year ended june 30 , 2012 compared to the year ended june 30 , 2011 : revenue – for the fiscal year ended june 30 , 2012 ( fiscal 2012 ) , we recognized $ 0.1 million in revenue , compared to $ 1.5 million for the fiscal year ended june 30 , 2011 ( fiscal 2011 ) . revenue from astrazeneca for fiscal 2012 and fiscal 2011 consisted of $ 0.1 million and $ 0.5 million , respectively , of reimbursement of development costs and per-employee compensation , earned at the contractual rate . fiscal 2011 revenue also included $ 1.0 million of federal grants under the patient protection and affordable care act of 2010. research and development – research and development expenses increased to $ 13.8 million for fiscal 2012 compared to $ 10.4 million for fiscal 2011. this increase is primarily the result of costs relating to our on-going phase 2b clinical trial evaluating the efficacy and safety of bremelanotide for the treatment of fsd , which commenced in june 2011. research and development expenses related to our bremelanotide , pl-3994 , peptide melanocortin agonists , obesity , neutrospec and other preclinical programs were $ 9.9 million and $ 3.9 million in fiscal years 2012 and 2011 , respectively . spending to date has been primarily related to our phase 2b clinical trial evaluating the efficacy and safety of bremelanotide for the treatment of fsd . the amount of such spending and the nature of future development activities are dependent on a number of factors , including primarily the availability of funds to support future development activities , success of our clinical trials and preclinical and discovery programs , and our ability to progress compounds in addition to bremelanotide and pl-3994 into human clinical trials .
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the schedule of maturities at december 31 , 2019 and 2018 is as follows : replace_table_token_12_th for the year ended story_separator_special_tag operations the following discussion of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and notes thereto appearing elsewhere in this annual report on form 10-k. overview : ( $ in thousands , except retail sales data per square foot , earnings per share and per share data ) steven madden , ltd. and its subsidiaries design , source , market and sell fashion-forward branded and private label footwear for women , men and children . in addition , we design , source , market and sell branded fashion handbags , apparel and accessories , as well as private label fashion handbags and accessories . we market and sell our products through better department stores , major department stores , mid-tier department stores , specialty stores , luxury retailers , value priced retailers , national chains , mass merchants , and online retailers , throughout the united states , canada , mexico , italy and certain other european nations . in addition , our products are marketed through our retail stores and our e-commerce websites within the united states , canada and mexico , our joint ventures in europe , south africa , israel , taiwan and china , and under special distribution arrangements in european territories , the middle east , south and central america , oceania and various countries in asia . our product line includes a broad range of contemporary styles designed to establish or capitalize on market trends , complemented by core product offerings . we have established a reputation for design creativity and our ability to offer quality products in popular styles at accessible price points , delivered in an efficient manner and time frame . on september 11 , 2018 , our board of directors declared a three-for-two stock split of our outstanding shares of common stock , effected in the form of a stock dividend on our outstanding common stock . stockholders of record at the close of business on october 1 , 2018 received one additional share of steven madden , ltd. common stock for every two shares of common stock owned on that date . stockholders received cash in lieu of any fractional shares of common stock they otherwise would have received in connection with the dividend . the additional shares were distributed to our stockholders on october 11 , 2018. all share and per share data provided herein gives retroactive effect to this stock split . our business comprises five distinct segments ( wholesale footwear , wholesale accessories/apparel , retail , first cost and licensing ) . our wholesale footwear segment includes the following brands : steve madden women's® , madden girl® , steve madden men's® , madden® , madden nyc , report® , dolce vita® , dv by dolce vita® , mad love® , steven by steve madden® , superga® ( under license ) , anne klein® ( under license ) , betsey johnson® , betseyville® , steve madden kids® , stevies® , brian atwood® , greats® and blondo® , and includes our international business and certain private label footwear business . an agreement to license the kate spade® trademark was terminated as of december 31 , 2019. our wholesale accessories/apparel segment includes steve madden® , big buddha® , madden nyc , betsey johnson® , steven by steve madden® , madden girl® , luv betsey® , brian atwood® , dkny® ( under license ) , anne klein® ( under license ) , jocelyn , cejon® , bb dakota® and cupcakes & cashmere® ( under license ) brands and includes our international business and certain private label accessories business . steven madden retail , inc. , our wholly-owned retail subsidiary , that comprises of our retail segment , operates steve madden , steven , superga , greats and international retail stores , as well as steve madden , superga , betsey johnson , blondo , dolce vita , greats , bb dakota and jocelyn e-commerce websites . the first cost segment represents activities of a subsidiary that earns commissions for serving as a buying agent for footwear products under private labels for many of the country 's large mass-market merchandisers , shoe chains and other value priced retailers . our licensing segment is engaged in the licensing of steve madden® , steven by steve madden® and madden girl® trademarks for use in connection with the manufacture , marketing and sale of outerwear , hosiery , jewelry , watches , eyeglasses , hair accessories , fragrance , umbrellas , bedding and luggage . in addition , we license the betsey johnson® trademark for use in connection with the manufacture , marketing and sale of women 's and children 's apparel , hosiery , fragrance and beauty , sleepwear , swimwear , activewear , jewelry , headbands , watches , slippers , bedding and bath , luggage , umbrellas and medical scrubs . we also license the dolce vita® trademark for use in connection with the manufacture , marketing and sale of swimwear and freebird by steven® for operation of retail stores . acquisitions on august 9 , 2019 , we acquired 90 % of the outstanding common stock of greats brand , inc. , owner of greats , a pioneering digitally native sneaker brand , for an initial payment of $ 12,829 and a future contingent payment of $ 5,000 based on the greats brand achieving certain ebita targets . in connection therewith , we recorded a long-term liability of $ 4,354 as of the date of acquisition to reflect the estimated fair value of the contingent purchase price . the amount of future payments will be determined by greats ' future performance with no minimum future payment . after the effect of closing adjustments , the purchase price was $ 16,893 , net of cash acquired of approximately $ 290. the acquisition was funded by cash on hand and adds a new footwear brand with added growth potential to our company . story_separator_special_tag story_separator_special_tag share-based awards , a decrease in the state taxes incurred , a decrease in prepaid tax adjustments , and an increase in 2019 pre-tax income in jurisdictions with low tax rates . net income attributable to steven madden , ltd. for the year ended december 31 , 2019 increased to $ 141,311 compared to $ 129,136 for the year ended december 31 , 2018 . net income attributable to steven madden , ltd. for fiscal 2019 and 2018 included net after-tax charges of $ 21,449 and $ 28,574 , respectively . in 2019 , these net charges included a ( i ) $ 8,602 after-tax expense , net of recovery associated with the payless shoesource bankruptcy , ( ii ) $ 4,063 after-tax expense in connection with a provision for early lease termination charges and impairment of lease right-of-use asset , ( iii ) $ 3,033 after-tax impact of an impairment of the brian atwood trademark , ( iv ) $ 3,016 after-tax expense for a legal settlement and charges , ( v ) $ 2,590 tax expense in connection with deferred tax and other tax adjustments , ( vi ) $ 1,399 after-tax net benefit associated with the change in a contingent liability , partially offset by the acceleration of amortization related to the termination of the kate spade license agreement on december 31 , 2019 , ( vii ) $ 839 after-tax impact expense in connection with the acquisitions of greats and bb dakota brands , ( viii ) $ 501 after-tax expense associated with a divisional headquarters relocation , and ( ix ) $ 204 after-tax expense related to the termination of a joint venture . in 2018 , these charges included a ( i ) $ 11,481 after-tax expense , net of recovery associated with the payless shoesource bankruptcy , ( ii ) $ 11,137 after tax expense in connection with the tax cuts and jobs act transition tax and taxing authorities audit and prepaid tax adjustments related to prior years , ( iii ) $ 2,478 after-tax expense in connection with a provision for legal and early lease termination charges , ( iv ) $ 1,536 after-tax expense in connection with the integration of the schwartz & benjamin acquisition and the related restructuring , ( v ) $ 1,028 tax expense related to an impairment to the preferred interest investment in brian atwood italia holding , llc and ( vi ) $ 914 after-tax impact of expense related to a warehouse consolidation . excluding these net charges , net income attributable to steven madden , ltd. for the year 2019 and 2018 was $ 162,760 and $ 157,710 , respectively . wholesale footwear segment : revenue generated by the wholesale footwear segment was $ 1,112,091 , or 62.2 % , and $ 1,058,366 , or 63.1 % , of our total revenue for the years ended december 31 , 2019 and 2018 , respectively . the increase in net revenue is primarily driven by strong growth in our steve madden women 's , along with the full year of recognizing revenue for the anne klein brand and an increase in our private label business , partially offset by not recognizing sales to payless shoesource in the first half of 2019 compared to the first half of 2018. gross profit margin in 2019 was 33.6 % , while gross profit margin in 2018 was 32.7 % . the increase in gross profit margin of 90 basis points was primarily attributable to strong growth in steve madden women 's , along with not recognizing sales to the low-margin payless shoesource customer . operating expenses increased to $ 206,055 , or 18.5 % of revenue , in 2019 compared to $ 205,771 , or 19.4 % of revenue , in the same period of 2018 . in 2019 , operating expenses included a net benefit of $ 2,750 , comprising of a net benefit of $ 1,868 associated with the change of a contingent liability and the acceleration of amortization related to the termination of the kate spade license agreement on december 31 , 2019 and a recovery of $ 1,668 related to the payless shoesource bankruptcy , partially offset by divisional headquarters relocation expenses of $ 669 and a charge of $ 117 related to an early lease termination . also recorded in the wholesale footwear segment was a $ 4,050 impairment charge for the brian atwood trademark impacting operating income . in 2018 , operating expenses included charges of $ 8,518 , which consisted of $ 3,616 of bad debt expense related to the payless shoesource bankruptcy , $ 2,837 related to provisions for legal charges , and $ 2,065 related to schwartz & benjamin acquisition integration charges and related restructuring . excluding these items , operating expenses increased to $ 208,805 or 18.8 % of net sales , in 2019 compared to $ 197,253 or 18.6 % of net sales in the same period of 2018. the increase in 30 operating expenses primarily resulted from higher payroll and related expenses , warehouse and distribution expenses and other selling expenses associated with higher sales and the addition of the anne klein footwear business . income from operations increased to $ 163,482 for 2019 compared to $ 140,138 for 2018. income from operations , excluding the charges mentioned above , increased to $ 164,782 for the year ended december 31 , 2019 compared to $ 148,656 for the year ended december 31 , 2018 . wholesale accessories/apparel segment : revenue generated by the wholesale accessories/apparel segment accounted for $ 334,862 , or 18.7 % , and $ 300,091 , or 17.9 % , of total revenue for the years ended december 31 , 2019 and 2018 , respectively . the increase in revenue was primarily due to growth in our steve madden branded handbags , the full year of recognizing sales for the anne klein brand , as well as the addition of the bb dakota apparel business . gross profit margin in the wholesale accessories/apparel segment decreased to 29.3 % in 2019 from 30.6 % in the prior year period .
| executive summary total revenue for 2019 increased by 6.5 % to $ 1,787,157 from $ 1,677,734 in 2018 . total revenue growth was primarily driven by our wholesale accessories/apparel , footwear and retail segments , partially offset by a decline in revenue from our first cost and licensing segments . net sales in the wholesale footwear segment increased by $ 53,725 , or 5.1 % , when compared to the prior year . net sales in the wholesale accessories/apparel increased by $ 34,771 , or 11.6 % , when compared to the prior year . net sales in the retail segment increased by $ 26,030 , or 8.8 % , when compared to the prior year . first cost segment revenue decreased by $ 3,785 or 33.7 % , when compared to the prior year . licensing segment revenue decreased by $ 1,318 , or 10.2 % , when compared to the prior year . net income attributable to steven madden , ltd. increased 9.4 % to $ 141,311 in 2019 compared to $ 129,136 in 2018 . our effective tax rate for 2019 decreased to 21.8 % compared to 26.4 % recorded in 2018 . diluted earnings per share in 2019 increased to $ 1.69 per share on 83,646 diluted weighted average shares outstanding compared to $ 1.50 per share on 86,097 diluted weighted average shares outstanding in the prior year . 27 in our retail segment , same store sales ( sales attributable to those stores , including the e-commerce websites , that were in operation for at least twelve months ) increased 6.1 % , and sales per square foot decreased to approximately $ 580 in 2019 compared to sales per square foot of $ 612 in 2018 . as of december 31 , 2019 , we had 227 stores in operation , compared to 229 stores as of december 31 , 2018 .
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expected volatility incorporates implied share-price volatility derived from exchange traded options on the company 's common stock . the risk-free rate for the expected term of the option is based on the u.s. treasury implied yield at the time of grant . incentive stock plan the company has a plan that provides for grants of restricted stock awards for officers and other employees . the personnel and organization committee story_separator_special_tag executive overview and outlook colgate-palmolive company seeks to deliver strong , consistent business results and superior shareholder returns by providing consumers globally with products that make their lives healthier and more enjoyable . to this end , the company is tightly focused on two product segments : oral , personal and home care ; and pet nutrition . within these segments , the company follows a closely defined business strategy to develop and increase market leadership positions in key product categories . these product categories are prioritized based on their capacity to maximize the use of the organization 's core competencies and strong global equities and to deliver sustainable long-term growth . operationally , the company is organized along geographic lines with management teams having responsibility for the business and financial results in each region . the company competes in more than 200 countries and territories worldwide with established businesses in all regions contributing to the company 's sales and profitability . approximately 80 % of our net sales are generated from markets outside the u.s. , with approximately 50 % of our net sales coming from emerging markets ( which consist of latin america , greater asia/africa ( excluding japan ) and central europe ) . this geographic diversity and balance help to reduce the company 's exposure to business and other risks in any one country or part of the world . the oral , personal and home care segment is operated through four reportable operating segments : north america , latin america , europe/south pacific and greater asia/africa , all of which sell to a variety of retail and wholesale customers and distributors . the company , through hill 's pet nutrition , also competes on a worldwide basis in the pet nutrition market , selling its products principally through specialty pet retailers and the veterinary profession . on an ongoing basis , management focuses on a variety of key indicators to monitor business health and performance . these indicators include market share , sales ( including volume , pricing and foreign exchange components ) , organic sales growth ( net sales growth excluding the impact of foreign exchange , acquisitions and divestments ) , gross profit margin , operating profit , net income and earnings per share , as well as measures used to optimize the management of working capital , capital expenditures , cash flow and return on capital . the monitoring of these indicators , and the company 's corporate governance practices ( including the company 's code of conduct ) , help to maintain business health and strong internal controls . to achieve its business and financial objectives , the company focuses the organization on initiatives to drive and fund growth . the company seeks to capture significant opportunities for growth by identifying and meeting consumer needs within its core categories , through its focus on innovation and the deployment of valuable consumer and shopper insights in the development of successful new products regionally , which are then rolled out on a global basis . to enhance these efforts , the company has developed key initiatives to build strong relationships with consumers , dental and veterinary professionals and retail customers . growth opportunities are greater in those areas of the world in which economic development and rising consumer incomes expand the size and number of markets for the company 's products . the investments needed to support this growth are developed through continuous , company-wide initiatives to lower costs and increase effective asset utilization through which the company seeks to become even more effective and efficient throughout its businesses , which are referred to as the company 's funding-the-growth initiatives . the company also continues to prioritize its investments toward its higher margin businesses , specifically oral care , personal care and pet nutrition . on june 20 , 2011 , the company , colgate-palmolive europe sàrl , unilever n.v. and unilever plc ( together with unilever n.v. , “ unilever ” ) finalized the company 's acquisition from unilever of the sanex personal care business in accordance with a business and share sale and purchase agreement for an aggregate purchase price of 676 ( $ 966 ) , subject to certain post-closing purchase price adjustments . the acquisition was financed with available cash , proceeds from the sale of the company 's euro-denominated investment portfolio and the issuance of commercial paper . on july 29 , 2011 , in connection with the sanex acquisition , colgate sold its laundry detergent business in colombia to unilever for $ 215 resulting in a pretax gain of $ 207 ( $ 135 aftertax gain ) . this gain was more than offset by pretax costs of $ 224 ( $ 177 aftertax costs ) associated with the implementation of various business realignment and other cost-saving initiatives , the sale of land in mexico and a competition law matter in france related to a divested detergent business , as discussed further below . the various business realignment and other cost-saving initiatives include the integration of sanex , the right-sizing of the colombia business and the closing of an oral care facility in mississauga , canada and a hill 's facility in los angeles , ca . 13 ( dollars in millions except per share amounts ) on september 13 , 2011 , the company 's mexican subsidiary entered into an agreement to sell to the united states of america the mexico city site on which its commercial operations , technology center and soap production facility are located . story_separator_special_tag net income attributable to colgate-palmolive company net income attributable to colgate-palmolive company was $ 2,431 , or $ 4.94 per share on a diluted basis , in 2011 compared with $ 2,203 , or $ 4.31 per share on a diluted basis , in 2010 and $ 2,291 , or $ 4.37 per share on a diluted basis , in 2009. in 2011 , net income attributable to colgate-palmolive company included an aftertax gain on the sale of the laundry detergent business in colombia of $ 135 ( $ 0.27 per diluted share ) , which was more than offset by aftertax costs of $ 177 ( $ 0.36 per diluted share ) associated with the implementation of various business realignment and other cost-saving initiatives , the sale of land in mexico and a competition law matter in france related to a divested detergent business . 16 ( dollars in millions except per share amounts ) in 2010 , net income attributable to colgate-palmolive company included a one-time charge of $ 271 ( $ 0.53 per diluted share ) related to the transition to hyperinflationary accounting in venezuela , $ 61 ( $ 0.12 per diluted share ) in aftertax charges for termination benefits , a $ 30 ( $ 0.06 per diluted share ) aftertax gain from the sale of non-core product lines in latin america and a $ 31 ( $ 0.06 per diluted share ) aftertax gain related to the reorganization of an overseas subsidiary . excluding the items described above , net income attributable to colgate-palmolive company in 2011 was $ 2,473 as compared to $ 2,474 in 2010 and earnings per common share on a diluted basis increased 4 % to $ 5.03 . excluding the items described above , net income attributable to colgate-palmolive company in 2010 increased 8 % to $ 2,474 and earnings per share on a diluted basis increased 11 % to $ 4.84 . segment results the company markets its products in over 200 countries and territories throughout the world in two distinct business segments : oral , personal and home care ; and pet nutrition . the company evaluates segment performance based on several factors , including operating profit . the company uses operating profit as a measure of the operating segment performance because it excludes the impact of corporate-driven decisions related to interest expense and income taxes . north america replace_table_token_5_th net sales in north america decreased 0.5 % in 2011 to $ 2,995 , as volume growth of 2.0 % and a positive foreign exchange impact of 0.5 % were more than offset by net selling price decreases of 3.0 % . organic sales in north america decreased 1.0 % in 2011. net sales in north america increased 2.0 % in 2010 to $ 3,005 as a result of 3.5 % volume growth and a 1.0 % positive impact of foreign exchange , partially offset by 2.5 % net selling price decreases . organic sales in north america grew 1.0 % in 2010. operating profit in north america decreased 11 % in 2011 to $ 791 , or 26.4 % of net sales . this decrease in operating profit as a percentage of net sales was driven by a decrease in gross profit as a percentage of net sales and by an increase in selling , general and administrative expenses as a percentage of net sales . the decrease in gross profit as a percentage of net sales was a result of lower pricing due to increased promotional investments and higher raw and packaging material costs reflecting global commodity cost increases , which were partially offset by cost savings from the company 's funding-the-growth initiatives . selling , general and administrative expenses as a percentage of net sales increased due to higher overhead expenses , which were partially offset by lower advertising expenses as a percentage of net sales . operating profit in north america increased 5 % in 2010 to $ 884 , or 29.4 % of net sales . the increase in operating profit as a percentage of net sales was driven by a decrease in selling , general and administrative expenses as a percentage of net sales due to lower overhead expenses and advertising expenses as a percentage of net sales . gross profit as a percentage of net sales was flat as higher raw and packaging material costs and increased promotional investments were fully offset by cost savings from the company 's funding-the-growth initiatives . latin america replace_table_token_6_th net sales in latin america increased 12.0 % in 2011 to $ 4,778 , driven by volume growth of 3.0 % , net selling price increases of 7.0 % and a positive foreign exchange impact of 2.0 % . organic sales in latin america increased 11.5 % . excluding the impact of the divested detergent business in colombia , volume increased 4.5 % in 2011. volume gains were led by mexico , brazil and argentina . 17 ( dollars in millions except per share amounts ) net sales in latin america decreased 1.5 % in 2010 to $ 4,261 , as 2.0 % volume growth and net selling price increases of 5.5 % were more than offset by a 9.0 % negative impact of foreign exchange . organic sales in latin america grew 7.5 % in 2010. while operating profit in latin america increased 9 % in 2011 to $ 1,414 , driven by strong sales growth , it decreased as a percentage of net sales to 29.6 % . this decrease in operating profit as a percentage of net sales was due to an increase in selling , general and administrative expenses as a percentage of net sales which was partially offset by an increase in gross profit as a percentage of net sales . the increase in gross profit as a percentage of net sales was driven by higher pricing and cost savings from the company 's funding-the-growth initiatives , partially offset by higher raw and packaging material costs reflecting global commodity cost increases .
| results of operations net sales worldwide net sales were $ 16,734 in 2011 , up 7.5 % from 2010 , driven by volume growth of 3.5 % , net selling price increases of 1.0 % and a positive foreign exchange impact of 3.0 % . excluding the impact of the divestment of the non-core laundry detergent business in colombia , volume increased 4.0 % . the sanex business contributed 1.0 % to worldwide net sales and volume growth in 2011. organic sales ( net sales excluding foreign exchange , acquisitions and divestments ) increased 4.0 % , on organic volume growth of 3.0 % in 2011. organic volume growth excludes the impact of acquisitions and divestments . 14 ( dollars in millions except per share amounts ) net sales in the oral , personal and home care segment were $ 14,562 in 2011 , up 8.0 % from 2010 , driven by volume growth of 4.0 % , net selling price increases of 1.0 % and a positive foreign exchange impact of 3.0 % . excluding the impact of the divestment of the non-core detergent business in colombia , volume increased 4.5 % . the sanex business contributed 1.0 % to sales and volume growth in 2011. organic sales in the oral , personal and home care segment increased 4.5 % on organic volume growth of 3.5 % in 2011. net sales for hill 's pet nutrition increased 4.5 % in 2011 to $ 2,172 driven by net selling price increases of 1.5 % , and a positive foreign exchange impact of 3.0 % , while volume remained flat . organic sales in hill 's pet nutrition increased 1.5 % in 2011. worldwide net sales were $ 15,564 in 2010 , up 1.5 % from 2009 as volume growth of 3.0 % and level selling prices were partially offset by a negative foreign exchange impact of 1.5 % .
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the company 's investment portfolio includes securities that are in an unrealized loss position as of december 31 story_separator_special_tag forward-looking statements : statements in this annual report on form 10-k that are based on other than historical data are forward-looking within the meaning of the private securities litigation reform act of 1995. forward-looking statements provide current expectations or forecasts of future events and include , among others : statements with respect to the beliefs , plans , objectives , goals , guidelines , expectations , anticipations , and future financial condition , results of operations and performance of the company and its subsidiary ( collectively “ we , ” “ our , ” or “ us ) , including the bank ; and statements preceded by , followed by or that include the words “ may , ” “ could , ” “ should , ” “ would , ” “ believe , ” “ anticipate , ” “ estimate , ” “ expect , ” “ intend , ” “ plan , ” “ projects , ” “ outlook ” or similar expressions . these forward-looking statements are not guarantees of future performance , nor should they be relied upon as representing the company 's or the bank management 's views as of any subsequent date . forward-looking statements involve significant risks and uncertainties ( both known and unknown ) and actual results may differ materially from those presented , either expressed or implied , including , but not limited to , those presented in this management 's discussion and analysis section . factors that might cause such differences include , but are not limited to : the ability of the company , the bank , and mvb mortgage to successfully execute business plans , manage risks , and achieve objectives ; changes in local , national and international political and economic conditions , including without limitation changes in the political and economic climate , continued recovery from the recent economic crisis , delay of recovery from that crisis , economic conditions and fiscal imbalances in the united states and other countries , potential or actual downgrades in rating of sovereign debt issued by the united states and other countries , and other major developments , including wars , natural disasters , military actions , and terrorist attacks ; changes in financial market conditions , either internationally , nationally or locally in areas in which the company , the bank , and mvb mortgage conduct operations , including without limitation , reduced rates of business formation and growth , commercial and residential real estate development and real estate prices ; fluctuations in markets for equity , fixed-income , commercial paper and other securities , including availability , market liquidity levels , and pricing ; changes in interest rates , the quality and composition of the loan and securities portfolios , demand for loan products , deposit flows and competition ; the ability of the company , the bank , and mvb mortgage to successfully conduct acquisitions and integrate acquired businesses ; potential difficulties in expanding the businesses of the company , the bank , and mvb mortgage in existing and new markets ; increases in the levels of losses , customer bankruptcies , bank failures , claims , and assessments ; changes in fiscal , monetary , regulatory , trade and tax policies and laws , including the recently enacted tax reform act , and regulatory assessments and fees , including policies of the u.s. department of treasury , the federal reserve , and the fdic ; the impact of executive compensation rules under the dodd-frank act and banking regulations which may impact the ability of the company and its subsidiaries , and other american financial institutions to retain and recruit executives and other personnel necessary for their businesses and competitiveness ; the impact of the dodd-frank act and of new international standards known as basel iii , and rules and regulations thereunder , many of which have not yet been promulgated , on our required regulatory capital and liquidity levels , governmental assessments on us , the scope of business activities in which we may engage , the manner in which the company , the bank , and mvb mortgage engage in such activities , the fees that the company 's subsidiaries may charge for certain products and services , and other matters affected by the dodd-frank act and these international standards ; continuing consolidation in the financial services industry ; new legal claims against the company , the bank , and mvb mortgage , including litigation , arbitration and proceedings brought by governmental or self-regulatory agencies , or changes in existing legal matters ; success in gaining regulatory approvals , when required , including for proposed mergers or acquisitions ; changes in consumer spending and savings habits ; increased competitive challenges and expanding product and pricing pressures among financial institutions ; inflation and deflation ; technological changes and the implementation of new technologies by the company and its subsidiaries ; 35 the ability of the company , the bank , and mvb mortgage to develop and maintain secure and reliable information technology systems ; legislation or regulatory changes which adversely affect the operations or business of the company , the bank , and mvb mortgage ; the ability of the company , the bank , and mvb mortgage to comply with applicable laws and regulations ; changes in accounting policies or procedures as may be required by the financial accounting standards board or regulatory agencies ; costs of deposit insurance and changes with respect to fdic insurance coverage levels ; and other risks and uncertainties detailed in part i , item 1a , risk factors , in this annual report on form 10-k. except to the extent required by law , the company specifically disclaims any obligation to update any factors or to publicly announce the result of revisions to any of the forward-looking statements included herein to reflect future events or developments . story_separator_special_tag for debt securities , management considers whether the present value of future cash flows expected to be collected are less than the security 's amortized cost basis ( the difference defined as the credit loss ) , the magnitude and duration of the decline , the reasons underlying the decline and the company 's intent to sell the security or whether it is more likely than not that the company would be required to sell the security before its anticipated recovery in market value , to determine whether the loss in value is other than temporary . once a decline in value is determined to be other than temporary , if the company does not intend to sell the security , and it is more-likely-than-not that it will not be required to sell the security , before recovery of the security 's amortized cost basis , the charge to earnings is limited to the amount of credit loss . any remaining difference between fair value and amortized cost ( the difference defined as the non-credit portion ) is recognized in other comprehensive income , net of applicable taxes . for equity securities where the fair value has been significantly below cost for one year , the company 's policy is to recognize an impairment loss unless sufficient evidence is available that the decline is not other than temporary and a recovery period can be predicted . a decline in value that is considered to be other-than-temporary is recorded as a loss within noninterest income in the consolidated statement of income . common stock of the federal home loan bank represents ownership in an institution which is wholly owned by other financial institutions . these equity securities are accounted for at cost and are classified as other assets . see note 2 , `` investment securities '' of the notes to the consolidated financial statements included in item 8 , financial statements and supplementary data , of this annual report on form 10-k for the company 's policy regarding the other than temporary impairment of investment securities . goodwill and other intangible assets as discussed in note 1 , `` summary of significant accounting policies '' of the notes to the consolidated financial statements included in item 8 , financial statements and supplementary data , of this annual report on form 10-k , the company must assess goodwill and other intangible assets each year for impairment . this assessment involves estimating the fair value of the company 's reporting units . if the fair value of the reporting unit is less than its carrying value including goodwill , the company would be required to take a charge against earnings to write down the assets to the lower value . deferred tax assets the company use an estimate of future earnings to support our position that the benefit of our deferred tax assets will be realized . if future income should prove non-existent or less than the amount of the deferred tax assets within the tax years to which they may be applied , the asset may not be realized and our net income will be reduced . management also evaluates deferred tax assets to determine if it is more likely than not that the deferred tax benefit will be utilized in future periods . if not , a valuation allowance is recorded . our deferred tax assets are described further in note 8 , `` income taxes '' of the notes to the consolidated financial statements included in item 8 , financial statements and supplementary data , of this annual report on form 10-k. 37 recent accounting pronouncements and developments in february 2018 , the financial accounting standards board ( `` fasb '' ) issued accounting standards update ( `` asu '' ) 2018-02 , income statement - reporting comprehensive income ( topic 220 ) : reclassification of certain tax effects from accumulated other comprehensive income . this update requires a reclassification from accumulated other comprehensive income ( `` aoci '' ) to retained earnings for stranded tax effects resulting from the newly enacted federal corporate income tax rate in the tax reform act , which was enacted on december 22 , 2017. the tax reform act included a reduction to the corporate income tax rate from 34 percent to 21 percent effective january 1 , 2018. the amount of the reclassification is the difference between the historical corporate income tax rate and the newly enacted 21 percent corporate income tax rate , which resulted in a decrease of $ 646 thousand . the amendments in the asu are effective for fiscal years beginning after december 15 , 2018 , including interim periods within those fiscal years . early adoption is permitted and the company plans to adopt in 2018. in march 2017 , the fasb issued asu 2017-08 , receivables–nonrefundable fees and other costs ( subtopic 310-20 ) : premium amortization on purchased callable debt securities . this asu amends guidance on the amortization period of premiums on certain purchased callable debt securities . specifically , the amendments shorten the amortization period of premiums on certain purchased callable debt securities to the earliest call date . the amendments affect all entities that hold investments in callable debt securities that have an amortized cost basis in excess of the amount that is repayable by the issuer at the earliest call date ( that is , at a premium ) . for public companies , this update will be effective for fiscal years effective for fiscal years beginning after december 15 , 2018 , including all interim periods within those fiscal years . the adoption of this guidance is not expected to be material to the consolidated financial statements , as it is our current policy to amortize premiums of investment securities to the earliest call date . in january 2017 , the fasb issued asu 2017-04 , i ntangibles–goodwill and other ( topic 350 ) : simplifying the test for goodwill impairment .
| summary financial results excluding discontinued operations , the company earned $ 7.6 million in 2017 compared to $ 9.0 million in 2016 , a decrease of $ 1.4 million . the 2017 earnings equated to a return on average assets of 0.52 % and a return on average equity of 5.23 % , compared to 2016 results of 0.63 % and 7.30 % , respectively . basic earnings per share were $ 0.69 in 2017 compared to $ 0.96 in 2016 . diluted earnings per share were $ 0.68 in 2017 compared to $ 0.92 in 2016 . excluding discontinued operations , the company earned $ 9.0 million in 2016 compared to $ 6.6 million in 2015 , an increase of $ 2.4 million . the 2016 earnings equated to a return on average assets of 0.63 % and a return on average equity of 7.30 % , compared to 2015 results of 0.54 % and 5.89 % , respectively . basic earnings per share were $ 0.96 in 2016 compared to $ 0.75 in 2015 . diluted earnings per share were $ 0.92 in 2016 compared to $ 0.74 in 2015 . 39 net interest income increased $ 1.3 million , noninterest income decreased $ 2.5 million , and noninterest expenses increased by $ 1.3 million during 2017 compared to 2016 . the company 's yield on earning assets in 2017 was 4.17 % compared to 4.05 % in 2016 . total loans increased by $ 53.1 million to $ 1.1 billion at december 31 , 2017 . net interest income increased $ 8.1 million , noninterest income increased $ 8.3 million and noninterest expenses increased by $ 11.4 million during 2016 compared to 2015 . the company 's yield on earning assets in 2016 was 4.05 % compared to 3.88 % in 2015 .
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as of december 31 , 2017 , the company 's future minimum payments under the operating leases story_separator_special_tag the following discussion is intended to provide a better understanding of our consolidated financial statements , including a brief discussion of our business and products , key factors that impacted our performance , and a summary of our operating results . this information should be read in conjunction with item 1a , “ risk factors ” and our consolidated financial statements and the notes thereto included in item 8 , “ financial statements and supplementary data ” of this annual report on form 10-k. historical results and percentage relationships among any amounts in the consolidated financial statements are not necessarily indicative of trends in operating results for future periods . overview at charles & colvard , we believe luxury can be both beautiful and conscientious . with innovative technology and sustainable practices , our goal is to lead a revolution in the jewelry industry – delivering a brilliant product at extraordinary value balanced with environmental and social responsibility . charles & colvard , ltd. , a north carolina corporation founded in 1995 , manufactures , markets and distributes charles & colvard created moissanite ® and finished jewelry featuring its proprietary moissanite gemstone for sale in the worldwide jewelry market . our unique differentiator : moissanite – the world 's most brilliant gem ® – is core to our ambition to create a movement around beautiful , environmentally and socially responsible fine jewelry . we are the original creator of lab-created moissanite , and we believe that we are leading the way in delivering the most pure form of this gemstone through technological advances in manufacturing , cutting , polishing and setting . our strategy is to build a globally revered brand of gemstones and jewelry that appeals to a wide consumer audience and leverage our advantage of being the original and leading worldwide source of created moissanite . we believe a direct relationship with consumers is important to this strategy , which entails delivering tailored educational content , engaging in dialogue with our audience , and positioning our brand to meet the discerning needs of today 's consumer . we sell loose moissanite jewels and finished jewelry through two business operating segments : our online channels segment , which comprises our charlesandcolvard.com website , e-commerce outlets , including marketplaces such as amazon and ebay , and drop-ship customers , such as overstock.com , and other pure-play , exclusively e-commerce customers , such as gemvara ; and our traditional segment , which consists of wholesale , retail , and television customers . we believe our expanding application of an omni-channel sales strategy across the jewelry trade and to the end consumer with branded finished jewelry featuring moissanite positions charles & colvard goods at the many touchpoints where consumers are when they are making their buying decisions – thereby creating greater exposure for our brand and increasing consumer demand . in february 2016 , we made the strategic decision to explore a potential divestiture of our direct-to-consumer home party business previously operated through our charles & colvard direct , llc ( dba lulu avenue® ) subsidiary . after careful analysis of our core competencies , go-to-market strategies , and intent to advance toward profitability , the management team and board of directors determined a divestiture of this distribution channel to be in our best interest and our shareholders ' best interest . on march 4 , 2016 , we and charles & colvard direct , llc entered into an asset purchase agreement with yanbal usa , inc. , or yanbal , under which yanbal purchased certain assets related to our direct-to-consumer home party business for $ 500,000 and assumed certain liabilities related to such assets . a more detailed description of this transaction is included in note 13 , “ discontinued operations , ” in the notes to the consolidated financial statements . we are now presenting the operating results of charles and colvard direct , llc as a discontinued operation . 2017 was a year of growth and optimization of our branding initiative . we progressed the business from our 2016 re-launch , and focused on driving consumer awareness while making calculated marketing and sales investments as we engaged new channel partners and forged inroads into new markets . over the course of the year , we executed against our strategic plan to deliver the following outcomes : 26 · innovated the forever one tm product line – in 2017 , we invested resources into the continued expansion of the forever one tm offering . we announced the availability of exotic gemstones – a selection of grand loose gemstones that range from six carats to 15.5 carats dew . we also introduced new gemstones in coveted shapes including heart , marquis and trillion , bringing charles & colvard 's breadth of forever one tm to 14 cuts . in addition , we released forever one tm melee accent gemstones that are used to enhance jewelry products such as rings , earrings and pendants . with forever one tm representing 84 % of our total net revenue , we believe we have achieved critical mass in the establishment of this gemstone as the industry 's leading moissanite option . · expanded our finished jewelry line – we expanded our product line and introduced new jewelry options in fashion , fine , and bridal jewelry . this breadth is important as we expand our footprint beyond bridal and work toward building a relationship with our consumers that transcends a lifetime of commemorative moments . · invest in key retail and wholesale partnerships – we leveraged significant groundwork laid with existing partners whose brands and customers align with ours to amplify our reach into these established markets . a key accomplishment for 2017 was our expanded footprint with helzberg diamonds stores . story_separator_special_tag we had no such abandonment of property and equipment in 2017. these decreases were offset partially by an increase in sales and marketing expenses of $ 439,000 , or 6 % , to $ 7.48 million , primarily as a result of increased compensation-related expenses , an increase in professional services expenses , and an increase in software-related expenses offset partially by a decrease in advertising expenses . we recorded a net loss of $ 453,000 , or $ 0.02 per diluted share , for the year ended december 31 , 2017 , compared to a net loss of $ 4.53 million in the previous year . the decreased net loss was due primarily to an increase in forever one tm gemstone sales with a more favorable profit margin as we implement our new sales and marketing strategies and a gain on an insurance claim settlement related to excess recovery over costs previously written off associated with insured losses incurred in connection with a shipment of work-in-process materials . these improvements were partially offset by the increased sales and marketing expenses . we recorded a net loss from continuing operations of $ 453,000 for the year ended december 31 , 2017 , compared to a net loss from continuing operations of $ 3.95 million in the previous year . the execution of our strategy to grow our company , with the ultimate goal of increasing consumer awareness and clearly communicating the value proposition of moissanite , is challenging and not without risk . as such , there can be no assurance that future results for each reporting period will exceed past results in sales , operating cash flow , and or net income due to the challenging business environment in which we operate and our investment in various initiatives to support our growth strategies . in addition , sales in the retail jewelry industry are typically seasonal due to increased consumer purchasing patterns during the year-end holiday season . we can also see the effect of seasonality due to the timing of orders we receive to support new or expanded distribution and the level of current inventory positions held by our customers . accordingly , we expect to continue seeing these types of seasonal trends impact future reporting period financial results . however , as we execute our growth strategy and messaging initiatives , we remain committed to our current priorities of generating positive cash flow and strengthening our financial position while both monetizing our existing inventory and manufacturing our created moissanite loose jewels and finished jewelry featuring moissanite to meet sales demand . we believe the results of these efforts will propel our revenue growth and profitability and further enhance shareholder value in coming years , but we fully recognize the business and economic challenges that we face . 28 critical accounting policies and estimates our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements , which we prepared in accordance with accounting principles generally accepted in the united states , or u.s. gaap . the preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues , and expenses and related disclosures of contingent assets and liabilities . “ critical accounting policies and estimates ” are defined as those most important to the financial statement presentation and that require the most difficult , subjective , or complex judgments . we base our estimates on historical experience and on various other factors that we believe to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . under different assumptions and or conditions , actual results of operations may materially differ . the most significant estimates impacting our consolidated financial statements relate to valuation and classification of inventories , accounts receivable reserves , deferred tax assets , uncertain tax positions , and revenue recognition . we also have other policies that we consider key accounting policies , but these policies typically do not require us to make estimates or judgments that are difficult or subjective . valuation and classification of inventories - inventories are stated at the lower of cost or net realizable value on an average cost basis . inventory costs include direct material and labor , inbound freight , purchasing and receiving costs , inspection costs , and warehousing costs . any inventory on hand at the measurement date in excess of our current requirements based on historical and anticipated levels of sales is classified as long-term on our consolidated balance sheets . our classification of our inventory as either short- or long-term inventory requires us to estimate the portion of on-hand inventory that can be realized over the next 12 months and does not include precious metal , labor , and other inventory purchases expected to be both purchased and realized in cost of goods sold over the next 12 months . our work-in-process inventories include raw sic crystals on which processing costs , such as labor and sawing , have been incurred and components , such as metal castings and finished good moissanite jewels , that have been issued to jobs in the manufacture of finished jewelry . our moissanite jewel manufacturing process involves the production of intermediary shapes , called “ preforms , ” that vary depending upon the size and shape of the finished jewel . to maximize manufacturing efficiencies , preforms may be made in advance of current finished inventory needs but remain in work-in-process inventories . as of december 31 , 2017 and december 31 , 2016 , work-in-process inventories issued to active production jobs approximated $ 2.99 million and $ 7.18 million , respectively . the need for adjustments to inventory reserves is evaluated on a period-by-period basis . accounts receivable reserves - estimates are used to determine the amount of two reserves against trade accounts receivable .
| results of operations the following table sets forth certain consolidated statements of operations data for the years ended december 31 , 2017 and 2016. replace_table_token_3_th consolidated net sales consolidated net sales for the years ended december 31 , 2017 and 2016 comprise the following : replace_table_token_4_th 32 consolidated net sales were $ 27.03 million for the year ended december 31 , 2017 compared to $ 29.17 million for the year ended december 31 , 2016 , a decrease of $ 2.14 million , or 7 % . the decrease in consolidated net sales for the year ended december 31 , 2017 was due primarily to the legacy inventory sale during the first quarter of the prior year . however , this decrease in 2017 was partially offset by increased demand for our forever one tm gemstones during 2017 over the prior year . in addition , we experienced higher finished jewelry net sales during 2017 in both our online channels segment and traditional segment . sales of loose jewels represented 61 % and 74 % of total consolidated net sales for the years ended december 31 , 2017 and 2016 , respectively . for the year ended december 31 , 2017 , loose jewel sales were $ 16.58 million compared to $ 21.45 million for the year ended december 31 , 2016 , a decrease of $ 4.87 million , or 23 % . while this decrease was primarily due to the legacy inventory sale during 2016 , our forever one tm gemstone sales during 2017 increased approximately 67 % as compared to 2016 as demand for this product increased . sales of finished jewelry represented 39 % and 26 % of total consolidated net sales for the years ended december 31 , 2017 and 2016 , respectively .
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forward-looking statements are not guarantees of future performance , and our actual results may differ significantly from the results discussed in the forward-looking statements . factors that might cause such differences include , but are not limited to , those discussed in the subsection entitled `` risk factors '' above . we assume no obligation to revise or update any forward-looking statements for any reason , except as required by law . overview we are a leading national provider of managed network services , specializing in business ethernet , data networking , converged , ip vpn , internet access , voice , including voip , and network security services to enterprise organizations , including public sector entities , and carriers throughout the u.s. , including their global locations . our revenue is derived from business communication services , including data , high-speed internet access , network and voice services . our customers include , among others , enterprise organizations in the financial services , technology and scientific , health care , distribution , manufacturing and professional services industries , public sector entities , system integrators and communications service providers , including ilecs , competitive local exchange carriers ( `` clecs '' ) , wireless communications companies and cable companies . through our subsidiaries , we serve 75 metropolitan markets with local fiber networks that are connected by our regional fiber facilities and national ip backbone . as of december 31 , 2012 , our fiber network spanned approximately 29,000 route miles ( including approximately 22,000 metropolitan route miles ) connecting to 17,948 buildings served directly by our local fiber facilities . in 2012 we added approximately 2,500 new buildings directly connected to our network , including 532 previously connected buildings that were identified during an alignment of key operating systems . our fiber networks also connect to over 400 key third party data centers across the country where customers deploy their own equipment or connect to cloud service providers . we continue to extend our fiber footprint within our existing markets by connecting our network into additional locations and to expand our data , voice and ip networking capabilities between our markets , supporting secure end-to-end business ethernet , ip vpn and converged solutions for customers . our objective is to be the leading national provider of high quality , business networking solutions leveraging our integrated network , operational capabilities , dedicated people , local presence , personalized customer experience and advanced support systems to meet the complex and evolving needs of our customers and increase stockholder value . the key elements of our business strategy include : focusing our service offerings on meeting our customers ' complex evolving needs , emphasizing business ethernet and ip vpn services ( which we refer to as strategic services ) , internet-based services and converged service offerings and developing our advanced service capabilities , which we refer to as the `` intelligent network '' . we launched the initial phase of the intelligent network , enhanced management , in june 2012 for ip vpn , converged and ethernet services , and the second phase , dynamic capacity , which allows customers to manage or schedule bandwidth , in august 2012 ; enabling enterprise cloud computing and other developing customer it and business strategies by leveraging our fiber network , data services portfolio , intelligent network capabilities and the numerous third party and customer data centers connected to our network ; delivering a differentiated customer care strategy by engaging all of our employees and continually incorporating customer feedback to provide the best possible customer service ; leveraging our local fiber assets and national ip backbone and integrating and managing other carriers ' facilities to enable our customers to connect to any of their locations with our network solutions , and using our local presence and local sales , sales engineering , customer support and operational resources , backed by a national organization , to provide personalized service and customized solutions for our customers ; enhancing our multi-channel sales strategy ; employing a disciplined capital allocation strategy to invest for growth in the near and long term to broaden our reach and capabilities and increase operational efficiencies ; and investing in our people to drive the execution of our strategies . our revenue is derived from business communications services , including data , high-speed internet access , voice and network services . although we analyze revenue by customer type , we present our financial results as one segment across the 35 u.s. because our business is centrally managed . the percentage of revenue by customer type for each of the past three years is as follows : replace_table_token_10_th revenue trends total revenue our revenue has grown for the past consecutive 33 quarters through december 31 , 2012 , including throughout the various economic cycles . we expect our future revenue growth to be driven in part by the increasingly web-based economy and developing it strategies such as cloud computing , collaboration , data center connectivity and disaster recovery , all of which require the reliable connectivity and network capacity that we provide . we also expect that our enhanced service capabilities will drive more demand for our existing ethernet and vpn product suite and enhance our future data services revenue growth . our national footprint and new and enhanced service capabilities enable us to serve customers with multi-point , multi-city locations . our year-over-year growth rate increased over each of the prior years ended december 31 , 2010 , 2011 and 2012 and was 5.1 % , 7.4 % and 7.6 % , respectively . these higher year-over-year growth rates were primarily due to higher demand , low revenue churn and an increase in certain taxes and fees that are reported on a gross versus net basis in revenue and expense . we also believe that our newer and enhanced services , our customer experience initiatives to increase customer loyalty and retention and improved economic conditions contributed to our growing revenue . story_separator_special_tag after higher churn beginning in late 2007 and continuing through 2009 , revenue churn improved in the year ended december 31 , 2010 to pre-recession levels of 1.0 % of monthly revenue and further improved to 0.9 % in each of the years ended december 31 , 2011 and 2012. we believe that the improvement in revenue churn is a result of improved economic conditions as well as our service portfolio , measures we put in place to increase revenue retention and our customer experience initiatives . as a component of revenue churn , revenue lost from customers fully disconnecting services was 0.2 % for each of the years ended december 31 , 2010 , 2011 and 2012 , respectively . we continue our initiatives to maintain revenue churn that is low relative to our industry , but do not expect contribution to our revenue growth rate from a lower revenue churn rate . if our revenue churn were to increase , our revenue growth would likely be negatively impacted . we can not predict the total impact on revenue from future customer disconnections or the timing of such disconnections or whether these favorable churn trends will continue . customer churn , defined as the average monthly customer turnover for the period compared to the average monthly customer count for the period , was 1.1 % , 1.0 % and 1.0 % for the years ended december 31 , 2010 , 2011 and 2012 , respectively . the majority of this churn came from our smaller customers , which we expect will continue . pricing we experience significant price competition across our service categories that impacts our revenue . we also believe that technology advancements over the years in the telecommunications industry have resulted in lower unit costs for some electronics and equipment that drives customer demand for higher bandwidth at the same or lower prices . in our industry , service agreements typically range from two to five years , with fixed pricing for the contract term . when contracts are renewed with no changes to the services , pricing is frequently reduced to current market levels as a renewal incentive . in addition , during the terms of agreements , customers often purchase additional services or increase or decrease the capacity of existing services , subject to applicable early termination charges , depending on their business needs . during periods of economic downturn , our customers ' needs may contract , resulting in fewer service additions . 37 expenses and modified ebitda trends pricing of special access services we purchase a substantial amount of special access services primarily from ilecs to expand the reach of our network and also provide special access services to our customers over our fiber facilities in competition with the ilecs . the ilecs have argued before the fcc that the high capacity telecommunications services that they sell , including special access services we buy from them , should no longer be subject to regulations governing price and quality of service . we have advocated that the fcc modify certain of its special access pricing flexibility rules to return these services to price-cap regulation to protect against unreasonable price increases for carriers such as us . the fcc is reviewing its regulation of special access pricing in a pending proceeding commenced in 2005 that has not yet resulted in proposed rules . in 2012 , the fcc suspended the operation of the pricing flexibility triggers , which means that ilecs can not expand the geographic scope of their capability to raise prices , pending further fcc review . we can not predict when the fcc will act on interstate special access pricing regulation or the impact of any such action . if the special access services we buy from the ilecs were to be further deregulated , ilecs would have a greater ability to increase the price and reduce the service quality of special access services they sell to us . as the prices we must pay for special access services increase , our margins are pressured . in addition , the fcc has granted ilec requests for forbearance from regulation of certain ethernet and oc-n high capacity services offered by the ilecs as special access , with the result that prices we would pay for those services are no longer regulated and can increase . we are advocating reversal of these forbearance requests . we also continue to pursue and implement commercial arrangements with the ilecs and cable companies for these services on acceptable terms and conditions . in an attempt to stabilize the prices we pay for these services , we entered into a wholesale service agreement with a large ilec for tariffed special access and other services for end-user access . however , since mid-2010 , costs for some special access services subject to this agreement and those we buy from other significant ilec suppliers of special access service have trended up . expiration of the current wholesale agreement , without a new agreement with similar terms to replace it , could result in additional increases to our special access costs , which could be material . bad debt expense trends due to the quality of our customer base , successful collection efforts , internal controls , bad debt recoveries , and our revenue recognition policies , including recognition of contract termination charges upon cash receipt , our bad debt expense was less than 1 % of our total revenue for the year ended december 31 , 2012 , comparable to the years ended december 31 , 2011 and 2010. we can not assure that we will be able to maintain bad debt expense at this low level . modified ebitda trends and growth initiatives we have had initiatives to expand our revenue growth , margins and cash flow that required both capital and operating investments .
| results of operations the following discussion provides analysis of our results of operations and should be read together with our audited consolidated financial statements , including the notes thereto , appearing elsewhere in this report : 2012 compared to 2011 revenue revenue by line of business was as follows : replace_table_token_11_th _ ( 1 ) we classify certain taxes and fees billed to customers and remitted to government authorities on a gross versus net basis in revenue and expense . the total amounts classified as revenue , primarily included in voice services , associated with such taxes and fees were approximately $ 79.8 million and $ 63.5 million for the years ended december 31 , 2012 and 2011 , respectively . this has no impact on modified ebitda or net income but is dilutive to modified ebitda margin . 42 the primary driver of total revenue growth was increased data and internet services revenue from installed services to enterprise customers . the increase in data and internet services revenue primarily resulted from installed sales of strategic ethernet and vpn-based services and other services to enterprise customers , somewhat offset by revenue churn and re-pricing of renewed customer contracts at lower rates . strategic services represented 53 % of data and internet services revenue for the year ended december 31 , 2012 compared to 50 % for the year ended december 31 , 2011 , resulting in 22 % year over year growth . more than half of the increase in voice services revenue resulted from an increase in both the volume and rate of certain taxes and fees remitted to government authorities that we classify on a gross versus net basis in revenue and expense , with the balance from installed sales of converged and other voice services , partially offset by revenue churn .
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diluted earnings per share increased $ 0.27 to $ 1.17 or 30 % from 2011 to 2012. the increase in net income was primarily attributable to a one-time income tax benefit of $ 6.2 million related to 2011 and prior years for state income tax repairs and maintenance deductions that we recognized in 2012 , an unrealized pre-tax gain of $ 2.5 million on our benefit plan insurance investments , a one-time benefit of 2011 deferred wram operating revenues of $ 12.9 million and associated costs of $ 10.5 million that we recognized in 2012 , a decrease in the current year income tax provision due to the repairs and maintenance deductions , and lower financing costs for short-term borrowings , which was partially offset by a $ 3.9 million reduction to operating revenues due to the cost of capital adjustment mechanism and cost increases for employee wages and benefits , water production costs , and depreciation on plant placed into service during 2011. net income was $ 37.7 million in 2011 and 2010. diluted earnings per common share were $ 0.90 in 2011 and 2010. the weighted average number of common shares outstanding used in the diluted earnings per share calculation was 41,772,000 in 2011 and 41,638,000 in 2010. net income was the same in 2011 and 2010 because rate increases from the 2009 grc and corresponding approved rates were offset by increases to operating expenses , long-term debt interest expense , and a reduction in net other income . the 2009 grc and corresponding approved rates , and grcs filed in hawaii will increase 2013 authorized operating revenues . the cost of capital adjustment mechanism ( ccam ) required a reduction to 2013 authorized operating revenues of $ 3.8 million due to a decrease in the moody aa utility bond index as of september 30 , 2012 compared to september 30 , 2011. the ccam 2013 adjustment will reduce the authorized rate of return . the 2012 grc will not increase authorized operating revenues until 2014 . ( see discussion in regulatory matters section of this annual report ) . we plan to continue to seek rate relief to recover our operating cost increases and receive reasonable returns on invested capital . we expect to fund our long-term capital needs through a combination of debt , common stock offerings , and cash flow from operations . critical accounting policies and estimates we maintain our accounting records in accordance with accounting principles generally accepted in the united states of america and as directed by the commissions to which our operations are subject . the process of preparing financial statements requires the use of estimates on the part of management . the estimates used by management are based on historic experience and an understanding of current facts and circumstances . a summary of our significant accounting policies is listed in note 2 of the notes to consolidated financial statements . the following sections describe those policies where the level of subjectivity , judgment , and variability of estimates could have a material impact on the financial condition , operating performance , and cash flows of the business . revenue recognition revenue generally includes monthly cycle customer billings for regulated water and wastewater services at rates authorized by regulatory commissions ( plus an estimate for water used between the customer 's last meter reading and the end of the accounting period ) and billings to certain non-regulated customers at rates authorized by contract with government agencies . the company 's regulated water and waste water revenue requirements are authorized by the commissions in the states in which we operate . the revenue requirements are intended to provide the company a reasonable opportunity to recover its cost of service and earn a return on investments . 43 for metered customers , cal water recognizes revenue from rates which are designed and authorized by the cpuc . under the water revenue adjustment mechanism ( wram ) , cal water records the adopted level of volumetric revenues , which would include recovery of cost of service and a return on investments as established by the cpuc for metered accounts ( adopted volumetric revenues ) . in addition to volumetric-based revenues , the revenue requirements approved by the cpuc include service charges , flat rate charges , and other items not subject to the wram . the adopted volumetric revenue considers the seasonality of consumption of water based upon historical averages . the variance between adopted volumetric revenues and actual billed volumetric revenues for metered accounts is recorded as a component of revenue with an offsetting entry to a regulatory asset or liability balancing account ( tracked individually for each cal water district ) subject to certain criteria under the accounting for regulated operations being met . the variance amount may be positive or negative and represents amounts that will be billed or refunded to customers in the future . cost-recovery rates are designed to permit full recovery of certain costs allowed to be recovered by the commissions . cost-recovery rates such as the modified cost balancing account ( mcba ) provides for recovery of adopted expense levels for purchased water , purchased power and pump taxes , as established by the cpuc . in addition , cost-recovery rates include recovery of cost related to water conservation programs and certain other operation expenses adopted by the cpuc . variances ( which include the effects of changes in both rate and volume for the mcba ) between adopted and actual costs are recorded as a component of revenue , as the amount of such variances will be recovered from or refunded to our customers at a later date . there is no profit associated with cost-recovery expenses which are generally recognized when the expenses are incurred . the balances in the wram and mcba assets and liabilities accounts will fluctuate on a monthly basis depending upon the variance between adopted and actual results . story_separator_special_tag the regulatory commissions have granted us rate increases to reflect the normalization of the tax benefits of the federal accelerated methods and available investment tax credits ( itcs ) for all assets placed in service after 1980. itcs are deferred and amortized over the lives of the related properties for book purposes . during 2012 , the company filed an application for a change in accounting method ( section 481 adjustment ) with the internal revenue service ( irs ) to implement the new repairs and maintenance deduction . the new deduction is for qualified tangible property placed into service during 2012 and prior years . the new tax regulations allow the company to deduct a significant amount of costs previously capitalized for book and tax purposes . the company completed its analysis of the federal repairs maintenance deduction related to 2011 and prior years in the third quarter of 2012. the company 's federal repairs and maintenance deductions for qualified tangible property placed into service during 2011 and prior years was $ 86.7 million and created a $ 30.4 million deferred tax liability for the temporary timing difference between book and tax treatments as of september 30 , 2012. the 2011 and prior years federal repairs and maintenance deduction eliminated the company 's 2010 and 2011 previously filed federal qualified u.s. production activities deductions ( qpad ) and was recorded as a $ 0.8 million federal income tax expense in the quarter ended september 30 , 2012. the company 's state repairs deduction for qualified tangible property deductions placed into service during 2011 and prior years was $ 122.2 million and was recorded as a $ 7.0 million reduction to state income tax expense in the quarter ended september 30 , 2012. the 2012 federal and state income tax repairs and maintenance deduction was estimated at $ 14.0 million . the estimated deduction increased the company 's federal deferred tax liability $ 4.9 million and reduced state income tax expenses $ 0.8 million in the quarter ended december 31 , 2012. the 2012 federal income tax qpad deduction was eliminated by the repairs and maintenance deduction . the 2012 repairs and maintenance deductions resulted in a federal net operating loss ( nol ) of $ 26.0 million and a state nol of $ 55.7 million . the nol carry-forward amounts are more likely than not to be recovered and therefore require no valuation allowance . the nol carry-forward does not begin to expire until 2033. during 2010 , the company filed an application for a change in accounting method ( section 481 adjustment ) with the state of california to change its plant-in-service state tax depreciation method from the double- declining method to the straight line method at the respective assets mid-life . the company 's application was approved by the state of california during the first quarter of 2011. california uses the flow-through method of accounting for income tax depreciation . as a result , the company reduced its 2010 income tax obligation by $ 1.6 million , net of federal income taxes in the quarter ended march 31 , 2011 . 46 the tax relief , unemployment insurance reauthorization and job creation act of 2010 will provide the company with additional federal income tax deductions for assets placed in service after september 8 , 2010 and before december 31 , 2011. the federal income tax deduction was $ 6.6 million in 2010 , $ 12.6 million in 2011 , and is estimated at $ 1.6 million in 2012. the 2012 estimate will be finalized when we file the 2012 tax returns in the third quarter of 2013. the irs is presently auditing the company 's 2010 and 2011 federal income tax returns . it is uncertain when the irs will complete its audit . the company believes that the final resolution of the irs audit will not have a material adverse impact on its financial condition or results of operations . during 2012 , the california franchise tax board completed an audit of the company 's 2008 and 2009 state income tax returns without any adjustments . the company is not under audit by any other jurisdiction . pension benefits we incur costs associated with our pension and postretirement health care benefits plans . to measure the expense of these benefits , our management must estimate compensation increases , mortality rates , future health cost increases and discount rates used to value related liabilities and to determine appropriate funding . different estimates used by our management could result in significant variances in the cost recognized for pension benefit plans . the estimates used are based on historical experience , current facts , future expectations , and recommendations from independent advisors and actuaries . we use an investment advisor to provide advice in managing the plan 's investments . with the 2009 grc settlement , we anticipate any increases in funding for the pension benefits plans will be recovered in future rate filings , thereby mitigating the financial impact . we believe it is probable that future costs will be recovered in future rates and therefore have recorded a regulatory asset in accordance with generally accepted accounting principles . workers ' compensation and other claims we are self-insured for a portion of workers ' compensation and other claims . excess amounts are covered by insurance policies . for workers ' compensation , we work with an independent actuary firm to estimate the discounted liability associated with claims submitted and claims not yet submitted based on historical data . these estimates could vary significantly from actual claims paid , which could impact earnings and cash flows . for other claims , management estimates the cost incurred but not yet paid using historical information . actual costs could vary from these estimates . management believes actual costs incurred would be allowed in future rates , mitigating the financial impact . story_separator_special_tag rates increased 14 % on a cost-per-million-gallon basis in 2011. purchased water expense for 2011 was partially offset by lease water rights credits of $ 1.0 million .
| results of operations earnings net income was $ 48.8 and $ 37.7 million in 2012 and 2011 , respectively . diluted earnings per common share were $ 1.17 in 2012 and $ 0.90 in 2011. the weighted average number of common shares outstanding used in the diluted earnings per common share calculation was 41,892,000 in 2012 and 41,772,000 in 2011. net income increase $ 11.1 million in 2012 , or $ 0.27 per diluted common share , mostly due to a one-time income tax benefit of $ 6.2 million related to 2011 and prior years for state income tax repairs and maintenance deductions that we recognized in 2012 , an unrealized pre-tax gain of $ 2.5 million on our benefit plan insurance investments , a one-time benefit of 2011 deferred wram revenues of $ 12.9 million and associated costs of $ 10.5 million that we recognized in 2012 , a decrease in the current year income tax provision due to the repairs and maintenance deductions which included $ 1.0 million of prior years deductions which were recognized in 2012 , and lower financing costs for short-term borrowings , which was partially offset by a $ 3.9 million reduction to operating revenues due to the cost of capital adjustment mechanism and cost increases for employee wages and benefits , water production costs , and depreciation on plant placed into service during 2011 .
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spire 's provision for uncollectible accounts includes the amortization of previously deferred uncollectible expenses for laclede gas and alagasco , as approved by the mopsc and the apsc . finance receivables – alagasco finances third party contractor sales of merchandise including gas furnaces and appliances . at story_separator_special_tag ( dollars in millions , except per share amounts ) introduction this section analyzes the financial condition and results of operations of spire inc. ( spire or the company ) , laclede gas company ( laclede gas or the missouri utilities ) , and alabama gas corporation ( alagasco ) . laclede gas , alagasco , and energysouth , inc. ( energysouth ) are wholly owned subsidiaries of the company . laclede gas , alagasco and the subsidiaries of energysouth , are collectively referred to as the utilities . this section includes management 's view of factors that affect the respective businesses of the company , laclede gas , and alagasco , explanations of financial results including changes in earnings and costs from the prior periods , and the effects of such factors on the company 's , laclede gas ' and alagasco 's overall financial condition and liquidity . reference is made to “ item 1a . risk factors ” and “ forward-looking statements , ” which describe important factors that could cause actual results to differ from expectations and non-historical information contained herein . in addition , the following discussion should be read in conjunction with the audited financial statements and accompanying notes thereto of spire , laclede gas and alagasco included in “ item 8. financial statements and supplementary data. ” results of operations overview the company has two key business segments : gas utility and gas marketing . spire 's earnings are primarily derived from its gas utility segment , which reflects the regulated activities of the utilities . the gas utility segment consists of the regulated businesses of laclede gas , alagasco and the subsidiaries of energysouth . due to the seasonal nature of the utilities ' business , earnings of spire , laclede gas and alagasco are typically concentrated during the heating season of november through april each fiscal year . gas utility - laclede gas laclede gas is missouri 's largest natural gas distribution company and is regulated by the missouri public service commission ( mopsc ) . laclede gas serves st. louis and eastern missouri through laclede gas and serves kansas city and western missouri through missouri gas energy ( mge ) . laclede gas delivers natural gas to retail customers at rates and in accordance with tariffs authorized by the mopsc . the earnings of laclede gas are primarily generated by the sale of heating energy . the rate design for each service territory serves to lessen the impact of weather volatility on its customers during cold winters and stabilize laclede gas ' earnings . gas utility - alagasco on august 31 , 2014 , the company purchased from energen 100 % of the outstanding common stock of alagasco . alagasco is the largest natural gas distribution utility in the state of alabama . alagasco 's service territory is located in central and northern alabama . among the cities served by alagasco are birmingham , the center of the largest metropolitan area in alabama , and montgomery , the state capital . alagasco is regulated by the alabama public service commission ( apsc ) . alagasco purchases natural gas through interstate and intrastate suppliers and distributes the purchased gas through its distribution facilities for sale to residential , commercial , and industrial customers and other end-users of natural gas . alagasco also provides transportation services to large industrial and commercial customers located on its distribution system . these transportation customers , using alagasco as their agent or acting on their own , purchase gas directly from marketers or suppliers and arrange for delivery of the gas into the alagasco distribution system . alagasco charges a fee to transport such customer-owned gas through its distribution system to the customers ' facilities . gas marketing laclede energy resources , inc. ( ler ) is engaged in the marketing of natural gas and related activities on a non-regulated basis and is reported in the gas marketing segment . ler markets natural gas across the country with the core of its footprint located in and around the central us . it holds firm transportation and storage contracts in order to effectively manage its customer base , which consists of producers , pipelines , power generators , storage operators , municipalities , utility companies , and large commercial and industrial customers . 26 business evaluation factors based on the nature of the business of the company and its subsidiaries , as well as current economic conditions , management focuses on the following key variables in evaluating the financial condition and results of operations and managing the business . gas utility segment : the utilities ' ability to recover the costs of purchasing and distributing natural gas from their customers ; the impact of weather and other factors , such as customer conservation , on revenues and expenses ; changes in the regulatory environment at the federal , state , and local levels , as well as decisions by regulators , that impact the utilities ' ability to earn its authorized rate of return in all service territories they serve ; the utilities ' ability to access credit markets and maintain working capital sufficient to meet operating requirements ; the effect of natural gas price volatility on the business ; and the ability to integrate the operations of all acquisitions . gas marketing segment : the risks of competition ; fluctuations in natural gas prices ; new national infrastructure projects ; the ability to procure firm transportation and storage services at reasonable rates ; credit and or capital market access ; counterparty risks ; and the effect of natural gas price volatility on the business . further information regarding how management seeks to manage these key variables is discussed below . story_separator_special_tag although ler 's uncollectible amounts are closely monitored and have not been significant , increases in uncollectible amounts from customers are possible and could adversely affect gas marketing 's liquidity and results of operations . ler carefully monitors the creditworthiness of counterparties to its transactions . it performs in-house credit reviews of potential customers and may require credit assurances such as prepayments , letters of credit , or parental guarantees when appropriate . credit limits for customers are established and monitored . as a result of infrastructure optimization activities and an abundance of natural gas supply , ler can not be certain that all of its wholesale purchase and sale transactions will settle physically . as such , certain transactions entered into in fiscal years 2016 , 2015 , and 2014 are designated as trading activities for financial reporting purposes , due to their settlement characteristics . results of operations from trading activities are reported on a net basis in gas marketing operating revenues ( or expenses , if negative ) , which may cause volatility in the company 's operating revenues , but have no effect on operating income or net income . 28 in the course of its business , ler enters into commitments associated with the purchase or sale of natural gas . in accordance with generally accepted accounting principles ( gaap ) , some of its purchase and sale transactions are not recognized in earnings until the natural gas is physically delivered , while other energy-related transactions , including those designated as trading activities , are required to be accounted for as derivatives , with the changes in their fair value ( representing unrealized gains or losses ) recorded in earnings in periods prior to settlement . because related transactions of a purchase and sale strategy may be accounted for differently , there may be timing differences in the recognition of earnings under gaap and economic earnings realized upon settlement . the company reports both gaap and net economic earnings ( non-gaap ) , as discussed below . other in addition to the gas utility and gas marketing segments , the company 's business includes certain other non-utility and corporate activities and costs , including : unallocated corporate costs , including certain debt and associated interest costs , laclede pipeline company , a subsidiary of spire which operates a propane pipeline under federal energy regulatory commission ( ferc ) jurisdiction , spire stl pipeline , a subsidiary of spire planning construction of a 70-mile ferc-regulated pipeline to deliver natural gas into eastern missouri , and spire 's subsidiaries that are engaged in compression of natural gas and risk management , among other activities . all subsidiaries are wholly owned . earnings net income reported by spire , laclede gas and alagasco is determined in accordance with accounting principles generally accepted in the united states of america ( gaap ) . management also uses the non-gaap measures of net economic earnings , net economic earnings per share and operating margin when internally evaluating and reporting results of operations . these non-gaap operating metrics should not be considered as an alternative to , or more meaningful than , gaap measures such as net income . non-gaap measures - net economic earnings and net economic earnings per share net economic earnings and net economic earnings per share are non-gaap measures that exclude from net income the after-tax impacts of fair value accounting and timing adjustments associated with energy-related transactions as well as acquisition , divestiture , and restructuring activities . these fair value and timing adjustments are made in instances where the accounting treatment differs from the economic substance of the underlying transaction , including the following : net unrealized gains and losses on energy-related derivatives that are required by gaap fair value accounting associated with current changes in the fair value of financial and physical transactions prior to their completion and settlement . these unrealized gains and losses result primarily from two sources : 1 ) changes in the fair values of physical and or financial derivatives prior to the period of settlement ; and , 2 ) ineffective portions of accounting hedges , required to be recorded in earnings prior to settlement , due to differences in commodity price changes between the locations of the forecasted physical purchase or sale transactions and the locations of the underlying hedge instruments ; lower of cost or market adjustments to the carrying value of commodity inventories resulting when the market price of the commodity falls below its original cost , to the extent that those commodities are economically hedged ; and realized gains and losses resulting from the settlement of economic hedges prior to the sale of the physical commodity . these adjustments eliminate the impact of timing differences and the impact of current changes in the fair value of financial and physical transactions prior to their completion and settlement . unrealized gains or losses are recorded in each period until being replaced with the actual gains or losses realized when the associated physical transactions occur . while management uses these non-gaap measures to evaluate both the utilities and gas marketing , the net effect of adjustments on the utilities ' earnings is minimal . this is due to gains or losses on laclede gas ' natural gas derivative instruments being deferred pursuant to its pga clause , as authorized by the mopsc . management believes that excluding the earnings volatility caused by recognizing changes in fair value prior to settlement and other timing differences associated with related purchase and sale transactions provides a useful 29 representation of the economic effects of only the actual settled transactions and their effects on results of operations . in addition , management excludes the impact related to unique acquisition , divestiture , and restructuring activities when evaluating on-going performance , and therefore excludes these impacts from net economic earnings . net economic earnings per share also exclude the impacts of the may 2016 , june 2014 and may 2013 equity offerings to fund the acquisitions of energysouth , alagasco , and mge , respectively .
| summary operating results replace_table_token_18_th operating revenues during the twelve months ended september 30 , 2016 decreased $ 329.1 from the same period last year . revenues were impacted primarily by lower gas costs of $ 207.0 passed on to customers , $ 92.3 lower system volumes , $ 25.3 lower off system and capacity release sales , and lower gross receipts taxes of $ 17.1. these impacts were slightly offset by higher isrs charges of $ 13.8. operating margin for the twelve months ended september 30 , 2016 increased $ 1.8 from the same period last year . higher isrs charges of $ 13.8 were mostly offset by $ 11.7 lower system volumes in the current year . other operating expenses for the twelve months ended september 30 , 2016 decreased $ 5.7 versus the same period last year . excluding the benefit of last year 's gain on sale of property , the other operating expense decrease was $ 13.3. the decrease in other operating expenses was driven by lower bad debts ( reflecting the impact of warmer weather experienced during the heating season ) and lower employee-related costs . depreciation and amortization increased $ 6.0 , reflecting continued infrastructure investments . interest expense in the current year was $ 1.0 greater than prior year , the result of lower short-term borrowings being offset by higher effective interest rates . income taxes were $ 2.2 higher for the twelve months ended september 30 , 2016 versus the comparable prior year period due to higher pre-tax book income and a slightly higher effective tax rate . temperatures experienced in the missouri utilities ' service area during 2016 were 19.7 % warmer than the same period last year and 19.6 % warmer than normal . total system therms sold and transported were 1,479.3 million for fiscal year 2016 compared with 1,684.3 million for fiscal year 2015 .
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conjunction with our consolidated financial statements and notes thereto included in item 8 , “ financial statements and supplemental data. ” all dollar amounts presented in the tables that follow are in thousands unless otherwise indicated . overview of business we are an independent oil and gas company engaged in the exploration , development and production of oil , ngls and natural gas in various domestic onshore regions . we have a geographically diverse asset base with active operations in texas , the mid-continent and mississippi regions . our operations are concentrated in the eagle ford shale , the granite wash , haynesville shale , cotton valley and selma chalk plays . as discussed in the key developments that follow , we sold our legacy natural gas assets in west virginia , kentucky and virginia in july 2012. as of december 31 , 2012 , we had proved oil and natural gas reserves of approximately 113.5 mmboe . our current operations consist primarily of drilling unconventional horizontal development wells in shale formations . we are currently focused on development and expansion in the eagle ford shale in south texas . we also pursue select drilling opportunities in the horizontal granite wash play in the mid-continent region through participation in wells drilled by our joint venture partner . the following table sets forth certain summary operating and financial statistics for the periods presented : replace_table_token_14_th 1 as reduced by outstanding borrowings and letters of credit . 28 key developments currently , the following general business developments and corporate actions have an important impact on the financial reporting and disclosure of our results of operations , financial position and cash flows : ( i ) drilling results in the eagle ford shale and other plays , ( ii ) continuing to shift the focus of our production from natural gas to oil and ngls , ( iii ) entering into a new five-year revolving credit facility , or the revolver , ( iv ) completing an offering of common and preferred stock , ( v ) selling our legacy west virginia , kentucky and virginia natural gas assets and related restructuring and exit activities and ( vi ) hedging a portion of our oil and natural gas production through calendar year 2014 to the levels permitted by the revolver and our internal policies . we believe that these actions will provide sufficient liquidity in 2013 so that we will be able to fund our capital program . drilling results and future development plans during 2012 , we drilled a total of 32.7 net wells , including 29.5 net wells in the eagle ford shale and 3.2 net wells in the mid-continent . during 2012 , we drilled 35 gross ( 29.5 net ) operated wells in the eagle ford shale , all of which were successful . since december 2012 , we have completed two gross ( 1.9 net ) wells , bringing the total to 69 gross ( 56.2 net ) producing wells , with three gross ( 2.7 net ) wells being drilled . the initial 30-day average gross production rate for 59 of these wells with a 30-day production history was 651 boepd . our eagle ford shale production was approximately 6,377 net boepd during 2012 , with oil comprising approximately 84 percent , ngls approximately nine percent and natural gas approximately seven percent . we have allocated approximately 88 percent of our anticipated capital expenditures during 2013 to activities in the eagle ford shale . included in the totals for 2012 presented above for the eagle ford shale are four gross ( 2.9 net ) exploratory wells and nine gross ( 8.1 net ) development wells in lavaca county , texas drilled under a joint exploration agreement with an industry partner that we entered into in december 2011 to jointly explore a 13,500 acre area of mutual interest , or ami . under the terms of the agreement , we were required to commence drilling on six wells by september 1 , 2012 , as well as carry our partner for its working interest share of the costs of the first three wells , to earn our entire interest in the acreage . we fulfilled this requirement during the third quarter of 2012 and as a result , earned an approximately 60 percent interest in the acreage . in december 2012 , our 40 percent industry partner in the lavaca county eagle ford shale acreage elected to not participate in the last 17 initial unit wells to be drilled on this acreage . upon the drilling of each of the initial unit wells , our industry partner will have no participatory rights in any subsequent wells drilled in such unit . we are presently seeking a partner to acquire a 40 percent working interest in the acreage in which our industry partner has elected not to participate . our remaining eagle ford shale wells are located in gonzales county , texas . we are the operator of all of our gonzales county acreage with an average working interest of approximately 84 percent . in addition to the acreage earned in lavaca county , we acquired approximately 4,100 net acres in the eagle ford shale in gonzales and lavaca counties , texas in 2012 for approximately $ 10 million , increasing our net eagle ford shale acreage position to approximately 32,500 net acres . production focus since 2011 , we have allocated approximately 80 percent of our capital expenditures to explore and develop oil- and ngl-rich areas in the eagle ford shale . approximately 56 percent of our total production during the quarter ended december 31 , 2012 was attributable to oil and ngls , an increase of approximately 21 percent over the corresponding prior year period . for the quarter ended december 31 , 2012 , approximately 83 percent of our product revenues were attributable to oil and ngls , an increase of approximately 17 percent over the corresponding prior year period . story_separator_special_tag 36 loss on firm transportation commitment we have a contractual commitment for certain firm transportation capacity in the appalachian region that expires in 2022 and , as a result of the recently completed sale of our west virginia , kentucky and virginia assets , we no longer have production to satisfy this commitment . accordingly , we recorded a charge of $ 17.3 million during the third quarter of 2012 representing the liability for estimated discounted future net cash outflows over the remaining term of the contract . other during 2011 , we recorded a reserve of $ 0.2 million for litigation attributable to properties that were previously sold . this matter was ultimately settled in january 2012 for the reserved amount . in addition , we wrote down certain gas imbalance assets in 2011 that originated in prior years due to lower settlement rates . interest expense the following table summarizes the components of our interest expense for the periods presented : replace_table_token_30_th the issuance of our 7.25 % senior notes due 2019 , or the 2019 senior notes , and borrowings under the revolver , partially offset by the repurchase of approximately 98 % of our outstanding 4.50 % convertible senior subordinated notes due 2012 , or the convertible notes , with an effective interest rate of 8.5 % , resulted in an approximate $ 107 million higher weighted-average balance of debt outstanding during 2012 compared to 2011. accordingly , interest expense increased due to a higher average outstanding principal balance despite lower effective interest rates attributable to the 2019 senior notes and the revolver . capitalized interest was lower during 2012 due to lower carrying values on eligible capital projects . loss on extinguishment of debt when we entered into the revolver in september 2012 , we expensed issuance costs of $ 3.2 million attributable to our previous revolving credit facility . during 2011 , we expensed $ 1.2 million attributable to a change in the composition of the bank syndicate for our previous revolving credit facility . the repurchase in april 2011 of approximately 98 % of the outstanding convertible notes resulted in a loss on extinguishment of debt of $ 24.2 million . the loss was comprised of the excess of cash paid for the liability component over the carrying value , plus the write-off of a pro rata share of debt issuance costs and incremental fees paid in cash . derivatives the following table summarizes the components of our derivatives income for the periods presented : replace_table_token_31_th we received cash settlements of $ 29.7 million during 2012 and $ 27.4 million during 2011. the cash settlements in 2012 and 2011 included $ 1.2 million and $ 2.9 million attributable to the termination of our interest rate swap agreements during those periods . the increase in the unrealized gain on commodity derivatives was due primarily to oil and natural gas prices declining below our hedged prices . 37 other other income decreased during 2012 due primarily to lower interest income earned on average cash balances . income taxes the effective tax benefit rate during 2012 was 39.6 % compared to 39.9 % for 2011. due to the operating losses incurred , we recognized an income tax benefit during both periods . in addition , the effective tax rates for 2012 and 2011 included a deferred tax asset valuation allowance due primarily to the inability to recognize tax benefits for certain state net operating losses . 38 year ended december 31 , 2011 compared to the year ended december 31 , 2010 the following table sets forth a summary of certain operating and financial performance for the periods presented : replace_table_token_32_th 39 production the following tables set forth a summary of our total and daily production volumes by product and geographic region for the periods presented : replace_table_token_33_th replace_table_token_34_th replace_table_token_35_th replace_table_token_36_th the decline in production during 2011 compared to 2010 was due primarily to the lack of any significant natural gas drilling since mid-2010 and the subsequent natural production declines as well as the effect of selling our high-cost arkoma basin natural gas properties . the effect of the sale of the arkoma basin properties was approximately 2.0 bcfe ( 333 mboe ) . the natural gas production decline was substantially offset by an increase in oil and ngl production attributable to our drilling activity in the eagle ford shale . approximately 28 % of total production in 2011 was attributable to oil and ngls , an increase 40 over the previous year of approximately 59 % . during 2011 , our eagle ford shale production of 852 mbbls represented approximately 11 % of our total production . we had no production from this play in 2010. product revenues and prices the following tables set forth a summary of our revenues and prices per unit of volume by product and geographic region for the periods presented : replace_table_token_37_th replace_table_token_38_th replace_table_token_39_th replace_table_token_40_th as illustrated below , oil and ngl production volume coupled with improved oil and ngl pricing were the significant factors for increasing revenues . the increase was partially offset lower natural gas production volumes and prices . 41 the following table provides an analysis of the change in our revenues for 2011 as compared to 2010. replace_table_token_41_th effects of derivatives in 2011 and 2010 , we received $ 23.6 million and $ 33.5 million , respectively , in cash settlements of oil and gas derivatives . the following table reconciles crude oil and natural gas revenues to realized prices , as adjusted for derivative activities , for the periods presented : replace_table_token_42_th gain on sales of property and equipment in december 2011 , we sold approximately 2,700 net undeveloped acres in butler and armstrong counties in pennsylvania for proceeds of $ 8.1 million , net of transaction costs , and recognized a gain of $ 3.3 million .
| results of operations year ended december 31 , 2012 compared to the year ended december 31 , 2011 the following table sets forth a summary of certain operating and financial performance for the periods presented : replace_table_token_15_th 31 production the following tables set forth a summary of our total and daily production volumes by product and geographic region for the periods presented : replace_table_token_16_th replace_table_token_17_th replace_table_token_18_th replace_table_token_19_th the decline in total production during 2012 compared to 2011 was due primarily to natural production declines as well as the effect of the sale of appalachian and arkoma basin natural gas properties in july 2012 and august 2011 , respectively . the effect of the sale of the appalachian properties was approximately 4.4 bcfe ( 700 mboe ) and the arkoma basin properties was approximately 2.0 bcfe ( 333 mboe ) . the natural declines in production from our remaining natural gas properties were partially offset by an increase in oil , ngl and natural gas production attributable to our drilling activity in the eagle ford shale . approximately 48 % of total production in 2012 was attributable to oil and ngls , which represents an increase of approximately 43 % over the previous year . during 2012 , our eagle ford shale production of 2,334 mbbl represented approximately 36 % of our total production . we had approximately 852 mbbls of production from this play during 2011 . 32 product revenues and prices the following tables set forth a summary of our revenues and prices per unit of volume by product and geographic region for the periods presented : replace_table_token_20_th replace_table_token_21_th replace_table_token_22_th replace_table_token_23_th as illustrated below , higher oil production volume coupled with improved oil prices were the significant factors for increasing revenues . the increase was partially offset by lower natural gas and ngl production volumes and prices .
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we operate through 35 full-service branches and two lpo 's located primarily in the houston , dallas/fort worth , bryan/college station , san antonio-new braunfels , corpus christi and tyler metropolitan areas metropolitan areas . as of december 31 , 2019 , we had total assets of $ 2.38 billion , loans held for investment of $ 1.77 billion , total deposits of $ 1.93 billion and total stockholders ' equity of $ 345.7 million . as a bank holding company , we generate most of our revenues from interest income on loans , gains on sale of the guaranteed portion of sba loans , customer service and loan fees , brokerage fees derived from secondary mortgage originations and interest income from investments in securities . we incur interest expense on deposits and other borrowed funds and noninterest expenses , such as salaries and employee benefits and occupancy expenses . our goal is to maximize income generated from interest earning assets , while also minimizing interest expense associated with our funding base to widen net interest spread and drive net interest margin expansion . net interest margin is a ratio calculated as net interest income divided by average interest-earning assets . net interest income is the difference between interest income on interest-earning assets , such as loans and securities , and interest expense on interest-bearing liabilities , such as deposits and borrowings that are used to fund those assets . net interest spread is the difference between rates earned on interest-earning assets and rates paid on interest-bearing liabilities . changes in market interest rates and the interest rates we earn on interest-earning assets or pay on interest-bearing liabilities , as well as the volume and types of interest-earning assets , interest-bearing and noninterest-bearing liabilities and stockholders ' equity , are usually the largest drivers of periodic changes in net interest spread , net interest margin and net interest income . fluctuations in market interest rates are driven by many factors , including governmental monetary policies , inflation , deflation , macroeconomic developments , changes in unemployment , the money supply , political and international conditions and conditions in domestic and foreign financial markets . periodic changes in the volume and types of loans in our loan portfolio are affected by , among other factors , economic and competitive conditions in texas , as well as developments affecting the real estate , technology , financial services , insurance , transportation , manufacturing and energy sectors within our target markets and throughout texas . acquisition of beeville on april 2 , 2019 , the company completed its acquisition of first beeville financial corporation and its subsidiary , the first national bank of beeville . this transaction resulted in three additional branches and two lpo 's in the south texas region . the company issued 1,579,191 shares of its common stock as well as a net cash payment to beeville shareholders of $ 32.4 million . for more information about the acquisition , see “ note 3. business combinations ” located in item 8. financial statements and supplementary data . 52 acquisition of chandler on november 5 , 2019 , the company completed its acquisition of chandler bancorp inc. , and its subsidiary , citizens state bank . this transaction resulted in seven additional branches in the north texas region . the company issued 2,100,000 shares of its common stock as well as a net cash payment to citizens shareholders of $ 17.9 million . for more information about the acquisition , see “ note 3. business combinations ” located in item 8. financial statements and supplementary data . simmons branch acquisition on february 28 , 2020 , spirit completed its acquisition of certain assets and assumption of certain liabilities associated with five banking offices of simmons bank . the offices are located in austin , san antonio and tilden , texas . the company paid total consideration of $ 133.0 million in the simmons branch acquisition . results of operations our results of operations depend substantially on net interest income and noninterest income . other factors contributing to our results of operations include our level of noninterest expenses , such as salaries and employee benefits , occupancy and equipment and other miscellaneous operating expenses . net interest income net interest income represents interest income less interest expense . we generate interest income from interest , dividends and fees received on interest-earning assets , including loans and investment securities we own . we incur interest expense from interest paid on interest-bearing liabilities , including interest-bearing deposits and borrowings . to evaluate net interest income , we measure and monitor ( 1 ) yields on our loans and other interest-earning assets , ( 2 ) the costs of our deposits and other funding sources , ( 3 ) our net interest spread , ( 4 ) our net interest margin and ( 5 ) our provisions for loan losses . net interest spread is the difference between rates earned on interest-earning assets and rates paid on interest-bearing liabilities . net interest margin is calculated as the annualized net interest income divided by average interest-earning assets . because noninterest-bearing sources of funds , such as noninterest-bearing deposits and stockholders ' equity , also fund interest-earning assets , net interest margin includes the benefit of these noninterest-bearing sources . changes in market interest rates and the interest rates we earn on interest-earning assets or pay on interest-bearing liabilities , as well as the volume and types of interest-earning assets , interest-bearing and noninterest-bearing deposits and stockholders ' equity , are usually the largest drivers of periodic changes in net interest spread , net interest margin and net interest income . we measure net interest income before and after provision for loan losses required to maintain our allowance for loan and lease losses at acceptable levels . story_separator_special_tag 58 % for the year ended december 31 , 201 9 compared to 4 . 60 % for the year ended december 31 , 201 8 , representing a decr ease of 2 basis points . the average yield on interes t-earning assets increased by 2 basis points for the year ended december 31 , 201 9 compared to the year ended december 31 , 201 8 while the average rate paid on interest-bea ring liabilities increased by 8 basis points , resulting in a 6 basis point decrease in the interest rate spread . year ended december 31 , 2018 compared to year ended december 31 , 2017 net interest income was $ 47.0 million for the year ended december 31 , 2018 compared to $ 38.6 million for the year ended december 31 , 2017 , representing an increase of $ 8.4 million , or 21.9 % . the increase in net interest income was primarily due to an increase in interest income of $ 10.4 million partially offset by an increase in interest expense of $ 2.0 million . interest income on loans increased by $ 9.7 million for the year ended december 31 , 2018. the growth in average loans of $ 113.7 million , including loans held for sale , for the year ended december 31 , 2018 , was the primary driver of the increase in interest income on loans as well as an increase in the average rate on loans of 36 basis points over the same period . interest expense was $ 10.3 million for the year ended december 31 , 2018 compared to $ 8.3 million for the year ended december 31 , 2017 , representing an increase of $ 2.0 million , or 24.0 % . this increase was mainly due to an increase in interest expense on deposits . interest expense on deposits totaled $ 8.5 million for the year ended december 31 , 2018 compared to $ 6.6 million for the year ended december 31 , 2017 , representing an increase of $ 1.9 million , resulting primarily from an increase in the average rate of deposits of 15 basis points . the average cost of deposits for the year ended december 31 , 2018 was 0.95 % compared to the average cost of deposits of 0.80 % for the year ended december 31 , 2017. the increase in cost of deposits was primarily attributable to the increase in interest rates by the federal open market committee during 2018. for the year ended december 31 , 2018 , the average rate paid on time deposits was 1.56 % compared to 1.23 % for the year ended december 31 , 2017. interest expense on fhlb advances and other borrowings increased by $ 116 thousand for the year ended december 31 , 2018 compared to the year ended december 31 , 2017. the increase was primarily attributable to an increase in the average balance of fhlb advances and other borrowings of $ 7.6 million for the year ended december 31 , 2018 , partially offset by a decrease in the average rate paid on fhlb advances and other borrowings of 7 basis points . the decrease in the average rate on borrowings was primarily attributable to the payoff of our line of credit with a third party lender which had and interest rate of libor plus 4.00 % per annum . the net interest margin was 4.55 % for the year ended december 31 , 2018 compared to 4.09 % for the year ended december 31 , 2017 , representing an increase of 46 basis points . the tax equivalent net interest margin was 4.60 % for the year ended december 31 , 2018 compared to 4.19 % for the year ended december 31 , 2017 , representing an increase of 41 basis points . the average yield on interest-earning assets increased by 58 basis points for the year ended december 31 , 2018 compared to the year ended december 31 , 2017 while the average rate paid on interest-bearing liabilities increased by 19 basis points , resulting in a 39 basis point increase in the interest rate spread . the increase in both net interest margin and interest rate spread primarily resulted from the increased average loan balance of $ 113.7 million for the year ended december 31 , 2018 , combined with increased loan yields for the year ended december 31 , 2018 of 36 basis points . 57 provision for loan losses the provision for loan losses represents the amount determined by management to be necessary to maintain the allowance for loan and lease losses at a level capable of absorbing inherent losses in the loan portfolio . see the discussion under “ —critical accounting policies—allowance for loan and lease losses. ” our management and board of directors review the adequacy of the allowance for loan and lease losses on a quarterly basis . the allowance for loan and lease losses calculation is segregated by call report code and then further segregated into various segments that include classified loans , loans with specific allocations and pass rated loans . a pass rated loan is generally characterized by a very low to average risk of default and in which management perceives there is a minimal risk of loss . loans are rated using a nine-point risk grade scale by loan officers that are subject to validation by a third party loan review or our internal credit committee . risk ratings are categorized as pass , watch , special mention , substandard , doubtful and loss , with some general allocation of reserves based on these grades . impaired loans are reviewed specifically and separately under the fasb 's accounting standards codification ( “ asc ” ) 310 , “ receivables ” , to determine the appropriate reserve allocation .
| analysis of results of operations net income for the year ended december 31 , 2019 totaled $ 21.1 million , which generated diluted earnings per common share of $ 1.40 and adjusted diluted earnings per common share , which is a non-gaap financial measure that excludes gain on sale of securities and merger-related expenses , of $ 1.44 for the year ended december 31 , 2019. net income for the year ended december 31 , 2018 totaled $ 10.0 million , which generated diluted earnings per common share of $ 1.03 and adjusted diluted earnings per common share of $ 1.18 for the year ended december 31 , 2018. the increase in net income was driven by an increase in interest income of $ 37.9 million that was primarily attributable to acquired loan growth , partially offset by an increase in interest expense of $ 7.0 million , which was mainly the result of increased deposit balances from acquisitions . our results of operations for the year ended december 31 , 2019 produced a return on average assets of 1.14 % compared to a return on average assets of 0.89 % for the year ended december 31 , 2018. we had a return on average stockholders ' equity of 8.38 % compared to a return on average stockholders ' equity of 6.77 % for the year ended december 31 , 2018. net income for the year ended december 31 , 2018 totaled $ 10.0 million , which generated diluted earnings per common share of $ 1.03 for the year ended december 31 , 2018. net income for the year ended december 31 , 2017 totaled $ 4.8 million , which generated diluted earnings per common share of $ 0.63 for the year ended december 31 , 2017. the increase in net income was driven by an increase in interest income of $ 10.4 million that was primarily attributable to loan growth , partially offset by an increase in interest expense of $ 2.0 million , which was mainly the result
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this information is provided as a supplement to , and should be read in conjunction with , our consolidated financial statements and the accompanying notes thereto . 31 index to financial statements we have grown from a land drilling business centered in the u.s. lower 48 states , canada and alaska to an international business with operations on land and offshore in many of the major oil and gas markets in the world . our worldwide fleet of actively marketed rigs consists of 499 land drilling rigs , 755 rigs for land well-servicing and workover work in the united states and canada , offshore platform rigs , jackup units , barge rigs and a large component of trucks and fluid hauling vehicles . we have invested in oil and gas exploration , development and production activities in the united states , canada and colombia , but have announced our intention to dispose of a significant portion of our oil and gas portfolio in an expeditious and prudent manner . the majority of our business is conducted through our various contract drilling operating segments , which include our drilling , well-servicing and workover operations , on land and offshore . our hydraulic fracturing and downhole surveying services are included in our pressure pumping operating segment . our oil and gas exploration , development and production operations are included in our oil and gas operating segment , or in discontinued operations in some cases . our operating segments engaged in drilling technology and top drive manufacturing , directional drilling , rig instrumentation and software , and construction operations are aggregated in our other operating segments . our businesses depend , to a large degree , on the level of spending by oil and gas companies for exploration , development and production activities . therefore , a sustained increase or decrease in the price of natural gas or oil , which could have a material impact on exploration , development and production activities , could also materially affect our financial position , results of operations and cash flows . the magnitude of customer spending on new and existing wells is the primary driver of our business . our customers ' spending is determined principally by their internally generated cash flow and to a lesser extent by joint venture arrangements and funding from the capital markets . in our u.s. lower 48 land drilling , canadian drilling and pressure pumping business units , operations have traditionally been driven by natural gas prices but the majority of current activity is being driven by the price of oil and natural gas liquids from unconventional reservoirs ( shales ) . in our alaskan , international , u.s. offshore ( gulf of mexico ) , canadian well-servicing and u.s. land well-servicing business units , operations are driven by oil prices . the following table sets forth natural gas and oil price data per bloomberg for the last three years : replace_table_token_15_th beginning in the fourth quarter of 2008 , there was a significant reduction in the demand for natural gas and oil that was caused , at least in part , by the significant deterioration of the global economic environment including the extreme volatility in the capital and credit markets . weaker demand throughout 2009 and into the first half of 2010 resulted in sustained lower natural gas and oil prices , which led to a sharp decline in the demand for drilling and workover services . during the latter half of 2010 and throughout 2011 , commodity prices strengthened and demand for drilling activity improved . continued fluctuations in the demand for natural gas and oil , among other factors including supply , could contribute to continued price volatility which may continue to affect demand for our services and could materially affect our future financial results . operating revenues and earnings ( losses ) from unconsolidated affiliates for the year ended december 31 , 2011 totaled $ 6.1 billion , representing an increase of $ 1.9 billion , or 47 % as compared to the year ended december 31 , 2010. adjusted income derived from operating activities and net income ( loss ) from continuing operations for the year ended december 31 , 2011 totaled $ 927.0 million and $ 342.2 million ( $ 1.17 per diluted share ) , respectively , representing increases of 39 % and 34 % , respectively , compared to the year ended december 31 , 2010 . 32 index to financial statements operating revenues and earnings ( losses ) from unconsolidated affiliates for the year ended december 31 , 2010 totaled $ 4.2 billion , representing an increase of $ 661.0 million , or 19 % as compared to the year ended december 31 , 2009. adjusted income derived from operating activities and net income ( loss ) from continuing operations for the year ended december 31 , 2010 totaled $ 667.5 million and $ 255.9 million ( $ .88 per diluted share ) , respectively , representing increases of 52 % and 93 % , respectively , compared to the year ended december 31 , 2009. during 2011 , operating results improved as compared to 2010 primarily due to the incremental revenue and positive operating results from the addition of our pressure pumping operating segment beginning in september 2010 , increased drilling activity in oil- and liquids-rich shale plays in our drilling operations in both our u.s. lower 48 land and canada drilling business units and increased well-servicing activity in the u.s. and canada . however , our operating results and activity levels continued to be negatively impacted in our u.s. offshore operations in response to uncertainty in the regulatory environment in the gulf of mexico ; our alaskan operations due to key customers ' spending constraints ; and in saudi arabia due to downtime and reduced rates on several jackup rigs . story_separator_special_tag million for the years ended december 31 , 2011 , 2010 and 2009 , respectively . ( 4 ) includes operating results of the superior acquisition beginning september 10 , 2010 . ( 5 ) represents our oil and gas exploration , development and production operations . includes our proportionate share of full-cost ceiling test writedowns recorded by our unconsolidated u.s. oil and gas joint venture of $ ( 15.6 ) million and $ ( 189.3 ) million for the years ended december 31 , 2011 and 2009 , respectively . ( 6 ) includes earnings ( losses ) , net from unconsolidated affiliates , accounted for using the equity method , of $ 59.7 million , $ 18.7 million and $ ( 182.6 ) million for the years ended december 31 , 2011 , 2010 and 2009 , respectively . additional information is provided in note 24 supplemental information on oil and gas exploration and production activities in part ii , item 8 . financial statements and supplementary data . ( 7 ) includes our drilling technology and top drive manufacturing , directional drilling , rig instrumentation and software , and construction operations . ( 8 ) includes earnings ( losses ) , net from unconsolidated affiliates , accounted for using the equity method , of $ ( 1.9 ) million , $ 7.7 million and $ 17.5 million for the years ended december 31 , 2011 , 2010 and 2009 , respectively . ( 9 ) represents the elimination of inter-segment transactions . ( 10 ) adjusted income ( loss ) derived from operating activities is computed by subtracting direct costs , general and administrative expenses , depreciation and amortization , and depletion expense from operating revenues and then adding earnings ( losses ) from unconsolidated affiliates . these amounts should not be used as a substitute for those amounts reported in accordance with gaap . however , management evaluates the performance of our business units and the consolidated company based on several criteria , including adjusted income ( loss ) derived from operating activities , because it believes that these financial measures accurately reflect our ongoing profitability . a reconciliation of this non-gaap measure to income ( loss ) from continuing operations before income taxes , which is a gaap measure , is provided in the above table . ( 11 ) represents the elimination of inter-segment transactions and unallocated corporate expenses . ( 12 ) represents impairments and other charges recorded during the years ended december 31 , 2011 , 2010 and 2009 , respectively . ( 13 ) excludes well-servicing rigs , which are measured in rig hours . includes our equivalent percentage ownership of rigs owned by unconsolidated affiliates . rig years represent a measure of the number of equivalent rigs operating during a given period . for example , one rig operating 182.5 days during a 365-day period represents 0.5 rig years . ( 14 ) international rig years include our equivalent percentage ownership of rigs owned by unconsolidated affiliates , which totaled 2.1 years , 2.2 years and 2.5 years during the years ended december 31 , 2011 , 2010 and 2009 , respectively . ( 15 ) rig hours represents the number of hours that our well-servicing rig fleet operated during the year . ( 16 ) the percentage is so large that it is not meaningful . story_separator_special_tag href= '' https : //www.sec.gov/archives/edgar/data/0001163739/000119312512089662/ # index '' > index to financial statements international . the results of operations for this segment were as follows : replace_table_token_23_th operating revenues and earnings from unconsolidated affiliates increased from 2010 to 2011 as a result of increases in the utilization of our overall rig fleet albeit at lower margins . adjusted income derived from operating activities decreased from 2010 to 2011 primarily from the decreases in average dayrates and lower utilization of our jackup rigs in saudi arabia and other drilling activities in qatar and australia . the decrease in operating results from 2009 to 2010 resulted primarily from year-over-year decreases in average dayrates and lower utilization of rigs in saudi arabia , mexico , kazakhstan , and oman , driven by changes in our customers ' drilling programs and longer lead times for formalization of project requirements in our key markets . operating results were further negatively impacted by higher depreciation expense related to capital expansion projects completed in recent years . pressure pumping . the results of operations for this segment were as follows : replace_table_token_24_th operating results reflect our acquisition of superior for the year ended december 31 , 2011 and the period september 10 , 2010 through december 31 , 2010. see note 5 acquisitions in part ii , item 8 . financial statements and supplementary data . oil and gas . the results of operations for this segment reflect our proportionate share of earnings and losses from our unconsolidated u.s. oil and gas joint venture . the results were as follows : replace_table_token_25_th earnings ( losses ) from unconsolidated affiliates increased from 2010 to 2011 as a result of operating activities from our unconsolidated u.s. oil and gas joint venture . during 2011 , operating results included bargain purchase gains from multiple acquisitions of developed and undeveloped acreage . our proportionate share of the gains totaled $ 49.5 million . a full-cost ceiling writedown of $ 15.6 million , representing our proportionate share , partially offset the positive operating results . earnings ( losses ) from unconsolidated affiliates increased from 2009 to 2010 because our unconsolidated u.s. oil and gas joint venture recorded a full-cost ceiling test writedown during 2009 , of which our proportionate 39 index to financial statements share totaled $ 189.3 million . the writedown resulted from the application of the full-cost method of accounting for costs related to oil and natural gas properties .
| segment results of operations contract drilling our contract drilling operating segments contain one or more of the following operations : drilling , workover and well-servicing and pressure pumping , on land and offshore . 36 index to financial statements u.s. lower 48 land drilling . the results of operations for this segment were as follows : replace_table_token_18_th operating results increased from 2010 to 2011 primarily due to higher average dayrates and increases in drilling activity , driven by deployment of rigs into oil- and liquids-rich shale areas . the increase was partially offset by higher operating costs associated with increased drilling activity , as well as higher depreciation expense related to new rigs placed into service since january 2010. operating revenues increased from 2009 to 2010 primarily due to higher average dayrates and utilization . the increase was partially offset by the decrease in early contract termination revenue . operating revenues related to early contract termination during 2010 were $ 23.2 million as compared to $ 108.5 million in 2009. adjusted income derived from operating activities decreased from 2009 to 2010 due to an increase in operating costs associated with the increased drilling activity . operating results were negatively impacted by higher depreciation expense related to capital expansion projects completed in previous years . u.s. land well-servicing . the results of operations for this segment were as follows : replace_table_token_19_th operating results increased from 2010 to 2011 primarily due to increases in rig and truck utilization facilitated by capital invested to increase rig and truck fleets as well as frac tank counts . equipment utilization and price improvements experienced in 2011 were primarily driven by sustained higher oil prices . operating results increased from 2009 to 2010 primarily due to an increase in rig utilization driven by higher oil prices .
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these cash inflows were partially offset by the following cash outflows : an unfavorable change in accounts payable of $ 5.6 million due to payment timing , and an unfavorable change or increase of $ 90.1 million in inventory as the company held more inventory to support the higher backlog of orders in 2015. investing activities . in 2015 , 2014 and 2013 , cash used in investing activities was $ 380.1 million , $ 347.7 million and $ 258.7 million , respectively . the major components of the cash outflow in 2015 were planned additions to property , plant , and equipment of $ 49.4 million for continued investments in our facilities and manufacturing processes and $ 129.6 million in net cash paid for acquisitions . this compares to $ 47.7 million for property , plant , and equipment and $ 300.4 million in net cash paid for acquisitions in 2014 . refer to note 4 of the “ notes to condensed consolidated financial statements ” for additional information on acquisitions . financing activities . in 2015 , cash used for financing activities was $ 248.9 million , which included $ 787.4 million in proceeds from the revolving credit facility debt , $ 612.7 million of repayments of debt on the revolving credit facility , $ 27.0 million of dividend payments and $ 387.8 million of wabtec stock repurchases . in 2014 , cash provided by financing activities was $ 25.5 million , which included $ 563.4 million in proceeds from the revolving credit facility debt , $ 493.8 million of repayments of debt on the revolving credit facility , $ 19.2 million of dividend payments and $ 26.8 million of wabtec stock repurchases . the following table shows outstanding indebtedness at december 31 , 2015 and 2014 . replace_table_token_16_th cash balances at december 31 , 2015 and 2014 were $ 226.2 million and $ 425.8 million , respectively . 30 2013 refinancing credit agreement on december 19 , 2013 , the company amended its existing revolving credit facility with a consortium of commercial banks . this “ 2013 refinancing credit agreement ” provides the company with a $ 800.0 million , five - year revolving credit facility . the company incurred approximately $ 1.0 million of deferred financing cost related to the 2013 refinancing credit agreement . the facility expires on december 19 , 2018 . the 2013 refinancing credit agreement borrowings bear variable interest rates indexed as described below . at december 31 , 2015 , the company had available bank borrowing capacity , net of $ 21.9 million of letters of credit , of approximately $ 333.1 million , subject to certain financial covenant restrictions . under the 2013 refinancing credit agreement , the company may elect a base rate of interest for u.s. dollar denominated loans or , for certain currencies , an interest rate based on the london interbank offered rate ( “ libor ” ) of interest , or other rates appropriate for such currencies ( in any case , “ the alternate rate ” ) . the base rate adjusts on a daily basis and is the greater of the federal funds effective rate plus 0.5 % per annum , the pnc , n.a . prime rate or the daily libor rate plus 100 basis points , plus a margin that ranges from 0 basis points to 75 basis points . the alternate rate is based on the quoted rates specific to the applicable currency , plus a margin that ranges from 75 basis points to 175 basis points . both the base rate and alternate rate margins are dependent on the company 's consolidated total indebtedness to cash flow ratios . the initial base rate margin is 0 basis points and the alternate rate margin is 75 basis points . at december 31 , 2015 , the weighted average interest rate on the company 's variable rate debt was 1.10 % . on january 12 , 2012 , the company entered into a forward starting interest rate swap agreement with a notional value of $ 150.0 million . the effective date of the interest rate swap agreement is july 31 , 2013 , and the termination date is november 7 , 2016 . the impact of the interest rate swap agreement converts a portion of the company 's outstanding debt from a variable rate to a fixed-rate borrowing . during the term of the interest rate swap agreement the interest rate on the notional value will be fixed at 1.415 % plus the alternate rate margin . on june 5 , 2014 , the company entered into a forward starting interest rate swap agreement with a notional value of $ 150.0 million . the effective date of the interest rate swap agreement is november 7 , 2016 , and the termination date is december 19 , 2018 . the impact of the interest rate swap agreement converts a portion of the company 's outstanding debt from a variable rate to a fixed-rate borrowing . during the term of the interest rate swap agreement the interest rate on the notional value will be fixed at 2.56 % plus the alternate rate margin . as for these agreements , the company is exposed to credit risk in the event of nonperformance by the counterparties . however , since only the cash interest payments are exchanged , exposure is significantly less than the notional amount . the counterparties are large financial institutions with an excellent credit rating and history of performance . the company currently believes the risk of nonperformance is negligible . the 2013 refinancing credit agreement limits the company 's ability to declare or pay cash dividends and prohibits the company from declaring or making other distributions , subject to certain exceptions . the 2013 refinancing credit agreement contains various other covenants and restrictions including the following limitations : incurrence of additional indebtedness ; mergers , consolidations , sales of assets and story_separator_special_tag these cash inflows were partially offset by the following cash outflows : an unfavorable change in accounts payable of $ 5.6 million due to payment timing , and an unfavorable change or increase of $ 90.1 million in inventory as the company held more inventory to support the higher backlog of orders in 2015. investing activities . in 2015 , 2014 and 2013 , cash used in investing activities was $ 380.1 million , $ 347.7 million and $ 258.7 million , respectively . the major components of the cash outflow in 2015 were planned additions to property , plant , and equipment of $ 49.4 million for continued investments in our facilities and manufacturing processes and $ 129.6 million in net cash paid for acquisitions . this compares to $ 47.7 million for property , plant , and equipment and $ 300.4 million in net cash paid for acquisitions in 2014 . refer to note 4 of the “ notes to condensed consolidated financial statements ” for additional information on acquisitions . financing activities . in 2015 , cash used for financing activities was $ 248.9 million , which included $ 787.4 million in proceeds from the revolving credit facility debt , $ 612.7 million of repayments of debt on the revolving credit facility , $ 27.0 million of dividend payments and $ 387.8 million of wabtec stock repurchases . in 2014 , cash provided by financing activities was $ 25.5 million , which included $ 563.4 million in proceeds from the revolving credit facility debt , $ 493.8 million of repayments of debt on the revolving credit facility , $ 19.2 million of dividend payments and $ 26.8 million of wabtec stock repurchases . the following table shows outstanding indebtedness at december 31 , 2015 and 2014 . replace_table_token_16_th cash balances at december 31 , 2015 and 2014 were $ 226.2 million and $ 425.8 million , respectively . 30 2013 refinancing credit agreement on december 19 , 2013 , the company amended its existing revolving credit facility with a consortium of commercial banks . this “ 2013 refinancing credit agreement ” provides the company with a $ 800.0 million , five - year revolving credit facility . the company incurred approximately $ 1.0 million of deferred financing cost related to the 2013 refinancing credit agreement . the facility expires on december 19 , 2018 . the 2013 refinancing credit agreement borrowings bear variable interest rates indexed as described below . at december 31 , 2015 , the company had available bank borrowing capacity , net of $ 21.9 million of letters of credit , of approximately $ 333.1 million , subject to certain financial covenant restrictions . under the 2013 refinancing credit agreement , the company may elect a base rate of interest for u.s. dollar denominated loans or , for certain currencies , an interest rate based on the london interbank offered rate ( “ libor ” ) of interest , or other rates appropriate for such currencies ( in any case , “ the alternate rate ” ) . the base rate adjusts on a daily basis and is the greater of the federal funds effective rate plus 0.5 % per annum , the pnc , n.a . prime rate or the daily libor rate plus 100 basis points , plus a margin that ranges from 0 basis points to 75 basis points . the alternate rate is based on the quoted rates specific to the applicable currency , plus a margin that ranges from 75 basis points to 175 basis points . both the base rate and alternate rate margins are dependent on the company 's consolidated total indebtedness to cash flow ratios . the initial base rate margin is 0 basis points and the alternate rate margin is 75 basis points . at december 31 , 2015 , the weighted average interest rate on the company 's variable rate debt was 1.10 % . on january 12 , 2012 , the company entered into a forward starting interest rate swap agreement with a notional value of $ 150.0 million . the effective date of the interest rate swap agreement is july 31 , 2013 , and the termination date is november 7 , 2016 . the impact of the interest rate swap agreement converts a portion of the company 's outstanding debt from a variable rate to a fixed-rate borrowing . during the term of the interest rate swap agreement the interest rate on the notional value will be fixed at 1.415 % plus the alternate rate margin . on june 5 , 2014 , the company entered into a forward starting interest rate swap agreement with a notional value of $ 150.0 million . the effective date of the interest rate swap agreement is november 7 , 2016 , and the termination date is december 19 , 2018 . the impact of the interest rate swap agreement converts a portion of the company 's outstanding debt from a variable rate to a fixed-rate borrowing . during the term of the interest rate swap agreement the interest rate on the notional value will be fixed at 2.56 % plus the alternate rate margin . as for these agreements , the company is exposed to credit risk in the event of nonperformance by the counterparties . however , since only the cash interest payments are exchanged , exposure is significantly less than the notional amount . the counterparties are large financial institutions with an excellent credit rating and history of performance . the company currently believes the risk of nonperformance is negligible . the 2013 refinancing credit agreement limits the company 's ability to declare or pay cash dividends and prohibits the company from declaring or making other distributions , subject to certain exceptions . the 2013 refinancing credit agreement contains various other covenants and restrictions including the following limitations : incurrence of additional indebtedness ; mergers , consolidations , sales of assets and
| results of operations the following table shows our consolidated statements of operations for the years indicated . replace_table_token_4_th 2015 compared to 2014 the following table summarizes the results of operations for the period : replace_table_token_5_th the following table shows the major components of the change in sales in 2015 from 2014 : replace_table_token_6_th net sales increased by $ 263.5 million to $ 3,308.0 million in 2015 from $ 3,044.5 million in 2014 . the increase is primarily due to a $ 156.5 million increase for specialty products and electronics sales from higher demand for freight original equipment products and aftermarket electronic and ptc electronic products . acquisitions increased sales $ 262.8 million and unfavorable foreign exchange decreased sales $ 151.8 million . freight segment sales increased by $ 323.2 million , or 18.7 % , primarily due to a $ 145.7 million increase for specialty products and electronics sales from higher demand for freight original equipment rail products , ptc electronics , and aftermarket rail products and $ 80.4 million for remanufacturing , overhaul and build products due to higher demand for aftermarket locomotive builds . acquisitions increased sales by $ 145.5 million and unfavorable foreign exchange decreased sales by $ 49.6 million . 24 transit segment sales decreased by $ 59.7 million , or 4.5 % , due to a decrease of $ 102.3 million related to unfavorable foreign exchange , a $ 53.9 million decrease in remanufacturing , overhaul and build from lower demand for original transit locomotive because a multi-year project was substantially completed in 2014 , and a $ 23.1 million decrease for brake products from lower demand for braking products in europe and braking systems in north america . these decreases were partially offset by $ 117.3 million in sales from acquisitions .
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submitted in the u.s. in the second quarter of 2020. approved in europe in the third quarter of 2020 and in japan in the fourth quarter of 2020. covid-19 emergency use authorization the fda granted eua in combination with remdesivir in hospitalized covid-19 patients in the fourth quarter of 2020. alopecia areata phase iii the fda granted breakthrough therapy designation ( 3 ) . phase iii trials are ongoing . systemic lupus erythematosus phase iii trials are ongoing . oncology abemaciclib ( verzenio ® ) adjuvant breast cancer submitted announced in the second quarter of 2020 that a phase iii trial met the primary endpoint . submitted in the u.s. and europe in the fourth quarter of 2020. prostate cancer phase ii phase ii trials are ongoing . ( 1 ) in collaboration with boehringer ingelheim . ( 2 ) fast track designation is designated to expedite the development and review of new therapies to treat serious conditions and address unmet medical needs . ( 3 ) breakthrough therapy designation is designed to expedite the development and review of potential medicines that are intended to treat a serious condition where preliminary clinical evidence indicates that the treatment may demonstrate substantial improvement over available therapy on a clinically significant endpoint . 39 there are many difficulties and uncertainties inherent in pharmaceutical research and development and the introduction of new products , as well as a high rate of failure inherent in new drug discovery and development . to bring a drug from the discovery phase to market can take over a decade and often costs in excess of $ 2 billion . failure can occur at any point in the process , including in later stages after substantial investment . as a result , most funds invested in research programs will not generate financial returns . new product candidates that appear promising in development may fail to reach the market or may have only limited commercial success because of efficacy or safety concerns , inability to obtain or maintain necessary regulatory approvals or payer reimbursement or coverage , limited scope of approved uses , changes in the relevant treatment standards or the availability of new or better competitive products , difficulty or excessive costs to manufacture , or infringement of the patents or intellectual property rights of others . regulatory agencies continue to establish high hurdles for the efficacy and safety of new products . delays and uncertainties in drug approval processes can result in delays in product launches and lost market opportunity . in addition , it can be very difficult to predict revenue growth rates of new products . we manage research and development spending across our portfolio of potential new medicines . a delay in , or termination of , any one project will not necessarily cause a significant change in our total research and development spending . due to the risks and uncertainties involved in the research and development process , we can not reliably estimate the nature , timing , and costs of the efforts necessary to complete the development of our research and development projects , nor can we reliably estimate the future potential revenue that will be generated from any successful research and development project . each project represents only a portion of the overall pipeline , and none is individually material to our consolidated research and development expense . while we do accumulate certain research and development costs on a project level for internal reporting purposes , we must make significant cost estimations and allocations , some of which rely on data that are neither reproducible nor validated through accepted control mechanisms . therefore , we do not have sufficiently reliable data to report on total research and development costs by project , by preclinical versus clinical spend , or by therapeutic category . other matters patent matters we depend on patents or other forms of intellectual property protection for most of our revenue , cash flows , and earnings . our formulation patents for forteo ® expired in december 2018 , and our use patents expired in august 2019 in major european markets and the u.s. both the formulation patent and the use patent expired in august 2019 in japan . we expect further volume decline as a result of the anticipated entry of generic and biosimilar competition following the loss of patent exclusivity in these markets . in the aggregate , we expect that the decline in revenue will have a material adverse effect on our consolidated results of operations and cash flows . the alimta ® vitamin regimen patents , which we expect to provide us with patent protection for alimta through june 2021 in japan and major european countries , and through may 2022 in the u.s. , have been challenged in each of these jurisdictions . in the u.s. , most challenges have been finally resolved in our favor , and one remains in active litigation . we and eagle pharmaceuticals , inc. ( eagle ) reached an agreement in december 2019 to settle all pending litigation , allowing eagle a limited initial entry into the market with its product starting february 2022 ( up to an approximate three-week supply ) and subsequent unlimited entry starting april 2022. we expect that the entry of generic competition in the u.s. either from an unfavorable outcome to the patent challenge or following the loss of patent exclusivity , will cause a rapid and severe decline in revenue and have a material adverse effect on our consolidated results of operations and cash flows . 40 we are aware that several companies have received approval to market generic versions of pemetrexed in major european markets and that generic competitors may choose to attempt a launch at risk . story_separator_special_tag following a final decision in the supreme court of germany in july 2020 overturning the lower court and upholding the validity of our alimta patent , several generics that were on the market at risk in germany left . we have removed the remaining generics from the market in germany by obtaining preliminary injunctions in our favor . in september 2020 , the paris court of first instance in france issued a final decision upholding the validity of our alimta patent and found infringement by fresenius kabi france and fresenius kabi groupe france 's ( collectively , kabi ) pemetrexed product . the court issued an injunction against kabi and provisionally awarded us damages . in january 2021 , that same court issued a preliminary injunction against zentiva france s.a.s . ( zentiva ) , the last remaining company with a generic pemetrexed product on the french market , and provisionally awarded us damages . in october 2020 , the court of appeal of the netherlands overturned a lower court decision and ruled that our alimta patent is valid and infringed and reinstated an injunction against kabi , thereby removing kabi 's pemetrexed product from the netherlands market . kabi has appealed this decision to the netherlands supreme court . kabi 's generic pemetrexed product was the only at risk generic on the market in the netherlands . our vitamin regimen patents have also been challenged in other smaller european jurisdictions . we expect that further entry of generic competition for alimta in major european markets following either the loss of effective patent protection or of patent exclusivity will cause a rapid and severe decline in revenue . see note 16 to the consolidated financial statements for a more detailed account of the legal proceedings currently pending in the u.s. , europe , and japan regarding , among others , our alimta patents . the compound patent for humalog ® ( insulin lispro ) has expired in major markets . global regulators have different legal pathways to approve similar versions of insulin lispro . a competitor launched a similar version of insulin lispro in certain european markets in 2017 and in the u.s. in the second quarter of 2018. while it is difficult to estimate the severity of the impact of insulin lispro products entering the market , we do not expect and have not experienced a rapid and severe decline in revenue ; however , we expect additional pricing pressure and some loss of market share that would continue over time . our compound patent protection for cymbalta ® expired in japan in january 2020. we expect generics to enter the market in mid-2021 . we expect that the entry of generic competition will cause a rapid and severe decline in revenue and will have a material adverse effect on our consolidated results of operations and cash flows . foreign currency exchange rates as a global company with substantial operations outside the u.s. , we face foreign currency risk exposure from fluctuating currency exchange rates , primarily the u.s. dollar against the euro and japanese yen . while we seek to manage a portion of these exposures through hedging and other risk management techniques , significant fluctuations in currency rates can have a material impact , either positive or negative , on our revenue , cost of sales , and operating expenses . while there is uncertainty in the future movements in foreign exchange rates , fluctuations in these rates could negatively impact our future consolidated results of operations and cash flows . trends affecting pharmaceutical pricing , reimbursement , and access u.s. in the u.s. , public concern over access to and affordability of pharmaceuticals continues to drive the regulatory and legislative debate . these policy and political issues increase the risk that taxes , fees , rebates , or other cost control measures may be enacted to manage federal and state budgets . key health policy initiatives affecting biopharmaceuticals include : the coronavirus aid , relief , and economic security ( cares ) act and subsequent stimulus bills that focus on ensuring availability and access to lifesaving drugs during a public health crisis , foreign reference pricing in medicare and private insurance , modifications to medicare parts b and d , provisions that would allow the department of health and human services ( hhs ) to negotiate prices for biologics and drugs in medicare , a reduction in biologic data exclusivity , 41 proposals related to medicaid prescription drug coverage and manufacturer drug rebates , proposals that would require biopharmaceutical manufacturers to disclose proprietary drug pricing information , and state-level proposals related to prescription drug prices and reducing the cost of pharmaceuticals purchased by government health care programs . on july 24 , 2020 and september 13 , 2020 , former u.s. president donald trump signed executive orders related to the 340b prescription drug program , rebate reform in medicare part d , drug importation including insulin , and foreign reference pricing in medicare part b and part d. although their current status is unclear given the change in presidential administration , these executive orders , if implemented , could have a material adverse impact on our future consolidated results of operations , liquidity , and financial position . on september 1 , 2020 , lilly announced it would distribute all 340b ceiling priced products directly to covered entities and their child sites only . lilly provides 340b discounts to a contract pharmacy only if it is a wholly owned subsidiary of a covered entity , if a covered entity does not have an in-house pharmacy or , in the case of insulin , if the subject covered entity and its contract pharmacies agree to pass along the discount to patients without any markup for dispensing fees and without billing insurance or collecting duplicate discounts . lilly has been transparent with regulators on its distribution activity and continues to comply with all 340b program requirements . certain
| financial results the following table summarizes our key operating results : replace_table_token_3_th nm - not meaningful revenue increased in 2020 driven by increased volume , partially offset by lower realized prices . operating expenses , defined as the sum of research and development and marketing , selling , and administrative expenses , increased in 2020 , driven primarily by approximately $ 450 million of development expenses for covid-19 therapies . the decreases in net income and eps in 2020 were driven primarily by the approximately $ 3.7 billion gain recognized on the disposition of elanco in 2019 , partially offset by higher gross margin and higher other income in 2020. the following highlighted items affect comparisons of our 2020 and 2019 financial results : 2020 acquired in-process research and development ( ipr & d ) ( note 3 to the consolidated financial statements ) we recognized acquired ipr & d charges of $ 660.4 million resulting from the acquisitions of disarm therapeutics , inc. ( disarm ) and a pre-clinical stage company as well as collaborations with innovent biologics , inc. ( innovent ) , sitryx therapeutics limited ( sitryx ) , fochon pharmaceuticals , ltd. ( fochon ) , abcellera biologics inc. ( abcellera ) , evox therapeutics ltd ( evox ) , and shanghai junshi biosciences co. , ltd. ( junshi biosciences ) . asset impairment , restructuring , and other special charges ( note 5 to the consolidated financial statements ) we recognized charges of $ 131.2 million primarily related to severance costs incurred as a result of actions taken worldwide to reduce our cost structure , as well as acquisition and integration costs incurred as part of the acquisition of dermira , inc. ( dermira ) . other-net , ( income ) expense ( note 18 to the consolidated financial statements ) we recognized $ 1.44 billion of net investment gains on equity securities .
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( 1 ) based on a schedule 13d filed with the sec on july 7 , 2016 , consists of ( i ) 1,836,703 shares of common stock held by polaris venture partners v , l.p. , or pvp v , ( ii ) 19,990 shares of common stock underlying warrants exercisable within 60 days of february 15 , 2017 held by pvp v , ( iii ) 35,793 shares of common stock held by polaris venture partners entrepreneurs ' fund v , l.p. , or pvpe v , ( iv ) 389 shares of common stock underlying warrants exercisable within 60 days of february 15 story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with “ item 6. selected consolidated financial data ” and our consolidated financial statements and related notes appearing elsewhere in this annual report on form 10-k. this discussion and other parts of this annual report on form 10-k contain forward-looking statements that involve risks and uncertainties , such as statements regarding our plans , objectives , expectations , intentions and projections . our actual results could differ materially from those discussed in these forward-looking statements . factors that could cause or contribute to such differences include , but are not limited to , those discussed in item 1a “ risk factors. ” overview we are a clinical‑stage biopharmaceutical company using our proprietary synthetic vaccine particle , or svp , technology to discover and develop targeted therapies that are designed to modulate the immune system to effectively and safely treat rare and serious diseases . many such diseases are treated with biologic therapies that are foreign to the patient 's immune system and , therefore , elicit an undesired immune response . our proprietary svp technology encapsulates an immunomodulator in biodegradable nanoparticles to induce antigen‑specific immune tolerance to mitigate the formation of anti‑drug antibodies , or adas , in response to life‑sustaining biologic drugs . we believe our svp technology has the potential for broad applications to both enhance existing biologic drugs and enable novel therapies . our lead product candidate , sel‑212 , is a combination of a therapeutic enzyme and our svp technology designed to be the first biologic treatment for gout that durably controls uric acid in refractory gout and dissolves and removes harmful deposits of uric acid crystals in chronic tophaceous gout , each a painful and debilitating disease with unmet medical need . sel‑212 is currently in a comprehensive phase 1/2 clinical program . the phase 1/2 clinical program is comprised of two phase 1 clinical trials and a phase 2 clinical trial , which commenced in october 2016 , and is designed to evaluate the ability of sel‑212 to control uric acid levels and mitigate the formation of adas . the phase 1 clinical trials have been completed and we initiated the phase 2 clinical trial in the fourth quarter of 2016. we were incorporated in 2007 under the laws of the state of delaware and our corporate headquarters is in watertown , massachusetts . our operations to date have been limited to organizing and staffing our company , business planning , acquiring operating assets , raising capital , developing our technology , identifying potential nanoparticle immunomodulatory product candidates , research and development , undertaking preclinical studies and conducting clinical trials . to date , we have financed our operations primarily through our initial public offering , or ipo , of common stock in june 2016 , private placements of our preferred stock , common stock and debt securities , funding received from research grants and collaboration arrangements and our credit facility . we do not have any products approved for sale and have not generated any product sales . all of our revenue to date has been generated from research grants and contracts . 108 since inception , we have incurred significant operating losses . we incurred net losses of $ 36.2 million , $ 25.2 million and $ 12.9 million for the years ended december 31 , 2016 , 2015 and 2014 respectively . as of december 31 , 2016 , we had an accumulated deficit of $ 151.6 million . we expect to continue incurring significant expenses and operating losses for at least the next several years as we : - conduct and expand clinical trials for sel‑212 , our lead product candidate ; - continue the research and development of our other product candidates ; - seek regulatory approval for any product candidates that successfully complete clinical trials ; - potentially establish a sales , marketing and distribution infrastructure and scale‑up external manufacturing capabilities to commercialize any products for which we may obtain regulatory approval ; - maintain , expand and protect our intellectual property portfolio ; - hire additional staff , including clinical , scientific , operational and financial personnel , to execute our business plan ; and - add personnel and clinical , scientific , operational , financial and management information systems to support our product development and potential future commercialization efforts , and to enable us to operate as a public company . until such time , if ever , as we can generate substantial product revenues , we expect to finance our cash needs through a combination of equity offerings , debt financings , license and collaboration agreements with partners , and research grants . we may be unable to raise capital when needed or on reasonable terms , if at all , which would force us to delay , limit , reduce or terminate our product development or future commercialization efforts . we will need to generate significant revenues to achieve profitability , and we may never do so . the consolidated financial information presented below includes the accounts of selecta biosciences inc. and our wholly owned subsidiaries , selecta ( rus ) llc , a russian limited liability company , or selecta rus , and selecta biosciences security corporation , a massachusetts securities corporation . all intercompany accounts and transactions have been eliminated . story_separator_special_tag we expect that our general and administrative expenses will increase in future periods , reflecting an expanding infrastructure and increased professional fees associated with being a public reporting company and maintaining and expanding our intellectual property-related legal services . investment income investment income consists primarily of interest income earned on our cash and cash equivalents and short term investments . 110 interest expense interest expense consists of interest expense on amounts borrowed under our credit facility . other expense other expense for the years ended december 31 , 2016 , 2015 and 2014 was de minimis . foreign currency the functional currency of our russian subsidiary is the russian ruble . in addition to holding cash denominated in russian rubles , our russian bank accounts also hold cash balances denominated in u.s. dollars to facilitate payments to be settled in u.s. dollars or other currencies . at december 31 , 2016 and december 31 , 2015 , we maintained cash of $ 2.5 million and $ 3.8 million , respectively , in russian banks , of which $ 1.6 million and $ 3.0 million was denominated in u.s. dollars for the periods ended december 31 , 2016 and december 31 , 2015 , respectively . the amounts denominated in u.s. dollars and used in transacting the day to day operations are subject to transaction gains and losses , which are reported as incurred . income taxes as of december 31 , 2016 , we had net operating loss carryforwards , or nols , for federal and state income tax purposes of $ 102.1 million and $ 95.6 million , respectively , which expire at various times through 2036. in 2014 , our wholly owned subsidiary , selecta rus , was granted a “ skolkovo designated ” resident status in russia . as a result , the subsidiary operates as a corporate tax exempt entity , with lower employee and employment taxes . all foreign net operating loss carryforwards have been eliminated . the state nols began expiring in 2015 and will continue to expire through 2036. at december 31 , 2016 , we had available federal and state research and development income tax credits of approximately $ 2.1 million and $ 1.5 million respectively , which may be available to reduce future income taxes , if any , at various times through 2036. utilization of the nols and credits may be subject to a substantial annual limitation due to ownership change limitations provided by section 382 of the code . specifically , this limitation may arise in the event of a cumulative change in our ownership of more than 50 % within any three‑year period . the amount of the annual limitation is determined based on our value immediately before the ownership change . subsequent ownership changes may further affect the limitation in future years . the annual limitation may result in the expiration of our net operating losses and credits before we can use them . we have recorded a valuation allowance on all of our deferred tax assets , including our deferred tax assets related to our nols and research and development tax credit carryforwards . we plan to undertake a study to analyze and determine if any historical ownership changes have occurred to determine if there are any permanent limitations on our ability to utilize nols and other tax attributes in the future . in addition , we may experience ownership changes after this offering as a result of subsequent shifts in our stock ownership . as a result , we are unable to estimate the effect of these limitations , if any , on our ability to utilize nols and other tax attributes in the future . critical accounting policies and use of estimates our 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 accounting principles generally accepted in the united states , or gaap . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities in our consolidated financial statements , as well as the reported revenues and expenses during the reporting periods . these items are monitored and analyzed by us for changes in facts and circumstances , and material changes in these estimates could occur in the future . we base our estimates on historical experience , known trends and events , and on various other factors that we believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . changes in estimates are reflected in reported results for the period in which they become known . actual results may differ materially from these estimates under different assumptions or conditions . while our significant accounting policies are more fully described in the notes to our consolidated financial statements included elsewhere in this annual report , we believe that the following accounting policies are critical to the process of making significant judgments and estimates in the preparation of our consolidated financial statements and understanding and evaluating our reported financial results . 111 collaborative research and development and multiple-deliverable arrangements we enter into collaborative arrangements for the development and commercialization of product candidates utilizing our svp technology . the terms of these agreements contain multiple deliverables which may include ( i ) licenses , or options to obtain licenses , to our technology platforms , ( ii ) rights to future technological improvements , ( iii ) research and development activities to be performed on behalf of the collaborative partner or as part of the collaboration , iv ) the manufacture of pre-clinical or clinical materials for the collaborative partner , ( v ) options to acquire licenses for additional therapeutic areas .
| results of operations comparison of the years ended december 31 , 2016 and 2015 revenue the following is a comparison of revenue for the years ended december 31 , 2016 and 2015 ( in thousands , except percentages ) : replace_table_token_6_th during the year ended december 31 , 2016 , total revenue increased by $ 2.1 million , or 34 % , as compared 2015. the increase was primarily the result of increased research and development activities , resulting in an increase of $ 1.7 million of revenue recognized during 2016 from the nida grant , and $ 0.6 million from the sanofi celiac collaboration , offset by $ 0.2 million in reduced revenues resulting from the wind down of other collaborations . research and development the following is a comparison of research and development expenses for the years ended december 31 , 2016 and 2015 ( in thousands , except percentages ) : year ended december 31 , increase 2016 2015 ( decrease ) research and development $ 29,702 $ 22,980 $ 6,722 29 % during the year ended december 31 , 2016 , our research and development expenses increased by $ 6.7 million , or 29 % , as compared to 2015 , reflecting ( i ) $ 2.1 million of compensation costs related to headcount growth to support the clinical trial programs and pipeline advancements , ( ii ) $ 2.0 million for a milestone payment to 3sbio , ( iii ) $ 2.2 million of costs related to the nida grant , ( iv ) $ 0.8 million for facilities and office costs , ( v ) $ 0.7 million of stock compensation expense , ( vi ) $ 0.6 million for lab supplies and external costs associated with our other pipeline projects and ( vii ) $ 0.2 million of other expenses , offset by a decrease of $ 1.9 million of external costs as the phase 1 trial came to a close in the latter half of 2016. general and administrative the following is a comparison of general and administrative
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today , growgeneration is a leading marketer and distributor of nutrients , growing media , advanced indoor garden , lighting and ventilation systems and accessories for hydroponic gardening . as of december 31 , 2018 , we have grown into a chain of eighteen ( 18 ) retail hydroponic/garden centers , in 7 states , with five ( 5 ) located in colorado , six ( 6 ) in california , one ( 1 ) in nevada , one ( 1 ) in the washington , one ( 1 ) in rhode island , one ( 1 ) in oklahoma and three ( 3 ) in michigan . in the first quarter of 2019 , we acquired three ( 3 ) new hydroponic stores , one each in california , colorado and nevada and we opened new stores in oklahoma and maine . in addition , during the first quarter of 2019 , we consolidated two stores both in california and colorado . growgeneration expansion plan includes both acquiring existing hydroponic operations , as well as opening up garden centers in selected markets . our current 21 stores are owned and operated through seven wholly-owned subsidiaries . growgeneration is one of the largest distributors of hydroponic products in the united states and is engaged in the business of marketing and distributing horticultural , organics , lighting and hydroponics products , including lighting fixtures , nutrients , seeds and growing media , systems , trays , fans , filters , humidifiers and dehumidifiers , timers , instruments , water pumps , irrigation supplies and hand tools . management focuses on a variety of key indicators and operating metrics to monitor the financial condition and performance of the continuing operations of our business . these metrics include consumer purchases ( point-of-sale data ) , market share , category growth , net sales , gross profit margins , income from operations , net income and earnings per share . we also focus on measures to optimize cash flow and return on invested capital , including the management of working capital and capital expenditures . in 2018 , the company focused its efforts on increasing its distributions through acquisitions and opening of new locations . we increased our store footprint from 10 to 21 locations in 2018. sales more than doubled between 2017 and 2018. the company acquired an e-commerce operation , heavygardens.com which is the basis for an omni-channel strategy that is being developed now to enable e-commerce at all of the growgeneration locations . we formed wholly-owned subsidiary growgeneration canada corp , growgeneration hemp corp 's in order to develop supply chain and sales strategies for the value markets , in the u.s and canada . furthermore , the company began its implementation of an enterprise recourse planning ( “ erp “ ) system which is business process management software that allows an organization to use a system of integrated applications to manage the business and automate many back office functions related to technology , services and human resources , that has been successfully implemented in all the operations of the company in colorado and oklahoma . 16 capital raised in 2018 totaled $ 19 million , which was raised primarily from the 3 largest private equity firms , gotham green partners , navy capital and merida capital partners . on october 19 , 2016 , the company was approved to start trading its common stock on the otcqb marketplace under the ticker symbol of “ grwg ” . on january 30 , 2017 , the company entered into a commercial lease to rent certain premises located in trinidad , colorado , to be effective from march 1 , 2017 to february 28 , 2022. this 7,383 square feet premise is used by the company to open a new store to replace and consolidate its existing 3,000 square feet store in trinidad as part of the company 's expansion plan . on february 1 , 2017 , the company entered into a commercial lease to rent certain 12,837 square feet premises located in denver , colorado , to be effective from february 1 , 2017 to february 1 , 2022. the premise is used by the company for a new retail store , warehouse space and as the company 's principal offices . on february 1 , 2017 , the company 's wholly-owned subsidiary , growgeneration california corp. ( “ growgeneration california ” ) entered into an asset purchase agreement with an individual to purchase certain assets in connection with a retail hydroponic and garden supply business located in santa rosa , ca . the assets subject to the sale under the asset purchase agreement included inventories , fixed assets , tangible personal property , intangible personal property , receivables and a custom list . in addition to the cash consideration for the purchase of such assets , growgeneration california also agreed to make certain cash payments and 25,000 shares of common stock of the company to the seller contingent on the achievement of revenue goals by the business in 2017 , 2018 and 2019. the closing of the asset purchase took place on february 8 , 2017. the contingent consideration for achieving certain revenue goals in 2017 were achieved and the cash payment of $ 10,000 and the issuance of 25,000 shares of common stock were issued to the seller . in connection with the purchase of the assets , growgeneration california also entered into a commercial lease , effective from march 1 , 2017 to february 28 , 2022 , to rent the premises where the former business was located . in connection therewith , we closed our existing store in santa rosa and consolidated those operations with the growgeneration california operations opened at the new location . on march 10 , 2017 , the company closed a private placement of a total of 825,000 units of the company 's securities to 4 accredited investors . story_separator_special_tag on july 13 , 2018 , the parties entered into an amendment to the purchase agreement and conducted the closing of the asset purchase . in connection with the purchase of the assets , the company also entered into a commercial lease agreement , effective from july 14 , 2018 to july 13 , 2023 , to rent the premises where the assets were located . on august 23 , 2018 , the company signed a commercial lease to open a 10,000 sq . ft. warehouse and product showroom in oklahoma city to service the emerging legal cannabis cultivators in the state of oklahoma . the lease is effective from october 1 , 2018 to september 30 , 2023. the company opened this store for business on october 1 , 2018. on august 30 , 2018 , the company entered into an asset purchase agreement , amended on september 14 , 2018 , with virgus , inc. d/b/a/ heavy gardens , an online store of hydroponic and garden supplies ( “ heavy gardens ” ) to purchase the assets of heavy gardens through its wholly-owned subsidiary , growgeneration hg corp. the closing of the asset purchase took place on september 14 , 2018. in october 2018 , the company consolidated its store located in boulder , co with our denver , co store . on december 1 , 2018 , the company entered into a lease agreement through its wholly-owned subsidiary , growgeneration rhode island , corp. , to rent certain premises located in brewer , maine , to be effective from december 1 , 2018 to february 28 , 2023. this premises will be used by the company to open a new store . on november 28 , 2018 , the company entered into an asset purchase agreement through its wholly-owned subsidiary , growgeneration pueblo corp. , to purchase the assets of chlorophyll , inc. , located in denver , colorado . in connection with the purchase of the assets , the company also entered into a five-year commercial lease agreement , effective from january 21 , 2019 , to rent the premises where the assets are located to open a new store . in november 2018 , the company signed a commercial lease to open a 9,600 sq . ft. warehouse and product showroom in tulsa to service the emerging legal cannabis cultivators in the state of oklahoma . the lease is effective from january 1 , 2019 to december 31 , 2024. the company opened this store for business on february 1 , 2019. effective january 1 , 2019 our two santa rosa , ca stores were consolidated into a single store at our santa rosa moorland location acquired in july 2018 . 18 on january 26 , 2019 , the company entered into an asset purchase agreement through its wholly-owned subsidiary , growgeneration california corp. , to purchase the assets from palm springs hydroponics , inc. located in palm springs , california . in connection with the purchase of the assets , the company also entered into a commercial lease agreement with a term of five years and three months , effective from february 7 , 2019 to april 30 , 2024 , to rent the premises where the assets were located to open a new store . on january 26 , 2019 , the company entered into another asset purchase agreement through its wholly-owned subsidiary , growgeneration nevada corp. , to purchase the assets from reno hydroponics , inc. located in reno , nevada . in connection with the purchase of the assets , the company also entered into a one-year commercial lease agreement , effective from february 1 , 2019 to january 31 , 2020 , to rent the premises where the assets were located to open a new store . in march 2019 , the company consolidated its store located in canon city , co with its pueblo west , co store . story_separator_special_tag text-align : center ; border-bottom : black 1.5pt solid ; padding : 0 ; text-indent : 0 '' > december 31 , 2018 december 31 , 2017 variance net revenue $ 8,448,949 $ 8,926,734 $ ( 477,785 ) 20 cost of goods sold cost of goods sold for the year ended december 31 , 2018 increased approximately $ 11.5 million , to $ 22.6 million , an increase of 103 % , as compared to $ 11.1 million for the year ended december 31 , 2017. the increase in cost of goods sold was due to the 102 % increase in revenues comparing the year ended december 31 , 2017 to 2018 primarily due to the increase in the number of stores between 2017 and 2018 as noted above . gross profit was $ 6.4 million for the year ended december 31 , 2018 , as compared to $ 3.3 million for the year ended december 31 , 2017 , an increase of approximately $ 3.1 million or 97 % . gross profit as a percentage of sales was 22.2 % for the year ended december 31 , 2018 , compared to 22.8 % for the year ended december 31 , 2017. the slight decrease in the gross profit percentage was primarily due to the increase in non-cash inventory valuation adjustments of approximately $ 870,000 in 2018 compared to $ 463,000 in 2017. the impact of the inventory valuation adjustments in 2018 and 2017 was to reduce margin percentage by 3 % . the inventory valuation adjustments consist of a reserve for obsolete inventory as well as the write down of inventory to its current market value where vendor pricing has declined during the year and we still held inventory purchased at higher prices . operating expenses operating expenses are comprised of store operations , primarily payroll , rent and utilities , and corporate overhead . store operating costs were approximately $ 5.2 million for the year ended december 31 , 2018 and approximately $ 3.0 million for the year ended december 31 , 2017 , an increase of approximately $ 2.2 million or 76 % .
| results of operations replace_table_token_2_th revenue net revenue for the year ended december 31 , 2018 were approximately $ 29 million , compared to approximately $ 14.4 million for the year ended december 31 , 2017 , an increase of $ 14.6 million , or 102 % . the increase in revenues is due to the addition of 9 new retail stores and one e-commerce site during 2018 for which there were no sales for these retail stores and e-commerce site for the year ended december 31 , 2017 and 3 stores opened during various times during 2017 that were open for all of 2018. sales in the 9 new stores , the e-commerce site and the 3 stores opened in 2017 were approximately $ 19.8 million for the year ended december 31 , 2018 compared to approximately $ 2.1 million for the year ended december 31 , 2017. the company also had store closures and consolidations in 2018 and 2017. sales of the closed and consolidated stores was approximately $ 716,000 for the year ended december 31 , 2018 and approximately $ 3.3 million for the year ended december 31 , 2017. while the company continues to focus on the 7 markets noted below and the growth opportunities that exist in each market , we also are focusing on new store acquisitions , proprietary products , and developing our online sales with heavygargens.com and amazon sales . replace_table_token_3_th 19 overall sales in the colorado market increased approximately $ 957,200 or 15 % , as noted above , comparing the year ended december 31 , 2018 to the year ended december 31 , 2017 , with a majority of that increase attributable to the opening of our new denver south store location in april 2017. we continue to focus selling efforts in building growth in this market .
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average daily room rates remained relatively consistent when comparing the two periods at $ 122 for the twelve months ended december 31 , 2006 compared to $ 121 for the twelve month period ended december 31 , 2005. hotel occupancy and room rates exceeded our expectations during this renovation period . hotel expenses decreased 9.9 % to $ 40.7 million for the year ended december 31 , 2006 as compared to $ 45.1 million for the year ended december 31 , 2005. the hotel profit margin increased 4.3 percentage points over the same twelve-month period . during the year ended december 31 , 2005 , we incurred certain repair and maintenance expenses related to upgrades and amenities in the hotel rooms . we did not incur similar expenses in 2006 which accounted for most of the profit margin increase year over year . 33 2005 compared with 2004 hotel revenues increased 4.1 % to $ 110.4 million for the year ended december 31 , 2005 as compared to $ 106.1 million for the year ended december 31 , 2004. hotel occupancy percentages for the year ended december 31 , 2005 , remained consistent with the year ended december 31 , 2004 at 97 % . average daily room rates increased to $ 121 as compared to $ 117 for the same twelve-month periods , resulting in increased hotel revenues . the increase in hotel revenues and average daily room rates are primarily due to an improvement in general economic conditions during 2005 , a higher demand for rooms in las vegas in general and the improved channels of marketing through starwood . hotel expenses increased 37.8 % to $ 45.1 million for the year ended december 31 , 2005 as compared to $ 32.8 million for the year ended december 31 , 2004. the hotel profit margin decreased 10.0 percentage points over the same twelve-month period . the decrease in hotel profit margin was primarily due to repairs and maintenance expenses related to upgrades and amenities in the hotel rooms , management fees paid to starwood under the management contract beginning in september 2004 and an increase in payroll and related benefits resulting from the collective bargaining agreement with the culinary union which became effective october 1 , 2005. the payroll and related benefit increases incurred as a result of the union agreement and the management fees under the starwood management contract will be on-going . we do not expect the magnitude of the on-going repair and maintenance expense to be as large as the current year , which accounted for 13 % of the operating expense increase . food and beverage food and beverage revenues are derived from food and beverage sales in the restaurants , bars , room service , banquets and entertainment outlets . food and beverage revenue is recognized at the time the food and or beverage are provided to the guest . 2006 compared with 2005 combined food and beverage revenues decreased 19.9 % to $ 59.7 million for the year ended december 31 , 2006 as compared to $ 74.6 million for the year ended december 31 , 2005. food revenues decreased $ 7.8 million or 13.1 % over the same twelve-month period , while beverage revenues declined $ 7.1 million or 34.8 % over the same twelve-month period . the decreases in food and beverage revenues were driven by the outlet closures required for the renovation . the high end restaurants and 24-hour café have been permanently closed and will be reopened in 2007 as outlets leased to third parties . casino bars were temporarily closed and relocated throughout the course of the renovation in 2006. combined food and beverage expenses decreased 10.2 % to $ 46.1 million for the year ended december 31 , 2006 as compared to $ 51.4 million for the year ended december 31 , 2005. food and beverage profit margin decreased 8.4 percentage points over the same twelve-month period . the increase in food and beverage expenses and the resulting decrease in food and beverage operating margins were primarily due to our inability to eliminate certain fixed expenses while the outlets were closed as well as increases in payroll and related benefits resulting from the collective bargaining agreement with the culinary union which became effective october 1 , 2005 . 2005 compared with 2004 combined food and beverage revenues increased 2.9 % to $ 74.6 million for the year ended december 31 , 2005 as compared to $ 72.5 million for the year ended december 31 , 2004. food revenues increased $ 2.2 million or 3.9 % over the same twelve-month period , while beverage revenues remained consistent with the prior year . the increase in food revenues was primarily due to the addition of the new menus in the café and high-end restaurants in 2005 . 34 combined food and beverage expenses increased 14.4 % to $ 51.4 million for the year ended december 31 , 2005 as compared to $ 44.9 million for the year ended december 31 , 2004. food and beverage profit margin decreased 7.0 percentage points over the same twelve-month period . the increase in food and beverage expenses and the resulting decrease in food and beverage margins were primarily due to management fees paid to starwood under the management contract beginning in september 2004 and an increase in payroll and related benefits resulting from the collective bargaining agreement with the culinary union which became effective october 1 , 2005. as the management fees under the starwood agreement and the payroll and benefit increases related to the union are permanent additions to the expense structure , we expect the decline in profit margin for owned food and beverage outlets to be on-going . other other revenue includes entertainment sales , retail sales , telephone and other miscellaneous income and is recognized at the time the goods or services are provided to the guest . 2006 compared with 2005 other revenues decreased 27.3 % story_separator_special_tag average daily room rates remained relatively consistent when comparing the two periods at $ 122 for the twelve months ended december 31 , 2006 compared to $ 121 for the twelve month period ended december 31 , 2005. hotel occupancy and room rates exceeded our expectations during this renovation period . hotel expenses decreased 9.9 % to $ 40.7 million for the year ended december 31 , 2006 as compared to $ 45.1 million for the year ended december 31 , 2005. the hotel profit margin increased 4.3 percentage points over the same twelve-month period . during the year ended december 31 , 2005 , we incurred certain repair and maintenance expenses related to upgrades and amenities in the hotel rooms . we did not incur similar expenses in 2006 which accounted for most of the profit margin increase year over year . 33 2005 compared with 2004 hotel revenues increased 4.1 % to $ 110.4 million for the year ended december 31 , 2005 as compared to $ 106.1 million for the year ended december 31 , 2004. hotel occupancy percentages for the year ended december 31 , 2005 , remained consistent with the year ended december 31 , 2004 at 97 % . average daily room rates increased to $ 121 as compared to $ 117 for the same twelve-month periods , resulting in increased hotel revenues . the increase in hotel revenues and average daily room rates are primarily due to an improvement in general economic conditions during 2005 , a higher demand for rooms in las vegas in general and the improved channels of marketing through starwood . hotel expenses increased 37.8 % to $ 45.1 million for the year ended december 31 , 2005 as compared to $ 32.8 million for the year ended december 31 , 2004. the hotel profit margin decreased 10.0 percentage points over the same twelve-month period . the decrease in hotel profit margin was primarily due to repairs and maintenance expenses related to upgrades and amenities in the hotel rooms , management fees paid to starwood under the management contract beginning in september 2004 and an increase in payroll and related benefits resulting from the collective bargaining agreement with the culinary union which became effective october 1 , 2005. the payroll and related benefit increases incurred as a result of the union agreement and the management fees under the starwood management contract will be on-going . we do not expect the magnitude of the on-going repair and maintenance expense to be as large as the current year , which accounted for 13 % of the operating expense increase . food and beverage food and beverage revenues are derived from food and beverage sales in the restaurants , bars , room service , banquets and entertainment outlets . food and beverage revenue is recognized at the time the food and or beverage are provided to the guest . 2006 compared with 2005 combined food and beverage revenues decreased 19.9 % to $ 59.7 million for the year ended december 31 , 2006 as compared to $ 74.6 million for the year ended december 31 , 2005. food revenues decreased $ 7.8 million or 13.1 % over the same twelve-month period , while beverage revenues declined $ 7.1 million or 34.8 % over the same twelve-month period . the decreases in food and beverage revenues were driven by the outlet closures required for the renovation . the high end restaurants and 24-hour café have been permanently closed and will be reopened in 2007 as outlets leased to third parties . casino bars were temporarily closed and relocated throughout the course of the renovation in 2006. combined food and beverage expenses decreased 10.2 % to $ 46.1 million for the year ended december 31 , 2006 as compared to $ 51.4 million for the year ended december 31 , 2005. food and beverage profit margin decreased 8.4 percentage points over the same twelve-month period . the increase in food and beverage expenses and the resulting decrease in food and beverage operating margins were primarily due to our inability to eliminate certain fixed expenses while the outlets were closed as well as increases in payroll and related benefits resulting from the collective bargaining agreement with the culinary union which became effective october 1 , 2005 . 2005 compared with 2004 combined food and beverage revenues increased 2.9 % to $ 74.6 million for the year ended december 31 , 2005 as compared to $ 72.5 million for the year ended december 31 , 2004. food revenues increased $ 2.2 million or 3.9 % over the same twelve-month period , while beverage revenues remained consistent with the prior year . the increase in food revenues was primarily due to the addition of the new menus in the café and high-end restaurants in 2005 . 34 combined food and beverage expenses increased 14.4 % to $ 51.4 million for the year ended december 31 , 2005 as compared to $ 44.9 million for the year ended december 31 , 2004. food and beverage profit margin decreased 7.0 percentage points over the same twelve-month period . the increase in food and beverage expenses and the resulting decrease in food and beverage margins were primarily due to management fees paid to starwood under the management contract beginning in september 2004 and an increase in payroll and related benefits resulting from the collective bargaining agreement with the culinary union which became effective october 1 , 2005. as the management fees under the starwood agreement and the payroll and benefit increases related to the union are permanent additions to the expense structure , we expect the decline in profit margin for owned food and beverage outlets to be on-going . other other revenue includes entertainment sales , retail sales , telephone and other miscellaneous income and is recognized at the time the goods or services are provided to the guest . 2006 compared with 2005 other revenues decreased 27.3 %
| results of operations the following table highlights the results of operations of the aladdin . the amounts for the year ended december 31 , 2004 include the eight months of operations by aladdin gaming and the four months of operations by opbiz . replace_table_token_3_th net revenues for the year ended december 31 , 2006 , declined over those of the year ended december 31 , 2005. the decline is mainly the result of declines in gaming , entertainment and food and beverage revenues resulting from the renovation . operating expense declines were commensurate with the revenue declines in each area . net revenues for the year ended december 31 , 2005 , improved over that of the year ended december 31 , 2004. we experienced improvement consistent with the las vegas strip market with increases in both gaming and non-gaming revenues . the decrease in operating income was primarily due to increased sg & a expenses including management bonuses and legal and professional fees , which were included as re-organizational costs and not sg & a by aladdin gaming in 2004 , as well as the increase in depreciation which was not recorded during the first eight months of 2004 while aladdin gaming was undergoing bankruptcy proceedings and assets were classified as held for sale . management fees paid to starwood under the sheraton hotel management contract and repair and maintenance expense in the hotel division also significantly contributed to the decline in operating income . 31 the following table highlights the various sources of our revenues and expenses as compared to the prior years . the amounts for the year ended december 31 , 2004 include both the eight months of operations by aladdin gaming and the four months of operations by opbiz . replace_table_token_4_th casino casino revenue is derived primarily from patrons wagering on slot machines , table games and other gaming activities . table games generally include blackjack or twenty one , craps , baccarat and roulette .
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in addition , ncm llc 's common unit adjustment agreement requires that a common unit adjustment occur for a specific founding member if its acquisition or disposition of theaters , in story_separator_special_tag as discussed in part 1 , some of the information in this annual report on form 10-k includes “ forward-looking statements ” within the meaning of section 27a of the securities act of 1933 , as amended , and section 21e of the securities exchange act of 1934 ( the “ exchange act ” ) , as amended . all statements other than statements of historical facts included in this form 10-k , including , without limitation , certain statements under “ management 's discussion and analysis of financial condition and results of operations ” , may constitute forward-looking statements . in some cases , you can identify these “ forward-looking statements ” by the specific words , including but not limited to “ may , ” “ should , ” “ expects , ” “ plans , ” “ anticipates , ” “ believes , ” “ estimates , ” “ predicts , ” “ potential ” or “ continue ” or the negative of those words and other comparable words . these forward-looking statements involve risks and uncertainties . the following discussion and analysis should be read in conjunction with our historical financial statements and the related notes thereto included elsewhere in this document . in the following discussion and analysis , the term net income refers to net income attributable to ncm , inc. this section of this form 10-k generally discusses fiscal 2019 and fiscal 2018 items and year-to-year comparisons between fiscal 2019 and fiscal 2018. discussions of fiscal 2017 items and year-to-year comparisons between fiscal 2018 and fiscal 2017 that are not included in this form 10-k can be found in “ management 's discussion and analysis of financial condition and results of operations ” in part ii , item 7 of the company 's annual report on form 10-k for the fiscal year ended december 27 , 2018. overview we are america 's movie network . as the largest cinema advertising network in north america , we unite brands with the power of movies and engage movie fans anytime and anywhere . we currently derive revenue principally from the sale of advertising to national , regional and local businesses in noovie , our cinema advertising and entertainment pre-show seen on movie screens across the u.s. , as well as on our len , a series of strategically-placed screens located in movie theater lobbies , and other forms of advertising and promotions in theater lobbies . we also sell digital online and mobile advertising through our cinema accelerator product and across our suite of noovie digital properties , including noovie.com , noovie shuffle , name that movie , noovie arcade , and fantasy movie league , in order to reach entertainment audiences beyond the theater . as of december 26 , 2019 , approximately 4.0 million moviegoers have downloaded our mobile apps . these downloads and the acquisition of second party data have resulted in first and second party data sets of over 106 million as of december 26 , 2019. we have long-term esas ( approximately 19.8 weighted average years based on attendance remaining as of december 26 , 2019 ) with the founding members and multi-year agreements with network affiliates , which expire at various dates between march 15 , 2020 and july 22 , 2031 . the weighted average remaining term ( based on attendance ) of the esas and the network affiliate agreements is 17.1 years as of december 26 , 2019 . the esas and network affiliate agreements grant ncm llc exclusive rights in their theaters to sell advertising , subject to limited exceptions . our noovie pre-show and len programming are distributed predominantly via satellite through our proprietary dcn . approximately 98 % of the aggregate founding member and network affiliate theater attendance is generated by theaters connected to our dcn ( the remaining screens receive advertisements on usb drives ) and 100 % of the noovie pre-show is projected on digital projectors ( 95 % digital cinema projectors and 5 % lcd projectors ) . management focuses on several measurements that we believe provide us with the necessary ratios and key performance indicators to manage our business , determine how we are performing versus our internal goals and targets , and against the performance of our competitors and other benchmarks in the marketplace in which we operate . we focus on many operating metrics including changes in revenue , adjusted oibda and adjusted oibda margin , as defined and discussed in “ notes to the selected historical financial and operating data ” above , as some of our primary measurement metrics . in addition , we monitor our monthly advertising performance measurements , including advertising inventory utilization , national and regional advertising pricing ( cpm ) , local advertising rate per screen per week , national and local and regional and total advertising revenue per attendee . we also monitor free cash flow , the dividend coverage ratio , financial leverage ratio ( net debt divided by adjusted oibda plus integration payments and other encumbered theater payments ) , cash balances and revolving credit facility availability to ensure financial debt covenant compliance and that there is adequate cash availability to fund our working capital needs and debt obligations and current and future dividends declared by our board of directors . summary historical and operating data you should read this information in conjunction with the other information contained in this document , and our audited historical financial statements and the notes thereto included elsewhere in this document . our operating data —the following table presents operating data and adjusted oibda ( dollars in millions , except share and margin data ) . refer to “ item 6. selected financial data—notes to the selected historical financial and operating data ” for a discussion of the calculation of adjusted oibda and reconciliation to operating income . story_separator_special_tag theater access fees —in consideration for ncm llc 's access to the founding members ' theater attendees for on-screen advertising and use of lobbies and other space within the founding members ' theaters for the len and lobby promotions , the founding members receive a monthly theater access fee under the esas . the theater access fee is composed of a fixed payment per patron and a fixed payment per digital screen ( connected to the dcn ) . the payment per theater patron increases by 8 % every five years , with the next increase occurring in fiscal year 2022. pursuant to the esas , the payment per digital screen increases annually by 5 % . pursuant to the 2019 esa amendments , cinemark and regal each receive an additional monthly theater access fee beginning november 1 , 2019 in consideration for ncm llc 's access to certain on-screen advertising inventory after the advertised showtime of a feature film . these fees are also based upon a fixed payment per patron beginning at $ 0.025 per patron on november 1 , 2019 , ( ii ) $ 0.0375 per patron beginning on november 1 , 2020 , ( iii ) $ 0.05 per patron beginning on november 1 , 2021 , ( iv ) $ 0.052 per patron beginning on november 1 , 2022 and ( v ) increasing 8 % every five years beginning november 1 , 2027. platinum spot —in consideration for the utilization of the theaters post-showtime for platinum spots , cinemark and regal are entitled to receive 25 % of all revenue generated for the actual display of platinum spots in their applicable theaters , subject to a specified minimum . if ncm llc runs advertising in more than one concurrent advertisers ' platinum spot for any portion of the network over a period of time , ncm llc will be required to satisfy a minimum average cpm for that period of time . financial condition and liquidity liquidity our cash balances can fluctuate due to the seasonality of our business and related timing of collections of accounts receivable balances and operating expenditure payments , as well as , available cash payments ( as defined in the ncm llc operating agreement ) to cinemark and regal , interest or principal payments on our term loan and the notes due 2026 and notes due 2028 , income tax payments , tra payments to the founding members and the amount of quarterly dividends to ncm , inc. 's common stockholders . a summary of our financial liquidity is as follows ( in millions ) replace_table_token_12_th ( 1 ) included in cash and cash equivalents as of december 26 , 2019 and december 27 , 2018 there was $ 11.4 million and $ 7.2 million , respectively , of cash held by ncm llc which is not available to satisfy ncm , inc. 's dividend payments and other ncm , inc. obligations . 41 ( 2 ) the revolving credit facility portion of ncm llc 's total borrowings is available , subject to certain conditions , for general corporate purposes of ncm llc in the ordinary course of business and for other transactions permitted under the senior secured credit facility , and a portion is available for letters of credit . ncm llc 's total capacity under the revolving credit facility was $ 175.0 million less $ 3.6 million of outstanding letters of credit or $ 171.4 million as of december 26 , 2019 and $ 175.0 million less $ 4.8 million of outstanding letters of credit or $ 170.2 million , as of december 27 , 2018. we have generated and used cash as follows ( in millions ) : replace_table_token_13_th cash flows – fiscal years 2019 and 2018 operating activities . the $ 6.7 million decrease in cash provided by operating activities for 2019 , compared to 2018 was due primarily to 1 ) a decrease in the change in accounts receivable of $ 31.6 million related to timing of collections in 2019 , compared to 2018 , 2 ) a $ 6.3 million decrease in deferred income tax expense net of the increase in the loss on re-measurement of the payable to founding members under the tra due to a change in the deferred tax rate related to a change in state tax law regarding sales sourcing during 2018 and 3 ) a $ 2.3 million decrease in non-cash share-based compensation expense related to a decrease in the projected vesting of performance based awards and a lower volume of awards as of 2019 , compared to 2018. these decreases were partially offset by 1 ) a $ 21.7 million increase in cash provided by operating activities due to the reclassification in the current period of founding member integration and other encumbered theater payments from cash flows from financing activities upon adoption of asc 842 , as further discussed within note 1 to the audited consolidated financial statements included elsewhere in this document , 2 ) a $ 6.5 million increase in consolidated net income and 3 ) a $ 4.9 million increase in the loss on early retirement of our debt due to the extinguishment of the notes due 2022 in 2019. investing activities . the $ 17.7 million increase in cash provided by investing activities for 2019 , compared to 2018 was due primarily to a decrease in purchases of marketable securities , net of proceeds , of $ 14.6 million and a $ 2.8 million increase in the proceeds from the notes receivable from the founding members in 2019 , compared to 2018. financing activities .
| results of operations fiscal years 2019 and 2018 revenue . total revenue increased $ 3.4 million , or 0.8 % , from $ 441.4 million for 2018 to $ 444.8 million for 2019 . the following is a summary of revenue by category ( in millions ) : replace_table_token_8_th the following table shows data on revenue per attendee for 2019 and 2018 : replace_table_token_9_th ( 1 ) represents the total attendance within ncm llc 's advertising network , excluding screens and attendance associated with certain amc rave , amc carmike and cinemark rave theaters for certain periods presented . refer to note 5 to the audited consolidated financial statements included elsewhere in this document . national advertising revenue . the $ 12.2 million , or 3.9 % , increase in national advertising revenue ( excluding beverage revenue from the founding members ) was due primarily to a $ 16.2 million increase in platinum spot and branded content segment revenue in 2019 , as compared to 2018. the increase was also due to an increase in national advertising utilization from 113.5 % in 2018 to 125.9 % in 2019 , despite a 7.6 % decrease in network attendance . inventory utilization is calculated as utilized impressions divided by total advertising impressions , which is based on eleven 30-second salable national advertising units in our noovie pre-show , which can be expanded , should market demand 38 dictate . these increases were partially offset by a 3.2 % decrease in national advertising cpms ( excluding beverage and platinum spot cpms ) driven by a change in the mix of customers with a higher proportion of upfront clients and less scatter market clients in 2019 , as compared to 2018. the scatter market represents inventory not included within an upfront or content partner commitment sold closer to the advertisement air date for typically higher cpms . local advertising revenue .
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we generally identify forward-looking statements by the use of terminology such as “ may , ” “ will , ” “ could , ” “ should , ” “ potential , ” “ continue , ” “ expect , ” “ intend , ” “ plan , ” “ estimate , ” “ anticipate , ” “ believe , ” “ project , ” or similar phrases or the negatives of such terms . we base these statements on our beliefs as well as assumptions we made using information currently available to us . such statements are subject to risks , uncertainties and assumptions , including those identified in part i , item 1a. “ risk factors , ” as well as other matters not yet known to us or not currently considered material by us . should one or more of these risks or uncertainties materialize , or should underlying assumptions prove incorrect , actual results may vary materially from those anticipated , estimated or projected . given these risks and uncertainties , prospective investors are cautioned not to place undue reliance on such forward-looking statements . forward-looking statements do not guarantee future performance and should not be considered as statements of fact . you should not unduly rely on these forward-looking statements , which speak only as of the date of this annual report on form 10-k. unless required by law , we undertake no obligation to publicly update or revise any forward-looking statements to reflect new information or future events or otherwise . the private securities litigation reform act of 1995 ( the “ act ” ) provides certain “ safe harbor ” provisions for forward-looking statements . all forward-looking statements made in this annual report on form 10-k are made pursuant to the act . this discussion and analysis does not address certain items in respect of fiscal 2018 in reliance on amendments to disclosure requirements adopted by the sec in 2019. a discussion and analysis of fiscal 2018 may be found in item 7. management 's discussion and analysis of financial condition and results of operations of our annual report on form 10-k for the fiscal year ended december 31 , 2019 , filed with the sec on february 12 , 2020 , and such discussion and analysis is hereby incorporated into this form 10-k by this reference . summary for the twelve months ended december 31 , 2020 revenue was $ 1.23 billion , a decrease of 1.6 % over the $ 1.25 billion in 2019 ; gross profit was $ 431.1 million , a 7.4 % decrease , compared to the $ 465.8 million in 2019 ; gross margin was 35.1 % , a decrease of 220 basis points , compared to 37.3 % in 2019 ; operating income decreased 33.0 % to $ 134.3 million , or 10.9 % of revenue , compared to $ 200.6 million , or 16.1 % , of revenue in 2019 ; net income was a $ 98.1 million , or $ 1.88 per diluted share , compared to $ 153.3 million , or $ 2.96 per share , in 2019 ; and achieved $ 187.2 million cash flow from operations . we had $ 75.8 million of capital expenditures , or 6.2 % of revenue . net cash flow was a positive $ 61.0 million . summary of the twelve months ended december 31 , 2019 revenue grew to a record $ 1.25 billion , an increase of 2.9 % over the $ 1.21 billion in 2018 ; gross profit was a record $ 465.8 million , a 7.0 % increase , compared to the $ 435.3 million in 2018 ; gross margin improved 140 basis points to a record 37.3 % from 35.9 % in 2018 ; operating income increased 29.9 % to a record $ 200.6 million , or 16.1 % of revenue , compared to $ 154.5 million , or 12.7 % , of revenue in 2018 ; net income was a record $ 153.3 million , or $ 2.96 per diluted share , compared to $ 104.0 million , or $ 2.04 per share , in 2018 ; and achieved $ 229.8 million cash flow from operations . we had $ 98.5 million of capital expenditures , or 7.9 % of revenue . net cash flow was a positive $ 17.7 million , which includes the net pay down of $ 117.3 million of long-term debt . 37 - business outlook and factors relevant to our results of operations in spite of the negative impact covid-19 had on our fiscal year 2020 results , we continue to pursue our previously announced goals of achieving revenue of $ 2.5 billion and gross margin of 40 % , representing gross profit of $ 1.0 billion , all by 2025. acquisitions will continue to be a key part of our growth strategy to reach our 2025 revenue goal . we have a solid pipeline of designs and expanded customer relationships across all regions and product lines . the success of our business depends on , among other factors , the strength of the global economy and the stability of the financial markets , our customers ' demand for our products , the ability of our customers to meet their payment obligations , the likelihood of customers not canceling or deferring existing orders , and the strength of consumers ' demand for items containing our products in the end-markets we serve . we believe the long-term outlook for our business remains generally favorable despite the uncertainties in the global economy as we continue to execute on the strategy that has proven successful for us over the years . in november 2020 , the company completed the acquisition of lsc and in april 2019 , we completed the acquisition of gfab . see “ risk factors – the success of our business depends on the strength of the global economy and the stability of the financial markets , and any weaknesses in these areas may have a material adverse effect on our net sales , operating results and financial condition. story_separator_special_tag long-term debt on may 29 , 2020 , the company , diodes holding b.v. ( the “ foreign borrower ” and , collectively with the company , the “ borrowers ” ) , and certain subsidiaries of the company as guarantors , entered into a second amended and restated credit agreement ( the “ second amended and restated credit agreement ” ) that amends and restates that certain amended and restated credit agreement dated as of october 26 , 2016 ( as amended , modified and or supplemented from time to time prior to may 29 , 2020 , the “ existing credit agreement ” ) . on december 31 , 2020 , diodes holding b.v. merged into diodes holdings uk limited , which following the merger became the foreign borrower under the credit agreement , and in connection with the merger , the parties to the second amended and restated credit agreement entered into a consent and amendment no . 2 to second amended and restated credit agreement ( “ consent and amendment no . 2 ” ; the second amended and restated credit agreement as amended by consent and amendment no . 2 is referred to as the “ credit agreement ” ) . certain capitalized terms used in this description of the credit agreement have the meanings given to them in the credit agreement , the current form of which is set forth in exhibit a to consent and amendment no . 2 , which is attached as an exhibit to this report . the company analyzed the amendment and restatement of the existing credit agreement pursuant to the guidance in asc no . 470-50 , debt—modifications and extinguishments . the company determined that certain lenders had changes in cash flows which were substantially different as a result of the amendment and 41 - restatement of the existing credit agreement , which resulted in a debt extinguishment of $ 52.2 million and a loss on extinguishment and third-party fees of $ 0.7 million being expensed in the nine-month period ended september 30 , 2020. the second amended and restated credit agreement rebalanced the company 's then-existing senior credit facilities under the existing credit agreement from ( x ) aggregate credit facilities of $ 500,000,000 , consisting of ( a ) a $ 250,000,000 revolving senior credit facility , which included a $ 10,000,000 swing line sublimit , a $ 10,000,000 letter of credit sublimit , and a $ 20,000,000 alternative currency sublimit , and ( b ) a $ 250,000,000 term loan to ( y ) aggregate credit facilities of $ 670,000,000 consisting of ( a ) an acquisition draw term commitment of $ 340,000,000 ( the “ acquisition draw term commitment ” ) , ( b ) an initial term commitment of $ 180,000,000 ( the “ initial term commitment ” and , together with the acquisition draw term commitment , the “ term loan ” ) and ( c ) a $ 150,000,000 revolving senior credit facility ( the “ revolver ” ) , which includes a $ 20,000,000 uncommitted swing line sublimit , a $ 10,000,000 letter of credit sublimit , and a $ 40,000,000 alternative currency sublimit . the revolver and the term loan mature on may 29 , 2023 ( the “ maturity date ” ) . both the term loan portion and the revolving portion of the credit agreement bear an interest rate at libor or similar other indices plus a specified margin . the company used a portion of the proceeds available under the revolver and the term loan ( i ) to finance the company 's acquisition of lite-on semiconductor corporation , which is described more fully elsewhere in this report , ( ii ) to refinance certain existing indebtedness of the borrowers and their subsidiaries under the existing credit agreement and ( iii ) for working capital , capital expenditures , and other lawful corporate purposes , including , without limitation , financing permitted acquisitions . the credit agreement contains certain financial and non-financial covenants , including , but not limited to , a maximum consolidated leverage ratio , a minimum consolidated fixed charge coverage ratio , and restrictions on liens , indebtedness , investments , fundamental changes , dispositions , and restricted payments ( including dividends and share repurchases ) . these covenants are generally similar to the corresponding covenants in the existing credit agreement , except that certain amounts permitted as exceptions to negative covenants restricting liens , indebtedness , investments , dispositions and restricted payments have been revised , and additional exceptions to certain negative covenants have been added , including increased capacity for certain intercompany indebtedness and investment ( including existing lite-on indebtedness ) , and the right to enter into certain securitization transactions and receivables facilities , subject to limitations set forth in the credit agreement . furthermore , under the credit agreement , restricted payments , including dividends and share repurchases , are permitted in certain circumstances , including while the pro forma consolidated leverage ratio is , both before and after giving effect to any such restricted payment , at least 0.25 to 1.00 less than the maximum permitted under the credit agreement . capital expenditures and investments in 2020 and 2019 , our capital expenditures were approximately $ 75.8 million and $ 96.2 million , respectively , which includes approximately $ 15.4 million and $ 9.3 million of capital expenditures related to the investment agreement with the management committee of the chengdu hi-tech industrial development zone ( the “ cdht ” ) for 2020 and 2019 , respectively . our capital expenditures for these periods were primarily related to manufacturing expansion in our facilities in china and , to a lesser extent , our office buildings . capital expenditures in 2020 were approximately 6.2 % of our net sales . in 2010 , we announced an investment agreement with the management committee of the cdht .
| results of operations the following table sets forth , for the periods indicated , the percentage that certain items in the statements of income bear to net sales : replace_table_token_4_th the following discussion explains in greater detail our consolidated operating results and financial condition . this discussion should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this annual report ( in thousands ) . 39 - replace_table_token_5_th net sales net sales decreased for the twelve months ended december 31 , 2020 , compared to the same period last year due to the negative effect of covid-19 on the global economy and our business . this decrease in net sales was partially offset by $ 16 .9 million of net sales from lsc . the table below sets forth our revenue as a percentage of total revenue by end-user market : replace_table_token_6_th cost of goods sold cost of goods sold increased approximately $ 14.8 million for the twelve months ended december 31 , 2020 compared to the same period last year , primarily as a result of operations at gfab for four quarters of 2020 compared to three quarters of 2019 and the one month of operations at lsc during 2020. as a percent of sales , cost of goods sold was 64.9 % for the twelve months ended december 31 , 2020 , compared to 62.7 % for the same period last year . average unit cost increased 1.5 % for the twelve months ended december 31 , 2020 , compared to the same period last year , due to lower capacity utilization for the year , driven by covid-19 pandemic related manufacturing plant closures and the associated slowdown in customer demand in early 2020. for the twelve months ended december 31 , 2020 , gross profit decreased approximately 7.4 % when compared to the same period last year . gross profit margin for the twelve month periods ended december 31 , 2020 and 2019 , was 35.1 % and 37.3 % , respectively .
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● improved balance sheet : continued to maintain our strong balance sheet as evidenced by our relatively unchanged net debt to adjusted ebitda of 6.0x as of the current fiscal yearend from 5.9x as of the prior fiscal yearend and reduced our net debt to undepreciated book capitalization story_separator_special_tag cautionary statement regarding forward-looking statements statements contained in this form 10-k that are not historical facts are forward-looking statements within the meaning of section 27a of the securities act of 1933 , as amended ( securities act ) , and section 21e of the securities exchange act of 1934 , as amended ( exchange act ) . forward-looking statements provide our current expectations or forecasts of future events . in particular , statements relating to our liquidity and capital resources , portfolio performance and results of operations contain forward-looking statements . furthermore , all of the statements regarding future financial performance are forward-looking statements . we are including this cautionary statement to make applicable and take advantage of the safe harbor provisions of the securities act and exchange act for any such forward-looking statements . we caution investors that any forward-looking statements presented in this form 10-k are based on management 's belief and assumptions made by , and information currently available to , management . forward-looking statements can be identified by their use of forward-looking words , such as “ may , ” “ will , ” “ anticipate , ” “ expect , ” “ believe , ” “ intend , ” “ plan , ” “ should , ” “ seek ” or comparable terms , or the negative use of those words , but the absence of these words does not necessarily mean that a statement is not forward-looking . forward-looking statements include statements about our expectations , beliefs , intentions , plans , objectives , goals , strategies , future events , performance and underlying assumptions and other statements that are not historical facts . the forward-looking statements are based on our beliefs , assumptions and expectations of our future performance , taking into account all information currently available to us . forward-looking statements are not predictions of future events . these beliefs , assumptions and expectations can change as a result of many possible events or factors , not all of which are known to us . some of these factors are described below and under the headings “ business ” , “ risk factors ” and “ management 's discussion and analysis of financial condition and results of operations. ” these and other risks , uncertainties and factors could cause our actual results to differ materially from those included in any forward-looking statements we make . any forward-looking statement speaks only as of the date on which it is made . new risks and uncertainties arise over time , and it is not possible for us to predict those events or how they may affect us . except as required by law , we are not obligated to , and we do not intend to , update or revise any forward-looking statements , whether as a result of new information , future events or otherwise . important factors that could cause actual results to differ materially from our expectations include , among others : ● the ability of our tenants to make payments under their respective leases ; ● our reliance on certain major tenants ; ● our ability to re-lease properties that are currently vacant or that become vacant ; ● our ability to obtain suitable tenants for our properties ; ● changes in real estate market conditions , economic conditions in the industrial sector , the markets in which our properties are located and general economic conditions ; ● the inherent risks associated with owning real estate , including local real estate market conditions , governing laws and regulations and illiquidity of real estate investments ; ● our ability to acquire , finance and sell properties on attractive terms ; ● our ability to repay debt financing obligations ; ● our ability to refinance amounts outstanding under our debt obligations at maturity on terms favorable to us , or at all ; ● the loss of any member of our management team ; ● our ability to comply with debt covenants ; ● our ability to integrate acquired properties and operations into existing operations ; ● continued availability of proceeds from issuances of our debt or equity securities ; ● the availability of other debt and equity financing alternatives ; 33 ● changes in interest rates , including the replacement of the libor reference rate , under our current credit facility and under any additional variable rate debt arrangements that we may enter into in the future ; ● our ability to successfully implement our selective acquisition strategy ; ● our ability to maintain internal controls and procedures to ensure all transactions are accounted for properly , all relevant disclosures and filings are timely made in accordance with all rules and regulations , and any potential fraud or embezzlement is thwarted or detected ; ● changes in federal or state tax rules or regulations that could have adverse tax consequences ; ● declines in the market prices of our investment securities ; ● the effect of covid-19 on our business and general economic conditions ; and ● our ability to qualify as a reit for federal income tax purposes . you should not place undue reliance on these forward-looking statements , as events described or implied in such statements may not occur . we undertake no obligation to update or revise any forward-looking statements as a result of new information , future events or otherwise . the following discussion should be read in conjunction with the financial statements and notes thereto included elsewhere herein . overview monmouth real estate investment corporation , founded in 1968 , is one of the oldest public equity reits in the world . we are a self-administered and self-managed reit that seeks to invest in well-located , modern , single- tenant industrial buildings , leased primarily to investment-grade tenants or their subsidiaries on long-term net-leases . story_separator_special_tag during the fiscal year ended september 30 , 2020 and 2019 , we recognized $ 77.4 million and $ 24.7 million of unrealized losses , respectively . prior to the adoption of the rule , unrealized gains and losses were reflected as a change in our shareholders ' equity . during the fiscal year ended september 30 , 2018 , we reported $ 7.5 million from the gain on sale of real estate investments and we reported $ 111,000 from the gain on sale of securities transactions . excluding all non-cash unrealized losses and realized gains , our net income attributable to common shareholders for the fiscal years ended september 30 , 2020 , 2019 and 2018 would have been $ 28.8 million , $ 35.7 million and $ 31.2 million , respectively . this represents a 14 % increase from the fiscal year ended september 30 , 2018 to the fiscal year ended september 30 , 2019 and a 19 % decrease from the fiscal year ended september 30 , 2019 to the fiscal year ended september 30 , 2020. the 14 % increase from the fiscal year ended september 30 , 2018 to the fiscal year ended september 30 , 2019 was due to the purchase of additional properties in fiscal 2019 and 2018. the 19 % decrease from the fiscal year ended september 30 , 2019 to the fiscal year ended september 30 , 2020 was mostly due to an increase in preferred dividend expense of $ 7.7 million , a decrease in dividend income from our securities investments of $ 4.7 million and a one-time non-recurring severance expense of $ 786,000. excluding these items , our net income attributable to common shareholders for the fiscal year ended september 30 , 2020 would have been $ 45.6 million as compared to $ 39.3 million for the fiscal year ended september 30 , 2019 , representing a 16 % increase . we evaluate our financial performance using net operating income ( noi ) from property operations , which we believe is a useful indicator of our operating performance . noi is a non-gaap financial measure that we define as net income ( loss ) attributable to common shareholders , plus preferred dividend expense , general and administrative expenses , non-recurring severance expense , depreciation , amortization of capitalized lease costs and intangible assets , interest expense , including amortization of financing costs , unrealized holding losses arising during the periods , less dividend income , gain on sale of securities transactions , gain on sale of real estate investments and lease termination income . the components of noi are recurring rental and reimbursement revenue , less real estate taxes and operating expenses , such as insurance , utilities , and repairs and maintenance . other reits may use different methodologies to calculate noi and , accordingly , our noi may not be comparable to all other reits . 35 the following is a reconciliation of our net income ( loss ) attributable to common shareholders to our noi for the fiscal years ended september 30 , 2020 , 2019 and 2018 ( in thousands ) : replace_table_token_11_th ( 1 ) effective october 1 , 2018 we adopted asu 2016-01. this new accounting standard requires unrealized gains or losses on our securities investments to flow through our income statement . the components of our noi for the fiscal years ended september 30 , 2020 , 2019 and 2018 are as follows ( in thousands ) : replace_table_token_12_th noi increased $ 9.5 million , or 7 % , for the fiscal year ended september 30 , 2020 as compared to the fiscal year ended september 30 , 2019 and increased $ 16.4 million , or 14 % , for the fiscal year ended september 30 , 2019 as compared to the fiscal year ended september 30 , 2018. the increase from fiscal year 2019 to 2020 was due to the additional income related to five industrial properties purchased during fiscal 2020 and the purchase of three industrial properties during fiscal 2019. the increase from fiscal year 2018 to 2019 was due to the additional income related to three industrial properties purchased during fiscal 2019 and the purchase of seven industrial properties during fiscal 2018. we evaluate our financial performance using earnings before interest , taxes , depreciation and amortization for real estate ( adjusted ebitda ) from property operations , which we believe is a useful indicator of our operating performance . adjusted ebitda is a non-gaap financial measure that we define as net income ( loss ) attributable to common shareholders , plus preferred dividend expense , interest expense , including amortization of financing costs , depreciation , amortization of capitalized lease costs and intangible assets , unrealized holding losses arising during the periods , less gain on sale of securities transactions and gain on sale of real estate investments . other reits may use different methodologies to calculate adjusted ebitda and , accordingly , our adjusted ebitda may not be comparable to all other reits . 36 the following is a reconciliation of our net income ( loss ) attributable to common shareholders to our adjusted ebitda for the fiscal years ended september 30 , 2020 , 2019 and 2018 ( in thousands ) : replace_table_token_13_th adjusted ebitda increased $ 4.2 million , or 3 % , for the fiscal year ended september 30 , 2020 as compared to the fiscal year ended september 30 , 2019 and increased $ 18.0 million , or 15 % , for the fiscal year ended september 30 , 2019 as compared to the fiscal year ended september 30 , 2018. the increase from fiscal year 2019 to 2020 was due to the additional income related to five industrial properties purchased during fiscal 2020 and the purchase of three industrial properties during fiscal 2019. the increase from fiscal year 2018 to 2019 was due to the additional income related to three industrial properties purchased during fiscal 2019 and the purchase of seven industrial properties during fiscal 2018. for the fiscal years ended september 30 , 2020 , 2019 and 2018 , gross revenue ,
| results of operations occupancy and rent per occupied square foot our weighted average lease expiration was 7.1 years and 7.6 years as of september 30 , 2020 and 2019 , respectively , and our average annualized rent per occupied square foot as of september 30 , 2020 and 2019 was $ 6.36 and $ 6.20 , respectively . at september 30 , 2020 and 2019 , our overall occupancy rate was 99.4 % and 98.9 % , respectively . as of september 30 , 2020 , all but two of our industrial properties were 100 % occupied , resulting in a 99.4 % overall occupancy rate . the two industrial properties that were not 100 % occupied were our 81,000 square foot building at our 256,000 square foot industrial park located in monaca ( pittsburgh ) , pa and our 55,000 square foot building located in newington ( hartford ) , ct. in addition , 3,000 square feet of our 64,000 square foot shopping center located in somerset , new jersey was vacant as of september 30 , 2020. fiscal 2020 renewals in fiscal 2020 , approximately 2 % of our gross leasable area , representing five leases totaling 410,000 square feet , was set to expire . four of these five leases , representing 355,000 square feet , or 87 % , were renewed . the four lease renewals have a weighted average lease term of 4.2 years and represent an increase in the weighted average lease rate of 12.0 % on a u.s. gaap straight-line basis and an increase in the weighted average lease rate of 4.4 % on a cash basis . we have incurred or we expect to incur tenant improvement costs of $ 423,000 in connection with two of these lease renewals and leasing commission costs of $ 217,000 in connection with three of these lease renewals . the table below summarizes the lease terms of the four leases that were renewed .
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costs are recovered in periods when the actual tonnes of waste moved are less than the average lifeofpit rate , such tonnes being valued at the rolling average cost of the waste tonnage amounts capitalized . the capitalized component of waste rock removal costs is shown on our consolidated balance sheets in the line item titled deferred stripping. the cost impact is included in the statements of operations in the line item titled mining operations. deferred stripping costs on our 2006 financial statements were related to the plant-north pit at prestea . the plant-north pit was closed in story_separator_special_tag the following discussion and analysis should be read in conjunction with the accompanying unaudited consolidated financial statements and related notes . the financial statements have been prepared in accordance with accounting principles generally accepted in canada ( cdn gaap ) . for a reconciliation to accounting principles generally accepted in the united states ( us gaap ) , see note 24 to the consolidated financial statements . this management 's discussion and analysis of financial condition and results of operations includes information available to march 12 , 2007. our business through our subsidiaries we own a controlling interest in four significant gold properties in southern ghana in west africa : bogoso/prestea property , which is comprised of the adjoining bogoso and prestea surface mining leases ( bogoso/prestea ) ; prestea underground property ( prestea underground ) ; wassa property ( wassa ) ; and hwinibutre and benso properties ( hbb properties ) . in addition to these gold properties we hold various other exploration rights and interests and are actively exploring in a variety of locations in west africa and south america . bogoso/prestea is owned by our 90 % owned subsidiary golden star ( bogoso/prestea ) limited ( gsbpl ) , ( formerly bogoso gold limited ) which was acquired in 1999. bogoso/prestea produced and sold 103,792 ounces of gold during 2006. through another 90 % owned subsidiary , golden star ( wassa ) limited ( gswl ) , ( formerly wexford goldfields limited ) , we own the wassa gold mine located some 35 kilometers east of bogoso/prestea . wassa produced and sold 97,614 ounces of gold in 2006. the prestea underground is located on the prestea property and consists of a currently inactive underground gold mine and associated support facilities . gsbpl owns a 90 % operating interest in the prestea underground . we have carried out exploration and engineering studies in recent years to determine if the underground mine can be reactivated on a profitable basis and we expect to complete in late 2007 , a feasibility study for the development and mining of certain areas of prestea underground . through a 100 % owned canadian subsidiary we own the hbb properties in southwest ghana . the hbb properties consist of the hwinibutre and benso properties which together cover an area of 201 square kilometers . both properties contain undeveloped zones of gold mineralization . the hwini-butre and benso properties are located approximately 75 and 45 kilometers south of wassa , respectively based on the proposed haulage route . the mineralized zones have been delineated through the efforts of the prior owner who conducted extensive exploration work from the mid1990s to 2005. we hold interests in several gold exploration projects in ghana and elsewhere in west africa including sierra leone , burkina faso , niger and cote d'ivoire . we also hold and manage exploration properties in suriname and french guiana in south america . we currently hold indirect interests in gold exploration properties in peru , argentina and chile through a 14 % shareholding investment in minera irl limited . our finance and administrative group is located in littleton , colorado , usa and we also maintain a regional corporate office in accra , ghana . our accounting records are kept in compliance with cdn gaap and all of our operations , except for certain exploration projects , keep financial records in us dollars . nongaap financial measures in this form 10k , we use the terms total operating cost per ounce , total cash cost per ounce and cash operating cost per ounce. total operating cost per ounce is equal to mine operating costs for the period , as found on our consolidated statements of operations , divided by the ounces of gold sold in the period . mine operating costs include all minesite operating costs , including the costs of mining , processing , maintenance , work-in-process inventory changes , minesite overhead , production taxes and royalties , mine site depreciation , depletion , amortization , asset retirement obligations and byproduct credits but does not include exploration costs , corporate general and administrative expenses , impairment charges , corporate business development costs , gains and losses on asset sales , interest expense , marktomarket gains and losses on derivatives , foreign currency gains and losses , gains and losses on investments and income tax . 49 total cash cost per ounce for a period is equal to mining operations costs for the period , as found on our consolidated statements of operations , 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 production royalties and production taxes , divided by the number of ounces of gold sold during the period . the calculations of total cash cost per ounce and cash operating cost per ounce are in compliance with an industry standard for such measures established in 1996 by the gold institute , a nonprofit industry group . story_separator_special_tag ghana 's major power generating source , the akosombo hydroelectric power station on the volta river , has cut back its power output over the past several months due to historically low water levels in the akosombo reservoir which feeds the akosombo power plant . rainfall over the last nine to twelve months has not been sufficient to restore the reservoir water levels to a point that would allow continuous unrestricted operations . 51 at the same time ghana 's other power plant , the aboadze thermal power station , was operating at less than full capacity in late 2006 due to refurbishment of a major component of one of its turbines . the repairs are now complete , but the aboadze plant is currently undergoing a conversion to a natural gas feed source and it is also expected to produce electricity at a reduced level through the first quarter of 2007. as requested by the vra , we have limited our usage of vra power at various times and in various amounts since august 2006. our cuts have been achieved by a combination of ( i ) reducing plant through-put , ( ii ) limiting activities at the prestea underground mine , which has halted the rate of exploration , and ( iii ) operating our standby diesel generating capacity . by taking these actions we have been able to continue near normal operations at bogoso/prestea and wassa but the high cost of fuel oil for our generators has contributed significantly to higher operating costs . later in 2007 , if water inflows to the akosombo reservoir during the wet season are not at least at average levels , additional rationing may be required . to this end , golden star , along with newmont mining corporation , gold fields limited and anglogold ashanti limited , have agreed to acquire a nominal 100 megawatt power station . the total expected cost to acquire and construct this power station is $ 40 million , of which we will fund 25 % . the power station is expected to be operational by mid 2007. our share of this power station will be a nominal 25 megawatts , which is sufficient to provide up to 50 % of our total power requirements in ghana when the bogoso biox ® processing plant is fully commissioned . we expect that this , combined with our diesel generators and power availability from the national grid , will be more than adequate to meet our total power requirements in 2007 including start-up of the bogoso biox ® processing plant . if there is inadequate rainfall in 2007 , we may be adversely affected by further rationing , which could increase our anticipated cash operating costs . personnel changes vice president operations : in june 2006 , we appointed colin belshaw as vice president operations . mr. belshaw is a british mining engineer with approximately 30 years experience in the mining in africa , north america , russia and europe and has a background in gold and copper mining in both open pit and underground mining situations . initially , mr. belshaw is based in ghana . vice president ghana : daniel owiredu was appointed as vice president ghana in september 2006. mr. owiredu is a ghanaian engineer with more than 20 years experience in the mining sector in ghana and west africa . most recently , mr. owiredu was deputy chief operating officer for anglogold ashanti ltd. following the amalgamation of anglogold ltd. and ashanti goldfields co. ltd. mr. owiredu is based in ghana . chief financial officer : in february 2007 , tom mair was appointed as senior vice president and chief financial officer , replacing mr. allan marter who resigned in late 2006. mr. mair is a financial and accounting professional with more than 25 years of international business experience in the natural resources industry . prior to joining golden star , mr. mair was employed by a major international gold mining company where he held positions as group financial executive , regional controller and as president-director of a major international subsidiary . other additions to management : golden star expanded its management team by employing mark thorpe , vice president sustainability ; peter bourke , vice president technical services ; david partridge , general manager bogoso/prestea , and ted strickler , vice president human resources and administration . each of the new employees has extensive experience in his field of expertise . golden star hired these employees as part of its continued focus on its strategic plan to become a mid-tier producer . sale of shares of moto goldmines limited in march 2006 , we exercised our remaining warrants to purchase 1.0 million moto goldmines limited ( moto ) shares , bringing our total ownership in moto to six million common shares and immediately afterward sold all six million common shares in a boughtdeal transaction in canada for cdn $ 7.50 per share . the sale of the six million shares resulted in net proceeds to golden star of $ 38.9 million ( cdn $ 45.0 million ) . the sale realized approximately $ 30.2 million of pretax capital gain for golden star , which was recognized in income in the first quarter of 2006. a $ 4.9 million noncash tax expense was recognized on the gain . gold prices gold prices have generally trended upward during the last five years , from a low of just under $ 260 per ounce in early 2001 to a high of $ 725 per ounce in may 2006. from may to december 2006 , the increase in gold prices flattened , averaging approximately $ 615 per ounce for these eight months but then moved up to a high of $ 680 per ounce in the first quarter of 2007. the realized gold price for our shipments during 2006 averaged $ 607 per ounce , as compared to $ 446 per ounce in 2005 . 52 bogoso sulfide expansion project the bogoso sulfide expansion project is designed to significantly expand processing capacity at bogoso/prestea .
| wassa operations 2006 compared to 2005 since wassa was in operation for only nine months in 2005 versus a full twelve months in 2006 , the operating results are not easily comparable . while wassa 's operating margins in the last nine months of 2006 were positive and improved in each quarter of 2006 , the total operating margin loss for the year was $ ( 0.8 ) million . this was a significant improvement over the $ ( 9.2 ) million operating margin loss in the nine months of 2005. the wassa cil processing plant averaged 10,111 tonnes per day at an average grade of 0.90 grams per tonne with a gold recovery of 88.8 % during 2006 , versus 9,788 tonnes per day at an average grade of 0.91 grams per tonne and a recovery rate of 88.7 % in the nine months of 2005. cash operating costs averaged $ 474 per ounce in 2006 or 1 % above 2005. total cash costs averaged $ 493 per ounce during 2006 or 2 % over the 2005 level . the increase in the average daily processing rate reflects 55 correction of plant design defects encountered early in the wassa cil processing plant 's life . the improvements in operating margins is related to higher gold output during 2006 and higher gold prices . replace_table_token_17_th ( 1 ) the wassa mine commenced commercial production in april 2005 , thus amount shown for 2005 are for nine months of operation while the 2006 results reflect a full twelve months of operation . during 2006 , wassa 's operating costs remained higher than expected and at the same time ore grades were lower than expected .
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our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors , including those discussed below and elsewhere in this annual report on form 10-k , particularly under the heading risk factors. overview background we are a leading provider of specialized online content that brings together buyers and sellers of corporate information technology ( it ) products . we sell customized marketing programs that enable it vendors to reach corporate it decision makers who are actively researching specific it purchases . our integrated content platform consists of a network of approximately 115 websites that we complement with targeted in-person events . throughout the critical stages of the purchase decision process , our content offerings meet it professionals ' needs for expert , peer and it vendor information , and provide a platform on which it vendors can launch targeted marketing campaigns that generate measurable , high return on investment ( roi ) . as it professionals have become increasingly specialized , they have come to rely on our sector-specific websites for purchasing decision support . our content enables it professionals to navigate the complex and rapidly changing it landscape where purchasing decisions can have significant financial and operational consequences . based upon the logical clustering of our users ' respective job responsibilities and the marketing focus of the products that our customers are advertising , we currently categorize our content offerings across nine distinct media groups : application architecture and development ; channel ; cio/it strategy ; data center and virtualization technologies ; business applications and analytics ; networking ; security ; storage ; and technologyguide.com . on march 1 , 2010 , we acquired ebizq.net and certain other assets from it quadrant , inc. for $ 0.5 million in cash plus a potential future earnout valued at $ 0.6 million at the time of the acquisition . ebizq.net is a leading website for business and it decision makers focused on business process management ( bpm ) and service-oriented architecture ( soa ) . ebizq.net maintains an online community with more than 100,000 members that provides original editorial and independent content from leading industry analysts and experts via blogs , webinars , podcasts , white papers , and virtual events . the earnout is expected to be paid in the first quarter of 2012 ; its current value is included in current liabilities on our balance sheet . on april 12 , 2010 , we acquired certain assets of powell media llc for $ 1.3 million in cash plus a potential future earnout valued at $ 0.9 million at the time of the acquisition . powell media llc operated the beyenetwork , a group of online technology sites that provide news , expert information and exclusive resources on the business information management lifecycle , including business intelligence ( bi ) best practices , business analytics , data integration , and data governance . all of the sites ' content is written by industry experts who share their experiences and research in a collection of articles , podcasts , and blogs focused on specific vertical industries . the earnout is expected to be paid in the first quarter of 2012 ; its current value is included in current liabilities on our balance sheet . as of october 1 , 2010 , through our wholly-owned subsidiary , techtarget ( hk ) limited ( ttgt hk ) , we obtained effective control of a variable interest entity ( vie ) , keji wangtuo information technology co. , ltd , ( kwit ) , which was incorporated under the laws of the people 's republic of china ( prc ) on november 27 , 2007 , for $ 3.2 million in cash . kwit was an existing techtarget partner which operates chinese-language versions of some of our websites . prc laws and regulations prohibit or restrict foreign ownership of internet-related services and advertising businesses . to comply with these foreign ownership restrictions , we operate our websites and provide online advertising services in the prc through this vie . initially , we entered into certain exclusive agreements with kwit and its shareholders through ttgt hk , which obligated ttgt hk to absorb all of the risk of loss from kwit 's activities and entitled ttgt hk to receive all of their residual returns . in addition , we initially entered into certain agreements with authorized parties through ttgt hk , including management and consulting services , voting proxy , equity pledge and option agreements ( the vie agreements ) . on december 31 , 2011 , ttgt hk assigned all of its rights and obligations under the vie agreements to a newly formed wholly foreign-owned enterprise ( wfoe ) , techtarget ( beijing ) information technology consulting co. , ltd. the wfoe is established and existing under the laws of the prc , and is a wholly owned subsidiary of ttgt hk . 31 based on these contractual arrangements , we consolidate the financial results of kwit as required by accounting standards codification ( asc ) subtopic 810-10 ( asc 810-10 ) , consolidation : overall ( pre-codification : financial accounting standards board ( fasb ) interpretation no . 46r , consolidation of variable interest entities , an interpretation of arb no . 51 ) , because we hold all the variable interests of kwit through ttgt hk and the wfoe , the latter of which is the primary beneficiary of the financial results of kwit . despite the lack of technical majority ownership , there exists a parent-subsidiary relationship between us and kwit through certain of the vie agreements , whereby the equity holders of kwit assigned all of their voting rights underlying their equity interest in kwit to the wfoe . in addition , through the other aforementioned agreements , we demonstrate our ability and intention to continue to exercise the ability to obtain substantially all of the profits and absorb all of the expected losses of kwit . story_separator_special_tag as is the case with white papers , we supply our users ' corporate contact and qualification information to the webcast , podcast , videocast or virtual trade show sponsor after the users view or download the content . sponsorship includes access to the registrant information and visibility before , during and after the event . custom content creation . in support of our advertisers lead generation programs , we will sometimes create white papers , case studies , webcasts , or videos to our customers ' specifications through our custom media team . these content assets are then promoted to our audience in the context of the advertisers ' lead generation programs . content sponsorships . it vendors pay us to sponsor editorially created content vehicles on specific technology topics , such as e-zines , e-books , and e-guides. in some cases , these vehicles are supported by multiple sponsors in a single segment , with the registrant information provided to all participating sponsors . because these offerings are editorially driven , advertisers get the benefit of association with independently created content , and access to qualified sales leads that are researching the topic . list rentals . we also offer it vendors the ability to message relevant registered members on topics related to their interests . it vendors can rent our e-mail and postal lists of registered members using specific criteria such as company size , geography or job title . third party revenue sharing arrangements . we have arrangements with certain third parties , including for the licensing of our online content , for the renting of our database of opted-in e-mail subscribers and for which advertising from customers of certain third parties is made available to our website visitors . in each of these arrangements we are paid a share of the resulting revenue . events . events revenue represented 13 % , 13 % and 16 % of total revenues for the years ended december 31 , 2011 , 2010 and 2009 , respectively . most of our media groups operate revenue generating events . the majority of our events are free to it professionals and are sponsored by it vendors . attendees are pre-screened based on event-specific criteria such as sector-specific budget size , company size , or job title . we offer three types of events : multi-day conferences , single-day seminars and custom events . multi-day conferences provide independent expert content for our attendees and allow vendors to purchase exhibit space and other sponsorship offerings that enable interaction with the attendees . we also hold single-day seminars on various topics in major cities . these seminars provide independent content on key sub-topics in the sectors we serve , are free to qualified attendees , and offer multiple vendors the ability to interact with specific , targeted audiences actively focused on buying decisions . our custom events differ from our seminars in that they are exclusively sponsored by a single it vendor , and the content is driven primarily by the sole sponsor . 33 cost of revenues , operating expenses and other expenses consist of cost of revenues , selling and marketing , product development , general and administrative , depreciation , amortization and restructuring charges . personnel-related costs are a significant component of most of these expense categories except depreciation and amortization . cost of online revenue . cost of online revenue consists primarily of : salaries and related personnel costs ; member acquisition expenses ( primarily keyword purchases from leading internet search sites ) ; freelance writer expenses ; website hosting costs ; vendor expenses associated with the delivery of webcast , podcast , videocast and similar content , and list rental offerings ; stock-based compensation expenses ; facilities and other related overhead . cost of events revenue . cost of events revenue consists primarily of : facility expenses , including food and beverages for the event attendees as well as space rental ; salaries and related personnel costs ; event speaker expenses ; stock-based compensation expenses ; and other related overhead . selling and marketing . selling and marketing expense consists primarily of : salaries and related personnel costs ; sales commissions ; travel , lodging and other out-of-pocket expenses ; stock-based compensation expenses ; facilities and other related overhead . sales commissions are recorded as expense when earned by the employee , based on recorded revenue . product development . product development includes the creation and maintenance of our network of websites , advertiser offerings and technical infrastructure . product development expense consists primarily of salaries and related personnel costs ; stock-based compensation expenses ; and facilities and other related overhead . general and administrative . general and administrative expense consists primarily of : salaries and related personnel costs ; facilities expenses ; accounting , legal and other professional fees ; and stock-based compensation expenses . depreciation . depreciation expense consists of the depreciation of our property and equipment . depreciation of property and equipment is calculated using the straight-line method over their estimated useful lives , ranging from two to ten years . amortization of intangible assets . amortization of intangible assets expense consists of the amortization of intangible assets recorded in connection with our acquisitions . separable intangible assets that are not deemed to have an indefinite life are amortized over their useful lives , which range from one to nine years , using methods that are expected to reflect the estimated pattern of economic use . restructuring charges . restructuring charges consist of employee severance and associated termination costs . interest income ( expense ) , net . interest income ( expense ) , net consists primarily of interest income earned on cash , cash equivalents and short and long-term investments less interest expense incurred . we historically have invested our cash in money market accounts , municipal bonds and government agency bonds .
| results of operations the following table sets forth our results of operations for the periods indicated : replace_table_token_8_th 37 replace_table_token_9_th comparison of fiscal years ended december 31 , 2011 and 2010 revenues replace_table_token_10_th online . the increase in online revenue was primarily attributable to a $ 7.5 million increase in lead generation offerings , primarily due to an increase in sponsorship and white paper sales volumes . branding revenues also increased by $ 2.2 million , due primarily to an increase in banner sales volume , and third party revenue increased by $ 0.3 million . events . the increase in events revenue is due to the addition of a new multi-day conference in 2011 that was not held in 2010 , offset in part by an overall reduction in custom events and seminars . cost of revenues and gross profit replace_table_token_11_th cost of online revenue . the increase in cost of online revenues was a result of the 12 % increase in online revenue and was primarily attributable to a $ 1.0 million increase in hosting and production costs , primarily related to increased international partner activity and freelancer costs , and a $ 1.0 million increase in payroll-related expenses due to increased headcount . cost of events revenue . cost of events revenues increased in 2011 as compared to 2010 , primarily due to costs related to the new multi-day conference added in 2011 as well as an overall increase in the number of single-day events and change in the overall mix of event types . 38 gross profit . our gross profit is equal to the difference between our revenues and our cost of revenues for the period . gross margin for 2011 and 2010 was 74 % .
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we had unrealized appreciation of approximately $ 1.0 million and unrealized depreciation of approximately $ 15.2 million for tax purposes , or net unrealized depreciation of approximately $ 14.2 million as of december 31 , 2012. as of december 31 , 2012 , we had approximately $ 29.3 million in capital losses , of which $ 15.6 million will expire after 2017 , and remaining $ 13.7 million can be carried story_separator_special_tag overview equus is a bdc that provides financing solutions for privately held middle market and small capitalization companies . we began operations in 1983 and have been a publicly traded closed-end fund since 1991. our investment objective is to seek the highest total return , consisting of capital appreciation and current income . as a bdc , we are required to comply with certain regulatory requirements . for instance , we generally have to invest at least 70 % of the fund 's total assets in “ qualifying assets , ” including securities of private u.s. companies , certain public u.s. companies with a total market capitalization not in excess of $ 250 million , cash , cash equivalents , u.s. government securities and short-term high-quality debt investments . equus is a ric under subchapter m of the code . to qualify as a ric , we must meet certain source of income and asset diversification requirements . if we comply with the provisions of subchapter m , the fund generally does not have to pay corporate-level income taxes on any income that distributed to our stockholders . investment income . we generate investment income from interest payable on the debt securities that the fund holds , dividends received on equity interests in our portfolio companies and capital gains , if any , realized upon sales of equity and , to a lesser extent , debt securities in the investment portfolio . our equity investments may include shares of common and preferred stock , membership interests in limited liability companies and warrants to purchase additional equity interests . these equity securities may or may not pay dividends , and the exercise prices of warrants that we acquire in connection with debt investments , if any , vary by investment . our debt investments in portfolio companies may be in the form of senior or subordinated loans and may be unsecured or have a first or second lien on some or all of the assets of the borrower . our loans typically have a term of three to seven years and bear interest at fixed or floating rates . interest on these debt securities is generally payable either quarterly or semiannually . some promissory notes held by the fund provide that a portfolio 20 company may elect to pay interest in cash or provide that discount interest may accrete in the form of original issue discount or payment-in-kind ( pik ) over the life of the notes by adding unpaid interest amounts to the principal balance . amortization of principal on our debt investments is generally deferred for several years from the date of initial investment . the principal amount of these debt securities and any accrued but unpaid interest generally will become due at maturity . we also earn interest income at market rates on investments in short-term marketable securities . from time to time , we generate income from time to time in the form of commitment , origination and structuring fees in connection with our investments . we recognize all such fees when earned . expenses . currently , our primary operating expenses include director fees and expenses , professional fees , compensation expense , and general and administrative fees . during 2012 , we did not incur any non-recurring expenses . during 2011 , we incurred non-recurring expenses , including settlement expenses , related to the various legal proceedings described in item 3 above , of $ 0.3 million , as well as offering costs of $ 0.4 million . during 2010 , professional fees and other expenses incidental to our annual meeting and proxy contest were $ 0.7 million . operating activities . we use cash to make new investments and follow-on investments in our existing portfolio companies . we record these investments at cost on the applicable trade date . realized gains or losses are computed using the specific identification method . on an ongoing basis , we carry our investments in our financial statements at fair value , as determined by our board of directors . see “ —critical accounting policies – valuation of investments ” below . as of december 31 , 2012 , we had invested 28.1 % of our net assets in securities of portfolio companies that constituted qualifying investments under the 1940 act . at that time , we had invested 1.2 % by value in shares of common stock , 21.3 % in membership interests in limited liability companies , and 5.6 % in various debt instruments . under certain circumstances , we make follow-on investments in some of our portfolio companies . as of december 31 , 2012 , we had no outstanding commitments to our portfolio company investments . financing activities . from time to time , we use leverage to finance a portion of our investments . we then repay such debt from the sale of portfolio securities . under the 1940 act , we have the ability to borrow funds and issue debt securities or preferred stock that are referred to as senior securities , subject to certain restrictions including an overall limitation on the amount of outstanding debt , or leverage , relative to equity of 1:1. because of the nature and size of our portfolio investments , we periodically borrow funds to make qualifying investments in order to maintain our qualification as a ric . during 2012 and 2011 , we borrowed such funds by accessing a margin account with a securities brokerage firm . we invest the proceeds of these margin loans in high-quality securities such as u.s. treasury securities until they are repaid . story_separator_special_tag market approach – the market approach typically employed by management calculates the enterprise value of a company as a multiple of earnings before interest , taxes , depreciation and amortization ( “ ebitda ” ) generated by the company for the trailing twelve month period . adjustments to the company 's ebitda , including those for non-recurring items , may be considered . multiples are estimated based on current market conditions and past experience in the private company marketplace and are subjective in nature . we will apply liquidity and other discounts it deems appropriate to equity valuations where applicable . we may also use , when available , third-party transactions in a portfolio company 's securities as the basis of valuation ( the “ private market method ” ) . the private market method will be used only with respect to completed transactions or firm offers made by sophisticated , independent investors . income approach – the income approach typically utilized by management calculates the enterprise value of a company utilizing a discounted cash flow model incorporating projected future cash flows of the company . projected future cash flows consider the historical performance of the company as well as current and projected market participant performance . discount rates are estimated based on current market conditions and past experience in the private company marketplace and are subjective in nature . we will apply liquidity and other discounts it deems appropriate to equity valuations where applicable . asset approach – we consider the asset approach to determine the fair value of significantly deteriorated investments demonstrating circumstances indicative of a liquidation analysis . this situation may arise when a portfolio company : 1 ) can not generate adequate cash flow to meet the principal and interest payments on its indebtedness ; 2 ) is not successful in refinancing the its debt upon maturity ; 3 ) we believe the credit quality of a loan has deteriorated due to changes in the business and underlying asset or market conditions may result in the company 's inability to meet future obligations ; or 4 ) the portfolio company 's reorganization or bankruptcy . consideration is also given as to whether a liquidation event would be orderly or forced . our general intent is to hold our loans to maturity when appraising our privately held debt investments . as such , we believe that the fair value will not exceed the cost of the investment . however , in addition to the previously described analysis involving allocation of value to the debt instrument , we perform a yield analysis to determine if a debt security has been impaired . certificates of deposit purchased by the fund generally will be valued at their face value , plus interest accrued to the date of valuation . 22 the audit committee of the board of directors may engage independent , third-party valuation firms to conduct independent appraisals and review management 's preliminary valuations of each privately-held investment that the fund ( a ) has held for more than one year and ( b ) holds on its books at a fair value of at least $ 2.0 million in order to make their own independent assessment . any third-party valuation data would be considered as one of many factors in a fair value determination . the audit committee then would recommend the fair values for all privately-held securities based on all relevant factors to the board of directors for final approval . because of the inherent uncertainty of the valuation of portfolio securities which do not have readily ascertainable market values , amounting to $ 9.0 million and $ 19.2 million as of december 31 , 2012 and 2011 , respectively , our fair value determinations may materially differ from the values that would have been used had a ready market existed for the securities . as of december 31 , 2012 , one of our portfolio investments , consisting of 73,666 ordinary shares of opg , was publicly listed on the nyse euronext paris exchange , along with 1,200,790 in newly-issued 6-year opg notes . as of december 31 , 2011 , we held 8,890 4 % bonds due may 2012 issued by orco germany s.a. were publicly listed on the euro mtf market of the luxemburg stock exchange . however , there had been no recent trading activity . on a daily basis , we adjust our net asset value for the changes in the value of our publicly held securities , if applicable , and material changes in the value of private securities , generally determined on a quarterly basis or as announced in a press release , and reports those amounts to lipper analytical services , inc. weekly and daily net asset values appear in various publications , including barron 's and the wall street journal . federal income taxes we intend to comply with the requirements of the code necessary for us to qualify as a ric . so long as we comply with these requirements , we generally will not be subject to corporate-level federal income taxes on otherwise taxable income ( including net realized capital gains ) distributed to stockholders . therefore , we did not record a provision for federal income taxes in our financial statements . as of december 31 , 2012 , we had a capital loss carry forward of $ 29.3 million which may be used to offset future capital gains . we may borrow money from time to time to maintain our status as a ric under the code . see “ —overview – financing activities ” above . interest income recognition we record interest income , adjusted for amortization of premium and accretion of discount , on an accrual basis to the extent that we expect to collect such amounts . we stop accruing interest on investments when we determine that interest is no longer collectible . we may also impair the accrued interest when we determine that all or a portion of the current accrual is uncollectible .
| summary of portfolio investment activity year ended december 31 , 2012 during the year ended december 31 , 2012 , we received $ 6.4 million from the disposal of the fund 's 55 % fully-diluted equity interest in sovereign , together with the fund 's promissory note and all interest as accrued interest . we also received $ 5.3 million from the disposal of the fund 's 34.2 % fully equity interest in conglobal , together with the fund 's promissory note and all interest as accrued interest . on may 7 , 2012 , holders of 72.5 % of all og bondholders approved a joint restructuring of certain bond debt of og and its parent company , opg . pursuant to such restructuring , approximately 84.5 % of the orco germany bonds held by each bondholder were converted into obligations convertibles en actions ( “ oca ” ) on may 9 , 2012. the oca were converted into an aggregate of 26,209,613 opg shares which were delivered in two tranches . the first tranche , consisting of 18,361,540 opg shares , was delivered in may 2012 , of which the fund received 1,102,455 opg shares . the second tranche , consisting of 7,848,073 opg shares , was received in october 2012. also in october , the remaining 15.5 % of the orco germany bonds held by each bondholder was converted into 6-year new opg notes with a face value of 20.0 million bearing cash and pik interest each at 5 % per annum , which interest percentages may be reduced over time upon timely repayments of principal tranches during a four-year period commencing in 2015. of the total amount of new opg notes issued , equus received new opg notes in the face amount of 1,200,790. on october 15 , 2012 , we announced the sale of 1,500,000 of our 1,573,666 opg shares , where we received net cash proceeds of 3.8 million [ $ 4.9 million ] .
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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 '' . overview dick 's is an authentic full-line sports and fitness omni-channel retailer offering a broad assortment of high quality , competitively priced brand name sporting goods equipment , apparel and footwear in a specialty store environment . the company also owns and operates golf galaxy , llc , a golf specialty retailer ( `` golf galaxy '' ) . as of february 2 , 2013 , we operated 518 dick 's stores in 44 states and 81 golf galaxy stores in 30 states , with approximately 29.6 million square feet on a consolidated basis , the majority of which are located throughout the eastern half of the united states . the primary factors that historically influenced the company 's profitability and success have been the growth in its number of stores and selling square footage , positive same store sales and its strong gross profit margins . in the last five years , the company has grown from 355 dick 's stores at the end of fiscal 2007 to 518 dick 's stores at the end of fiscal 2012. the company continues to expand its presence through the opening of new stores and believes it has the potential to reach approximately 1,100 dick 's locations across the united states . 26 in order to monitor the company 's success , the company 's senior management monitors certain key performance indicators , including : consolidated same store sales performance fiscal 2012 consolidated same store sales increased 4.3 % compared to a 2.0 % increase in fiscal 2011. the company believes that its ability to consistently deliver increases in consolidated same store sales will be a key factor in achieving its targeted levels of earnings per share growth and continuing its store expansion and omni-channel development programs . operating cash flow the company generated $ 438.3 million of cash flow from operations in fiscal 2012 compared to $ 410.4 million in fiscal 2011. see the `` liquidity and capital resources '' section herein for further discussion of the company 's cash flows . the company believes that a key strength of its business has been the ability to consistently generate positive cash flow from operations . strong cash flow generation is critical to the future success of the company , not only to support the general operating needs of the company , but also to fund capital expenditures related to its store network , distribution and administrative facilities , costs associated with continued improvement of information technology tools , costs associated with potential strategic acquisitions that may arise from time to time and stockholder return initiatives , including cash dividends and share repurchases . quality of merchandise offerings to monitor and maintain acceptance of its merchandise offerings , the company monitors sell-throughs , inventory turns , gross margins and markdown rates on a department and style level . this analysis helps the company manage inventory levels to reduce cash flow requirements and deliver optimal gross margins by improving merchandise flow and establishing appropriate price points to minimize markdowns . store productivity to assess store-level performance , the company monitors various indicators , including new store productivity , sales per square foot , store operating contribution margin and store cash flow . new store productivity compares the sales increase for all stores not included in the same store sales calculation with the increase in square footage . executive summary net income for the 53 weeks ended february 2 , 2013 increased 10 % to $ 290.7 million , or $ 2.31 per diluted share , as compared to net income of $ 263.9 million , or $ 2.10 per diluted share , during the 52 weeks ended january 28 , 2012. fiscal 2012 net income included a charge of $ 27.6 million , net of tax , or $ 0.22 per diluted share related to the company 's impairment of its investment in jjb sports plc ( `` jjb sports '' ) . fiscal 2011 net income included a gain on sale of investment of $ 8.7 million , net of tax , or $ 0.07 per diluted share and an increase to net income of $ 1.3 million , net of tax , or $ 0.01 per diluted share , resulting from a partial reversal of litigation settlement costs previously accrued during fiscal 2010. net sales increased 12 % to $ 5,836.1 million in fiscal 2012 from $ 5,211.8 million in fiscal 2011 due primarily to a 4.3 % increase in consolidated same store sales on a 52-week to 52-week basis , growth of our store network and the inclusion of the 53 rd week of sales . gross profit increased to 31.48 % in fiscal 2012 as a percentage of net sales from 30.60 % in fiscal 2011 due primarily to leverage of fixed occupancy costs and higher merchandise margins . in fiscal 2012 , the company : declared aggregate cash dividends of $ 2.50 per share , including a special cash dividend in the amount of $ 2.00 per share . augmented its private brand portfolio through the acquisition of the top-flite brand . the company acquired all top-flite trademarks and service marks world-wide . 27 made a £20 million investment in jjb sports , purchasing £18.75 million of junior secured convertible notes and 12.5 million ordinary shares of jjb sports for £1.25 million , for a total investment of $ 32.0 million . the company fully impaired its investment in its second fiscal quarter , as further described in note 15 to the consolidated financial statements . purchased its corporate headquarters building for $ 133.4 million , which included closing costs . the company funded the purchase with cash on hand . completed its previously announced share repurchase program . story_separator_special_tag income from operations income from operations increased $ 122.8 million to $ 432.0 million in fiscal 2011 from $ 309.2 million in fiscal 2010. gross profit increased 10 % to $ 1,594.9 million in fiscal 2011 from $ 1,449.0 million in fiscal 2010. as a percentage of net sales , gross profit increased to 30.60 % in fiscal 2011 from 29.75 % in fiscal 2010. the 85 basis point increase is due primarily to a 68 basis point increase in merchandise margin that resulted from our continued inventory management efforts , evidenced by less clearance activity compared with last year and changes in sales mix at our dick 's stores . gross profit was further impacted by a 36 basis 31 point decrease in fixed occupancy costs resulting primarily from leverage on the increase in consolidated same store sales compared to fiscal 2010. every 10 basis point change in merchandise margin would have impacted fiscal 2011 earnings before income taxes by approximately $ 5 million . selling , general and administrative expenses increased 2 % to $ 1,148.3 million in fiscal 2011 from $ 1,129.3 million in fiscal 2010 , but decreased as a percentage of net sales by 115 basis points . fiscal 2010 included expenses totaling $ 16.4 million relating to future lease obligations and asset impairment charges resulting from the closure of 12 underperforming golf galaxy stores , which contributed 34 basis points as a percentage of net sales to the total decrease . during the third quarter of 2011 , the company transferred funds in final satisfaction of its obligations under a court approved settlement of a wage and hour class action lawsuit . the settlement funding was $ 2.1 million lower than the previous estimate of $ 10.8 million , recognized in fiscal 2010. in total , this legal settlement contributed 26 basis points to the decrease in selling , general and administrative expenses from fiscal 2010. as a percentage of net sales , advertising and store payroll expenses decreased 20 basis points and 17 basis points from fiscal 2010 , respectively , due to leverage on the increase in net sales in fiscal 2011. pre-opening expenses increased $ 4.1 million to $ 14.6 million in fiscal 2011 from $ 10.5 million in fiscal 2010. pre-opening expenses were for the opening of 36 new dick 's stores as well as the relocation of one golf galaxy store in fiscal 2011 compared to the opening of 26 new dick 's stores and two new golf galaxy stores and the relocation of two dick 's stores in fiscal 2010. pre-opening expenses in any year fluctuate depending on the timing and number of store openings and relocations . gain on sale of investment gain on sale of investment was $ 13.9 million in fiscal 2011 resulting from the sale of the company 's remaining investment in gsi commerce , inc. , the company 's ecommerce service provider . interest expense interest expense totaled $ 13.9 million for fiscal 2011 compared to $ 14.0 million for fiscal 2010. interest expense for fiscal 2011 and fiscal 2010 included $ 10.6 million related to rent payments under the company 's financing lease for its corporate headquarters building . the company did not make any borrowings under its revolving credit facility in fiscal 2011 or 2010. income taxes the company 's effective tax rate was 38.9 % for fiscal 2011 as compared to 38.8 % for fiscal 2010. liquidity and capital resources overview the company 's liquidity and capital needs have generally been met by cash from operating activities . net cash provided by operating activities for fiscal 2012 was $ 438.3 million compared to $ 410.4 million for fiscal 2011. net cash from operating , investing and financing activities are discussed further below . the company has a $ 500 million revolving credit facility , including up to $ 100 million in the form of letters of credit , in the event further liquidity is needed . under the credit agreement governing the facility ( the `` credit agreement '' ) , subject to the satisfaction of certain conditions , the company may request an increase of up to $ 250 million in borrowing availability . the credit agreement , which matures on december 5 , 2016 , is secured by a first priority security interest in certain property and assets , including receivables , inventory , deposit accounts and other personal property of the company and is guaranteed by certain of the company 's domestic subsidiaries . the interest rates per annum applicable to loans under the credit agreement are , at the company 's option , a base rate or an adjusted libor rate plus , in each case , an applicable margin percentage . 32 the applicable margin percentage for base rate loans is 0.20 % to 0.50 % and for adjusted libor rate loans is 1.20 % to 1.50 % , depending on the borrowing availability of the company . the credit agreement contains certain covenants that limit the ability of the company to , among other things : incur or guarantee additional indebtedness ; pay distributions on , redeem or repurchase capital stock or redeem or repurchase subordinated debt ; make certain investments ; sell assets ; and consolidate , merge or transfer all or substantially all of the company 's assets . in addition , the credit agreement contains a covenant that requires the company to maintain a minimum adjusted availability of 7.5 % of its borrowing base . there were no outstanding borrowings under the credit agreement as of february 2 , 2013 or january 28 , 2012. as of february 2 , 2013 and january 28 , 2012 , total remaining borrowing capacity , after subtracting letters of credit , was $ 488.7 million and $ 478.8 million , respectively . normal capital requirements consist primarily of capital expenditures related to the addition of new stores , remodeling and relocating existing stores , enhancing information technology and improving distribution infrastructure .
| results of operations the following table presents for the periods indicated selected items in the consolidated statements of income as a percentage of the company 's net sales , as well as the basis point change in percentage of net sales from the prior year : replace_table_token_9_th ( a ) column does not add due to rounding . ( 1 ) revenue from retail sales is recognized at the point of sale , net of sales tax . revenue from ecommerce sales is recognized upon shipment of merchandise . service-related revenue is recognized as the services are performed . a provision for anticipated merchandise returns is provided through a reduction of sales and cost of goods sold in the period that the related sales 28 are recorded . revenue from gift cards and returned merchandise credits ( collectively the `` cards '' ) are deferred and recognized upon the redemption of the cards . these cards have no expiration date . income from unredeemed cards is recognized on the consolidated statements of income within selling , general and administrative expenses at the point at which redemption becomes remote . the company performs an evaluation of the aging of the unredeemed cards , based on the elapsed time from the date of original issuance , to determine when redemption becomes remote . ( 2 ) cost of goods sold includes the cost of merchandise , inventory shrinkage and obsolescence , freight , distribution and store occupancy costs . store occupancy costs include rent , common area maintenance charges , real estate and other asset-based taxes , store maintenance , utilities , depreciation , fixture lease expenses and certain insurance expenses . ( 3 ) selling , general and administrative expenses include store and field support payroll and fringe benefits , advertising , bank card charges , information systems , marketing , legal , accounting , other store expenses and all expenses associated with operating the company 's corporate headquarters .
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in certain contracts , software licenses may be sold with implementation services that include a significant service of integrating , customizing or modifying the software . in these instances , the software license is combined into single performance obligation with the implementation services and recognized over time as the implementation services are performed . hardware and software licenses ( when not combined with professional services ) story_separator_special_tag the following discussion and analysis compares the change in the consolidated financial statements for fiscal years 2020 and 2019 and should be read in conjunction with item 8 : financial statements and supplementary data . for comparisons of fiscal years 2019 and 2018 , see our management 's discussion and analysis of financial condition and results of operations in part ii , item 7 of our 2019 annual report on form 10-k , filed with the securities and exchange commission ( sec ) on february 27 , 2020 , and incorporated herein by reference . the objective of management 's discussion and analysis is to provide our assessment of the financial condition and results of operations including an evaluation of our liquidity and capital resources along with material events occurring during the year . the discussion and analysis focuses on material events and uncertainties known to management that are reasonably likely to cause reported financial information not to be necessarily indicative of future operating results or of future financial condition . in addition , we address matters that are reasonably likely based on management 's assessment to have a material impact on future operations . we expect that the analysis will enhance a reader 's understanding of our financial condition , cash flows , and other changes in financial condition and results of operations . overview we are a technology and service company , and we are a leader in the industrial internet of things ( iiot ) . we offer solutions that enable utilities and municipalities to safely , securely and reliably operate their critical infrastructure . our solutions include the deployment of smart networks , software , services , devices , sensors , and data analytics that allow our customers to manage assets , secure revenue , lower operational costs , improve customer service , improve safety , and enable efficient management of valuable resources . our comprehensive solutions and data analytics address the unique challenges facing the energy , water , and municipality sectors , including increasing demand on resources , non-technical loss , leak detection , environmental and regulatory compliance , and improved operational reliability . we operate under the itron brand worldwide and manage and report under three operating segments : device solutions , networked solutions , and outcomes . the product and operating definitions of the three segments are as follows : device solutions – this segment primarily includes hardware products used for measurement , control , or sensing that do not have communications capability embedded for use with our broader itron systems , i.e. , hardware-based products not part of a complete `` end-to-end '' solution . examples from the device solutions portfolio include : standard endpoints that are shipped without itron communications , such as our standard gas , electricity , and water meters for a variety of global markets and adhering to regulations and standards within those markets , as well as our heat and allocation products ; communicating meters that are not a part of an itron end-to-end solution such as smart spec meters ; and the implementation and installation of non-communicating devices , such as gas regulators . networked solutions – this segment primarily includes a combination of communicating devices ( e.g. , smart meters , modules , endpoints , and sensors ) , network infrastructure , and associated application software designed and sold as a complete solution for acquiring and transporting robust application-specific data . networked solutions includes products and software for the implementation , installation , and management of communicating devices and data networks . examples from the networked solutions portfolio include : communicating measurement , control , or sensing endpoints such as our itron® and openway® riva meters , itron traditional ert® technology , intelis smart gas or water meters , 500g gas communication modules , 500w water communication modules ; genx networking products , network modules and interface cards ; and specific network control and management software applications . the iiot solutions supported by this segment include automated meter reading ( amr ) , advanced metering infrastructure ( ami ) , smart grid and distribution automation , smart street lighting and an ever-growing set of smart city applications such as traffic management , smart parking , air quality monitoring , electric vehicle charging , customer engagement , digital signage , acoustic ( e.g. , gunshot ) detection , and leak detection and mitigation for both gas and water systems . our iiot platform allows all of these industry and smart city applications to be run and managed on a single , multi-purpose network . outcomes – this segment primarily includes our value-added , enhanced software and services in which we manage , organize , analyze , and interpret data to improve decision making , maximize operational profitability , drive resource efficiency , and deliver results for consumers , utilities , and smart cities . outcomes places an emphasis on delivering to itron customers high-value , turn-key , digital experiences by leveraging the footprint of our device solutions and networked solutions segments . the revenues from these offerings are primarily recurring in nature and would include any direct management of device solutions , networked solutions , and other products on behalf of our end customers . examples from the outcomes portfolio include : our meter data management and analytics offerings ; our managed service solutions including network-as-a-service ( naas ) and platform-as-a-service , forecasting software and services ; our distributed intelligence suite of applications and services ; and any 25 consulting-based engagement . within the outcomes segment , we also identify new business models , including performance-based contracting , to drive broader portfolio offerings across utilities and cities . story_separator_special_tag other benefits , including options to defer payroll tax payments and additional deductions , have resulted in reduced future cash outlays in the near term . 2020 restructuring plan on september 17 , 2020 , our board of directors approved a restructuring plan ( the 2020 projects ) , which includes activities that continue our efforts to optimize our global supply chain and manufacturing operations , sales and marketing organizations , and other overhead . these projects are scheduled to be substantially complete by the end of 2022. we estimate pre-tax restructuring charges of $ 55 million to $ 65 million , of which approximately $ 35 million to $ 45 million will result in cash expenditures , and the remainder relates to non-cash charges . of the total expected charges , $ 43.2 million was recognized in 2020. the largest component of expected remaining costs to be recognized is related to a non-cash cumulative translation adjustment charge . many of the affected employees are represented by unions or works councils , which require consultation , and potential restructuring projects may be subject to regulatory approval , both of which could impact the timing of charges , total expected charges , cost recognized , and planned savings in certain jurisdictions . refer to item 8 : financial statements and supplementary data , note 13 : restructuring for more information . sale of business on june 25 , 2020 , we closed on the sale of five subsidiaries comprising our manufacturing and sales operations in latin america to buyers led by instalación profesional y tecnologías del centro s.a. de c.v. , a mexican company doing business as accell in brazil ( accell ) , through the execution of various definitive stock purchase agreements . the sale of these latin america-based operations is part of our continued strategy to improve profitability and focus on growing our networked solutions and outcomes businesses in latin america and throughout the world . we retained the intellectual property rights to our products sold in latin america . as part of the transaction , we entered into an intellectual property license agreement whereby accell pays a royalty on certain products manufactured by accell using licensed company intellectual property . in addition , accell serves as the exclusive distributor for our device solutions , networked solutions , and outcomes product and service offerings in latin america . we recognized a loss on sale of business of $ 59.8 million during the year ended december 31 , 2020 , primarily due to foreign currency translation losses and allocated goodwill . refer to item 8 : financial statements and supplementary data , note 18 : sale of business for more information . credit facility revolving line of credit in march 2020 , we drew $ 400 million in u.s. dollars under the multicurrency revolving line of credit ( the revolver ) within the credit facility that was initially entered on january 5 , 2018 and amended on october 18 , 2019 ( 2018 credit facility ) to increase our cash position and preserve future financial flexibility . during the fourth quarter , we repaid the $ 400 million under the revolver . at december 31 , 2020 , there were no amounts outstanding under the revolver and $ 64.9 million was utilized by outstanding standby letters of credit , resulting in $ 435.1 million available for additional borrowings or standby letters of credit under the revolver . at december 31 , 2020 , $ 235.1 million was available for additional standby letters of credit under the letter of credit sub-facility and no amounts were outstanding under the swingline sub-facility . credit facility amendment on october 19 , 2020 , we completed a second amendment to our 2018 credit facility . this amendment adjusts the maximum total net leverage ratio thresholds for the period beginning with the fourth quarter of 2020 through the fourth quarter of 2021 to allow for increased operational flexibility . the maximum leverage ratio is increased to 4.75:1 for the fourth quarter of 2020 and the first quarter of 2021 and 4.5:1 for the second quarter through the fourth quarter of 2021. an additional level of pricing was added to the existing pricing grid and is effective throughout the remaining term of the 2018 credit facility . beginning with the 27 fourth quarter of 2020 , the commitment fee ranges from 0.15 % to 0.30 % and drawn amounts are s ubject to a margin ranging from 1.00 % to 2.00 % . debt fees of approximately $ 1.4 million were incurred for the amendment , as well as other legal and advisory fees . both the u.s. term loan ( the term loan ) and the revolver may be repaid without penalty . amounts repaid on the term loan may not be reborrowed and amounts borrowed under the revolver may be repaid and reborrowed until the revolver 's maturity , at which time all outstanding loans together with all accrued and unpaid interest must be repaid . stock repurchase authorization on march 14 , 2019 , itron 's board of directors authorized the company to repurchase up to $ 50 million of our common stock over a 12-month period ( the 2019 stock repurchase program ) . following the announcement of the program and through december 31 , 2019 , we repurchased 529,396 shares at an average share price of $ 47.22 ( including commissions ) for a total of $ 25 million . the program expired on march 13 , 2020 , and no additional shares were repurchased during 2020. total company gaap and non-gaap highlights and endpoints under management replace_table_token_3_th ( 1 ) these measures exclude certain expenses that we do not believe are indicative of our core operating results . see pages 42-44 for information about these non-gaap measures and reconciliations to the most comparable gaap measures . 28 introduction to itron 's managed endpoint metric more than 15 years ago we accelerated our ability to offer utilities higher value solutions with the purchase of schlumberger 's electricity metering business .
| operating segment results the following tables and discussion highlight significant changes in trends or components of each operating segment : replace_table_token_8_th 32 device solutions : the effects of changes in foreign currency exchange rates and the constant currency changes in certain device solutions segment financial results were as follows : replace_table_token_9_th revenues revenues decreased by $ 164.9 million in 2020 , or 19 % , compared with 2019 of which $ 3.9 million was due to foreign exchange rate changes . the decrease was mainly due to reduced shipments driven by covid-19 and revenue decreased $ 33.0 million in the latin america region driven by the sale of the business in june 2020. gross margin gross margin was 12.5 % in 2020 compared with 17.8 % in 2019. the 530 basis point decrease was primarily due to covid-19 induced operating inefficiencies , unfavorable product mix and increased inventory reserves . operating expenses operating expenses decreased $ 8.7 million , or 16 % . the decrease was primarily a result of a $ 6.6 million decrease in research and development costs , and a $ 2.1 million decrease due to lower sales commissions and travel costs . networked solutions : the effects of changes in foreign currency exchange rates and the constant currency changes in certain networked solutions segment financial results were as follows : replace_table_token_10_th revenues revenues decreased by $ 167.9 million , or 12 % , in 2020 compared with 2019. the change was primarily due to the timing of customer deployments and the impact of covid-19 project delays , with lower product revenue of $ 173.7 million partially offset by higher maintenance service revenue of $ 5.8 million . gross margin gross margin was 34.6 % in 2020 compared with 36.6 % in 2019. the decrease of 200 basis points was primarily related to covid-19 induced operational inefficiencies and unfavorable product mix . operating expenses operating expenses increased by $ 3.4 million , or 2.8
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f - 17 cap 1 also has the right to nominate a director to the company 's board of directors so long as it beneficially owns , on an as-converted basis , at least 20 % of the outstanding equity securities of the company , subject to satisfaction of reasonable qualification standards and nominating and corporate governance committee approval of the nominee . see note 6. during the year ended april 30 , 2019 , the company story_separator_special_tag the following discussion of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and the notes thereto included elsewhere in this report . overview we own or lease and operate 17 ski resorts throughout the northeast , mid-atlantic and midwest , united states . our ski resorts , which include both day ski resorts and overnight drive ski resorts , offer snow skiing , snowboarding and other snow sports . during the last two ski seasons , we had an average of 1.9 million skier visits each year . we operate in a single reportable business segment—resort operations . the consolidated financial data presented in this report is comprised of the data of our 17 ski resorts , including data of liberty mountain , roundtop mountain and whitetail resorts since the date of the snow time acquisition . the opening and closing dates of our ski resorts are dependent upon weather conditions , but our peak ski season generally runs from early december through mid-april . see item 1 , “ business—seasonality ” for information about the historical opening and closing dates for our resorts . like other day ski resort and overnight drive ski resort operators , we earn our revenues in six principal categories . in order of their contribution , they are : lift and tubing tickets , food and beverage sales , equipment rentals , hotel/lodging , ski instruction , and retail . our largest source of revenue is the sale of lift tickets ( including season passes ) which represented approximately 50.5 % , 46.8 % and 47.1 % of net revenue for the years ending april 30 , 2019 , 2018 and 2017 , respectively . lift ticket revenue is driven by the volume of lift tickets and season passes sold and the pricing of these items . most of our season pass products are sold before the start of the ski season . for the 2018/2019 , 2017/2018 and 2016/2017 ski seasons , approximately 34.2 % , 36.3 % and 34.5 % , respectively , of total lift revenue recognized was comprised of season pass revenue . season pass revenue , although collected prior to the ski season , is recognized ratably over the ski season based upon the number of days our resorts are open . the cost structure of our operations has significant fixed and variable components . our significant variable expenses include retail and food and beverage cost of sales , labor costs and power and utilities . as such , operating margins can fluctuate based on the level of revenues . recent developments - the snow time acquisition and related financing the snow time acquisition on november 21 , 2018 , we completed our acquisition of all of the issued and outstanding shares of common stock of snow time for total consideration of $ 71.6 million , which consisted of $ 66.6 million in cash , net of cash acquired of $ 1.0 million , and 1,183,432 shares of common stock with a value of $ 6.0 million based on the company 's closing stock price on the day the transaction closed . the sellers had the right to receive $ 6.0 million of common stock as determined using the average closing price of the common stock for the 20 trading days immediately preceding the closing , which was $ 5.07. we acquired snow time in order to expand our portfolio of resorts . snow time 's resort properties include liberty mountain resort , roundtop mountain resort and whitetail resort , which are day and overnight drive ski resorts located in southern pennsylvania serving the baltimore and washington , d.c. metropolitan areas . the acquired resorts also include two 18-hole golf courses , a 115-room hotel and conference center and more than 20 food and beverage locations across the three resorts , among other amenities . 32 term loan financing and issuance of preferred stock and warrants we financed $ 50.0 million of the snow time consideration with the $ 50.0 million term loan from cap 1 pursuant to the terms of the credit agreement entered into with cap 1 on november 21 , 2018 ( the “ credit agreement ” ) . as consideration for the term loan and in lieu of fees , we issued cap 1 the financing warrant to purchase 1,750,000 shares of common stock at $ 10.00 per share . as a condition to the funding of the term loan , and for aggregate consideration of $ 20.0 million , we exercised our existing option ( the “ cap 1 option ” ) to issue to cap 1 an additional 20,000 shares of series a preferred stock , along with the 2018 option warrants to purchase shares of common stock that expire 12 years from the date of issuance , as follows : i ) 1,538,462 shares of common stock at $ 6.50 per share ; ii ) 625,000 shares of common stock at $ 8.00 per share ; and iii ) 555,556 shares of common stock at $ 9.00 per share . the cap 1 option was provided for in the terms of the securities purchase agreement between the company and cap 1 , dated as of august 22 , 2016 , entered into in connection with the 2016 private placement . the company used the cap 1 option proceeds to fund the remainder of the cash portion of the snow time acquisition purchase price . see “ —liquidity and capital resources ” and notes 5 and 6 to the accompanying consolidated financial statements . story_separator_special_tag our skier visits of 2.1 million in fiscal 2019 , which includes visit to the resorts acquired from snow time , were up 27.8 % from fiscal 2018. our skier visits increased 7.1 % at legacy peak resorts properties . this compares to a 4.3 % increase in total skier visits across the entire industry to northeast , mid-atlantic and midwest resorts as reported by the kottke report . our total resort visits , which include tubing visits , were up 32.0 % from fiscal 2018. total visits to our northeast and mid-atlantic resorts , in particular , increased to 1.81 million in fiscal 2019 from 1.25 million in fiscal 2018. total visits to our midwest resorts increased to 0.61 million in fiscal 2019 from 0.59 million in fiscal 2018. capital projects as part of our mission to build value by investing in our current properties through expansions , new products and amenities that will elevate our customers ' skiing and off-season experiences , during fiscal 2019 we completed two major projects and continued to move forward with capital improvement projects at our other resorts . · at hunter mountain , we completed the hunter north expansion project which increased the resort 's skiable acreage by approximately 25 % and added automated snowmaking , a six-passenger detachable high-speed chair lift and parking area . · at mount snow , we completed the carinthia ski lodge project . the carinthia ski lodge project included the construction of a new ski lodge at the resort 's carinthia base , comprised of a three-story , 36,000-square foot skier service building which includes i ) a restaurant , cafeteria and bars with seating for over 600 people , ii ) retail facilities , and iii ) a sales center for lift tickets and equipment rentals . 34 · at hidden valley , we completed the permitting process and substantially completed the construction of a zip line tour which we anticipate will generate additional sales and diversify that resort 's revenue base . the zip line tour opened in may 2019. story_separator_special_tag non-recurring items ) as a measurement of our 36 results of operations because we consider this measurement to be a significant indication of our financial performance and available capital resources . because of large depreciation and other charges relating to our ski resorts operations , it is difficult for management to fully and accurately evaluate our financial results and available capital resources using net income alone . in addition , the use of this non-u.s. gaap measure provides an indication of our ability to service debt , and we consider it an appropriate measure to use because of our highly leveraged position . we believe that by providing investors with reported ebitda , they will have a clearer understanding of our financial performance and cash flows because reported ebitda i ) is widely used in the ski industry to measure a company 's operating performance without regard to items excluded from the calculation of such measure ; ii ) helps investors to more meaningfully evaluate and compare the results of our operations from period to period by removing the effect of our capital structure and asset base from our operating results ; and iii ) is used by our board of directors , management and our lenders for various purposes , including as a measure of our operating performance and as a basis for planning . the items we exclude from net income to arrive at reported ebitda are significant components for understanding and assessing our financial performance and liquidity . reported ebitda should not be considered in isolation or as an alternative to , or substitute for , net income , net change in cash and cash equivalents or other financial statement data presented in our consolidated financial statements as indicators of financial performance or liquidity . because reported ebitda is not a measurement determined in accordance with u.s. gaap and is susceptible to varying calculations , reported ebitda , as presented , may not be comparable to other similarly titled measures of other companies , limiting its usefulness as a comparative measure . reconciliations of net income to reported ebitda for the years ended april 30 , 2019 and 2018 were as follows ( dollars in thousands ) : replace_table_token_6_th reported ebitda increased by $ 24.2 million , or 94.5 % , for the year ended april 30 , 2019 , as compared with the year ended april 30 , 2018 , primarily as a result of i ) approximately $ 20.0 million of reported ebitda associated with the resort properties acquired in the snow time acquisition , and ii ) increased revenue offset by lower relative operating expenses at legacy peak resorts properties . 37 year ended april 30 , 2018 , compared with the year ended april 30 , 2017 net revenue . net revenue increased $ 8.4 million , or 6.8 % , for the year ended april 30 , 2018 , compared with the year ended april 30 , 2017 . the increase is primarily attributable to increased resort attendance driven , in part , by earlier ski season opening dates which led to higher ticket , rentals , retail and food and beverage sales . resort operating costs . resort operating costs increased $ 9.3 million , or 10.6 % , for the year ended april 30 , 2018 , compared with the previous year . labor costs increased by $ 4.8 million , or 9.9 % , due to i ) lower pre-season staffing levels in fiscal 2017 as compared to fiscal 2018 , ii ) increased staffing needs due to earlier ski season opening dates and higher attendance in fiscal 2018 , and iii ) increases in the minimum wage which impacted certain of our resorts . other resort operating expenses increased by $ 3.0 million , or 14.6 % , primarily as a result of increased maintenance and supplies costs .
| results of operations the following table presents our consolidated statements of operations for the years ended april 30 , 2019 , 2018 and 2017 ( dollars in thousands ) : replace_table_token_5_th year ended april 30 , 2019 , compared with the year ended april 30 , 2018 net revenue . net revenue increased by $ 52.8 million , or 40.1 % , for the year ended april 30 , 2019 , compared with the year ended april 30 , 2018. the increase is primarily attributable to i ) $ 42.3 million of revenue associated with the resort properties acquired in the snow time acquisition and ii ) a $ 10.5 million increase in revenues at legacy peak resorts properties . the increased revenues at legacy peak resorts properties are primarily attributable to an earlier opening of our 2018/2019 ski season at the majority of our resorts and favorable weather conditions which increased skier visits , 35 partially offset by reduced lodging and food and beverage sales at our attitash resort as a result of our decision to cease operations of a hotel/restaurant facility as of the beginning of fiscal year 2019 ( the “ attitash hotel closure ” ) . resort operating costs . resort operating costs increased $ 23.1 million , or 24.0 % , for the year ended april 30 , 2019 , compared with the prior year . the increase is primarily attributable to i ) $ 21.9 million of resort operating costs associated with the resort properties acquired in the snow time acquisition and ii ) a $ 1.2 million increase in resort operating costs at legacy peak resorts properties .
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property , plant and equipment acquired primarily included machinery and equipment story_separator_special_tag the following discussion should be read in conjunction with , and is qualified in its entirety by , the consolidated financial statements and the notes thereto and selected financial data included elsewhere in this annual report on form 10-k. historical operating results and percentage relationships among any amounts included in the consolidated financial statements are not necessarily indicative of trends in operating results for any future period . unless otherwise noted herein , all amounts are in thousands , except per share numbers . overview and management focus our strategy and management focus are based upon the following long-term objectives organic and acquisitive growth within all our segments ; sales growth in adjacent markets sales growth through acquisitions ; and global expansion of our manufacturing base to better address the global requirements of our customers . management generally focuses on these trends and relevant market indicators global industrial growth and economics ; residential and non-residential construction rates ; global automotive production rates ; surgery rates and u.s. healthcare spending ; costs subject to the global inflationary environment , including , but not limited to : raw materials ; wages and benefits , including health care costs ; regulatory compliance ; and energy ; trends related to the geographic migration of competitive manufacturing ; regulatory environment for united states public companies and manufacturing companies ; currency and exchange rate movements and trends ; interest rate levels and expectations ; and changes in tariff regulations . management generally focuses on the following key indicators of operating performance sales growth ; 24 cost of sales ; selling , general and administrative expense ; earnings before interest , taxes , depreciation and amortization ; return on invested capital ; income from operations and adjusted income from operations ; net income and adjusted net income ; cash flow from operations and capital spending ; customer service reliability ; external and internal quality indicators ; and employee development . critical accounting policies our significant accounting policies , including the assumptions and judgment underlying them , are disclosed in note 1 of the notes to consolidated financial statements . these policies have been consistently applied in all material respects and address such matters as revenue recognition , inventory valuation , and asset impairment recognition . due to the estimation processes involved , management considers the following summarized accounting policies and their application to be critical to understanding our business operations , financial condition and results of operations . we can not assure you that actual results will not significantly differ from the estimates used in these critical accounting policies . business combinations we allocate the total purchase price of tangible and intangible assets acquired and liabilities assumed based on their estimated fair values as of the business combination date , with the excess purchase price recorded as goodwill . the purchase price allocation process requires us to use significant estimates and assumptions , including fair value estimates , as of the business combination date . although we believe the assumptions and estimates we have made are reasonable and appropriate , they are based in part on historical experience and information obtained from management of the acquired company . our assumptions and estimates are also partially based on valuation models that incorporate projections of expected future cash flows and operating plans and are inherently uncertain . valuations are performed by management or third-party valuation specialists under management 's supervision . in determining the fair value of assets acquired and liabilities assumed in business combinations , as appropriate , we may use one of the following recognized valuation methods : the income approach ( including discounted cash flows , relief from royalty and excess earnings model ) , the market approach , or the replacement cost approach . examples of significant estimates used to value certain intangible assets acquired include but are not limited to : sales volume , pricing and future cash flows of the business overall ; future expected cash flows from customer relationships , and other identifiable intangible assets , including future price levels , rates of increase in revenue and appropriate attrition rate ; the acquired company 's brand and competitive position , royalty rate quantum , as well as assumptions about the period of time the acquired brand will continue to benefit the combined company 's product portfolio ; and cost of capital , risk-adjusted discount rates , and income tax rates . different assumptions regarding projected performance and other factors associated with the acquired assets may affect the amount recorded under each type of asset and liability . the valuations of property , plant and equipment , intangible assets , goodwill and deferred income tax liabilities depend heavily on assumptions . subsequent assessment could result in future impairment charges . we refine these estimates over a measurement period not to exceed one year to reflect new information obtained surrounding facts and circumstances existing at the acquisition date . goodwill and other indefinite lived intangible assets goodwill is tested for impairment on an annual basis in the fourth quarter and between annual tests if a triggering event occurs . the impairment analysis is performed at the reporting unit level . for the impairment test as of october 1 , 2018 , we elected to early adopt the new goodwill accounting standard which requires us to calculate an impairment charge based on a reporting unit 's carrying amount in excess of its fair value ( i.e. , step 1 of the two-step impairment test ) . if the carrying value of the reporting unit including goodwill is less than fair value of the reporting unit , the goodwill is not considered impaired . under the new guidance , we no longer perform step 2 of the two-step goodwill impairment test or calculate an impairment charge using 25 an implied fair value . based on the results of performing the first step of the impairment test , the carrying value of certain reporting units exceed the fair value at december 31 , 2018. story_separator_special_tag future adverse changes in market conditions or adverse operating results of the underlying assets could result in having to record additional impairment charges not previously recognized . critical accounting standards not yet adopted leases . in february 2016 , the fasb issued asu 2016-2 , leases . asu 2016-2 creates topic 842 , leases , ( “ asc 842 ” ) in the asc and supersedes asc 840 , leases . entities that hold numerous equipment and real estate leases , in particular those with numerous operating leases , will be most affected by the new guidance . the lease accounting standard is effective for nn beginning january 1 , 2019 , with modified retrospective adoption required and early adoption permitted . we intend to utilize the practical expedient to recognize the cumulative-effect adoption adjustment to retained earnings as of january 1 , 2019 , and not adjust comparative periods . the adoption of asc 842 is expected to impact our balance sheet by adding lease-related assets and liabilities . the loan covenants in our credit facility provide for the continuation of covenant computations in accordance with u.s. gaap prior to changes in accounting principles . therefore , we do not expect the adoption of asc 842 to affect our compliance . we have performed inquiries within each of our business groups and compiled information on operating and capital leases . we are using the results of these inquiries and compiled information to evaluate the impacts of the lease accounting standard on our financial position , results of operations , and related disclosures . upon adoption , we expect that leases with terms greater than twelve months that are currently classified as operating leases and not recorded on our balance sheet will be recognized as a right-of-use asset and lease liability . we are implementing an enterprise-wide lease accounting system and are in the process of verifying data in the system that will enable us to determine the amounts of those assets and liabilities . we have reviewed all leases and are in the process of documenting our conclusions , establishing internal controls , and determining discount rates to generate the initial accounting entries upon adoption of the standard . we expect the right-of-use asset and lease liability to be between $ 65.0 million and $ 95.0 million each . results of operations factors that may influence results of operations the following paragraphs describe factors that have influenced results of operations for the year ended december 31 , 2018 , that management believes are important to provide an understanding of the business and results of operations , or that may influence operations in the future . management structure in january 2018 , we implemented a new enterprise and management structure designed to accelerate growth and further balance our portfolio by aligning our strategic assets and businesses . our businesses were reorganized into the mobile solutions , power solutions , and life sciences groups and are based principally on the end markets they serve . the autocam precision components group reported in our historical financial statements was renamed as mobile solutions . the mobile solutions group is focused on growth in the general industrial and automotive end markets . the precision engineered products group reported in our historical financial statements was bifurcated into two new groups – power solutions and life sciences . the power solutions group is focused on growth in the electrical and aerospace and defense end markets . the life sciences group is focused on growth in the medical end market . in the first quarter of 2018 , we began reporting our financial results based on these new reportable segments . prior year amounts have been revised to confirm to the current year presentation . acquisitions on may 7 , 2018 , we acquired 100 % of the stock of pmg intermediate holding corporation , the parent company of paragon medical for a base purchase price of $ 375.0 million in cash , subject to certain adjustments . after working capital and other closing adjustments , the cash purchase price was approximately $ 390.9 million which included $ 13.6 million in cash acquired . during the year ended december 31 , 2018 , we received $ 1.4 million additional cash from the seller to settle working capital adjustments . for accounting purposes , paragon medical meets the definition of a business and has been accounted for as a business combination . paragon medical is a medical device manufacturer which focuses on the orthopedic , case and tray , implant , and instrument markets . this acquisition continues our strategic focus to expand our life sciences portfolio as well as create a balanced business by diversifying our products and finished device offerings . operating results of paragon medical are reported prospectively from the date of acquisition in our life sciences group . we have performed an assessment of the opening balance sheet which is subject to completion of our integration procedures for accounting policies . opening balance sheet deferred taxes have been recorded based on estimates made as of the acquisition date as well as information currently available to management . as estimates are refined and additional information is received throughout the measurement period , 27 adjustments to opening deferred taxes may be recorded with an offsetting adjustment to goodwill . we incurred new debt in connection with the paragon medical acquisition and subsequently repaid the new debt in full with the proceeds from the sale of shares of our common stock . in connection with the closing of the paragon medical acquisition , we entered into the second lien credit agreement for the second lien facility . we utilized the net proceeds from the second lien facility , together with cash on hand , to pay the paragon medical purchase price and fees and expenses related to the acquisition .
| results by segment mobile solutions replace_table_token_11_th net sales increased in 2017 from 2016 due to industrial market demand improvements in the us and china and new automotive program launches in the us , china and brazil . we are realizing the indirect benefits of our customers taking an increasing portion of market share . also , as the brazilian economy rebounds , demand for automotive products is increasing . the increase in net sales contributed to the increase in income from operations . cost reduction projects resulted in savings in cost of sales of approximately $ 1.6 million in 2017 compared to 2016. restructuring costs decreased by $ 4.0 million , primarily related to the closure of a plant in wheeling , illinois . these factors that increased income from operations were slightly offset by start-up costs for new products and a $ 2.3 million increase in depreciation and amortization consistent with recent capital expenditure activity . power solutions replace_table_token_12_th net sales increased in 2017 from 2016 primarily due to the overall improvement in demand across the power solutions end market and sales to new customers within the aerospace and defense market . we have also benefited from the introduction of new products for the aerospace and defense end market . income from operations decreased by $ 0.6 million primarily due to a shift in product mix toward higher cost raw materials and new program setup costs for certain products sold into the aerospace and defense end market . 36 life sciences replace_table_token_13_th net sales increased in 2017 from 2016 primarily due to the overall improvement in demand across the life sciences end market and increases in market share for certain medical devices . sales from the nn vandalia business acquired on october 2 , 2017 , contributed $ 6.7 million to 2017 sales .
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observable inputs are those which can be easily seen by market participants , while unobservable inputs are generally developed internally , utilizing management 's estimates and assumptions : level 1 – valuation is based on quoted prices in active markets for identical assets and liabilities . level 2 – valuation is determined from quoted prices for similar assets and liabilities in active markets , quoted prices for identical or similar instruments in markets that are not active , or by model-based techniques in which all significant inputs are observable in story_separator_special_tag see part i , `` forward-looking statements '' for our cautionary statement regarding forward-looking information . this discussion and analysis is based on , should be read together with , and is qualified in its entirety by , the consolidated financial statements and notes thereto included in item 15 ( a ) 1 of this form 10-k , beginning at page f-1 . it also should be read in conjunction with the disclosure under “ forward-looking statements ” in part 1 of this form 10-k. when this report uses the words “ we , ” “ us , ” “ our , ” “ tejon , ” “ trc , ” and the “ company , ” they refer to tejon ranch co. and its subsidiaries , unless the context otherwise requires . references herein to fiscal year refer to our fiscal years ended or ending december 31. overview our business we are a diversified real estate development and agribusiness company committed to responsibly using our land and resources to meet the housing , employment , and lifestyle needs of californians and to create value for our shareholders . in support of these objectives , we have been investing in land planning and entitlement activities for new industrial and residential land developments and in infrastructure improvements within our active industrial development . our prime asset is approximately 270,000 acres of contiguous , largely undeveloped land that , at its most southerly border , is 60 miles north of los angeles and , at its most northerly border , is 15 miles east of bakersfield . our business model is designed to create value through the entitlement and development of land for commercial/industrial and resort/residential uses while at the same time protecting significant portions of our land for conservation purposes . we operate our business near one of the country 's largest population centers , which is expected to continue to grow well into the future . we currently operate in five reporting segments : commercial/industrial real estate development ; resort/residential real estate development ; mineral resources ; farming ; and ranch operations . our commercial/industrial real estate development segment generates revenues from building , land lease activities , and land and building sales . the primary commercial/industrial development is trcc . the resort/residential real estate development segment is actively involved in the land entitlement and development process internally and through a joint venture . within our resort/residential segment , the three active mixed use master plan developments are mv , centennial , and grapevine . our mineral resources segment generates revenues from oil and gas royalty leases , rock and aggregate mining leases , a lease with national cement and sales of water . the farming segment produces revenues from the sale of wine grapes , almonds , and pistachios . lastly , the ranch operation segment consists of game management revenues and ancillary land uses such as grazing leases and filming . financial highlights for 2019 , net income attributable to common stockholders was $ 10,580,000 compared to net income attributed to common stockholders of $ 4,255,000 in 2018 . over the comparative period , commercial/industrial segment revenues and results from our commercial joint ventures improved $ 7,822,000 and $ 12,741,000 , respectively . improvements in commercial revenues were attributed to land and building contributions to two joint ventures , while our joint ventures improved because of improved fuel and non fuel margins within our ta/petro joint venture along with recognizing a substantial gain stemming from the sale of the building and land previously held by our five west parcel joint venture . these improvements were offset by reduced mineral resources revenues of $ 4,604,000 resulting from a lack of water sales opportunities due to the wet 2019 winter rain season , an increase in commercial/industrial expenses of $ 6,715,000 as a result of land and building costs associated with the joint venture contributions discussed earlier , and a $ 1,765,000 increase in other losses associated with the abandonment of a wine grape vineyard that will no longer be farmed and pension related expenses . for 2018 , net income attributable to common stockholders was $ 4,255,000 compared to net loss attributed to common stockholders of $ 1,797,000 in 2017. factors driving the change include an increase in mineral resource revenues of $ 8,412,000 resulting from more sales opportunities for water in 2018 when compared to 2017 , and an increase in farming revenues of $ 2,129,000 resulting from improved pistachio sales . from an expense perspective , expenses increased $ 2,410,000 mainly as a result of an increase in costs of $ 3,100,000 stemming from increased water sales . for the year ended december 31 , 2019 , we had no material lease renewals . 35 during 2020 , we will continue to invest funds towards litigation defense , permits , and maps for our master plan mixed use developments and for master project infrastructure and vertical development within our active commercial and industrial development . securing entitlements for our land is a long , arduous process that can take several years and involves litigation . during the next few years , our net income will fluctuate from year-to-year based upon , among other factors , commodity prices , production within our farming segment , the timing of land sales and the leasing of land and or industrial space within our industrial developments , and equity in earnings realized from our unconsolidated joint ventures . story_separator_special_tag it is not unusual for portions of our almond or pistachio crop to be sold in the year following the harvest . orchard ( almond and pistachio ) revenues are based upon the contract settlement price or estimated selling price , whereas vineyard revenues are typically recognized at the contracted selling price . estimated prices for orchard crops are based upon the quoted estimate of what the final market price may be by marketers and handlers of the orchard crops . these market price estimates are updated through the crop payment cycle as new information is received as to the final settlement price for the crop sold . these estimates are adjusted to actual upon receipt of final payment for the crop . this method of recognizing revenues on the sale of orchard crops is a standard practice within the agribusiness community . actual final crop selling prices are not determined for several months following the close of our fiscal year due to supply and demand fluctuations within the orchard crop markets . adjustments for differences between original estimates and actual revenues received are recorded during the period in which such amounts become known . impairment of long-lived assets – we evaluate our property and equipment and development projects for impairment when events or changes in circumstances indicate that the carrying value of assets contained in our financial statements may not be recoverable . the impairment calculation compares the carrying value of the asset to the asset 's estimated future cash flows ( undiscounted ) . if the estimated future cash flows are less than the carrying value of the asset , we calculate an impairment loss . the impairment loss calculation compares the carrying value of the asset to the asset 's estimated fair value , which may be based on estimated future cash flows ( discounted ) . we recognize an impairment loss equal to the amount by which the asset 's carrying value exceeds the asset 's estimated fair value . if we recognize an impairment loss , the adjusted carrying amount of the asset will be its new cost basis . for a depreciable long-lived asset , the new cost basis will be depreciated ( amortized ) over the remaining useful life of that asset . restoration of a previously recognized impairment loss is prohibited . we currently operate in five reporting segments : commercial/industrial real estate development , resort/residential real estate development , mineral resources , farming , and ranch operations . at this time , there are no assets within any of our reporting segments that we believe are at risk of being impaired due to market conditions nor have we identified any impairment indicators . we believe that the accounting estimate related to asset impairment is a critical accounting estimate because it is very susceptible to change from period to period ; it requires management to make assumptions about future prices , production , and costs , and the potential impact of a loss from impairment could be material to our earnings . management 's assumptions regarding future cash flows from real estate developments and farming operations have fluctuated in the past due to changes in prices , absorption , production and costs and are expected to continue to do so in the future as market conditions change . in estimating future prices , absorption , production , and costs , we use our internal forecasts and business plans . we develop our forecasts based on recent sales data , historical absorption and production data , input from marketing consultants , as well as discussions with commercial real estate brokers and potential purchasers of our farming products . 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 impairment losses that could be material to our results of operations . capitalization of costs - the company capitalizes direct construction and development costs , including predevelopment costs , interest , property taxes , insurance , and indirect project costs that are clearly associated with the acquisition , development , or construction of a project . costs currently capitalized that in the future would be related to any abandoned development opportunities will be written off if we determine such costs do not provide any future benefits . should development activity decrease , a portion of interest , property taxes , and insurance costs would no longer be eligible for capitalization , and would be expensed as incurred . allocation of costs related to land sales and leases – when we sell or lease land within one of our real estate developments , as we are currently doing within trcc , and we have not completed all infrastructure development related to the total project , we determine the appropriate costs of sales for the sold land and the timing of recognition of the sale . in the calculation of cost of sales or allocations to leased land , we use estimates and forecasts to determine total costs at completion of the development project . these estimates of final development costs can change as conditions in the market and costs of construction change . 37 in preparing these estimates , we use internal budgets , forecasts , and engineering reports to help us estimate future costs related to infrastructure that has not been completed . these estimates become more accurate as the development proceeds forward , due to historical cost numbers and to the continued refinement of the development plan . these estimates are updated periodically throughout the year so that , at the ultimate completion of development , all costs have been allocated . any increases to our estimates in future years will negatively impact net profits and liquidity due to an increased need for funds to complete development . if , however , this estimate decreases , net profits as well as liquidity will improve .
| operational highlights : revenues from ranch operations decreased $ 146,000 , or 4 % , from $ 3,837,000 in 2017 to $ 3,691,000 in 2018. the decrease is primarily attributed to reduced grazing lease revenues of $ 157,000. ranch operations expenses increased $ 40,000 , or 1 % , to $ 5,451,000 in 2018 from $ 5,411,000 in 2017. the increase was mainly attributed to an increase in property taxes of $ 34,000. other income total other income decreased $ 1,870,000 , or 146 % , from $ 1,285,000 in 2018 to a loss of $ 585,000 in 2019 . this was mainly attributable to asset abandonment costs of $ 1,604,000 that were overwhelmingly related to the abandonment of a wine grape vineyard , consisting of 313 acres , that will no longer be farmed . 46 total other income increased $ 1,098,000 to $ 1,285,000 , or 587 % , during 2018 from $ 187,000 in 2017. in october of 2017 , the company invested a majority of its rights offering proceeds into marketable securities which contributed to an increase in interest income . corporate expenses corporate general and administrative costs decreased $ 344,000 , or 3.5 % , to $ 9,361,000 during 2019 when compared to $ 9,705,000 in 2018 .
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each series d share will convert into one share of our common stock at any time at the option of the holder of the series d shares or will be converted at the option of the company at any time the trading price of our common stock is at least $ 4.50 per share for ten consecutive trading days . the conversion ratio is subject to anti-dilution adjustments , including in the event that the company issues equity securities at a price equivalent to or less than the conversion price in effect immediately prior to such issue . we have determined that there is a beneficial conversion feature ( bcf ) . the calculated value as of the commitment date of the bcf was $ 176,729 , which represents the difference between the effective conversion price and the stated conversion price multiplied by the total number of shares which may be converted . we have recorded this amount as a deemed dividend as of the date of issuance , august 30 , 2013 , as the series d preferred stock is immediately convertible . this amount was recorded as a charge against our accumulated deficit in our accompanying balance sheet . the holders of series d preferred stock have a liquidation preference over the holders of the company 's common stock equivalent to the purchase price per share of the series d preferred stock plus any accrued and unpaid dividends , whether or not declared , on the series d preferred stock . a liquidation would be deemed to occur upon the happening of customary events , including transfer of all or substantially all of the company 's common stock or assets or a merger , or consolidation . the company believes that such liquidation events are within its control and therefore the company has classified the series d preferred stock in stockholders ' equity . the holders of series d preferred stock vote together as a single class with the holders of the company 's common stock on all action to be taken by the company 's stockholders . each share of series d preferred stock entitles the holder to the number of votes equal to the number of shares of common stock into which the shares of the series d preferred stock are convertible as of the record date for determining stockholders entitled to vote on such matter . each unit includes one-half warrant . each full warrant grants the right to purchase a share of the company 's common stock and , as of december 31 , 2013 , there were warrants to purchase 363,824 shares of common stock outstanding . the warrants will be exercisable by the holders at any time on or after the story_separator_special_tag heatwurx , inc. was incorporated under the laws of the state of delaware on march 29 , 2011 as heatwurxaq , inc. and subsequently changed its name to heatwurx , inc. on april 15 , 2011. we have not yet commercialized our products and we are therefore classified as a development stage enterprise . we are an asphalt preservation and repair equipment company . our innovative , and eco-friendly hot-in-place recycling process corrects surface distresses within the top 3 inches of existing pavement by heating the surface material to a temperature between 350° and 400° fahrenheit with our electrically powered infrared heating equipment , mechanically loosening the heated material with our processor/tiller attachment that is optimized for producing a seamless repair , and mixing in additional recycled asphalt pavement and a binder ( asphalt-cement ) , and then compacting repaired area with a vibrating roller or compactor . we consider our equipment to be eco-friendly as the heatwurx process reuses and rejuvenates distressed asphalt , uses recycled asphalt pavement for filler material , eliminates travel to and from asphalt batch plants , and extends the life of the roadway . we believe our equipment , technology and processes provide savings over other processes that can be more labor and equipment intensive . our hot-in-place recycling process and equipment has been selected by the technology implementation group of the american association of state highway transportation officials ( aashto tig ) as an additionally selected technology for the year 2012. we develop , manufacture and intend to sell our unique and innovative and eco-friendly equipment to federal , state and local agencies as well as contractors for the repair and rehabilitation of damaged and deteriorated asphalt surfaces . this item 7 may contain forward-looking statements that involve substantial risks and uncertainties . when considering these forward-looking statements investors should keep in mind the cautionary statements in this report . please see the sections entitled cautionary notice regarding forward-looking statements and item 1a . risk factors elsewhere in the report . results of operations for the year ended december 31 , 2013 compared to year ended december 31 , 2012. for the year ended december 31 , 2013 , our net loss was $ 3,069,000 , compared to a net loss of $ 2,441,000 , for the year ended december 31 , 2012. further description of these losses is provided below . revenue revenue increased to approximately $ 312,000 for the year ended december 31 , 2013 from approximately $ 192,000 for the year ended december 31 , 2012. revenue is generated from the sale of our equipment as well as the sale of consumable products . our consumables consist of polymer pellets used to strengthen the repair when mixed in to the recycled asphalt product ; and rxehab rejuvenation strips which is an oil-based product which creates the binding agent for the asphalt repair . 20 given we are still in a start-up stage , sales of our equipment have not been material to date . accordingly , for accounting purposes we consider ourselves to be a development stage company . story_separator_special_tag cost of goods sold cost of goods sold increased to approximately $ 188,000 for the year ended december 31 , 2013 from $ 133,000 for the year ended december 31 , 2012 , due to the sales of our equipment as described above . selling , general and administrative selling , general and administrative expenses increased to approximately $ 2,819,000 for the year ended december 31 , 2013 from approximately $ 1,884,000 for the year ended december 31 , 2012. the increase in selling , general and administrative expenses is principally due to an increase in employee expenses related to the hiring of company employees of approximately $ 535,000 , depreciation and amortization of approximately $ 320,000 , increased costs of approximately $ 153,000 in advertising and promotion activities related to business development . these increases were partially offset by a decrease in stock-based compensation costs of approximately $ 241,000 , and increased costs ( including legal fees , accounting fees , ipo related and other items ) of approximately $ 168,000. research and development research and development decreased to approximately $ 267,000 for the year ended december 31 , 2013 from approximately $ 448,000 for the year ended december 31 , 2012. the principal reason for the decrease is due to fewer legal and other intellectual property consulting fees related to certain patent applications on technology and processes that may be patentable . we currently have three issued u.s. patents : two utility patents and one design patent . we have four pending u.s. patent applications . our two issued utility patents , us patent nos . 8,562,247 and 8,556,536 , were issued in october 2013 and cover certain unique device aspects of our asphalt repair equipment . our design patent , us patent no . d700,633 , was issued in march 2014 and covers the ornamental design of our asphalt processor . we have received a notice of allowance from the us patent and trademark office ( uspto ) on a third utility patent covering certain unique method aspects of our asphalt repair equipment . we anticipate issuance of this patent in june 2014. we intend to develop other technologies for which we will seek patent protection . in addition , we have made and expect to continue to make certain international filings to attempt to protect our intellectual property rights in a limited number of countries outside of the united states . however , we do not have any assurance that our current pending patent applications will be granted or that we will be able to develop future patentable technologies . we do not believe our ability to operate our business is dependent on the patentability of our technology . income taxes heatwurx has incurred tax losses since it began operations . a tax benefit would have been recorded for losses incurred since march 29 , 2011 ; however , due to the uncertainty of realizing these assets , a valuation allowance was recognized which fully offset the deferred tax assets . liquidity and capital resources story_separator_special_tag margin:0px ; padding-left:48px ; font-size:9pt '' > ( 2 ) includes equipment utilized in our demonstration process ( 3 ) represents a commitment to our manufacturer to purchase equipment . off-balance sheet arrangements we do not engage in off-balance sheet financing activities critical accounting policies and estimates the preparation of these financial statements in conformity with gaap requires management to make estimates , allocations and judgments that affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosure of contingent assets and liabilities . on an ongoing basis , management evaluates its estimates , including those related to impairment of long-lived assets , accrued liabilities and certain expenses . we base our estimates about the carrying values of assets and liabilities that are not readily apparent from other sources on historical experience and on other assumptions believed to be reasonable under the circumstances . actual results may differ materially from these estimates under different assumptions or conditions . we believe the following critical accounting policies involve significant judgments and estimates used in the preparation of our financial statements . see note 2 of the accompanying notes to the financial statements included in item 8 of this form 10-k for additional information on these policies and estimates , as well as a discussion of additional accounting policies and estimates . 23 revenue recognition equipment sales revenue is recognized when equipment is shipped to our customer and collection is reasonably assured . the company sells its equipment ( hwx-30 heater and hwx-ap-40 asphalt processor ) , as well as certain consumables , such as rxehab rejuvenation strips and polymer pellets , to third parties . equipment sales revenue is recognized when all of the following criteria are satisfied : ( a ) persuasive evidence of a sales arrangement exists ; ( b ) price is fixed and determinable ; ( c ) collectability is reasonably assured ; and ( d ) delivery has occurred . persuasive evidence of an arrangement and a fixed or determinable price exist once we receive an order or contract from a customer . we assess collectability at the time of the sale and if collectability is not reasonably assured , the sale is deferred and not recognized until collectability is probable or payment is received . typically , title and risk of ownership transfer when the equipment is shipped . research and development expenses research and development costs are expensed as incurred and consist of direct and overhead-related expenses . expenditures to acquire technologies , including licenses , which are utilized in research and development and that have no alternative future use are expensed when incurred . technology we develop for use in our products is expensed as incurred until technological feasibility has been established after which it is capitalized and depreciated . stock-based compensation we record equity instruments at their fair value on the measurement date by utilizing the black-scholes option-pricing
| overview to date we have relied exclusively on private placements with a small group of investors to finance our business and operations . we have had little revenue since our inception . for the year ended december 31 , 2013 , the company incurred a net loss of approximately $ 3,069,000 and utilized $ 2,539,000 in cash flows from operating activities . the company had cash on hand of approximately $ 187,000 as of december 31 , 2013. successful completion of the company 's development program and its transition to profitable operations is dependent upon obtaining additional financing adequate to fulfill its development and commercialization activities , and achieve a level of revenues adequate to support the company 's cost structure . many of the company 's objectives to establish profitable business operations rely upon the occurrence of events outside its control ; there is no assurance that the company will be successful in accomplishing these objectives . 21 the company has incurred operating losses , accumulated deficit and negative cash flows from operations since inception . as of december 31 , 2013 , the company had an accumulated deficit of approximately $ 6,814,000. management anticipates that the company will require substantial additional funds to continue operations . as of december 31 , 2013 , we had approximately $ 187,000 cash on hand and were spending approximately $ 300,000 per month , of which only a minor amount was satisfied by gross proceeds from operations . hence , the amount of cash on hand is not adequate to meet our operating expenses over the next twelve months . financing activities in may 2013 , we raised $ 1,000,000 pursuant to the terms of a senior loan agreement and the issuance of senior secured promissory notes .
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the eqm general partner is a direct wholly owned subsidiary of eqgp and controls eqm through its general partner interest in eqm . therefore , the financial statements of eqm are consolidated in eqgp 's financial statements . as a result , eqgp 's results of operations do not differ materially from the results of operations of eqm . differences between eqgp 's and eqm 's results are described and reconciled in the following sections . key transactions during 2016 included the october 2016 acquisition , the ovc project being placed in-service , phase one of the range resources header pipeline project being placed in-service , the $ 500 million senior notes offering and the atm offerings as discussed in the overview section of item 1 , `` business . '' eqm reported net income of $ 538.0 million in 2016 compared with $ 455.1 million in 2015. the increase primarily resulted from higher revenues from both gathering and transmission and storage , which were primarily driven by affiliate production development in the marcellus shale , higher other income and lower net interest expense . these items were partly offset by higher income taxes and an increase in operating expenses , consistent with the growth of the business . eqm reported net income of $ 455.1 million in 2015 compared with $ 284.8 million in 2014. the increase primarily resulted from higher revenues from both gathering and transmission and storage , which were primarily driven by affiliate production development in the marcellus shale , lower income tax expense and higher other income . these items were partly offset by an increase in operating expenses , consistent with the growth of the business , and higher net interest expense . on january 19 , 2017 , eqm declared a cash distribution to eqm unitholders of $ 0.85 per unit , which represented a 4 % increase over the previous distribution paid on november 14 , 2016 of $ 0.815 per unit and a 20 % increase over the distribution paid on february 12 , 2016 of $ 0.71 per unit related to the fourth quarter of 2015 . total distributions related to 2016 were $ 3.19 per unit compared to $ 2.635 per unit total distributions related to 2015 , a 21 % increase . on january 19 , 2017 , eqgp declared a cash distribution to eqgp unitholders of $ 0.177 per eqgp common unit , which represented a 7 % increase over the previous distribution paid on november 22 , 2016 of $ 0.165 per eqgp common unit and a 45 % increase over the distribution paid on february 22 , 2016 of $ 0.122 per eqgp common unit related to the fourth quarter of 2015 . items affecting the comparability of eqgp 's financial results to those of eqm reconciliation of net income attributable to eqm to net income attributable to eqgp . the following table reconciles the differences between eqm net income as reported in eqm 's form 10-k for the years ended december 31 , 2016 , 2015 and 2014 and net income attributable to eqgp for the same periods . replace_table_token_5_th noncontrolling interests . the common units in eqm not held by eqgp are reflected as noncontrolling interests in the consolidated financial statements . these amounts will fluctuate based on eqm 's net income and future changes in the public ownership percentage of eqm . the increases in net income attributable to eqm noncontrolling interests resulted from higher eqm net income as well as additional noncontrolling interests outstanding as a result of eqm equity offerings during the periods presented . income taxes . eqgp 's predecessor was included in eqt 's consolidated income tax return for federal and state tax purposes for the period prior to the eqgp ipo . as a result , in addition to eqm 's historic income tax provision , the accompanying consolidated financial statements also include the income taxes incurred by the predecessor computed on a 54 separate return basis . subsequent to the ipo , eqgp is a limited partnership for u.s. federal and state income tax purposes and is not subject to u.s. federal or state income taxes . additional expenses . subsequent to its ipo , eqgp incurs selling , general and administrative expenses as a result of being a publicly traded partnership . these expenses are separate from and in addition to similar costs incurred by eqm . these expenses include expenses allocated from eqt for compensation and centralized general and administrative services , and independent director compensation , auditing , legal and regulatory costs . eqgp also incurs interest expense under its working capital facility ( as defined in note 9 to the consolidated financial statements ) and earns interest income on cash on hand . the increase in these expenses for the year ended december 31 , 2016 compared to the year ended december 31 , 2015 was primarily a result of the cost associated with being a publicly traded partnership for a full year in 2016. story_separator_special_tag 58 eqm 's non-gaap financial measures adjusted ebitda and distributable cash flow are non-gaap supplemental financial measures that management and external users of eqm 's consolidated financial statements , such as industry analysts , investors , lenders and rating agencies , use to assess : eqm 's operating performance as compared to other publicly traded partnerships in the midstream energy industry without regard to historical cost basis or , in the case of adjusted ebitda , financing methods ; the ability of eqm 's assets to generate sufficient cash flow to make distributions to eqm 's unitholders ; eqm 's ability to incur and service debt and fund capital expenditures ; and the viability of acquisitions and other capital expenditure projects and the returns on investment of various investment opportunities . eqm believes that adjusted ebitda and distributable cash flow provide useful information to investors in assessing its financial condition and results of operations . story_separator_special_tag ( g ) as a result of increased significance of capitalized interest and afudc - debt in 2016 , this line item was added as an adjustment to the calculation of distributable cash flow for the year ended december 31 , 2016. had distributable cash flow been calculated on a consistent basis , it would have been $ 5.6 million and $ 2.3 million lower for the years ended december 31 , 2015 and 2014 , respectively , than the numbers presented herein . ( h ) ongoing maintenance capital expenditures are expenditures ( including expenditures for the construction or development of new capital assets or the replacement , improvement or expansion of existing capital assets ) made to maintain , over the long term , eqm 's operating capacity or operating income . eqt has reimbursement obligations to eqm for certain maintenance capital expenditures under the terms of the eqm omnibus agreement . for further explanation of these reimbursable maintenance capital expenditures , see “ capital requirements. ” for the years ended december 31 , 2016 , 2015 and 2014 , ongoing maintenance capital expenditures , net of reimbursements , excludes ongoing maintenance of $ 6.5 million , $ 9.8 million and $ 3.1 million , respectively , attributable to avc , rager , the gathering assets , nwv gathering and jupiter prior to acquisition . see `` executive overview '' above for a discussion of eqm 's net income , the gaap financial measure most directly comparable to adjusted ebitda . adjusted ebitda increased by $ 123.6 million for the year ended december 31 , 2016 compared to the year ended december 31 , 2015 and $ 193.4 million for the year ended december 31 , 2015 compared to the year ended december 31 , 2014 , in each case , primarily as a result of higher operating income on increased revenues driven by production development in the marcellus shale , the acquisitions for each period , which resulted in ebitda subsequent to the transaction being reflected in adjusted ebitda , and distributions from ees . 61 eqm 's net cash provided by operating activities , the gaap financial measure most directly comparable to distributable cash flow , increased by $ 48.2 million for the year ended december 31 , 2016 compared to the year ended december 31 , 2015 and $ 164.9 million for the year ended december 31 , 2015 compared to the year ended december 31 , 2014. the drivers for these changes are substantively the same as those for the changes in eqgp 's net cash providing by operating activities as discussed in “ capital resources and liquidity . '' distributable cash flow increased by $ 116.8 million for the year ended december 31 , 2016 compared to the year ended december 31 , 2015 and $ 177.0 million for the year ended december 31 , 2015 compared to the year ended december 31 , 2014 , in each case mainly attributable to the increase in adjusted ebitda . outlook eqgp 's principal business objective is to increase the quarterly cash distribution it pays to its unitholders over time through its ownership interests in eqm . eqm 's principal business objective is to increase the quarterly cash distributions that it pays to its unitholders over time while ensuring the ongoing growth of its business . eqm believes that it is well positioned to achieve growth based on the combination of its relationship with eqt and its strategically located assets , which cover portions of the marcellus , upper devonian and utica shales that lack substantial natural gas pipeline infrastructure . eqm believes it has a competitive advantage in pursuing economically attractive organic expansion projects in its areas of operations , which eqm believes will be a key driver of growth in the future . eqm is also currently pursuing organic growth projects that are expected to provide access to markets in the gulf coast and southeast regions . additionally , eqm may pursue asset acquisitions from third parties or , if eqt were to purchase assets or companies that contain midstream assets , eqt may make those assets available to eqm . should eqt choose to pursue midstream asset sales , it is under no contractual obligation to offer the assets to eqm . eqm expects that the following expansion projects will allow it to capitalize on drilling activity by eqt and third party producers : range resources header pipeline . eqm expects to complete this project in the second quarter of 2017 , including the installation of approximately 25 miles of pipeline and 32,000 horsepower compression . the pipeline is estimated to cost approximately $ 250 million and provide total firm capacity of 600 mmcf per day , which is fully reserved under a ten-year firm capacity reservation commitment contract . eqm expects to invest approximately $ 40 million on the project in 2017. affiliate gathering expansion . eqm expects to invest $ 200 million to $ 230 million in 2017 on gathering expansion projects supported by eqt production development in the marcellus . eqm plans to install approximately 30 miles of gathering pipeline and 10,000 horsepower compression in its gathering systems across northern west virginia and southwestern pennsylvania during 2017. mountain valley pipeline . the mvp joint venture is a joint venture with affiliates of each of nextera energy , inc. , consolidated edison , inc. , wgl holdings , inc. and rgc resources , inc. eqm is the operator of the mvp and owned a 45.5 % interest in the mvp joint venture as of december 31 , 2016. the 42 inch diameter mvp has a targeted capacity of 2.0 bcf per day and is estimated to span 300-miles extending from eqm 's existing transmission and storage system in wetzel county , west virginia to pittsylvania county , virginia . as currently designed , the mvp is estimated to cost a total of $ 3.0 billion to $ 3.5 billion , excluding afudc , with eqm funding its proportionate share through capital contributions made to the joint venture .
| business segment results operating segments are revenue-producing components of the enterprise for which separate financial information is produced internally and is subject to evaluation by the chief operating decision maker in deciding how to allocate resources . other income and net interest expense are managed on a consolidated basis . eqgp has presented each segment 's operating income and various operational measures in the following sections . management believes that the presentation of this information provides useful information to management and investors regarding the financial condition , results of operations and trends of segments . eqgp 's two segments are the same as those of eqm as eqgp does not have any operating activities separate from those of eqm . eqgp has reconciled each segment 's operating income to eqgp 's consolidated operating income and net income in note 4 to the consolidated financial statements . gathering results of operations replace_table_token_6_th ( a ) includes fees on volumes gathered in excess of firm contracted capacity . ( b ) includes volumes gathered under interruptible contracts and volumes gathered in excess of firm contracted capacity . 55 year ended december 31 , 2016 compared to year ended december 31 , 2015 gathering revenues increased by $ 62.4 million primarily as a result of higher affiliate and third party volumes gathered in 2016 compared to 2015 , driven by production development in the marcellus shale . eqm increased firm reservation fee revenues in 2016 compared to 2015 as a result of affiliates and third parties contracting for additional capacity under firm contracts , which resulted in increased firm gathering capacity of approximately 300 mmcf per day following the completion of the nwv gathering and jupiter expansion projects in the fourth quarter of 2015. the decrease in usage fees under interruptible contracts was primarily due to these additional contracts for firm capacity .
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we previously reported that our medicaid managed care contract with the state of missouri expired without renewal on june 30 , 2012. effective june 30 , 2013 , the transition obligations associated with that contract terminated . therefore , we have reclassified the results relating to the missouri health plan to discontinued operations for all periods presented . these results are presented in a single line item , net of taxes , in the consolidated statements of income . additionally , we abandoned our equity interests in the missouri health plan during the second quarter of 2013 , resulting in the recognition of a tax benefit of $ 9.5 million , which is also included in discontinued operations in the consolidated statements of income . the missouri health plan 's premium revenues amounted to $ 0.2 million , $ 114.4 million and $ 229.6 million for the years ended december 31 , 2013 , 2012 and 2011 , respectively . overview molina healthcare , inc. provides quality and cost-effective medicaid-related solutions to meet the health care needs of low-income families and individuals , and to assist state agencies in their administration of the medicaid program . we report our financial performance based on two reportable segments : the health plans segment and the molina medicaid solutions segment . our health plans segment consists of health plans in 11 states , and includes our direct delivery business . as of december 31 , 2013 , these health plans served approximately 1.9 million members eligible for medicaid , medicare , and other government-sponsored health care programs for low-income families and individuals . the health plans are operated by our respective wholly owned subsidiaries in those states , each of which is licensed as a health maintenance organization ( hmo ) . our direct delivery business consists primarily of the operation of primary care clinics in california . our molina medicaid solutions segment provides business processing and information technology development and administrative services to medicaid agencies in idaho , louisiana , maine , new jersey , west virginia , and the u.s. virgin islands , and drug rebate administration services in florida . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; font-style : italic ; font-weight : bold ; '' > market updates for a discussion of the market updates for the health plans and molina medicaid solutions segments , refer to item 8 of this form 10-k , notes to consolidated financial statements , in note 1 , `` basis of presentation `` under the subheadings `` market updates - health plans segment , '' and `` market updates - molina medicaid solutions segment . '' composition of revenue and membership health plans segment our health plans ' state medicaid contracts generally have terms of three to four years with annual adjustments to premium rates . these contracts typically contain renewal options exercisable by the state medicaid agency , and allow either the state or the health plan to terminate the contract with or without cause . our health plan subsidiaries have generally been successful in retaining their contracts , but such contracts are subject to risk of loss when a state issues a new request for proposals ( rfp ) open to competitive bidding by other health plans . if one of our health plans is not a successful responsive bidder to a state rfp , its contract may be subject to non-renewal . in addition to contract renewal , our state medicaid contracts may be periodically amended to include or exclude certain health benefits such as pharmacy services , behavioral health services , or long-term care services ; populations such as the aged , blind or disabled ( abd ) ; and regions or service areas . our health plans segment derives its revenue , in the form of premiums , chiefly from medicaid contracts with the states in which our health plans operate . premium revenue is fixed in advance of the periods covered and , except as described in item 8 of this form 10-k , notes to consolidated financial statements , note 2 `` significant accounting policies , '' is not generally subject to significant accounting estimates . for the year ended december 31 , 2013 , we received approximately 97 % of our premium revenue as a fixed amount per member per month ( pmpm ) , pursuant to our contracts with state medicaid agencies , medicare and other managed care organizations for which we operate as a subcontractor . these premium revenues are recognized in the month that members are entitled to receive health care services . the state medicaid programs and the federal medicare program periodically adjust premium rates . for the year ended december 31 , 2013 , we recognized approximately 3 % of our premium revenue in the form of “ birth income ” — a one-time payment for the delivery of a child — from the medicaid programs in all of our state health plans except new mexico . such payments are recognized as revenue in the month the birth occurs . 40 the amount of the premiums paid to us may vary substantially between states and among various government programs . pmpm premiums for the children 's health insurance program ( chip ) members are generally among our lowest , with rates as low as approximately $ 90 pmpm in washington . premium revenues for medicaid members are generally higher . among the tanf , medicaid population — the medicaid group that includes mostly mothers and children — pmpm premiums range between approximately $ 100 in california to $ 270 in ohio . among our abd membership , pmpm premiums range from approximately $ 400 in utah to $ 1,400 in ohio . contributing to the variability in medicaid rates among the states is the practice of some states to exclude certain benefits from the managed care contract ( most often pharmacy , long-term care , behavioral health and catastrophic case benefits ) and retain responsibility for those benefits at the state level . story_separator_special_tag the medical care ratio is computed as a percentage of premium revenue , and the premium tax ratio is computed as a percentage of premium revenue plus premium tax revenue because there are direct relationships between premium revenue earned , and the cost of health care and premium taxes . replace_table_token_7_th non-gaap financial measures we use the following non-gaap financial measures as supplemental metrics in evaluating our financial performance , our financing and business decisions , and in forecasting and planning for future periods . for these reasons , management believes such measures are useful supplemental measures to investors in evaluating our performance and the performance of other companies in the health care industry . these non-gaap financial measures should be considered as supplements to , and not substitutes for or superior to , gaap measures ( gaap stands for generally accepted accounting principles ) . the first of these non-gaap measures is earnings before interest , taxes , depreciation and amortization ( ebitda ) . the following table reconciles net income , which we believe to be the most comparable gaap measure , to ebitda . 43 replace_table_token_8_th the second of these non-gaap measures is adjusted net income per diluted share , continuing operations . the following table reconciles net income per diluted share , which we believe to be the most comparable gaap measure , to adjusted net income per diluted share . replace_table_token_9_th 44 results of operations , continuing operations year ended december 31 , 2013 compared with the year ended december 31 , 2012 health plans segment premium revenue premium revenue in 2013 increased 11 % over 2012 , due to a 6 % increase in member months , and a 5 % increase in revenue pmpm . medicare premium revenue was approximately $ 526 million in the year ended december 31 , 2013 , compared with approximately $ 468 million in the year ended december 31 , 2012 . the shift in member mix to populations generating higher premium revenue pmpm and expanded benefits observed in 2012 , was less pronounced in 2013. medical care costs the following table provides the details of consolidated medical care costs for the periods indicated ( dollars in thousands except pmpm amounts ) : replace_table_token_10_th excluding our illinois health plan , which was not operational until 2013 , eight of our nine health plans reported higher medical margins in 2013 than in 2012. the consolidated medical margin increased by approximately 45 % year over year . our consolidated medical care ratio ( measured as medical care costs as a percentage of premium revenue ) decreased to 87.1 % in 2013 , from 90.0 % in 2012 . individual health plan analysis financial performance improved at the california health plan in 2013 , when compared with 2012 , primarily due to the receipt of premium rate increases for both tanf and abd membership ; and lower inpatient facility costs for the tanf membership . approximately $ 32 million of premium revenue received and recognized in 2013 related to 2012 and earlier years . the medical care ratio at the california health plan decreased to 88.9 % in 2013 from 91.1 % in 2012 . the medical care ratio of the florida health plan increased to 87.3 % in 2013 , from 85.3 % in 2012 due to higher fee-for-service costs that more than offset lower pharmacy costs . the medical care ratio for the illinois health plan was 96.9 % in 2013 . the illinois health plan served its first member effective september 2013. financial performance improved at the michigan health plan in 2013 , when compared with 2012. the medical care ratio of the michigan health plan decreased to 84.4 % in 2013 , from 88.3 % in 2012 , primarily due to lower fee-for-service and pharmacy costs for both the abd and the tanf membership . financial performance improved at the new mexico health plan in 2013 , when compared with 2012. the medical care ratio of the new mexico health plan decreased to 86.1 % in 2013 , from 87.0 % in 2012 , primarily as a result of higher medicaid premium rates pmpm effective january 1 , 2013 , and stable medical costs pmpm . the new mexico health plan added approximately 80,000 new members in 2013 , as a result of its acquisition of lovelace community health plan 's contract for the new mexico medicaid salud ! program effective august 1 , 2013. financial performance improved at the ohio health plan in 2013 , when compared with 2012. the medical care ratio of the ohio health plan decreased to 84.2 % in 2013 , from 88.6 % in 2012 , primarily due to lower fee-for-service and pharmacy costs for both the abd and the tanf membership . financial performance deteriorated in the second half of 2013 due to both premium decreases , and increases to fee schedules effective july 1 , 2013 , that combined to reduce medical margin approximately 3 % for 45 the second half of 2013. we also experienced an additional 1.5 % decrease in premium rates in ohio effective july 1 , 2013 , due to a re-basing of revenue risk adjusters . financial performance improved at the texas health plan in 2013 , when compared with 2012. the medical care ratio of the texas health plan decreased to 86.4 % in 2013 , from 93.7 % in 2012 , primarily due to rate increases received on september 1 , 2013 and 2012 , respectively . financial performance deteriorated at the utah health plan in 2013 , when compared with 2012. reductions to the medical portion of the medicaid premium , and the addition of the pharmacy benefit to our medicaid premium , both effective january 1 , 2013 , more than offset stable medical costs . the medical care ratio of the utah health plan increased to 83.4 % in 2013 , from 82.3 % in 2012 .
| fiscal year 2013 financial highlights net income from continuing operations increased to $ 44.8 million in 2013 , from $ 12.9 million in 2012 as a result of higher medical margin ( measured as the excess of premium revenue over medical care costs ) . higher medical margin was partially offset by increased administrative expenses related to our preparations for significant membership growth expected in 2014. premium revenue in 2013 increased 11 % over 2012 , due to a 6 % increase in enrollment ( on a member-month basis ) , and a 5 % increase in revenue per member per month ( pmpm ) . excluding our illinois health plan , which was not operational until 2013 , eight of our nine health plans reported higher medical margins in 2013 than in 2012. the consolidated medical margin increased by approximately 45 % year over year . our consolidated medical care ratio ( measured as medical care costs as a percentage of premium revenue ) decreased to 87.1 % in 2013 , from 90.0 % in 2012 . general and administrative expenses increased to 10.1 % of revenue in 2013 , from 8.8 % in 2012. increased administrative expenses related to anticipated membership growth represented approximately 2 % of premium revenue , or $ 135 million during 2013. we entered into new debt ( and related hedge transactions ) , and lease financing transactions which in aggregate generated net cash of approximately $ 482 million , after debt repayment and stock repurchases . 39 health care reform the patient protection and affordable care act and the health care and education reconciliation act of 2010 ( collectively , the affordable care act , or aca ) has changed , and will continue to make broad-based changes to , the u.s. health care system which could significantly affect the u.s. economy , and we expect will continue to significantly impact our business operations and financial results , including our medical care ratios .
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the company paid annual story_separator_special_tag forward-looking statements the following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this annual report on form 10-k. this discussion contains forward-looking statements that reflect our plans , estimates and beliefs , and involve risks and uncertainties . actual events or results may differ materially . our forward-looking statements can be affected by inaccurate assumptions we might make or by known or unknown risks , uncertainties and other factors . we discuss many of these risks , uncertainties and other factors in this annual report on form 10-k in greater detail under the heading item 1arisk factors. we caution investors that our business and financial performance are subject to substantial risks and uncertainties . overview we are a clinical-stage pharmaceutical company discovering and developing targeted therapeutics in disease areas of inflammation and immuno-oncology . our primary focus is anti-inflammatory product candidates targeting the sh2-containing inositol-5'-phosphatase 1 ( ship1 ) enzyme , which is a key regulator of an important cellular signaling pathway in immune cells , known as the pi3k pathway . our product candidate , aqx-1125 , is a small molecule activator of ship1 suitable for oral , once daily dosing . we are currently developing aqx-1125 as a treatment in interstitial cystitis/bladder pain syndrome ( ic/bps ) , a chronic inflammatory disease of the bladder . for aqx-1125 , we retain full worldwide rights and hold patents with terms through 2024 in europe and 2028 in the united states with the possibility of further patent term extension avenues available to us . 65 ic/bps is a chronic inflammatory bladder disease characterized by pelvic pain and increased urinary urgency and or frequency . for many sufferers , these symptoms are severe and adversely affect all major aspects of their lives , including overall physical and emotional health , employment , social and intimate relationships , and leisure activities . while the cause of the disease remains largely unknown , erosion of the bladder lining is thought to be a significant contributor . ic/bps is estimated to affect between 5 and 12 million people in the united states although the reported diagnostic rate is lower . ic/bps is diagnosed more frequently in women but epidemiologic estimates suggest men may be equally affected . most ic/bps patients continue to suffer this debilitating condition , despite treatment with existing therapies , many unapproved for this indication , as these treatments have been reported to be of limited benefit . we believe new and innovative therapies that target the underlying disease in order to reduce the chronic pain and urinary symptoms are needed . in 2015 , we completed and reported results from our leadership 201 trial , a multicenter , randomized , double-blind , placebo-controlled , phase 2 clinical trial investigating the ability of 200 mg oral , once daily aqx-1125 to reduce pain and urinary symptoms in 69 female patients with ic/bps . results demonstrated a positive trend in the primary endpoint and statistically significant changes on secondary endpoints . we are proceeding with further development of aqx-1125 in ic/bps and have initiated the first of two anticipated phase 3 clinical trials of aqx-1125 in ic/bps . the first trial ( leadership 301 trial ) , which commenced enrollment in the third quarter of 2016 , is a three-arm , randomized , double-blind , placebo-controlled phase 3 clinical trial , with 12 weeks dosing followed by an extension period of 40 weeks , to assess the efficacy and safety of aqx-1125 in both female and male ic/bps patients . patients are randomized to receive one of two potential doses of aqx-1125 or placebo . the design and execution of the second phase 3 clinical trial will be informed , in part , by the leadership 301 trial upon receipt of top-line results once all patients have completed 12 weeks of treatment . aqx-1125 is a ship1 activator that has demonstrated preliminary safety , broad anti-inflammatory potential and favorable drug properties in multiple preclinical studies . we have also completed seven clinical trials , exposing over 380 subjects to once daily oral administration of aqx-1125 . these trials have demonstrated a good tolerability profile , with over 200 patients receiving aqx-1125 in two phase 2 trials for periods of 12 weeks . we believe aqx-1125 is the only ship1 activator currently in clinical trials and that no ship1 activator has yet received marketing approval as a treatment for disease in humans . we use a proprietary screening approach to discover new drug candidates that selectively target ship1 to modulate activated immune cells while minimizing their toxicity to normal cells . this approach has provided us with an extensive chemical library and several candidate compounds that target ship1 . these compounds have both similar and distinct properties from aqx-1125 . our intellectual property covers ship1 as a target , the c2 binding domain for screening and the composition of matter for our compounds . our longer-term strategy is to broaden our development activities for aqx-1125 and to advance next generation ship1 activators for the treatment of additional inflammatory diseases and cancer . we commenced operations as 6175813 canada inc. , a corporation formed in december 2003 under the canada business corporations act . in may 2014 , after a corporate restructuring , we changed the name of such entity to aquinox pharmaceuticals ( canada ) inc. ( aqxp canada ) . we incorporated aquinox pharmaceuticals ( usa ) inc. , a corporation under the laws of the state of delaware , in may 2007. we subsequently changed the name of this corporation in january 2014 to aquinox pharmaceuticals , inc. ( aquinox usa ) . upon the completion of our initial public offering ( ipo ) in march 2014 , aqxp canada became a wholly owned subsidiary of aquinox usa . we have operations in vancouver , british columbia and san bruno , california . story_separator_special_tag as a result , there was no amortization or extinguishment of discount related to preferred stock for the years ended december 31 , 2015 and 2016. interest expense interest expense for the year ended december 31 , 2014 consisted of interest payment and early repayment penalty and fees of $ 0.1 million and accretion of warrant discount and deferred costs of $ 0.3 million for a term loan with silicon valley bank , or svb , entered into in october 2013 and repaid in march 2014. there was no interest expense for the years ended december 31 , 2015 and 2016 . 69 other income ( expenses ) replace_table_token_6_th derivative liability for the years ended december 31 , 2016 and 2015 comprised a warrant issued to svb under the terms of a loan agreement . it is re-measured at each balance sheet date with the corresponding change recorded within change in fair value of derivative liability . on september 29 , 2016 , svb exercised the warrant on a cashless basis as provided for under the warrant agreement , and as a result , we issued 3,001 shares of common stock to svb as net settlement for the exercise of the warrant . we do not have any derivative liability as of december 31 , 2016. for the year ended december 31 , 2014 , the change in fair value of derivative liability was primarily the result of the conversion of all our preferred stock to common stock in accordance with the terms of our preferred stock as part of our ipo and the resulting extinguishment of the derivative liabilities related to our preferred stock . this resulted in a $ 0.9 million decline in fair value of derivative liabilities . foreign exchange losses for the year ended december 31 , 2016 were insignificant as the net effect of change in foreign exchange rates on our foreign currency holdings was offset by the net effect on our foreign currency liabilities . foreign exchange losses for the years ended december 31 , 2015 and 2014 were primarily a result of losses on our foreign currency holdings as the u.s. dollar strengthened during that period against our canadian dollar and euro holdings . interest income increased significantly during the year ended december 31 , 2016 compared to 2015 as a result of higher cash and investment balances during the year ended december 31 , 2016. similarly , in comparison to the year ended december 31 , 2014 , interest income also increased as a result of higher cash and investment balance during 2015. miscellaneous expenses for the years ended december 31 , 2016 , 2015 and 2014 were primarily normal recurring bank charges . liquidity and capital resources since our inception , we have incurred net losses and negative cash flows from our operations and relied upon the issuance of common and preferred stock to fund our operations . our operating activities used $ 30.2 million , $ 20.3 million and $ 17.5 million of cash flows during the years ended december 31 , 2016 , 2015 and 2014 , respectively . as of december 31 , 2016 , we had an accumulated deficit of $ 148.3 million , working capital of $ 94.0 million , and cash , cash equivalents , short and long-term investments of $ 153.1 million . we believe that our existing capital resources will be sufficient to fund our operations for at least the next 12 months . 70 cash flows the following table summarizes our cash flows for the years ended december 31 , 2016 , 2015 and 2014 : replace_table_token_7_th net cash used in operating activities net cash used in operating activities for the year ended december 31 , 2016 increased compared to the year ended december 31 , 2015 due to higher operating expenses as described above . net cash used in operating activities for the year ended december 31 , 2015 increased compared to the year ended december 31 , 2014 despite the decline in operating expenses in 2015 compared to 2014. this was primarily due to timing of accounts payables as certain expenses incurred in 2014 were paid in 2015. net cash used in investing activities net cash used in investing activities for the year ended december 31 , 2016 resulted from the investment of the cash proceeds received from the public offering of common shares in september 2016. net cash used in investing activities for the year ended december 31 , 2015 resulted from the investment of the cash proceeds received from the public offering of common shares in september 2015. net cash used in investing activities for the year ended december 31 , 2014 resulted from the investment of the cash proceeds received from our ipo in march 2014. net cash used in investing activities for 2016 , 2015 and 2014 included the purchase and sale of short and long-term investments as we invested the proceeds from our financing activities into liquid , high quality securities in accordance to our investment policy , which focuses on the preservation of principal and maintenance of liquidity . net cash provided by financing activities net cash provided by financing activities for the year ended december 31 , 2016 resulted from the public offering of common shares in september 2016 for gross proceeds of $ 75.4 million , before underwriting discounts and commissions and offering expenses of $ 4.7 million , and proceeds from the exercise of stock options of $ 0.4 million . net cash provided by financing activities for the year ended december 31 , 2015 resulted from the public offering of common shares in september 2015 for gross proceeds of $ 98.0 million , before underwriting discounts and commissions and offering expense of $ 6.2 million , and proceeds from the exercise of stock options of $ 1.1 million . for the year ended december 31 , 2014 , net cash provided by financing activities was the result of the $ 53.1 million in proceeds from our ipo , before underwriting discounts and commissions and offering expense of $ 5.3
| results of operations revenue to date , we have not generated any revenue . in the future , we may generate revenue from a combination of product sales , license fees , milestone payments and royalties from the sale of products developed under licenses of our intellectual property . operating expenses the following table summarizes our operating expenses for the years ended december 31 , 2016 , 2015 and 2014 : replace_table_token_4_th research and development expenses our research and development expenses consist primarily of costs incurred for the development of aqx-1125 and other future product candidates . research and development expenses include : costs associated with research , development and regulatory activities ; employee-related expenses , including salaries , benefits , travel and stock-based compensation expense ; expenses incurred under agreements with cros and investigative sites that conduct our clinical trials and preclinical studies ; the cost of acquiring and manufacturing our products , for preclinical studies and clinical trials ; 67 cost incurred in relation to purchase of technology licenses and patent rights ; and facilities , and other expenses , which include direct and allocated expenses for rent and maintenance of facilities , amortization of equipment and leasehold improvements , insurance and supplies . we are currently developing aqx-1125 as a treatment in ic/bps . in 2015 , we completed and reported results from our leadership 201 trial , a multicenter , randomized , double-blind , placebo-controlled , phase 2 clinical trial investigating the ability of 200 mg oral , once daily aqx-1125 to reduce pain and urinary symptoms in 69 female patients with ic/bps . results demonstrated a positive trend in the primary endpoint and statistically significant changes on secondary endpoints . we are proceeding with further development of aqx-1125 in ic/bps and have initiated activities for the first of two anticipated phase 3 clinical trials of aqx-1125 in ic/bps .
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these risks include fragile consumer confidence , continued volatility in our domestic and international stock markets , the threat of rising interest rates and adverse weather conditions , as well as a variety of local market risks where we do business . however , we continue to believe that we are well positioned in key markets , and that the underlying fundamentals that drive home purchases are supportive . overview of results for our fiscal 2016 fiscal 2016 was another very positive year for us , highlighted by two important accomplishments . first , we were able to continue to grow adjusted ebitda , which once certain non-recurring items , such as unexpected warranty costs , an insurance settlement and a litigation settlement , are eliminated ( refer to item 6 , selected financial data , in this form 10-k for a reconciliation of adjusted ebitda ) , increased by 8.5 % over the prior fiscal year . second , we significantly improved the health of our balance sheet by reducing our debt balance and by activating additional previously idled land parcels . profitability . for the fiscal year ended september 30 , 2016 , we recorded net income from continuing operations of $ 5.2 million , a decline of $ 341.4 million from the prior fiscal year 's net income from continuing operations of $ 346.6 million . however , the following items impacted the comparability of our net income from continuing operations between periods : in the current fiscal year , we had income tax expense of $ 16.5 million compared to the prior fiscal year 's income tax benefit of $ 324.6 million , which included the impact of the release of a substantial portion of our valuation allowance on our deferred tax assets of $ 335.2 million ; unexpected warranty costs related to water intrusion issues in florida ( the florida stucco issues ) , net of insurance recoveries , resulted in a net credit to home construction expenses of $ 3.6 million in fiscal 2016 versus additional expense of $ 13.6 million in fiscal 2015 ; an insurance settlement received from our third-party insurer to resolve certain issues related to the extent of our insurance coverage for multiple policy years was recognized during the current fiscal year as a reduction of our home construction expenses of $ 15.5 million ; we recorded $ 15.3 million and $ 3.1 million in impairment and abandonment charges , including those on active projects , as well as land held for sale , during our fiscal 2016 and fiscal 2015 , respectively , an increase of $ 12.2 million ; and total interest expense , including capitalized interest amortized to home construction and land sales expenses and interest expense not qualified for capitalization and included as other expense , was $ 104.0 million in the current fiscal year compared to $ 85.9 million in the prior fiscal year , an increase of $ 18.1 million ( see note 6 of the notes to our consolidated financial statements in this form 10-k ) . looking at our underlying operating results , year-over-year closings increased by 8.2 % , from 5,010 in the prior fiscal year to 5,419 in the current fiscal year , and our average selling price ( asp ) increased over the prior fiscal year by 5.1 % to $ 329.4 thousand . these combined to increase our homebuilding revenue by 13.6 % , from $ 1.57 billion in the prior fiscal year to $ 1.78 billion in the current fiscal year . however , homebuilding gross margin , excluding impairments , abandonments , interest and the impacts of the florida stucco issues and insurance settlement noted above , declined to 20.6 % in the current fiscal year from 21.5 % in the prior fiscal year due to the impact of several factors addressed within our “ results of continuing operations ” discussion below . commission expense grew year-over-year because of higher business volume , but declined as a percentage of homebuilding revenue when compared with the prior fiscal year . finally , although our general and administrative ( g & a ) expenses increased year-over-year because our business has grown , it has declined as a percentage of total revenue as we have been able to improve our cost leverage on higher revenues . we ended the current fiscal year with a backlog of 1,916 units , which represents a 6.0 % decrease from the end of our prior fiscal year due to a decline in new order activity , coupled with higher year-over-year closings . however , the current fiscal year ending backlog had an asp of $ 340.6 thousand , a year-over-year increase of 4.0 % , causing our aggregate dollar value of homes in backlog to only decline by 2.2 % . 26 debt reduction . in addition to the profitability we achieved during our fiscal 2016 , we also reduced our outstanding debt by nearly $ 157 million as follows : we redeemed ( 1 ) our senior notes due june 2016 , which had a balance of $ 170.9 million as of the beginning of the current fiscal year and had our most restrictive covenants ; ( 2 ) our $ 300.0 million senior secured notes due april 2018 ; ( 3 ) our $ 235.0 million senior notes due may 2019 ; ( 4 ) $ 3.6 million of our senior notes due june 2019 ; ( 5 ) $ 2.0 million of our senior notes due 2021 ; and ( 6 ) $ 85.0 million of our $ 140.0 million term loan , including $ 35.0 million of scheduled repayments and $ 50.0 million of early redemptions . we issued ( 1 ) a two-year secured term loan for $ 140 million , which had only $ 55.0 million outstanding as of the end of our fiscal 2016 due to the redemptions noted above , and ( 2 ) $ 500 million of senior notes due march 2022 , which are unsecured and have an interest rate of 8.75 % . story_separator_special_tag during fiscal 2016 , our margin was a bit depressed during the first half of the year , as we made the decision to sell a higher share of speculative homes at slightly reduced margins to generate liquidity to pay off our senior notes due june 2016. however , once we secured financing to redeem these notes , we returned to selling a more normal mix of specs and `` to be built '' homes , which allowed us to increase our margins during the second half of the year . for the year , our homebuilding gross margin ( excluding impairments , abandonments and interest in cost of sales ) improved by 100 basis points to 21.6 % . however , excluding the current fiscal year reduction in home construction expenses resulting from an agreement with our third-party insurer and the impact on home construction expenses related to the florida stucco issues in both periods , homebuilding gross margin declined to 20.6 % in the current fiscal year from 21.5 % in the prior fiscal year , a decrease of 90 basis points ( refer to “ homebuilding gross profit and gross margin ” section below for a full reconciliation of our gross profit and gross margin for each period discussed ) . the current year adjusted gross margin is below the “ 2b-10 ” target for our homebuilding margin of between 21.0 % and 22.0 % ( excluding impairments and abandonments and interest amortized to homebuilding cost of sales ) . as discussed further below , our homebuilding gross margin was impacted by the structure of our land purchase transactions , since finished lot purchases tend to result in lower gross margins , and activation of assets formerly classified as land held for future development , which generally have lower margins . cost leverage . finally , our cost leverage improved from fiscal 2015. our sg & a expenses were 12.3 % of total revenue for fiscal 2016 , compared with 12.8 % a year earlier . although this metric continues to be above our “ 2b-10 ” target range of 11.0 % to 12.0 % , as we continue to grow total revenue , we anticipate further improvement on this metric . we expect to continue our focus on our “ 2b-10 ” metrics during fiscal 2017 , with particular emphasis on driving sales absorptions and improving our homebuilding gross margin . debt reduction and capital efficiency during our fiscal 2016 , we reduced our debt balance by nearly $ 157 million , which surpassed our established debt reduction target for the current fiscal year . we will continue to focus on deleverage , and plan to further reduce our debt by at least another $ 100 million through our fiscal 2018. we believe that doing so in a strong housing market will create long-term shareholder value . by actively managing our debt structure , we were successful in paying off certain secured senior notes in part by issuing unsecured senior debt with a later maturity date . see note 8 of the notes to our consolidated financial statements in this form 10-k for further discussion of our outstanding borrowings and debt activity . additionally , we have increasingly sought to maximize our return on capital by carefully managing our investment in land , so that our debt reduction targets can be achieved while maintaining our community count . to reduce the risks associated with these investments and to maximize our capital base , we have increasingly used options to control land . furthermore , we have continued to activate certain parcels of land held for future development so that these assets can begin to generate revenue for the company . seasonal and quarterly variability : our homebuilding operating cycle generally reflects escalating new order activity in the second and third fiscal quarters and increased closings in the third and fourth fiscal quarters . the following tables present certain quarterly operating data for the periods presented : replace_table_token_8_th 28 story_separator_special_tag september 30 , 2016 is lower than the prior year , driven by the year-over-year decline in new orders , net , discussed above , as well as a lower community count as of the end of the year . backlog as of september 30 , 2015 was higher than the prior fiscal year , driven by the increase in new orders , net year-over-year , discussed above , and a higher active community count . 30 homebuilding revenue , average selling price and closings the tables below summarize homebuilding revenue , the asp of our homes closed and closings by reportable segment for the periods presented : replace_table_token_12_th replace_table_token_13_th the change in asp for our fiscal year ended september 30 , 2016 was impacted primarily by a change in mix of closings between geographies , products and among communities within each individual market as compared with the prior fiscal year . it was also positively impacted by our operational strategies , as well as improved market conditions in certain geographies . these same dynamics enhanced our ability to generate a higher asp during our fiscal 2015 when compared with our fiscal 2014 ; in particular a higher proportion of closings generated from certain markets with high asps , including california , pushed our asp significantly higher during fiscal 2015. on average , we anticipate that our asp will likely continue to increase , as indicated by our asp for homes in backlog as of september 30 , 2016 . closings for our fiscal year ended september 30 , 2016 increased due to our higher year-over-year average active community count as compared with our fiscal year ended september 30 , 2015 , particularly as certain of our markets re-open or expand , as well as improved performance in communities that have recently opened .
| results of continuing operations the following table summarizes certain key income statement metrics for the periods presented : replace_table_token_9_th ( a ) in addition to other items , our homebuilding gross margin for the periods presented was impacted by ( 1 ) a $ 15.5 million reduction in home construction expenses in the current fiscal year resulting from a settlement with our third-party insurer to resolve certain issues related to the extent of our insurance coverage for multiple policy years and ( 2 ) unexpected warranty costs related to the florida stucco issues , as well as the associated insurance recoveries , in each period presented . refer to further discussion of these items below in section titled “ homebuilding gross profit and gross margin. ” ( b ) calculated as tax expense ( benefit ) for the period divided by income from continuing operations . due to the effects of a variety of factors , including the impact of discrete tax items , changes in our valuation allowance on our deferred tax assets and changes in our unrecognized tax benefits , our effective tax rate was not a meaningful metric , particularly in the prior periods presented , as our income tax expense and benefit were not directly correlated to the amount of pretax income or loss for the associated periods . homebuilding operations data the following table summarizes new orders , net and cancellation rates by reportable segment for the periods presented : replace_table_token_10_th sales per active community per month of 2.7 for the fiscal year ended september 30 , 2016 was slightly below the same metric for the fiscal year ended september 30 , 2015 , when we had 2.8 sales per active community per month . therefore , despite the 29 increase in our average active community count from 161 during our fiscal 2015 to 166 during our fiscal 2016 , our decline in sales pace resulted in a reduction of new orders , net of 1.1 % .
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those fees deferred into stock options are subject to the same provisions as provided for in the dep and are expensed and accounted for accordingly . director fees deferred into stock units are calculated and expensed each calendar quarter by taking total fees earned during the calendar quarter and dividing by the closing price of our common stock on the last day of the calendar quarter , rounded to the nearest whole share . the total annual retainer , board and board committee fees for non-employee directors that are not deferred into stock options , but which includes amounts deferred into stock units under the deferred plan , are expensed as incurred in all periods presented . a total of 1,812 story_separator_special_tag the following discussion and analysis should be read in conjunction with item 6 , `` selected consolidated financial data `` and our consolidated financial statements and related notes appearing elsewhere in this report . 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 . `` overview hibbett sports , inc. is an athletic specialty retailer operating in small to mid-sized markets , predominantly in the south , southwest , mid-atlantic and midwest regions of the united states . hibbett sports stores provide an extensive selection of premium brand footwear , apparel and team sports equipment , emphasizing convenient locations and a high level of customer service . as of january 30 , 2016 , we operated a total of 1,044 stores in 33 states composed of 1,024 hibbett sports stores and 20 sports additions athletic shoe stores . the hibbett sports store is our primary retail format and growth vehicle and is an approximately 5,000 square foot store located primarily in strip centers which are frequently influenced by a wal-mart store . our hibbett sports store base consisted of 821 stores located in strip centers , 23 free-standing stores and 200 enclosed mall locations . we expect to continue to grow our store base in strip centers versus enclosed malls . we do not expect that the average size of our stores opening in fiscal 2017 will vary significantly from the average size of stores opened in fiscal 2016. hibbett operates on a 52- or 53-week fiscal year ending on the saturday nearest to january 31 of each year . the consolidated statements of operations for fiscal 2016 , fiscal 2015 and fiscal 2014 included 52 weeks of operations . fiscal 2017 will include 52 weeks of operations . we became a public company in october 1996. fiscal 2016 experienced a total company-wide square footage increase of 5.7 % . our plan for fiscal 2017 is to increase total company-wide square footage by 5 % to 6 % . to supplement new store openings , we continue to expand high performing stores , increasing the square footage in 16 existing stores in fiscal 2016 for an average increase in square footage of 37 % . in fiscal 2016 , comparable store sales were approximately flat , although footwear experienced a mid-single digit comparable store gain . for fiscal 2017 , comparable store sales are expected to increase in the low-single digit range . we expect merchandise margin to be approximately flat , and expect overall gross profit rate to decline slightly as we incur logistics expenses related to our omni-channel initiative . store occupancy expenses are expected to be relatively flat as a percentage of net sales . we expect operating , selling and administrative rates to increase as a percentage of net sales in fiscal 2017 , primarily due to expenses associated with our omni-channel initiative , overall improvements in our information technology capability and increased health care costs . we also expect to continue to generate sufficient cash to enable us to expand and remodel our store base , to enable capital expenditures including technology upgrade projects and to repurchase our common stock under our stock repurchase program . comparable store net sales data for the periods presented reflects sales for our traditional format hibbett sports and sports additions stores open throughout the period and the corresponding period of the prior fiscal year . if a store remodel , relocation or expansion results in the store being closed for a significant period of time , its sales are removed from the comparable store base until it has been open a full 12 months . 25 story_separator_special_tag font-style : italic '' > store operating , selling and administrative expenses . store operating , selling and administrative expenses were $ 192.6 million , or 21.1 % of net sales , for fiscal 2015 , compared with $ 181.5 million , or 21.3 % of net sales , for fiscal 2014. expense trends we experienced included : · total salary and benefit costs increased in dollars , but decreased as a percentage of net sales by 16 basis points due to higher comparable store sales and lower health care costs . · stock-based compensation decreased by 19 basis points as a percentage of net sales due to a larger number of equity award forfeitures in the current year compared to the previous year . · expenses associated with costs of our old distribution center not included in cost of goods sold increased 5 basis points as a percentage of net sales . the lease on our old center expired in december 2014. a complete year of expense related to our new corporate headquarters added 5 basis points as a percentage of net sales . · professional fees increased 7 basis points as a percentage of net sales due to an increase in consulting fees for the planning of our omni-channel initiative and other elements of our strategic plan . depreciation and amortization . story_separator_special_tag of the total budgeted dollars for capital expenditures for fiscal 2017 , we anticipate that approximately 56 % will be related to information technology , consisting primarily of expenditures on our omni-channel initiative , and various system enhancements and upgrades . approximately 26 % will be related to the opening new stores , store expansions and relocations and store remodels . the remaining 18 % relates primarily to specific department expenditures and includes facility upgrades , transportation equipment , automobiles , fixtures and security equipment for our stores . the lease for our old distribution center expired in december 2014. we relocated to our new wholesale and logistics facility in april 2014 at a total capitalized cost of $ 38.7 million . financing activities . net cash used in financing activities was $ 89.9 million , $ 57.7 million and $ 13.0 million in fiscal 2016 , fiscal 2015 and fiscal 2014 , respectively . the financing activity cash fluctuation between years is primarily the result of repurchases of our common stock . we expended $ 89.2 million , $ 56.3 million and $ 15.8 million on repurchases of our common stock during fiscal 2016 , fiscal 2015 and fiscal 2014 , respectively . in addition , cash used to settle net share equity awards expended $ 2.1 million , $ 4.7 million and $ 4.3 million during fiscal 2016 , fiscal 2015 and fiscal 2014 , respectively . financing activities also consisted of proceeds from stock option exercises and employee stock plan purchases and the excess tax benefit from the exercise of incentive stock options . as stock options are exercised and shares are purchased through our employee stock purchase plan , we will continue to receive proceeds and expect a tax deduction ; however , the amounts and timing can not be predicted . at january 30 , 2016 , we had two unsecured revolving credit facilities that allow borrowings up to $ 30.0 million and $ 50.0 million , and which renew in august 2016 and november 2016 , respectively . the facilities do not require a commitment or agency fee nor are there any covenant restrictions . we plan to renew these facilities as they expire and do not anticipate any problems in doing so ; however , no assurance can be given that we will be granted a renewal or terms which are acceptable to us . as of january 30 , 2016 , we did not have any debt outstanding under either of these facilities . 30 the following table lists the aggregate maturities of various classes of obligations and expiration amounts of various classes of commitments related to hibbett sports , inc. at january 30 , 2016 ( in thousands ) : replace_table_token_12_th ( 1 ) see `` part ii , item 8 , consolidated financial statements note 6 – leases . '' ( 2 ) purchase obligations include all material legally binding contracts such as software license commitments and service contracts . the table above also includes a stand-by letter of credit in conjunction with our self-insured workers ' compensation and general liability insurance coverage . contractual obligations that are not binding agreements , including purchase orders for inventory , are excluded from the table above . store utility contracts , including waste disposal agreements , are also excluded . ( 3 ) other liabilities include amounts accrued for various deferred compensation arrangements . see `` part ii , item 8 , consolidated financial statements note 7 – defined contribution benefit plans '' for a discussion regarding our employee benefit plans . non-current liabilities have been excluded from the above table to the extent that the timing and or amount of any cash payment are uncertain . excluded from this table are approximately $ 1.2 million of unrecognized tax benefits , which have been recorded as liabilities in accordance with asc topic 740 , income taxes , as the timing of such payments can not be reasonably determined . see `` part ii , item 8 , consolidated financial statements note 1 – deferred rent '' for a discussion on our deferred rent liabilities . see `` part ii , item 8 , consolidated financial statements note 9 – income taxes '' for a discussion of our unrecognized tax benefits . off-balance sheet arrangements we have not provided any financial guarantees through january 30 , 2016. we have not created , and are not party to , any special-purpose or off-balance sheet entities for the purpose of raising capital , incurring debt or operating our business . we do not have any arrangements or relationships with entities that are not consolidated into the financial statements . inflation and other economic factors our ability to provide quality merchandise on a profitable basis may be subject to economic factors and influences that we can not control . national or international events , including uncertainties in the global financial markets , u.s. government policies , the middle east and asia , could lead to disruptions in economies in the united states or in foreign countries where a significant portion of our merchandise is manufactured . these and other factors could increase our merchandise costs and other costs that are critical to our operations . consumer spending could also decline because of economic pressures . see `` risk factors . `` we do not believe that inflation has had a material impact on our financial position or results of operations to date . a high rate of inflation in the future may have an adverse effect on our ability to maintain current levels of gross profit and selling , general and administrative expenses as a percentage of net sales if the selling prices of our merchandise do not increase with these increased costs . 31 our critical accounting policies our critical accounting policies reflected in the consolidated financial statements are detailed below . revenue recognition . we recognize revenue , including gift card and layaway sales , in accordance with asc topic 605 , revenue recognition . retail merchandise sales occur on-site in our stores .
| executive summary following is a highlight of our financial results over the last three fiscal years : replace_table_token_9_th during fiscal 2016 , hibbett opened 71 new stores and closed 15 underperforming stores , bringing the store base to 1,044 in 33 states as of january 30 , 2016. inventory on a per store basis at january 30 , 2016 , increased by 11.4 % compared to the prior fiscal year . hibbett ended fiscal 2016 with $ 32.3 million of available cash and cash equivalents on the consolidated balance sheet and full availability under its $ 80.0 million unsecured credit facilities . recent accounting pronouncements see note 2 of item 8 of this annual report on form 10-k for the fiscal year ended january 30 , 2016 , for information regarding recent accounting pronouncements . results of operations the following table sets forth the percentage relationship to net sales of certain items included in our consolidated statements of operations for the periods indicated . replace_table_token_10_th note : columns may not sum due to rounding . 26 fiscal 2016 compared to fiscal 2015 net sales . net sales increased $ 29.6 million , or 3.2 % , to $ 943.1 million for fiscal 2016 from $ 913.5 million for fiscal 2015. furthermore : · we opened 71 hibbett sports stores while closing 15 underperforming hibbett sports stores for net stores opened of 56 stores in fiscal 2016. stores not in the comparable store net sales calculation accounted for $ 33.7 million of the increase in net sales . we expanded , remodeled or relocated 16 high performing stores . store openings and closings are reported net of relocations . · comparable store net sales for fiscal 2016 declined 0.4 % compared to fiscal 2015. during fiscal 2016 , 893 stores were included in the comparable store sales comparison . comparable store net sales were driven by gains across footwear , offset by declines in apparel and equipment .
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as used in this section , references to the “ fiscal year ended december 27 , 2020 ” or “ fiscal 2020 ” refer to the 52-week period that began on december 30 , 2019 and ended on december 27 , 2020. references to the “ fiscal year ended december 29 , 2019 ” or “ fiscal 2019 ” refer to the 52-week period that began on december 31 , 2018 and ended on december 29 , 2019. references to the “ fiscal year ended december 30 , 2018 ” or “ fiscal 2018 ” refer to the 52-week period that began on january 1 , 2018 and ended on december 30 , 2018. overview we are a leading global digital marketplace connecting vehicle buyers and sellers . leveraging leading-edge technology and focusing on innovation , our unique platform facilitates the marketing and sale of total-loss , damaged and low-value vehicles for a full spectrum of sellers . headquartered in westchester , il , we have two operating segments : united states and international . we maintain operations in the united states , which make up the united states segment and operations in canada and the united kingdom , which make up the international segment . we have more than 200 facilities across both business segments . we serve a global buyer base and a full spectrum of sellers , including insurance companies , dealerships , fleet lease and rental car companies , and charitable organizations . we offer sellers a comprehensive suite of services aimed at maximizing vehicle value , reducing administrative costs , shortening selling cycle time and delivering the highest economic returns . our solutions provide global buyers with the vehicles they need to , among other things , fulfill their vehicle rebuild requirements , replacement part inventory or scrap demand . we provide global buyers with multiple bidding/buying digital channels , innovative vehicle merchandising , efficient evaluation services and online bidding tools , enhancing the overall purchasing experience . during fiscal 2020 , we completed the roll-out of our buyer digital transformation in the united states in april 2020 and in canada in july 2020. iaa uk has operated an online , digital only auction since 2005. as a result , we have shifted to a fully online , digital auction model , resulting in a reduction of costs previously associated with the physical auctions . the separation on february 27 , 2018 , kar announced a plan to pursue the separation and spin off ( “ the separation ” ) of its salvage auction businesses into a separate public company . on june 28 , 2019 ( the “ separation date ” ) , kar completed the distribution of 100 % of the issued and outstanding shares of common stock of iaa to the holders of record of kar 's common stock on june 18 , 2019 , on a pro rata basis ( the “ distribution ” ) . following the separation and distribution , iaa became an independent publicly-traded company . industry trends vehicles deemed a total loss by automobile insurance companies represent the largest category of vehicles sold in the salvage vehicle auction industry . based on data from ccc information services , the percentage of claims resulting in total losses was approximately 21 % in 2020 , 19 % in 2019 and 18 % in 2018. there is no central reporting system for the salvage vehicle auction industry that tracks the number of salvage vehicle auction volumes in any given year , which makes estimating industry volumes difficult . fluctuations in used vehicle and commodity pricing ( aluminum , steel , etc . ) have an impact on proceeds received in the salvage vehicle auction industry . in times of rising prices , revenue and gross profit are positively impacted . if used vehicle and commodity prices decrease , proceeds , revenue and gross profit at salvage auctions may be negatively impacted , which could adversely affect our level of profitability . the price per ton of crushed auto bodies in north america increased approximately 15 % in 2020 as compared to 2019 and declined approximately 29 % in 2019 as compared to 2018 . 29 sources of revenues and expenses a significant portion of our revenue is derived from auction fees and related services associated with our salvage auctions . approximately two-thirds of our revenue is earned from buyers . buyer revenue represents fees charged based on a tiered structure that increases with the sales price of the vehicle as well as service fees for additional services such as storage , transportation , and vehicle condition reporting . approximately one-third of our revenue is earned from sellers . seller revenue represents the combination of the inbound tow , processing , storage , titling , enhancing and auctioning of the vehicle . although auction revenues primarily include the auction services and related fees , our related receivables and payables include the gross value of the vehicles sold . our operating expenses consist of cost of services , cost of vehicle sales , selling , general and administrative and depreciation and amortization . cost of services is comprised of payroll and related costs , subcontract services , supplies , insurance , property taxes , utilities , service contract claims , maintenance and lease expense related to the auction sites . cost of vehicle sales is comprised of the cost of purchased vehicles . cost of services and vehicle sales excludes depreciation and amortization . selling , general and administrative expenses are comprised of payroll and related costs , sales and marketing , information technology services and professional fees . covid-19 impact on our business the outbreak of the coronavirus pandemic ( covid-19 ) has severely impacted , and continues to impact worldwide economic activities . in an effort to contain and combat the spread of covid-19 , government and health authorities around the world took extraordinary and wide-ranging actions , including orders to close all business not deemed “ essential ” , quarantines , “ stay-at-home ” orders , and the practice of social distancing . story_separator_special_tag consequently , the financial information included here may not necessarily reflect iaa 's financial position , results of operations and cash flows in the future or what iaa 's financial position , results of operations and cash flows would have been had iaa been an independent , publicly traded company during the periods prior to the separation . debt financing : in connection with the separation , we entered into a credit agreement on june 28 , 2019 with several banks and other financial institutions . we borrowed ( i ) an aggregate principal amount of $ 800 million under a seven-year senior secured term loan facility , and ( ii ) an aggregate principal of $ 225 million under a five-year revolving credit facility . in connection with the separation , on june 6 , 2019 , we also issued $ 500.0 million aggregate principal amount of 5.50 % senior notes due 2027 ( the `` notes '' ) . we used the net proceeds from the notes offering , together with borrowings under the term loan facility , to make a cash distribution to kar and to pay fees and expenses related to the separation and distribution . we used the remaining proceeds from the term loan facility for our ongoing working capital needs and general corporate purposes . acquisitions : on july 31 , 2019 , we acquired decision dynamics , inc. ( `` ddi '' ) , a leading electronic lien and title technology firm located in lexington , south carolina for $ 19.2 million which includes the fair value of contingent consideration of $ 2.5 million . covid-19 : the outbreak of covid-19 pandemic and the efforts taken to reduce its spread adversely affected our operations in fiscal 2020. see above under `` covid-19 impact on our business '' for additional information . 31 story_separator_special_tag roman ' , sans-serif ; font-size:10pt ; font-style : italic ; font-weight:700 ; line-height:120 % '' > income taxes . the effective tax rate for fiscal 2020 was 24.2 % as compared to 26.3 % for fiscal 2019. fiscal 2020 effective tax rate benefited by a reduction of 1.6 % as a result of the finalization of federal income tax regulations , a change in the mix of jurisdictional income associated with alignment of internal cost structures , and other impacts including certain discrete items . the effective tax rate for fiscal 2019 was adversely impacted by 0.5 % associated with the spin-off from kar . fiscal 2019 compared to fiscal 2018 for a discussion of fiscal 2019 as compared to fiscal 2018 , please refer to part ii , item 7 , management 's discussion and analysis of financial condition and results of operations in our form 10-k for the fiscal year ended december 29 , 2019 , filed with the securities and exchange commission on march 18 , 2020. liquidity and capital resources we believe that the significant indicators of liquidity for our business are cash on hand , cash flow from operations and working capital . our principal source of liquidity consists of cash generated by operations . our revolving credit facility ( as defined below ) and canadian credit facility provide another source of liquidity as needed . our cash flow is used to invest in new products and services , fund capital expenditures and working capital requirements and , coupled with borrowings under our revolving credit facility and canadian credit facility , is expected to be adequate to satisfy our cash requirements , including those listed below , and fund future acquisitions , if any . our ability to fund our cash requirements will depend on our ongoing ability to generate cash from operations and to access borrowings under our revolving credit facility and canadian credit facility . we believe that our cash on hand , future cash from operations , borrowings available under our revolving credit facility and canadian credit facility and access to the debt and capital markets will provide adequate resources to fund our operating and financing needs for the next twelve months and beyond . our material cash requirements from known contractual and other obligations include : debt service obligations in connection with the separation , on june 28 , 2019 we entered into a credit agreement with jpmorgan chase bank , n.a. , as 34 administrative agent , and the lenders party thereto from time to time ( the “ credit agreement ” ) , which provides for , among other things , a seven year senior secured term loan facility in an aggregate principal amount of $ 800 million ( the “ term loan facility ” ) and a five year revolving credit facility in an aggregate principal amount of $ 225 million ( the “ revolving credit facility ” ) . on may 1 , 2020 , in response to the uncertainty around covid-19 , we entered into an amendment to the credit agreement to increase the aggregate principal amount able to be borrowed under the revolving credit facility by $ 136.0 million to $ 361.0 million . the revolving credit facility also includes a $ 50 million sub-limit for issuance of letters of credit and a $ 50 million sublimit for swing line loans , which can be borrowed on same-day notice . as of december 27 , 2020 , no amounts were outstanding under the revolving credit facility . at december 27 , 2020 , we had outstanding letters of credit in the aggregate amount of $ 6.1 million , all of which reduce the amount available for borrowings under the revolving credit facility . we were in compliance with the covenants in the credit agreement at december 27 , 2020. during the fourth quarter of fiscal 2019 , we repaid $ 22.0 million of the term loan facility , consisting of $ 2.0 million required principal payment and a $ 20.0 million optional principal pre-payment . during the first quarter of fiscal 2020 , we made an additional optional principal pre-payment of $ 4.0 million of the term loan facility .
| results of operations fiscal 2020 compared to fiscal 2019 the table below presents consolidated statements of income for the periods indicated and the dollar change and percentage change between periods . replace_table_token_1_th * exclusive of depreciation and amortization * * nm - not meaningful service revenues replace_table_token_2_th united states service revenues decreased $ 61.8 million due to a lower volume of consigned vehicles sold , which decreased by 15.2 % primarily resulting from the covid-19 pandemic . this decrease in volume of consigned vehicles sold was partially offset by an increase in revenue per unit of 11.9 % primarily from higher average selling prices due to increased buyer participation , enhanced product and service offerings , and favorable industry dynamics . additionally , fiscal 2020 included incremental revenue of $ 5.6 million from the ddi acquisition and fiscal 2019 benefited from a non-cash adjustment of $ 3.6 million relating to certain revenue agreements . international service revenues decreased $ 8.9 million due to a lower volume of consigned vehicles sold , which decreased by 17.2 % , primarily resulting from the covid-19 pandemic , and an unfavorable foreign currency impact of $ 0.7 million from the canadian dollar . the decrease in volume of vehicles sold was partially offset by an increase in revenue per unit of 10.7 % primarily from higher average selling prices due to increased buyer participation , enhanced product and service offerings , and favorable industry dynamics . 32 vehicle sales replace_table_token_3_th united states vehicle sales increased $ 10.8 million due to an increase in revenue per unit sold , which primarily resulted from higher average selling prices due to increased buyer participation , enhanced product and service offerings , and favorable industry dynamics .
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decreased to zero ; and ( iv ) further net losses were allocated between sohu and noncontrolling shareholders based on their shareholding percentage in sogou . net income from sogou was allocated in the following order before sogou 's ipo : ( i ) net income was allocated between sohu and noncontrolling shareholders based on their shareholding percentage in story_separator_special_tag overview sohu.com inc. ( nasdaq : sohu ) , a delaware corporation organized in 1996 , is a leading chinese online media , search and game service group providing comprehensive online products and services on pcs and mobile devices in the people 's republic of china ( the prc or china ) . our businesses are conducted by sohu.com inc. and its subsidiaries and vies ( collectively referred to as the sohu group or the group ) . the sohu group consists of sohu , which when referred to in this report , unless the context requires otherwise , excludes the businesses and the corresponding subsidiaries and vies of sogou inc. ( sogou ) and changyou.com limited ( changyou ) , sogou and changyou . sogou and changyou are indirect controlled subsidiaries of sohu.com inc. sohu is a leading chinese language online media content and services provider . sogou is a leading online search and search-related services and mobile internet product provider in china . changyou is a leading online game developer and operator in china as measured by the popularity of its pc game tlbb and its mobile game legacy tlbb , and engages primarily in the development , operation and licensing of online games for pcs and mobile devices . sogou completed its ipo on the nyse in november 2017 ( trading under the symbol sogo ) and changyou completed its ipo on nasdaq in april 2009 ( trading under the symbol cyou ) . as sohu.com inc. is the controlling shareholder of both sogou and changyou , sohu.com inc. consolidates sogou and changyou in its consolidated financial statements , and recognizes noncontrolling interests reflecting economic interests in sogou and changyou held by shareholders other than sohu.com inc. through the operation of sohu , sogou and changyou , we generate online advertising revenues , including brand advertising revenues and search and search-related advertising revenues ; online games revenues ; and other revenues . online advertising and online games are our core businesses . most of our operations are conducted through our china-based subsidiaries and vies . for the year ended december 31 , 2017 , our total revenues were approximately $ 1.86 billion , representing an increase of 13 % compared to 2016 , and our gross margin decreased from 48 % to 44 % . our online advertising business generated revenues of $ 1.12 billion , with a 7 % annual increase , representing 60 % of total revenues . our online game business generated revenues of $ 449.5 million , with a 14 % annual increase , representing 24 % of total revenues . in 2017 , our net loss before deducting the noncontrolling interest was $ 470.0 million , compared to net loss of $ 115.0 million in 2016. in 2017 , our net loss after deducting the noncontrolling interest was $ 554.5 million , compared to a net loss of $ 224.0 million in 2016. diluted net loss per share attributable to sohu.com inc. was $ 14.30 in 2017 , compared to a diluted net loss per share attributable to sohu.com inc. of $ 5.83 in 2016. factors and trends affecting our business with the accelerated shift in user activities from pcs to mobile devices and an increase in the number of internet users , the use of various kinds of mobile internet services continued to increase . at sohu , we focused our efforts on developing a portfolio of leading mobile products across our business lines that we believed our users would like . smartphones have reshaped the online media business in china , as in-stream feeds have become a mainstream format through which users have become accustomed to receiving personalized information . in 2017 , to ensure we remain as a premier destination for our audience , we invested extensively in content and technology for sohu media portal . we continually refined the design of our key product sohu news app , and introduced innovative features to meet users ' appetites . we improved the algorithm used by the recommendation engine of sohu news app to enhance the user experience . our advertising revenues from large brand advertisers were soft through 2017 , as we faced challenges competing for their budgets . in the meantime , demand from small and medium enterprise ( sme ) customers was resilient as we proactively expanded our sales network to cover large numbers of local businesses . 110 online video services remained one of the most popular internet applications , and continued to gain viewers from television stations . the video industry continued to be deeply competitive as major online platforms aggressively competed for popular content . the competition led to an escalation in the price of content , especially the prices of premium tv programs . since 2016 , sohu video has gradually shifted its focus to the self-developed content category , which , in our view , will create long-lasting value to our platform . leveraging our exclusive original content , we also actively explored opportunities with subscription services that we believe will become an important revenue source in addition to traditional advertising revenues . beginning in the second quarter of 2017 , sohu video stopped chasing the costly domestic tv dramas that are scheduled to be released in 2018. we expect that this decision will generate substantial cost savings and help narrow the operating loss of sohu video in 2018. for our search and search-related business , sogou is china ' second-largest search engine by mobile queries . in december 2017 , sogou search had an 18 % market share in china based on mobile queries , as compared to 15 % in march 2017 , according to iresearch . story_separator_special_tag right to reject a redemption requested by the noncontrolling shareholders . these treatments were based on the terms governing investment , and on the terms of the classes of sogou shares held , by the noncontrolling shareholders in sogou before sogou 's ipo . principles of allocation of sogou 's profit and lossby virtue of the terms of the sogou pre-ipo preferred shares , pre-ipo class a ordinary shares , and pre-ipo class b ordinary shares , sogou 's losses were allocated in the following order before sogou 's ipo : ( i ) net losses were allocated to holders of the sogou pre-ipo class a ordinary shares and the holder of the sogou pre-ipo class b ordinary shares until their basis in sogou decreased to zero ; ( ii ) additional net losses were allocated to holders of the sogou pre-ipo series a preferred shares until their basis in sogou decreased to zero ; ( iii ) additional net losses were allocated to the holder of the sogou pre-ipo series b preferred shares until its basis in sogou decreased to zero ; and ( iv ) further net losses were allocated between sohu and noncontrolling shareholders based on their shareholding percentage in sogou . 112 net income from sogou was allocated in the following order before sogou 's ipo : ( i ) net income was allocated between sohu and noncontrolling shareholders based on their shareholding percentage in sogou until their basis in sogou increased to zero ; ( ii ) additional net income was allocated to the holder of the sogou pre-ipo series b preferred shares to bring its basis back ; ( iii ) additional net income was allocated to holders of the sogou pre-ipo series a preferred shares to bring their basis back ; ( iv ) further net income was allocated to holders of the sogou pre-ipo class a ordinary shares and the holder of the sogou pre-ipo class b ordinary shares to bring their basis back ; and ( v ) further net income was allocated between sohu and noncontrolling shareholders based on their shareholding percentage in sogou . noncontrolling interest recognition after sogou 's ipo sogou 's cumulative results of operations attributable to the sogou noncontrolling shareholders , based on their share of the economic interest in sogou , along with changes in shareholders ' equity and adjustment for share-based compensation expense in relation to share-based awards that are unvested and vested but not yet settled and adjustment for changes in our ownership in sogou , are recorded as noncontrolling interest in our consolidated balance sheets . noncontrolling interest for changyou changyou is a public company listed on the nasdaq global select market . as of december 31 , 2017 , we held approximately 68 % of the combined total of changyou 's outstanding ordinary shares , and controlled approximately 95 % of the total voting power in changyou . as changyou 's controlling shareholder , we consolidate changyou in our consolidated financial statements , and recognize noncontrolling interest reflecting the economic interest in changyou held by shareholders other than us ( the changyou noncontrolling shareholders ) . changyou 's net income / ( loss ) attributable to the changyou noncontrolling shareholders is recorded as noncontrolling interest in our consolidated statements of comprehensive income , based on their share of the economic interest in changyou . changyou 's cumulative results of operations attributable to the changyou noncontrolling shareholders , along with changes in shareholders ' equity , adjustment for share-based compensation expense in relation to those share-based awards which are unvested and vested but not yet settled and adjustment for changes in our ownership in changyou , are recorded as noncontrolling interest in our consolidated balance sheets . segment reporting our group 's segments are business units that offer different services and are reviewed separately by the chief operating decision maker ( the codm ) , or the decision making group , in deciding how to allocate resources and in assessing performance . the codm is sohu.com inc. 's chief executive officer . revenue recognition we recognize revenue when persuasive evidence of an arrangement exists , delivery has occurred , the sales price is fixed or determinable , and collectability is reasonably assured . the recognition of revenues involves certain management judgments . the amount and timing of our revenues could be materially different for any period if management made different judgments or utilized different estimates . revenues or expenses from barter transactions are recognized at fair value during the period in which the advertisements are provided only if the fair value of the advertising services surrendered in the transaction is determinable based on our historical practice of receiving cash and cash equivalents , marketable securities , or other consideration that is readily convertible to a known amount of cash for similar advertising from buyers unrelated to the counterparty in the barter transaction . 113 online advertising revenues online advertising revenues include revenues from brand advertising services as well as search and search-related advertising services . we recognize revenue for the amount of fees we receive from our advertisers , after deducting agent rebates and net of value-added tax ( vat ) and related surcharges . brand advertising revenues business model through pcs and mobile devices , we provide advertisement placements to our advertisers on different internet platforms and in different formats , which include banners , links , logos , buttons , full screen , pre-roll , mid-roll , post-roll video screens , pause video screens , loading page ads , news feed ads and in-feed video infomercial ads . currently we have four main types of pricing models , consisting of the fixed price model , the cost per impression ( cpm ) model , the cost per click ( cpc ) model , and the e-commerce model . ( i ) fixed price model under the fixed price model , a contract is signed to establish a fixed price for the advertising services to be provided . we recognize revenue based on the contract price and the period of display .
| results of operations revenues the following table presents our revenues by revenue source and by proportion for the periods indicated ( in thousands , except percentages ) : replace_table_token_5_th online advertising revenues online advertising revenues were $ 1.12 billion for 2017 , compared to $ 1.05 billion and $ 1.12 billion , respectively , for 2016 and 2015. brand advertising revenues , generated by sohu and changyou brand advertising revenues were $ 314.1 million for 2017 , compared to $ 448.0 million and $ 577.1 million , respectively , for 2016 and 2015. the year-on-year reduction in brand advertising revenues from 2016 to 2017 resulted mainly from reductions in the revenues of sohu video and focus . the year-on-year reduction in brand advertising revenues from 2015 to 2016 resulted mainly from a reduction in the revenues of sohu video . 128 sohu sohu media portal revenues from sohu media portal were $ 152.0 million for 2017 , compared to $ 181.8 million and $ 197.6 million , respectively , for 2016 and 2015. in 2017 , while the slowdown in the growth of the economy in china shrank the budgets of brand advertisers , rapid growth in the number of small and medium enterprises ( smes ) advertising on sohu media portal helped offset the impact to some extent . the number of advertisers for sohu media portal was 6,680 for 2017 , compared to 4,259 and 3,471 , respectively , for 2016 and 2015. the average amount spent per advertiser was approximately $ 23,000 for 2017 , compared to $ 43,000 and $ 57,000 , respectively , for 2016 and 2015. sohu video revenues from sohu video were $ 79.7 million for 2017 , compared to $ 123.1 million and $ 212.8 million , respectively , for 2016 and 2015. the changes were mainly attributable to reductions both in the number of advertisers and in the average amount spent per advertiser .
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see the discussion about forward-looking statements on page 1 of this annual report on form 10-k. executive overview ani pharmaceuticals , inc. and its consolidated subsidiaries ( together , “ ani , ” the “ company , ” “ we , ” “ us , ” or “ our ” ) is an integrated specialty pharmaceutical company focused on delivering value to our customers by developing , manufacturing , and marketing high quality branded and generic prescription pharmaceuticals . we focus on niche and high barrier to entry opportunities including controlled substances , anti-cancer ( oncolytics ) , hormones and steroids , and complex formulations . we have two pharmaceutical manufacturing facilities located in baudette , minnesota , which are capable of producing oral solid dose products , as well as liquids and topicals , controlled substances , and potent products that must be manufactured in a fully-contained environment . our strategy is to use our assets to develop , acquire , manufacture , and market branded and generic specialty prescription pharmaceuticals . by executing this strategy , we believe we will be able to continue to grow our business , expand and diversify our product portfolio , and create long-term value for our investors . on june 19 , 2013 , biosante pharmaceuticals , inc. ( “ biosante ” ) acquired anip acquisition company ( “ anip ” ) in an all-stock , tax-free reorganization ( the “ merger ” ) , in which anip became a wholly-owned subsidiary of biosante . biosante was subsequently renamed ani pharmaceuticals , inc. the merger was accounted for as a reverse acquisition pursuant to which anip was considered the acquiring entity for accounting purposes . as such , anip 's historical results of operations replace biosante 's historical results of operations for all periods prior to the merger . the results of operations of both companies are included in our consolidated financial statements for all periods after completion of the merger . in 2014 , we acquired abbreviated drug applications ( “ andas ” ) for 31 generic products , the new drug application ( “ nda ” ) for lithobid , and the nda for vancocin , along with two related andas . we also launched our methazolamide product . in addition , we completed a follow-on public offering of common stock , yielding net proceeds of $ 46.7 million , and closed a public offering of $ 143.8 million of 3.0 % convertible senior notes due in 2019 ( the “ notes ” ) , with simultaneous bond hedge and warrant transactions . in 2015 , we acquired andas for 23 generic products , the nda for testosterone gel , and entered into a distribution agreement with idt australia limited ( “ idt ” ) to market several generic products in the u.s. we also launched six products during the year . in 2016 , we acquired the ndas and product rights for corticotropin , corticotropin-zinc , and inderal la , and acquired the rights to market and distribute our fenofibrate and hydrocortisone rectal cream products . we also entered into a three year senior secured asset-based revolving credit facility for up to $ 30.0 million . during the 2016 year , we launched 11 products . 39 recent developments in january 2016 , we acquired from merck sharp & dohme b.v. ( “ merck ” ) the ndas for corticotropin and corticotropin-zinc for $ 75.0 million in cash and a percentage of future net sales . corticotropin may be employed for many different disorders such as rheumatic disorders , collagen diseases , dermatologic diseases , allergic states , ophthalmic diseases , respiratory diseases , hematologic disorders , and neoplastic diseases . more specifically , corticotropin is used to treat conditions such as multiple sclerosis , psoriatic or rheumatoid arthritis , ankylosing spondylitis , lupus , severe allergic reactions , breathing disorders , and inflammatory conditions of the eyes . corticotropin can reduce the symptoms of many disorders where corticosteroid therapy has failed , but it is not a cure for these conditions . since acquiring the ndas , we have assembled a corticotropin re-commercialization team of scientists and subject matter experts who have extensive experience with the development and manufacturing of animal-derived pharmaceutical products . we have also established a laboratory exclusively for corticotropin analytical method development . the team has already achieved several key milestones , including identifying and initiating the development of analytical methods that will be required to re-commercialize corticotropin , a critical portion of the snda filing . at the same time , we have also secured the supply of porcine pituitaries necessary for both small and commercial-scale active pharmaceutical ingredient manufacturing , which is also pivotal for the re-launch of corticotropin . finally , we have contracted with an accomplished and experienced contract manufacturer and initiated manufacturing of corticotropin active pharmaceutical ingredient . in 2016 , we incurred a total of approximately $ 1.1 million of research and development and sales , general , and administrative expense in support of the re-commercialization of the corticotropin products . also in january 2016 , we acquired from h2-pharma llc ( “ h2 ” ) the exclusive rights to distribute an authorized generic of lipofen® ( fenofibrate capsules ) and 1 % and 2.5 % hydrocortisone rectal cream for total consideration of $ 10.0 million . fenofibrate is a peroxisome proliferator receptor alpha activator indicated as an adjunct with diet to reduce elevated ldl-c , total-c , tg and apo b , and to increase hdl-c in adult patients with primary hypercholesterolemia or mixed dyslipidemia . fenofibrate is also indicated as an adjunct with diet for adult patients with severe hypertriglyceridemia . hydrocortisone rectal cream is indicated for the relief of the inflammatory and pruritic manifestations of corticosteroid-responsive dermatoses . in april 2016 , we launched both strengths of the hydrocortisone rectal cream under our label , and in may 2016 , we launched the authorized generic of lipofen® under our label . story_separator_special_tag in order to manufacture opium tincture , oxycodone oral solution , and oxycodone capsules , we must submit a request to the drug enforcement agency ( “ dea ” ) for a quota to purchase the amount of opium and oxycodone needed to manufacture the respective products . without approved quotas from the dea , we would not be able to purchase these ingredients from our suppliers . as a result , we are dependent upon the dea to annually approve a sufficient quota of api to support the continued manufacture of opium tincture , oxycodone oral solution , and oxycodone capsules . other operating expenses replace_table_token_6_th ( 1 ) not meaningful other operating expenses consist of research and development costs , selling , general , and administrative expenses , depreciation and amortization , and impairment charges . for the year ended december 31 , 2016 , other operating expenses increased to $ 59.8 million from $ 30.9 million for the same period in 2015 , an increase of $ 28.8 million , or 93.2 % , primarily as a result of the following factors : · research and development expenses increased were $ 2.9 million during both years ended december 31 , 2016 and 2015. the slight increase was due to timing of work on development projects . current projects include work on the andas purchased in 2014and 2015 , as well as the corticotropin re-commercialization project and collaborations with partners . we anticipate that research and development costs will continue toincrease in 2017 , in support of our strategy to expand our product portfolio and as we continue to focus on the development of our corticotropin products . · selling , general , and administrative expenses increased from $ 21.2 million to $ 27.8 million , an increase of 31.5 % , primarily due to increased stock-based compensation expense and increases in personnel and related costs , including $ 1.3 million of expenses related to the transition of our cfo in the second quarter of 2016. all expense related to the transition was recognized in the second quarter of 2016. we anticipate that selling , general , and administrative expenses will continue to increase in 2017 , as we support anticipated additional revenue growth . · depreciation and amortization increased from $ 6.9 million to $ 22.3 million , an increase of 223.8 % , due primarily to the amortization of the ndas for corticotropin and corticotropin-zinc and marketing and distributionrights acquired from h2-pharma , llc , both of which were acquired in january 2016 , and the amortization of the rights , title , and interest in the nda for inderal la , which was acquired in april 2016 , as well as recognizing a full year of amortization of the andasacquired in july 2015. we anticipate that depreciation and amortization expense willcontinue to increase in 2017 , as werecognize a full year of amortization on the product rights and nda for inderalla . · as discussed under intangible assets in our critical accounting estimates , we recognized animpairment charge of $ 6.7 million in relation to our testosterone gel nda asset during the year ended december 31 , 2016. no impairment losses related to intangible assets were recognized in the year ended december 31 , 2015 . 44 other expense , net replace_table_token_7_th for the year ended december 31 , 2016 , we recognized other expense , net of $ 11.4 million , a decrease of $ 0.4 million from other expense of $ 11.0 million for the same period in 2015. interest expense , net for both periods consists primarily of interest expense on our convertible debt . for the years ended december 31 , 2016 and 2015 , there was $ 0.2 million and $ 56 thousand of interest capitalized into construction in progress , respectively . provision for income taxes years ended december 31 , 2016 2015 change % change provision for income taxes $ ( 4,744 ) $ ( 6,358 ) $ 1,614 ( 25.4 ) % our provision for income taxes consists of current and deferred components , which include changes in our deferred tax assets , our deferred tax liabilities , and our valuation allowance . for the year ended december 31 , 2016 , we recognized income tax expense of $ 4.7 million , versus $ 6.4 million in the prior year period , a provision decrease of $ 1.6 million . of the $ 4.7 million of total tax expense , $ 13.0 million is current expense , $ 0.6 million is the impact on the provision related to the excess tax benefit from stock-based compensation awards , and $ 0.1 million is a change in valuation allowance . these were partially offset by a $ 9.0 million net deferred tax benefit . the effective tax rate for the year ended december 31 , 2016 was 54.7 % of pre-tax income reported in the period . the effective tax rate for the period was primarily driven by permanent differences related to our international tax structure surrounding our corticotropin ndas , which resulted in significant non-deductible amortization , research and development expenses , and interest expense in 2016. in addition , the effective tax rate was impacted by other permanent differences , changes in temporary differences , and by the tax effect of discreet items . these discreet items included changes in our estimated pre-tax income resulting from various asset acquisitions that occurred during the periods and associated changes to temporary differences arising from those asset acquisitions , changes in temporary differences as a result of our impairment charge related to our testosterone gel nda asset , as well as the impact of current period awards of stock-based compensation , stock option exercises , vesting of restricted stock , and disqualifying dispositions of incentive stock options , all of which impact the estimated annual effective rate in the period in which they occur . we expect that our effective tax rate for 2017 may be lower than that in 2016 as a result of the dissolution of the international tax structure surrounding our corticotropin ndas .
| general the following table summarizes our results of operations for the years ended december 31 , 2016 , 2015 , and 2014. replace_table_token_3_th the following table sets forth , for the periods indicated , items in our consolidated statements of earnings as a percentage of net revenues . replace_table_token_4_th 41 results of operations for the years ended december 31 , 2016 and 2015 net revenues replace_table_token_5_th we derive substantially all of our revenues from sales of generic and branded pharmaceutical products , contract manufacturing , and contract services , which include product development services , laboratory services , and royalties on net sales of certain products . net revenues for the year ended december 31 , 2016 were $ 128.6 million compared to $ 76.3 million for the same period in 2015 , an increase of $ 52.3 million , or 68.5 % , primarily as a result of the following factors : · net revenues for generic pharmaceutical products were $ 95.2 million during the year ended december 31 , 2016 , an increase of 72.6 % compared to $ 55.2 million for the same period in 2015. the primary reason for the increase was sales of propranolol er and other products launched in the second quarter of 2016 , sales of nilutamide and erythromycin ethylsuccinate , both of which were launched in the third quarter of 2016 , as well as a full year of sales of vancomycin , which was launched under our own label in the fourth quarter of 2015. these increases were tempered by volume decreases in esterified estrogen with methyltestosterone ( “ eemt ” ) sales . in 2017 , we anticipate increases in generic pharmaceutical product revenues related to our recently-launched products , as well as additional products we expect to launch in 2017. as described in item 1. business – government regulations – unapproved products , we market eemt and opium tincture without fda approved ndas .
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the adoption of the new requirements had no story_separator_special_tag the following discussion should be read in conjunction with our consolidated financial statements provided under part ii , item 8 of this annual report on form 10-k. we have included herein statements that constitute forward-looking statements within the meaning of the private securities litigation reform act of 1995. we generally identify forward-looking statements in this report using words like “ believe , ” “ intend , ” “ seek , ” “ expect , ” “ estimate , ” “ may , ” “ plan , ” “ should plan , ” “ project , ” “ contemplate , ” “ anticipate , ” “ predict , ” “ potential , ” “ continue , ” or similar expressions . you may find some of these statements below and elsewhere in this report . these forward-looking statements are not historical facts and are inherently uncertain and outside of our control . any or all of our forward-looking statements in this report may turn out to be wrong . they can be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties . many factors mentioned in our discussion in this report will be important in determining future results . consequently , no forward-looking statement can be guaranteed . actual future results may vary materially . factors that may result in these forward-looking statements in being different than reflected in this report are described throughout this annual report and particularly in “ risk factors ” part i , item 1a of this annual report on form 10-k. the forward-looking information set forth in this annual report on form 10-k is as of march 1 , 2013 , and we undertake no duty to update this information . shareholders and prospective investors can find information filed with the sec after march 1 , 2013 , at our website at http : //investor.vcaantech.com or at the sec 's website at www.sec.gov . overview we are a leading north american animal healthcare company . we provide veterinary services and diagnostic testing services to support veterinary care and we sell diagnostic imaging equipment and other medical technology products and related services to veterinarians . we also provide both online and printed communications , education and information , and analytical based marketing solutions to the veterinary community . our reportable segments are as follows : our animal hospital segment operates the largest network of freestanding , full-service animal hospitals in the nation . our animal hospitals offer a full range of general medical and surgical services for companion animals . we treat diseases and injuries , offer pharmaceutical and retail products and perform a variety of pet wellness programs , including health examinations , diagnostic testing , routine vaccinations , spaying , neutering and dental care . at december 31 , 2012 , our animal hospital network consisted of 609 animal hospitals in 41 states and three canadian provinces . our laboratory segment operates the largest network of veterinary diagnostic laboratories in the nation . our laboratories provide sophisticated testing and consulting services used by veterinarians in the detection , diagnosis , evaluation , monitoring , treatment and prevention of diseases and other conditions affecting animals . at december 31 , 2012 , our laboratory network consisted of 55 laboratories serving all 50 states and certain areas in canada . our “ all other ” category includes the results of our medical technologies and vetstreet operating segments . each of these segments did not meet the materiality thresholds to be reported individually . the practice of veterinary medicine is subject to seasonal fluctuation . in particular , demand for veterinary services is significantly higher during the warmer months because pets spend a greater amount of time outdoors where they are more likely to be injured and are more susceptible to disease and parasites . in addition , use of veterinary services may be affected by levels of flea infestation , heartworms and ticks , and the number of daylight hours . executive overview the slow economic recovery continues to have an adverse impact on our organic revenue growth and our profitability . consumer spending habits , including spending for pet healthcare , are affected by , among other things , prevailing economic conditions , levels of employment , salaries and wage rates , consumer confidence and consumer perception of economic conditions . these factors continue to impact consumer spending and may continue to cause levels of spending to remain depressed for the foreseeable future . additionally , these factors may cause pet owners to elect to defer expensive treatment options or to forgo treatment for their pets altogether . during 2010 , continuing through 2012 , we experienced a decline in the number of visits to our animal hospitals and the number of orders placed . during 2012 , we saw gradual improvement in our animal hospital same-store revenue and number of visits as well as improvement in our laboratory internal revenue growth , requisitions , and related gross profit margin . our consolidated gross profit margin however , still declined due to deleveraging as a result of increased labor costs in our animal hospital segment and lower gross profit margins on our acquired businesses . we believe that our ability to maintain or increase margins in 2013 will be dependent on organic revenue growth rates . 21 we plan to continue our growth strategy of acquiring individual animal hospitals and maintain our strong emphasis on expense management . however , our ability to return to our historical margins will be dependent on increases in same-store revenue growth in our animal hospitals and successful integration of our acquired businesses . story_separator_special_tag for a summary of all our accounting policies , including the accounting policies discussed below , see note 2 , summary of significant accounting policies , in our consolidated financial statements of this annual report on form 10-k. revenue generally , we recognize revenue when persuasive evidence of a sales arrangement exists , delivery of goods has occurred or services have been rendered , the sales price or fee is fixed or determinable and collectability is reasonably assured . we also generate revenue from the sale of digital radiography and ultrasound imaging equipment . we also generate revenue from : ( i ) licensing software ; ( ii ) providing technical support and product updates on a when-and-if available basis related to our software , otherwise known as maintenance ; ( iii ) providing professional services related to our equipment and software , including installations , on-site training , education services and extended warranty programs ; and ( iv ) providing mobile imaging services . we frequently sell equipment and license our software in multiple element arrangements in which the customer may choose a combination of our products and services . the accounting for the sale of equipment and the sale of software licenses and related items is substantially governed by the requirements of the financial accounting standards board ( `` fasb '' ) general revenue recognition rules . the determination of the amount of software license , maintenance and professional service revenue to be recognized in each accounting period requires us to exercise judgment and use estimates . in determining whether or not to recognize revenue , we evaluate each of these criteria : evidence of an arrangement : we consider a non-cancelable agreement signed by the customer and us to be evidence 23 of an arrangement . delivery : we consider delivery to have occurred when the ultrasound imaging equipment is delivered . we consider delivery to have occurred when the digital radiography imaging equipment , including software , is delivered or accepted by the customer if installation is required . we consider delivery to have occurred with respect to professional services when those services are provided or on a straight-line basis over the service contract term , based on the nature of the service or the terms of the contract . fixed or determinable fee : we assess whether fees are fixed or determinable at the time of sale and recognize revenue if all other revenue recognition requirements are met . we generally consider payments that are due within six months to be fixed or determinable based upon our successful collection history . we only consider fees to be fixed or determinable if they are not subject to refund or adjustment . collection is deemed reasonably assured : we conduct a credit review for all significant transactions at the time of the arrangement to determine the credit worthiness of the customer . collection is deemed reasonably assured if we expect that the customer will be able to pay amounts under the arrangement as payments become due . if we determine that collection is not reasonably assured , we defer the revenue and recognize the revenue upon cash collection . digital radiography imaging equipment we sell our digital radiography imaging equipment with multiple elements , including hardware , software licenses and or services . tangible products containing software components and nonsoftware components that function together to deliver the tangible product 's essential functionality are accounted for under the fasb 's accounting guidance pertaining to multiple-deliverable revenue arrangements . under the guidance sales arrangement consideration is allocated at the inception of the arrangement to all deliverables using the relative selling price method , whereby any discount in the arrangement is allocated proportionally to each deliverable on the basis of each deliverable 's selling price . the selling price for each deliverable is based on vendor-specific objective evidence ( “ vsoe ” ) if available , third-party evidence ( “ tpe ” ) if vsoe is not available , or estimated selling price ( “ esp ” ) if neither vsoe nor tpe is available . for elements where vsoe is available , vsoe of fair value is based on the price for those products and services when sold separately by us or the price established by management with the relevant authority . tpe of selling price is the price of our , or any of our competitor 's , largely interchangeable products or services in stand-alone sales to similarly situated customers . we do not currently have vsoe for our dr imaging equipment as units are not sold on a stand-alone basis without the related support packages . as this is also true for our competitors , tpe of selling price is also unavailable . we therefore use the esp to allocate the arrangement consideration related to our dr imaging equipment . we recognize revenue when the services are provided or at the time of delivery or installation and customer acceptance . generally , at the time of delivery and installation of equipment the only undelivered item is the post-contract customer support ( “ pcs ” ) . this obligation is contractually defined in both terms of scope and period . for the pcs , we recognize the revenue for these services on a straight-line basis over the period of support and we expense the costs of these services as they are incurred . ultrasound imaging equipment we sell our ultrasound imaging equipment on a stand-alone basis and with multiple elements , including hardware , software , licenses and or services . we account for the sale of ultrasound imaging equipment on a stand-alone basis under the requirements of the fasb 's general revenue recognition rules and recognize revenue upon delivery . we allocate revenue for the sale of ultrasound imaging equipment with related computer hardware and software pursuant to the the requirements of the fasb 's revenue recognition — multiple-element arrangements guidance .
| consolidated results of operations the following table sets forth components of our income statements expressed as a percentage of revenue : replace_table_token_8_th revenue the following table summarizes our revenue ( in thousands , except percentages ) : replace_table_token_9_th consolidated revenue increased $ 214.3 million in 2012 , as compared to 2011 . the increase in revenue was primarily attributable to acquisitions including animal hospitals in the united states and canada , vetstreet and thinkpets . excluding acquisitions , revenue increased $ 15.1 million due to organic revenue increase from both our animal hospital and laboratory segments . our animal hospital same-store revenue increased 1.2 % in 2012 . our laboratory internal revenue growth was 3.6 % in 2012 . consolidated revenue increased $ 103.9 million in 2011 , as compared to 2010 . the increase in revenue was primarily attributable to acquisitions including animal hospitals and vetstreet . excluding acquisitions , revenue decreased $ 12.2 million due to a decrease in animal hospital same-store revenue , partially offset by an increase in internal growth in our laboratory revenue . our animal hospital same-store revenue declined 0.7 % in 2011 . our laboratory internal revenue growth was 2.0 % in 2011 . 28 gross profit the following table summarizes our gross profit and our gross profit as a percentage of applicable revenue , or gross margin ( in thousands , except percentages ) : replace_table_token_10_th consolidated gross profit increased $ 36.5 million in 2012 , as compared to 2011 . the increase was primarily due to $ 31.5 million gross profit from the acquisitions of avc , vetstreet and thinkpets . excluding the impact of acquisitions , the remaining increase in gross profit is attributable to organic revenue growth at our laboratory and vetstreet segments , partially offset by a decrease in gross profit from our same-store animal hospitals . consolidated gross profit increased $ 7.3 million in 2011 , as compared to 2010 .
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the amendments are effective for fiscal years , and interim periods within those fiscal years , beginning after december 15 , 2017 , and should be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings at the beginning of the period of adoption . the story_separator_special_tag forward-looking and cautionary statements some of the information contained in this form 10-k may constitute “ forward-looking statements ” within the meaning of the “ safe harbor ” provisions of the private securities litigation reform act of 1995. when using the words “ believe , ” “ estimate , ” “ anticipate , ” “ expect , ” “ project , ” “ likely , ” “ may ” and similar expressions , tredegar does so to identify forward-looking statements . such statements are based on then current expectations and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those addressed in the forward-looking statements . it is possible that actual results and financial condition may differ , possibly materially , from the anticipated results and financial condition indicated in or implied by these forward-looking statements . accordingly , you should not place undue reliance on these forward-looking statements . for risks and important factors that could cause actual results to differ from expectations , refer to the reports that tredegar files with or furnishes the sec from time-to-time , including the risks and important factors set forth in “ risk factors ” in part i , item 1a of this form 10-k. readers are urged to review and consider carefully the disclosures tredegar makes in the reports tredegar files with or furnishes to the sec . tredegar does not undertake , and expressly disclaims any duty , to update any forward-looking statement to reflect any change in management 's expectations or any change in conditions , assumptions or circumstances on which such statements are based , except as required by applicable law . executive summary general tredegar is a manufacturer of polyethylene ( “ pe ” ) plastic films , polyester films , and aluminum extrusions . descriptions of all the company 's businesses are provided in the business section . sales were $ 1.1 billion in 2018 compared to $ 961.3 million in 2017 . net income was $ 24.8 million ( $ 0.75 per diluted share ) in 2018 , compared with $ 38.3 million ( $ 1.16 per diluted share ) in 2017 . the 2018 results include : an after-tax impairment of the total goodwill balance of pe films ' personal care division was recorded in the amount of $ 38.2 million ( $ 1.15 per share after-tax ) . see the customer product transitions in personal care and surface protection section below and note 8 for more details ; and an unrealized after-tax gain on the company 's investment in kaléo of $ 23.9 million ( $ 0.72 per share ) , which is accounted for under the fair value method ( see note 4 for more details ) ; the 2017 story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > $ 14.5 million in 2017 . depreciation expense is projected to be $ 16 million in 2019 . flexible packaging films a summary of operating results for flexible packaging films is provided below : replace_table_token_8_th net sales in 2018 increased versus 2017 primarily due to higher sales volume and increased selling prices associated with the pass-through of higher resin costs . the higher sales volume was supported by increased production capacity for brazilian operations resulting from the re-start in june 2018 of a previously idled production line . terphane had operating profit from ongoing operations in 2018 of $ 9.9 million versus an operating loss from ongoing operations in 2017 of $ 2.6 million . the resulting favorable change of $ 12.5 million for the period was primarily due to : significantly lower depreciation and amortization of $ 8.9 million resulting from the $ 101 million non-cash asset impairment loss recognized in the fourth quarter of 2017 ; a benefit from higher volume ( $ 5.5 million ) and favorable tax incentives ( $ 1.3 million ) , partially offset by the unfavorable impact of mix and higher resin costs , net of higher selling prices ( $ 2.2 million ) ; 22 higher fixed and other manufacturing costs and selling , general and administrative costs , primarily related to higher volume ( $ 2.0 million ) ; favorable foreign currency translation of real-denominated operating costs ( $ 3.2 million ) , which was offset by a $ 1.7 million loss on foreign currency forward contracts that partially hedged real-denominated operating costs ; and unfavorable net foreign currency transaction impact ( $ 0.6 million ) resulting from foreign currency transaction losses of $ 0.8 million in 2018 and losses of $ 0.2 million in 2017. capital expenditures , depreciation & amortization capital expenditures in flexible packaging were $ 5.4 million in 2018 compared to $ 3.6 million in 2017 . capital expenditures are projected to be $ 13 million in 2019 , including $ 7 million for new capacity for value-added products and productivity projects and $ 6 million for capital expenditures required to support continuity of current operations . depreciation expense was $ 0.8 million in 2018 and $ 7.5 million in 2017 . depreciation expense is projected to be $ 1 million in 2019 . amortization expense was $ 0.4 million in 2018 and $ 3.0 million in 2017 , and is projected to be $ 0.5 million in 2019 . story_separator_special_tag critical accounting policies in the ordinary course of business , the company makes a number of estimates and assumptions relating to the reporting of results of operations and financial position in the preparation of financial statements in conformity with gaap . actual results could differ significantly from those estimates under different assumptions and conditions . the company believes the following discussion addresses its critical accounting policies . these policies require management to exercise judgments that are often difficult , subjective and complex due to the necessity of estimating the effect of matters that are inherently uncertain . impairment and useful lives of long-lived identifiable assets and goodwill the company assesses its long-lived identifiable assets for impairment when events or circumstances indicate that their carrying value may not be recoverable from future cash flows . any necessary impairment charges are recorded when the company does not believe the carrying value of the long-lived asset ( s ) will be recoverable . tredegar also reassesses the useful lives of its long-lived assets based on changes in the business and technologies . the company assesses goodwill for impairment when events or circumstances indicate that the carrying value may not be recoverable , or , at a minimum , on an annual basis ( december 1 st of each year ) . when assessing goodwill for impairment , accounting guidance allows the company to first perform a qualitative assessment about the likelihood of the carrying value of a reporting unit exceeding its fair value , referred to as the `` step 0 '' assessment . the step 0 assessment requires the evaluation of certain qualitative factors , including macroeconomic conditions , industry and market considerations , cost factors and overall financial performance , as well as company and reporting unit factors . if the company 's step 0 analysis indicates that it is more likely than not that the fair value of a reporting unit is less than the carrying amount , then the company would perform a quantitative impairment test . 24 as of december 31 , 2018 , the company applied the step 0 assessment to its pe films ' surface protection operating unit and aluminum extrusions ' aacoa operating unit , which both had fair values significantly in excess of their carrying amounts when tested in 2017. the company 's step 0 analysis in 2018 of the reporting units concluded that it is not more likely than not that the fair value of the reporting unit is less than its carrying amount . therefore , the quantitative goodwill impairment test for these reporting units was not necessary in 2018. goodwill for surface protection and aacoa totaled $ 57.3 million and $ 13.7 million , respectively , at december 31 , 2018. the goodwill of aacoa is associated with its october 2012 acquisition . goodwill in the amount of $ 10.4 million from aluminum extrusions acquisition of futura in february 2017 , was tested for impairment at the annual testing date , with the estimated fair value of this reporting unit exceeding the carrying value of its net assets at december 1 , 2018 . in assessing the recoverability of goodwill and long-lived identifiable assets , the company primarily estimates fair value using discounted cash flow analysis and comparative enterprise value-to-ebitda ( earnings before interest , taxes , depreciation and amortization ) multiples . these calculations require management to make assumptions regarding estimated future cash flows , discount rates and other factors to determine if an impairment exists . if these estimates or their related assumptions change in the future , the company may be required to record additional impairment charges . all goodwill associated with pe films ' personal care operating unit , in the amount of $ 46.8 million ( $ 38.2 million after deferred income tax benefits ) , was impaired in the third quarter of 2018. the goodwill impairment charge was recognized upon the completion of an asset recoverability test and impairment analysis performed as of september 30 , 2018. this non-operating , non-cash charge , as computed under gaap , resulted from the expectation of a significant customer transition . the company performed an asset recoverability test and impairment analysis using projections under various business planning scenarios and concluded that the fair value of the personal care reporting unit was less than its carrying value . in 2017 , flexible packaging films recorded a charge for the impairment of assets in the amount of $ 101 million . as part of this write-down , trade names , customer relationships and proprietary technology were impaired by $ 4.0 million , $ 9.4 million and $ 4.1 million , respectively ; the remaining part of the write-down was related to property , plant and equipment . in addition to the impairment of terphane 's assets in 2017 , based upon assessments performed as to the recoverability of other long-lived identifiable assets , the company recorded an asset impairment loss for continuing operations of $ 2.9 million , $ 1.2 million and $ 0.6 million in 2018 , 2017 and 2016 , respectively . investment accounted for under the fair value method in august 2007 and december 2008 , tredegar made an aggregate investment of $ 7.5 million in kaléo ( formerly intelliject , inc. ) , a privately held specialty pharmaceutical company . this investment is accounted for under the fair value method . at the time of the initial investment , the company elected the fair value option of accounting since its investment objectives were similar to those of venture capitalists , which typically do not have controlling financial interests ( venture capital funds generally use the fair value method to account for their investment portfolios ) . at december 31 , 2018 , tredegar 's ownership interest was approximately 20 % on a fully diluted basis . the company considers its investment in kaléo to be a level 3 investment under the hierarchy described in gaap .
| results include : an unrealized after-tax gain on the company 's investment in kaléo of $ 24.0 million ( $ 0.73 per share ) ; an after-tax gain of $ 11.9 million ( $ 0.36 per share ) from the settlement of an escrow agreement related to the terphane acquisition in 2011 ( see note 17 for more details ) ; an income tax benefit of $ 61.4 million ( $ 1.86 per share ) associated with the write-off of the stock basis of terphane limitada , terphane 's brazilian subsidiary , and terphane 's u.s. subsidiary , terphane inc. , computed at the 35 % u.s. corporate federal income tax rate in effect in 2017 ( $ 56.6 million ( $ 1.72 per share ) when reduced for the deductions applicable to the 21 % u.s. corporate federal income tax rate effective in 2018 under the tax cuts and jobs act ( the “ tcja ” ) ) ( see note 16 for more details ) ; an income tax benefit from the adjustment of deferred income tax liabilities as a result of the reduction of u.s. federal corporate income tax rates effective in 2018 and other law changes of $ 4.4 million ( $ 0.13 per share ) ( see note 16 for more details ) ; and an after-tax write-down of the assets of flexible packaging films of $ 87.2 million ( $ 2.65 per share ) ( see note 17 for more details ) . other losses associated with plant shutdowns , asset impairments and restructurings and gains and losses on the sale of assets , and other items are described in note 17. net sales ( sales less freight ) and operating profit from ongoing operations are the measures of sales and operating profit used by the chief operating decision maker of each segment for purposes of assessing performance . see the table in note 5 for a presentation of tredegar 's net sales and operating profit by segment for the years ended december 31 , 2018 and 2017 .
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see note 10 — income taxes for additional information . reclassifications certain 2012 and 2011 amounts have been reclassified to conform with the current year presentation . see note 3 — sale of wood products business for information regarding reclassifications story_separator_special_tag story_separator_special_tag a result of careful consideration made through this long-range planning process and is consistent with our commitment to allow unencumbered growth in each of our three core businesses . any actions we may take in the future with respect to changing strategic factors will be focused on ensuring each of our businesses can take advantage of growth opportunities while maximizing value for our shareholders . we continuously evaluate our capital structure . our year-end debt-to-capital ratio was 47 percent and our debt-to-ebitda ratio was 2.3 times , while our net debt-to-ebitda ratio was 2 times . we believe that a debt-to-ebitda ratio of up to three times is appropriate to keep our weighted-average cost of capital low while maintaining an investment grade debt rating as well as retaining the flexibility to actively pursue growth opportunities . we have historically maintained conservative leverage and believe in keeping ample liquidity and financial flexibility . maintaining an investment grade debt rating has been a key element of this overall financial strategy as it historically allowed access to corporate debt markets even in difficult economic conditions . we had $ 243 million of available borrowing capacity on our revolving credit facility as of december 31 , 2013 . see note 13 — debt for additional information . in connection with the separation , we plan for the new performance fibers company to raise approximately $ 1 billion in new debt consisting of both term loans and corporate bonds . the proceeds of the new debt will be distributed to rayonier through a dividend . rayonier will generally use those proceeds to pay down debt , including a $ 112.5 million installment note maturing on december 31 , 2014. we maintain four qualified defined benefit plans and one unfunded plan to provide benefits in excess of amounts allowable in qualified plans under current tax law . at december 31 , 2013 , our qualified plans were underfunded $ 37 million versus $ 98 million at december 31 , 2012 primarily due to an increase in the discount rate from 3.7 percent to 4.6 percent and a $ 21 million increase in plan assets . although we have no pension contribution requirements in 2014 , we may make discretionary pension contributions . we do not have any significant strategic capital spending budgeted for 2014. capital spending is expected to be limited to routine , annual mill maintenance , additional recovery boiler maintenance at the jesup mill and seedling planting and fertilization . in 2013 , our annual dividend was $ 1.86 per share , reflecting a third quarter increase in the quarterly dividend from $ 0.44 per share to $ 0.49 per share . we expect to maintain our quarterly dividend through the separation of the performance fibers business in mid- 2014 . post separation , rayonier will continue to pay a competitive dividend . the new performance fibers company is expected to generate strong cash flows supporting a dividend payment competitive with its peer group . overall , we believe we have adequate liquidity and sources of capital to run our businesses efficiently and effectively and to maximize the value of assets under management . we expect cash flow from operations , proceeds from new debt issued in connection with the separation and debt available under our term credit agreement to adequately cover planned expenditures , interest expense and dividends in 2014. operational strategies timber is sold primarily through an auction process , although it is also marketed through log supply agreements ( primarily in the northern region and in new zealand ) . we operate forest resources as a stand-alone business , requiring our performance fibers mills to compete with third-party bidders for timber , primarily at auction . this promotes realizing market value and generating a true measure of fair value returns in forest resources while minimizing the possibility of our manufacturing facilities being subsidized with below-market cost wood . we focus on optimizing forest resources returns by continually improving productivity and yields beginning with genetically superior seedlings from our own nurseries and through advanced silvicultural practices which take into account soil , climate and biological considerations . we also actively pursue other non-timber sources of income , primarily hunting , other recreational licenses and pipeline easements . finally , we evaluate timberland acquisitions and pursue those that meet various financial and strategic criteria . a significant portion of our acreage is more valuable for development , rural residential , recreational or conservation purposes than for growing timber . to maximize the value of our development properties , our strategy has been to engage in value-added entitlement activities versus selling real estate in bulk without entitlements . our entitlement efforts are largely complete as we now have approximately 7,900 acres of entitled land in georgia and 31,200 acres of entitled land in florida . we completed site certification on an 1,800 acre industrial site in nassau county , florida and advanced entitlements on 4,200 acres of our east 25 index to financial statements nassau , florida property . in december 2012 , we achieved certification of our 1,400 acre belfast commerce center in bryan county , georgia as development-ready for large industrial or commercial uses . less than a year later , in november 2013 , we closed our first belfast sale for $ 35 thousand per acre . we will continue to actively market our entitled properties . additionally , in 2013 we continued our strategy of selling non-strategic timberland holdings , which enables us to redeploy capital to higher returning assets . in performance fibers , we are focused on continuing to differentiate our business and improve our position as a premier supplier of cellulose specialties products . story_separator_special_tag a three percent company-wide change in estimated standing merchantable inventory would cause 2013 depletion expense to change by approximately $ 2 million . acquisitions of timberland can also affect the depletion rate . upon the acquisition of timberland , we make a determination on whether to combine the newly acquired merchantable timber with an existing depletion pool or to create a new separate pool . the determination is based on the geographic location of the new timber , the customers/markets that will be served and species mix . we do not expect our 2013 acquisitions to have a significant impact on depletion expense . in the fourth quarter of 2012 , we acquired an additional 62,600 acres in the gulf states region . although 2012 depletion expense was not significantly impacted , the acquisition increased 2013 depletion expense by $ 0.7 million . depreciation and impairment of long-lived assets depreciation expense is computed using the units-of-production method for the performance fibers plant and equipment and the straight-line method on all other property , plant and equipment over the useful economic lives of the assets involved . we believe these depreciation methods are the most appropriate under the circumstances as they most closely match revenues with expenses versus other generally accepted accounting methods . long-lived assets are periodically reviewed for impairment whenever events or circumstances indicate the carrying amount of an asset may not be recoverable . cash flows used in such impairment analyses are based on long-range plan projections , which take into account recent sales and cost data as well as macroeconomic drivers such as customer demand and industry capacity . the physical life of equipment , however , may be shortened by economic obsolescence caused by environmental regulation , competition or other causes . environmental costs associated with dispositions and discontinued operations at december 31 , 2013 , we had $ 76 million of accrued liabilities for environmental costs relating to past dispositions and discontinued operations . numerous cost assumptions are used in estimating these obligations . factors affecting these estimates include changes in the nature or extent of contamination , changes in the content or volume of the material discharged or treated in connection with one or more impacted sites , requirements to perform additional or different assessment or remediation , changes in technology that may lead to additional or different environmental remediation strategies , approaches and workplans , discovery of additional or unanticipated contaminated soil , groundwater or sediment on or off-site , changes in remedy selection , changes in law or interpretation of existing law and the outcome of negotiations with governmental agencies or non-governmental parties . we periodically review our environmental liabilities and also engage third-party consultants to assess our ongoing remediation of contaminated sites . a significant change in any of the estimates could have a material effect on the results of our operations . typically , these cost estimates do not vary significantly on a quarter to quarter basis , although there can be no assurance that such a change will not occur in the future . in 2013 and 2012 , we increased the liability by $ 3 million and $ 1 million , respectively . see note 17 — liabilities for dispositions and discontinued operations for additional information . determining the adequacy of pension and other postretirement benefit assets and liabilities we have four qualified benefit plans which cover most of our u.s. workforce and an unfunded plan to provide benefits in excess of amounts allowable under current tax law to certain participants in the qualified plans . all plans are currently closed to 27 index to financial statements new participants . pension expense for all plans was $ 22 million in 2013 , including approximately $ 0.9 million in curtailment and settlement charges related to the sale of our wood products business . numerous estimates and assumptions are required to determine the proper amount of pension and postretirement liabilities and annual expense to record in our financial statements . the key assumptions include discount rate , return on assets , salary increases , health care cost trends , mortality rates , longevity and service lives of employees . although there is authoritative guidance on how to select most of these assumptions , some degree of judgment is exercised in selecting these assumptions based on input from our actuary . different assumptions , as well as actual versus expected results , would change the periodic benefit cost and funded status of the benefit plans recognized in the financial statements . in determining pension expense in 2013 , a $ 25 million return was assumed based on an expected long-term rate of return of 8.5 percent . the actual return for 2013 was a gain of $ 42 million , or 13 percent . our long-term return assumption was established based on historical long-term rates of return on broad equity and bond indices , discussions with our actuary and investment advisors and consideration of the actual annualized rate of return from 1994 ( the date of our spin-off from itt corporation ) through 2013 . at the end of 2013 , we reviewed this assumption for reasonableness and determined the 2013 long-term rate of return assumption should remain at 8.5 percent . at december 31 , 2013 , our asset mix consisted of 67 percent equities , 30 percent bonds and 3 percent real estate equity funds . we do not expect this mix to change materially in the near future . in determining future pension obligations , we select a discount rate based on information supplied by our actuary . the actuarial rates are developed by models which incorporate high quality ( aa rated ) , long-term corporate bond rates into their calculations . the discount rate increased from 3.70 percent at december 31 , 2012 to 4.60 percent at december 31 , 2013 .
| executive summary our revenues , operating income and cash flows are primarily derived from three core business segments : forest resources , real estate and performance fibers . we own or lease ( under long-term agreements ) approximately 2.3 million acres of timberland and real estate in alabama , arkansas , florida , georgia , louisiana , mississippi , oklahoma , texas and washington . we also have a 65 percent ownership interest in matariki forestry group , a joint venture ( “ new zealand jv ” ) , that owns or leases approximately 0.3 million acres of new zealand timberlands . we believe we are the eighth largest private landowner in the united states . our real estate business seeks to maximize the value of our properties which are more valuable for development , recreational or conservation uses than for growing timber , and sell our non-strategic timberland . our performance fibers business has been a supplier of premier cellulose specialties products for over eighty-five years . we have consistently generated strong cash flows and operating results by focusing on the following critical financial measures : segment operating income and ebitda , cash available for distribution in total and on a per-share basis , debt to ebitda ratio , debt to capital ratio , return on equity , return on fair market value ( forest resources and real estate ) and return on capital employed ( performance fibers ) . key non-financial measures include safety and environmental performance , quality , production as a percent of capacity and various yield statistics . our focus is on cash generation , effective allocation of capital and maximizing shareholder returns . our strategy consists of the following key elements : increase the size and quality of our timberland holdings through timberland acquisitions while selling timberland that no longer meets our strategic or financial return requirements .
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our real estate group is one of the largest real estate investment managers in the world . we operate as one globally integrated business , with investments in north america , europe , asia and latin america . our real estate investment team seeks to establish a differentiated view and capitalizes on our scale and proprietary information advantages to invest with conviction and generate attractive risk-adjusted returns for our investors over the long-term . our blackstone real estate partners ( brep ) funds are geographically diversified and target a broad range of opportunistic real estate and real estate related investments . the brep funds include global funds as well as funds focused specifically on europe or asia investments . we seek to acquire high quality , well-located yet undermanaged assets at an attractive basis , address any property or business issues through active asset management and sell the assets once our business plan is accomplished . brep has made significant investments in hotels , office buildings , industrial assets , residential and shopping centers , as well as a variety of real estate operating companies . our core+ real estate business , blackstone property partners ( bpp ) has assembled a global portfolio of high quality core+ investments across the u.s. , europe and asia . we manage several core+ real estate funds , which target substantially stabilized assets in prime markets with a focus on industrial , multifamily , office and retail assets . breit , a non-exchange traded real estate investment trust ( reit ) , is focused on investing primarily in stabilized income-oriented commercial real estate in the u.s. our blackstone real estate debt strategies ( breds ) vehicles target debt investment opportunities collateralized by commercial real estate in both public and private markets , primarily in the u.s. and europe . breds ' scale and investment mandates enable it to provide a variety of lending and investment options including mezzanine loans , senior loans and liquid securities . the breds platform includes a number of high yield real estate debt funds , liquid real estate debt funds and bxmt , a nyse-listed reit . private equity . we are a world leader in private equity investing , having managed seven general private equity funds , as well as three sector-focused funds and a geographically-focused fund , since we established this business in 1987. our private equity segment includes our corporate private equity business , which consists of ( a ) our flagship private equity funds ( blackstone capital partners ( bcp ) funds ) , ( b ) our sector-focused private equity funds , including our energy-focused funds ( blackstone energy partners ( bep ) funds ) , ( c ) our asia-focused fund ( blackstone capital partners asia ( bcp asia ) fund ) and ( d ) our core private equity fund , blackstone core equity partners ( bcep ) . in addition , our private equity segment includes ( a ) our opportunistic investment platform that invests globally across asset classes , industries and geographies , blackstone tactical opportunities ( tactical opportunities ) , ( b ) our secondary fund of funds business , strategic partners fund solutions ( strategic partners ) , ( c ) our infrastructure-focused funds , blackstone infrastructure partners ( bip ) , ( d ) our life sciences private investment platform , blackstone life sciences ( bxls ) , ( e ) a multi-asset investment program for eligible high net worth investors offering exposure to certain of blackstone 's key illiquid investment strategies through a single commitment , blackstone total alternatives solution ( btas ) and ( f ) our capital markets services business , blackstone capital markets ( bxcm ) . our corporate private equity business pursues transactions throughout the world across a variety of transaction types , including large buyouts , mid-cap buyouts , buy and build platforms ( which involve 82 multiple acquisitions behind a single management team and platform ) and growth equity/development projects ( which involve significant minority investments in mature companies and greenfield development projects in energy and power ) . within our corporate private equity business , our core private equity fund targets control-oriented investments in high quality companies with durable businesses and seeks to offer a lower level of risk and a longer hold period than traditional private equity . tactical opportunities invests globally across asset classes , industries and geographies , seeking to identify and execute on attractive , differentiated investment opportunities , leveraging the intellectual capital across our various businesses while continuously optimizing its approach in the face of ever-changing market conditions . strategic partners is a total fund solutions provider that acquires interests in high quality private funds from original holders seeking liquidity , co-investments alongside financial sponsors and provides investment advisory services to clients investing in primary and secondary investments in private funds and co-investments . bip focuses on infrastructure investments in the energy , transportation , communications and water and waste sectors . hedge fund solutions . the largest component of our hedge fund solutions segment is blackstone alternative asset management ( baam ) . baam is the world 's largest discretionary allocator to hedge funds , managing a broad range of commingled and customized fund solutions since its inception in 1990. the hedge fund solutions segment also includes investment platforms that seed new hedge fund businesses , purchase minority ownership interests in more established hedge funds , invest in special situation opportunities , create alternative solutions in the form of mutual funds and ucits and trade directly . credit . our credit segment consists principally of gso capital partners lp ( gso ) . gso is one of the largest credit alternative asset managers in the world and is the largest manager of collateralized loan obligations ( clos ) globally . the investment portfolios of the funds gso manages or sub-advises predominantly consist of loans and securities of non-investment grade companies spread across the capital structure including senior debt , subordinated debt , preferred stock and common equity . story_separator_special_tag global equity capital markets activity for both initial public offerings and follow-on offerings declined , with year to date 2018 activity down 18 % year over year . u.s. merger and acquisition ( m & a ) volume rose 16 % during the year , following a strong backlog after the passage of the tax reform bill . global m & a volume reached $ 3.4 trillion , its highest level since 2015 , and the outlook for deal activity remains positive . most economists expect moderate , albeit slowing , economic growth characterized by less synchronized global expansion in the near term , with virtually no signals of a recession in the u.s. in 2019. while global trade tensions and geopolitical instability pose additional risks , the broader outlook remains constructive . 84 notable transactions on april 9 , 2018 , blackstone concluded its investment sub-advisory relationship with fs investments ' funds ( the fs funds ) , as previously announced . at march 31 , 2018 , the fs funds represented $ 20.0 billion of total assets under management . as part of the transaction , blackstone received proceeds from fs investments of $ 580.9 million which is recorded as other revenues within the consolidated statement of operations for the year ended december 31 , 2018. this amount is characterized as a transaction-related charge and therefore is not included in fee related earnings , or distributable earnings for the year ended december 31 , 2018. blackstone distributed a portion of the after-tax proceeds to unitholders resulting in an incremental $ 0.30 per common unit and per blackstone holdings partnership unit over the second , third and fourth quarters of 2018 , of which $ 0.10 per common unit and blackstone holdings partnership unit was distributed on each of august 6 , 2018 , november 5 , 2018 and february 19 , 2019. on september 21 , 2018 , blackstone holdings finance co l.l.c. , an indirect subsidiary of the partnership , entered into an amended and restated $ 1.6 billion revolving credit facility . the amendment and restatement to the issuer 's credit facility , among other things , increased the amount of available borrowings and extended the maturity date from august 31 , 2021 to september 21 , 2023. on november 30 , 2018 , blackstone closed the acquisition of clarus ventures , llc and certain of its affiliates ( clarus ) , a leading global life sciences investment firm that has raised $ 2.6 billion since its founding . clarus is focused on funding growth-stage investments , often in partnership with major biopharmaceutical companies through research and development collaborations ( the clarus acquisition ) . the clarus acquisition launched bxls , a private investment platform with capabilities to invest across the life-cycle of companies and products within the life sciences sector . bxls is included in our private equity segment . organizational structure the simplified diagram below depicts our current organizational structure . the diagram does not depict all of our subsidiaries , including intermediate holding companies through which certain of the subsidiaries depicted are held . 85 key financial measures and indicators we manage our business using traditional financial measures and key operating metrics since we believe these metrics measure the productivity of our investment activities . we prepare our consolidated financial statements in accordance with gaap . see note 2 . summary of significant accounting policies in the notes to consolidated financial statements in item 8. financial statements and supplementary data and critical accounting policies. our key non-gaap financial measures and operating indicators and metrics are discussed below . distributable earnings distributable earnings , is derived from blackstone 's segment reported results , and is used to assess performance and amounts available for distributions to blackstone unitholders , including blackstone personnel and others who are limited partners of the blackstone holdings partnerships . distributable earnings is the sum of segment distributable earnings plus net interest income ( loss ) less taxes and related payables . distributable earnings excludes unrealized activity and is derived from and reconciled to , but not equivalent to , its most directly comparable gaap measure of income ( loss ) before provision for taxes . see non-gaap financial measures for our reconciliation of distributable earnings . net interest income ( loss ) is presented on a segment basis and is equal to interest and dividend revenue less interest expense , adjusted for the impact of consolidation of blackstone funds , and interest expense associated with the tax receivable agreement . taxes and related payables represent the total gaap tax provision adjusted to include only the current tax provision ( benefit ) calculated on income ( loss ) before provision for taxes excluding the tax impact of any divestitures and including the payable under the tax receivable agreement . segment distributable earnings effective as of and for the three months ended december 31 , 2018 , blackstone senior management determined that segment distributable earnings , and not economic income , is the measure that it uses to assess the performance of its business segments . segment distributable earnings is used by management to make operating decisions , allocate resources and determine the compensation of employees across all of its business segments . all prior periods have been recast to reflect these updates . segment distributable earnings is blackstone 's segment profitability measure used to make operating decisions and assess performance across blackstone 's four segments . segment distributable earnings represents the net realized earnings of blackstone 's segments and is the sum of fee related earnings and net realizations for each segment . blackstone 's segments are presented on a basis that deconsolidates blackstone funds , eliminates non-controlling ownership interests in blackstone 's consolidated operating partnerships , removes the amortization of intangible assets and removes transaction-related charges . transaction-related charges arise from corporate actions including acquisitions , divestitures and blackstone 's initial public offering .
| consolidated results of operations following is a discussion of our consolidated results of operations for each of the years in the three-year period ended december 31 , 2018. for a more detailed discussion of the factors that affected the results of our four business segments ( which are presented on a basis that deconsolidates the investment funds we manage ) in these periods , see segment analysis below . 91 the following table sets forth information regarding our consolidated results of operations and certain key operating metrics for the years ended december 31 , 2018 , 2017 and 2016 : replace_table_token_6_th n/m not meaningful . year ended december 31 , 2018 compared to year ended december 31 , 2017 revenues revenues were $ 6.8 billion for the year ended december 31 , 2018 , a decrease of $ 311.8 million compared to $ 7.1 billion for the year ended december 31 , 2017. the decrease in revenues was primarily attributable to decreases of $ 1.2 billion in investment income and $ 185.0 million in incentive fees , partially offset by increases of $ 805.5 million in other revenues and $ 276.5 million in management and advisory fees , net . 92 the decrease in investment income was primarily attributable to decreases in our real estate , credit and hedge fund solution segments of $ 1.2 billion , $ 272.5 million and $ 74.0 million , respectively , partially offset by an increase in our private equity segment of $ 363.4 million . the decrease in our real estate segment was attributable to lower net appreciation of investment holdings in our brep funds compared to the comparable 2017 period .
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the company has no liabilities related to uncertain tax positions or unrecognized benefits as of the year end december 31 , 2017 or 2016. the company has not accrued for interest or penalties associated with unrecognized tax liabilities . as of december 31 , 2017 , the company had net operating loss carry forwards of approximately $ 6.4 million , which may be available to offset future taxable income for tax purposes . this carry forward may be limited upon the ownership change under irc section 382. the components of the deferred tax asset at december 31 , 2017 and 2016 are as follows : replace_table_token_9_th a reconciliation of the effective federal tax expense to the amount derived by applying the $ federal statutory rates to pretax loss for 2017. pretax loss at federal statutory rate of 35 % $ 2,585,000 non-deductible differences ( stock-based compensation ) ( 1,166,000 ) change in valuation allowance ( 851,000 ) effect of change in federal tax rates due to newly enacted tax statues ( 568,000 ) net tax expense ( benefit ) $ 0 a reconciliation of the effective federal tax expense to the amount derived by applying the federal statutory rate to pretax loss for 2016 : pretax loss at federal statutory rate of 35 % $ 899,000 non-deductible differences ( stock based compensation ) ( 439,000 ) change in valuation allowance ( 277,000 ) effect of change in federal tax rates due to newly enacted statutes ( 183,000 ) net income tax expense ( benefit ) $ 0 ( 11 ) related-party transactions : michael a. barron , the ceo of the company , is a 100 % owner and president of allegheny nevada holdings corporation , `` allegheny `` . the company was indebted to allegheny by certain promissory notes with 10 % monthly interest . as of december 31 , 2017 , the balance of the note dated december 15 , 2015 was $ 39,101 and the note dated september 30 , 2017 was $ 53,700 . dianne david , the company 's director -sales , is the spouse of the ceo , michael a. barron and as of december 15 , 2015 holds a promissory note with 10 % monthly interest and as of december 31 , 2017 the principal balance is $ 74,044 . wanda witoslawski , the cfo of the company , holds a promissory note dated december 15 , 2015 of $ 49,910 and promissory note dated september 30 , 2017 of $ 18,400 . the balances as of december 31 , 2017 are $ 49,910 and $ 7,400 , respectively . las vegas railway express , inc. holds promissory note with no interest , payable on demand . balance as of december 31 , 2017 was $ 154,998 . ( 12 ) subsequent events we entered into the spa with gpl on january 5 , 2018. pursuant to the spa , gpl committed to purchase up to $ 50,000,000 worth of our common stock , over a period of time terminating on the earlier of : ( i ) 24 months from the date of the agreement ; ( ii ) the date on which gpl has purchase shares of our common stock pursuant to the spa for an aggregate maximum purchase price of $ 50,000,000 . we may draw on this facility from time to time , as and when we determine appropriate in accordance with the terms and conditions of the spa . the purchase price to be paid by gpl will be 75 % of the market price of our common stock . we will be entitled to put to gpl on each put date such number of shares of common stock as equals 200 % of the story_separator_special_tag the following discussion should be read in conjunction with our financial statements and notes thereto included elsewhere herein . critical accounting policies the preparation of our financial statements and notes thereto requires management to make estimates and assumptions that affect the amounts and disclosures reported within those financial statements . on an ongoing basis , management evaluates its estimates , including those related to collection of receivables , impairment of goodwill , contingencies , litigation and income taxes . management bases its estimates and judgments on historical experiences and on various other factors believed to be reasonable under the circumstances . actual results under circumstances and conditions different than those assumed could result in material differences from the estimated amounts in the financial statements . there have been no material changes to these policies during the fiscal year . story_separator_special_tag execute its intended business plan or generate positive operating results . cash flows net cash used in operating activities for the years ended december 31 , 2017 and 2016 were $ 651,854 and $ 1,085,261 , respectively . cash used in operating activities for the years ended december 31 , 2017 and 2016 were primarily due to net losses of $ 7,385,372 and $ 2,567,469 , respectively . during the year ended december 31 , 2017 , the net loss included significant non-cash expenses of $ 280,150 in stock issued for services , $ 1,069,322 in derivative expense charged to interest , $ 3,050,000 for the stock compensation , $ 905,921 in changes in operating assets and liabilities and $ 37,433 in debt discount interest expenses and change in derivative liability of $ 707,127. during the year ended december 31 , 2016 , the net loss included significant non-cash expenses of $ 1,257,091 for stock issued for compensation , $ 88,448 in debt discount expense on notes payable and $ 136,669 in accounts payable and accrued expenses . 19 there was no cash used in investing activities during the year ended december 31 , 2017. net cash used in investing activities during the year ended december 31 , 2016 was $ 83,160 , which represented property and equipment acquisitions primarily related to the acquisition of rail cars and related costs . net story_separator_special_tag the company has no liabilities related to uncertain tax positions or unrecognized benefits as of the year end december 31 , 2017 or 2016. the company has not accrued for interest or penalties associated with unrecognized tax liabilities . as of december 31 , 2017 , the company had net operating loss carry forwards of approximately $ 6.4 million , which may be available to offset future taxable income for tax purposes . this carry forward may be limited upon the ownership change under irc section 382. the components of the deferred tax asset at december 31 , 2017 and 2016 are as follows : replace_table_token_9_th a reconciliation of the effective federal tax expense to the amount derived by applying the $ federal statutory rates to pretax loss for 2017. pretax loss at federal statutory rate of 35 % $ 2,585,000 non-deductible differences ( stock-based compensation ) ( 1,166,000 ) change in valuation allowance ( 851,000 ) effect of change in federal tax rates due to newly enacted tax statues ( 568,000 ) net tax expense ( benefit ) $ 0 a reconciliation of the effective federal tax expense to the amount derived by applying the federal statutory rate to pretax loss for 2016 : pretax loss at federal statutory rate of 35 % $ 899,000 non-deductible differences ( stock based compensation ) ( 439,000 ) change in valuation allowance ( 277,000 ) effect of change in federal tax rates due to newly enacted statutes ( 183,000 ) net income tax expense ( benefit ) $ 0 ( 11 ) related-party transactions : michael a. barron , the ceo of the company , is a 100 % owner and president of allegheny nevada holdings corporation , `` allegheny `` . the company was indebted to allegheny by certain promissory notes with 10 % monthly interest . as of december 31 , 2017 , the balance of the note dated december 15 , 2015 was $ 39,101 and the note dated september 30 , 2017 was $ 53,700 . dianne david , the company 's director -sales , is the spouse of the ceo , michael a. barron and as of december 15 , 2015 holds a promissory note with 10 % monthly interest and as of december 31 , 2017 the principal balance is $ 74,044 . wanda witoslawski , the cfo of the company , holds a promissory note dated december 15 , 2015 of $ 49,910 and promissory note dated september 30 , 2017 of $ 18,400 . the balances as of december 31 , 2017 are $ 49,910 and $ 7,400 , respectively . las vegas railway express , inc. holds promissory note with no interest , payable on demand . balance as of december 31 , 2017 was $ 154,998 . ( 12 ) subsequent events we entered into the spa with gpl on january 5 , 2018. pursuant to the spa , gpl committed to purchase up to $ 50,000,000 worth of our common stock , over a period of time terminating on the earlier of : ( i ) 24 months from the date of the agreement ; ( ii ) the date on which gpl has purchase shares of our common stock pursuant to the spa for an aggregate maximum purchase price of $ 50,000,000 . we may draw on this facility from time to time , as and when we determine appropriate in accordance with the terms and conditions of the spa . the purchase price to be paid by gpl will be 75 % of the market price of our common stock . we will be entitled to put to gpl on each put date such number of shares of common stock as equals 200 % of the story_separator_special_tag the following discussion should be read in conjunction with our financial statements and notes thereto included elsewhere herein . critical accounting policies the preparation of our financial statements and notes thereto requires management to make estimates and assumptions that affect the amounts and disclosures reported within those financial statements . on an ongoing basis , management evaluates its estimates , including those related to collection of receivables , impairment of goodwill , contingencies , litigation and income taxes . management bases its estimates and judgments on historical experiences and on various other factors believed to be reasonable under the circumstances . actual results under circumstances and conditions different than those assumed could result in material differences from the estimated amounts in the financial statements . there have been no material changes to these policies during the fiscal year . story_separator_special_tag execute its intended business plan or generate positive operating results . cash flows net cash used in operating activities for the years ended december 31 , 2017 and 2016 were $ 651,854 and $ 1,085,261 , respectively . cash used in operating activities for the years ended december 31 , 2017 and 2016 were primarily due to net losses of $ 7,385,372 and $ 2,567,469 , respectively . during the year ended december 31 , 2017 , the net loss included significant non-cash expenses of $ 280,150 in stock issued for services , $ 1,069,322 in derivative expense charged to interest , $ 3,050,000 for the stock compensation , $ 905,921 in changes in operating assets and liabilities and $ 37,433 in debt discount interest expenses and change in derivative liability of $ 707,127. during the year ended december 31 , 2016 , the net loss included significant non-cash expenses of $ 1,257,091 for stock issued for compensation , $ 88,448 in debt discount expense on notes payable and $ 136,669 in accounts payable and accrued expenses . 19 there was no cash used in investing activities during the year ended december 31 , 2017. net cash used in investing activities during the year ended december 31 , 2016 was $ 83,160 , which represented property and equipment acquisitions primarily related to the acquisition of rail cars and related costs . net
| results of operations the following are the results of our continuing operations for the year ended december 31 , 2017 compared to the year ended december 31 , 2016 : replace_table_token_1_th revenue during the year ended december 31 , 2017 the company generated some revenue from operating wine train in santa barbara , ca . during the year ended december 31 , 2016 , there was no operations yet . 18 operating expenses compensation and payroll taxes increased by $ 1,666,624 , or 87.2 % , during the year ended december 31 , 2017 as compared to 2016. the increase in compensation expense in the current year is due primarily to significant stock issuances to officers and directors as compensation . selling , general and administrative expenses increased by $ 131,186 , or 53.8 % , during the year ended december 31 , 2017 as compared to the same period in 2016 primarily due to higher office , marketing and advertising expenses . we had an increase in our professional fee expenses during the year ended december 31 , 2017 of $ 634,648 , or 239.2 % , due primarily to legal , consulting in the fair value of the derivative liabillity and accounting services . other ( expense ) income interest expense increased by $ 1,039,764 , or 711,1 % during the year ended december 31 , 2017 as compared to the year ended december 31 , 2016. the increase is due primarily to increase in convertible debt in 2017. the change in the fair value of the derivative liabilities amounted to $ 707,127 for the year ended december 31 , 2017 as a result of convertible debt . the increase was primarily due to the increase in value of derivative liabilities outstanding during the year .
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the comparative information has also not been restated and continues to be reported under the f- 13 central garden & pet company notes to consolidated financial statements ( continued ) accounting standards in effect for those periods . additional disclosures required story_separator_special_tag the following is management 's discussion of the financial results , liquidity and other key items related to our performance . this 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. ” 25 business overview central garden & pet company ( “ central ” ) is a leading innovator , producer and distributor of branded and private label products for the lawn & garden and pet supplies markets in the united states . the total annual retail sales of the pet food , treats & chews , supplies and live animal industry in 2018 was estimated by packaged facts and the pet industry to have been approximately $ 51.9 billion . we estimate the annual retail sales of the pet supplies , live animal , and treats & chews and natural pet food markets in the categories in which we participate to be approximately $ 27.4 billion . the total lawn and garden consumables , decorative products , live plant and outdoor cushions and pillows industry in the united states is estimated by packaged facts , the freedonia group and technavio to have been approximately $ 23.3 billion in annual retail sales in 2018 , including fertilizer , pesticides , growing media , seeds , mulch , other consumables , decorative products , live plants and outdoor cushions and pillows . we estimate the annual retail sales of the lawn and garden consumables , decorative products and live plant markets in the categories in which we participate to be approximately $ 16.3 billion . our pet supplies products include products for dogs and cats , including edible bones , premium healthy edible and non-edible chews , natural dog and cat food and treats , 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 ; live fish and 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 the brands including adams , aqueon ® , avoderm ® , c & s products ® , cadet ® , farnam ® , four paws ® , kaytee ® , k & h pet products ® , nylabone ® , pinnacle ® , tfh , zilla ® as well as a number of other brands including altosid ® , comfort zone ® , coralife ® , interpet ® , pet select ® and zodiac ® . our lawn and garden supplies products include proprietary and non-proprietary grass seed ; wild bird feed , bird feeders , bird houses and other birding accessories ; weed , grass , and other herbicides , insecticide and pesticide products ; fertilizers ; and decorative outdoor lifestyle products including pottery , as well as live plants and outdoor cushions and pillows . these products are sold under the brands amdro ® , arden companies , ironite ® , pennington ® , and sevin ® , as well as a number of other brand names including lilly miller ® , over-n-out ® , smart seed ® and the rebels ® . in fiscal 2019 , our consolidated net sales were $ 2,383 million , of which our pet segment , or pet , accounted for approximately $ 1,385 million and our garden segment , or garden , accounted for approximately $ 998 million . in fiscal 2019 , our operating income was $ 152 million consisting of income from our pet segment of $ 123 million , income from our garden segment of $ 102 million and corporate expenses of $ 73 million . fiscal 2019 financial highlights story_separator_special_tag million , or 0.2 % , primarily as a result of lower sales in our animal health business due to a difficult agricultural economic environment and unfavorable weather for livestock and grain production impacting our professional business , lower sales of pet behavior modification products , impacted by a new market entrant and product performance issues , and a soft flea and tick season . the decrease in the animal health business was partially offset by volume-based sales increases in our dog and cat and live fish businesses . pet branded product sales increased $ 13.7 million and sales of other manufacturers ' products increased $ 30.1 million . both increases were due to recent acquisitions . garden net sales for fiscal 2019 increased $ 123.8 million , or 14.2 % , to $ 998.3 million from $ 874.5 million in fiscal 2018 . the increase in net sales was due to both sales from acquisitions and organic sales growth . sales from our acquisitions of arden , in february 2019 , and bell nursery , in march 2018 , accounted for $ 88.4 million of the increase in net sales . garden organic net sales increased $ 35.4 million , or 4.0 % , due primarily to increased sales in our garden distribution business , volume-based increases in live plants and wild bird feed and a price-based increase in grass seed partially offset by decreased sales in our controls and fertilizer products due to unfavorable weather that impacted insect control demand . story_separator_special_tag , to $ 122.7 million in fiscal 2019 from $ 140.4 million for fiscal 2018 . the decrease was due to increased sales offset by a lower gross margin and increased selling , general and administrative expenses . our pet operating margin declined to 8.9 % in fiscal 2019 from 10.5 % in fiscal 2018 due to the lower gross margin and higher selling , general and administrative expense as a percentage of net sales . both operating income and margin were significantly impacted by the weaker performance of our animal health business . garden operating income increased $ 6.6 million , or 6.9 % , to $ 102.2 million for fiscal 2019 from $ 95.6 million for fiscal 2018 . the increase was due to increased sales from acquisitions and our organic businesses partially offset by a lower gross margin and higher selling , general and administrative expenses . the increase in operating income was due primarily to our arden and bell nursery acquisitions . corporate operating expense increased $ 4.2 million in fiscal 2019 compared to fiscal 2018 due to costs associated with hiring our new ceo , expenses incurred for the unanticipated resolution of a legal matter , increased non-cash equity compensation expense and third-party expenses incurred related to our implementation of the new gaap lease standard we will adopt beginning in fiscal 2020. these increases were partially offset by lower medical insurance costs and lower depreciation and amortization expense . net interest expense net interest expense decreased $ 3.0 million , or 8.3 % , from $ 36.1 million in fiscal 2018 to $ 33.1 million in fiscal 2019 . increased interest expense incurred in our fiscal 2019 first quarter , due to higher average debt outstanding , was more than offset by increased interest income the following three fiscal 2019 quarters . in december 2017 , we issued $ 300 million aggregate principal amount of 5.125 % senior notes due february 2028. debt outstanding on september 28 , 2019 was $ 693.2 million compared to $ 692.2 million as of september 29 , 2018 . our average borrowing rate for fiscal 2019 and fiscal 2018 was 5.8 % . 29 other expense other expense is comprised of income or loss from investments accounted for under the equity method of accounting , including any associated impairments of equity method investments and foreign currency exchange gains and losses . other income improved $ 4.1 million from an expense of $ 3.9 million in fiscal 2018 to income of $ 0.2 million in fiscal 2019 . lower losses in fiscal 2019 from one of our start-up business investments were partially offset by lower investment income from arden due to our purchase of the remaining 55 % ownership interest in february 2019. income taxes our effective income tax rate was 22.3 % for fiscal 2019 compared to 2.6 % for fiscal 2018 . fiscal 2018 included a tax benefit of $ 21.5 million due to the remeasurement of our deferred tax accounts upon the enactment of the tax reform act . in fiscal 2018 , after adjusting for the tax benefit of $ 21.5 million , our effective income tax rate was 19.5 % compared to our effective income tax rate of 22.3 % in fiscal 2019. the higher effective income tax rate in fiscal 2019 was due primarily to lower excess tax benefits from stock compensation in the current fiscal year . we adopted accounting standards update ( `` asu '' ) 2016-09 during fiscal 2018 and , as a result , now record excess tax benefits resulting from stock compensation in the provision for income taxes . net income and earnings per share our net income for fiscal 2019 was $ 92.8 million , or $ 1.61 per diluted share , compared to $ 123.6 million , or $ 2.32 per diluted share , for fiscal 2018 . in fiscal 2018 , the impact of the tax reform act on our deferred tax accounts was significant . adjusting fiscal 2019 for the non-cash gain from the fair value remeasurement of our previously held investment interest upon our acquisition of the remaining 55 % interest in arden and for the non-cash charge for the intangible asset impairment in our pet segment and fiscal 2018 for the impact of the tax reform act on our deferred tax accounts , non-gaap net income for the fiscal 2019 was $ 92.3 million or $ 1.60 per diluted share , compared to $ 102.1 million or $ 1.91 per diluted share in fiscal 2018 . the decline in fiscal 2019 net income and earnings per share was due primarily to the reduced operating income in our pet segment and increased shares outstanding due to our equity offering in august 2018. fiscal 2018 compared to fiscal 2017 for a discussion of our results of operations in fiscal 2018 compared to fiscal 2017 , please see item 7 of our annual report on form 10-k for the fiscal year ended september 29 , 2018 filed with the sec . use of non-gaap financial measures we report our financial results in accordance with accounting principles generally accepted in the united states ( gaap ) . however , to supplement the financial results prepared in accordance with gaap , we use non-gaap financial measures including ebitda , organic sales , non-gaap operating income on a consolidated and segment basis , and non-gaap net income and diluted net income per share . management believes these non-gaap financial measures that exclude the impact of specific items ( described below ) may be useful to investors in their assessment of our ongoing operating performance and provide additional meaningful comparisons between current results and results in prior operating periods . ebitda is defined by us as income before income tax , net other expense , net interest expense and depreciation and amortization ( or operating income plus depreciation and amortization expense ) .
| financial summary : net sales for fiscal 2019 increased $ 167.6 million , or 7.6 % , to $ 2,383.0 million . our pet segment sales increased 3.3 % , and our garden segment sales increased 14.2 % . gross profit for fiscal 2019 increased $ 28.6 million , or 4.2 % , to $ 704.0 million . gross margin declined 100 basis points in fiscal 2019 to 29.5 % , from 30.5 % in fiscal 2018 . our operating income decreased $ 15.2 million , or 9.1 % , to $ 152.1 million in fiscal 2019 , and as a percentage of net sales declined to 6.4 % as compared to 7.6 % in fiscal 2018. net income for fiscal 2019 was $ 92.8 million , or $ 1.61 per share on a diluted basis , compared to net income in fiscal 2018 of $ 123.6 million , or $ 2.32 per share on a diluted basis . non-gaap net income decreased to $ 92.3 million , or $ 1.60 per diluted share , in fiscal 2019 from $ 102.1 million , or $ 1.91 per diluted share , in fiscal 2018 . diluted weighted average shares outstanding increased 4,270 shares , or 8.0 % , from 53,341 shares in fiscal 2018 to 57,611 shares in fiscal 2019 . 26 recent developments acquisitions c & s products in may 2019 , we purchased c & s products , a manufacturer of suet and other wild bird feed products , for approximately $ 30.0 million , to complement our existing wild bird feed business . subsequent to the acquisition , approximately $ 4.7 million of cash was used to eliminate the acquired long-term debt . arden companies in february 2019 , we purchased the remaining 55 % ownership interest in arden companies , a manufacturer of outdoor cushions and pillows , for $ 13.4 million .
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the monthly payments on the note are deferred for a period of 6 months and the notes bear interest of 1 % . monthly payments of $ 5,850 will begin on december 21 , 2021 ; however all or a portion of this loan may be forgiven if the company satisfies certain criteria as follows : the company may apply for forgiveness of the amount due on this loan in an amount equal to the sum of the following costs incurred during the 8-week period beginning on the date of first disbursement of this loan : a. payroll costs b. any payment of interest on a covered mortgage obligation ( which shall not include any prepayment of or payment of principal on a covered mortgage obligation ) c. any payment on a covered rent obligation d. any covered utility payment f- 12 the amount of loan forgiveness shall be calculated ( and may be reduced ) in accordance with the requirements of the paycheck protection program , including the provisions of section 1106 of the coronavirus aid , relief , and economic security act ( cares act ) ( p.l . 116-136 ) . not more than 25 % of the amount forgiven can be attributable to non-payroll costs . in july 2020 , the company 's subsidiary received a second paycheck protection program loan in the amount of $ 100,000.the monthly payments on the note are deferred for a period of 6 months and the notes bear interest of 1 % . monthly payments of $ 5,628 will begin on january 1 , 2021. the proceeds of the requested ppp loan may be used only for business purposes permitted under the paycheck protection program , including permitted payroll costs and benefits , interest on business mortgage obligations incurred before february 15 , 2020 , rent under a lease entered into before february 15 , 2020 and utilities for which service began before february 15 , 2020. loan forgiveness will be provided for the sum of documented payroll costs , covered mortgage interest payments , covered rent payments , and covered utilities , and not more than 25 % of the forgiven amount may be for non-payroll costs . note 9 – convertible debt as of december 31 , 2020 , the company owed $ 406,000 in principal ( before a debt discount of $ 177,798 ) and $ 9,549 in accrued interest ( included in accounts payable and accrued expenses ) on its outstanding convertible promissory notes . as of december 31 , 2019 , the company did not have any outstanding convertible promissory notes . december 31 , 2020 december 31 , 2019 principal $ 406,000 $ — debt discount ( 177,798 ) — total principal $ 228,202 $ — note 1 - during the year ended december 31 , 2020 , the company received loan proceeds of $ 125,000 pursuant to a promissory note ( “ first convertible note ” ) , with a maturity date of june 15 , 2020 and interest of $ 4,167 per month . the note 's terms required that the company issue 50,000 common story_separator_special_tag the statements contained in this report that are not statements of historical fact , including without limitation , statements containing the words “ believes , ” “ expects , ” “ anticipates ” and similar words , constitute forward-looking statements that are subject to a number of risks and uncertainties . from time to time we may make other forward-looking statements . investors are cautioned that such forward-looking statements are subject to an inherent risk that actual results may materially differ as a result of many factors , including the risks discussed from time to time in this report , including the risks described under “ risk factors ” in any filings we have made with the sec . our discussion and analysis of our financial condition and results of operations are based upon our financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses . on an on-going basis , we evaluate these estimates , including those related to useful lives of real estate assets , cost reimbursement income , bad debts , impairment , net lease intangibles , contingencies and litigation . we base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . there can be no assurance that actual results will not differ from those estimates . background on january 9 , 2019 , new you , inc. completed a reverse recapitalization ( “ recapitalization ” ) with new you llc , a privately held wyoming limited liability company in accordance with the terms of a share exchange agreement ( “ share exchange agreement ” ) . pursuant to the share exchange agreement , new you , inc. issued 15,974,558 common shares in exchange for one hundred percent ( 100 % ) of the outstanding units of new you llc ( 11,450 units ) , with new you llc becoming a wholly-owned operating subsidiary of the company . the transaction was accounted for as a reverse recapitalization because new you , inc. was a shell company prior to the transaction . for accounting purposes , new you llc is considered to have obtained the net monetary assets of new you , inc. in exchange for equity . upon the consummation of the recapitalization , the historical financial statements of new you llc became the consolidated company 's historical financial statements . story_separator_special_tag ) ( 360,980 ) net cash provided by ( used in ) investing activities — — cash provided story_separator_special_tag the monthly payments on the note are deferred for a period of 6 months and the notes bear interest of 1 % . monthly payments of $ 5,850 will begin on december 21 , 2021 ; however all or a portion of this loan may be forgiven if the company satisfies certain criteria as follows : the company may apply for forgiveness of the amount due on this loan in an amount equal to the sum of the following costs incurred during the 8-week period beginning on the date of first disbursement of this loan : a. payroll costs b. any payment of interest on a covered mortgage obligation ( which shall not include any prepayment of or payment of principal on a covered mortgage obligation ) c. any payment on a covered rent obligation d. any covered utility payment f- 12 the amount of loan forgiveness shall be calculated ( and may be reduced ) in accordance with the requirements of the paycheck protection program , including the provisions of section 1106 of the coronavirus aid , relief , and economic security act ( cares act ) ( p.l . 116-136 ) . not more than 25 % of the amount forgiven can be attributable to non-payroll costs . in july 2020 , the company 's subsidiary received a second paycheck protection program loan in the amount of $ 100,000.the monthly payments on the note are deferred for a period of 6 months and the notes bear interest of 1 % . monthly payments of $ 5,628 will begin on january 1 , 2021. the proceeds of the requested ppp loan may be used only for business purposes permitted under the paycheck protection program , including permitted payroll costs and benefits , interest on business mortgage obligations incurred before february 15 , 2020 , rent under a lease entered into before february 15 , 2020 and utilities for which service began before february 15 , 2020. loan forgiveness will be provided for the sum of documented payroll costs , covered mortgage interest payments , covered rent payments , and covered utilities , and not more than 25 % of the forgiven amount may be for non-payroll costs . note 9 – convertible debt as of december 31 , 2020 , the company owed $ 406,000 in principal ( before a debt discount of $ 177,798 ) and $ 9,549 in accrued interest ( included in accounts payable and accrued expenses ) on its outstanding convertible promissory notes . as of december 31 , 2019 , the company did not have any outstanding convertible promissory notes . december 31 , 2020 december 31 , 2019 principal $ 406,000 $ — debt discount ( 177,798 ) — total principal $ 228,202 $ — note 1 - during the year ended december 31 , 2020 , the company received loan proceeds of $ 125,000 pursuant to a promissory note ( “ first convertible note ” ) , with a maturity date of june 15 , 2020 and interest of $ 4,167 per month . the note 's terms required that the company issue 50,000 common story_separator_special_tag the statements contained in this report that are not statements of historical fact , including without limitation , statements containing the words “ believes , ” “ expects , ” “ anticipates ” and similar words , constitute forward-looking statements that are subject to a number of risks and uncertainties . from time to time we may make other forward-looking statements . investors are cautioned that such forward-looking statements are subject to an inherent risk that actual results may materially differ as a result of many factors , including the risks discussed from time to time in this report , including the risks described under “ risk factors ” in any filings we have made with the sec . our discussion and analysis of our financial condition and results of operations are based upon our financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses . on an on-going basis , we evaluate these estimates , including those related to useful lives of real estate assets , cost reimbursement income , bad debts , impairment , net lease intangibles , contingencies and litigation . we base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . there can be no assurance that actual results will not differ from those estimates . background on january 9 , 2019 , new you , inc. completed a reverse recapitalization ( “ recapitalization ” ) with new you llc , a privately held wyoming limited liability company in accordance with the terms of a share exchange agreement ( “ share exchange agreement ” ) . pursuant to the share exchange agreement , new you , inc. issued 15,974,558 common shares in exchange for one hundred percent ( 100 % ) of the outstanding units of new you llc ( 11,450 units ) , with new you llc becoming a wholly-owned operating subsidiary of the company . the transaction was accounted for as a reverse recapitalization because new you , inc. was a shell company prior to the transaction . for accounting purposes , new you llc is considered to have obtained the net monetary assets of new you , inc. in exchange for equity . upon the consummation of the recapitalization , the historical financial statements of new you llc became the consolidated company 's historical financial statements . story_separator_special_tag ) ( 360,980 ) net cash provided by ( used in ) investing activities — — cash provided
| results of operations revenues . for the year ended december 31 , 2020 , we generated revenues of $ 2,008,493 , a decrease of $ 823,933 compared to december 31 , 2019. the decrease was due to declining revenue generated by new you llc as a result of a slowed economy brought about by the global covid pandemic . at this stage in our development , revenues are not yet sufficient to cover ongoing operating expenses . gross profit . our gross profit for the year ended december 31 , 2020 was $ 1,723,334 , a decrease of $ 654,332 compared to december 31 , 2019. our gross margin percentage for the year ended december 31 , 2020 was 86 % , compared to 84 % for the year ended december 31 , 2019. the increase in gross profit generated by new you llc is largely a result of product sales mix and the associated costs for the year . 14 selling , general , and administrative expenses . selling , general , and administrative expenses for the year ended december 31 , 2020 were $ 4,958,672 , an increase of $ 889,508 compared to december 31 , 2019. for the year ended december 31 , 2020 , the components of the change in selling , general , and administrative expenses were : ( i ) decrease in commission expenses ; ( ii ) decrease in payroll expenses ; ( iii ) decrease in other selling general and administrative expenses ; and ( iv ) increase in stock based compensation . replace_table_token_2_th operating loss . we realized an operating loss of $ 3,235,338 for the year ended december 31 , 2020 compared to $ 1,691,498 for the year ended december 31 , 2019. net loss .
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in addition , we would determine any impairment to the carrying costs story_separator_special_tag the following discussion and analysis should be read in conjunction with “ item 6. selected financial data '' and our consolidated financial statements and related notes contained elsewhere in this annual report on form 10-k. for additional information related to our segments , see note 21 - segment and related information , to the consolidated financial statements , which is included in item 8 herein . for information regarding our revenues , net income and assets , see our consolidated financial statements included in item 8. overview northwestern corporation , doing business as northwestern energy , provides electricity and natural gas to approximately 726,400 customers in montana , south dakota and nebraska . as you read this discussion and analysis , refer to our consolidated statements of income , which present the results of our operations for 2018 , 2017 and 2016 . following is a discussion of our strategy and significant trends . we are working to deliver safe , reliable and innovative energy solutions that create value for customers , communities , employees and investors . this includes bridging our history as a regulated utility safely providing low-cost and reliable service with our future as a globally-aware company offering a broader array of services performed by highly-adaptable and skilled employees . we seek to deliver value to our customers by providing high reliability and customer service , and an environmentally sustainable generation mix at an affordable price . we are focused on delivering long-term shareholder value by continuing to invest in our system including : infrastructure investment focused on a stronger and smarter grid to improve the customer experience , while enhancing grid reliability and safety . this includes automation in distribution and substations that enables the use of changing technology . integrating supply resources that balance reliability , cost , capacity , and sustainability considerations with more predictable long-term commodity prices . continually improving our operating efficiency . financial discipline is essential to earning our authorized return on invested capital and maintaining a strong balance sheet , stable cash flows , and quality credit ratings . we expect to pursue these investment opportunities and manage our business in a manner that allows us to be flexible in adjusting to changing economic conditions by adjusting the timing and scale of the projects . 30 how we performed in 2018 compared to our 2017 results replace_table_token_3_th consolidated net income in 2018 was $ 197.0 million as compared with $ 162.7 million in 2017 . this increase was primarily due to a gain related to the adjustment of our electric qf liability , the net impact of the tax cuts and jobs act , demand for electric transmission , favorable weather , and lower labor costs , partly offset by an increase in depreciation and depletion expense and an increase in expense associated with removing hazard trees outside of our electric transmission and distribution lines rights of way . significant trends and regulation montana general electric rate case in september 2018 , we filed an electric rate case with the mpsc requesting an annual increase to electric rates of approximately $ 34.9 million , which represents an approximate 6.6 % increase in annual base revenues . our request is based on a return on equity of 10.65 % and an overall rate of return of 7.42 % ( except for colstrip unit 4 which the mpsc previously set for the life of the facility at a 10 % return on equity and an 8.25 % rate of return ) , based on approximately $ 2.35 billion of electric rate base and a capital structure of 51 percent debt and 49 percent equity . we also requested that approximately $ 13.8 million of the rate increase be approved on an interim basis effective november 1 , 2018. we expect to receive a decision on our interim request after intervenor testimony is filed . if the mpsc does not issue a final order within nine months of the filing , the new requested rates may be placed into effect on an interim and refundable basis . key dates in the procedural schedule are expected to be as follows : intervenor testimony - february 12 , 2019 northwestern rebuttal testimony and cross-intervenor testimony - april 5 , 2019 hearing commences - may 13 , 2019 we expect to file a ferc rate case for our montana transmission assets by the end of the first quarter of 2019. the revenue requirement associated with our montana ferc assets is reflected in our mpsc jurisdictional rates as a credit to customers . electric resource planning - montana in the first quarter of 2019 , we expect to submit our draft 2019 electricity supply resource procurement plan ( montana resource plan ) with the mpsc . the montana resource plan supports the goal of developing resources that will address the changing energy landscape in montana to meet our customers ' electric energy needs in a reliable and affordable manner . a 31 summary of the draft montana resource plan was provided for public comment in january 2019. after submission to the mpsc , the draft will be available for public comment for 60 days . montana is in the midst of a transition from producing more energy than is needed in the state with energy exported to the west , to a growing risk of not having enough capacity to serve montana customers at critical times of peak load due to reductions in regional and in state energy generation as noted below : our current peak requirement for energy is about 1,400 mw . we are currently 630 mw short , which is subject to market purchases . we forecast that our energy portfolio will be 725 mw short by 2025 with modest increased customer demand . story_separator_special_tag we are facing challenges to address these trees . beetle infestations have caused a significant increase in the quantity of standing dead and dying timber and have impacted our system for quite some time . as part of our normal vegetation management program , we have routinely removed trees from within our rights of way , including those infected by the beetle infestation . additionally , in some circumstances , we were authorized to remove one or more hazard trees from outside of our rights of way that could harm our system . the beetle infestation exacerbates the risk of fires in montana , increasing the risk that such trees may fall from either inside or outside our right-of-way into a powerline igniting a fire . fires alleged to have been caused by our system could expose us to significant damage claims on theories such as strict liability , negligence , gross negligence , trespass , inverse condemnation , and others . we maintain insurance against some , but not all , of these risks and losses . the occurrence of any of these events not fully covered by insurance could have a material adverse effect on our financial position and results of operations . we worked with third parties , including the u.s. forest service , to develop a plan to remove these hazard trees . we identified areas severely impacted and determined that the only way to mitigate fire and reliability risk along these lines is to clear-cut all of the trees on either side of the electric lines that could hit the lines , if they fell . in most cases , this results in a corridor of approximately 100 feet on either side of the lines . normal rights of way vary but are generally 20 feet to 40 feet wide on distribution lines and 40 feet to 100 feet wide on transmission lines . we finalized our plan to address the identified areas in the first quarter of 2018 and began work . during 2018 , we incurred approximately $ 3.3 million in costs related to this work , which is incremental to costs for vegetation management within our rights of way . we expect to continue the program over the next several years with anticipated 2019 costs ranging from approximately $ 7 million to $ 9 million , with total costs exceeding $ 20 million . tax cuts and jobs act in december 2017 , the tax cuts and jobs act was signed into law , which enacts significant changes to u.s. tax and related laws . the primary impact to us is a reduction of the federal corporate income tax rate from 35 % to 21 % effective january 1 , 2018. dockets were opened in each of our jurisdictions to investigate the customer benefit of this reduction in the federal corporate income tax rate . during 2018 , we received approval of settlement agreements regarding the customer benefit of the tax cuts and jobs act , as described below . in montana the settlement provides a one-time credit of approximately $ 20.5 million to customers in early 2019. this includes a $ 19.2 million credit to electric customers and $ 1.3 million credit to natural gas customers . ◦ in addition to eligible customers receiving a one-time bill credit , the settlement also reduces rates for all natural gas customers by approximately $ 1.3 million annually beginning january 1 , 2019 , and provides funds for low-income energy assistance and weatherization programs . ◦ the settlement also reflects the agreement of the intervening parties not to oppose our request to include up to $ 3.5 million of costs to address hazard tree removal in our current montana rate case . ◦ issues related to the revaluation of deferred income taxes will be addressed in our current montana rate case . 33 in south dakota we credited electric and natural gas customers approximately $ 3.0 million in the fourth quarter of 2018 , and agreed to a two-year rate moratorium until january 1 , 2021. our 2018 results include a net benefit related to the impact of the tax cuts and jobs act , which includes : an income tax benefit of approximately $ 19.8 million due to the finalization of the revaluation of deferred income tax liabilities upon completion of the associated regulatory dockets ; offset by a net loss of approximately $ 6.1 million including a reduction in revenue of approximately $ 23.5 million , due to customer credits in the above regulatory settlements , offset in part by a reduction in income tax expense , of approximately $ 17.4 million due to the reduction in federal tax rate . in addition , we reflected the costs of our hazard tree program in the consolidated income statement as we agreed in our montana settlement to request recovery of these costs in base customer rates in our 2018 filing , as discussed above , rather than using a portion of the reduction in customer rates associated with the change in tax rate as proposed in our montana tax cuts and jobs act filing . we expect a consolidated reduction in our cash flows from operations ranging from $ 20 million to $ 22 million in 2019 , as a result of the customer credits discussed above while we are not a cash taxpayer . see liquidity and capital resources for further discussion . we currently estimate that our effective income tax rate will range from 0 % to 5 % in 2019. cost recovery mechanisms electric tracker - effective july 1 , 2017 , the montana legislature granted the mpsc discretion whether to approve an electric supply tracking mechanism .
| results of operations our consolidated results include the results of our divisions and subsidiaries constituting each of our business segments . the overall consolidated discussion is followed by a detailed discussion of gross margin by segment . non-gaap financial measure the following discussion includes financial information prepared in accordance with gaap , as well as another financial measure , gross margin , that is considered a “ non-gaap financial measure. ” generally , a non-gaap financial measure is a numerical measure of a company 's financial performance , financial position or cash flows that exclude ( or include ) amounts that are included in ( or excluded from ) the most directly comparable measure calculated and presented in accordance with gaap . we define gross margin as revenues less cost of sales as presented in our consolidated statements of income . 35 management believes that gross margin provides a useful measure for investors and other financial statement users to analyze our financial performance in that it excludes the effect on total revenues caused by volatility in energy costs and associated regulatory mechanisms . this information is intended to enhance an investor 's overall understanding of results . under our various state regulatory mechanisms , as detailed below , our supply costs are generally collected from customers , and as a result do not typically impact operating or net income . in addition , gross margin is used by us to determine whether we are collecting the appropriate amount of energy costs from customers to allow recovery of operating costs , as well as to analyze how changes in loads ( due to weather , economic or other conditions ) , rates and other factors impact our results of operations . our gross margin measure may not be comparable to that of other companies ' presentations or more useful than the gaap information provided elsewhere in this report .
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in periods that we grant stock story_separator_special_tag the following discussion should be read in conjunction with our consolidated financial statements and the related notes contained elsewhere in this annual report on form 10-k and in our other securities and exchange commission filings . the following discussion may contain predictions , estimates , and other forward-looking statements that involve a number of risks and uncertainties , including those discussed under “ risk factors ” and elsewhere in this annual report on form 10-k. these risks could cause our actual results to differ materially from any future performance suggested below . overview we are a medical device company that develops , manufactures , and markets medical devices and implants for the treatment of peripheral vascular disease . we also provide processing and cryopreservation services of human tissue for implantation into patients . our principal product offerings are sold throughout the world , primarily in the united states , europe and , to a lesser extent , asia and the pacific rim . we estimate that the annual worldwide market for all peripheral vascular devices exceeds $ 5 billion , within which our core product lines address roughly $ 900 million . we have grown our business using a three-pronged strategy : 1 ) pursuing a focused call point , 2 ) competing for sales of low-rivalry niche products , and 3 ) expanding our worldwide direct sales force while acquiring and developing complementary vascular devices . we have used acquisitions as a primary means of further accessing the peripheral vascular device market , and we expect to continue to pursue this strategy in the future . additionally , we have increased our efforts to expand our vascular device offerings through new product development . we currently manufacture most of our product lines in our burlington , massachusetts headquarters . our products are used primarily by vascular surgeons who treat peripheral vascular disease through both open surgery and endovascular techniques . in contrast to interventional cardiologists and interventional radiologists , neither of whom are certified to perform open surgical procedures , vascular surgeons can perform both open surgery and minimally invasive endovascular procedures , and are therefore uniquely positioned to provide a wider range of treatment options to patients . our principal product lines include the following : valvulotomes , biologic vascular patches , carotid shunts , balloon catheters , biologic vascular grafts , anastomotic clips , radiopaque marking tape , powered phlebectomy devices , prosthetic vascular grafts , surgical glue and remote endarterectomy devices . through our restoreflow allografts business we also provide services related to the processing and cryopreservation of human vascular tissue . to assist us in evaluating our business strategies , we regularly monitor long-term technology trends in the peripheral vascular device market . additionally , we consider the information obtained from discussions with the medical community in connection with the demand for our products , including potential new product launches . we also use this information to help determine our competitive position in the peripheral vascular device market and our manufacturing capacity requirements . our business opportunities include the following : the long-term growth of our direct sales force in north america , europe , asia and the pacific rim ; the addition of complementary products through acquisitions ; the introduction of our products in new territories upon receipt of regulatory approvals or registrations in these territories ; the updating of existing products and introduction of new products through research and development ; and the consolidation of product manufacturing into our burlington , massachusetts corporate headquarters . 33 we sell our products and services primarily through a direct sales force . as of december 31 , 2018 our sales force was comprised of 108 sales representatives in north america , europe , japan , china , australia and new zealand , including one export manager . we also sell our products in other countries through distributors . our worldwide headquarters and principal manufacturing site is located in burlington , massachusetts . our european operations are headquartered in sulzbach , germany and our asia pacific operations are headquartered in singapore . we also have sales offices located in tokyo , japan ; vaughan , canada ; madrid , spain ; milan , italy ; shanghai , china ; and north melbourne , australia , and we have a processing facility in fox river grove , illinois and manufacturing facilities in north melbourne , australia and saint-etienne , france . during the years ended december 31 , 2018 and 2017 , approximately 95 % and 93 % , respectively , of our net sales were generated in territories in which we employ direct sales representatives . historically we have experienced success in lower-rivalry niche product segments , for example the markets for valvulotome devices and biologic vascular patches . more recently , however , we have faced increased competition in the biologic vascular patch segment , which has inhibited our ability to continue to increase market share or to implement selling price increases . in the valvulotome market , our highly differentiated devices have historically allowed us to increase our selling prices while maintaining our unit market share . in contrast , we have experienced less success in highly competitive markets such as our procol biologic graft product line , where we face strong competition from larger companies with greater resources . while we believe that these challenging market dynamics can be mitigated by our relationships with vascular surgeons , there can be no assurance that we will be successful in these highly competitive markets . in recent years we have also experienced success in international markets , such as europe , where we sometimes offer comparatively lower average selling prices . if we continue to seek growth opportunities outside of north america , we may experience downward pressure on our gross margin . story_separator_special_tag selling , marketing , and administrative costs related to these sales are largely denominated in the same respective currency , thereby partially mitigating our exposure to exchange rate fluctuations . however , as most of our foreign sales are denominated in local currency , if there is an increase in the rate at which a foreign currency is exchanged for u.s. dollars , it will require more of the foreign currency to equal a specified amount of u.s. dollars than before the rate increase . in such cases we will receive less revenue in u.s. dollars than we did before the rate increase went into effect . for the year ended december 31 , 2018 , we estimate that the effects of changes in foreign exchange rates increased sales by approximately $ 1.4 million , as compared to rates in effect for the year ended december 31 , 2017. net sales and expense components the following is a description of the primary components of our net sales and expenses : net sales . we derive our net sales from the sale of our products and services , less discounts and returns . net sales include the shipping and handling fees paid for by our customers . most of our sales are generated by our direct sales force and are shipped and billed to hospitals or clinics throughout the world . in countries where we do not have a direct sales force , sales are primarily to distributors , who in turn sell to hospitals and clinics . in certain cases our products are held on consignment at a hospital or clinic prior to purchase ; in those instances we recognize revenue at the time the product is used in surgery rather than at shipment . 35 cost of sales . we manufacture the majority of the products that we sell . our cost of sales consists primarily of manufacturing personnel , raw materials and components , depreciation of property and equipment , and other allocated manufacturing overhead , as well as freight expense we pay to ship products to customers . sales and marketing . our sales and marketing expense consists primarily of salaries , commissions , stock based compensation , travel and entertainment , attendance at vascular congresses , training programs , advertising and product promotions , direct mail and other marketing costs . general and administrative . general and administrative expense consists primarily of executive , finance and human resource salaries , stock based compensation , legal and accounting fees , information technology expense , intangible asset amortization expense and insurance expense . research and development . research and development expense includes costs associated with the design , development , testing , enhancement and regulatory approval of our products , principally salaries , laboratory testing and supply costs . it also includes costs associated with design and execution of clinical studies , regulatory submissions and costs to register , maintain , and defend our intellectual property , and royalty payments associated with licensed and acquired intellectual property . other income ( expense ) . other income ( expense ) primarily includes interest income and expense , foreign currency gains ( losses ) , and other miscellaneous gains ( losses ) . income tax expense . we are subject to federal and state income taxes for earnings generated in the united states , which include operating losses or profits in certain foreign jurisdictions for certain years depending on tax elections made , and foreign taxes on earnings of our wholly-owned foreign subsidiaries . our consolidated tax expense is affected by the mix of our taxable income ( loss ) in the united states and foreign subsidiaries , permanent items , discrete items , unrecognized tax benefits , and amortization of goodwill for u.s tax reporting purposes . story_separator_special_tag such as china and japan , testing related to our biologic product offerings and for compliance with new medical device regulation ( mdr ) requirements in the eu . gain on divestitures and acquisitions . on april 5 , 2018 , we entered into an asset purchase agreement with specialty surgical instrumentation , inc. to sell the inventory , intellectual property and other assets associated with our reddick cholangiogram catheter and reddick-saye screw product lines for $ 7.4 million . during the three months ended june 30 , 2018 we recorded a gain in connection with these agreements of $ 5.9 million . on october 22 , 2018 , we entered into an agreement to acquire the assets of cardial , a subsidiary of becton dickinson , whose business consists of the manufacture and sale of knitted and woven vascular grafts , valvulotomes and surgical glue , for a purchase price of 1.2 million ( $ 1.4 million ) . in connection with this asset purchase , we simultaneously entered into an agreement to purchase cardial 's land and building for 0.8 million ( $ 0.9 million ) , bringing the total price paid for the business to 2.0 million ( $ 2.3 million ) . during the three months ended december 31 , 2018 we recorded a gain of 1.4 million ( $ 1.6 million ) in connection with these agreements resulting from the excess value of the assets acquired over the purchase price , subject to finalization of the purchase accounting . 37 other income ( expense ) . interest income was $ 0.6 million and $ 0.2 million , respectively for 2018 and 2017. foreign exchange losses on settlements or remeasurement of receivables and payables denominated in foreign currencies were $ 0.4 million and $ 0.2 million in 2018 and 2017 , respectively . income tax expense . we recorded a provision for taxes of $ 5.5 million on pre-tax income of $ 28.4 million in 2018 as compared to $ 3.9 million on pre-tax income of $ 21.1 million in 2017. the 2018 provision was comprised of a federal tax provision in the united states of $ 2.8 million , a state tax provision of $ 0.5 million , and a foreign tax provision of $ 2.2 million .
| results of operations comparison of the year ended december 31 , 2018 to the year ended december 31 , 2017 the following tables set forth , for the periods indicated , our results of operations and the change between the specified periods expressed as a percentage increase or decrease : replace_table_token_4_th net sales . net sales increased 5 % or $ 4.7 million to $ 105.6 million for the year ended december 31 , 2018 , compared to $ 100.9 million for the year ended december 31 , 2017. sales increases were primarily driven by increased sales of our biologic vascular patches of $ 1.7 million , carotid shunts of $ 1.2 million , embolectomy catheters of $ 1.2 million , of which $ 0.8 million was from our recent acquisition of syntel and python products , and valvulotomes of $ 0.6 million . we also had an increase in human tissue cryopreservation service revenues from our restoreflow allograft business of $ 1.2 million . these and other product line increases were partially offset by decreased sales due to the divestiture of our reddick cholangiogram catheter product in early q2 2018 of $ 1.1 million and decreased sales of our closure systems of $ 0.7 million . direct-to-hospital net sales were 95 % for the year ended december 31 , 2018 and 93 % for the year ended december 31 , 2017. net sales by geography . net sales in the americas increased $ 1.0 million for the year ended december 31 , 2018. the increase was primarily driven by increased human tissue cryopreservation services of $ 1.2 million related to our restoreflow allograft business . we also had increased sales of embolectomy catheters of $ 0.7 million , in part due to our acquisition of the syntel and python products , as well as increased sales of valvulotomes , carotid shunts and biologic vascular patches of $ 0.5 million each .
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the company has performed the analysis on the transition to this new story_separator_special_tag the following discussion should be read in conjunction with the consolidated financial statements and the notes thereto included in item 8 to this report . introduction on the spin-off date , gbl distributed to its stockholders all of the outstanding common stock of associated capital group , inc. ( “ ac ” ) and its subsidiaries along with certain cash and other assets . ac owns and operates , directly or indirectly , the alternatives and the institutional research businesses previously owned and operated by gbl . in the spin-off , each holder of gamco 's class a common stock ( “ class a stock ” ) of record as of 5:00 p.m. new york city time on november 12 , 2015 ( the “ record date ” ) , received one share of ac class a common stock for each share of gamco class a stock held on the record date . each record holder of gamco 's class b stock received one share of ac class b common stock for each share of gamco class b stock held on the record date . subsequent to the spin-off , gamco no longer consolidates the financial results of ac for the purposes of its own financial reporting and the historical financial results of ac have been reflected in the company 's consolidated financial statements as discontinued operations for all periods presented through the spin-off date . historical aum have similarly been adjusted to remove aum managed by ac . our revenues are highly correlated to the level of aum and fees associated with our various investment products , rather than our own corporate assets . aum , which are directly influenced by the level and changes of the overall equity markets , can also fluctuate through acquisitions , the creation of new products , the addition of new accounts or the loss of existing accounts . since various equity products have different fees , changes in our business mix may also affect revenues . at times , the performance of our equity products may differ markedly from popular market indices , and this can also impact our revenues . it is our belief that general stock market trends will have the greatest impact on our level of aum and hence , revenues . as of december 31 , 2018 , we had $ 34.4 billion of aum . we conduct our investment advisory business principally through : funds advisor ( funds ) and gamco ( institutional and private wealth management ) . we also are a distributor of our open-end funds through our broker-dealer subsidiary g.distributors . organizational chart subsequent to the spin-off , this is the current organizational chart of the company . 2018 business and investment highlights · in may , the gabelli utility trust completed a significantly over-subscribed rights offering raising $ 48.5 million . · we launched our fourth exchange traded managed fund , the gabelli pet parents ' tm fund ( the “ fund ” ) . the fund invests primarily in companies that actively participate in the companion animal food , therapeutics , diagnostics , product distribution and related services . 28 · ian lapey joined in october 2018 as the portfolio manager for the launch of the gabelli global financial services fund . prior to joining moerus , ian was a partner , research analyst , and portfolio manager at third avenue management . in 2009 he was appointed co-manager of the firm 's flagship third avenue value fund , and was subsequently named sole portfolio manager of that fund in 2012 . · on august 27 , 2018 , trevor , stewart , burton & jacobson ( “ tsb & j ” ) , an ria firm , agreed to assign their private wealth clients to gamco asset management . carl kempner , jr. and melody bryant joined gamco to manage the portfolios for the former tsb & j clients . · on september 28 , 2018 , fitch ratings gave the gabelli u.s. treasury fund its highest rating , aaammf . · in october , we launched the gabelli global mini mites fund , which invests on a global basis in equity securities that have a market capitalization of $ 250 million or less . · in october , the gabelli convertible and income securities fund completed a common share rights offering raising $ 23 million . · on october 30 , 2018 , we announced that theresa pope joined gamco 's institutional team as vice president , consultant relations . this role underscores gamco 's commitment to serving this important distribution channel and delivering superior risk adjusted returns and best in class service to our institutional clients . · on november 19 , 2018 , we announced that peter tcherepnine , ceo of loeb partners corporation , joined gamco as a senior vice president along with the private wealth clients that will be assigning their assets to gamco subject to the completion of documentation . · in november , the company announced that both the gabelli media mogul nextshares tm and the gabelli pet parents ' tm nextshares tm would be starting as no-load open-end mutual fund registered under the investment company act of 1940 with timing subject to the federal government shutdown . · in december , the gabelli global utility & income trust completed a common and preferred share rights offering raising $ 85 million . overview consolidated statements of income investment advisory and incentive fees , which are based on the amount and composition of aum in our funds , institutional and private wealth management accounts , represent our largest source of revenues . in addition to the general level and trends of the stock market , growth in revenues depends on good investment performance , which influences the value of existing aum as well as contributes to higher investment and lower redemption rates and facilitates the ability to attract additional investors while maintaining current fee levels . story_separator_special_tag 30 story_separator_special_tag font-family : 'times new roman ' , times , serif ; font-style : italic ; '' > distribution fees and other income decreased $ 5.0 million , or 11.4 % , to $ 38.8 million in 2018 from $ 43.8 million in 2017 primarily from lower average open-end equity aum . lower distribution fees of $ 35.1 million in 2018 versus $ 39.7 million for the prior year and $ 0.6 million less fees from the sale of load shares of mutual funds offset slightly by $ 0.2 million in increased other revenue . expenses compensation : total compensation costs , which are largely variable in nature , decreased $ 43.4 million , or 34.6 % , to $ 82.1 million in 2018 from $ 125.5 million in 2017. variable compensation costs , principally portfolio manager and relationship manager fees , decreased $ 48.6 million to $ 48.8 million in 2018 from $ 97.4 million in 2017 and decreased as a percent of revenues to 14.3 % in 2018 from 27.0 % in 2017. the main driver of this decrease was the $ 46.6 million of compensation that was waived by the ceo . on february 23 , 2018 , the company announced that the ceo would be waiving all of his compensation that he otherwise would have been entitled to for the period from march 1 , 2018 to december 31 , 2018. additionally , the accounting for the vesting of the deferred cash compensation agreements ( “ dccas ” ) reduced 2018 compensation by $ 3.6 million . compensation expense without the impact of the ceo compensation waiver and the dccas , was $ 132.3 million in 2018 as compared to $ 133.1 million in 2017. the dccas granted to the ceo are required to be amortized over their respective vesting periods . the 2016 dcca is being amortized over four years , the first half 2017 dcca was amortized over eighteen months , and the fourth quarter 2017 dcca is being amortized over eighteen months . in the third quarter 2017 , there was no dcca . in 2016 , the full amount of the compensation was deferred , and expense was recorded for the 25 % vesting in that year . in 2017 , an additional 25 % of the deferred compensation from 2016 was recorded as well as 67 % of the first half 2017 dcca and 17 % of the fourth quarter 2017 dcca . in 2018 , an additional 25 % of the deferred compensation from 2016 was recorded as well as 33 % of the first half 2017 dcca and 66 % of the fourth quarter 2017 dcca . the effect of the dccas and current non deferred compensation being recorded resulted in a $ 4.1 million decrease in compensation in 2018 compared to 2017. variable compensation is also driven by revenue levels which decreased in 2018 from 2017. fixed compensation costs increased slightly to $ 33.4 million in 2018 from $ 28.1 million in 2017. stock based compensation : stock based compensation was $ 1.6 million in 2018 , a decrease of $ 7.1 million , as compared to $ 8.7 million in 2017. the decrease primarily results from the acceleration of all but 19,400 rsas during 2017 for an additional expense of $ 6.8 million that would have been recognized in future years . management fee : in 2018 , management fee expense decreased to $ 9.0 million versus $ 13.7 million in 2017. management fee expense is incentive-based and entirely variable in the amount of 10 % of the aggregate pre-tax profits which is paid to mr. gabelli ( or his designee ) in accordance with his employment agreement . during 2018 , the ceo compensation waiver reduced management fee expense by $ 9.9 million while the amortization of the dccas increased it by $ 7.2 million . management fee expense for 2018 without the impact of the ceo compensation waiver and amortization of the dccas was $ 11.7 million . distribution costs : distribution costs , which include marketing , promotion and distribution costs decreased $ 5.2 million , or 11.7 % , to $ 39.2 million in 2018 from $ 44.4 million in 2017 , driven by a decrease in average open-end equity mutual funds aum of 6.6 % . other operating expenses : our other operating expenses were $ 22.7 million in 2018 compared to $ 23.2 million in 2017 , a decrease of $ 0.5 million or 2.2 % . lower research service fee of $ 2.5 million was slightly offset by an increase to the advisory fee paid to gcia for the sicav of $ 1.1 million , legal expense of $ 0.4 million and other operating expense of $ 0.5 million . operating income and margin operating income increased $ 41.8 million , or 28.8 % , to $ 186.8 million for 2018 versus $ 145.0 million in the prior year period . this increase was primarily due to the ceo compensation waiver of $ 56.5 million in 2018. operating margin was 54.7 % for the year ended december 31 , 2018 , versus 40.2 % in the prior year period . the increase in operating margin was due primarily to lower variable compensation costs and management fee expense related to the ceo compensation waiver in 2018. operating income before management fee was $ 195.8 million for the year ended of 2018 , versus $ 158.7 million in the prior year . operating margin before management fee was 57.3 % in the 2018 period versus 44.0 % in the 2017 period . the reconciliation of operating income before management fee and operating margin before management fee , both of which are non-gaap measures to their respective gaap measures , is provided at the end of this section .
| assets under management highlights we reported assets under management as follows ( dollars in millions ) : replace_table_token_7_th ( a ) compound annual growth rate . ( b ) adjusted to include assets of $ 135 million , $ 141 million , and $ 270 million at december 31 , 2014 , 2015 , and 2016 , respectively . our net cash inflows or outflows by product line were as follows ( in millions ) : replace_table_token_8_th ( a ) our net cash inflows or outflows for closed-end equity funds includes distributions , net of reinvestments , to fund holders of $ 522 million , $ 483 million , $ 500 million , $ 461 million , and $ 479 million in 2018 , 2017 , 2016 , 2015 , and 2014 , respectively . ( b ) adjusted to include inflows or outflows of $ 125 million , $ 10 million , and $ 42 million in 2016 , 2015 , and 2014 , respectively . replace_table_token_9_th 31 our net appreciation and depreciation by product line were as follows ( in millions ) : replace_table_token_10_th ( a ) adjusted to include appreciation and depreciation of $ 4 million , ( $ 4 ) million , and ( $ 3 ) million in 2016 , 2015 , and 2014 , respectively . aum at december 31 , 2018 were $ 34.4 billion , a decrease of 20.2 % from aum of $ 43.1 billion at december 31 , 2017. equity aum were $ 32.1 billion on december 31 , 2018 , 22.1 % below the $ 41.2 billion on december 31 , 2017. we earn incentive fees for certain institutional client assets , assets attributable to certain preferred issues for our closed-end funds , our gdl fund ( nyse : gdl ) , the gabelli merger plus + trust plc ( lse : gmp ) , and the gamco merger arbitrage fund .
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basis of presentation we use a 52- or 53-week fiscal year ending on the last wednesday of each calendar year . fiscal 2012 , 2013 , and 2014 ended on december 26 , 2012 , december 25 , 2013 , and december 31 , 2014 , respectively . in a 52-week fiscal year , each quarter includes 13 weeks of operations . in a 53-week fiscal year , the first , second , and third quarters each include 13 weeks of operations , and the fourth quarter includes 14 weeks of operations . approximately every six or seven years a 53-week fiscal year occurs . fiscal 2012 and 2013 were 52-week fiscal years . fiscal 2014 was a 53-week fiscal year . 53-week years may cause revenues , expenses , and other results of operations to be higher due to the additional week of operations . fiscal years are identified in this report according to the calendar years in which they ended . for example , references to fiscal 2014 refer to the fiscal year ended december 31 , 2014. overview el pollo loco is a differentiated and growing restaurant concept that specializes in fire-grilling citrus-marinated chicken in front of our customers , operating in the lsr segment . we believe that we offer the quality of food and dining experience typical of fast casual restaurants while providing the speed , convenience , and value typical of traditional qsrs , a combination that we call qsr+ and that provides a value-oriented fast casual dining experience . our distinctive menu features our signature productcitrus-marinated fire-grilled chickenand a variety of mexican-inspired entrees that we create from our chicken . we offer our customers healthier alternatives to traditional food on the go , served by our engaging team members in a colorful , bright , and contemporary restaurant environment . we serve individual and family-sized chicken meals , a variety of mexican-inspired entrees , sides , and , throughout the year , on a limited-time basis , alternative proteins like shrimp , carnitas , and beef . our entrees include favorites such as our poblano avocado burrito , under 500 calorie mango grilled tostada , ultimate pollo bowl , baja shrimp tacos , and chicken , bacon & guacamole stuffed quesadilla . our freshly-prepared salsas and dressings are prepared daily , allowing our customers to create their favorite flavor profiles to enhance their culinary experience . our distinctive menu with healthier alternatives appeals to consumers across a wide variety of socio-economic backgrounds and drives our balanced day-part mix . growth strategies and outlook we plan to continue to expand our business , drive restaurant sales growth , and enhance our competitive positioning , by executing on the following strategies : expand our restaurant base ; increase our comparable restaurant sales ; and enhance operations and leverage our infrastructure . as of december 31 , 2014 , we had 415 locations in five states . in fiscal 2013 , we opened two new company-operated and five new franchised restaurants . in fiscal 2014 , we opened eleven new company-operated and five new franchised restaurants across arizona , california , nevada , and texas . over the long term , we plan to grow the number of el pollo loco restaurants by 8 % to 10 % annually . to increase comparable restaurant sales , we plan to 40 increase customer frequency , attract new customers , and improve per-person spend . we believe that we are well-positioned for future growth , with a developed corporate infrastructure capable of supporting a future restaurant base that is greater than our existing one . additionally , we believe that we have an opportunity to optimize costs and enhance our profitability as we benefit from economies of scale . these growth rates are not guaranteed . key performance indicators to evaluate the performance of our business , we utilize a variety of financial and performance measures . these key measures include company-operated restaurant revenue , comparable restaurant sales , company-operated average unit volumes , restaurant contribution , restaurant contribution margin , new restaurant openings , ebitda , and adjusted ebitda . in fiscal 2014 , our restaurants generated company-operated restaurant revenue of $ 322.5 million and system-wide sales of $ 723.2 million , and system comparable sales increased 7.0 % , consisting of company-operated restaurant comparable sales growth of 5.8 % and franchised comparable sales growth of 8.0 % . the company-operated comparable sales increase consisted of 2.5 % transaction growth and 3.3 % check growth . in fiscal 2014 , for company-operated restaurants , our annual auv was $ 1.9 million , restaurant contribution margin was 21.9 % , and adjusted ebitda was $ 62.9 million . company-operated restaurant revenue company-operated restaurant revenue consists of sales of food and beverages in company-operated restaurants net of promotional allowances , employee meals , and other discounts . company-operated restaurant revenue in any period is directly influenced by the number of operating weeks in such period , the number of open restaurants , and comparable restaurant sales . seasonal factors and the timing of holidays cause our revenue to fluctuate from quarter to quarter . our revenue per restaurant is typically lower in the first and fourth quarters due to reduced january and december traffic and higher in the second and third quarters . as a result of seasonality , our quarterly and annual results of operations and key performance indicators such as company restaurant revenue and comparable restaurant sales may fluctuate . comparable restaurant sales we closely monitor company , franchise , and total system comparable restaurant sales . comparable restaurant sales reflect the change in year-over-year sales for the comparable company , franchise , and total system restaurant base . we define our comparable restaurant base to include those restaurants open for 15 months or longer . as of december 31 , 2014 , december 25 , 2013 , and december 26 , 2012 , there were 160 , 165 , and 165 restaurants , respectively , in our comparable company-operated restaurant base . story_separator_special_tag ( vii ) other companies in our industry may calculate these measures differently than we do , limiting their usefulness as comparative measures . we compensate for these limitations by providing specific information regarding the gaap amounts excluded from such non-gaap financial measures . we further compensate for the limitations in our use of non-gaap financial measures by presenting comparable gaap measures more prominently . we believe that ebitda and adjusted ebitda facilitate operating performance comparisons from period to period by isolating the effects of some items that vary from period to period without any correlation to core operating performance or that vary widely among similar companies . these potential differences may be caused by variations in capital structures ( affecting interest expense ) , tax positions ( such as the impact on periods or companies of changes in effective tax rates or net operating losses ) and the age and book depreciation of facilities and equipment ( affecting relative depreciation expense ) . we also present ebitda and adjusted ebitda because ( i ) we believe that these measures are frequently used by securities analysts , investors and other interested parties to evaluate companies in our industry , ( ii ) we believe that investors will find these measures useful in assessing our ability to service or incur indebtedness , and ( iii ) we use ebitda and adjusted ebitda internally as benchmarks to compare our performance to that of our competitors . the following table sets forth reconciliations of ebitda and adjusted ebitda to our net income ( loss ) : replace_table_token_7_th ( a ) includes non-cash , stock-based compensation . ( b ) includes management fees and other out-of-pocket costs paid to affiliates of trimaran and freeman spogli up through our ipo . this agreement was cancelled in conjunction with the ipo . 43 ( c ) loss on disposal of assets includes the loss on disposal of assets related to retirements and replacement or write-off of leasehold improvements or equipment . ( d ) includes costs related to impairment of long-lived assets and closing restaurants . in 2013 , we reversed a portion of the close-store reserves established in 2012 , due to our subleasing , in 2013 , of one of the reserved restaurants at a lower net cost than originally estimated . ( e ) includes costs associated with our debt refinancing transactions in december 2014 and october 2013 and the repayment of our 2013 second lien term loan with a portion of the proceeds of our ipo in july 2014 . ( f ) on september 24 , 2014 , we completed an agreement to sell six company-operated restaurants in the greater san antonio area . this sale resulted in cash proceeds of $ 5.4 million , a decrement to goodwill of $ 650,000 and a net gain of $ 2.7 million . these six restaurants will now be franchised . ( g ) includes costs related to our secondary offering of stock on november 25 , 2014 . ( h ) on july 30 , 2014 , we entered into the tra . this agreement calls for us to pay to our pre-ipo stockholders 85 % of the savings in cash that we realize in our taxes as a result of utilizing our net operating losses and other tax attributes attributable to preceding periods . ( i ) consists of the cost to obtain the tax credits recorded in the third and fourth quarters of 2014 . $ 6.7 million of tax benefits were recorded to tax provision in the third and fourth quarters . ( j ) pre-opening costs are a component of general and administrative expenses , and consist of costs directly associated with the opening of new restaurants and incurred prior to opening , including management labor costs , staff labor costs during training , food and supplies used during training , marketing costs , and other related pre-opening costs . these are generally incurred over the three to five months prior to opening . pre-opening costs also include occupancy costs incurred between the date of possession and the opening date for a restaurant . highlights and trends comparable restaurant sales in fiscal 2014 , 2013 , and 2012 , comparable restaurant sales system-wide increased 7.0 % , 7.0 % , and 9.9 % , respectively . comparable restaurant sales growth reflects the change in year-over-year sales for the comparable restaurant base . a restaurant enters our comparable restaurant base the first full week after its 15-month anniversary . system-wide comparable restaurant sales include restaurant sales at all comparable company-operated restaurants and at all comparable franchised restaurants , as reported by franchisees . comparable restaurant sales at company-operated restaurants increased 5.8 % in fiscal 2014 , 5.3 % in fiscal 2013 , and 8.6 % in fiscal 2012. in fiscal 2014 , the increase in company-operated comparable restaurant sales was primarily the result of an increase in average check size of 3.3 % and an increase in traffic of 2.5 % . in fiscal 2013 , the increase in company-operated comparable restaurant sales was driven by an increase in average check size of 2.7 % and by traffic growth of 2.6 % . in fiscal 2012 , the increases in average check size and in transactions growth were 6.0 % and 2.6 % , respectively , for company-operated restaurants in our comparable base . in fiscal 2014 , 2013 , and 2012 , comparable restaurant sales at franchised restaurants increased 8.0 % , 8.8 % , and 11.0 % , respectively . restaurant development since 2011 , we have focused on repositioning our brand , improving operational efficiency and brand awareness , strengthening our management team , and refinancing our indebtedness in preparation for future growth . new restaurant development is expected to be a key driver of our growth strategy . in fiscal 2014 , we opened eleven company-operated restaurants , and our franchisees opened five new restaurants . from time to time , we and our 44 franchisees close restaurants .
| results of operations fiscal year 2014 compared to fiscal year 2013 our operating results for the fiscal years ended december 31 , 2014 , and december 25 , 2013 , in absolute terms and expressed as a percentage of total revenue , with the exception of cost of operations and company restaurant expenses , which are expressed as a percentage of company-operated revenue , are compared below : replace_table_token_10_th company-operated restaurant revenue in fiscal 2014 , company-operated restaurant revenue increased $ 28.2 million , or 9.6 % , due primarily to an increase in company-operated comparable restaurant sales of $ 16.8 million , or 5.8 % . the growth in company-operated comparable restaurant sales was due primarily to an increase in average check size of 3.3 % and an increase in traffic of 2.5 % compared to the prior year . company-operated restaurant revenue was also favorably impacted by $ 8.8 million of additional sales from new restaurants and $ 4.6 million for the additional week of operations in a 53-week fiscal year , and was partially offset by $ 2.0 million of lost sales from closed restaurants which operated for the full year in fiscal 2013 . 52 franchise revenue in fiscal 2014 , franchise revenue increased $ 1.9 million , or 9.5 % . this increase was due primarily to increases in franchised comparable restaurant sales of 8.0 % , $ 0.3 million related to the buyout of a sublease agreement in which the franchisee entered into a direct lease with the landlord of the property , $ 0.1 million for the additional week of franchise revenue recognized in a 53-week fiscal year , and $ 0.1 million in higher franchise agreement renewal fees .
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these risks and uncertainties include international , national , and local general economic and market conditions ; our ability to sustain , manage , or forecast growth ; our ability to successfully make and integrate acquisitions ; new product development and introduction ; existing government regulations and changes in , or the failure to comply with , government regulations ; adverse publicity ; competition ; the loss of significant customers or suppliers ; fluctuations and difficulty in forecasting operating results ; change in business strategy or development plans ; business disruptions ; the ability to attract and retain qualified personnel ; the ability to protect technology ; the risk of foreign currency exchange rate ; and other risks that might be detailed from time to time in our filings with the securities and exchange commission . although the forward-looking statements in this report reflect the good faith judgment of our management , such statements can only be based on facts and factors currently known by them . consequently , and because forward-looking statements are inherently subject to risks and uncertainties , the actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking statements . you are urged to carefully review and consider the various disclosures made by us in this report as we attempt to advise interested parties of the risks and factors that may affect our business , financial condition , and results of operations and prospects . the independent registered public accounting firm 's report on the company 's financial statements as of august 31 , 2019 , and for the year in the period then ended , includes a “ going concern ” explanatory paragraph that describes substantial doubt about the company 's ability to continue as a going concern overview we are primarily a staffing enterprise , providing employment administration services ( “ eas ” ) solutions for businesses and workers in an environment in which shift or other part-time/temporary jobs , commonly called “ gigs , ” are performed . our services for businesses include payroll processing , tax and hr compliance , and employee benefits along with employee screening , scheduling and delivery dispatch . our services for workers include employment facilitation and gig “ matching. ” the trend toward a gig economy has begun . a study by ardent partners confirms that the trend is significant , noting that “ nearly 38 % of the world 's total workforce is now considered ‘ non-employee , ' which includes contingent/contract workers , temporary staff , gig workers , freelancers , professional services , and independent contractors. ” ardent partners ltd. “ the state of contingent workforce management 2016-2017 : adapting to a new world of work. ” october 2016. in the gig economy , businesses such as those in our current target market in the restaurant and hospitality industries often contract with independent contractor workers to perform less than full-time gig engagements , primarily in the form of shift work . we are endeavoring to participate in the rapidly growing gig economy through an employment-related service offering . as the world continues to digitize and consumer expectations shift , restaurants face new challenges . restaurants instead must familiarize themselves with the evolving digital economy and provide unique experiences , especially if they wish to attract the highly sought-after millennial demographic . along with customer retention , one major problem many are facing is increased employee turnover , resulting in a direct effect on the bottom line . historically , turnover in the restaurant industry has been notoriously high in comparison to other segments . continually staffing and training new employees not only eats up time , but it also costs more money for our restaurant operators . managing turnover is a long-term operational success for our client operators . the problem : employment law compliance requirements present a multi-obstacle ridden employment related compliance landscape for our target market of businesses that rely significantly on part-time and temporary workers . challenges facing such businesses include the need to secure applicable workers ' compensation insurance coverage , to effect employment related tax withholdings and filings , and to navigate laws related to hiring and release of employees , including discrimination ( race , color , national origin , sex , age , religion , disability , pregnancy and sexual orientation ) , sexual harassment , sick pay and time off , hours of work , minimum wage and overtime , gender pay differentials , immigration , safety , child labor , military leave , garnishment and other wage imposition processing , family and medical leave , cobra , and unemployment claims . 33 employment in the gig economy involves compliance with employment-related regulations imposed by federal , state and local governments , including requirements associated with workers ' compensation insurance , and other traditional employment compliance requirements , including the employer mandate provisions of the patient protection and affordable care act ( “ aca ” ) . the compliance challenges are often complicated by the actions of many employers to reduce workers ' hours as a means to avoid characterizing employees as “ full-time. ” congress is considering amendments to or replacement of the aca . as of the date of this filing , the aca has not been formally amended or repealed ; however , the tax cuts and jobs act of 2017 effectively eliminates the individual mandate provisions of the aca , beginning in 2019. employers still face regulatory issues and overhead costs , including those associated with the employer mandate provisions of the aca for which we believe our services are a cost-effective solution . gig/shift workers , whom we also call “ shifters , ” face significant difficulty in finding other jobs/gigs to replace hours lost when their employers reduce their hours and make them less than full-time employees or otherwise to fill workweek employment voids . story_separator_special_tag 35 software development update we believe that the hris platform and the related mobile application functionality that we are development will be key differentiators and drivers of our low-cost customer acquisition strategy and we have invested heavily into our hris platform over the past three years . the heart of shiftpixy 's employment service solutions is a technology platform , including a mobile app , through which shiftpixy employees ( and in the future , shifters not currently in our ecosystem ) will be able to find available shifts at shiftpixy client locations , solving a problem of finding available shifts for both the shifters looking for additional shifts when they want to work and businesses looking to fill open shifts . a key element of our software development involves using shiftpixy 's blockchain ledger to process and record our critical p2p ( “ peer-to-peer ” ) connections . while not necessarily a new development , we note that we use blockchain technology in an effort to keep our data secure . any data considered to be a human capital validation point or part of the hiring and onboarding process is being utilized and recorded in shiftpixy 's blockchain ledger . the employee i-9 verification process , for example—one of the most stringent , rigorous , and penalty-laden compliance procedures is positively impacted by blockchain utilization of biometric authentication and automatic verification of i-9 data , removing human error in the process of screening for fraudulent information . verification of that data on the blockchain allows both employers and auditing agencies to confidently validate additional criteria such as employment dates , and a candidate 's background ( i.e . education , references , certifications , etc . ) , and share the verification status directly on multiple distributed sources within the blockchain , further underscoring the trust and accuracy of a candidate 's information and corporate compliance . future implementation of blockchain technology within shiftpixy 's technological ecosystem is anticipated to include the extended applications for payroll and real-time payments , and utilizing smart contracts for employment contracts , which facilitate the performance of credible , trackable , and irreversible transactions without third parties . for purposes of clarification , we note that shiftpixy has never , does not now and will never use its blockchain technology in any form of cryptocurrency or cryptocurrency related application . the mobile app is one of the software components of what we call the mobile platform , and together with the shiftpixy “ command hub ” and the client portal , is being developed , tested and released in stages . we have released and are using the multilingual onboarding feature of our software , which enables us to capture all application process related data regarding our assigned employees and to introduce employees to and integrate them into the shiftpixy ecosystem . this multilingual feature will allow us to move faster into outside markets and will reduce the time and cost to bring new worksite employees into our hris ecosystem . once fully implemented , our new employees will no longer have to fill out the burdensome pile of required new employee paperwork . by leveraging artificial intelligence capabilities , new hires are guided by a conversation with a “ pixy ” chatbot that asks the necessary questions and generates the required employment documents in a highly personal and engaging way . following completion of the questions , applicable onboarding paperwork is prepopulated with the data and prepared for the employee 's signature to be affixed digitally via the app as well . we are currently in the early implementation of several additional key pieces of functionality . first is the scheduling component of our software , which is designed to enable each client worksite to schedule workers and to identify shift gaps that need to be filled . we leverage artificial intelligence to maintain schedules and fulfillment , using an active methodology to engage and move people to action . second is to implement our shift intermediation functionality , which is designed to enable our shift workers to receive information regarding and to accept available shift work opportunities . finally , we are currently starting to implement the “ delivery features ” of our mobile platform during the fourth calendar quarter of 2019 on a test basis . our technology and approach to human capital management allows the company a unique window into the daily demands of “ quick service restaurants ” ( “ qsr ” ) operators and the ability to extend our technology and engagement to enable this unique self-delivery proposition . shiftpixy 's new driver management layer for operators in the shiftpixy ecosystem will now allow clients to use their own team members to deliver a brand intended customer experience and retain customer data as well as profit currently taken by third party delivery platforms . shiftpixy has taken the compliance , management and insurance issues related to the support of a delivery option and created a turnkey self-delivery opportunity . this will allow our clients to enjoy the income growth from delivery and preserve their customer experience and their brand . the first phase of this component of our platform was initial test onboarding of potential drivers , which was completed by the end of our third calendar quarter of 2019. we are currently implementing features that enhance the capability of our mobile application to track and manage the delivery process . the enhanced features will include “ micro metering ” of essential commercial insurance coverages required by our operator clients-namely workers ' compensation and auto coverages on a delivery-by-delivery basis . 36 from inception of the project in 2017 through august 31 , 2019 , we have spent approximately $ 15.5 million consisting of outsourced research and development , it related expenses , development contractors and employee costs and marketing spending consisting of advertising , trade shows , and marketing personnel costs .
| results of operations year ended august 31 , 2019 compared to year ended august 31 , 2018 the following table summarizes our consolidated results of operations : replace_table_token_5_th 40 we report our revenues as gross billings , net of related direct labor costs for our eas clients and revenues without reduction of labor costs for staffing services clients . for the years ended august 31 , 2019 and 2018 , revenues associated with staffing services were insignificant . replace_table_token_6_th 41 our net revenue excludes the payroll cost component of gross billings . with respect to employer payroll taxes , employee benefit programs , workers ' compensation insurance , we believe that we are the primary obligor , have latitude in establishing price , selecting suppliers , and determining the service specifications and , as such , the billings for those components are included as revenue . revenues are recognized ratably over the payroll period as worksite employees perform their service at the client worksite . net revenue . our net revenue increase of $ 18.4 million or 52.7 % increase from $ 35 million in 2018 to $ 53.4 million in 2019 is primarily driven by the increase in business clients and the workplace employees associated with those clients . active worksite employees increased by 4,600 or 54.1 % from 8,500 at the end of 2018 to 13,100 at the end of 2019. cost of revenue . our cost of revenue includes the costs of employer side taxes and workers ' compensation insurance coverage .
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goodwill and intangible assets goodwill is recorded as the difference , if any , between the aggregate consideration paid for an acquisition and the fair value of the acquired net tangible and intangible assets . intangible assets represent purchased intangible assets including developed technology , in-process research and development , or ipr & d , technologies acquired or licensed from other companies , customer relationships , backlog and tradenames . purchased intangible assets with definitive lives are capitalized and amortized over their estimated useful lives . technologies acquired or licensed from other companies , customer relationships , backlog and tradenames are capitalized and amortized over story_separator_special_tag forward-looking statements 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 radio frequency , or rf , and mixed-signal integrated circuits for cable and satellite broadband communications and the connected home , and wired and wireless infrastructure markets . our high performance 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 receive and demodulate broadband signals , and physical medium devices that provide a constant current source , current-to-voltage regulation , and data alignment and retiming functionality in optical interconnect applications . through our acquisition of entropic communications , inc. , or entropic , in april of 2015 , we provide semiconductor solutions for the connected home , ranging from moca® ( multimedia over coax alliance ) solutions that transform how traditional hdtv broadcast and internet protocol , or ip , based streaming video content is seamlessly , reliably , and securely delivered , processed , and distributed into and throughout the home . through our acquisition of the microsemi wireless infrastructure access business in april of 2016 , we provide integrated circuits for wireless infrastructure markets , including wideband rf transceivers and synthesizers for 3g , 4g , and future 5g cellular base station and remote radio head ( rrh ) unit platforms . through our recently closed acquisition of the broadcom wireless infrastructure backhaul business in july of 2016 , we also provide modem and rf transceiver solutions into cellular infrastructure backhaul applications . our net revenue has grown from approximately $ 0.6 million in fiscal 2006 to $ 387.8 million in fiscal 2016 . in fiscal 2016 , our net revenue was derived primarily from sales of rf receivers and rf receiver systems-on-chip and moca connectivity solutions into operator voice and data modems and gateways and global analog and digital rf receiver products for analog and digital television applications . these analog and digital television applications include direct broadcast satellite outdoor unit , or dbs odu , solutions , which consist of our translation switch , or bts , and channel stacking switch , or css , products . these products simplify the installation required to support simultaneous reception of multiple channels from multiple satellites over a single cable . 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 , data modems , and gateways for the broadband service provider and pay-tv industries , manufacturers selling into the cable infrastructure market , and manufacturers of optical module and telecommunications infrastructure equipment . products shipped to asia accounted for 93 % , 91 % and 94 % of net revenue during the years ended december 31 , 2016 , 2015 and 2014 , respectively . although a large percentage of our products is shipped to asia , we believe that a significant number of the systems designed by these customers and incorporating our semiconductor products are then sold outside asia . for example , we believe revenue generated from sales of our digital terrestrial set-top box products during the years ended december 31 , 2016 , 2015 and 2014 related principally to sales to asian set-top box manufacturers delivering products into europe , middle east , and africa , or emea markets . similarly , revenue generated from sales of our cable modem products during the years ended december 31 , 2016 , 2015 and 2014 related principally to sales to asian odms and contract manufacturers delivering products into european and north american markets . to date , most of our sales have been denominated in united states dollars . there is a growing portion of our business , related specifically to our high-speed optical interconnect products , that are shipped to , and are ultimately consumed in asian markets , with the majority of these products being purchased by end customers in china . 43 a significant portion of our net revenue has historically been generated by a limited number of customers . in the year ended december 31 , 2016 , two of our customers , arris and technicolor ( which includes cisco 's former connected devices business ) , accounted for 37 % of our net revenue , and our ten largest customers collectively accounted for 74 % of our net revenue . sales to arris as a percentage of revenue include sales to pace , which was acquired by arris in january 2016 , for the year ended december 31 , 2016 . story_separator_special_tag the liabilities assumed include , among other things , product warranty obligations , liabilities for technologies acquired , and a payable to broadcom as reimbursement of costs associated with the 44 termination of those employees of the wireless infrastructure backhaul business who were not hired by maxlinear upon the closing of the acquisition . for more information , please refer to note 3 of our consolidated financial statements . the acquired assets and liabilities , together with the rehired employees for each of these acquisitions , represent businesses as defined in asc 805 , business combinations . we have integrated the acquired assets and rehired employees into our existing business . on march 29 , 2017 , each share of our then outstanding class a common stock and class b common stock will convert automatically into a single class of common stock pursuant to the terms of our amended and restated certificate of incorporation . holders of our class a common stock are entitled to one vote per share and holders of class b common stock are entitled to ten votes per share with respect to transactions that would result in a change of control of the company or that relate to our equity incentive plans . in addition , holders of class b common stock have the exclusive right to elect two members of our board of directors , each referred to as a class b director . following the conversion , each share of common stock will be entitled to one vote per share and otherwise have the same designations , rights , powers and preferences as the class a common stock prior to the conversion . in addition , holders of the common stock will vote as a single class of stock on any matter that is submitted to a vote of stockholders . critical accounting policies and estimates management 's discussion and analysis of our financial condition and results of operations is based upon our financial statements which are prepared in accordance with accounting principles that are generally accepted in the united states . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities , related disclosure of contingent assets and liabilities at the date of the financial statements , and the reported amounts of revenues and expenses during the reporting period . we continually evaluate our estimates and judgments , the most critical of which are those related to revenue recognition , allowance for doubtful accounts , inventory valuation , income taxes and stock-based compensation . we base our estimates and judgments on historical experience and other factors that we believe to be reasonable under the circumstances . materially different results can occur as circumstances change and additional information becomes known . we believe that the following accounting policies involve a greater degree of judgment and complexity than our other accounting policies . accordingly , these are the policies we believe are the most critical to understanding and evaluating our consolidated financial condition and results of operations . revenue recognition revenue is generated from sales of our integrated circuits . we recognize revenue when all of the following criteria are met : 1 ) there is persuasive evidence that an arrangement exists , 2 ) delivery of goods has occurred , 3 ) the sales price is fixed or determinable and 4 ) collectability is reasonably assured . title to product transfers to customers either when it is shipped to or received by the customer , based on the terms of the specific agreement with the customer . revenue is recorded based on the facts at the time of sale . transactions for which we can not reliably estimate the amount that will ultimately be collected at the time the product has shipped and title has transferred to the customer are deferred until the amount that is probable of collection can be determined . items that are considered when determining the amounts that will be ultimately collected are a customer 's overall creditworthiness and payment history , customer rights to return unsold product , customer rights to price protection , customer payment terms conditioned on sale or use of product by the customer , or extended payment terms granted to a customer . a portion of our revenues are generated from sales made through distributors under agreements allowing for pricing credits and or stock rotation rights of return . revenues from sales through our distributors accounted for 19 % , 13 % and 28 % of net revenue during the years ended december 31 , 2016 , 2015 and 2014 , respectively . pricing credits to our distributors may result from our price protection and unit rebate provisions , among other factors . these pricing credits and or stock rotation rights prevent us from being able to reliably estimate the final sales price of the inventory sold and the amount of inventory that could be returned pursuant to these agreements . as a result , for sales through distributors , we have determined that it does not meet all of the required revenue recognition criteria at the time we deliver our products to distributors as the final sales price is not fixed or determinable . for these distributor transactions , revenue is not recognized until product is shipped to the end customer and the amount that will ultimately be collected is fixed or determinable . upon shipment of product to these distributors , title to the inventory transfers to the distributor and the distributor is invoiced , generally with 30 to 60 day terms .
| 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 radio-frequency and mixed-signal integrated circuits for cable and satellite broadband communications and the connected home , and wired and wireless infrastructure markets . a significant portion of our end customers purchases 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 . 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 . 50 impairment losses . impairment losses are attributed to the impairment charges to intangible assets . restructuring charges .
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revolving loans under the credit agreement bear interest , at the company 's option , at either ( 1 ) the abr , which is the greatest of the prime rate , the federal funds effective rate plus 0.50 % or libor plus 1.00 % , plus in each case an applicable margin ranging from story_separator_special_tag financial condition and results of operations the following discussions should be read in conjunction with the other sections of this report , including the financial statements and related notes contained in item 8 of this annual report on 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 management 's expectations . factors that could cause such differences are discussed in forward-looking statements and risk factors. we assume no obligation to update any of these forward-looking statements . overview introduction we are a leading specialty contractor serving the electrical infrastructure market . we manage and report our operations through two industry segments : t & d and c & i . we have operated in the t & d industry since 1891. we are one of the largest contractors servicing the t & d sector of the electric utility industry in the united states , and our customers include many of the leading companies in the industry . we have provided c & i electrical contracting services to facility owners and general contractors in the western united states since 1912. on april 13 , 2015 , we acquired substantially all the assets of esb , which enhanced our t & d presence in the northeast u.s. and expanded our c & i presence outside of our existing markets . on november 24 , 2015 we acquired all of the common stock of hcl , which added to our t & d capacity , predominantly in the western united states . in the second quarter of 2015 we were awarded our first project in canada and have commenced work on this project in manitoba as well as on several smaller projects in canada . 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 allow 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 complex projects . we had revenues , for the year ended december 31 , 2015 , of $ 1.062 billion compared to $ 944.0 million for the year ended december 31 , 2014. for the year ended december 31 , 2015 , our net income was $ 27.3 million compared to $ 36.5 million for the year ended december 31 , 2014. while benefiting from increased spending by our customers in 2015 , our project mix shifted away from large , multi-year transmission projects and included more shorter-duration projects . shorter duration jobs often negatively affect gross margin and net income due to fleet utilization issues , labor productivity and mobilization and demobilization costs . in addition , increased competition in many of our markets resulted in lower bid margins , causing lower gross margins on those projects . the year ended december 31 , 2014 benefited from unusually high gross margins that were primarily the result of favorable closeouts on several large , multi-year transmission projects , including several large claims or change orders . overview segments transmission and distribution segment . our t & d segment provides comprehensive solutions to customers in the electric utility industry and the renewable energy 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 . 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 . the demand for transmission construction and maintenance services increased over the past several years due to the modernization of the existing electric utility infrastructure and the need to integrate renewable generation into the electric power grid . 30 for the year ended december 31 , 2015 , our t & d revenues were $ 794.9 million or 74.9 % of our revenue , compared to $ 699.6 million or 74.1 % of our revenue for the year ended december 31 , 2014 and $ 722.4 million or 80.0 % of our revenue for the year ended december 31 , 2013. revenues from transmission projects represented 73.9 % , 77.8 % and 84.8 % of t & d segment revenue for the years ended december 31 , 2015 , 2014 and 2013 , respectively . our t & d segment also provides storm restoration services in response to hurricanes , ice or other storm related events , which typically account for less than 5 % of our annual revenues . in 2015 , 2014 and 2013 , we recognized revenues from storm restoration services of approximately $ 7.7 million , $ 13.3 million and $ 14.6 million , respectively , which represented approximately 0.7 % , 1.4 % and 1.6 % of our annual revenues , respectively . measured by revenues in our t & d segment , we provided 48.4 % , 53.1 % and 55.4 % of our t & d services under fixed-price contracts during the years ended december 31 , 2015 , 2014 and 2013 , respectively . we also provide many services to our customers under multi-year maintenance service agreements and other variable service agreements . commercial and industrial segment . story_separator_special_tag during the summer months , the demand for our t & d work may be affected by fewer available system outages during which we can perform electrical line service work due to peak electrical demands caused by warmer weather conditions . 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 . 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 in the last few years we benefited from increased activity and spending in the electrical transmission markets we serve . we continue to expect long-term growth in the transmission market , although the timing of large bids and subsequent construction is likely to be highly variable from year to year . we believe several multi-year transmission projects will be available for bid in the 2016 to 2017 timeframe . we also expect bidding activity in small- to medium-sized transmission and distribution projects to continue in 2016 in 2015 , we expanded our t & d presence organically through establishing new or additional operating locations in california , kansas , texas and canada ; and with the acquisitions of esb and hcl . we also started work on our first project in canada . in 2015 , we expanded our c & i presence into the northeast with the acquisition of esb , further increased our c & i business through organic growth in our existing markets and expanded geographically into oregon , minnesota and washington . we believe that legislative and regulatory actions , 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 . although competition remains strong , we see these trends as positive factors for us in the future . 32 our business is directly impacted by the level of spending on t & d infrastructure across the u.s. and canada and the level of commercial and industrial electrical construction activity in the markets we serve . the electric grid is aging and requires significant upgrades and maintenance to meet current and future demands for electricity . in addition , regulatory pressures and low energy prices may accelerate the shut-down of coal-fired generating plants , which could result in the need for line upgrades and new substations . over the past several years , many utilities have begun to implement plans to improve their transmission systems , improve reliability and reduce congestion . these utilities have started or planned new construction , line upgrades and maintenance projects on many 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 . we believe we will continue to see significant bidding activity on large transmission projects in 2016 and 2017. the timing of multi-year transmission project awards and substantial construction activity is difficult to predict due to regulatory requirements and right-of-way permits needed to commence construction . significant construction on any large , multi-year projects awarded in 2016 will not likely occur until 2017. bidding and construction activity for small to medium-size transmission projects and upgrades remains strong , and we expect this trend to continue in 2016 , primarily due to reliability and economic drivers . competition in the transmission market continues to make winning projects difficult and has increased pressure on contract margins . we continue to see opportunities in the canadian transmission market which we expect will extend over the next several years driven by load center delivery requirements , aging infrastructure , additional hydropower generation development and hydropower interconnection projects to serve canadian load and the import of hydro power to the u.s. in 2015 , our efforts to expand our service offerings within canada resulted in the award of a large switchyard related to the bipole iii initiative in manitoba , and we are evaluating several near- and long-term canadian projects and opportunities that we believe would fit our portfolio of work . legislative or regulatory actions may affect demand for the services provided by our t & d segment in the long term , particularly in connection with electric power infrastructure . federal energy regulatory commission ( ferc ) order no . 1000 promotes more efficient and cost-effective development of new transmission facilities , which we believe could have a long-term positive impact on electric transmission line development . we also anticipate increased infrastructure spending over the long term as a result of legislation requiring the electric power industry to meet national and local reliability standards for its transmission and distribution systems and incentives to the industry to invest in and improve maintenance on its systems . the u.s. environmental protection agency 's mercury and air toxics standards ( mats ) may force retirement of some coal-fired and oil-fired generating plants in the u.s. this compliance planning and implementation could result in increased spending by the affected utilities to strengthen their transmission infrastructure to alleviate congestion and deliver new and existing power sources to their regions . we believe that renewable resources in the u.s. will be a driver for large transmission project activity . 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 , are driving the development of renewable energy projects .
| 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_11_th transmission & distribution revenues for our t & d segment for the year ended december 31 , 2015 were $ 794.9 million compared to $ 699.6 million for the year ended december 31 , 2014 , an increase of $ 95.3 million or 13.6 % . while we benefited from increased spending by our customers , our project mix shifted away from large , multi-year transmission projects and included more shorter-duration projects . revenues from transmission projects represented 73.9 % and 77.8 % of t & d segment revenue for the years ended december 31 , 2015 and 2014 , respectively . additionally , for the year ended december 31 , 2015 , measured by revenue in our t & d segment , we provided 48.4 % of our t & d services under fixed-price contracts , as compared to 53.1 % for the year ended december 31 , 2014. operating income for our t & d segment for the year ended december 31 , 2015 was $ 63.1 million compared to $ 75.4 million for the year ended december 31 , 2014. operating income in 2014 benefited from large , multi-year transmission projects . the remaining year-over-year decline in operating income was primarily due to lower bid margins caused by increased competition in many of our markets and an increase 38 in the number of shorter duration projects ( which affects fleet utilization , labor productivity and mobilization and demobilization costs ) . additionally , some of our jobs underperformed in 2015 due to labor productivity below previous estimates , incremental costs associated with expansion into new geographic markets and severe weather conditions in some of our markets , partially offset by higher revenues .
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the nasdaq capital market listing standards story_separator_special_tag the following discussion of the company 's financial condition and results of operations should be read in conjunction with the company 's consolidated financial statements and notes to those statements included in this form 10-k. this discussion contains forward-looking statements that involve risks and uncertainties . please see the section entitled “ forward-looking statements and introduction ” in this form 10-k. story_separator_special_tag 10pt '' > our glass products include tempered glass , laminated glass , thermo-acoustic glass , curved glass , silk-screened glass , and digital print glass as well as mill finished , anodized , painted aluminum profiles and produces rods , tubes , bars and plates . window production lines are defined depending on the different types of windows : normal , impact resistant , hurricane-proof , safety , soundproof and thermal . we produce fixed body , sliding windows , projecting windows , guillotine windows , sliding doors and swinging doors . es produces facade products which include : floating facades , automatic doors , bathroom dividers and commercial display windows . we sell to over 1,000 customers using several sales teams based out of colombia and the united states to specifically target regional markets in south , central and north america . the united states accounted for 80 % , 76 % and 62 % of our combined revenues in 2018 , 2017 and 2016 , respectively , while colombia accounted for approximately 17 % , 20 % and 32 % , and panama accounted for approximately 1 % , 1 % and 3 % in those years , respectively . we sell our products through our main offices/sales teams based out of colombia and the united states . the colombia sales team is our largest sales group , which has deep contacts throughout the construction industry . the colombia sales team markets both our products as well as our installation services . in the united states , we sell out of subsidiaries established in florida , which have an expanding customer base and provide installation service in addition to our products . sales forces in panama are not via subsidiaries but under agreements with sales representatives . in 2017 we established two branches in bolivia and italy to expand geographical reach into south america , europe and the middle east . we have two types of sales operations : contract sales , which are the high-dollar , customer tailored projects , and standard form sales . standard form sales reflect low-value installations that are of short duration . we expect to benefit from growth in both of our largest markets , the united states and colombia . one indicator of the non-residential construction outlook , the architectural billing index , has generally pointed towards an improved construction outlook since late 2012. deutsche bank published a research report estimating that new residential housing starts in the united states will grow at an annual rate of 5 % in each of 2019 and 2020. we believe our united states business will grow with this increase in construction spending. in colombia , despite the slow-down in the overall economy , construction spending continues to experience growth , offsetting the impact of the weak commodity price environment . colombia 's gdp grew 2.7 % in as of the third quarter of 2018 , with residential and non-residential building construction outpacing that growth and expanding 4.1 % . according to emis research , the colombian construction industry is expected to grow at a compound annual rate of 9.2 % through 2021 . 39 as part of our strategies to grow our united states business and further vertically integrate our operations , we acquired esw and gm & p . esw has served as one of our key importers and distributors in the united states . esw is also a member of the american architectural manufacturers association , a technical information center for the architecture industry with some of the highest industry standards . we also consummated a purchase agreement with giovanni monti , the owner of 100 % of the outstanding shares of gm & p . gm & p is a consulting and glazing contracting company located in miami , florida . gm & p has over 15 years of experience in the design and installation of building enclosure systems such as curtain walls . gm & p also has a long-standing relationship with us , working alongside us on different projects across the united states by providing engineering and installation services . liquidity as of december 31 , 2018 and 2017 , we had cash and cash equivalents of approximately $ 33.0 million and $ 40.9 million , respectively . during the year ended december 31 , 2018 , the main sources of cash were cash available at the beginning of period and cash provided from financing activities , which generated $ 17.0 million , mostly from short term debt to finance the working capital required to support 18 % sales growth . a discussion of our cash flow from operations is included below in the sub-section headed “ cash flow from operations , investing and financing activities ” under the results of operations section of this management discussion and analysis . as of december 31 , 2018 , the company had $ 18.3 million of borrowings available under its bank facilities as most of the outstanding balances under such lines were fully repaid with the senior notes issued on january , 2017. capital resources we transform glass and aluminum into high specification architectural glass and custom-made aluminum profiles which require significant investments in state of the art technology . during the years ended december 31 , 2018 , 2017 and 2016 , we made investments primarily in building and construction , and machinery and equipment in the amounts of $ 13.6 million , $ 8.8 million and $ 42.5 million , respectively . story_separator_special_tag additionally , the increase was also related to the united states aluminum and steel tariff implemented in 2018 , which resulted in an expense of $ 1.5 million related to the importation of aluminum product manufactured in colombia ( fully offset by an equal amount of revenues related to a pass-through on to clients ) , as well as an increase in sales commissions of $ 0.9 million , partially offset by a reduction in accounts receivable provisions of $ 2.8 million , from $ 3.1 million in the year ended december 31 , 2017 to $ 0.4 million in the year ended december 31 , 2018. general and administrative expenses increased $ 2.6 million , or 8 % , from $ 31.0 million in the year ended december 31 , 2017 to $ 33.6 million in the year ended december 31 , 2018. the increase was related to personnel expenses , which increased $ 1.7 million , and professional fees for engineering consulting and accounting , which increased $ 0.5 million , or 12 % . additionally , we recorded $ 0.5 million higher depreciation and amortization expense related to the intangible assets acquired through the acquisition of gm & p in march of 2017. these increases were partially offset by a decrease in bank charges . interest expense interest expense increased $ 1.3 million , or 7 % , from $ 19.9 million in the year ended december 31 , 2017 to $ 21.2 million in the year ended december 31 , 2018. interest expense includes amortization of deferred cost of financing resulting primarily from a $ 210 million senior note issued during the first quarter of 2017 , which increased $ 0.3 million , or 22 % , from $ 1.2 million in the year ended december 31 , 2017 to $ 1.5 million in the year ended december 31 , 2018 as a result of the debt refinancing . the additional $ 1.0 million increase in interest expense is related to rising interest rates in the united states during the year and a nominal increase in our gross debt as of december 31 , 2018 relative to december 31 , 2017. non-operating income and foreign currency transaction gains and losses non-operating income decreased $ 0.3 million , or 9 % , from $ 3.2 million in the year ended december 31 , 2017 to $ 2.9 million in the year ended december 31 , 2018. non-operating income is primarily comprised of interest income , commissions and recoveries . during the years ended december 31 , 2018 and 2017 , the company recorded a foreign currency transaction loss of $ 14.5 million and $ 3.0 million , respectively , related to the company 's colombian subsidiaries es and tg , which have the colombian peso as functional currency but a substantial portion of their monetary assets and liabilities denominated in us dollars . foreign currency transaction losses during the year ended december 31 , 2018 were associated with a net us dollar liability position of the colombian subsidiaries , which coupled with a 9 % devaluation of the colombian peso during the year , ended up signifying a higher amount of liabilities in pesos when compared against the us dollar . 42 income tax expense income tax expense increased $ 0.2 million , or 3 % , from $ 5.8 million in the year ended december 31 , 2017 to $ 6.0 million in the year ended december 31 , 2018. despite an increase of $ 2.9 million , or 26 % , in income before tax in the year ended december 31 , 2018 , income tax expense increased only slightly as a result of a reduction of corporate income tax rates in colombia from 40 % in 2017 to 37 % in 2018 , as well as the effect of the passage of the tax cuts and jobs act in december 2017 , which reduced united states federal corporate income tax rate to 21 % . additionally , the company obtained a clean energy income tax deduction for $ 2.6 million associated with the installation of solar panels with the capacity to generate approximately five megawatts of eco-friendly energy on-site at our manufacturing facilities , of which , however , only a small portion is reflected in the income tax expense for fiscal year 2018 in accordance with us gaap , and has been capitalized on our balance sheet to be amortized over the next ten years . comparison of years ended december 31 , 2017 and december 31 , 2016 revenue our operating revenue increased $ 9.4 million , or 3 % , from $ 305.0 million in the year ended december 31 , 2017 to $ 314.5 million in the year ended december 31 , 2016. the increase was mostly driven by the gm & p acquisition and successfully executing our strategy to continue increasing our participation in the u.s. market . sales in the u.s. market increased $ 48.5 million , or 26 % , from $ 190.0 million in the year ended december 31 , 2017 to $ 238.5 million in the year ended december 31 , 2016. our sales in the united states market continue to be key , primarily in the south florida region but we are continually diversifying into other regions in the united states . our increase in sales , particularly into the united states market , was partially a result of our acquisition of gm & p , which was acquired and consolidated with our results of operations on march 1 , 2017. the acquisition of gm & p is in line with our strategy to strengthen our presence in u.s markets .
| overview we are a vertically-integrated manufacturer , supplier and installer of architectural glass , windows and associated aluminum products for the global commercial and residential construction markets . with a focus on innovation , combined with providing highly specified products with the highest quality standards at competitive prices , we have developed a leadership position in each of our core markets . in the united states , which is our largest market , we were ranked as the second largest glass and metal fabricator in 2018 by glass magazine . in addition , we believe we are the leading glass transformation company in colombia . based on our analysis of third party industry sources we had an estimated market share of over 45 % of the colombian market in 2017. our customers , which include developers , general contractors or installers for hotels , office buildings , shopping centers , airports , universities , hospitals and multi-family and residential buildings , look to us as a value-added partner based on our product development capabilities , our high quality products and our unwavering commitment to exceptional service . we have more than 30 years of experience in architectural glass and aluminum profile structure assembly , we transform a variety of glass products , including tempered safety , double thermo-acoustic and laminated glass . our finished glass products are installed in a wide variety of buildings across a number of different applications , including floating facades , curtain walls , windows , doors , handrails , interior and bathroom spatial dividers . we also produce aluminum products such as profiles , rods , bars , plates and other hardware used in the manufacturing of windows . our products are manufactured in a 2.7 million square foot , state-of-the-art manufacturing complex in barranquilla , colombia that provides easy access to north , central and south america , the caribbean and the pacific .
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combined maturities combined maturities of borrowings are as follows based on the assumption that kaupulehu 2007 's home is sold during fiscal 2013 and that royal bank of canada does not renew our facility upon the next review in april 2013 and the facility story_separator_special_tag the following discussion is intended to assist in the understanding of the consolidated balance sheets of barnwell industries , inc. and subsidiaries ( collectively referred to herein as barnwell , we , our , us or the company ) as of september 30 , 2012 and 2011 , and the related consolidated statements of operations , comprehensive ( loss ) income , cash flows , and equity for the years ended september 30 , 2012 and 2011. this discussion should be read in conjunction with the consolidated financial statements and related notes to consolidated financial statements included in this report . use of estimates in the preparation of financial statements the preparation of the financial statements in conformity with u.s. gaap requires management of barnwell to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenues and expenses and the disclosure of contingent assets and liabilities . actual results could differ significantly from those estimates . critical accounting policies and estimates the company considers an accounting estimate to be critical if the accounting estimate requires the company to make assumptions that are difficult or subjective about matters that were highly uncertain at the time that the accounting estimate was made , and changes in the estimate that are reasonably likely to occur in periods subsequent to the period in which the estimate was made , or use of different estimates that the company could have used in the current period , would have a material impact on the financial condition or results of operations . the most critical accounting policies inherent in the preparation of the company 's financial statements are described below . we continue to monitor our accounting policies to ensure proper application of current rules and regulations . oil and natural gas properties - full cost ceiling calculation and depletion policy description we use the full cost method of accounting for our oil and natural gas properties under which we are required to conduct quarterly calculations of a ceiling , or limitation , on the carrying value of oil and natural gas properties . the ceiling limitation is the sum of 1 ) the discounted present value ( at 10 % ) , using average first-day-of-the-month prices during the 12-month period ending in the reporting period on a constant basis , of barnwell 's estimated future net cash flows from estimated production of proved oil and natural gas reserves , less estimated future expenditures to be incurred in developing and producing the proved reserves but excluding future cash outflows associated with settling asset retirement obligations accrued on the balance sheet ; plus 2 ) the cost of major development projects and unproven properties not subject to depletion , if any ; plus 3 ) the lower of cost or estimated fair value of unproven properties included in costs subject to depletion ; less 4 ) related income tax effects . if net capitalized costs exceed this limit , the excess is expensed . judgments and assumptions the estimate of our oil and natural gas reserves is a major component of the ceiling calculation and represents the component that requires the most subjective judgments . estimates of reserves are forecasts based on engineering data , historical data , projected future rates of production and the timing of future expenditures . the process of estimating oil and natural gas reserves requires substantial 33 judgment , resulting in imprecise determinations , particularly for new discoveries . our reserve estimates are prepared annually by independent petroleum reserve engineers and quarterly by internal personnel . the passage of time provides more quantitative and qualitative information regarding estimates of reserves , and revisions are made to prior estimates to reflect updated information . in the last three fiscal years , annual revisions to our reserve volume estimates have averaged 2 % of the previous year 's estimate . however , there can be no assurance that more significant revisions will not be necessary in the future . if future significant revisions are necessary that reduce previously estimated reserve quantities , such revisions could result in a write-down of oil and natural gas properties . if reported reserve volumes were revised downward by 5 % at the end of fiscal 2012 , the ceiling limitation would have decreased approximately $ 2,570,000 before income taxes . in addition to the impact of the estimates of proved reserves on the calculation of the ceiling , estimated proved reserves are also a significant component of the quarterly calculation of depletion expense . the lower the estimated reserves , the higher the depletion rate per unit of production . conversely , the higher the estimated reserves , the lower the depletion rate per unit of production . if reported reserve volumes were revised downward by 5 % as of the beginning of fiscal 2012 , depletion for fiscal 2012 would have increased by approximately $ 518,000. while the quantities of proved reserves require substantial judgment , the associated prices of oil , natural gas and natural gas liquids reserves and the applicable discount rate that are used to calculate the discounted present value of the reserves do not require judgment . the ceiling calculation dictates that a 10 % discount factor be used and that average first-day-of-the-month prices during the 12-month period ending in the reporting period are held constant . costs included in future net revenues are determined in a similar manner . as such , the future net revenues associated with the estimated proved reserves are not based on our assessment of future prices or costs . story_separator_special_tag this could result in a charge to , or an increase in , income in the period such determination is made , and the impact of these changes could be material . in addition , barnwell operates within the u.s. and canada and is subject to audit by taxing authorities in these jurisdictions . barnwell records accruals for the estimated outcomes of these audits , and the accruals may change in the future due to new developments in each matter . tax benefits are recognized when we determine that it is more likely than not that such benefits will be realized . management evaluates its potential exposures from tax positions taken that have or could be challenged by taxing authorities . these potential exposures result because taxing authorities may take positions that differ from those taken by management in the interpretation and application of statutes , regulations and rules . management considers the possibility of alternative outcomes based upon past experience , previous actions by taxing authorities ( e.g. , actions taken in other jurisdictions ) and advice from tax experts . where uncertainty exists due to the complexity of income tax statutes and where the potential tax amounts are significant , we generally seek independent tax opinions to support our positions . if our evaluation of the likelihood of the realization of benefits is inaccurate , we could incur additional income tax and interest expense that would adversely impact earnings , or we could receive tax benefits greater than anticipated which would positively impact earnings , either of which could be material . management believes that barnwell 's provision for uncertain tax positions is reasonable . however , the ultimate resolution of tax treatments disputed by governmental authorities may adversely affect barnwell 's current and deferred income tax amounts . 36 asset retirement obligation policy description barnwell records the fair value of a liability for an asset retirement obligation in the period in which it is incurred . barnwell 's estimated site restoration and abandonment costs of its oil and natural gas properties are capitalized as part of the carrying amount of oil and natural gas properties and depleted over the life of the related reserves . when the assumptions used to estimate a recorded asset retirement obligation change , a revision is recorded to both the asset retirement obligation and the capitalized cost of asset retirements . the liability is accreted at the end of each period through charges to oil and natural gas operating expense . judgments and assumptions the asset retirement obligation is recorded at fair value in the period in which it is incurred along with a corresponding increase in the carrying amount of the related asset . barnwell has estimated fair value by discounting the estimated future cash outflows required to settle abandonment and restoration liabilities . the present value calculation includes numerous estimates , assumptions and judgments regarding the existence of liabilities , the amount and timing of cash outflows required to settle the liability , what constitutes adequate restoration , inflation factors , credit adjusted discount rates , and consideration of changes in legal , regulatory , environmental and political environments . abandonment and restoration cost estimates are determined in conjunction with barnwell 's reserve engineers based on historical information regarding costs incurred to abandon and restore similar well sites , information regarding current market conditions and costs , and knowledge of subject well sites and properties . the process of estimating the asset retirement obligation requires substantial judgment and use of estimates , resulting in imprecise determinations . actual asset retirement obligations through the end of fiscal 2012 have not materially differed from our estimates . however , because of the inherent imprecision of estimates as described above , there can be no assurance that material differences will not occur in the future . a 20 % increase in accretion and depletion of the asset retirement obligation would have increased barnwell 's fiscal 2012 expenses before taxes by approximately $ 186,000. contractual obligations disclosure is not required as barnwell qualifies as a smaller reporting company . overview barnwell is engaged in the following lines of business : 1 ) exploring for , developing , producing and selling oil and natural gas in canada ( oil and natural gas segment ) , 2 ) investing in land interests in hawaii ( land investment segment ) , 3 ) drilling wells and installing and repairing water pumping systems in hawaii ( contract drilling segment ) , and 4 ) developing homes for sale in hawaii ( residential real estate segment ) . oil and natural gas segment barnwell is involved in the acquisition , exploration and development of oil and natural gas properties in canada where we initiate and participate in exploratory and developmental operations for oil and natural gas on properties in which we have an interest , and evaluate proposals by third parties with regard to participation in such exploratory and developmental operations elsewhere . 37 barnwell sells substantially all of its oil and natural gas liquids production under short-term contracts with marketers of oil . natural gas sold by barnwell is generally sold under both long-term and short-term contracts with prices indexed to market prices . the price of natural gas , oil and natural gas liquids is freely negotiated between the buyers and sellers . oil and natural gas prices are determined by many factors that are outside of our control . market prices for oil and natural gas products are dependent upon factors such as , but not limited to , changes in market supply and demand , which are impacted by overall economic activity , changes in weather , pipeline capacity constraints , inventory storage levels , and output . petroleum and natural gas prices are very difficult to predict and fluctuate significantly .
| summary barnwell incurred a net loss for fiscal 2012 of $ 10,136,000 , a $ 10,027,000 decrease in operating results from a net loss of $ 109,000 in fiscal 2011. this decrease was largely attributable to the following : · a $ 5,557,000 decrease in oil and natural gas segment operating profit , before reduction in carrying value of assets and taxes , primarily resulting from : ¡ lower natural gas prices , higher depletion expense and lower net natural gas production partially offset by higher net oil production ; and ¡ the prior year period included a $ 1,424,000 gain from third-party drilling royalty credits as compared to no such gain in the current year . · a $ 5,419,000 increase in reductions of the carrying value of assets in the current year as compared to the prior year . the current year includes a $ 2,551,000 reduction of the carrying value of oil and natural gas properties , a $ 1,854,000 write-down of real estate held for sale , a $ 1,754,000 write-off of our investment in joint ventures , and a $ 488,000 write-off of our lot acquisition rights , whereas the prior year includes write-downs of barnwell 's investment in residential parcels and real estate held for sale and a write-off of our investment in kona village investors , llc totaling $ 1,228,000 . 40 · a $ 3,260,000 decrease in land investment segment operating profit , before income taxes and non-controlling interests ' share of such profits ( and excluding the impact of the reduction in carrying value discussed above ) , as there were no development rights option receipts and decreased percentage of sales receipts in the current year . the decrease was partially offset by a $ 757,000 decrease in general and administrative expenses due primarily to decreased stock appreciation rights expense and bonus expense . general barnwell conducts operations in the u.s. and canada .
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the warrants are for the purchase of class a common stock exercisable at a price of $ 8.00 per share , are exercisable at any time and expire on june 18 , 2025. on june 19 , 2015 , and in connection with the acquisition of certain outdoor billboard assets of bell media , llc , we entered into subscription agreements with each of boulderado and magnolia , whereby each of boulderado and magnolia purchased 500,000 shares of our newly established class a common stock at a purchase price of $ 10.00 per share , resulting in gross proceeds to us of $ 10,000,000 . each of boulderado and magnolia also extinguished all principal and interest due under two promissory notes , each in the principal amount of $ 149,112 , assigned to us on february 13 , 2015 from richard church , the original holder of the notes . as a result of this note extinguishment , each of boulderado and magnolia received 15,164 additional shares of class a common stock . at the same time , boulderado and magnolia also converted all sums due under the $ 100,000 convertible promissory notes we issued to each of them on april 10 , 2015 , such that each of boulderado and magnolia received 12,616 shares of class a common stock at a conversion price of $ 8.00 per share . in addition , each of boulderado and magnolia received warrants to purchase one share of class a common stock at a price of $ 10.00 per share for each 10 shares of class a common stock purchased , resulting in each of boulderado and magnolia receiving warrants to purchase 52,778 shares of class a common stock . these warrants are exercisable at any time on or before june 18 , 2025. each of the two holders of these warrants are entitled to purchase 51,516 shares of class a common stock at an exercise price of $ 10.00 per share and 1,262 shares of class a common stock at an exercise price of $ 8.00 per share . 56 each of boulderado and magnolia agreed as part of the voting and first refusal agreement also entered into on june 19 , 2015 to elect as the class a directors each of alex b. rozek , as a nominee of boulderado and adam peterson , as a nominee of magnolia . in the event of ( a ) the death of a class a director , ( b ) the incapacitation of a class a director as a result of illness or accident , which makes it reasonably unlikely that the class a director will be able to perform his normal duties for the company for a period of ninety ( 90 ) days , or ( c ) a change of control of boulderado or magnolia , then the class a stockholder which nominated such dead or incapacitated class a director , or the class a stockholder undergoing such change of control , shall convert all of such class a common stock into shares of our common stock , in accordance with the procedures set forth in the amended and restated certificate of incorporation . the voting and first refusal agreement also provides each of us and the other parties to the voting agreement with the story_separator_special_tag results of operations – general overview overview we are currently engaged in three areas of business : outdoor billboards , surety insurance and related brokerage activities , and investing in the real estate services business . we commenced our current billboard business operations in june 2015 , our surety insurance business in april 2016 and have made a series of investments in the real estate management and related services business commencing in september 2015. in december 2016 , we completed the acquisition of uc & s , a surety insurance company . we expect to continue to acquire additional billboard assets through acquisitions of existing billboard businesses in the united states and to expand the licensing of the uc & s business beyond the nine states in which it was licensed at the time of our acquisition to provide insurance . we also expect to continue to make additional investments in real estate services businesses . in the future , we expect to expand the range of services we provide in each of these sectors and to possibly consider acquisition of other businesses in different sectors . our decision to expand outside of these current business sectors we serve will be based on the opportunity to acquire businesses which we believe provide the opportunity for sustainable earnings at an attractive level relative to capital employed . in each of our businesses , we hope to expand our geographic reach and to develop a brand name for our services which we hope will be a differentiating factor for customers . our insurance market primarily services small contractors , businesses and individuals required to provide surety bonds in connection with their work for government agencies and others , and to meet regulatory licensing and other needs . our plan is to expand our insurance offerings and underwriting in all 50 states and the district of columbia . in outdoor billboards , our plan is to continue to grow this business through acquisitions of billboard companies . although several large companies control a majority of the outdoor billboard market , industry reports estimate that there are a large number of other companies servicing the remainder of the market . in the surety industry , total industry direct-written premium reached $ 5.62 billion in 2015 , per a.m. best . while the top 10 surety insurance companies were estimated to write approximately 64 % of all premiums , there were approximately 200 insurers issuing surety bonds in 2015 , per a.m. best . story_separator_special_tag 39 at december 31 , 2016 , we had $ 29,564,975 in unrestricted cash and $ 3,229,093 in restricted cash and escrowed funds deposited for a business acquisition . subsequently in january 2017 , we consummated two additional acquisitions of outdoor billboard assets , from hartlind outdoor , llc in wisconsin for $ 2,817,000 and from clear channel outdoor , inc. in georgia for $ 2,983,444. while we have adequate resources to complete a certain limited number of potential future acquisitions with our available cash , we believe it is appropriate at this time to raise additional equity capital to have the funds to expand our business through additional acquisitions . we believe that our existing cash position and the anticipated proceeds from our anticipated public offering will be sufficient to meet working capital requirements , and anticipated capital expenditures for the next 12 months . in the event that we do not complete the public offering , we will seek to raise additional funds from our existing stockholders and other interested investors . as a result , we expect that we will have access to adequate cash to continue the implementation of our strategy at least over the next 12 months to grow through additional acquisitions and the expansion of our existing insurance activities . cash flows the table below summarizes our cash flows for fiscal 2016 and fiscal 2015 : replace_table_token_2_th net cash provided by ( used in ) operating activities net cash used in operating activities was cash outflow of $ 1,482,311 for fiscal 2016 compared to cash outflow of $ 813,356 for fiscal 2015. the decrease in operating cash flows was primarily attributable to costs associated with the commencement of our insurance operations and increased general and administrative costs , including the costs of hiring additional accounting personnel and our costs incurred as a public company , which resulted in a decrease in operating results for fiscal 2016 , as described in `` —results of operations . '' in addition , the decrease in operating cash flows was also driven by acquisition , integration and deployment costs associated primarily with the uc & s and jag acquisitions that occurred in fiscal 2016. other than billboard operations in wisconsin which are located primarily in a region with significant summer tourists , our business does not experience significant seasonality in results of operations . net cash provided by ( used in ) investing activities net cash used in investing activities was $ 23,903,098 for fiscal 2016 and $ 10,719,702 for fiscal 2015. this increase was primarily attributable to the cash payments associated with the acquisition of uc & s and jag , and payments incurred in purchasing an insurance brokerage , a few smaller billboard operations and several investments in real estate services companies . 40 net cash provided by ( used in ) financing activities net cash provided by financing activities was $ 41,761,318 for fiscal 2016 as compared with the net cash provided by financing activities of $ 24,720,663 for fiscal 2015. net cash flow provided by financing activities in fiscal 2016 was primarily attributable to cash raised in the 2016 offering , which were used to fund both the jag and uc & s acquisitions and several other acquisitions and investments . net cash flow provided in financing activities during fiscal 2015 was from funds provided by magnolia and boulderado through the sale of class a common stock and common stock . these funds were used to acquire three billboard operations and to complete investments in two real estate services businesses . off-balance sheet arrangements except for our normal operating leases , we do not have any off-balance sheet financing arrangements , transactions or special purpose entities . critical accounting policies and estimates the preparation of the consolidated financial statements and related notes to the audited consolidated financial statements requires us to make estimates that affect the reported amounts of assets , liabilities , revenue and expenses , and related disclosures of contingent assets and liabilities . we base these estimates on historical results and various other assumptions believed to be reasonable , all of which form the basis for making estimates concerning the carrying values of assets and liabilities that are not readily available from other sources . actual results may differ from these estimates . in the notes accompanying the audited consolidated financial statements , we describe the significant accounting policies used in the preparation of our consolidated financial statements . we believe that the following represent the most significant estimates and management judgments used in preparing the consolidated financial statements . accounts receivable billboards accounts receivable are recorded at the invoiced amount , net of advertising agency commissions , sales discounts , and allowances for doubtful accounts . we evaluate the collectability of its accounts receivable based on its knowledge of its customers and historical experience of bad debts . in circumstances where we are aware of a specific customer 's inability to meet its financial obligations , it records a specific allowance to reduce the amounts recorded to what it believes will be collected . for all other customers , we recognize reserves for bad debt based upon historical experience of bad debts as a percentage of revenue , adjusted for relative improvement or deterioration in its agings and changes in current economic conditions . as of december 31 , 2016 and 2015 the allowance for doubtful accounts was $ 25,177 and $ 2,111 , respectively . insurance accounts receivable consists of premiums on contract bonds and anticipated salvage . all of the receivables have payment terms of less than twelve months and arise from the sales of contract surety bonds . receivables for contract bonds that are outstanding for more than 90 days are fully reserved . at december 31 , 2016 , there were no reserved receivables .
| results of operations year ended december 31 , 2016 compared to year ended december 31 , 2015 the following is a comparison of our results of operations for the year ended december 31 , 2016 ( `` fiscal 2016 '' ) compared to the year ended december 31 , 2015 ( `` fiscal 2016 '' ) . our results for fiscal 2016 include the financial and operating results of jag for the period from february 16 , 2016 through december 31 , 2016 and the financial and operating results of uc & s for the month of december , 2016. results for the period prior to february 16 , 2016 reflect the financial and operating results of boston omaha corporation only . accordingly , comparisons of our results for fiscal 2016 to fiscal 2015 may not be meaningful . further , fiscal 2016 was the first year of our insurance operations , and comparisons to prior years may not be meaningful because fiscal 2015 does not include any results for insurance operations . 37 revenues . for fiscal 2016 and fiscal 2015 , our revenues were as follows : replace_table_token_0_th we realized revenues of $ 3,843,517 during fiscal 2016 . $ 3,163,534 of these revenues were from billboard rentals . we completed three billboard business acquisitions at various times during the first half of fiscal 2016. revenues during fiscal 2016 also included $ 507,477 in insurance commission revenues , primarily revenues from the warnock agency , inc. , which we acquired during the second quarter of fiscal 2016 and $ 155,783 in premiums earned from uc & s , which we acquired in december 2016. during fiscal 2015 , we had revenues in the amount of $ 713,212 from billboard revenues as we acquired billboards late in the second quarter and during the third quarter of fiscal 2015. expenses .
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factors that could cause or contribute to these differences include those factors discussed below and elsewhere in this annual report on form 10-k , particularly in “ special note regarding forward-looking statements and information ” and “ risk factors ” included elsewhere in this annual report on form 10-k. overview siteone landscape supply , inc. ( collectively with all its subsidiaries referred to in this annual report on form 10-k as “ siteone , ” the “ company , ” “ we , ” “ us ” , and “ our ” or individually as “ holdings ” ) indirectly owns 100 % of the membership interest in siteone landscape supply holding , llc ( “ landscape holding ” ) . landscape holding is the parent and sole owner of siteone landscape supply , llc ( “ landscape ” ) . we are the largest and only national wholesale distributor of landscape supplies in the united states and have a growing presence in canada . our customers are primarily residential and commercial landscape professionals who specialize in the design , installation , and maintenance of lawns , gardens , golf courses , and other outdoor spaces . through our expansive north american network of over 570 branch locations in 45 u.s. states and six canadian provinces , we offer a comprehensive selection of more than 130,000 skus , including irrigation supplies , fertilizer and control products ( e.g. , herbicides ) , landscape accessories , nursery goods , hardscapes ( including pavers , natural stone , and blocks ) , outdoor lighting , and ice melt products to green industry professionals . we also provide value-added consultative services to complement our product offerings and to help customers operate and grow their businesses . impact of covid-19 on our business with the global outbreak of the novel coronavirus , covid-19 , and the declaration of a pandemic by the world health organization on march 11 , 2020 , we continue to keep the safety of our associates , customers , and suppliers as our top priority while striving to deliver quality products and exceptional service to our customers and communities . we continue to monitor developments and follow appropriate recommendations from health and government authorities while proactively implementing safe behaviors , minimizing potential exposures , and facilitating safe and healthy environments in our branches and other facilities . the ongoing covid-19 pandemic has resulted , and is likely to continue to result , in significant economic disruption and has and will likely continue to negatively affect our business . as of the date of this annual report , significant uncertainty remains concerning the magnitude of the impact and duration of the covid-19 pandemic . factors arising from the covid-19 response that have negatively impacted or may negatively impact sales and gross margin in the future include , but are not limited to : limitations on the ability of our suppliers to manufacture , or procure from manufacturers , the products we sell , or to meet delivery requirements and commitments ; limitations on the ability of our associates to perform their work due to impacts caused by the pandemic or local , state , or federal orders that restrict our operations or the operations of our customers ; limitations on the ability of carriers to deliver our products to our branches and customers ; limitations on the ability of our customers to conduct their business and purchase our products and services ; decreased demand for our customers ' services ; limitations on the ability of our customers to pay us on a timely basis ; prolonged economic downturn and or an extended unemployment ; and impairments in our ability to operate in a typical manner or at all . while net sales were negatively affected by shelter-in-place restrictions and declined 3 % in april 2020 compared to the same period of 2019 , our branches and other facilities continued to operate effectively , and we achieved net sales growth of 15 % for the 2020 fiscal year compared to net sales growth of 12 % for the 2019 fiscal year . organic daily sales growth was 8 % for the 2020 fiscal year compared to 5 % for the 2019 fiscal year . the increase was driven by higher demand in our end markets as consumers are spending more time at home and investing in their outdoor living spaces . we believe that we remain well positioned for long-term growth . although we have experienced operational and other challenges to date , there has been no material adverse impact on our results of operations for the 2020 fiscal year as a result of the pandemic . we believe we have sufficient liquidity on hand to continue 38 business operations during this volatile period . on august 6 , 2020 , we completed a public offering of shares of our common stock and received approximately $ 261.7 million of net cash proceeds , further enhancing our cash position and increasing our financial flexibility . as disclosed in the liquidity and capital resources section below , we had total available liquidity of approximately $ 418 million as of january 3 , 2021 , consisting of cash on hand and available capacity under an asset-based credit facility ( the “ abl facility ” ) . in addition , we have no debt maturities under our credit facilities until 2024. in response to the uncertainty brought on by the covid-19 pandemic , we took actions in the second quarter to reduce costs and spending across our organization including a reduction in hiring activities , furloughed associates , and limited discretionary spending . we continue to actively monitor the ongoing covid-19 pandemic and may take further actions that alter our business operations if required by federal , state , or local authorities or that we determine are in the best interests of our associates , customers , suppliers , and shareholders . story_separator_special_tag in addition to the metrics discussed above , we believe that adjusted ebitda is useful for evaluating the operating performance and efficiency of our business . ebitda represents our net income ( loss ) plus the sum of income tax ( benefit ) , interest expense , net of interest income , and depreciation and amortization . adjusted ebitda represents ebitda as further adjusted for items such as stock-based compensation expense , ( gain ) loss on sale of assets and termination of finance leases not in the ordinary course of business , other non-cash items , financing fees , other fees and expenses related to acquisitions and other non-recurring ( income ) loss . refer to “ results of operations—quarterly results of operations data ” for more information about how we calculate ebitda and adjusted ebitda and the limitations of those metrics . key factors affecting our operating results in addition to the metrics described above , a number of other important factors may affect our results of operations in any given period . weather conditions and seasonality in a typical year , our operating results are impacted by seasonality . historically , our net sales and net income have been higher in the second and third quarters of each fiscal year due to favorable weather and longer daylight conditions during these quarters . our net sales have been significantly lower in the first and fourth quarters due to lower landscaping , irrigation , and turf maintenance activities in these quarters , and we have historically incurred net losses in these quarters . seasonal variations in operating results may also be significantly impacted by inclement weather conditions , such as snow storms , wet weather , and hurricanes , which not only impact the demand for certain products like fertilizer and ice melt , but also may delay construction projects where our products are used . industry and key economic conditions our business depends on demand from customers for landscape products and services . the landscape supply industry includes a significant amount of landscape products , such as irrigation systems , outdoor lighting , lawn care supplies , nursery goods , and landscape accessories , for use in the construction of newly built homes , commercial buildings , and recreational spaces . the landscape supply industry has historically grown in line with rates of growth in residential housing and commercial building . the industry is also affected by trends in home prices , home sales , and consumer spending . as general economic conditions improve or deteriorate , consumption of these products and services also tends to fluctuate . the landscape supply industry also includes a significant amount of agronomic products such as fertilizer , herbicides , and ice melt for use in maintaining existing landscapes or facilities . the use of these products is also tied to general economic activity , but levels of sales are not as closely correlated to construction markets . popular consumer trends preferences in housing , lifestyle , and environmental awareness can also impact the overall level of demand and mix for the products we offer . examples of current trends we believe are important to our business include a heightened interest in professional landscape services inspired by the popularity of home and garden television shows and magazines , the increasingly popular concept of 40 “ outdoor living , ” which has been a key driver of sales growth for our hardscapes and outdoor lighting products , and the social focus on eco-friendly products that promote water conservation , energy efficiency , and the adoption of “ green ” standards . acquisitions in addition to our organic growth , we continue to grow our business through acquisitions in an effort to better service our existing customers and to attract new customers . these acquisitions have allowed us to further broaden our product lines and extend our geographic reach and leadership positions in local markets . in accordance with gaap , the results of the acquisitions are reflected in our financial statements from the date of acquisition forward . additionally , we incur transaction costs in connection with identifying and completing acquisitions as well as ongoing integration costs as we integrate acquired companies and seek to achieve synergies . as of january 3 , 2021 , we have invested approximately $ 231 million in 21 acquisitions since the start of the 2019 fiscal year . the following is a summary of the acquisitions completed during the 2020 and 2019 fiscal years : in december 2020 , we acquired the assets and assumed the liabilities of stone center of richmond , llc and stone center of fredericksburg , llc ( collectively , “ stone center of virginia ” ) . with two locations in the richmond and fredericksburg , virginia markets , stone center of virginia is a distributor of hardscapes , natural stone , and landscape supplies to landscape professionals . in december 2020 , we acquired the assets and assumed the liabilities of dirt and rock , llc ( “ dirt and rock ” ) . with one location in the greater atlanta , georgia market , dirt and rock is a distributor of hardscapes , natural stone , and landscape supplies to landscape professionals . in december 2020 , we acquired the assets and assumed the liabilities of alpine materials ( “ alpine ” ) . with one location in the greater dallas , texas market , alpine is a distributor of mulches , soils , and hardscape materials to landscape professionals . in october 2020 , we acquired the assets and assumed the liabilities of hedberg supply ( “ hedberg ” ) . with two locations in the twin cities , minnesota market , hedberg is a distributor of hardscapes , nursery , and landscape supplies to landscape professionals . in october 2020 , we acquired the assets and assumed the liabilities of burnco landscape centres inc. ( “ burnco ” ) . with 12 locations in the three canadian provinces of british columbia , alberta , and saskatchewan , burnco is a distributor of hardscapes and landscape supplies to landscape professionals .
| results of operations in the following discussion of our results of operations , we make comparisons among the 2020 fiscal year and the 2019 fiscal year . 43 replace_table_token_4_th comparison of the 2020 fiscal year to the 2019 fiscal year net sales net sales for the 2020 fiscal year increased 15 % to $ 2,704.5 million as compared to $ 2,357.5 million for the 2019 fiscal year . organic daily sales for the 2020 fiscal year increased 8 % due to increased demand as consumers are spending more time at home and investing in their outdoor living spaces . organic daily sales for landscaping products ( irrigation , nursery , hardscapes , outdoor lighting , and landscape accessories ) grew 9 % reflecting strength in both the repair and upgrade and residential construction end markets . organic daily sales for agronomic products ( fertilizer , control products , ice melt , equipment , and other products ) increased 3 % . acquisitions contributed 6 % , or $ 135.9 million , to net sales growth . cost of goods sold cost of goods sold for the 2020 fiscal year increased 14 % to $ 1,803.2 million from $ 1,584.3 million for the 2019 fiscal year . the increase in cost of goods sold was primarily driven by the increased net sales growth , including growth from acquisitions . gross profit and gross margin gross profit for the 2020 fiscal year increased 17 % to $ 901.3 million as compared to $ 773.2 million for the 2019 fiscal year . gross profit growth was primarily driven by the net sales increase . gross margin increased 50 basis points to 33.3 % in the 2020 fiscal year as compared to 32.8 % in the 2019 fiscal year . the improvement in gross margin primarily reflected lower freight costs and the contributions from acquisitions which carry higher gross margins .
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these warrants were recorded as a component of stockholders ' equity with an equal offsetting amount to stockholders ' equity because the value of the warrants was considered a financing cost . during the year ended december 31 , 2012 , warrants to purchase 1,172,774 shares of common stock were exercised on a net issuance basis , resulting in the issuance of 874,719 shares of common stock in november 2012. at december 31 , 2012 , warrants to purchase 3,225,130 shares of common stock were outstanding . pursuant to the terms of the private financing , the company has an effective resale registration statement on file with the sec covering shares of common stock sold and shares of common stock issuable upon the exercise of the warrants . f-15 acadia pharmaceuticals inc. notes to consolidated financial statements ( continued ) at-the-market agreement in march 2012 , the company entered into an at-the-market issuance sales agreement ( atm agreement ) with mlv & co. llc , pursuant to which the company could elect to issue and sell registered shares of its common stock having an aggregate offering price of up to $ 20 million from time to time over a three-year period . mlv , as sales agent , is obligated to use commercially reasonable efforts consistent with its normal trading and sales practices and applicable laws , rules and regulations to sell shares of the company 's common stock based upon the company 's instructions , including any price , time or size limits or other parameters or conditions the company may impose . the company pays mlv a commission equal to three percent of the gross proceeds from sales of common stock pursuant to the atm agreement . during the year ended december 31 , 2012 , the company raised gross proceeds of $ 17.7 million from story_separator_special_tag the following discussion and analysis of our consolidated financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this report . past operating results are not necessarily indicative of results that may occur in future periods . this discussion contains forward-looking statements , which involve a number of risks and uncertainties . such forward-looking statements include statements about our strategies , objectives , expectations , discoveries , collaborations , clinical trials , proprietary and external programs , products or product candidates , and other statements that are not historical facts , including statements which may be preceded by the words believes , expects , hopes , may , will , plans , intends , estimates , could , should , would , continue , seeks , aims , projects , predicts , pro forma , anticipates , potential or similar words . for forward-looking statements , we claim the protection of the private securities litigation reform act of 1995. readers of this report are cautioned not to place undue reliance on these forward-looking statements , which speak only as of the date on which they are made . we undertake no obligation to update or revise publicly any forward-looking statements . forward-looking statements are not guarantees of performance . actual results or events may differ materially from those anticipated in our forward-looking statements as a result of various factors , including those set forth under the section captioned risk factors elsewhere in this report . information in the following discussion for a yearly period means for the year ended december 31 of the indicated year . overview background we are a biopharmaceutical company focused on innovative small molecule drugs that address unmet medical needs in neurological and related central nervous system disorders . we have a pipeline of product candidates led by pimavanserin , which is in phase iii development as a potential first-in-class treatment for parkinson 's disease psychosis . in november 2012 , we reported successful top-line results from a pivotal phase iii trial with pimavanserin in patients with parkinson 's disease psychosis . we are currently preparing to initiate a second , confirmatory pivotal phase iii trial in the first half of 2013. we hold worldwide commercialization rights to pimavanserin . our pipeline also includes clinical-stage programs for chronic pain and glaucoma in collaboration with allergan , inc. and two advanced preclinical programs directed at parkinson 's disease and other neurological disorders . all of our product candidates emanate from internal discoveries . we have incurred substantial operating losses since our inception due in large part to expenditures for our research and development activities . as of december 31 , 2012 , we had an accumulated deficit of $ 367.7 million . we expect to continue to incur operating losses for at least the next several years as we pursue the clinical development of our product candidates . revenues we have not generated any revenues from product sales to date and we do not expect to generate revenues from product sales for at least the next several years , if at all . our revenues to date have been generated substantially from payments under our current and past collaboration agreements . as of december 31 , 2012 , we had received an aggregate of $ 115.0 million in payments under these agreements , including upfront payments , research funding , milestone payments and reimbursed development expenses . we expect our revenues for the next several years to consist primarily of revenues derived from payments under our current agreements with allergan and potential additional collaborations , as well as grant funding . we currently are a party to three separate collaboration agreements with allergan . pursuant to our march 2003 collaboration agreement with allergan , we had received an aggregate of $ 19.5 million in payments as of december 31 , 2012 , consisting of an upfront payment , research funding and related fees . story_separator_special_tag our revenues are primarily related to our collaboration agreements , which may provide for various types of payments to us , including upfront payments , funding of research and development , milestone payments , and licensing fees . our collaboration agreements also include potential payments for product royalties ; however , we have not received any product royalties to date . we consider a variety of factors in determining the appropriate method of accounting under our collaboration agreements , including whether the various elements can be separated and accounted for individually as separate units of accounting . where there are multiple deliverables identified within a collaboration agreement that are combined into a single unit of accounting , revenues are deferred and recognized over the expected period of performance . the specific methodology for the recognition of the revenue is determined on a case-by-case basis according to the facts and circumstances of the applicable agreement . upfront , non-refundable payments that do not have stand-alone value are recorded as deferred revenue once received and recognized as revenues over the expected period of performance . revenues from non-refundable license fees are recognized upon receipt of the payment if the license has stand-alone value , we do not have ongoing involvement or obligations , and we can determine the best estimate of the selling price for any undelivered items . when non-refundable license fees do not meet all of these criteria , the license revenues are recognized over the expected period of performance . non-refundable payments for research funding are generally recognized as revenues over the period the related research activities are performed . payments for reimbursement of external development costs are generally recognized as revenues using a contingency-adjusted performance model over the expected period of performance . payments received from grants are recognized as revenues as the related research and development is performed and when collectability is reasonably assured . 43 we evaluate milestone payments on an individual basis and recognize revenues from non-refundable milestone payments when the earnings process is complete and collectability is reasonably assured . non-refundable milestone payments related to arrangements under which we have continuing performance obligations are recognized as revenues upon achievement of the associated milestone , provided that ( i ) the milestone event is substantive and its achievability was not reasonably assured at the inception of the agreement and ( ii ) the amount of the milestone payment is reasonable in relation to the effort expended or the risk associated with the milestone event . where separate milestone payments do not meet these criteria , we recognize revenue using a contingency-adjusted performance model over the expected period of performance . accrued expenses we are required to estimate accrued expenses as part of our process of preparing financial statements . examples of areas in which subjective judgments may be required include costs associated with services provided by contract organizations for preclinical development , manufacturing of clinical materials , and clinical trials . we accrue for costs incurred as the services are being provided by monitoring the status of the trials or services provided , and the invoices received from our external service providers . in the case of clinical trials , a portion of the estimated cost normally relates to the projected cost to treat a patient in the trials , and this cost is recognized based on the number of patients enrolled in the trial . other indirect costs are generally recognized on a straight-line basis over the estimated period of the study . as actual costs become known to us , we adjust our accruals . to date , our estimates have not differed significantly from the actual costs incurred . however , subsequent changes in estimates may result in a material change in our accruals , which could also materially affect our balance sheet and results of operations . stock-based compensation the fair value of each employee stock option and each employee stock purchase plan right granted is estimated on the grant date under the fair value method using the black-scholes model , which requires us to make a number of assumptions including the estimated expected life of the award and related volatility . the estimated fair values of stock options or purchase plan rights , including the effect of estimated forfeitures , are then expensed over the vesting period . story_separator_special_tag the progress in , and the costs of , our clinical trials , preclinical studies and other research and development programs ; the scope , prioritization and number of research and development programs ; the ability of our collaborators and us to reach the milestones , or other events or developments , under our collaboration agreements ; our ability to enter into new , and to maintain existing , collaboration and license agreements ; the extent to which we are obligated to reimburse our collaborators or our collaborators are obligated to reimburse us for clinical trial costs under our collaboration agreements ; the costs involved in filing , prosecuting , enforcing and defending patent claims and other intellectual property rights ; the extent to which potential rescission rights for redeemable common stock are exercised ; the costs of securing manufacturing arrangements for clinical or commercial production of product candidates ; the costs of preparing applications for regulatory approvals for our product candidates ; and the costs of establishing , or contracting for , sales and marketing capabilities if we obtain regulatory clearances to market our product candidates . until we can generate significant continuing revenues , we expect to satisfy our future cash needs through strategic collaborations , private or public sales of our equity securities , debt financings , grant funding , or by licensing all or a portion of our product candidates or technology .
| results of operations fluctuations in operating results our results of operations have fluctuated significantly from period to period in the past and are likely to continue to do so in the future . we anticipate that our quarterly and annual results of operations will be impacted for the foreseeable future by several factors , including the timing and amount of payments received pursuant to our current and potential future collaborations , and the progress and timing of expenditures related to our development efforts . due to these fluctuations , we believe that the period-to-period comparisons of our operating results are not a good indication of our future performance . comparison of the years ended december 31 , 2012 and 2011 revenues revenues increased to $ 4.9 million in 2012 from $ 2.1 million in 2011. this increase was primarily due to the termination of our collaboration with meiji seika pharma in july 2012 , at which time we recognized all of the remaining deferred revenue from this collaboration . we recognized a total of $ 3.2 million in revenues from this collaboration in 2012 compared to $ 505,000 in 2011. revenues from our collaborations with allergan totaled $ 1.1 million in each of 2012 and 2011. revenues from our agreements with other parties , including our research and development grants , totaled $ 566,000 in 2012 compared to $ 486,000 in 2011 . 44 research and development expenses research and development expenses increased to $ 18.8 million in 2012 , including $ 680,000 in stock-based compensation , from $ 17.3 million in 2011 , including $ 512,000 in stock-based compensation .
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see “ forward-looking statements ” at the beginning of this annual report on form 10-k. in this document , the words “ we , ” “ our , ” “ ours ” and “ us ” refer only to hollyfrontier and its consolidated subsidiaries or to hollyfrontier or an individual subsidiary and not to any other person with certain exceptions . generally , the words “ we , ” “ our , ” “ ours ” and “ us ” include hep and its subsidiaries as consolidated subsidiaries of hollyfrontier , unless when used in disclosures of transactions or obligations between hep and hollyfrontier or its other subsidiaries . this document contains certain disclosures of agreements that are specific to hep and its consolidated subsidiaries and do not necessarily represent obligations of hollyfrontier . when used in descriptions of agreements and transactions , “ hep ” refers to hep and its consolidated subsidiaries . overview we are principally an independent petroleum refiner that produces high-value refined products such as gasoline , diesel fuel , jet fuel , specialty lubricant products , and specialty and modified asphalt . we own and operate refineries having a combined nameplate crude oil processing capacity of 443,000 barrels per day that serve markets throughout the mid-continent , southwest and rocky mountain regions of the united states . our refineries are located in el dorado , kansas ( the el dorado refinery ) , tulsa , oklahoma ( the tulsa refineries ) , which comprise two production facilities , the tulsa west and east facilities , artesia , new mexico , which operates in conjunction with crude , vacuum distillation and other facilities situated 65 miles away in lovington , new mexico ( collectively , the navajo refinery ) , cheyenne , wyoming ( the cheyenne refinery ) and woods cross , utah ( the woods cross refinery ) . for the year ended december 31 , 2015 , net income attributable to hollyfrontier stockholders was $ 740.1 million compared to $ 281.3 million and $ 735.8 million for the years ended december 31 , 2014 , and 2013 , respectively . overall gross refining margins per produced product sold for 2015 increased 15 % over the year ended december 31 , 2014 , which was due principally to strong operational reliability and utilization rates across our refining system . additionally , net income for the years ended december 31 , 2015 and 2014 reflect non-cash charges of $ 227.0 million ( $ 139.0 million after-tax ) and $ 397.5 million ( $ 244.0 million after-tax ) , respectively , to adjust the value of our inventory to the lower of cost or market . for the year , our reliability and process safety initiatives drove our refinery utilization rate to 97.6 % , the highest level achieved since our merger and a 6 % increase compared to 2014. additionally , improved operational reliability , cost management efforts and lower natural gas costs contributed to a 7 % reduction in operating expenses to $ 1,060.4 million and gross refining margins increased to $ 16.07 . together , strong operational performance , improved realized margins and lower operating costs drove a 74 % increase in earnings per share compared to 2014 ( exclusive of inventory valuation charges ) . outlook our profitability is affected by the spread , or differential , between the market prices for crude oil on the world market ( which is based on the price for brent , north sea crude ) and the price for inland u.s. crude oil ( which is based on the price for wti ) . we expect continued volatility in the pricing relationship between inland and coastal crude , which is currently averaging in the range of $ 1.00 to $ ( 1.00 ) per barrel . pursuant to the 2007 energy independence and security act , the epa promulgated the rfs2 regulations , which increased the volume of renewable fuels mandated to be blended into the nation 's fuel supply . the regulations , in part , require refiners to add annually increasing amounts of “ renewable fuels ” to their petroleum products or purchase credits , known as rins , in lieu of such blending . our rins costs are material and represent a cost of products sold . the price of rins may be extremely volatile due to real or perceived future shortages in rins . as of december 31 , 2015 , we are purchasing rins in order to meet approximately half of our renewable fuel requirements . a more detailed discussion of our financial and operating results for the years ended december 31 , 2015 , 2014 and 2013 is presented in the following sections . 36 table of content results of operations financial data replace_table_token_14_th other financial data replace_table_token_15_th ( 1 ) earnings before interest , taxes , depreciation and amortization , which we refer to as “ ebitda , ” is calculated as net income plus ( i ) interest expense , net of interest income , ( ii ) income tax provision , and ( iii ) depreciation and amortization . ebitda is not a calculation provided for under gaap ; however , the amounts included in the ebitda calculation are derived from amounts included in our consolidated financial statements . ebitda should not be considered as an alternative to net income or operating income as an indication of our operating performance or as an alternative to operating cash flow as a measure of liquidity . ebitda is not necessarily comparable to similarly titled measures of other companies . ebitda is presented here because it is a widely used financial indicator used by investors and analysts to measure performance . ebitda is also used by our management for internal analysis and as a basis for financial covenants . story_separator_special_tag see “ reconciliations to amounts reported under generally accepted accounting principles ” following item 7a of part ii of this form 10-k for a reconciliation to the income statement of prices of refined products sold and cost of products purchased . operating expenses operating expenses , exclusive of depreciation and amortization , decreased 7 % from $ 1,144.9 million for the year ended december 31 , 2014 to $ 1,060.4 million for the year ended december 31 , 2015 due principally to a year-over-year decrease in repair and maintenance and natural gas fuel costs and lower environmental accruals compared to 2014. for the years ended december 31 , 2015 and 2014 , operating expenses include $ 100.0 million and $ 103.4 million , respectively , in costs attributable to hep operations . general and administrative expenses general and administrative expenses increased 5 % from $ 114.6 million for the year ended december 31 , 2014 to $ 120.8 million for the year ended december 31 , 2015 . this is attributable to overall higher incentive compensation and legal costs for the current year , net of the effects of state high-wage credits recognized during the second quarter of 2015. for the years ended december 31 , 2015 and 2014 , general and administrative expenses include $ 10.2 million and $ 8.5 million , respectively , in costs attributable to hep operations . depreciation and amortization expenses depreciation and amortization decreased 5 % from $ 363.4 million for the year ended december 31 , 2014 to $ 346.2 million for the year ended december 31 , 2015 . this decrease was due principally to the recognition of higher accelerated depreciation levels of assets no longer in operation during 2014 , partially offset by depreciation and amortization during the current year attributable to capitalized improvement projects and capitalized refinery turnaround costs . for the years ended december 31 , 2015 and 2014 , depreciation and amortization expenses include $ 61.2 million and $ 60.5 million , respectively , in costs attributable to hep operations . 39 table of content interest income interest income for the year ended december 31 , 2015 was $ 3.4 million compared to $ 4.4 million for the year ended december 31 , 2014 . this decrease was due to lower investment levels in marketable debt securities during the current year period . interest expense interest expense was $ 43.5 million for the year ended december 31 , 2015 compared to $ 43.6 million for the year ended december 31 , 2014 . this slight decrease is due principally to the effects of lower hollyfrontier interest expense as a result of the june 2015 redemption of the $ 150.0 million hollyfrontier senior notes , net of increased hep interest expense attributable to higher year-over-year hep debt levels . for the years ended december 31 , 2015 and 2014 , interest expense included $ 36.9 million and $ 36.1 million , respectively , in interest costs attributable to hep operations . loss on early extinguishment of debt in june 2015 , we redeemed our $ 150.0 million aggregate principal amount of 6.875 % senior notes maturing november 2018 at a redemption cost of $ 155.2 million , at which time we recognized a $ 1.4 million early extinguishment loss consisting of a $ 5.2 million debt redemption premium , net of an unamortized premium of $ 3.8 million . in march 2014 , hep redeemed its $ 150.0 million aggregate principal amount of 8.25 % senior notes maturing march 2018 at a redemption cost of $ 156.2 million , at which time it recognized a $ 7.7 million early extinguishment loss consisting of a $ 6.2 million debt redemption premium and unamortized discount and financing costs of $ 1.5 million . income taxes for the year ended december 31 , 2015 , we recorded income tax expense of $ 406.1 million compared to $ 141.2 million for the year ended december 31 , 2014 . this increase was due principally to higher pre-tax earnings during the year ended december 31 , 2015 compared to 2014 . our effective tax rates , before consideration of earnings attributable to the noncontrolling interest , were 33.6 % and 30.2 % for the years ended december 31 , 2015 and 2014 , respectively . results of operations – year ended december 31 , 2014 compared to year ended december 31 , 2013 story_separator_special_tag /div > in march 2014 , hep redeemed its $ 150.0 million aggregate principal amount of 8.25 % senior notes maturing march 2018 at a redemption cost of $ 156.2 million , at which time it recognized a $ 7.7 million early extinguishment loss consisting of a $ 6.2 million debt redemption premium and unamortized discount and financing costs of $ 1.5 million . in june 2013 , we redeemed our $ 286.8 million aggregate principal amount of 9.875 % senior notes maturing june 2017 at a redemption cost of $ 301.0 million , at which time we recognized a $ 22.1 million early extinguishment loss consisting of a $ 14.2 million debt redemption premium and an unamortized discount of $ 7.9 million . income taxes for the year ended december 31 , 2014 , we recorded income tax expense of $ 141.2 million compared to $ 391.6 million for the year ended december 31 , 2013. this decrease was due principally to lower pre-tax earnings during the year ended december 31 , 2014 compared to 2013. our effective tax rates , before consideration of earnings attributable to the noncontrolling interest , were 30.2 % and 33.8 % for the years ended december 31 , 2014 and 2013 , respectively . 41 table of content liquidity and capital resources hollyfrontier credit agreement we have a $ 1 billion senior unsecured revolving credit facility maturing in july 2019 ( the “ hollyfrontier credit agreement ” ) , which may be used for revolving credit loans and letters of credit from time to time and is available to fund general corporate purposes . indebtedness under the hollyfrontier credit agreement is recourse to hollyfrontier .
| summary net income attributable to hollyfrontier stockholders for the year ended december 31 , 2014 was $ 281.3 million ( $ 1.42 per basic and diluted share ) , a $ 454.6 million decrease compared to $ 735.8 million ( $ 3.66 per basic and $ 3.64 per diluted share ) for the year ended december 31 , 2013. net income decreased due principally to a non-cash lower of cost or market inventory valuation charge of $ 244.0 million , net of tax , and a year-over-year decrease in refining margins . refinery gross margins for the year ended december 31 , 2014 decreased to $ 13.98 per produced barrel from $ 15.99 for the year ended december 31 , 2013. sales and other revenues sales and other revenues decreased 2 % from $ 20,160.6 million for the year ended december 31 , 2013 to $ 19,764.3 million for the year ended december 31 , 2014 due to a decrease in year-over-year sales prices , partially offset by higher refined product sales volumes . the average sales price we received per produced barrel sold decreased 5 % from $ 115.60 for the year ended december 31 , 2013 to $ 110.19 for the year ended december 31 , 2014. sales and other revenues for the years ended december 31 , 2014 and 2013 include $ 57.3 million and $ 53.4 million , respectively , in hep revenues attributable to pipeline and transportation services provided to unaffiliated parties . cost of products sold cost of products sold decreased 1 % from $ 17,392.2 million for the year ended december 31 , 2013 to $ 17,228.4 million for the year ended december 31 , 2014 , due principally to a decrease in year-over-year crude costs , partially offset by higher refined product sales volumes .
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the employment agreements also provide for the payment of a gross-up payment if the officer becomes entitled to certain payments and benefits and equity acceleration under her employment agreement and those payments and benefits constitute parachute payments under section 280g of the internal revenue code . in addition , in accordance with ampio 's stock incentive plan , all outstanding stock options held by mr. wingerter , dr. bar-or , and dr. clift ( and all other option holders with grants under that plan ) become fully vested in connection with a change in control . effective may 31 , 2011 , an amendment of the employment terms for mr. wingerter or dr. clift clarified that if the employee is terminated without cause or if the employee terminates his employment with good reason , all unvested stock options then held by the employee shall be accelerated , deemed vested , and immediately exercisable . 57 chief executive officer departure on january 9 , 2012 , we announced that mr. wingerter requested a compassionate leave from all of his duties as chief executive officer and a board member of ampio in order to attend to the serious illnesses affecting both of his parents . the board of directors of the company unanimously granted his request , which became effective on january 9 , 2012. in connection with his departure , mr. wingerter received certain compensation and benefits which became payable in connection with a termination of his employment without cause for good reason in accordance with his employment agreement including : a lump sum payment of two years ' salary totaling $ 550,000 , a supplemental payment of $ 48,000 , two years of continued health benefits totaling approximately $ 1,500 per month to be paid by ampio , and full acceleration of the vesting of 200,000 stock options at an exercise price of $ 1.03 . compensation committee interlocks and insider participation none of the members of our compensation committee is an officer or employee of our company . none of our executive officers currently serves , or in the past year has served , as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving on our board of directors or compensation committee . item 12. security ownership of certain beneficial owners and management and related stockholder matters . the following table sets forth information regarding beneficial ownership of our common stock as of december 31 , 2011 by : each person or group of affiliated persons known by us to be the beneficial owner of more than 5 % of our common stock ; each of our named executive officers ; each of our directors ; and all executive officers and directors as a group . we have determined beneficial ownership in accordance with sec rules . the information does not necessarily indicate beneficial ownership for any other purpose . under these rules , the number of shares of common stock deemed outstanding includes shares issuable upon exercise of options and warrants held by the respective person or group which may be exercised or converted within 60 days after december 31 , 2011. for purposes of calculating each person 's or group 's percentage ownership , stock options , debentures convertible , and warrants exercisable within 60 days after december 31 , 2011 are included for that person or group but not the stock options , debentures , 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 appearing elsewhere in this report . some of the information contained in this discussion and analysis , including information with respect to our plans and strategy for our business and related financing , includes forward-looking statements that involve risks and uncertainties . you should read the risk factors section of this form 10-k 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 . story_separator_special_tag on december 2 , 2011 , ampio entered into a $ 2,000,000 asset purchase agreement with valeant international ( barbados ) srl ( formerly biovail laboratories international ) ( valeant ) . the agreement provides for the sale and transfer by valeant to ampio of all of valeant 's rights , title and interest in and to a license agreement containing patented technology , certain specified data , information , manufacturing rights and know-how relating to an odt formulation for zertane , including samples of the zertane product . this product license is a major component for documenting the manufacturing process for regulatory approval and accelerating the timeline for commercialization of zertane . on december 27 , 2011 , ampio completed a registered direct offering of its common stock a total of 2,220,255 shares were issued at a price of $ 4.25 per share resulting in gross proceeds of $ 9,436,084 of which ampio received net proceeds of $ 8,454,001 , after placement agent commissions , non-accountable expenses and other offering costs . no warrants were issued . the net proceeds of the 2011 offerings have been or will be used for general corporate purposes and working capital , including completion of the ampion and optina clinical trials and costs related to the regulatory approval and commercialization of zertane . 40 management update effective january 9 , 2012 , at the request of donald b. wingerter , jr. , chief executive officer , ampio granted a compassionate leave to him from all his duties as ceo , member of the board of directors and as an employee . ampio 's chairman of the board , michael macaluso , was appointed chief executive officer concurrent with mr. wingerter 's departure . story_separator_special_tag the methods , estimates , and judgments used by us in applying these most critical accounting policies have a significant impact on the results we report in our financial statements . patents costs of establishing patents consisting of legal fees paid to third parties and related costs are currently expensed as incurred . we will continue this practice unless we can demonstrate that such costs add economic value to our business , in which case we will capitalize such costs as part of intangible assets . the primary consideration in making this determination is whether or not we can demonstrate that such costs have , in fact , increased the economic value of our intellectual property . legal and related costs which do not meet the above criteria will be expensed as incurred . the $ 500,000 fair value of the zertane patents acquired in connection with the march 2011 acquisition of biosciences is being amortized over the remaining u.s. patent lives of approximately 11 years . in-process research and development in-process research and development ( iprd ) relates to the zertane product and clinical trial data acquired in connection with the march 2011 business combination of biosciences . the $ 7,500,000 recorded was based on an independent third party appraisal of the fair value of the assets acquired . iprd is considered an indefinite-lived intangible asset and its fair value will be assessed for impairment annually and written down if impaired . once the zertane product obtains regulatory approval and commercial production begins , iprd will be amortized over its estimated useful life . product technology license ampio acquired a product technology license for an orally disintegrating table ( odt ) formulation for zertane . the $ 2 million license/asset purchase was expensed since the odt formulation has not been petitioned for regulatory approval and the license does not have an alternative future use . research and development research and development costs are expensed as incurred . these costs consist primarily of expenses for personnel engaged in the design and development of product candidates ; the scientific research necessary to produce commercially viable applications of our proprietary drugs or compounds ; early stage clinical testing of product candidates or compounds ; expenditures for design and engineering of the orp product ; and development equipment and supplies , facilities costs and other related overhead . stock-based compensation we account for share-based payments by recognizing compensation expense based upon the estimated fair value of the awards on the date of grant . we determine the estimated grant fair value of options using the black-scholes option pricing model and recognize compensation costs ratably over the vesting period using the straight-line method . common stock issued in exchange for services is recorded at the fair value of the common stock at the date at which we become obligated to issue the shares . the value of the shares is expensed over the service period . derivatives we account for hybrid financial instruments ( debentures with embedded derivative features conversion options , down-round protection and a mandatory conversion provision ) and related warrants by recording the fair value of each hybrid instrument in its entirety and recording the fair value of the warrant derivative liability . the fair value of the hybrid financial instruments and warrants was calculated using a binomial-lattice-based valuation model . we recorded a derivative expense at the inception of each instrument reflecting the difference between the fair value and cash received . changes in the fair value in subsequent periods were recorded as unrealized gain or loss on fair value of derivative instruments for the hybrid financial instruments and to derivative income or expense for the warrants . income taxes we use the liability method of accounting for income taxes . under this method , we recognize deferred assets and liabilities based on the 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 . we establish a valuation allowance for all deferred tax assets for which there is uncertainty regarding realization . 42 results of operationsyear ended december 31 , 2011 and 2010 see notes to consolidated financial statements . results of operations for the years ended december 31 , 2011 and 2010 reflected losses of $ 18.4 million and $ 8.1 million , respectively . these losses include non-cash charges related to derivative expense , stock based compensation and losses on the fair value of debt instruments in the amount of $ 9.1 million in 2011 and $ 4.4 million in 2010. revenue we are a development stage enterprise and have not generated material revenue in our operating history . the $ 18,750 license revenue recognized in 2011 represents the amortization of the upfront payment received on our license agreement . the initial payment of $ 500,000 from the license agreement with a korean pharmaceutical company was deferred and recognized over 10 years . expenses research and development research and development costs are summarized as follows : replace_table_token_4_th research and development costs consist of labor , research and development of patents and intellectual property , stock-based compensation as well as drug development and clinical trials . the increase in expenses in 2011 relates to our primary product candidates as we began ampion and optina clinical trials early in 2011and acquired a $ 2,000,000 product technology license related to our zertane product . we also continued to maintain and strengthen our patent portfolio on our primary product candidates . labor costs increased as a result of several employees having job responsibilities change from administrative to research and development .
| overview we are a development stage biopharmaceutical company engaged in discovering and developing innovative , proprietary pharmaceutical drugs and diagnostic products to identify , treat and prevent a broad range of human diseases including metabolic disorders , eye disease , kidney disease , acute and chronic inflammation and male sexual dysfunction . we intend to develop proprietary pharmaceutical drugs and diagnostic products which capitalize on our intellectual property that includes assigned patents , pending patent applications , and trade secrets and know-how , some of which may be the subject of future patent applications . our intellectual property is strategically focused on three primary areas : new uses for fda-approved drugs , referred to as repositioned drugs , new molecular entities , or nmes , and rapid point-of-care tests for diagnosis , monitoring and screening . our predecessor , dmi life sciences , inc. , or life sciences , was incorporated in delaware in december 2008 and did not conduct any business activity until april 16 , 2009 , at which time life sciences purchased certain assigned intellectual property ( including 107 patents and pending patent applications ) , business products and tangible property from biosciences . life sciences issued 3,500,000 shares of its common stock to biosciences , and assumed certain liabilities , as consideration for the assets purchased from biosciences . the assets life sciences acquired from biosciences had a carrying value of zero , as biosciences had expensed all of the research and development costs it incurred with respect to the intellectual property purchased by life sciences . in march 2010 , life sciences was merged with a subsidiary of chay enterprises , inc. , a publicly-traded company then traded on the otc bulletin board . chay enterprises had minimal operations prior to the time of this merger , and like similar entities was referred to as a public shell .
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” depending on the fair market value of the company , the lump sum payments range from $ 375,000 to $ 2 million in the case of mr. noss , and from $ 187,500 to $ 1 story_separator_special_tag special note regarding forward-looking statements the following discussion and analysis should be read together with the audited consolidated financial statements of tucows inc. ( the “ company ” , “ we ” , “ us ” or “ our ” ) for the years ended december 31 , 2014 , 2013 and 2012 and accompanying notes set forth elsewhere in this report . all financial information is presented in u.s. dollars . some of the statements set forth in this section are forward-looking statements relating to our future results of operations . our actual results may vary from the results anticipated by these statements . please see “ information concerning forward-looking statements ” on page 1. overview our mission is to provide simple useful services that help people unlock the power of the internet . we accomplish this by reducing the complexity our customers ' experience as they acquire , deliver or use the internet or internet services such as domain name registration , email , mobile telephony services and other internet services . we are organized and managed based on two service offerings , domain services and network access services , which are differentiated primarily by their services , the markets they serve and the regulatory environments in which they operate . our principal place of business is located in canada . we report our financial results as two operating segments , domain services , which derives revenue from three distinct service offerings – wholesale , retail and portfolio , and network access services , which derives revenue from the sale of retail mobile phones and services to individuals and small businesses . our chief operating decision maker regularly reviews our operating results for the domain services and network access services segments , principally to make decisions about how we utilize our resources and to measure our consolidated operating performance . to assist us in forecasting growth and to help us monitor the effectiveness of our operational strategies , our chief operating decision maker regularly reviews revenue for each of our service offerings in order to gain more depth and understanding of the key business metrics driving our business . accordingly , we report domain services and network access services revenue separately . domain services domain services include wholesale and retail domain name registration services ; value added services and portfolio services . we earn revenues primarily from the registration fees charged to resellers in connection with new , renewed and transferred domain name registrations ; the sale of retail internet domain name registration and email services to individuals and small businesses ; and by making our portfolio of domain names available for sale or lease . domain services revenues are attributed to the country in which the contract originates , primarily canada . our primary distribution channel is a global network of more than 13,000 resellers in more than 100 countries who typically provide their customers , the end-users of the internet , with a critical component for establishing and maintaining an online presence . our primary focus is serving the needs of this network of resellers by providing superior services , easy-to-use interfaces , proactive and attentive customer service , reseller-oriented technology and agile design and development processes . we seek to provide superior customer service to our resellers by anticipating their business needs and technical requirements . this includes providing easy-to-use interfaces that enable resellers to quickly and easily integrate our services into their individual business processes , and offering brandable end-user interfaces that emphasize simplicity and visual appeal . we also provide “ second tier ” support to our resellers by email and phone in the event resellers experience issues or problems with our services . in addition , our network operating center provides proactive support to our resellers by monitoring all services and network infrastructure to address deficiencies before customer services are impacted . we believe that the underlying platforms for our services are among the most mature , reliable and functional reseller-oriented provisioning and management platforms in our industry , and we continue to refine , evolve and improve these services for both resellers and end-users . our business model is characterized primarily by non-refundable , up-front payments , which lead to recurring revenue and positive operating cash flow . wholesale , primarily branded as opensrs , derives revenue from its domain service and from providing value-added services . the opensrs domain service manages 13.5 million domain names under the tucows icann registrar accreditation and for other registrars under their own accreditations . value-added services include hosted email which provides email delivery and webmail access to millions of mailboxes , internet security services , publishing tools and reseller billing services . all of these services are made available to end-users through a network of over 13,000 web hosts , internet service providers ( “ isps ” ) , and other resellers around the world . in addition , we also derive revenue from the bulk sale of domain names and advertising from the opensrs domain expiry stream . 30 retail , primarily our hover website , derives revenues from the sale of domain name registration and email services to individuals and small businesses . retail also includes our personal names service – based on over 40,000 surname domains – that allows roughly two-thirds of americans to purchase an email address based on their last name . portfolio generates advertising revenue from our domain name portfolio and from our advertising-supported website , tucows.com . we also generate revenue by offering names in our domain portfolio for resale via our reseller network and other channels . in addition , we generate revenue from the payments for the sale of rights to gtld strings under the new gtld program . story_separator_special_tag dollar against the canadian dollar on a quarterly and an annual basis . our policy with respect to foreign currency exposure is to manage our financial exposure to certain foreign exchange fluctuations with the objective of neutralizing some or all of the impact of foreign currency exchange movements by entering into foreign exchange forward contracts to mitigate the exchange risk on a portion of our canadian dollar exposure . we may not always enter into such forward contracts and such contracts may not always be available and economical for us . additionally , the forward rates established by the contracts may be less advantageous than the market rate upon settlement . net revenues domain services wholesale - opensrs domain service historically , our opensrs domain service has constituted the largest portion of our business and encompasses all of our services as an accredited registrar related to the registration , renewal , transfer and management of domain names . in addition , this service fuels other revenue categories as it often is the initial service for which a reseller will engage us , enabling us to follow on with other services and allowing us to add to our portfolio by purchasing names registered through us upon their expiration . 32 we receive revenues for each domain registration or other internet service processed through our system by service providers . our domain service revenue is principally comprised of registration fees charged to resellers in connection with new , renewed and transferred domain name registrations . the registration fee provides our resellers with access to our provisioning and management tools to enable them to register and administer domain names and access to additional services like whois privacy and dns services , enhanced domain name suggestion tools and access to our premium domain names . we earn fees in connection with each new , renewed and transferred-in registration and from providing provisioning services to resellers and registrars on a monthly basis . domain registrations are generally purchased for terms of one to ten years , with a majority having a one-year term . payments for the full term of all services , or billed revenue , are received at the time of activation of service and where appropriate are recorded as deferred revenue and are recognized as earned ratably over the term of provision of service . this accounting treatment reasonably approximates a recognition pattern that corresponds with the provision of the services during the quarters and the year . wholesale – opensrs value-added services we derive revenue from our hosted email service through our global distribution network . our hosted email service is offered on a per account , per month basis , and provides resellers with a reliable , scalable “ white label ” hosted email solution that can be customized to their branding and business model requirements . the hosted email service also includes spam and virus filtering on all accounts . end-users can access the hosted email service via a full-featured , multi-language web interface or through traditional desktop email clients , such as microsoft outlook or apple mail , using imap or pop/smtp . we also derive revenue from other value-added services primarily from provisioning ssl certificates . in addition , we derive revenue from the bulk sale of domain names and advertising from the opensrs domain expiry stream . in addition , we provide billing , provisioning and customer care software solutions to isps through our platypus billing software . retail – hover we derive revenues from hover 's sale of retail internet domain name registration and email services to individuals and small businesses . portfolio we derive revenue from our portfolio of domain names by displaying advertising on the domains and by making them available for sale or lease . when a user types one of these domain names into a web browser , they are presented with dynamically generated links that are pay-per-click advertising . every time a user clicks on one of these links , it generates revenue for us through our partnership with third-parties who provide syndicated pay-per-click advertising ( “ parked page vendors ” ) . our parked page vendor relationships may not continue to generate levels of revenue commensurate with what we have achieved during past periods . our ability to generate online advertising revenue from parked page vendors depends on their advertising networks ' assessment of the quality and performance characteristics of internet traffic resulting from online advertisements rendered on their websites . we have no control over any of these quality assessments . parked page vendors may from time to time change their existing , or establish new , methodologies and metrics for valuing the quality of internet traffic and delivering pay-per-click advertisements . any changes in these methodologies , metrics and advertising technology platforms could decrease the amount of revenue that we generate from online advertisements . in addition , parked page vendors may at any time change or suspend the nature of the service that they provide to online advertisers . these types of changes or suspensions would adversely impact our ability to generate revenue from pay-per-click advertising . portfolio names are sold through our premium domain name service , auctions or in negotiated sales . the size of our domain name portfolio varies over time , as we acquire and sell domains on a regular basis to maximize the overall value and revenue generation potential of our portfolio . in evaluating names for sale , we consider the potential foregone revenue from pay-per-click advertising , as well as other factors . the name will be offered for sale if , based on our evaluation , the name is deemed non-essential to our business and management believes that deriving proceeds from the sale is strategically more beneficial to the company . in addition , we generate revenue from the payments for the sale of rights to gtld strings under icann 's new gtld program .
| general and administrative general and administrative expenses consist primarily of compensation and related costs for managerial and administrative personnel , fees for professional services , public listing expenses , rent , foreign exchange and other general corporate expenses . replace_table_token_23_th general and administrative expenses for fiscal 2013 increased by $ 0.6 million , or 9 % , to $ 7.2 million as compared to fiscal 2012. this increase was primarily the result of incremental workforce related costs as well as additional costs incurred in processing a higher volume of credit cards . depreciation of property and equipment property and equipment is depreciated on a straight-line basis over the estimated useful lives of the assets . replace_table_token_24_th depreciation costs for fiscal 2013 remained essentially flat at $ 0.2 million . loss on disposition of property and equipment replace_table_token_25_th as part of our ongoing initiatives to improve the efficiency of our production environment , we retired some older computer hardware at our co-location facilities during fiscal 2012 , which resulted in a loss on the disposition of such equipment . 48 amortization of intangible assets year ended december 31 , 2013 2012 amortization of intangible assets $ 876,120 $ 876,120 decrease over prior period $ - decrease - percentage - % percentage of net revenues 1 % 1 % amortization of intangible assets consists of amounts arising in connection with the acquisition of innerwise , inc. in july 2007 and the acquisition of epag in august 2011. the brand and customer relationships acquired in connection with the acquisitions of innerwise inc. and epag are being amortized on a straight-line basis over seven years . technology acquired in connection with the acquisition of epag is amortized on a straight-line basis over two years .
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the series b preferred shall be non-voting and non-redeemable . except as described above , no director , executive officer , principal stockholder holding at least 5 % of mict common stock , or any family member thereof , had or will have any material interest , direct or indirect , in any transaction , or proposed transaction , during 2019 in which the amount involved in the transaction exceeded or exceeds $ 120,000 or one percent of the average of the total assets of mict at the year-end for the last two completed fiscal years . 49 item 14. principal accounting fees and services . the fees billed by bdo ziv haft , our independent registered public accounting firm , for professional services provided to the company for each of the last two fiscal years were as follows : replace_table_token_7_th audit fees audit fees are for audit services for each of the years shown in this table , review of our quarterly financial story_separator_special_tag overview mict inc. , or we or the company , was formed as a delaware corporation on january 31 , 2002. on march 14 , 2013 , the company changed its corporate name from lapis technologies , inc. to micronet enertec technologies , inc. on july 13 , 2018 , following the sale of its former subsidiary enertec systems ltd. , the company changed the company name from micronet enertec technologies , inc. to mict , inc. our shares have been listed for trade on the nasdaq capital market , or nasdaq , since april 29 , 2013. the company 's business relates to its ownership interest in micronet , a former consolidated subsidiary , formed and based in israel , in which the company previously held a majority ownership interest that has since been diluted to a minority ownership interest . 25 as of december 31 , 2019 , the company held 30.48 % of micronet 's issued and outstanding shares , and together with an irrevocable proxy in our benefit from mr. david lucatz , the company 's president and chief executive officer , it held 37.79 % of the voting interest in micronet as of such date . micronet operates in the growing commercial mrm market and video analytics device market . micronet through both its israeli and u.s. operational offices , designs , develops , manufactures and sells rugged mobile computing devices that provide fleet operators and field workforces with computing solutions in challenging work environments . micronet 's vehicle portable tablets increase workforce productivity and enhance corporate efficiency by offering computing power and communication capabilities that provide fleet operators with visibility into vehicle location , fuel usage , speed and mileage . furthermore , users are able to manage the drivers in various aspects , such as : driver behavior , driver identification , reporting hours worked , customer/organization working procedures and protocols , route management and navigation based on tasks and time schedule . end users may also receive real time messages for various services such as pickup and delivery , repair and maintenance , status reports , alerts , notices relating to the start and ending of work , digital forms , issuing and printing of invoices and payments . through its smarthub product , micronet provides its consumers with services such as driver recognition , identifying and preventing driver fatigue , recognizing driver behavior , preventive maintenance , fuel efficiency and an advanced driver assistance system . in addition , micronet provides third party telematics service providers , or tsps , a platform to offer services such as “ hours of service. ” micronet previously commenced and continues to evaluate integration with other tsps . micronet is currently entering the video analytics device market by developing an all in-one video telematics device known as micronet smartcam . micronet smartcam technologically is based on the powerful flexible android platform , is expected to be a ruggedized , integrated , and ready-to-go smart camera supporting complete telematics features designed for in-vehicle use . coupled with vehicle-connected interfaces , state of the art diagnostic capabilities , and two cameras , it offers video analytics and telematics services , addressing safety , vehicle health , and tracking needs of commercial fleets . we believe that micronet smartcam provides a versatile , advanced , and affordable mobile computing platform for a variety of fleet management and video analytics solutions . the powerful computing platform , coupled with the android 9 operating system , allows the company customers to run their applications or pick and choose a set of applications and services from micronet marketplace . micronet 's customers consist primarily of application service providers , or asps , and solution providers specializing in the mrm market . these companies sell micronet 's products as part of their mrm systems and solutions . currently , micronet does not sell directly to end users . micronet customers are generally mrm solution and service providers , asp providers in the transportation market , including long haul , local fleets ' student transportation ( yellow busses ) and fleet and field management systems for construction and heavy equipment . micronet products are used by customers worldwide . acquisition agreement with bnn technology plc on december 18 , 2018 , we , gfh , merger sub , bnn , bi china , paragonex , certain holders of paragonex 's outstanding ordinary shares and a trustee thereof , and mark gershinson , in the capacity as the representative of the paragonex sellers , entered into the acquisition agreement , pursuant to which , among other things , subject to the satisfaction or waiver of the conditions set forth in the acquisition agreement , merger sub would merge with and into the company , as a result of which each outstanding share of the company 's common stock and warrant to purchase the same would be cancelled in exchange for the right of the holders thereof to receive 0.93 substantially equivalent securities of gfh , after which gfh would acquire ( i ) all of the issued and outstanding securities of bi china story_separator_special_tag in addition , prior to the consummation of the acquisition , if the merger agreement is terminated after the closing of the beijing brookfield acquisition or the paragonex acquisition , as the case may be , or if the acquisition does not close by the outside date set forth in the merger agreement , the transactions contemplated by the beijing brookfield share exchange agreement and the paragonex share exchange agreement , may be unwound . in the event of an unwinding of such acquisitions , gfh will return the beijing brookfield shares to bi interactive and the paragonex shares to the paragon ex sellers and in turn bi interactive and the paragonex sellers will return the shares of global fintech received in the applicable share exchange . 27 voting agreement . in connection with the execution and delivery of the merger agreement , dlc , an entity affiliated with david lucatz , the president and chief executive officer of mict , entered into the voting agreement , pursuant to which , during the term of such agreement , dlc has agreed to vote all of its capital shares in mict in favor of the merger agreement , the related ancillary documents and any required amendments to mict 's organizational documents , and in favor of all of the transactions in furtherance thereof , and to take certain other actions in support of the transactions contemplated by the merger agreement and will , at every meeting of the stockholders of mict called for such purpose , and at every adjournment or postponement thereof ( or in any other circumstances upon which a vote , consent or approval is sought , including by written consent ) , not vote any of its shares of the common stock at such meeting in favor of , or consent to , and will vote against and not consent to , the approval of any alternative proposal that is intended , or would reasonably be expected , to prevent , impede , interfere with , delay or adversely affect in any material respect the transactions contemplated by the merger agreement . the voting agreement shall terminate , among other reasons , upon the earlier of the termination of the merger agreement and march 31 , 2020. offering of series a convertible preferred stock and warrants on june 4 , 2019 , we entered into the preferred securities purchase agreement with the preferred purchasers , subject to approval by the nasdaq stock market for as to the eligibility of the transaction pursuant to which we agreed to sell 3,181,818 shares of preferred stock . the preferred stock was sold together with the preferred warrants to purchase up to 4,772,727 shares of common stock ( representing 75 % of the aggregate number of shares of common stock into which the preferred stock shall be convertible ) , for aggregate gross proceeds of $ 7 million to us . the terms of the preferred securities purchase agreement were approved by nasdaq stock market in july 2019 and as a result the company issued the preferred stock along with the warrants . the preferred stock shall be convertible into common stock at the option of each holder of preferred stock at any time and from time to time , at a conversion price of $ 1.10 per share and shall also convert automatically upon the occurrence of certain events , including the completion by us of a fundamental transaction . commencing on march 31 , 2020 , cumulative cash dividends shall become payable on the preferred stock at the rate per share of 7 % per annum , which rate shall increase to 14 % per annum on june 30 , 2020. we shall also have the option to redeem some or all of the preferred stock , at any time and from time to time , beginning on december 31 , 2019. the holders of preferred stock shall vote together with the holders of common stock as a single class on as-converted basis , and the holders of preferred stock holding a majority-in-interest of the preferred stock shall be entitled to appoint the preferred director . the preferred securities purchase agreement provides for customary registration rights . the preferred warrants shall have an exercise price of $ 1.01 ( subject to customary adjustment in the event of future stock dividends , splits and the like ) , which is above the average price of the common stock during the preceding five trading days of entry into the preferred securities purchase agreement , and shall be exercisable immediately , until the earlier of ( i ) two years from the date of issuance or ( ii ) the later of ( a ) 180 days after the closing by the company of a change of control transaction , or ( b ) the company 's next debt or equity financing of at least $ 20 million . offering of convertible note and warrants on june 4 , 2019 , we entered into the note purchase agreement with bnn , subject to approval by the nasdaq stock market for as to the eligibility of the transaction pursuant to which bnn agreed to purchase from us $ 2 million of convertible notes , which subscription amount shall be subject to increase by up to an additional $ 1 million as determined by bnn and us . the convertible notes , which shall be convertible into up to 2,727,272 shares of common stock ( using the applicable conversion ratio of $ 1.10 per share ) , shall be sold together with certain the note warrants to purchase up to 2,727,272 shares of common stock ( representing 100 % of the aggregate number of shares of common stock into which the convertible notes are convertible ) . the convertible notes shall have a duration of two ( 2 ) years . the convertible notes shall be convertible into common stock at the option of the note purchaser at any time and from time to time , and upon the issuance of one or more convertible notes .
| results of operations year ended december 31 , 2019 compared to year ended december 31 , 2018 revenues revenues for the year ended december 31 , 2019 were $ 477,000 , compared to $ 14,162,000 for the year ended december 31 , 2018. this represents a decrease of $ 13,685,000 , or 97 % , for the year ended december 31 , 2019. the decrease in revenues for the year ended december 31 , 2019 is primarily due to the dilution in our ownership and voting interests in micronet , causing us to cease consolidating micronet 's operations in our financial statements commencing from february 24 , 2019 , as well as a decrease in customer orders , and their value , a trend that has continued from the year ended december 31 , 2018. gross loss for the year ended december 31 , 2019 decreased by $ 3,879,000 to $ 369,000 , and represents 77 % of the revenues . this is in comparison to gross profit of $ 3,510,000 , or 25 % of the revenues for the year ended december 31 , 2018. the decrease in gross loss for the year ended december 31 , 2019 is mainly a result of the deconsolidation of micronet as well as the decrease in revenues and slow inventory reduction at micronet for the two month period that micronet was consolidated . 30 selling and marketing selling and marketing costs are part of operating expenses .
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uncertainties related to the continued magnitude and duration of the covid-19 pandemic , the extent to which it will impact our estimated future financial results , worldwide macroeconomic conditions including interest rates , employment rates , consumer spending , health insurance coverage , the speed of the anticipated recovery and governmental and business reactions to the pandemic , including any possible re-initiation of shutdowns or renewed restrictions , have increased the complexity of developing these estimates , including the allowance for expected credit losses and the carrying amounts of long-lived assets , goodwill and other intangible assets . although we believe that our estimates and assumptions are reasonable , there may be story_separator_special_tag the following management 's discussion and analysis of financial condition and results of operations describes the principal factors affecting the results of operations , liquidity and capital resources and critical accounting estimates of endo international plc . generally speaking , this section omits discussions about 2018 items and comparisons between 2019 and 2018. such discussions can be found in 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. however , as further discussed below , the company has revised its definition of segment adjusted income from continuing operations before income tax , effective january 1 , 2020 , to exclude certain legal costs , resulting in certain adjustments being made to previously reported amounts for 2019 and 2018. therefore , in the case of segment adjusted income from continuing operations before income tax , the company has included discussions in this management 's discussion and analysis of financial condition and results of operations about 2018 and comparisons between 2019 and 2018. the discussions in this management 's discussion and analysis of financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and related notes thereto . except for the historical information contained in this report , including the following discussion , this report contains forward-looking statements that involve risks and uncertainties . see “ forward-looking statements ” beginning on page i of this report . unless otherwise indicated or required by the context , references throughout to “ endo , ” the “ company , ” “ we , ” “ our ” or “ us ” refer to endo international plc and its subsidiaries . the operating results of astora are reported as discontinued operations , net of tax in the consolidated statements of operations for all periods presented . for additional information , see note 3. discontinued operations in the consolidated financial statements included in part iv , item 15 of this report . story_separator_special_tag included in part iv , item 15 of this report . in december 2020 , we completed our acquisition of biospecifics . prior to this acquisition , we had a strategic relationship with biospecifics since 2004 pursuant to which biospecifics was , among other things , entitled to a royalty stream from us related to our collagenase-based therapies , including xiaflex ® and qwo ® . subsequent to the acquisition , biospecifics became our wholly-owned consolidated subsidiary . as a result , beginning in december 2020 , the biospecifics acquisition had the effect of reducing future royalty payments , which had previously been recognized in cost of revenues . for additional information about the biospecifics acquisition , including information about the purchase consideration and our pre-acquisition royalty obligations , refer to note 5. acquisitions and note 12. license and collaboration agreements in the consolidated financial statements included in part iv , item 15 of this report . critical accounting estimates the preparation of our consolidated financial statements in conformity with u.s. generally accepted accounting principles ( u.s. gaap ) requires us to make estimates and assumptions that affect the amounts and disclosures in our consolidated financial statements , including the notes thereto , and elsewhere in this report . for example , we are required to make significant estimates and assumptions related to revenue recognition , including sales deductions , long-lived assets , goodwill , other intangible assets , income taxes , contingencies , financial instruments and share-based compensation , among others . some of these estimates can be subjective and complex . uncertainties related to the continued magnitude and duration of the covid-19 pandemic , the extent to which it will impact our estimated future financial results , worldwide macroeconomic conditions including interest rates , employment rates , consumer spending , health insurance coverage , the speed of the anticipated recovery and governmental and business reactions to the pandemic , including any possible re-initiation of shutdowns or renewed restrictions , have increased the complexity of developing these estimates , including the allowance for expected credit losses and the carrying amounts of long-lived assets , goodwill and other intangible assets . although we believe that our estimates and assumptions are reasonable , there may be other reasonable estimates or assumptions that differ significantly from ours . further , our estimates and assumptions are based upon information available at the time they were made . actual results may differ significantly from our estimates , including as a result of covid-19 . accordingly , in order to understand our consolidated financial statements , it is important to understand our critical accounting estimates . we consider an accounting estimate to be critical if both : ( i ) the accounting estimate requires us to make assumptions about matters that were highly uncertain at the time the accounting estimate was made and ( ii ) changes in the estimate that are reasonably likely to occur from period to period , or use of different estimates that we reasonably could have used in the current period , would have a material impact on our financial condition , results of operations or cash flows . our most critical accounting estimates are described below . story_separator_special_tag we use our best judgment to formulate these assumptions based on past experience and information available to us at the time . we continually reassess and make appropriate changes to our estimates and assumptions as new information becomes available to us . 55 our estimate for returns and allowances may be impacted by a number of factors , but the principal factor relates to the level of inventory in the distribution channel . where available , we utilize information received from our wholesaler customers about the quantities of inventory held , including the information received pursuant to dsas , which we have not independently verified . for other customers , we have estimated inventory held based on buying patterns . in addition , we evaluate market conditions for products primarily through the analysis of wholesaler and other third party sell-through data , as well as internally-generated information , to assess factors that could impact expected product demand at the estimate date . as of december 31 , 2020 , we believe that our estimates of the level of inventory held by our customers is within a reasonable range as compared to both historical amounts and expected demand for each respective product . when we are aware of an increase in the level of inventory of our products in the distribution channel , we consider the reasons for the increase to determine whether we believe the increase is temporary or other-than-temporary . increases in inventory levels assessed as temporary will not result in an adjustment to our provision for returns and allowances . some of the factors that may be an indication that an increase in inventory levels will be temporary include : recently implemented or announced price increases for our products ; and new product launches or expanded indications for our existing products . conversely , other-than-temporary increases in inventory levels may be an indication that future product returns could be higher than originally anticipated and , accordingly , we may need to adjust our provision for returns and allowances . some of the factors that may be an indication that an increase in inventory levels will be other-than-temporary include : declining sales trends based on prescription demand ; recent regulatory approvals to shorten the shelf life of our products , which could result in a period of higher returns related to older product still in the distribution channel ; introduction of generic or other competing products ; increasing price competition from generic competitors ; and changes to the national drug codes ( ndcs ) of our products , which could result in a period of higher returns related to product with the old ndc , as our customers generally permit only one ndc per product for identification and tracking within their inventory systems . rebates our provision for rebates , sales incentives and other allowances can generally be categorized into the following four types : direct rebates ; indirect rebates ; governmental rebates , including those for medicaid , medicare and tricare , among others ; and managed-care rebates . we establish contracts with wholesalers , chain stores and indirect customers that provide for rebates , sales incentives , dsa fees and other allowances . some customers receive rebates upon attaining established sales volumes . direct rebates are generally rebates paid to direct purchasing customers based on a percentage applied to a direct customer 's purchases from us , including fees paid to wholesalers under our dsas , as described above . indirect rebates are rebates paid to indirect customers that have purchased our products from a wholesaler under a contract with us . we are subject to rebates on sales made under governmental and managed-care pricing programs based on relevant statutes with respect to governmental pricing programs and contractual sales terms with respect to managed-care providers and gpos . for example , we are required to provide a discount on our brand-name products to patients who fall within the medicare part d coverage gap , also referred to as the donut hole . we participate in various federal and state government-managed programs whereby discounts and rebates are provided to participating government entities . for example , medicaid rebates are amounts owed based upon contractual agreements or legal requirements with public sector ( medicaid ) benefit providers after the final dispensing of the product by a pharmacy to a benefit plan participant . medicaid reserves are based on expected payments , which are driven by patient usage , contract performance and field inventory that will be subject to a medicaid rebate . medicaid rebates are typically billed up to 180 days after the product is shipped , but can be as much as 270 days after the quarter in which the product is dispensed to the medicaid participant . periodically , we adjust the medicaid rebate provision based on actual claims paid . due to the delay in billing , adjustments to actual claims paid may incorporate revisions of this provision for several periods . because medicaid pricing programs involve particularly difficult interpretations of complex statutes and regulatory guidance , our estimates could differ from actual experience . in determining our estimates for rebates , we consider the terms of our contracts and relevant statutes , together with information about sales mix ( to determine which sales are subject to rebates and the amount of such rebates ) , historical relationships of rebates to revenues , past payment experience , estimated inventory levels of our customers and estimated future trends . our provisions for rebates include estimates for both unbilled claims for end-customer sales that have already occurred and future claims that will be made when inventory in the distribution channel is sold through to end-customer plan participants . changes in the level of utilization of our products through private or public benefit plans and gpos will affect the amount of rebates that we owe .
| executive summary this executive summary provides 2020 highlights from the results of operations that follow : total revenues in 2020 were $ 2,903.1 million compared to $ 2,914.4 million in 2019 as strong performance from our sterile injectables segment was offset by declines in our branded pharmaceuticals , generic pharmaceuticals and international pharmaceuticals segments . our 2020 revenues were impacted by covid-19 , as further described below . gross margin percentage in 2020 increased to 50.3 % from 46.2 % in 2019 , reflecting the impact of decreased amortization expense and favorable changes in product mix , partially offset by increased expenses related to continuity and separation benefits and other cost reduction initiatives . the favorable change in product mix in 2020 primarily resulted from increased revenues of vasostrict ® . asset impairment charges in 2020 decreased to $ 120.3 million from $ 526.1 million in 2019. we reported income from continuing operations of $ 247.5 million in 2020 compared to loss from continuing operations of $ 360.6 million in 2019. additionally , the following summary highlights certain recent developments that have resulted in and or could in the future result in fluctuations in our results of operations and or changes in our liquidity and capital resources : in december 2019 , covid-19 was reported to have surfaced in wuhan , china . in march 2020 , the world health organization declared the covid-19 outbreak a pandemic . many countries and localities announced aggressive actions to reduce the spread of the disease , including limiting non-essential gatherings of people , suspending all non-essential travel , ordering certain businesses and government agencies to cease non-essential operations at physical locations and issuing shelter-in-place orders ( subject to limited exceptions ) . since then , developments have evolved rapidly and are likely to continue to do so . while there has been some loosening of restrictions , an increase in diagnosed cases may lead to the reinstatement of various restrictions .
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the primary focus is in the debt of defensive growth companies , which are defined as generally exhibiting the following characteristics : ( i ) sustainable secular growth drivers , ( ii ) high barriers to competitive entry , ( iii ) high free cash flow after capital expenditure and working capital needs , ( iv ) story_separator_special_tag the information in management 's discussion and analysis of financial condition and results of operations relates to new mountain finance corporation , including its wholly-owned direct and indirect subsidiaries ( collectively , `` we '' , `` us '' , `` our '' , `` nmfc '' or the `` company '' ) . the following analysis of our financial condition and results of operations should be read in conjunction with our financial data and our financial statements and the notes thereto contained in item 8.financial statements and supplementary data , in this report . see item 1a.risk factors for a discussion of the uncertainties , risks and assumptions associated with these statements . forward-looking statements the information contained in this section should be read in conjunction with the financial data and consolidated financial statements and notes thereto appearing elsewhere in this report . some of the statements in this report ( including in the following discussion ) constitute forward-looking statements , which relate to future events or the future performance or financial condition of the company . the forward-looking statements contained in this section involve a number of risks and uncertainties , including : statements concerning the impact of a protracted decline in the liquidity of credit markets ; the general economy , including interest and inflation rates , and its impact on the industries in which the company invests ; the ability of the company 's portfolio companies to achieve their objectives ; the company 's ability to make investments consistent with its investment objectives , including with respect to the size , nature and terms of its investments ; the ability of new mountain finance advisers bdc , l.l.c . ( the `` investment adviser '' ) or its affiliates to attract and retain highly talented professionals ; actual and potential conflicts of interest with the investment adviser and other affiliates of new mountain capital group , l.l.c . ; and the risk factors set forth in item 1a.risk factors . forward-looking statements are identified by their use of such terms and phrases such as `` anticipate '' , `` believe '' , `` continue '' , `` could '' , `` estimate '' , `` expect '' , `` intend '' , `` may '' , `` plan '' , `` potential '' , `` project '' , `` seek '' , `` should '' , `` target '' , `` will '' , `` would '' or similar expressions . actual results could differ materially from those projected in the forward-looking statements for any reason , including the factors set forth in item 1a.risk factors contained in this annual report . we have based the forward-looking statements included in this report on information available to us on the date of this report . we assume no obligation to update or revise publicly any forward-looking statements , whether as a result of new information , future events or otherwise , except as required by law . although we undertake no obligation to revise or update any forward-looking statements , you are advised to consult any additional disclosures that we may make directly to you or through reports that we have filed or in the future may file with the united states securities and exchange commission ( `` sec '' ) , including annual reports on form 10-k , registration statements on form n-2 , quarterly reports on form 10-q and current reports on form 8-k. overview nmfc is a delaware corporation that was originally incorporated on june 29 , 2010. nmfc is a closed-end , non-diversified management investment company that has elected to be regulated as a bdc 70 under the investment company act of 1940 , as amended ( the `` 1940 act '' ) . as such , nmfc is obligated to comply with certain regulatory requirements . nmfc has elected to be treated , and intends to comply with the requirements to continue to qualify annually , as a regulated investment company ( `` ric '' ) under subchapter m of the internal revenue code of 1986 , as amended , ( the `` code '' ) . nmfc is also registered as an investment adviser under the investment advisers act of 1940 , as amended ( the `` advisers act '' ) . on may 19 , 2011 , nmfc priced its initial public offering ( the `` ipo '' ) of 7,272,727 shares of common stock at a public offering price of $ 13.75 per share . concurrently with the closing of the ipo and at the public offering price of $ 13.75 per share , nmfc sold an additional 2,172,000 shares of its common stock to certain executives and employees of , and other individuals affiliated with , new mountain capital ( defined as new mountain capital group , l.l.c . and its affiliates ) in a concurrent private placement ( the `` concurrent private placement '' ) . additionally , 1,252,964 shares were issued to the partners of new mountain guardian partners , l.p. at that time for their ownership interest in the predecessor entities ( as defined below ) . in connection with nmfc 's ipo and through a series of transactions , new mountain finance holdings , l.l.c . ( `` nmf holdings '' or the `` predecessor operating company '' ) acquired all of the operations of the predecessor entities , including all of the assets and liabilities related to such operations . nmf holdings is a delaware limited liability company . until may 8 , 2014 , nmf holdings was externally managed and was regulated as a bdc under the 1940 act . as such , nmf holdings was obligated to comply with certain regulatory requirements . story_separator_special_tag nmfc acquired from nmf holdings units of nmf holdings equal to the number of shares of nmfc 's common stock sold in additional offerings . with the completion of the final secondary offering on february 3 , 2014 , nmfc owned 100.0 % of the units of nmf holdings , which became a wholly-owned subsidiary of nmfc . restructuring as a bdc , aiv holdings had been subject to the 1940 act , including certain provisions applicable only to bdcs . accordingly , and after careful consideration of the 1940 act requirements applicable to bdcs , the cost of 1940 act compliance and a thorough assessment of aiv holdings ' business model , aiv holdings ' board of directors had determined that continuation as a bdc was not in the best interests of aiv holdings and guardian aiv at the present time . specifically , given that aiv holdings was formed for the sole purpose of holding units of nmf holdings and aiv holdings had disposed of all of the units of nmf holdings that it was holding as of february 3 , 2014 , the board of directors of aiv holdings approved and declared advisable at an in-person meeting held on march 25 , 2014 the withdrawal of aiv holdings ' election to be regulated as a bdc under the 1940 act . in addition , the 72 board of directors of aiv holdings approved and declared advisable for aiv holdings to terminate its registration under section 12 ( g ) of the securities exchange act of 1934 , as amended ( the `` exchange act '' ) and to dissolve aiv holdings under the laws of the state of delaware . upon receipt of necessary stockholder consent to authorize the board of directors of aiv holdings to withdraw aiv holdings ' election to be regulated as a bdc , the withdrawal was filed and became effective upon receipt by the u.s. sec of aiv holdings ' notification of withdrawal on form n-54c on april 15 , 2014. the board of directors of aiv holdings believed that aiv holdings met the requirements for filing the notification to withdraw its election to be regulated as a bdc , upon the receipt of the necessary stockholder consent . after the notification of withdrawal of aiv holdings ' bdc election was filed with the sec , aiv holdings was no longer subject to the regulatory provisions of the 1940 act applicable to bdcs generally , including regulations related to insurance , custody , composition of its board of directors , affiliated transactions and any compensation arrangements . in addition , on april 15 , 2014 , aiv holdings filed a form 15 with the sec to terminate aiv holdings ' registration under section 12 ( g ) of the exchange act . after these sec filings and any other federal or state regulatory or tax filings were made , aiv holdings proceeded to dissolve under delaware law by filing a certificate of dissolution in delaware on april 25 , 2014. until may 8 , 2014 , as a bdc , nmf holdings had been subject to the 1940 act , including certain provisions applicable only to bdcs . accordingly , and after careful consideration of the 1940 act requirements applicable to bdcs , the cost of 1940 act compliance and a thorough assessment of nmf holdings ' current business model , nmf holdings ' board of directors determined at an in-person meeting held on march 25 , 2014 that continuation as a bdc was not in the best interests of nmf holdings at the present time . at the 2014 joint annual meeting of the stockholders of nmfc and the sole unit holder of nmf holdings held on may 6 , 2014 , the stockholders of nmfc and the sole unit holder of nmf holdings approved a proposal which authorized the board of directors of nmf holdings to withdraw nmf holdings ' election to be regulated as a bdc . additionally , the stockholders of nmfc approved a new investment advisory and management agreement between nmfc and the investment adviser . upon receipt of the necessary stockholder/unit holder approval to authorize the board of directors of nmf holdings to withdraw nmf holdings ' election to be regulated as a bdc , the withdrawal was filed and became effective upon receipt by the sec of nmf holdings ' notification of withdrawal on form n-54c on may 8 , 2014. effective may 8 , 2014 , nmf holdings amended and restated its operating agreement such that the board of directors of nmf holdings was dissolved and nmf holdings remained a wholly-owned subsidiary of nmfc with the sole purpose of serving as a special purpose vehicle for nmf holdings ' credit facility , and nmfc assumed all other operating activities previously undertaken by nmf holdings under the management of the investment adviser ( collectively , the `` restructuring '' ) . after the restructuring , all wholly-owned direct and indirect subsidiaries of nmfc are consolidated with nmfc for both 1940 act and financial statement reporting purposes , subject to any financial statement adjustments required in accordance with accounting principles generally accepted in the united states of america ( `` gaap '' ) . nmfc continues to remain a bdc under the 1940 act . also , on may 8 , 2014 , nmf holdings filed form 15 with the sec to terminate nmf holdings ' registration under section 12 ( g ) of the exchange act . as a special purpose entity , nmf holdings is bankruptcy-remote and non-recourse to nmfc . in addition , the assets held at nmf holdings will continue to be used to secure nmf holdings ' credit facility . 73 current organization during the year ended december 31 , 2014 , the company established wholly-owned subsidiaries , nmf ancora holdings inc. ( `` nmf ancora '' ) and nmf yp holdings inc. ( `` nmf yp '' ) , which are structured as delaware entities that serve as tax blocker corporations which hold equity or equity-like investments in portfolio companies organized as limited liability companies ( or other forms of pass-through entities ) .
| results of operations under gaap , nmfc 's ipo did not step-up the cost basis of the predecessor operating company 's existing investments to fair market value at the ipo date . since the total value of the predecessor operating company 's investments at the time of the ipo was greater than the investments ' cost basis , a larger amount of amortization of purchase or original issue discount , and different amounts in realized gain and unrealized appreciation , may be recognized under gaap in each period than if the step-up had occurred . this will remain until such predecessor investments are sold , repaid or mature in the future . the company tracks the transferred ( or fair market ) value of each of the predecessor operating company 's investments as of the time of the ipo and , for purposes of the incentive fee calculation , adjusts income as if each investment was purchased at the date of the ipo ( or stepped up to fair market value ) . the respective `` adjusted net investment income '' ( defined as net investment income adjusted to reflect income as if the cost basis of investments held at the ipo date had stepped-up to fair market value as of the ipo date ) is used in calculating both the incentive fee and dividend payments . see item 8.financial statements and supplementary datanote 5 , agreements for additional details . 84 the following table for the company for the year ended december 31 , 2014 is adjusted to reflect the step-up to fair market value and the allocation of the incentive fees related to hypothetical capital gains out of the adjusted post-incentive fee net investment income .
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under the equity method of accounting , the investment in each venture is included on our balance sheet ; however , the assets and liabilities of the ventures for which we use the equity method are not included in the balance sheet . the investment is adjusted for contributions , distributions and our proportionate share of the net earnings or losses of each respective venture . we assess whether there has been impairment in the value of our investments in real estate joint ventures periodically . an impairment charge is recorded when events or changes in circumstances indicate that a decline in the fair value below the carrying value has occurred and such decline is other-than-temporary . the ultimate realization of the investments in unconsolidated real estate joint ventures is dependent on a number of factors , including the performance of the investments and market conditions . notes receivable from affiliate certain entities made loans story_separator_special_tag the following discussion should be read in conjunction with the audited historical consolidated financial statements and notes thereto appearing in item 8. financial statements and supplementary data of this report . as used in this section , unless the context otherwise requires , we , us , our , and our company mean american assets trust , inc. , a maryland corporation and its consolidated subsidiaries , following completion of our initial public offering and the formation transactions and our predecessor for the periods presented prior to the initial public offering . this discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties . our actual results may differ materially from those anticipated in these forward looking statements as a result of various factors , including those set forth under item 1a . risk factors or elsewhere in this document . see item 1a . risk factors and forward-looking statements. overview our company we are a full service , vertically integrated and self-administered reit that owns , operates , acquires and develops high quality retail , office , multifamily and mixed-use properties in attractive , high-barrier-to-entry markets primarily in southern california , northern california , oregon and hawaii . as of december 31 , 2011 our portfolio was comprised of ten retail shopping centers ; six office properties ; a mixed-use property consisting of a 369-room all-suite hotel and a retail shopping center ; and four multifamily properties . additionally , as of december 31 , 2011 , we owned land at five of our properties that we classified as held for development . our core markets include san diego , the san francisco bay area , portland , oregon and oahu , hawaii . we are a maryland corporation formed on july 16 , 2010 to acquire the entities owning various controlling and noncontrolling interests in real estate assets owned and or managed by ernest s. rady or his affiliates , including the rady trust , and did not have any operating activity until the consummation of our initial public offering and the related acquisition of our predecessor on january 19 , 2011. after the completion of our initial public offering and the formation transactions on january 19 , 2011 , our operations have been carried on through our operating partnership . our company , as the sole general partner of our operating partnership , has control of our operating partnership and owned 67.8 % of our operating partnership as of december 31 , 2011. accordingly , we consolidate the assets , liabilities and results of operations of our operating partnership . our predecessor our predecessor included ( 1 ) entities owned and or controlled by mr. rady and his affiliates , including the rady trust , which in turn owned controlling interests in 17 properties and the property management business of american assets , inc. , or the controlled entities , and ( 2 ) noncontrolling interests in entities owning four properties , or the noncontrolled entities . our predecessor accounted for its investment in the noncontrolled entities under the equity method of accounting . prior to june 30 , 2010 , the noncontrolled entities owned an office property located in san francisco , california referred to as the landmark at one market . we refer to the entities owning the landmark at one market as the landmark entities. the outside ownership interest in the landmark entities was acquired by our predecessor on june 30 , 2010 for a cash payment of $ 23.0 million . as of june 30 , 2010 , the landmark at one market was controlled by our predecessor . all but one of the properties owned by the controlled entities and noncontrolled entities were managed by american assets , inc. , an entity controlled by mr. rady . the noncontrolled entities managed by american assets , inc. include the entities that owned solana beach towne centre and solana beach corporate centre , or the solana beach centre entities , and the entity that owned the fireman 's fund headquarters office property . the remaining property not managed by american assets , inc. is waikiki beach walk , which is managed by outrigger hotels & resorts . we refer to abw lewers llc and the waikiki beach walk-embassy suites , the entities that owned this non-american assets , inc. managed property , as the waikiki beach walk entities . 49 for the periods after january , 19 , 2011 , the date of the consummation of our initial public offering and the formation transactions , our operations have included the consolidated results of operations of the noncontrolled entities , excluding the fireman 's fund headquarters office property , which was not acquired by us . since our initial public offering and the formation transactions occurred on january 19 , 2011 , the results of operations and financial condition for the entities acquired by us in connection with our initial public offering and related formation transactions are not included in certain historical financial statements . story_separator_special_tag our methodology of allocating the cost of acquisitions to assets acquired and liabilities assumed was based on estimated fair values , replacement cost and appraised values . we estimated the fair value of acquired tangible assets ( consisting of land , building and improvements ) , identified intangible assets and liabilities ( consisting of acquired above market leases , acquired in-place lease value and acquired below market leases ) and assumed debt . based on these estimates , we allocated the purchase price to the applicable assets and liabilities . the value allocated to in-place leases will be amortized over the related lease term and reflected as depreciation and amortization . the value of above and below market in-place leases will be amortized over the related lease term and reflected as either an increase ( for below market leases ) or a decrease ( for above market leases ) to rental income . the fair value of the debt assumed was determined using current market interest rates for comparable debt financings . taxable reit subsidiary as part of the formation transactions , on november 5 , 2010 , we formed american assets services , inc. , a delaware corporation that is wholly owned by our operating partnership and which we refer to as our services company . we will elect , together with our services company , to treat our services company as a taxable reit subsidiary for federal income tax purposes . a taxable reit subsidiary generally may provide non-customary and other services to our tenants and engage in activities that we may not engage in directly without adversely affecting our qualification as a reit , provided a taxable reit subsidiary may not operate or manage a lodging facility or provide rights to any brand name under which any lodging facility is operated . we may form additional taxable reit subsidiaries in the future , and our operating partnership may contribute some or all of its interests in certain wholly owned subsidiaries or their assets to our services company . any income earned by our taxable reit subsidiaries will not be included in our taxable income for purposes of the 75 % or 95 % gross income tests , except to the extent such income is distributed to us as a dividend , in which case such dividend income will qualify under the 95 % , but not the 75 % , gross income test . because a taxable reit subsidiary is subject to federal income tax , and state and local income tax ( where applicable ) as a regular corporation , the income earned by our taxable reit subsidiaries generally will be subject to an additional level of tax as compared to the income earned by our other subsidiaries . revenue base upon consummation of our initial public offering and the formation transactions , we acquired from our predecessor and the noncontrolled entities an aggregate of 20 properties comprising approximately 3.0 million 51 rentable square feet of retail space , 1.5 million rentable square feet of office space , a mixed-use asset comprised of approximately 97,000 rentable square feet of retail space and a 369-room all-suite hotel , and 922 multifamily units ( including 122 rv spaces ) , which collectively comprised our initial portfolio . subsequently , we acquired two operating office projects in portland , oregon and sold one office project in valencia , california . see further discussion in the acquisitions and dispositions section below . the properties in our portfolio are located in southern california , northern california , portland , oregon , oahu , hawaii and san antonio , texas . rental income consists of scheduled rent charges , straight-line rent adjustments and the amortization of above market and below market rents acquired . we also derive revenue from tenant recoveries and other property revenues , including parking income , lease termination fees , late fees , storage rents and other miscellaneous property revenues . retail leases . our retail portfolio included ten properties with a total of approximately 3.0 million rentable square feet available for lease as of december 31 , 2011. as of december 31 , 2011 , these properties were 95.0 % leased . for the year ended december 31 , 2011 , the retail segment contributed 41.2 % , of our total revenue . historically , we have leased retail properties to tenants primarily on a triple-net lease basis , and we expect to continue to do so in the future . in a triple-net lease , the tenant is responsible for all property taxes and operating expenses . as such , the base rent payment does not include any operating expense , but rather all such expenses , to the extent they are paid by the landlord , are billed to the tenant . the full amount of the expenses for this lease type , to the extent they are paid by the landlord , is reflected in operating expenses , and the reimbursement is reflected in tenant recoveries . during the year ended december 31 , 2011 , we signed 69 retail leases for 247,560 square feet with an average rent of $ 27.32 per square foot during the initial year of the lease term . of the leases , 58 represent comparable leases where there was a prior tenant , with an increase of 1.3 % in cash basis rent and an increase of 8.4 % in straight-line rent compared to the prior leases . office leases . our office portfolio included six properties with a total of approximately 2.2 million rentable square feet available for lease as of december 31 , 2011. as of december 31 , 2011 , these properties were 94.4 % leased . for the year ended december 31 , 2011 , the office segment contributed 30.7 % of our total revenue . historically , we have leased office properties to tenants primarily on a full service gross or a modified gross basis and to a limited extent on a triple-net lease basis .
| results of operations for our discussion of results of operations , we have provided information on a total portfolio and same-store basis . information provided on a same-store basis includes the results of properties that we owned and operated for the entirety of both periods being compared , except for properties held for development and properties classified as discontinued operations , which are excluded for both periods . comparison of the year ended december 31 , 2011 to the year ended december 31 , 2010 the following summarizes our consolidated results of operations for the year ended december 31 , 2011 compared to our predecessor 's combined results of operations for the year ended december 31 , 2010. as of december 31 , 2011 , our operating portfolio was comprised of 21 retail , office , multifamily and mixed-use properties with an aggregate of approximately 5.3 million rentable square feet of retail and office space ( including mixed-use retail space ) , 922 residential units ( including 122 rv spaces ) and a 369-room hotel . additionally , as of december 31 , 2011 , we owned land at five of our properties that we classified as held for development . as of december 31 , 2010 , our predecessor 's operating portfolio was comprised of 17 properties with an aggregate of approximately 4.0 million rentable square feet of retail and office space and 922 residential units ( including 122 rv spaces ) . the predecessor also owned land at two of its properties that it classified as held for development . at december 31 , 2010 , our predecessor had noncontrolling investments in four properties , which were accounted for under the equity method of accounting . the landmark at one market was acquired on june 30 , 2010 by our predecessor . prior to june 30 , 2010 , our predecessor had a noncontrolling interest in the landmark at one market and accounted for its investment under the equity method of accounting .
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also because of rounding and the use of the two class method in calculating per share data , the quarterly per share data will not necessarily add to the annual totals . f-22 schedule ii – valuation and qualifying accounts haverty furniture companies , inc. and subsidiaries : replace_table_token_41_th ( 1 ) allowance for doubtful accounts : uncollectible accounts written off , net of recoveries . ( 2 ) reserve for cancelled sales and allowances : impact of sales cancelled after delivery plus amount of allowance given to customers . f-23 story_separator_special_tag overview industry the retail residential furniture industry 's results are influenced by new and existing housing sales , consumer confidence , spending on large ticket items , interest rates and availability of credit and the overall strength of the economy . the industry experienced a rebound in 2012 as its drivers have improved . these factors remain tempered by continued high levels of unemployment , lower home values , and reduced access to credit , all of which provide impediments to industry growth . our business we sell home furnishings in our retail stores and via our website and record revenue when the products are delivered to our customer . our products are selected to appeal to a middle to upper-middle income consumer across a variety of styles . our commissioned sales associates receive a high level of product training and are provided a number of tools with which to serve our customers . we also have in-home designers serving 109 stores . these individuals work with our sales associates to provide customers additional confidence and inspiration . we do not outsource the delivery function , something common in the industry , but instead ensure that the `` last contact '' is handled by a customer-oriented havertys delivery team . we are recognized as a provider of high quality fashionable products and service in the markets we serve . story_separator_special_tag `` times new roman '' , times , serif '' > ) 835 adjusted ebit $ 47,931 $ 52,759 $ 24,975 adjusted ebit as a percent of net sales 6.2 % 7.1 % 3.7 % adjusted ebit $ 47,931 $ 52,759 $ 24,975 interest expense , net 1,051 1,107 624 adjusted income before income taxes $ 46,880 $ 51,652 $ 24,351 net income $ 8,589 $ 32,265 14,911 pension settlement expense , net of tax 20,725 — — out-of-period adjustment , net of tax — ( 518 ) 518 adjusted net income $ 29,314 $ 31,747 $ 15,429 earnings per diluted share $ 0.37 $ 1.41 $ 0.67 non-cash pension settlement expense 0.90 — — out-of-period adjustment — ( 0.02 ) 0.02 adjusted earnings per diluted share $ 1.28 $ 1.39 $ 0.69 due to rounding amounts may not add to the totals . 17 net sales comparable-store or `` comp-store '' sales is a measure which indicates the performance of our existing stores by comparing the growth in sales for these stores for a particular period over the corresponding period in the prior year . stores are considered non-comparable if open for less than 12 full calendar months or if the selling square footage has been changed significantly during the past 12 full calendar months . large clearance sales events from warehouses or temporary locations are also excluded from comparable store sales , as are periods when stores are closed or being remodeled . as a retailer , comp‑store sales is an indicator of relative customer spending and store performance . total sales increased $ 22.3 million or 3.0 % in 2014 and $ 76.0 million or 11.3 % in 2013. comparable store sales increased 3.6 % or $ 26.2 million in 2014 and 11.0 % or $ 72.0 million in 2013. the remaining $ 3.9 million in 2014 and $ 4.0 million in 2013 of the changes were from closed , new and otherwise non-comparable stores . the following outlines our sales and comp-store sales increases and decreases for the periods indicated . ( amounts and percentages may not always add to totals due to rounding . ) december 31 , 2014 2013 2012 net sales comp-store sales net sales comp-store sales net sales comp-store sales period ended dollars in millions % increase ( decrease ) over prior period % increase ( decrease ) over prior period dollars in millions % increase ( decrease ) over prior period % increase ( decrease ) over prior period dollars in millions % increase ( decrease ) over prior period % increase ( decrease ) over prior period q1 $ 181.7 ( 2.3 ) % ( 0.9 ) % $ 186.1 13.8 % 11.5 % $ 163.6 6.1 % 5.7 % q2 175.1 2.4 3.2 171.1 12.9 11.2 151.5 5.9 5.6 q3 198.5 3.0 3.5 192.7 11.6 11.8 172.7 11.1 10.0 q4 213.0 8.6 8.3 196.2 7.6 9.5 182.3 8.4 6.0 year $ 768.4 3.0 % 3.6 % $ 746.1 11.3 % 11.0 % $ 670.1 7.9 % 6.8 % sales in 2014 were challenged by weather in the first quarter and case goods vendor supply and import flow issues through much of the remainder of the year . the store displays in this important category were not as robust as our merchandise team had planned and began to recover in the fourth quarter . our improved custom order configurator web based tool helped our specialty upholstery sales to continue to grow with a 10.8 % increase over 2013 including a 19.3 % growth rate in the fourth quarter . we also expanded our in-home-design service in 2014 which has yielded higher average tickets . sales in 2013 increased as the fundamental drivers of home furnishings purchases continued to recover . we capitalized on this trend with improved merchandising and expansion of our complimentary in-home design service . these generated an increase in our average ticket of 7.8 % and a 19.8 % increase in our custom order upholstery business . sales in 2012 increased at a strong pace as our industry began its recovery . story_separator_special_tag the main increases in this category are expected to be for personnel costs , new store occupancy expense and advertising expenses . variable costs within sg & a are expected to be 17.3 % to 17.5 % as a percent of sales for 2015. pension settlement we terminated our qualified defined benefit pension plan ( the `` plan '' ) effective july 20 , 2014 as reported on our form 8-k filed may 16 , 2014. the plan had been previously amended to freeze benefit accruals for eligible employees under the plan effective december 31 , 2006 when we transitioned to a stronger emphasis on our employee savings/ retirement ( 401 ( k ) ) plan . we informed plan participants of the termination in may 2014 and they received vested benefits in december via either a lump sum cash distribution , roll-over contribution to other retirement accounts , or the purchase of an annuity contract with a third-party insurance company . the plan was fully funded and we made no contributions in 2014. the final settlement of lump sum payments and rollovers of $ 29.9 million and annuity purchases of $ 53.6 million were made in december 2014. there were surplus assets of $ 0.8 million remaining after the plan 's obligations were settled . the remaining plan assets , less expenses , will be distributed to participants according to provisions of the plan following final regulatory approvals which is expected to occur in 2015. the settlement of the plan 's obligations required the recognition of pension settlement expenses in the fourth quarter . we recognized termination and settlement expense of $ 21.6 million and a related tax benefit of $ 0.9 million for a total impact on consolidated net income of $ 20.7 million or $ 0.90 per diluted earnings per share . we had approximately $ 6.8 million of unamortized costs net of $ 4.2 million of tax related to the plan included on our balance sheet in accumulated other comprehensive income ( loss ) ( `` aoci '' ) prior to settlement . also included in aoci was a debit of $ 6.9 million resulting from the 'backward-tracing '' prohibition related to changes in a valuation allowance from previous periods . see additional discussion in `` provision for income taxes '' which follows . the settlement of the plan caused these amounts totaling $ 13.6 million to be reclassified from aoci to other comprehensive income . 20 the impact of the termination and settlement of the plan did not impact cash flow and resulted in a net reduction of approximately $ 7.1 million in our total stockholders equity . interest expense our interest expense for the years 2012 to 2014 is primarily driven by amounts related to our lease obligations . for leases accounted for as capital and financing lease obligations , we only record straight-line rent expense for the land portion in occupancy costs in sg & a along with depreciation on the additional asset recorded . rental payments are recognized as a reduction of the obligations and as interest expense . the number of stores , including those under construction , which are accounted for in this manner has increased from eight in 2012 , to sixteen in 2014. we expect interest expense for lease obligations will be $ 2.7 million in 2015. provision for income taxes our effective tax rate was 66.0 % , 38.5 % and 36.6 % for 2014 , 2013 and 2012 , respectively . refer to note 7 of the notes to the consolidated financial statements for a reconciliation of our income tax expense to the federal income tax rate . our 2014 rate includes the reversal of $ 6.9 million from aoci to income tax expense . we established a valuation allowance in 2008 against virtually all of our deferred tax assets due to our operating loss in that year and projected loss in 2009. a portion of the allowance was charged to aoci and was increased in 2009. our profitability in 2011 was sufficient for us to release the valuation allowance . the `` backward-tracing '' prohibition in asc 740 , income taxes required us to record the total amount of the release as a tax benefit in net income including the portion originally charged to aoci . this resulted in a debit valuation allowance of $ 6.9 million remaining in aoci which would remain until the settlement of the plan 's pension obligations when it was reversed and included in total tax expense . the 2014 rate , excluding this reversal , varies from the 35 % u.s federal statutory rate primarily due to state income taxes . our 2013 rate varies from the 35 % u.s. federal statutory rate primarily due to state income taxes . our 2012 rate included a benefit from income taxes of $ 0.7 million related to the change in our uncertain tax positions . this benefit was partially offset by changes in our receivables and state net operating loss carryforwards of $ 0.3 million . liquidity and capital resources overview of liquidity our primary cash requirements include working capital needs , contractual obligations , benefit plan contributions , income tax obligations and capital expenditures . we have funded these requirements exclusively through cash generated from operations and have not used our credit facility since 2008. we believe funds generated from our expected results of operations and available cash and cash equivalents will be sufficient to fund our primary obligations and complete projects that we have underway or currently contemplate for the next fiscal and foreseeable future years . at december 31 , 2014 , our cash and cash equivalents balance was $ 65.5 million , a decrease of $ 17.7 million compared to december 31 , 2013. this decrease in cash primarily resulted from strong operating results offset by purchases of property and equipment , the payment of special cash dividends to stockholders and the purchases of certificates of deposit .
| 2014 highlights sales for 2014 grew 3.0 % or $ 22.3 million over 2013. gross profit as a percent of net sales decreased 10 basis points , and sg & a increased 80 basis points . we terminated and settled the obligations related to our defined benefit pension plan and recorded a pretax charge of $ 21.6 million . our pre-tax income was $ 25.3 million , and excluding the pension charge and an out-of-period adjustment in 2013 decreased 9.2 % or $ 4.8 million . we experienced import vendor and supply chain disruptions to our business from which we began to recover late in the year . our fourth quarter results were a pre-tax loss of $ 5.0 million . excluding the pension charge , our fourth quarter pre-tax income was $ 16.6 million , up 5.5 % over the prior year period . we continued our focus on cash flow and made important investments in our business and returned cash to our stockholders . we did not use our credit facility during the year and our total debt to total capital was 14.4 % at december 31 , 2014. management objectives management is focused on capturing more market share and increasing sales per square foot of showroom space . this organic growth will be driven by concentrating our efforts on our customers with improved interactions highlighted by new products , enhanced stores and better technology . the company 's strategies for profitability include targeted marketing initiatives , productivity and process improvements , and efficiency and cost-saving measures . our focus is to serve our customers better and distinguish ourselves in the marketplace .
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all entities may early adopt the guidance for new disposals ( or new classifications as held for sale ) that have not been reported in financial statements previously issued or available story_separator_special_tag results of operations the following discussion should be read in conjunction with the consolidated financial statements of mack-cali realty corporation and the notes thereto ( collectively , the “ financial statements ” ) . certain defined terms used herein have the meaning ascribed to them in the financial statements . executive overview mack-cali realty corporation together with its subsidiaries , ( the “ company ” ) is one of the largest real estate investment trusts ( reits ) in the united states . the company has been involved in all aspects of commercial real estate development , management and ownership for over 60 years and has been a publicly-traded reit since 1994. the company owns or has interests in 283 properties ( collectively , the “ properties ” ) , consisting of 264 commercial properties , primarily class a office and office/flex buildings , totaling approximately 31.0 million square feet , leased to approximately 2,000 commercial tenants and 19 multi-family rental properties containing 5,484 residential units . the properties are located primarily in suburban markets of the northeast , some with adjacent , company-controlled developable land sites able to accommodate up to 5.7 million square feet of additional commercial space and up to 8,104 apartment units . the company 's historical strategy has been to focus its operations , acquisition and development of office properties in high-barrier-to-entry markets and sub-markets where it believes it is , or can become , a significant and preferred owner and operator . with changing work force demographics and reduced demand for suburban office properties in its current markets , the company intends to continue to leverage its experience and expertise in its core northeast markets to pursue multi-family rental investments in those markets , both through acquisitions and developments , both wholly owned and through joint ventures . this strategy includes selectively disposing of office and office/flex assets and re-deploying proceeds to multi-family rental properties , as well as the repositioning of a portion of its office properties and land held for development to multi-family rental properties . as an owner of real estate , almost all of the company 's earnings and cash flow is derived from rental revenue received pursuant to leased space at the properties . key factors that affect the company 's business and financial results include the following : · · the general economic climate ; · the occupancy rates of the properties ; · rental rates on new or renewed leases ; · tenant improvement and leasing costs incurred to obtain and retain tenants ; · the extent of early lease terminations ; · the value of our office properties and the cash flow from the sale of such properties ; · operating expenses ; · anticipated acquisition and development costs for multi-family rental properties and the revenues and earnings from these properties ; · cost of capital ; and · the extent of acquisitions , development and sales of real estate . any negative effects of the above key factors could potentially cause a deterioration in the company 's revenue and or earnings . such negative effects could include : ( 1 ) failure to renew or execute new leases as current leases expire ; ( 2 ) failure to renew or execute new leases with rental terms at or above the terms of in-place leases ; and ( 3 ) tenant defaults . a failure to renew or execute new leases as current leases expire or to execute new leases with rental terms at or above the terms of in-place leases may be affected by several factors such as : ( 1 ) the local economic climate , which may be adversely impacted by business layoffs or downsizing , industry slowdowns , changing demographics and other factors ; and ( 2 ) local real estate conditions , such as oversupply of the company 's product types or competition within the market . the company 's core office markets continue to be weak . the percentage leased in the company 's consolidated portfolio of stabilized operating commercial properties aggregating 25 million , 28 million and 31 million square feet at december 31 , 2014 , 2013 and 2012 , respectively , was 84.2 percent leased at december 31 , 2014 , as compared to 86.1 percent leased at december 31 , 2013 and 87.2 percent leased at december 31 , 2012. percentage leased includes all leases in effect as of the period end date , some of which have commencement dates in the future and leases that expire at the period end date . leases that expired as of december 31 , 2014 , 2013 and 2012 aggregate 205,220 , 690,895 and 378,901 square feet , respectively , or 0.8 , 2.5 and 1.2 percentage of the net rentable square footage , respectively . rental rates ( including escalations ) on the company 's commercial space that was renewed ( based on first rents payable ) during the year ended december 31 , 2014 ( on 1,649,145 square feet of renewals ) decreased an average of 4.7 percent compared to rates that were in effect under the prior leases , as compared to a 7.1 percent decrease during 2013 ( on 2,420,483 square feet of renewals ) and a 2.4 percent decrease in 2012 ( on 2,221,503 square feet of renewals ) . estimated lease costs for the renewed leases in 2014 averaged $ 2.33 per square foot per year for a weighted average lease term of 4.0 years , estimated lease costs for the renewed leases in 2013 averaged $ 2.22 per square foot per year for a weighted average lease term of 3.8 years and estimated lease costs for the renewed leases in 2012 averaged $ 2.06 per square foot per year for a weighted average lease term of 4.0 years . story_separator_special_tag net sale proceeds from the sale aggregated $ 196.8 million which was comprised of the $ 221 million gross sales price less the subordinated equity interests of $ 21.2 million and $ 3 million in closing costs . the purchasers of these properties are unconsolidated joint ventures formed between the company and the keystone entities . the senior and pari-passu equity will receive a 15 percent internal rate of return ( “ irr ” ) after which the subordinated equity will receive a 10 percent irr and then all distributable cash flow will be split equally between the keystone entities and the company . see note 4 : investments in unconsolidated joint ventures . in connection with certain of these partial sale transactions , because the buyer received a preferential return on certain of the ventures for which the company received subordinated equity interests , the company only recognized profit to the extent that they received net proceeds in excess of their entire carrying value of the properties , effectively reflecting their retained subordinated equity interest at zero . ( b ) the company recorded an impairment charge of $ 20.8 million on these properties at december 31 , 2013 as it estimated that the carrying value of the properties may not be recoverable over their anticipated holding periods . on january 1 , 2014 , the company early adopted the new discontinued operations accounting standard and as the properties sold during the year ended december 31 , 2014 did not represent a strategic shift ( as the company is not entirely exiting markets or property types ) , they have not been reflected as part of discontinued operations . unconsolidated joint venture activity on may 21 , 2014 , the company entered into a joint venture agreement with ironstate harborside-a llc ( “ isa ” ) to form harborside unit a urban renewal , l.l.c . ( “ url-harborside ” ) , a newly-formed joint venture that will develop , own and operate a high-rise tower of approximately 763 multi-family apartment units above a parking pedestal to be located on land contributed by the company at its harborside complex in jersey city , new jersey ( the “ url project ” ) . the construction of the url project is estimated to cost a total of approximately $ 320 million ( of which development costs of $ 65.1 million have been incurred by url-harborside through december 31 , 2014 ) . the url project is projected to be ready for occupancy by the fourth quarter of 2016. the url project has been awarded up to $ 33 million in future tax credits ( “ url tax credits ” ) , subject to certain conditions , from the new jersey economic development authority . the venture has an agreement to sell these credits , subject to certain conditions . on august 1 , 2014 , the venture obtained a construction/permanent loan with a maximum borrowing amount of $ 192 million ( with no balance currently outstanding as of december 31 , 2014 ) , which bears interest at a rate of 5.197 percent and matures in august 2029. the company currently expects that it will fund approximately $ 59.1 million of the remaining development costs of the project , net of the loan financing . the company owns an 85 percent interest in url-harborside and the remaining interest is owned by isa , with shared control over major decisions such as , approval of budgets , property financings and leasing guidelines . upon entering into the joint venture , the company 's initial contribution was $ 30.6 million , which included a capital credit of $ 30 per approved developable square foot for its contributed land aggregating approximately $ 20.6 million with the balance consisting of previously incurred development costs , and isa 's initial contribution was approximately $ 5.4 million . included in the company 's investment in the unconsolidated joint venture is its land contribution with a carrying amount of $ 5.5 million . the company has funded an additional $ 19.2 million in development costs for the venture through december 31 , 2014 . 47 on june 6 , 2014 , the company and an affiliate of keystone property group ( “ kpg ” ) acquired 50 percent tenants-in-common interests each for $ 62.5 million in curtis center , an 885,000 square foot commercial office property located at 601 walnut street in philadelphia , pennsylvania ( the “ curtis center property ” ) , which amounted to a total purchase price of approximately $ 125.0 million for the property . in connection with the transaction , the company provided short-term loans to kpg affiliates , as follows : a 90-day , $ 52.3 million loan which bore interest at an annual rate of 3.5 percent payable at maturity , which was collateralized by the kpg affiliates ' interest in the curtis center property ; and a 90-day , $ 10 million loan which also bore interest at an annual rate of 3.5 percent payable at maturity . the $ 10 million loan was repaid in full on september 2 , 2014 and the $ 52.3 million loan was repaid in full on october 1 , 2014. the investments were funded by the company primarily through borrowing under its revolving credit facility . the venture plans to reposition the property into a mixed-use property by converting a portion of existing office space into multi-family rental apartments . simultaneous with the acquisition of the curtis center property , the company and a kpg affiliate formed a new joint venture named kpg-mcg curtis jv , llc ( the “ curtis center jv ” ) , which master leased the curtis center property from the acquisition entities for approximately 29 years at market-based terms . the company and the kpg affiliate both own a 50 percent interest in the curtis center jv , with shared control over major decisions .
| summary of debt : the following is a breakdown of the company 's debt between fixed and variable-rate financing as of december 31 , 2014 : replace_table_token_17_th ( a ) the actual weighted average libor rate for the company 's outstanding variable rate debt was 0.17 percent as of december 31 , 2014 , plus the applicable spread . ( b ) excludes amortized deferred financing costs pertaining to the company 's unsecured revolving credit facility which amounted to $ 2.7 million for the year ended december 31 , 2014. debt maturities : scheduled principal payments and related weighted average annual effective interest rates for the company 's debt as of december 31 , 2014 are as follows : replace_table_token_18_th 60 ( a ) the actual weighted average libor rate for the company 's outstanding variable rate debt was 0.17 percent as of december 31 , 2014 , plus the applicable spread . ( b ) excludes amortized deferred financing costs pertaining to the company 's unsecured revolving credit facility which amounted to $ 2.7 million for the year ended december 31 , 2014. senior unsecured notes : on february 17 , 2014 , the company repaid its $ 200 million face amount of 5.125 percent senior unsecured notes at their maturity , using available cash and borrowing on the company 's unsecured revolving credit facility . on december 17 , 2014 , the company redeemed $ 150 million principal amount of its 5.125 percent notes due january 15 , 2015 ( the “ notes ” ) . the redemption price , including a make-whole premium , was 100.380 percent of the principal amount of the notes , plus all accrued and unpaid interest up to the redemption date . the company funded the redemption price , including accrued and unpaid interest , of approximately $ 153.8 million using available cash and borrowings on the company 's unsecured revolving credit facility .
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the assets and related accumulated depreciation are adjusted for property retirements and disposals , with the resulting gain or loss included in operations . fully depreciated assets remain in the accounts until retired from service . patents and other intangible assets are recorded at cost , or when acquired as a part of a business combination at estimated fair value . these assets primarily include patents and other technology agreements ( developed technologies ) and trademarks . identifiable intangible assets which are considered definite lived are amortized over their useful lives using a method of amortization that reflects the pattern in which the economic benefit of the intangible assets is consumed . the company 's weighted average amortization period for developed technologies is 11 years . intangible and long-lived assets with definite lives , such as developed technologies , are tested for impairment if any adverse conditions exist or change in circumstances have occurred that would indicate impairment or a change in the remaining useful life . if an impairment indicator exists , the company tests the intangible asset for recoverability . for purposes of the recoverability test , the company groups its intangible assets with other assets and liabilities at the lowest level of identifiable cash flows if the intangible asset does not generate cash flows independent of other assets and liabilities . if the carrying value of the intangible asset ( asset group ) exceeds the undiscounted cash flows expected to result from the use and eventual disposition of the intangible asset ( asset group ) , the company will write the carrying value down to the fair value in the period identified . story_separator_special_tag the following discussion and analysis addresses the results of our operations which are based upon the consolidated financial statements included herein , which have been prepared in accordance with us gaap . this discussion should be read in conjunction with forward-looking statements and our consolidated financial statements and notes thereto appearing elsewhere in this form 10-k . this discussion and analysis also addresses our liquidity and financial condition and other matters . general we are a diversified , global medical device company focused on developing and delivering innovative repair and regenerative solutions to the spine and orthopedic markets . our products are designed to address the lifelong bone-and-joint health needs of patients of all ages , helping them achieve a more active and mobile lifestyle . we design , develop , manufacture , market and distribute medical equipment used principally by musculoskeletal medical specialists for orthopedic applications . our main products are invasive and minimally invasive spinal implant products and related human cellular and tissue based products ( hct/p products ) , non-invasive regenerative stimulation products used to enhance bone growth and the success rate of spinal fusions and to treat non-union fractures , external and internal fixation devices used in fracture repair , limb lengthening and bone reconstruction . our products also include bone cement and devices for removal of bone cement used to fix artificial implants . our 2012 results and financial condition include the following items of significance : spine revenues , which includes spine regenerative stimulation , increased $ 7.7 million in 2012 or 3 % versus 2011 led by our spine regenerative biologics and spine regenerative stimulation . our orthopedics revenue decreased 9 % or $ 15.5 million dollars during 2012 as compared to 2011. foreign currency accounted for 6 % of the decrease with the rest due to a 2 % decrease in sales in our external fixation which was partially offset by an 8 % increase in revenues from orthopedic regenerative biologics . an increase in gross profit margin from 80.3 % in 2011 to 81.3 % in 2012 which was primarily the result of operational efficiency initiatives and a favorable product and geographical sales mix . a decrease in operating expenses as a percentage of net sales as compared to prior period is primarily a result of the reduction in charges related to u.s. government resolutions . please refer to the explanation provided in our liquidity and capital resources section of the management discussion and analysis . we have administrative and training facilities in the u.s. , brazil , and italy and manufacturing facilities in the u.s. , the united kingdom , and italy . the spine gbu directly distributes products in the u.s. the orthopedics gbu directly distributes products in the u.s. , united kingdom , italy , germany , switzerland , austria , france , belgium , brazil , and puerto rico . in several of these and other markets , we also distribute our products through independent distributors . our consolidated financial statements include the financial results of our company and our wholly-owned and majority-owned subsidiaries and entities over which we have control . all intercompany accounts and transactions are eliminated in consolidation . our reporting currency is the u.s. dollar . all balance sheet accounts , except shareholders ' equity , are translated at year-end exchange rates , and revenue and expense items are translated at weighted average rates of exchange prevailing during the year . gains and losses resulting from foreign currency transactions are included in other income and expense . gains and losses resulting from the translation of foreign currency financial statements are recorded in the accumulated other comprehensive income component of shareholders ' equity . our financial condition , results of operations and cash flows are not significantly impacted by seasonality trends . however , sales associated with products for elective procedures appear to be influenced by the somewhat lower level of such procedures performed in the late summer . in addition , we do not believe our operations will be significantly affected by inflation . however , in the ordinary course of business , we are exposed to the impact of changes in interest rates and foreign currency fluctuations . our objective is to limit the impact of such movements on earnings and cash flows . in order to achieve this objective , we seek to balance non-dollar denominated income and expenditures . story_separator_special_tag we have identified two reporting units , which are consistent with our reporting segments ; spine and orthopedics . the company is not required to calculate the fair value of a reporting unit unless the company determines that it is more likely than not that its fair value is less than the carrying amount . the company assesses the qualitative factors while performing the step zero analysis . in performing the annual impairment test , which is performed during the fourth quarter or more frequently when impairment indicators exist , after assessing the qualitative factors in step zero , we may be required to utilize the two-step approach prescribed . the first step requires a comparison of each reporting unit 's carrying value to the fair value of the respective unit . if the carrying value exceeds the fair value , a second step is performed to measure the amount of impairment loss , if any . the fair value of each reporting unit is estimated , entirely or predominantly , using an income based approach . this income approach utilizes a discounted cash flow ( dcf ) , which estimates after-tax cash flows on a debt free basis , discounted to present value using a risk-adjusted discount rate . in performing a dcf calculation , we are required to make assumptions about the amount and timing of future expected cash flows , terminal value growth rates and appropriate discount rates and no impairments were recorded during 2012 and 2011. since december 31 , 2011 , there has been no event or adverse business trend that would suggest that goodwill or our indefinite lived intangibles have been impaired or that an interim test should be performed . subsequent to the sale of breg , the company had no indefinite lived intangibles . 41 litigation and contingent liabilities from time to time , we are parties to or targets of lawsuits , investigations and proceedings , including product liability , personal injury , patent and intellectual property , health and safety and employment and healthcare regulatory matters , which are handled and defended in the ordinary course of business . these lawsuits , investigations or proceedings could involve a substantial number of claims and could also have an adverse impact on our reputation and customer base . although we maintain various liability insurance programs for liabilities that could result from such lawsuits , investigations or proceedings , we are self-insured for a significant portion of such liabilities . we accrue for such claims when it is probable that a liability has been incurred and the amount can be reasonably estimated . the process of analyzing , assessing and establishing reserve estimates for these types of claims involves judgment . changes in the facts and circumstances associated with a claim could have a material impact on our results of operations and cash flows in the period that reserve estimates are revised . we believe that present insurance coverage and reserves are sufficient to cover currently estimated exposures , but we can not give any assurance that we will not incur liabilities in excess of recorded reserves or our present insurance coverage . tax matters we and each of our subsidiaries are taxed at the rates applicable within each of their respective jurisdictions . the composite income tax rate , tax provisions , deferred tax assets and deferred tax liabilities will vary according to the jurisdiction in which profits arise . further , certain of our subsidiaries sell products directly to our other subsidiaries or provide administrative , marketing and support services to our other subsidiaries . these intercompany sales and support services involve subsidiaries operating in jurisdictions with differing tax rates . the tax authorities in such jurisdictions may challenge our treatments under residency criteria , transfer pricing provisions , or other aspects of their respective tax laws , which could affect our composite tax rate and provisions . we account for uncertain tax positions in accordance with asc 740 income taxes which contains a two-step approach to recognizing and measuring uncertain tax positions . the first step is to evaluate the tax position taken or expected to be taken in a tax return by determining if the weight of available evidence indicates that it is more likely than not that , on an evaluation of the technical merits , the tax position will be sustained on audit , including resolution of any related appeals or litigation processes . the second step is to measure the tax benefit as the largest amount that is more than 50 % likely to be realized upon ultimate settlement . we reevaluate our income tax positions periodically to consider factors such as changes in facts or circumstances , changes in or interpretations of tax law , effectively settled issues under audit and new audit activity . such a change in recognition or measurement would result in recognition of a tax benefit or an additional charge to the tax provision . we include interest related to tax issues as part of income tax expense in our consolidated financial statements . we record any applicable penalties related to tax issues within the income tax provision . 42 selected financial data the following table presents certain items in our statements of operations as a percent of net sales for the periods indicated : replace_table_token_5_th we manage our business by our two global business units ( gbu's ) , which are comprised of spine and orthopedics , supported by our corporate activities . these gbus represent the current segments in which our chief operating decision maker reviews financial information and makes resource allocation decisions among business units . accordingly , our segment information ( as provided below ) has been prepared based on our two gbu reporting segments . corporate activities not necessarily identifiable within the two gbus are recorded as part of corporate . spine spine provides a portfolio of repair and regenerative products that allow physicians to successfully treat a variety of spinal conditions .
| general and administrative expense general and administrative expense decreased $ 8.5 million , or 11.7 % , in 2011 to $ 64.4 million compared to $ 72.9 million in 2010 . 2011 and 2010 included the impact of approximately $ 8.1 million and $ 9.2 million , respectively , in legal expenses associated with the bone growth stimulation investigation as well as costs incurred in connection with our internal investigation into the compliance with the foreign corrupt practices act with our orthopedic distribution entity in mexico . 2011 included $ 3.2 million of senior management succession charges . these expenses were offset by the various consolidation and operational efficiency initiatives we have executed on over the past several quarters . also in 2010 general and administrative expense included $ 2 million related to employee termination benefits associated with our internal reorganization which streamlined operations and is expected to lower future operating costs . general and administrative expense as a percent of sales was 13.7 % in 2011 compared to 15.8 % in 2010. research and development expense research and development expense decreased $ 5.1 million in 2011 to $ 22.9 million compared to $ 28.0 million in 2010. as a percent of sales , research and development expense was 4.9 % in 2011 compared to 6.1 % for 2010. the decrease in research and development expenses in 2011 compared to 2010 was due to timing of spending related to our ongoing research , development and clinical activities , our focus to eliminate activities that are not directly related to developing and bringing our products to market , and certain improvements in our operational efficiencies . in addition 2010 included costs associated with the cancellation of the cervical disc clinical trial .
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our principal activities are : ( i ) private client services , including securities transaction and financial planning services ; ( ii ) institutional equity and fixed income sales , trading and research , and municipal finance ; ( iii ) investment banking services , including mergers and acquisitions , public offerings , and private placements ; and ( iv ) retail and commercial banking , including personal and commercial lending programs . our core philosophy is based upon a tradition of trust , understanding , and studied advice . we attract and retain experienced professionals by fostering a culture of entrepreneurial , long-term thinking . we provide our private , institutional and corporate clients quality , personalized service , with the theory that if we place clients ' needs first , both our clients and our company will prosper . our unwavering client and employee focus have earned us a reputation as one of the leading brokerage and investment banking firms off wall street . we have grown our business both organically and through opportunistic acquisitions . we plan to maintain our focus on revenue growth with a continued appreciation for the development of quality client relationships . within our private client business , our efforts will be focused on recruiting experienced financial advisors with established client relationships . within our capital markets business , our focus continues to be on providing quality client management and product diversification . in executing our growth strategy , we will continue to seek out opportunities that allow us to take advantage of the consolidation among middle-market firms , whereby allowing us to increase market share in our private client and institutional group businesses . our ability to attract and retain highly skilled and productive employees is critical to the success of our business . accordingly , compensation and benefits comprise the largest component of our expenses , and our performance is dependent upon our ability to attract , develop , and retain highly skilled employees who are motivated and committed to providing the highest quality of service and guidance to our clients . on july 1 , 2010 , we acquired thomas weisel partners group , inc. ( `` twpg '' ) , an investment bank focused principally on the growth sectors of the economy , which generated revenues from three principal sources : investment banking , brokerage , and asset management . the investment banking group is comprised of two primary categories of services : corporate finance and strategic advisory . the brokerage group provided equity sales and trading services to institutional investors and offered brokerage and advisory services to high net worth individuals and corporate clients . the asset management group consists of : private investment funds , public equity investment products , and distribution management . we believe the combination of our company and twpg will allow us to realize the benefits of the firms ' highly complementary investment banking and research platforms ; accelerate our investment banking business growth by expanding our presence in key growth areas of the global economy , particularly in technology , healthcare , and natural resources ; raise our profile within the venture capital community , where twpg maintains key relationships ; enhance our mergers and acquisitions advisory services and equities lead manager credentials ; and realize benefits from the expansion of our west coast market presence and the expansion of our international capabilities through the operations of sn canada . the employees of the investment banking , research , and institutional brokerage businesses of thomas weisel partners , llc ( `` twp '' ) , a wholly owned subsidiary of twpg , were transitioned into stifel nicolaus during the third quarter of 2010. twp will remain a wholly owned broker-dealer subsidiary of our company . 3 0 our overall financial results continue to be highly and directly correlated to the direction and activity levels of the united states equity and fixed income markets , our expansion of the institutional group segment , and the continued expansion of our global wealth management segment . despite the significant volatility in the market during the first half of 2010 , we began to see signs of improvement in the capital markets during the third and fourth quarters of 2010. at december 31 , 2010 , the key indicators of the markets ' performance , the dow jones industrial average , the nasdaq , and the s & p 500 closed 11.0 % , 16.9 % , and 12.8 % , respectively , higher than their december 31 , 2009 closing prices . results for the year ended december 31 , 2010 for the year ended december 31 , 2010 , our net revenues increased 26.7 % to a record $ 1.4 billion compared to $ 1.1 billion for the prior year , which represents our fifteenth consecutive annual increase in net revenues . net income decreased 97.5 % to $ 1.9 million for the year ended december 31 , 2010 , compared to $ 75.8 million in 2009. net income for 2010 included several significant expense items ( after-tax ) : ( 1 ) $ 106.4 million of deferred compensation expense due to the modification of our deferred compensation plan , and ( 2 ) merger-related expenses of $ 16.5 million related to the merger with twpg . our revenue growth was primarily derived from improved equity market conditions , the acquisition of the ubs acquired locations at the end of 2009 , and the recently completed merger with twpg . the increase in financial advisors , client assets , and productivity and the improving equity capital markets have contributed to the increase in our commissions and asset management fee revenues . principal transactions revenues , while positively impacted by the improved equity market conditions , remained relatively consistent with 2009 as challenging fixed income market conditions negatively impacted our principal transaction revenues . our fixed income institutional brokerage business was negatively impacted by the challenging fixed income market conditions during 2010 , which contributed to lower trading volumes and the tightening of corporate bond spreads . story_separator_special_tag asset management and service fees - for the year ended december 31 , 2009 , asset management and service fee revenues decreased 4.4 % to $ 117.4 million from $ 122.8 million in 2008. the decrease was primarily a result of a reduction in fees for money-fund balances due to the waiving of fees by certain fund managers and lower assets under management as a result of market depreciation , offset by an increase in the number of managed accounts attributable principally to the continued growth of the private client group . see assets in fee-based accounts included in the table in `` results of operations - global wealth management . '' other income - for the year ended december 31 , 2009 , other income increased $ 11.3 million to $ 9.1 million from a loss of $ 2.2 million in 2008. the increase was primarily attributable to the reduction of investment losses during the year ended december 31 , 2009 , offset by the recognition of other-than-temporary impairment of $ 1.9 million on our held-to-maturity debt security . 3 5 net interest income the following tables present average balance data and operating interest revenue and expense data , as well as related interest yields for the periods indicated ( in thousands , except rates ) : replace_table_token_6_th * see distribution of assets , liabilities , and shareholders ' equity ; interest rates and interest rate differential table included in `` results of operations - global wealth management '' for additional information on stifel bank 's average balances and interest income and expense . year ended december 31 , 2010 compared with year ended december 31 , 2009 net interest income - net interest income is the difference between interest earned on interest-earning assets and interest paid on funding sources . net interest income is affected by changes in the volume and mix of these assets and liabilities , as well as by fluctuations in interest rates and portfolio management strategies . for the year ended december 31 , 2010 , net interest income increased 50.5 % to $ 52.1 million from $ 34.6 million in 2009. for the year ended december 31 , 2010 , interest revenue increased 39.4 % , or $ 18.4 million , to $ 65.3 million from $ 46.9 million in 2009 , principally as a result of a $ 14.9 million increase in interest revenue generated from the interest-earning assets of stifel bank and a $ 4.0 million increase in interest revenue from customer margin borrowing . the average interest-earning assets of stifel bank increased to $ 1.3 billion during the year ended december 31 , 2010 , compared to $ 687.2 million in 2009 at weighted average interest rates of 2.72 % and 2.95 % , respectively . the average margin balances of stifel nicolaus increased to $ 385.0 million during the year ended december 31 , 2010 , compared to $ 290.0 million in 2009 at weighted average interest rates of 4.29 % and 4.31 % , respectively . for the year ended december 31 , 2010 , interest expense increased 8.0 % to $ 13.2 million from $ 12.2 million in 2009. see `` net interest income '' table above for more details . 3 6 year ended december 31 , 2009 compared with year ended december 31 , 2008 net interest income - for the year ended december 31 , 2009 , net interest income increased 9.4 % to $ 34.6 million from $ 31.6 million in 2008. for the year ended december 31 , 2009 , interest revenue decreased 6.6 % , or $ 3.3 million , to $ 46.9 million from $ 50.1 million in 2008 , principally as a result of an $ 8.4 million decrease in interest revenue from customer margin borrowing , offset by increased interest revenues of $ 5.0 million from the interest-earning assets of stifel bank . the average margin balances of stifel nicolaus decreased to $ 290.0 million for the year ended december 31 , 2009 , compared to $ 382.5 million in 2008 at weighted average interest rates of 4.31 % and 5.47 % , respectively . the average interest-earning assets of stifel bank increased to $ 687.2 million for the year ended december 31 , 2009 , compared to $ 273.9 million in 2008 at weighted average interest rates of 2.95 % and 5.57 % , respectively . for the year ended december 31 , 2009 , interest expense decreased 33.9 % , or $ 6.3 million , to $ 12.2 million from $ 18.5 million in the prior year . the decrease was due to decreased interest rates charged by banks on lower levels of borrowings to finance customer borrowing and firm inventory , decreased interest rates on stock loan borrowings , and the extinguishment of $ 12.5 million of 6.78 % stifel financial capital trust iv cumulative preferred securities in november 2008. see `` net interest income '' table above for more details . non-interest expenses the following table presents consolidated non-interest expenses for the periods indicated ( in thousands , except percentages ) : replace_table_token_7_th year ended december 31 , 2010 compared with year ended december 31 , 2009 except as noted in the following discussion of variances , the increase in non-interest expenses can be attributed principally to our continued expansion , both organically and through our acquisitions of twpg on july 1 , 2010 , and the ubs acquired locations in the third and fourth quarters of 2009 , and an increase in administrative overhead to support our growth . compensation and benefits - compensation and benefits expenses , which are the largest component of our expenses , include salaries , bonuses , transition pay , benefits , amortization of stock-based compensation , employment taxes , and other employee-related costs . a significant portion of compensation expense is comprised of production-based variable compensation , including discretionary bonuses , which fluctuates in proportion to the level of business activity , increasing with higher revenues and operating profits .
| results of operations the following table presents consolidated financial information for the periods indicated ( in thousands , except percentages ) : replace_table_token_4_th for the year ended december 31 , 2010 , our net revenues increased 26.7 % to a record $ 1.4 billion compared to $ 1.1 billion for the prior year , which represents our fifteenth consecutive annual increase in net revenues . net income decreased 97.5 % to $ 1.9 million for the year ended december 31 , 2010 , compared to $ 75.8 million in 2009. net income for 2010 included several significant expense items ( after-tax ) : ( 1 ) $ 106.4 million of deferred compensation expense due to the modification of our deferred compensation plan , and ( 2 ) merger-related expenses of $ 16.5 million related to the merger with twpg . 3 2 net revenues the following table presents consolidated net revenues for the periods indicated ( in thousands , except percentages ) : replace_table_token_5_th year ended december 31 , 2010 compared with year ended december 31 , 2009 except as noted in the following discussion of variances , the increase in revenue can be attributed principally to the increased number of private client group offices and financial advisors in our global wealth management segment , the increased number of revenue producers in our institutional group segment , and the acquisitions of the ubs acquired locations during the third and fourth quarters of 2009 and twpg on july 1 , 2010. the results of operations for the ubs acquired locations are included in our results prospectively from the date of their respective acquisitions . for the year ended december 31 , 2010 , the acquisition generated net revenues of $ 111.4 million compared to $ 27.1 million during 2009. the prior year revenues of the ubs acquired locations were generated from the date of acquisition through the end of the year .
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forward-looking statements speak only as of the date they are made , and blackrock assumes no duty to and does not undertake to update forward-looking statements . actual results could differ materially from those anticipated in forward-looking statements and future results could differ materially from historical performance . in addition to risk factors previously disclosed in blackrock 's securities and exchange commission ( “ sec ” ) reports and those identified elsewhere in this report , the following factors , among others , could cause actual results to differ materially from forward-looking statements or historical performance : ( 1 ) the introduction , withdrawal , success and timing of business initiatives and strategies ; ( 2 ) changes and volatility in political , economic or industry conditions , the interest rate environment , foreign exchange rates or financial and capital markets , which could result in changes in demand for products or services or in the value of assets under management ( “ aum ” ) ; ( 3 ) the relative and absolute investment performance of blackrock 's investment products ; ( 4 ) the impact of increased competition ; ( 5 ) the impact of future acquisitions or divestitures ; ( 6 ) the unfavorable resolution of legal proceedings ; ( 7 ) the extent and timing of any share repurchases ; ( 8 ) the impact , extent and timing of technological changes and the adequacy of intellectual property , information and cyber security protection ; ( 9 ) the impact of legislative and regulatory actions and reforms , including the dodd-frank wall street reform and consumer protection act , and regulatory , supervisory or enforcement actions of government agencies relating to blackrock or the pnc financial services group , inc. ( “ pnc ” ) ; ( 10 ) terrorist activities , international hostilities and natural disasters , which may adversely affect the general economy , domestic and local financial and capital markets , specific industries or blackrock ; ( 11 ) the ability to attract and retain highly talented professionals ; ( 12 ) fluctuations in the carrying value of blackrock 's economic investments ; ( 13 ) the impact of changes to tax legislation , including income , payroll and transaction taxes , and taxation on products or transactions , which could affect the value proposition to clients and , generally , the tax position of the company ; ( 14 ) blackrock 's success in maintaining the distribution of its products ; ( 15 ) the impact of blackrock electing to provide support to its products from time to time and any potential liabilities related to securities lending or other indemnification obligations ; and ( 16 ) the impact of problems at other financial institutions or the failure or negative performance of products at other financial institutions . overview blackrock , inc. ( together , with its subsidiaries , unless the context otherwise indicates , “ blackrock ” or the “ company ” ) is a leading publicly traded investment management firm with $ 4.645 trillion of aum at december 31 , 2015. with approximately 13,000 employees in more than 30 countries , blackrock provides a broad range of investment and risk management services to institutional and retail clients worldwide . for further information see note 1 , introduction and basis of presentation , in the notes to the consolidated financial statements beginning on page f-1 of this form 10-k. 30 story_separator_special_tag method investment as a result of an initial public offering of pennymac financial services , inc. ( the “ pennymac ipo ” ) . in addition , in 2013 , the com pany made a charitable contribution of approximately six million units of the company 's investment in pennymac to a donor advised fund ( the “ charitable contribution ” ) . in connection with the charitable contribution , the company also recorded a noncash , non operating pre-tax gain of $ 80 million related to the contributed investment . the decrease in nonoperating income ( expense ) also reflected net lower returns on the co-investment and seed portfolio and higher interest expense resulting from a long-term debt issuance in march 2014 , partially offset by the positive impact of the monetization of a nonstrategic , opportunistic private equity investment during 2014. income tax expense of $ 1,131 million included $ 94 million of tax benefits , including the $ 50 million tax benefit mentioned above . income tax expense for 2014 and 2013 reflected the revaluation of deferred income tax liabilities related to intangible assets and goodwill . income tax expense for 2014 included a $ 9 million net noncash benefit arising primarily from state and local income tax changes and a $ 73 million net benefit related to several favorable nonrecurring items . income tax expense for 2013 included a $ 69 million noncash benefit , primarily related to legislation enacted in the united kingdom and state and local income tax changes . in addition , 2013 income tax expense included a benefit of approximately $ 48 million recognized in connection with the charitable contribution , a benefit of approximately $ 29 million , primarily due to the realization of tax loss carryforwards , and benefits from certain nonrecurring items . diluted earnings per common share rose $ 2.38 , or 14 % , from 2013 due to higher net income and the benefit of share repurchases . as adjusted . operating income of $ 4,563 million and operating margin of 42.9 % increased $ 539 million and 150 basis points , respectively , from 2013. results for 2014 excluded a $ 50 million general and administrative expense related to the reduction of an indemnification asset . the 2014 income tax expense included a $ 73 million net benefit and excluded a $ 50 million tax benefit associated with the reduction of the same indemnification asset and $ 9 million of net noncash benefits described above . the 2013 results excluded the financial impact of the charitable contribution , but included the $ 39 million pre-tax nonoperating gain related to the pennymac ipo . story_separator_special_tag management believes the exclusion of such costs is useful because it creates consistency in the treatment for certain contracts for similar services , which due to the terms of the contracts , are accounted for under gaap on a net basis within investment advisory , administration fees and securities lending revenue . amortization of deferred sales commissions is excluded from revenue used for operating margin measurement , as adjusted , because such costs , over time , substantially offset distribution fee revenue the company earns . for each of these items , blackrock excludes from revenue used for operating margin , as adjusted , the costs related to each of these items as a proxy for such offsetting revenue . ( 2 ) nonoperating income ( expense ) , less net income ( loss ) attributable to nci , as adjusted : nonoperating income ( expense ) , less net income ( loss ) attributable to nci , as adjusted , equals nonoperating income ( expense ) , gaap basis , less net income ( loss ) attributable to nci , adjusted for compensation expense associated with ( appreciation ) depreciation on investments related to certain blackrock deferred compensation plans . the compensation expense offset is recorded in operating income . this compensation expense has been included in nonoperating income ( expense ) , less net income ( loss ) attributable to nci , as adjusted , to offset returns on investments set aside for these plans , which are reported in nonoperating income ( expense ) , gaap basis . during 2013 , the noncash , nonoperating pre-tax gain of $ 80 million related to the contributed pennymac investment was excluded from nonoperating income ( expense ) , less net income ( loss ) attributable to nci , as adjusted due to its nonrecurring nature and because the more than offsetting associated charitable contribution expense of $ 124 million is reported in operating income . replace_table_token_21_th 33 ( 3 ) n et income attributable to blackrock , as adjusted : replace_table_token_22_th see the aforementioned discussion regarding operating income , as adjusted , and operating margin , as adjusted , for information on the pnc ltip funding obligation and the charitable contribution . for each period presented , the non-gaap adjustment related to the pnc ltip funding obligation was tax effected at the respective blended rates applicable to the adjustments . amounts for 2013 included a tax benefit of approximately $ 48 million recognized in connection with the charitable contribution . the tax benefit has been excluded from net income attributable to blackrock , inc. , as adjusted due to the nonrecurring nature of the charitable contribution . non-gaap income tax matters adjustments for 2015 , 2014 and 2013 reflected the revaluation of deferred income tax liabilities . the amount for 2015 included a $ 54 million net noncash benefit , primarily related to the impact of legislation enacted in the united kingdom and state and local income tax changes . the amount for 2014 included a $ 9 million net noncash tax benefit arising primarily from state and local income tax changes . the amount for 2013 included a $ 69 million noncash tax benefit , primarily related to the impact of legislation enacted in the united kingdom and state and local income tax changes . such amounts for 2015 , 2014 and 2013 have been excluded from as adjusted results as they will not have a cash flow impact and to ensure comparability among periods presented . ( 4 ) nonvoting participating preferred stock is considered to be a common stock equivalent for purposes of determining basic and diluted earnings per share calculations . 34 assets under management aum for reporting purposes generally is based upon how investment advisory and administration fees are calculated for each portfolio . net asset values , total assets , committed assets or other measures may be used to determine portfolio aum . aum and net inflows ( outflows ) by client type replace_table_token_23_th aum and net inflows ( outflows ) by product type replace_table_token_24_th aum and net inflows ( outflows ) by investment style replace_table_token_25_th ( 1 ) advisory aum represents long-term portfolio liquidation assignments . ( 2 ) amounts include commodity ishares . the following table presents the component changes in blackrock 's aum for 2015 , 2014 and 2013. replace_table_token_26_th ( 1 ) advisory aum represents long-term portfolio liquidation assignments . ( 2 ) amounts for 2015 represent $ 1.3 billion of aum acquired in the acquisition of certain assets of blackrock kelso capital advisors llc ( “ bkca ” ) in march 2015 , $ 560 million of aum acquired in the infraestructura institucional acquisition in october 2015 and $ 366 million of aum acquired in the futureadvisor acquisition in october 35 2015. the futureadvisor acquisition amount does not include aum t hat was held in ishares h oldings . a mounts for 2013 represent $ 16.0 billion of aum acquired in the credit suisse etf franchise in july 2013 ( the “ credit suisse etf transaction ” ) and $ 11.0 billion of aum acquired in the mgpa acquisition in october 2013 . ( 3 ) foreign exchange reflects the impact of translating non-u.s. dollar denominated aum into u.s. dollars for reporting purposes . blackrock has historically grown aum through organic growth and acquisitions . management believes that the company will be able to continue to grow aum organically by focusing on strong investment performance , efficient delivery of beta for index products , client service , developing new products and optimizing distribution capabilities . component changes in aum for 2015 the following table presents the component changes in aum by client type and product type for 2015. replace_table_token_27_th ( 1 ) amounts represent $ 1.3 billion of aum acquired in the acquisition of certain assets of bkca in march 2015 , $ 560 million of aum acquired in the infraestructura institucional acquisition in october 2015 and $ 366 million of aum acquired in the futureadvisor acquisition in october 2015. the futureadvisor acquisition amount does not include aum that was held in ishares holdings .
| executive summary replace_table_token_19_th ( 1 ) net of net income ( loss ) attributable to noncontrolling interests ( “ nci ” ) ( redeemable and nonredeemable ) . ( 2 ) as adjusted items are described in more detail in non-gaap financial measures . ( 3 ) nonvoting participating preferred shares are considered to be common stock equivalents for purposes of determining basic and diluted earnings per share calculations . ( 4 ) total blackrock stockholders ' equity , excluding an appropriated retained deficit of $ 19 million for 2014 and appropriated retained earnings of $ 22 million for 2013 , divided by total common and preferred shares outstanding at december 31 of the respective year-end . 2015 compared with 2014 gaap . operating income of $ 4,664 million increased $ 190 million and operating margin of 40.9 % increased 50 bps from 2014. operating income reflected growth in base fees and performance fees , partially offset by higher expense . the company 's 2015 expense reflected higher revenue-related expense , including compensation , and distribution and servicing costs , partially offset by lower general and administration expense and lower amortization of intangible assets . in connection with the barclays global investors ( “ bgi ” ) acquisition , blackrock recorded a $ 50 million indemnification asset for unrecognized tax benefits . due to the resolution of outstanding tax matters in 2014 , blackrock recorded $ 50 million of general and administration expense in 2014 to reflect the reduction of the indemnification asset and an offsetting $ 50 million tax benefit . results for 2014 also included $ 11 million of closed-end fund launch costs .
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historically , we have grown through the acquisition and subsequent development and exploitation of producing properties , principally through the redevelopment of old fields utilizing new technologies such as modern log analysis and reservoir modeling techniques as well as 3-d seismic surveys and horizontal drilling . as a result of these activities , we believe that we have a number of development opportunities on our properties . in addition , we intend to expand upon our development activities with complementary exploration projects in our core areas of operation . success in our development and exploration activities is critical in the maintenance and growth of our current production levels and associated reserves . while we have attained positive net income in two of the last five years , there can be no assurance that operating income and net earnings will be achieved in future periods . our financial results depend upon many factors which significantly affect our results of operations including the following : · commodity prices and the effectiveness of our hedging arrangements ; · the level of total sales volumes of oil and gas ; · the availability of and our ability to raise additional capital resources and provide liquidity to meet cash flow needs ; 40 · the level of and interest rates on borrowings ; and · the level and success of exploration and development activity . commodity prices and hedging arrangements . the results of our operations are highly dependent upon the prices received for our oil and gas production . the prices we receive for our production are dependent upon spot market prices , differentials and the effectiveness of our derivative contracts , which we sometimes refer to as hedging arrangements . substantially all of our sales of oil and gas are made in the spot market , or pursuant to contracts based on spot market prices , and not pursuant to long-term , fixed-price contracts . accordingly , the prices received for our oil and gas production are dependent upon numerous factors beyond our control . significant declines in prices for oil and gas could have a material adverse effect on our financial condition , results of operations , cash flows and quantities of reserves recoverable on an economic basis . the prices of oil and gas have been volatile . during 2012 , the price of oil decreased from the levels experienced in 2011. the new york mercantile exchange ( nymex ) price for west texas intermediate crude oil ( wti ) averaged $ 94.16 per barrel in 2012 as compared to $ 96.19 per barrel in 2011. during 2012 , the average price of gas decreased from an average nymex henry hub spot price of $ 4.16 per mmbtu in 2011 to $ 2.83 per mmbtu in 2012. prices closed on december 31 , 2012 at $ 91.82 per bbl of oil and $ 3.43 per mmbtu of gas . if commodity prices decline , our revenue and cash flow from operations will also likely decline . in addition , lower commodity prices could also reduce the amount of oil and gas that we can produce economically . if gas prices remain depressed or oil prices decline significantly , our revenues , profitability and cash flow from operations may decrease which could cause us to alter our business plans , including reducing our drilling activities . the realized prices that we receive for our production differ from nymex futures and spot market prices , principally due to : · basis differentials which are dependent on actual delivery location ; · adjustments for btu content ; and · gathering , processing and transportation costs . 41 the following table sets forth our average differentials for the years ended december 31 , 2010 , 2011 and 2012 : replace_table_token_13_th our hedging arrangements equate to approximately 60 % of the estimated oil production from our net proved developed producing reserves ( as of december 31 , 2012 ) through december 31 , 2013 , 80 % in 2014 , 78 % in 2016 and 81 % for 2016. by removing a significant portion of price volatility on our future oil and gas production , we believe we will mitigate , but not eliminate , the potential effects of changing commodity prices on our cash flow from operations for those periods . however , when prevailing market prices are higher than our contract prices , we will not realize increased cash flow on the portion of the production that has been hedged . we have in the past and will in the future sustain realized and unrealized losses on our derivative contracts if market prices are higher than our contract prices . conversely , when prevailing market prices are lower than our contract prices , we will sustain realized and unrealized gains on our commodity derivative contracts . in 2011 , we incurred a realized gain of $ 1.7 million and an unrealized gain of $ 5.7 million . in 2012 , we incurred a realized loss of $ 0.3 million and an unrealized gain of $ 2.7 million . we have not designated any of these derivative contracts as a hedge as prescribed by applicable accounting rules . the following table sets forth the summary position of our derivative contracts at december 31 , 2012 : replace_table_token_14_th at december 31 , 2012 , the aggregate fair market value of our commodity derivative contracts was a liability of approximately $ 6.4 million . on march 12 , 2012 , we monetized our gas derivative contracts for $ 12.4 million . production volumes . our proved reserves will decline as oil and gas is produced , unless we find , acquire or develop additional properties containing proved reserves or conduct successful exploration and development activities . based on the reserve information set forth in our reserve estimates as of december 31 , 2012 , our average annual estimated decline rate for net proved developed producing reserves is 13 % during the first five years , 8 % in the next five years , and approximately 7 % thereafter . story_separator_special_tag dd & a per boe for 2012 was $ 16.02 compared to $ 12.73 in 2011. the increase in dd & a per boe was due to higher future development cost offset by higher sales volumes in 2012 as compared to 2011. interest expense . interest expense increased to $ 5.5 million in 2012 from $ 4.9 million for 2011. the increase was primarily due to higher levels of debt during 2012 as compared to 2011 income taxes . an income tax expense of $ 0.3 million was recognized in 2012 as a result of an ongoing audit of our 2009 federal income tax return . we do not agree with the findings of the audit and it is currently under appeal . 44 loss ( gain ) on derivative contracts . realized derivative gains or losses are determined by actual derivative settlements during the period . unrealized gains and losses are based on the periodic mark to market valuation of derivative contracts in place . we have elected not to apply hedge accounting to our derivative contracts as prescribed by asc 815 ; therefore , fluctuations in the market value of the derivative contracts are recognized in earnings during the current period . our derivative contracts consist of commodity swaps and interest rate swaps . the net estimated value of our commodity derivative contracts was a liability of approximately $ 6.4 million as of december 31 , 2012. when our derivative contract prices are higher than prevailing market prices , we incur realized and unrealized gains and conversely , when our derivative contract prices are lower than prevailing market prices , we incur realized and unrealized losses . for the year ended december 31 , 2012 , we realized a loss on our derivative contracts of approximately $ 0.5 million , which included a realized loss of approximately $ 0.3 million on our commodity swaps and a realized loss of approximately $ 0.2 million on our interest rate swap . for the year-ended december 31 , 2012 , we incurred an unrealized gain of $ 2.7 million on our commodity swaps . we monetized our gas derivative contracts in march 2012 for $ 12.4 million . our interest rate swap expired in august 2012. the estimated value of our derivative contracts was an asset of approximately $ 1.9 million as of december 31 , 2011. for the year ended december 31 , 2011 , we realized a loss on our derivative contracts of approximately $ 0.7 million , which included a realized gain of $ 1.7 million on our commodity swaps and a realized loss of $ 2.4 million on our interest rate swap . for the year-ended december 31 , 2011 , we incurred an unrealized gain of $ 7.5 million on our derivative contracts , which included an unrealized gain of $ 5.7 million on our commodity swaps and $ 1.8 million on our interest rate swap . ceiling limitation write-down . we record the carrying value of our oil and gas properties using the full cost method of accounting for oil and gas properties . under this method , we capitalize the cost to acquire , explore for and develop oil and gas properties . under the full cost accounting rules , the net capitalized cost of oil and gas properties less related deferred taxes , are limited by country , to the lower of the unamortized cost or the cost ceiling , defined as the sum of the present value of estimated unescalated future net revenues from proved reserves , discounted at 10 % , plus the cost of properties not being amortized , if any , plus the lower of cost or estimated fair value of unproved properties included in the costs being amortized , if any , less related income taxes . if the net capitalized cost of oil and gas properties exceeds the ceiling limit , we are subject to a ceiling limitation write-down to the extent of such excess . a ceiling limitation write-down is a charge to earnings which does not impact cash flow from operating activities . however , such write-downs do impact the amount of our stockholders ' equity and reported earnings . as of december 31 , 2011 , our net capitalized costs of oil and gas properties in the united states and canada did not exceed the present value of our estimated proved reserves . as of december 31 , 2012 , the net capitalized cost of our oil and gas properties in the united states did not exceed the present value of our estimated proved reserves , however in canada , the net capitalized cost exceeded the present value of our estimated proved reserves by $ 19.8 million , resulting in a write down of $ 19.8 million . there were write downs in the second , third and fourth quarters of 2012 of $ 1.3 million , $ 11.8 million and $ 6.7 million respectively . the year-end amount was calculated in accordance with sec rules utilizing the twelve month first-day-of-the-month average oil and gas prices for the year ended 2012 which were $ 95.14 per bbl for oil and $ 2.86 per mcf for gas as adjusted to reflect the expected realized prices for our oil and gas reserves . the risk that we will be required to write-down the carrying value of our oil and gas assets increases when oil and gas prices are depressed or volatile . in addition , write-downs may occur if we have substantial downward revisions in our estimated proved reserves . we can not assure you that we will not experience additional write-downs in the future . if commodity prices decline or if any of our proved reserves are revised downward , a further write-down of the carrying value of our oil and gas properties may be required . equity in ( income ) loss of joint venture . we accounted for blue eagle under the equity method of accounting .
| results of operations selected operating data . the following table sets forth operating data for the periods presented . replace_table_token_16_th _ ( 1 ) revenue and average sales prices are before the impact of hedging activities . ( 2 ) operating income includes a proved property impairment of $ 4.8 million and $ 19.8 million in 2010 and 2012 , respectively related to our canadian properties . 43 comparison of year ended december 31 , 2012 to year ended december 31 , 2011 operating revenue . during the year ended december 31 , 2012 , operating revenue increased to $ 68.5 million from $ 64.6 million in 2011. the increase in revenue was due to higher oil and ngl sales volumes in 2012 as compared to 2011 , which were partially offset by lower gas sales volumes and lower realized commodity prices . overall boe sales in 2012 increased approximately 12 % as compared to 2011. increased oil and ngl sales volumes contributed $ 11.8 million to operating revenue while decreased gas sales volumes had a negative impact of $ 0.3 million . lower commodity prices had a negative impact on operating revenue of $ 7.7 million . oil sales volumes increased to 643.5 mbbls for the year ended december 31 , 2012 from 539.9 mbbls for the same period of 2011. the increase in oil sales volumes was due to new production brought on line in 2012. new wells brought onto production in 2012 contributed 129.2 mbbls to production for the year ended december 31 , 2012 , offset by natural field declines . gas sales volumes decreased to 4,097.1 mmcf for the year ended december 31 2012 from 4,221.8 mmcf for the year ended december 31 , 2011. the decrease in gas production was due to natural field declines and the timing of new wells being brought on line , as well as our emphasis on drilling oil wells as opposed to gas wells .
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under asc 718 employee is defined as , “ an individual over whom the grantor of a share-based compensation award exercises or has the right to exercise sufficient control to establish an employer-employee relationship based on common law as illustrated in case law and currently under u.s. tax regulations . ” story_separator_special_tag the following management 's discussion and analysis of financial condition and results of operations , or md & a , is intended to help the reader understand lightbridge corporation , our operations and our present business environment . md & a is provided as a supplement to , and should be read in conjunction with , our consolidated financial statements and the accompanying notes thereto , which are contained in item 8 , financial statements and supplementary data , of this report . this md & a consists of the following sections : · overview of our business and recent developments — a general overview of our business and updates ; · critical accounting policies and estimates — a discussion of accounting policies that require critical judgments and estimates ; 32 · operations review — an analysis of our consolidated results of operations for the two years presented in our consolidated financial statements . except to the extent that differences among our operating segments are material to an understanding of our business as a whole , we present the discussion in the md & a on a consolidated basis ; and · liquidity , capital resources , and financial position — an analysis of our cash flows , and an overview of our financial position . as discussed in more detail at the beginning of this annual report , the following discussion contains forward-looking statements that involve risks , uncertainties , and assumptions such as statements of our plans , objectives , expectations , and intentions . our actual results may differ materially from those discussed in these forward-looking statements because of the risks and uncertainties inherent in future events . overview of our business lightbridge is a leading nuclear fuel technology company . our goal is to produce the next generation of nuclear fuel that could significantly improve the economics , safety , and proliferation resistance of existing and new reactors , with a meaningful impact on addressing climate change and air pollution . we project that the world 's energy and climate needs can only be met if nuclear power 's share of the energy-generating mix grows substantially . our primary focus is the development and commercialization of metallic fuel rods that will replace the uranium oxide ceramic pellets that have traditionally fueled nuclear reactors . we believe our metallic fuel offers significant economic and safety benefits over traditional fuel , primarily because of the superior heat transfer properties of all-metal fuel and the resulting lower operating temperature of the reactor . we also believe that uprating a reactor with lightbridge fuel will add incremental electricity at a lower levelized cost than any other means of generating baseload electric power , including any renewable , fossil , or hydroelectric energy source . we have built a significant portfolio of patents reflecting years of research and development , and we anticipate substantial completion of our research efforts and the testing of our fuel over the next few years . we expect the first purchase orders for our metallic fuel as soon as 2028 , with final deployment of our fuel in commercial reactors as soon as 2030. we conduct our business principally through enfission , our 50/50 joint venture with framatome formed on january 24 , 2018. enfission serves as the exclusive vehicle through which the company and framatome are researching , developing , obtaining regulatory approvals , manufacturing and will be using , marketing and selling nuclear fuel assemblies based on the lightbridge metallic fuel technology comprising u-zr multi-lobe , helically twisted fuel rods and associated manufacturing processes and other advanced nuclear fuel intellectual property contributed by both lightbridge and framatome within the operating domain . the operating domain of enfission includes pressurized water reactors ( excluding water-cooled water-moderated energetic reactor ( vver ) types ) and boiling water reactors , which collectively constitute most of the power reactors in the world , as well as water-cooled small modular reactors and water-cooled research reactors . within the operating domain of enfission , in addition to distributions from enfission based on our ownership interest in the joint venture , we anticipate receiving future licensing revenues in connection with sales by enfission of nuclear fuel incorporating our background intellectual property as well as jointly owned foreground intellectual property co-owned on a 50-50 basis with framatome sas . outside the domain of enfission , such as future fuel sales to utility customers operating candu or vver reactors , we expect to enter into separate technology licensing or other types of commercial arrangements to monetize our intellectual property . 33 in addition to our nuclear fuel technology business , we may also opportunistically provide nuclear power consulting and strategic advisory services to commercial and governmental entities worldwide . we are not currently seeking consulting engagements and have no dedicated resources for that purpose and have discontinued this business segment , however we are open to opportunistically providing nuclear power consulting and strategic advisory services through reassignment of resources from our core business and employment of outside resources from our industry contacts , to commercial and governmental entities worldwide in the future . we have included the audited financial results of the enfission joint venture with framatome as an exhibit to this annual report on form 10-k , as we believe enfission 's financial results are significant to our operations and our financial results . we were incorporated under the laws of the state of nevada on february 2 , 1999. lightbridge and enfission 's principal executive offices are located at 11710 plaza america drive , suite 2000 , reston , virginia 20190 usa . refer to part i , item 1 , business , for additional information . story_separator_special_tag we currently project a cash flow shortfall averaging approximately $ 0.8 million per month for our general and administrative and corporate research and development expenses for total expected expenditures of approximately $ 9.3 million for the next 12 months . we currently anticipate the amount of cash outlays to enfission and third parties for research and development expenditures and equipment purchases of approximately $ 10.7 million , for the next 12 months . total cash budget for the next 12 months is approximately $ 20 million . the company believes that its current financial resources , as of the date of the issuance of these financial statements , are sufficient to fund its current 12 month operating budget , alleviating the substantial doubt raised by our historical operating results and satisfying our estimated liquidity needs 12 months from the issuance of these financial statements . we can provide no assurances about meeting our budgeted expenditures regarding our future research and development efforts to meet our desired fuel development milestones for the next 12 months and beyond , as well as predicting future market trends in nuclear that can affect the future sale of our nuclear fuel . furthermore , any negative results from our research and development may require us to increase our research and development spending to achieve our desired milestones in developing our nuclear fuel . presently , we fund substantially all of the cash that is required for the research and development activities to be conducted in enfission . these additional capital needs relate to the development , manufacturing , and commercialization of our nuclear fuel assemblies . we have the ability to delay incurring certain operating expenses in the next 12 to 15 months , which could reduce our cash flow shortfall , if needed . the current primary future potential sources of cash available to us in 2019 are potential funding from equity investments and potential grants that we are actively seeking from doe . we anticipate that current cash on hand and additional equity investments in 2019 will help us meet the doe minimum cost-sharing requirements that typically range from 20 % to 50 % of the total project cost ( i.e. , a 25 % to 100 % match in company 's cost-sharing contributions is required for each dollar of doe funding ) or even higher in some cases . we have no debt or debt credit lines and we have financed our operations to date through our prior years ' consulting revenue and the sale of our preferred stock and common stock . management believes that public or private equity investments will be available as needed , however adverse market conditions in our common stock price and trading volume could substantially impair our ability to raise capital in the future . 38 short-term and long-term liquidity sources as discussed above , we may seek new financing or additional sources of capital , depending on the capital market conditions , over the next 12 months . there can be no assurance that some of these additional sources of capital will be made available to us . the primary potential sources of cash that may be available to us are as follows : · equity investment from third party investors in lightbridge or enfission ; and · strategic investment or cost-sharing contributions through funding from the department of energy , and or other strategic parties , to support the remaining research and development activities required to further enhance and complete the development of our fuel products to a commercial stage . in support of our long-term business plan with respect to our fuel technology business , we endeavor to create strategic alliances with other strategic parties during the next three years , to support the remaining research and development activities through enfission that is required to further enhance and complete the development of our fuel products to a commercial stage . we may be unable to form such strategic alliances on terms acceptable to us or at all . we will need to raise additional capital to fund our overall corporate and research and development activities for future operations in 2020 and beyond , which may involve offerings of equity or debt securities , securing financing through one or more banks or entering into strategic alliances with other parties . see note 9. stockholders ' equity and stock-based compensation of the notes to our financial statements included in part ii item 8 , financial statements and supplementary data , of this annual report on form 10-k for information regarding our prior financings . the following table provides detailed information about our net cash flows for the years ended december 31 , 2018 and 2017. cash flow ( rounded in millions ) replace_table_token_5_th operating activities the increase in our cash used in operating activities in 2018 of approximately $ 2.4 million was primarily due to an increase in our operating expenses and net loss and the change in working capital items as explained below . cash used in operating activities in the year ended december 31 , 2018 consisted of net loss adjusted for non-cash ( income ) expense items such as stock-based compensation , amortization of deferred financing costs and others , as well as the effect of changes in working capital . cash used in operating activities in the year ended december 31 , 2018 consisted of a net loss of approximately $ 15.7 million and net adjustments to net loss for non-cash income items or a negative cash flow offset ( decrease to cash flow used in operating activities ) totaling approximately $ 9.2 million , consisting of non-cash adjustments for stock-based compensation of approximately $ 2.4 million , write-off of deferred financing costs of approximately $ 1.0 million and equity in loss from joint venture of approximately $ 5.8 million .
| consolidated results of operations the following table presents our historical operating results as a percentage of revenues for the years indicated : replace_table_token_4_th 35 revenue the market for nuclear industry consulting services is competitive , fragmented , and subject to rapid change . our main business is developing our nuclear fuel . we may pursue some consulting services opportunities in the future , but we have further increased the focus and resources of the company to the fuel division and away from consulting . there was no revenue for the year ended december 31 , 2018 as compared to approximately $ 0.2 million for the year ended december 31 , 2017. cost of services provided because we have shifted the focus and resources of the company to the fuel division and away from consulting , we have not incurred costs related to consulting in 2018. cost of services provided in 2017 was comprised of expenses related to the consulting , professional , administrative , and other support costs and stock-based compensation allocated to our consulting projects labor , which were incurred to perform and support the work done for our consulting projects . total stock-based compensation included in cost of services provided was approximately $ 0.02 million for the year ended december 31 , 2017. research and development research and development expenses consist primarily of compensation and related fringe benefits including stock-based compensation and related allocable overhead costs for the research and development of our fuel , including work performed and billed to our enfission joint venture .
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advertising revenues for web sites are recorded , net of the discount for agency commissions , ratably over the period of time the advertisement is placed on web sites . prepaid subscription proceeds are deferred and are included in revenue on a pro-rata basis over the term of the subscriptions . subscription revenues under buy-sell arrangements with distributors are recorded based on the net amount story_separator_special_tag forward-looking statements the following information should be read in conjunction with the other sections of this annual report on form 10-k. statements in this annual report on form 10-k concerning a. h. belo 's business outlook or future economic performance , anticipated profitability , revenues , expenses , dividends , capital expenditures , investments , impairments , business initiatives , pension plan contributions and obligations , real estate sales , future financings , and other financial and non-financial items that are not historical facts , are forward-looking statements as the term is defined under applicable federal securities laws . forward-looking statements are subject to risks , uncertainties and other factors that could cause actual results to differ materially from those statements . such risks , uncertainties and factors include , but are not limited to , changes in capital market conditions and prospects , and other factors such as changes in advertising demand , interest rates and newsprint prices ; newspaper circulation trends and other circulation matters , including changes in readership patterns and demography , and audits and related actions by the audit bureau of circulations ; challenges in achieving expense reduction goals in a timely manner , and the resulting potential effect on operations ; technological changes ; development of internet commerce ; industry cycles ; changes in pricing or other actions by competitors and suppliers ; consumer acceptance of new products and business initiatives ; regulatory , tax and legal changes ; adoption of new accounting standards or changes in existing accounting standards by the financial accounting standards board or other accounting standard-setting bodies or authorities ; the effects of company acquisitions , dispositions and co-owned ventures and investments ; returns and discount rates on pension plan assets ; general economic conditions ; significant armed conflict ; and other factors beyond our control , as well as other risks described elsewhere in this annual report on form 10-k and in the company 's other public disclosures and filings with the securities and exchange commission . all references to earnings per share represent diluted earnings per share . unless the context requires otherwise , all dollar amounts are in thousands , except per share amounts . overview a. h. belo corporation a. h. belo , headquartered in dallas , texas , is a distinguished newspaper publishing and local news and information company that owns and operates four metropolitan daily newspapers and several associated web sites , with publishing roots that trace to the galveston daily news , which began publication in 1842. a. h. belo publishes the dallas morning news ( www.dallasnews.com ) , texas ' leading newspaper and winner of nine pulitzer prizes ; the providence journal ( www.providencejournal.com ) , the oldest continuously-published daily newspaper in the united states and winner of four pulitzer prizes ; the press-enterprise ( www.pe.com ) ( riverside , california ) , serving the inland southern california region and winner of one pulitzer prize ; and the denton record-chronicle ( www.dentonrc.com ) , a daily newspaper operating in denton , texas , approximately 40 miles north of dallas . the company publishes various niche publications targeting specific audiences , and its investments and or partnerships include classified ventures , llc , owner of cars.com , and the yahoo ! newspaper consortium . a. h. belo also owns and operates commercial printing , distribution and direct mail service businesses . a. h. belo intends for the discussion of its financial condition and results of operations that follows to provide information that will assist in understanding its financial statements , the changes in certain key items in those statements from period to period , and the primary factors that accounted for those changes , as well as how certain accounting principles , policies , and estimates affect its financial statements . basis of presentation the consolidated financial statements in this annual report on form 10-k include the accounts of a. h. belo and its wholly-owned subsidiaries after elimination of all significant intercompany accounts and transactions . a. h. belo corporation 2011 annual report on form 10-k page 17 overview of 2011 significant transactions the following represent significant transactions and events affecting a. h. belo 's results of operations and financial position during 2011 : the dallas morning news ' primary web site completed its first year of operations under which it limited access to premium content by nonsubscribers in order to reduce the loss of circulation revenue among print subscribers . the dallas morning news ' circulation revenue increased 0.3 percent in 2011. the company expanded its product offerings to include applications for hand-held and other mobile devices . advertising revenues declined by 8.9 percent , while the company 's circulation revenues remained constant and printing and distribution revenues increased . in 2011 , the company 's newsprint expense was $ 42.8 million , an increase of 8.6 percent compared to the prior year . newsprint consumption decreased 2.9 percent to approximately 67,300 metric tons . compared to the prior year , newsprint cost per metric ton increased 11.8 percent . the company completed a reduction in force between the second and fourth quarters of 2011 , allowing the company to reduce certain 2011 employment costs by $ 18,400 or 10.0 percent , after incurring $ 3,052 of termination costs . the company formed and solely sponsors two newly defined benefit plans , which received assets and liabilities related to the withdrawal from the gbd pension plan , the loss on which was substantially recorded in 2010. the company recorded $ 1,988 of loss in 2011 related to the finalization of the withdrawal from the gbd pension plan . story_separator_special_tag depreciation decreased in 2011 and 2010 due to disposals and impairments each year , in addition to a higher level of in-service assets being fully depreciated . page 22 a. h. belo corporation 2011 annual report on form 10-k amortization decreased in 2010 due to the subscriber lists at the dallas morning news being fully amortized as of december 31 , 2009. asset impairments include a $ 6,500 loss in 2011 related to the impairment of certain real estate located in inland southern california and include a $ 3,404 loss in 2010 related to software and equipment that was no longer usable . pension plan withdrawal represents the loss on the withdrawal from the gbd pension plan . in 2010 , the company recorded a loss of $ 132,346 based on preliminary estimates of the unfunded pension benefit obligation assumed . in 2011 , an additional loss of $ 1,988 was recorded after finalization of beneficiary demographic data . interest expense decreased in 2011 when compared to 2010 due to lower fees on the company 's credit facility , and decreased in 2010 when compared to 2009 as a result of no borrowings being outstanding under the company 's credit agreement during 2010. other income ( expense ) , net , decreased in 2011 when compared to 2010 and increased in 2010 when compared to 2009. other expense in 2011 includes losses , net of recoveries on investment activity , of $ 1,905. the higher income in 2010 reflects gains on the sale of fixed assets of $ 6,402 , including a gain recorded in june 2010 of approximately $ 5,373 related to the sale of a parking garage in providence , rhode island . tax expense increased in 2011 to $ 5,011 from a benefit of $ 7,575 in 2010 primarily as a result of an internal revenue service ( the irs ) audit settlement of $ 2,961 related to pre-distribution tax years , changes in valuation allowance , and investment-related adjustments . the 2010 tax benefit decreased from the 2009 tax benefit of $ 12,475 as a result of reduced decreases to the valuation allowance due to lower net operating loss carryback claims in 2010 compared to 2009. see the consolidated financial statements , note 11 income taxes . adjusted earnings before interest , taxes , depreciation and amortization in addition to the company 's analysis of net income , the company also evaluates earnings after adjusting for depreciation , amortization , interest and taxes ( ebitda ) after adding back pension expense , non-cash impairment expense and net investment-related losses ( adjusted ebitda ) . adjusted ebitda decreased by 15.6 percent in 2011 over 2010 as a result of declining revenues and higher newsprint prices . adjusted ebitda increased 72.5 percent in 2010 over 2009 due to cost savings in excess of declining revenues as a result of lower salaries , wages and benefits of approximately $ 16,200 in 2010 after excluding pension related costs , lower newsprint prices and other general cost control measures . replace_table_token_11_th neither ebitda nor adjusted ebitda is a measure of financial performance under generally accepted accounting principles ( gaap ) . management uses ebitda , adjusted ebitda and similar measures in internal analyses as supplemental measures of the company 's financial performance , performance comparisons against its peer group of companies , as well as capital spending and other investing decisions . neither ebitda nor adjusted ebitda should be considered in isolation or as a substitute for cash flows provided by operating activities or other income or cash flow data prepared in accordance with gaap , and these non-gaap measures may not be comparable to similarly-titled measures of other companies . a. h. belo corporation 2011 annual report on form 10-k page 23 critical accounting policies and estimates a. h. belo 's consolidated financial statements are based on the selection and application of accounting policies that require management to make significant estimates and assumptions . the company believes that the following are the more critical accounting policies , estimates and assumptions currently affecting a. h. belo 's financial position and results of operations . see the consolidated financial statements , note 1 summary of significant accounting policies , for additional information concerning significant accounting policies . revenue recognition and reserves for uncollectible accounts receivables . newspaper advertising revenue is recorded , net of the discounts recorded for agency commissions , when the advertisements are published in the newspaper . advertising revenues for web sites are recorded net of the discount recorded for agency commissions , ratably over the period of time the advertisement is placed on web sites . proceeds from subscriptions are deferred and are included in revenue on a pro-rata basis over the term of the subscriptions . subscription revenues under buy-sell arrangements with distributors are recorded based on the net amount received from the distributor , whereas subscription revenues under fee-based delivery arrangements with distributors are recorded based on the amount received from the subscriber . direct mail and commercial printing revenue is recorded when the product is distributed or shipped . the company estimates and records a reserve for uncollectible accounts receivable based upon recent collection experience and management 's knowledge of customers ' ability to pay amounts due . expense for such uncollectible amounts is included in other production , distribution and operating costs . goodwill . the company records goodwill at the reporting unit level based on the excess fair value of prior business acquisitions over the fair value of the assets and liabilities acquired . reporting units of the company are based on its internal reporting structure and represent a reporting level below an operating segment . for those reporting units which record goodwill , the company tests for impairment by estimating the fair value of the reporting unit compared to its carrying value . the company uses a discounted cash flow model to calculate the fair value of its reporting units .
| results of operations ( dollars in thousands , except per share amounts ) consolidated results of operations replace_table_token_4_th page 18 a. h. belo corporation 2011 annual report on form 10-k the table below sets forth the components of a. h. belo 's net operating revenues for the last three years : replace_table_token_5_th in 2011 , 2010 and 2009 , the company 's advertising revenues were adversely affected by competitive and economic pressures . advertisers tend to reduce advertising budgets more than other expenses in times of economic uncertainty or recession . the continuing economic sluggishness and the shift of advertising expenditures to other forms of media adversely affected advertising demand and the company 's business , financial condition and results of operations . in order to reduce its reliance on advertising revenue , the company has implemented circulation pricing strategies and aggressively expanded its printing and distribution operations . as a result of these economic , secular and strategic factors , advertising revenues as a percent of a. h. belo 's total revenue have steadily declined from approximately 68.0 percent in 2009 to 61.2 percent in 2011. the company expects newspaper advertising revenues will continue to decrease in 2012 , although at a lower rate of decline . in response to the declines in advertising revenues , the company has implemented several new product initiatives to increase other sources of revenue , including circulation revenues . the company 's consumer revenue strategies , based on superior unduplicated local content and active customer engagement , have allowed the company to raise circulation rates resulting in increasing revenue from a smaller subscriber base . in 2011 and 2010 , circulation revenues increased , although daily circulation volumes decreased 12.0 percent and 1.9 percent , respectively , and sunday volumes decreased 19.5 percent and 8.5 percent , respectively .
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the company performs periodic evaluations of the credit quality of these financial institutions . restricted cash restricted cash primarily consists of reserves for replacement of furniture and fixtures and cash held in escrow pursuant to lender requirements to pay for real estate taxes or property story_separator_special_tag overview the u.s. lodging industry continued to exhibit positive fundamentals in 2011 that had begun strengthening in 2010. despite a slower-moving national economy in the second half of 2011 , global financial markets volatility and risk related to the european debt crisis , corporate profits and employment have continued to improve in the united states . the strength in corporate transient , group and leisure travel , specifically in the major urban markets , has continued to drive increases in occupancy and adr , resulting in overall revpar growth of 8.2 % for the u.s. hotel industry . hotel transaction volume was robust during the first half of 2011 driven by the positive industry fundamentals coupled with low interest rates . however , hotel transaction volume fell precipitously in the second half of 2011 due to the uncertain sustainability of the u.s. economic recovery and volatility of the global markets . over-leveraged hotel properties and owners with insufficient capital resources have provided opportunities for well capitalized companies to acquire high-quality properties located in urban markets . we believe acquisition opportunities from distressed owners will likely ramp up again in the second half of 2012 , as the aggregate loan balances in special servicing are expected to increase significantly . hotel transaction volume as a whole is expected to increase over the next 12 to 18 months assuming a sustainable economic recovery . along with expected increasing transaction volume , we expect sellers to have higher pricing expectations . we continue to believe that we will see a long and healthy recovery in the hotel industry and believe our properties have significant opportunities to achieve growth in their long-term economic values . we anticipate that our properties will exceed industry revpar and margin growth in 2012 because of our asset management initiatives and capital reinvestment programs . although we do not manage the hotels we own , our asset management experience and ownership of hotels with different management companies allow us to work with our hotel operators to implement revenue enhancement and expense control initiatives that we believe will have a positive impact on the profitability of the properties we own and acquire . significant highlights of our activities for the year ended december 31 , 2011 are as follows : acquisitions we acquired six properties for purchase prices aggregating $ 508.2 million . the properties we acquired are : the argonaut hotel ( february 16 , 2011 ) , the westin gaslamp quarter ( april 6 , 2011 ) , the hotel monaco seattle ( april 7 , 2011 ) , mondrian los angeles ( may 3 , 2011 ) , the viceroy miami ( may 26 , 2011 ) , and w boston ( june 8 , 2011 ) . investment in unconsolidated joint ventures on july 29 , 2011 , we invested $ 152.6 million for a 49 % equity interest in the manhattan collection joint venture , which owns six properties in new york . senior unsecured revolving credit facility we amended our credit facility to allow more flexibility by converting the facility from secured to unsecured , increasing its borrowing capacity to $ 200 million and extending the maturity date to june 2014 while also reducing overall borrowing costs . 37 mortgage loans we received proceeds of $ 67.0 million by placing mortgages on the skamania lodge and doubletree by hilton bethesda-washington dc . we also assumed a $ 42.0 million mortgage in conjunction with the purchase of the argonaut hotel . equity offerings we issued 10.9 million common shares for net proceeds of approximately $ 226.5 million . we also issued series a preferred shares for net proceeds of approximately $ 136.0 million and series b preferred shares for net proceeds of approximately $ 82.3 million . renovations we invested approximately $ 44.1 million to reposition our properties in 2011. renovations began or were completed at the doubletree by hilton bethesda-washington dc , the grand hotel minneapolis , the sir francis drake , intercontinental buckhead , westin gaslamp , and hotel monaco seattle . recent developments in january 2012 , we obtained a $ 46.0 million loan secured by our leasehold interest under the ground lease on the monaco washington dc . the proceeds from this loan were used to pay down the existing $ 35.0 million mortgage on this property and the remaining proceeds will be used for general corporate purposes . this loan has a fixed interest rate of 4.36 percent per annum and requires monthly principal and interest payments of $ 0.2 million through february 2017 , the maturity date . in january 2012 , we repaid the $ 42.0 million loan on the argonaut hotel with $ 31.0 million from cash on hand and $ 15.0 million of borrowings from our senior unsecured revolving credit facility . in february 2012 , we obtained a new $ 47.0 million loan secured by this property . the proceeds from this loan were used to pay down the balance on the senior unsecured revolving credit facility . this loan has a fixed interest rate of 4.25 percent per annum and requires monthly principal and interest payments of $ 0.3 million through march 2017 , the maturity date . in february 2012 , we repaid the $ 56.1 million loan on the sofitel philadelphia hotel with borrowings from our senior unsecured revolving credit facility . story_separator_special_tag operating results for real estate companies that use historical cost accounting to be insufficient by themselves . story_separator_special_tag in the evaluation of impairment of its hotel properties , the company makes many assumptions and estimates including projected cash flows both from operations and eventual disposition , expected useful life and holding period , future required capital expenditures , and fair values , including consideration of capitalization rates , discount rates , and comparable selling prices . we will adjust our assumptions with respect to the remaining useful life of the hotel property when circumstances changes , such as an expiring ground lease or it is more likely than not that the hotel property will be sold prior to its previously expected useful life . investment in unconsolidated joint ventures judgment is required with respect to the consolidation of partnership and joint venture entities in terms of the evaluation of control , including assessment of the importance of rights and privileges of the partners based on voting rights , as well as financial interests that are not controllable through voting interests . investments in joint ventures we do not control but which we have the ability to exercise significant influence over operating and financial policies are accounted for under the equity method of accounting . we employ the equity accounting 42 method because we do not control the joint venture and are not the primary beneficiary of the joint venture pursuant to the applicable authoritative accounting guidance . we review the investment in our joint ventures for impairment in each reporting period pursuant to the applicable authoritative accounting guidance . the investment is impaired when its estimated fair value is less than the carrying amount of our investment . revenue recognition revenue consists of amounts derived from hotel operations , including the sales of rooms , food and beverage and other ancillary amenities . revenue is recognized when rooms are occupied and services have been rendered . these revenue sources are affected by conditions impacting the travel and hospitality industry as well as competition from other hotels and businesses in similar markets . share-based compensation we have adopted an equity incentive plan that provides for the grant of common share options , share awards , share appreciation rights , performance units and other equity-based awards . equity-based compensation is measured at the fair value of the award on the date of grant and recognized as an expense on a straight-line basis over the vesting period . the determination of fair value of these awards is subjective and involves significant estimates . the long-term incentive partnership ( ltip ) units were valued using a monte carlo simulation method model , which requires a number of assumptions including expected volatility of our stock , expected dividend yield , expected term , and assumptions of whether these awards will achieve parity with other operating partnership units . we believe that the assumptions and estimates utilized are appropriate based on the information available to management at the time of grant . income taxes to qualify as a reit , we must meet a number of organizational and operational requirements , including a requirement that it currently distribute at least 90 percent of its adjusted taxable income to its shareholders . as a reit , we generally will not be subject to federal corporate income tax on that portion of its taxable income that is currently distributed to shareholders . we may be subject to certain state and local taxes on its income and property , and to federal income and excise taxes on its undistributed taxable income . in addition , our wholly owned taxable reit subsidiary , which leases our hotels from the operating partnership , is subject to federal and state income taxes . we account for income taxes using the asset and liability method under which 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 . valuation allowances are provided if , based upon the weight of the available evidence , it is more likely than not that some or all of the deferred tax assets will not be realized . recently issued accounting standards in may 2011 , the fasb and international accounting standards board ( iasb ) ( collectively the boards ) issued asu no . 2011-04 , fair value measurement ( topic 820 ) : amendments to achieve common fair value measurement and disclosure requirements in u.s. gaap and ifrss ( asu 2011-04 ) . asu 2011-04 created a uniform framework for applying fair value measurement principles for companies around the world and clarified existing guidance in u.s. gaap . asu 2011-04 is effective for the first reporting annual period beginning after december 15 , 2011 and shall be applied prospectively . we do not expect this standard to have any material effect on our consolidated financial statements . in june 2011 , the fasb issued asu no . 2011-05 , comprehensive income ( topic 220 ) , presentation of comprehensive income . this update is intended to increase the prominence of other comprehensive income in the financial statements by requiring public companies to present comprehensive income either as a single statement detailing the components of net income and total net income , the components of other comprehensive 43 income and total other comprehensive income , and a total for comprehensive income or using a two statement approach including both a statement of income and a statement of comprehensive income . the option to present other comprehensive income in the statement of changes in equity has been eliminated . the amendments in this update , which should be applied retrospectively , are effective for public companies for fiscal years , and interim periods beginning after december 15 , 2011. currently , we have no items of other comprehensive income in any periods presented and adoption of this standard is not expected to impact us .
| results of operations results of operations for the year ended december 31 , 2011 include the operating results of the eight hotels we acquired in 2010 and the six hotels acquired in 2011 since their respective acquisition dates . the operating results of our investment in unconsolidated joint ventures is from the date of our investment , july 29 , 2011 , through december 31 , 2011. results of operations for the year ended december 31 , 2010 , include the operating activities of the eight hotels acquired in 2010 since their respective acquisition dates . we owned no hotel properties in 2009. as a result of our acquisition activities in 2010 and 2011 , the results of operations during these periods are not comparable on a year-over-year basis . comparison of the year ended december 31 , 2011 to the year ended december 31 , 2010 revenues total revenues increased by $ 230.2 million from 2010. the six hotels we acquired in 2011 contributed to approximately $ 102.3 million of this increase , and the balance was generated from the eight properties acquired in 2010. expense total expenses increased by $ 158.5 million from 2010. the six hotels we acquired in 2011 contributed to approximately $ 69.1 million of this increase , and the balance was incurred by the eight properties acquired in 2010. depreciation and amortization depreciation and amortization expense increased by $ 25.2 million primarily as a result of the additional six hotels we acquired in 2011 .
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our consolidated financial statements contained in this annual report are prepared in accordance with u.s. gaap . overview we are a designer , developer and global supplier of a broad portfolio of power semiconductors . our portfolio of power semiconductors includes approximately 1,700 products , and has grown significantly with the introduction of 80 new products during the fiscal year of 2017 , and over 90 new products in each of the fiscal years ended june 30 , 2016 and 2015. our teams of scientists and engineers have developed extensive intellectual properties and technical knowledge that encompass major aspects of power semiconductors , which we believe it enables us to introduce and develop innovative products to address the increasingly complex power requirements of advanced electronics . we have an extensive patent portfolio that consists of 673 patents and 130 patent applications in the united states as of june 30 , 2017 . we differentiate ourselves by integrating our expertise in technology , design and advanced manufacturing and packaging to optimize product performance and cost . our portfolio of products targets high-volume applications , including personal computers , flat panel tvs , led lighting , smart phones , battery packs , consumer and industrial motor controls and power supplies for tvs , computers , servers and telecommunications equipment . our business model leverages global resources , including research and development and manufacturing in the united states and asia . our sales and technical support teams are localized in several growing markets . we operate a 200mm wafer fabrication facility located in hillsboro , oregon , or the oregon fab , which is critical for us to accelerate proprietary technology development , new product introduction and improve our financial performance in the long run . to meet the market demand for the more mature high volume products , we also utilize the wafer manufacturing capacity of selected third party foundries . for assembly and test , we primarily rely upon our in-house facilities in china . in addition , we utilize subcontracting partners for industry standard packages . we believe our in-house packaging and testing capability provides us with a competitive advantage in proprietary packaging technology , product quality , cost and sales cycle time . on march 29 , 2016 , we entered into a joint venture contract ( the “ jv agreement ” ) with two investment funds owned by the municipality of chongqing ( the “ chongqing funds ” ) , pursuant to which we and the chongqing funds formed a joint venture , ( the “ jv company ” ) , for the purpose of constructing a power semiconductor packaging , testing and wafer fabrication facility in the liangjiang new area of chongqing , china ( the “ jv transaction ” ) . the total initial capitalization of the jv company is $ 330.0 million ( the “ initial capitalization ” ) . the initial capitalization is expected to be completed in stages . by august 31 , 2017 , the chongqing funds contributed $ 66.0 million of initial capital in cash and we contributed $ 10.0 million in cash and certain intangible assets , as well as certain packaging equipment as required by the jv agreement by transferring the legal titles of such equipment to the jv company . we own 51 % , and the chongqing funds own 49 % , of the equity interest in the jv company . if both parties agree that the termination of the jv company is the best interest of each party or the jv company is bankrupt or insolvent where either party may terminate early , after paying the debts of the jv company , the remaining assets of the jv company shall be paid to the chongqing funds to cover the principal of its total paid-in contributions plus the interest at 10 % simple annual rate prior to distributing the balance of the jv company 's assets to us . we expect to commence initial packaging production upon the achievement of required milestones as set forth in the jv agreement , including certain construction and funding milestones . in the long-term , the jv company plans to construct and operate a 12-inch wafer fabrication facility for the production of power semiconductors . we expect the joint venture to deliver significant cost savings , enhance our market positions in china , and drive meaningful improvements in working capital and capital expenditures . as part of the jv transaction , the jv company entered into an engineering , procurement and construction contract ( the “ epc contract ” ) with the it electronics eleventh design & research institute scientific and technological engineering corporation limited ( the “ contractor ” ) , effective as of january 10 , 2017 ( the `` effective date '' ) , pursuant which the contractor was engaged to construct the manufacturing facility contemplated under the jv agreement . under the epc contract , the contractor 's obligations include , but are not limited to : ( i ) the development of conceptual design , initial design , construction drawing design and optimization , and submission of such designs to the jv company for examination and confirmation ; and ( ii ) the construction of the assembly and wafer fabrication facilities and related procurement services , including the selection and engagement of subcontractors , in accordance with a construction schedule agreed upon by the parties . the total price payable under the epc contract is chinese renminbi ( rmb ) 540.0 million , or approximately $ 78.0 million , based on the currency exchange rate between rmb and u.s. dollars on the effective date , which consists of $ 2.8 million ( rmb 19.5 million ) of design fees ( “ design fees ” ) and $ 75.2 million ( rmb 520.5 million ) of construction and procurement fees ( including compliance with safety and aesthetic requirements ) ( “ construction fees ” ) . story_separator_special_tag while making progress in reducing our 42 reliance on the computing market , we continue to support our computing business and capitalize on the opportunity with a more focused and competitive pc product strategy . as we develop and sell new products that serve more diversified markets , we expect sales based on the pc market , as a percentage of the total revenue to decline . if the rate of decline in the pc markets is faster than we expected , or if we can not successfully diversify or introduce new products to keep pace with the declining pc markets , we may not be able to alleviate its negative impact on our results of operations . manufacturing costs : our gross margin may be affected by our manufacturing costs , including utilization of our manufacturing facilities , pricing of wafers from third party foundries and semiconductor raw materials , which may fluctuate from time to time largely due to the market demand and supply . capacity utilization affects our gross margin because we have certain fixed costs associated with our packaging and testing facilities and our oregon fab . if we are unable to utilize our manufacturing facilities at a desired level , our gross margin may be adversely affected . in addition , we expect that in the long term our joint venture agreement with the chongqing funds will reduce our costs of manufacturing . however , our manufacturing costs may increase in the short term prior to the commencement of operation of the jv company , because we may be required to incur additional costs to acquire packaging and testing capacity in order make up for the reduced capacity during the period in which we transfer our equipment from shanghai to chongqing . furthermore , from time to time , we may experience wafer capacity constraints , particularly at third party foundries , that may prevent us from meeting the demand of our customers . while we can mitigate such constraints by increasing capacity at our own fab , we may not be able to do so quickly or at sufficient level , which could adversely affect our financial conditions and results of operations . erosion of average selling price : erosion of average selling prices of established products is typical in our industry . consistent with this historical trend , we expect that average selling prices of our existing products will continue to decline in the future . however , in a normal course of business , we seek to offset the effect of declining average selling prices by introducing new and higher value products , expanding existing products for new applications and new customers , and reducing manufacturing cost of existing products . product introductions and customers ' product requirements : our success depends on our ability to introduce products on a timely basis that meet or are compatible with our customers ' specifications and performance requirements . both factors , timeliness of product introductions and conformance to customers ' requirements , are equally important in securing design wins with our customers . as we accelerate the development of new technology platforms , we expect to increase the pace at which we introduce new products and obtain design wins . our failure to introduce new products on a timely basis that meet customers ' specifications and performance requirements , particularly those products with major oem customers , and our inability to continue to expand our serviceable markets , could adversely affect our financial performance , including loss of market share . we believe that the jv transaction will increase and diversify our customer base , particularly in china , in the long term . we expect the jv company to commence initial packaging production upon the achievement of specified milestones , including certain construction and funding milestones . however , there is no guarantee that the jv company will commence timely or at all , and we may experience delays in the construction of the facility . even if we are able to commence operation , we may not be successful in acquiring a sufficient number of new customers to offset the additional costs due to various factors , including but are not limited to , competition from other semiconductor companies in the region , our lack of history and prior relationships with customers as a new entrant , difficulties in executing our joint venture strategies , lack of control over our operations and the general economic conditions in chongqing and china . distributor ordering patterns and seasonality : our distributors place purchase orders with us based on their forecasts of end customer demand , and this demand may vary significantly depending on the sales outlook and market and economic conditions of end customers . because these forecasts may not be accurate , channel inventory held at our distributors may fluctuate significantly , which in turn may prompt distributors to make significant adjustments to their purchase orders placed with us . as a result , our revenue and operating results may fluctuate significantly from quarter to quarter . in addition , because our products are used in consumer electronics products , our revenue is subject to seasonality . our sales seasonality is affected by numerous factors , including global and regional economic conditions as well as the pc market conditions , revenue generated from new products , changes in distributor ordering patterns in response to channel inventory adjustments and end customer demand for our products and fluctuations in consumer purchase patterns prior to major holiday seasons . in recent periods , broad fluctuations in the semiconductor markets and the global and regional economic conditions , in particular the decline of the pc market conditions , have had a more significant impact on our results of operations than seasonality . furthermore , our revenue may be impacted by the level of demand from our major customers due to factors outside of our control .
| operating results the following tables set forth our results of operations and as a percentage of revenue for the fiscal years ended june 30 , 2017 , 2016 and 2015 . our historical results of operations are not necessarily indicative of the results for any future period . replace_table_token_3_th 45 ( 1 ) includes share-based compensation expense as follows : replace_table_token_4_th revenue the following is a summary of revenue by product type : replace_table_token_5_th fiscal 2017 vs 2016 total revenue was $ 383.3 million for fiscal year 2017 , an increase of $ 47.7 million , or 14.2 % , as compared to $ 335.7 million for fiscal year 2016 . the increase consisted of $ 36.7 million and $ 13.0 million in sales of power discrete products and sales of power ic products , respectively , partially offset by a $ 2.1 million decrease in sales of packaging and testing services . the increase in power discrete and power ic products was primarily due to a 17.5 % increase in unit shipments , partially offset by a 1.9 % decrease in average selling price as compared to last fiscal year due to a shift in product mix . the decrease in revenue of packaging and testing services as compared to last year was primarily due to reduced demand . during fiscal year 2017 , we accelerated the development of new technology platforms which allowed us to introduce 30 medium and high voltage mosfet products , targeting primarily the industrial markets , and consumer , as well as 13 low voltage mosfet products primarily for the computing and communication markets . in addition , we introduced 37 power ic new products for consumer and computing applications .
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in determining taxable income for the company 's consolidated and combined financial statements , the company must make certain estimates and judgments . these estimates and judgments affect the calculation of certain tax liabilities and the determination of the recoverability of certain of the deferred tax assets , which arise from temporary differences between the tax and financial statement recognition of revenue and expense . in story_separator_special_tag introduction the following discussion should be read in conjunction with our consolidated and combined financial statements and the notes thereto . this discussion and analysis contains forward-looking statements that involve risks , uncertainties and assumptions . actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors , including but not limited to those provided in item 1a . risk factors and under the heading “ cautionary statement regarding forward-looking statements ” below . the consolidated and combined financial statements include our combined operations , assets and liabilities and have been prepared in accordance with generally accepted accounting principles in the united states of america ( “ gaap ” ) . unless otherwise indicated , references to 2013 , 2012 and 2011 are to our fiscal years ended september 27 , 2013 , september 28 , 2012 and september 30 , 2011 , respectively . as part of a plan to separate into three independent companies , on or prior to september 28 , 2012 , tyco transferred the equity interests of the entities that held all of the assets and liabilities of its residential and small business security business in the united states and canada to adt . effective on september 28 , 2012 ( the “ distribution date ” ) , tyco distributed all of its shares of adt to tyco 's stockholders of record as of the close of business on september 17 , 2012 ( the “ separation ” ) . on the distribution date , each of the stockholders of tyco received one share of adt common stock for every two shares of common stock of tyco held on september 17 , 2012. our consolidated balance sheets as of september 27 , 2013 and september 28 , 2012 reflect the consolidated financial position of adt and its subsidiaries as an independent publicly-traded company . additionally , our consolidated and combined statements of operations , comprehensive income and cash flows for fiscal year 2013 reflect adt 's operations and cash flows as a standalone company . prior to the separation on september 28 , 2012 , our financial position , results of operations and cash flows consisted of tyco 's residential and small business security business in the united states , canada and certain u.s. territories and were derived from tyco 's historical accounting records and presented on a carve-out basis . as such , our consolidated and combined statements of operations , comprehensive income and cash flows for fiscal years 2012 and 2011 consist of the combined results of operations and cash flows of the adt north american residential security business of tyco . we conduct business through our operating entities and report financial and operating information in one reportable segment . we have a 52- or 53-week fiscal year that ends on the last friday in september . both fiscal year 2013 and fiscal year 2012 are 52 week years . fiscal year 2011 was a 53-week year . our next 53-week year will occur in fiscal year 2016. business overview adt is a leading provider of electronic security , interactive home and business automation and related monitoring services . we currently serve approximately 6.5 million customers , making us the largest company of our kind in both the united states and canada . with a 139-year history , the adt ® brand is one of the most trusted and well-known brands in the security industry today . our broad and pioneering set of products and services , including our adt pulse interactive home and business solutions , and our home health services , meet a range of customer needs for modern lifestyles . our partner network is the broadest in the industry , and includes dealers , affinity organizations like usaa and aarp and technology providers . adt delivers an integrated customer experience by maintaining the industry 's largest sales , installation and service field force and most robust monitoring network , all backed by the support of approximately 17,000 employees and approximately 200 sales and service offices . for fiscal year 2013 , our revenue was $ 3.3 billion and our operating income was $ 735 million . the majority of the monitoring services and a large portion of the maintenance services we provide to our customers are governed by multi-year contracts with automatic renewal provisions . this provides us with significant recurring revenue , which for fiscal year 2013 was approximately 92 % of our revenue . we believe that the recurring nature of the majority of our revenue enables us to continuously invest in growing our business . this includes investments in technologies to further enhance the attractiveness of our solutions to current and potential customers , to continue development and training to enable our direct sales , installation , customer service and field service personnel to more effectively deliver exceptional service to our customers , to expand our dealer and partner network and to make continued enhancements to operations efficiency . factors affecting operating results our subscriber-based business requires significant upfront costs to generate new customers , which in turn provide predictable recurring revenue from monthly monitoring fees . in any period , our business results will be impacted by the following factors : customer additions , costs associated with adding new customers , average revenue per customer , costs related to providing services to customers and customer tenure . we manage our business to optimize these factors . we focus on investing wisely in each of our customer acquisition channels to grow our account base in a cost effective manner and generate 30 positive future cash flows and attractive margins . story_separator_special_tag these expenses include costs associated with service calls for customers who have maintenance contracts , costs of monitoring , call center customer service and guard response , partnership commissions and continuing equity programs , bad debt expense and general and administrative expenses . recurring customer revenue less cost to serve expenses represents our recurring revenue margin . gross subscriber acquisition cost expenses . gross subscriber acquisition cost expenses represent the cost of acquiring new customers reflected in our consolidated and combined statements of operations and include advertising , marketing , and both direct and indirect selling costs for all new accounts as well as sales commissions and installation equipment and labor costs . earnings before interest , taxes , depreciation and amortization ( “ ebitda ” ) . ebitda is a non-gaap measure reflecting net income adjusted for interest , taxes and certain non-cash items which include depreciation of subscriber system assets and other fixed assets , amortization of deferred costs and deferred revenue associated with customer acquisitions , and amortization of dealer and other intangible assets . we believe ebitda is useful to provide investors with information about operating profits , adjusted for significant non-cash items , generated from the existing customer base . a reconciliation of ebitda to net income ( the most comparable gaap measure ) is provided under “ results of operations - non-gaap measures. ” free cash flow ( “ fcf ” ) . fcf is a non-gaap measure that our management employs to measure cash that is free from any significant existing obligation and is available to service debt and make investments . the difference between net cash provided by operating activities ( the most comparable gaap measure ) and fcf is the deduction of cash outlays for capital expenditures , subscriber system assets , dealer generated customer accounts and bulk account purchases . a reconciliation of fcf to net cash provided by operating activities is provided under “ results of operations - non-gaap measures. ” 32 story_separator_special_tag style= '' line-height:120 % ; padding-top:10px ; text-align : left ; text-indent:36px ; font-size:10pt ; '' > net interest expense was $ 117 million for fiscal year 2013 compared with $ 92 million for fiscal year 2012 . interest expense for fiscal year 2013 is comprised primarily of interest on our long-term debt , which reflects an increase in borrowings related to the issuance of $ 700 million in notes during january 2013. interest expense for fiscal year 2012 includes $ 64 million of allocated interest expense related to tyco 's external debt , approximately $ 22 million of interest on our unsecured notes and $ 3 million of financing costs incurred in connection with a bridge facility . other income during fiscal year 2013 , we recorded $ 24 million of other income , which is comprised primarily of $ 23 million of non-taxable income recorded pursuant to the tax sharing agreement entered into in conjunction with the separation . see note 6 to the consolidated and combined financial statements for more information . income tax expense income tax expense was $ 221 million for fiscal year 2013 compared with $ 236 million for fiscal year 2012 , and the effective tax rate fell to 34.4 % from 37.5 % . the effective tax rate for fiscal year 2013 reflects the favorable impact of an adjustment to the state tax rate at which we expect to settle our net deferred tax liabilities . this adjustment resulted in a tax benefit of $ 7 million during the period . the effective tax rate for fiscal year 2013 also reflects the favorable impact resulting from $ 23 million in non-taxable other income . these favorable items were partially offset by the impact of discrete charges of approximately $ 7 million due to legislative changes in certain states . the effective tax rate can vary from period to period due to permanent tax adjustments , discrete items such as the settlement of income tax audits and changes in tax laws , as well as recurring factors such as changes in the overall effective state tax rate . see note 6 to the consolidated and combined financial statements for more information on income taxes . year ended september 28 , 2012 compared with year ended september 30 , 2011 revenue revenue increased by $ 118 million , or 3.8 % , to $ 3.2 billion for fiscal year 2012 as compared with fiscal year 2011 , primarily due to the growth in recurring customer revenue , which increased by $ 138 million , or 5.0 % . this increase was due primarily to higher average revenue per customer as well as growth in customer accounts , net of attrition . average revenue per customer increased by $ 1.63 , or 4.4 % , as of september 28 , 2012 compared with september 30 , 2011 primarily due to planned price escalations to certain existing customers and the addition of new customers at higher monthly rates . increased take rates on new service offerings , including adt pulse , contributed to the higher average revenue per customer . gross customer additions were approximately 1.2 million during fiscal year 2012 , reflecting customer account growth in all channels . net of attrition , our ending number of customers grew by 71,000 , or 1.1 % , during fiscal year 2012 . our annualized customer attrition as of september 28 , 2012 was 13.5 % compared with 12.7 % as of september 30 , 2011 and 13.2 % as of june 29 , 2012. the majority of the increase in customer attrition from june 29 , 2012 was due to voluntary disconnects , which includes customers canceling service as a result of price escalations implemented in the second and third quarters of fiscal year 2012. operating income operating income increased by $ 29 million , or 4.2 % , to $ 722 million for fiscal year 2012 as compared with fiscal year 2011 .
| results of operations replace_table_token_4_th ( 1 ) gross customer additions for fiscal year 2013 exclude approximately 117,000 customer accounts acquired in connection with the acquisition of devcon security in august 2013. these accounts are included in the 6.5 million ending number of customers as of september 27 , 2013 . ( 2 ) the customer attrition rates for fiscal years 2012 and 2011 have been revised . see discussion under “ key performance measures ” above for further information . as mentioned above , we manage our business to optimize a number of factors including : customer additions , costs associated with adding new customers , average revenue per customer , costs related to providing services to customers and customer tenure . in order to understand how these key factors impact our consolidated and combined statements of operations , we consider the following components of our expenses : cost to serve expenses , gross subscriber acquisition cost expenses , and depreciation and amortization . the following tables reflect the location of these costs in our consolidated and combined statements of operations for fiscal years 2013 , 2012 and 2011 : replace_table_token_5_th 33 replace_table_token_6_th replace_table_token_7_th year ended september 27 , 2013 compared with year ended september 28 , 2012 revenue revenue increased by $ 81 million , or 2.5 % , to $ 3.3 billion for fiscal year 2013 as compared with fiscal year 2012 , primarily due to the growth in recurring customer revenue , which increased by $ 138 million , or 4.8 % . this increase was primarily the result of higher average revenue per customer as well as growth in customer accounts , net of attrition . the growth in recurring customer revenue was partially offset by a decrease in other revenue , which went down by $ 57 million , or 17.5 % , to $ 268 million for fiscal year 2013 as compared with fiscal year 2012 .
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overview on an equivalent basis , our production in 2013 increased by 55 % from 2012. we produced 413.6 bcfe , or 1.1 bcfe per day , in 2013 , compared to 267.7 bcfe , or 731.4 mmcfe per day , in 2012. natural gas production increased by 141.0 bcf , or 56 % , to 394.2 bcf in 2013 compared to 253.2 bcf in 2012. this increase was primarily the result of higher production in the marcellus shale associated with our drilling program and continued expansion of infrastructure in the area . partially offsetting the production increase in the marcellus shale were decreases in production primarily in texas , oklahoma and west virginia due to reduced natural gas drilling and normal production declines . crude oil/condensate/ngl production increased by 814 mbbls , or 34 % , from 2,407 mbbls in 2012 to 3,221 mbbls in 2013. this increase was the result of higher production resulting from our oil-focused drilling program in south texas and , to a lesser extent , oklahoma . our financial results depend on many factors , particularly the price of natural gas and crude oil , and our ability to market our production on economically attractive terms . our average realized natural gas price for 2013 was $ 3.56 per mcf , 3 % lower than the $ 3.67 per mcf price realized in 2012. our average realized crude oil price for 2013 was $ 101.13 per bbl , less than 1 % lower than the $ 101.65 per bbl price realized in 2012. these realized prices include realized gains and losses resulting from commodity derivatives . for information about the impact of these derivatives on realized prices , refer to `` results of operations '' in item 7. commodity prices are determined by many factors that are outside of our control . historically , commodity prices have been volatile , and we expect them to remain volatile . commodity prices are affected by changes in market supply and demand , which are impacted by overall economic activity , weather , pipeline capacity constraints , inventory storage levels , basis differentials and other factors . as a result , we can not accurately predict future natural gas , ngl and crude oil prices and , therefore , we can not determine with any degree of certainty what effect increases or decreases will have on our capital program , production volumes or future revenues . in addition to production volumes and commodity prices , finding and developing sufficient amounts of natural gas and crude oil reserves at economical costs are critical to our long-term success . see `` risk factorsnatural gas and oil prices fluctuate widely , and low prices for an extended period would likely have a material adverse impact on our business '' and `` risk factorsour future performance depends on our ability to find or acquire additional natural gas and oil reserves that are economically recoverable '' in item 1a . we drilled 181 gross wells ( 153.5 net ) with a success rate of 98 % in 2013 compared to 170 gross wells ( 117.8 net ) with a success rate of 98 % in 2012. our 2013 total capital and exploration spending was $ 1.2 billion compared to $ 978.5 million in 2012. the increase in capital spending was the result of our marcellus shale horizontal drilling program in northeast pennsylvania and our drilling program in the eagle ford shale and pearsall shale in south texas . in both 2013 and 2012 , we allocated our planned program for capital and exploration expenditures among our various operating areas based on return expectations , availability of services and human resources . we plan to continue such method of allocation in 2014. our 2014 drilling program includes between $ 1.3 billion and $ 1.4 billion in capital and exploration expenditures . funding of the program is expected to be provided by operating cash flow , existing cash and , if required , borrowings under our credit facility . we will continue to assess the natural gas and crude oil price environment along with our liquidity position and may increase or decrease our capital and exploration expenditures accordingly . 42 financial condition capital resources and liquidity our primary sources of cash in 2013 were from funds generated from the sale of natural gas and crude oil production ( including hedge realizations from our commodity derivatives ) , proceeds from the sales of certain oil and gas properties during the year and net borrowings under our credit facility . these cash flows were primarily used to fund our capital and exploration expenditures , repayments of debt and related interest payments , share repurchases and the payment of dividends . see below for additional discussion and analysis of cash flow . operating cash flow fluctuations are substantially driven by commodity prices and changes in our production volumes and operating expenses . prices for natural gas and crude oil have historically been volatile , including seasonal influences characterized by peak demand ; however , the impact of other risks and uncertainties have also influenced prices throughout the recent years . in addition , fluctuations in cash flow may result in an increase or decrease in our capital and exploration expenditures . see `` results of operations '' for a review of the impact of prices and volumes on revenues . our working capital is also substantially influenced by variables discussed above . from time to time , our working capital will reflect a surplus , while at other times it will reflect a deficit . this fluctuation is not unusual . we believe we have adequate availability under our credit facility and liquidity available to meet our working capital requirements . replace_table_token_13_th operating activities . net cash provided by operating activities in 2013 increased by $ 372.4 million over 2012. this increase was primarily due to higher operating revenues partially offset by higher operating expenses ( excluding non-cash expenses ) and unfavorable changes in working capital and other assets and liabilities . story_separator_special_tag the following table presents major components of our capital and exploration expenditures : replace_table_token_15_th we plan to drill approximately 155 to 175 gross wells ( or 150 to 170 net ) in 2014 compared to 181 gross wells ( 153.5 net ) drilled in 2013. in 2014 , we plan to spend between approximately $ 1.3 billion and $ 1.4 billion in total capital and exploration expenditures ( excluding expected contributions of approximately $ 36.4 million to constitution ) , compared to $ 1.2 billion in 2013. we will continue to assess the natural gas and crude oil price environment and our liquidity position and may increase or decrease our capital and exploration expenditures accordingly . contractual obligations a summary of our contractual obligations as of december 31 , 2013 are set forth in the following table : replace_table_token_16_th ( 1 ) interest payments have been calculated utilizing the fixed rates associated with our fixed rate notes outstanding at december 31 , 2013. interest payments on our credit facility were calculated by assuming that the december 31 , 2013 outstanding balance of $ 460.0 million will be outstanding through the may 2017 maturity date . a constant interest rate of 2.0 % was assumed , which was the december 31 , 2013 weighted-average interest rate . actual results will differ from these estimates and assumptions . ( 2 ) for further information on our obligations under transportation and gathering agreements , drilling rig commitments and operating leases , see note 9 of the notes to the consolidated financial statements . ( 3 ) for further information on our equity investment contribution commitment , see note 4 of the notes to the consolidated financial statements . 45 amounts related to our asset retirement obligation are not included in the above table given the uncertainty regarding the actual timing of such expenditures . the total amount of our asset retirement obligation at december 31 , 2013 was $ 75.9 million . see note 8 of the notes to the consolidated financial statements for further details . we have no off-balance sheet debt or other similar unrecorded obligations . potential impact of our critical accounting policies readers of this document and users of the information contained in it should be aware of how certain events may impact our financial results based on the accounting policies in place . our most significant policies are discussed below . successful efforts method of accounting we follow the successful efforts method of accounting for our oil and gas producing activities . acquisition costs for proved and unproved properties are capitalized when incurred . exploration costs , including geological and geophysical costs , the costs of carrying and retaining unproved properties and exploratory dry hole costs are expensed . development costs , including costs to drill and equip development wells and successful exploratory drilling costs to locate proved reserves are capitalized . oil and gas reserves the process of estimating quantities of proved reserves is inherently imprecise , and the reserve data included in this document are only estimates . the process relies on interpretations of available geologic , geophysical , engineering and production data . the extent , quality and reliability of this technical data can vary . the process also requires certain economic assumptions , some of which are mandated by the sec , such as oil and gas prices . additional assumptions include drilling and operating expenses , capital expenditures , taxes and availability of funds . any significant variance in the interpretations or assumptions could materially affect the estimated quantity and value of our reserves . our reserves have been prepared by our petroleum engineering staff and audited by miller and lents , independent petroleum engineers , who in their opinion determined the estimates presented to be reasonable in the aggregate . for more information regarding reserve estimation , including historical reserve revisions , refer to the supplemental oil and gas information to the consolidated financial statements included in item 8. our rate of recording dd & a expense is dependent upon our estimate of proved and proved developed reserves , which are utilized in our unit-of-production calculation . if the estimates of proved reserves were to be reduced , the rate at which we record dd & a expense would increase , reducing net income . such a reduction in reserves may result from lower market prices , which may make it uneconomic to drill and produce higher cost fields . a 5 % positive or negative revision to proved reserves would result in a decrease of $ 0.06 per mcfe and an increase of $ 0.07 per mcfe , respectively , on our dd & a rate . revisions in significant fields may individually affect our dd & a rate . it is estimated that a positive or negative reserve revision of 10 % in one of our most productive fields would result in a decrease of $ 0.07 per mcfe and an increase of $ 0.08 per mcfe , respectively , on our total dd & a rate . these estimated impacts are based on current data , and actual events could require different adjustments to our dd & a rate . in addition , a decline in proved reserve estimates may impact the outcome of our impairment test under applicable accounting standards . due to the inherent imprecision of the reserve estimation process , risks associated with the operations of proved producing properties and market sensitive commodity prices utilized in our impairment analysis , management can not determine if an impairment is reasonably likely to occur in the future . 46 carrying value of oil and gas properties we evaluate our proved oil and gas properties for impairment on a field-by-field basis whenever events or changes in circumstances indicate an asset 's carrying amount may not be recoverable . we compare expected undiscounted future cash flows to the net book value of the asset .
| results of operations 2013 and 2012 compared we reported net income for 2013 of $ 279.8 million , or $ 0.67 per share , compared to net income for 2012 of $ 131.7 million , or $ 0.31 per share . the increase in net income was due to an increase in natural gas and crude oil and condensate revenues , partially offset by higher operating costs . revenue , price and volume variances below is a discussion of revenue , price and volume variances . replace_table_token_17_th ( 1 ) natural gas revenues exclude the unrealized loss of $ 0.5 million from the change in fair value of our derivatives not designated as hedges in 2012. there were no unrealized gains or losses in 2013. replace_table_token_18_th ( 1 ) these prices include the realized impact of derivative instrument settlements , which increased the price by $ 0.13 per mcf in 2013 and $ 0.89 per mcf in 2012 . ( 2 ) these prices include the realized impact of derivative instrument settlements , which increased the price by $ 1.48 per bbl in 2013 and $ 5.00 per bbl in 2012 . 50 natural gas revenues the increase in natural gas revenues of $ 471.1 million , excluding the impact of the unrealized losses discussed above , is due to higher production , partially offset by lower realized natural gas prices . the increase in our production was the result of our marcellus shale drilling program and expanded infrastructure in the area , partially offset by lower production primarily in texas , oklahoma and west virginia due to reduced natural gas drilling in these areas and normal production declines .
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those statements include statements regarding the intent , belief or current expectations of us and members of its management team as well as the assumptions on which such statements are based . prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risk and uncertainties , and that actual results may differ materially from those contemplated by such forward-looking statements . readers are urged to carefully review and consider the various disclosures made by us in this report and in our other reports filed with the securities and exchange commission . important factors known to us could cause actual results to differ materially from those in forward-looking statements . we undertake no obligation to update or revise forward-looking statements to reflect changed assumptions , the occurrence of unanticipated events or changes in the future operating results over time . we believe that its assumptions are based upon reasonable data derived from and known about our business and operations . no assurances are made that actual results of operations or the results of our future activities will not differ materially from its assumptions . factors that could cause differences include , but are not limited to : substantial competition ; our possible need for additional financing ; uncertainties of patent protection and litigation ; uncertainties of government or third party payor reimbursement ; limited research and development efforts and dependence upon third parties ; and risks related to failure to obtain fda clearances or approvals and noncompliance with fda regulations . business overview we are a clinical-stage pharmaceutical company dedicated to the development of innovative pharmaceutical products to address public health challenges . our most advanced drug development program is focused on delivering an efficacious and safe long-term treatment of ptsd . ptsd is characterized by chronic disability , inadequate treatment options , high utilization of healthcare services , and significant economic burden . we have assembled a management team with significant industry experience to lead the development of our product candidates . we complement our management team with a network of scientific , clinical , and regulatory advisors that includes recognized experts in the fields of ptsd and other central nervous system disorders . in september 2016 , we discontinued our fibromyalgia program in order to fully focus our resources on our ptsd program . our lead product candidate , tnx-102 sl , a proprietary low-dose cyclobenzaprine sublingual tablet , designed for bedtime administration , is in phase 3 clinical development as a potential treatment for ptsd . tnx-102 sl is an investigational new drug and has not been approved for any indication . we hold worldwide development and commercialization rights to all of our product candidates . our therapeutic strategy in ptsd is supported by results from the atease study . we reported topline results from the atease study in may 2016. in the atease study , patients were randomized in a 2:1:2 ratio to tnx-102 sl 2.8 mg , tnx-102 sl 5.6 mg , or placebo sublingual tablets at bedtime daily for 12 weeks . this study was conducted at 24 u.s. centers and enrolled 231 patients in the modified intent-to-treat population . the primary objective of the atease study was to evaluate the potential clinical benefit of using tnx-102 sl to treat military-related ptsd at a dose of 2.8 mg or 5.6 mg. the primary efficacy endpoint was the 12-week mean change from baseline in the severity of ptsd symptoms as measured by the clinician-administered ptsd scale for the diagnostic and statistical manual-5 , or caps-5 , between those treated with tnx-102 sl and those receiving placebo . the caps-5 scale is a standardized structured clinician interview and is considered the gold standard in clinical research and regulatory approval for measuring the symptom severity of ptsd . atease was adequately designed to evaluate whether a 2.8 mg dose would be efficacious , which would have provided an opportunity for this study to be used as one of the two pivotal efficacy studies required to support approval of tnx-102 sl for the treatment of ptsd . although the 2.8 mg dose trended in the direction of a therapeutic effect , it did not reach statistical significance on the primary endpoint . the 5.6 mg dose had a therapeutic effect as assessed by the caps-5 scale , which was statistically significant by mixed-effect model repeated measures , or mmrm , with multiple imputation , or mi , analysis ( p-value = 0.031 ) , even though this arm of the study , by design , included only approximately half the number of patients of the 2.8 mg and placebo arms . tnx-102 sl 5.6 mg demonstrated a dose-effect on multiple efficacy and safety measurements in the atease study . in the atease study , tnx-102 sl was well tolerated and the patient retention rate was 73 % on placebo , 79 % on tnx-102 sl 2.8 mg and 84 % on tnx-102 sl 5.6 mg. four distinct serious adverse events , or saes , were reported in the study ; three were in the placebo group , and one ( proctitis/peri-rectal abscess , ) in the tnx-102 sl arm , which was determined to be unrelated to tnx-102 sl . the most common non-dose related adverse events were mild and transient local administration site conditions and of these oral hypoaesthesia , or numbness , was the most frequent and occurred in 39 % of patients treated with the 2.8 mg dose and 36 % of the patients treated with the 5.6 mg dose , compared to 2 % of the patients receiving placebo . oral paresthesia , or tingling , occurred in 16 % of patients treated with the 2.8 mg dose and 4 % of patients treated with the 5.6 mg dose , compared to 3 % of the patients receiving placebo . glossodynia , or a burning or stinging sensation in the mouth , occurred in 3 % of patients treated with the 2.8 mg dose and 6 % of patients treated with the 5.6 mg dose , compared to 1 % of patients receiving placebo . story_separator_special_tag our research and development expenses consist of manufacturing work and the cost of drug ingredients used in such work , fees paid to consultants for work related to clinical trial design and regulatory activities , fees paid to providers for conducting various clinical studies as well as for the analysis of the results of such studies , and for other medical research addressing the potential efficacy and safety of our drugs . we believe that significant investment in product development is a competitive necessity , and we plan to continue these investments in order to be in a position to realize the potential of our product candidates and proprietary technologies . we commenced a randomized , double-blind placebo-controlled phase 3 study of tnx-102 sl in approximately 550 patients with military-related ptsd in the first quarter of 2017. this first phase 3 study , the “ honor study , ” is an adaptive design study based on the results of the phase 2 atease study . the study design is very similar to the phase 2 atease study , except there will be one planned interim analysis and the involvement of an independent data monitoring committee , or idmc , to review unblinded interim analysis results . the idmc will make a recommendation to continue as planned , to continue but increase the number of recruited patients or to stop for success . in addition , there will be one active dose ( 5.6 mg administered as 2 x 2.8 mg tablets ) and the entrance criterion is caps-5 ≥ 33 in this phase 3 study . the interim analysis will be conducted when approximately 50 % ( approximately 250 – 300 patients ) of the initially planned patient enrollment is evaluable for efficacy . we received fda clearance of the first phase 3 study design in january 2017. the honor study involves approximately 35 u.s. centers . as in the case of the atease study , the primary efficacy endpoint of the honor study is the 12-week mean change from baseline in the severity of ptsd symptoms as measured by the caps-5 scale between those treated with tnx-102 sl 5.6 mg and those receiving placebo . we expect that all of our research and development expenses in the near-term future will be incurred in support of our current and future preclinical and clinical development programs rather than technology development . these expenditures are subject to numerous uncertainties relating to timing and cost to completion . we test compounds in numerous preclinical studies for safety , toxicology and efficacy . at the appropriate time , subject to the approval of regulatory authorities , we expect to conduct early-stage clinical trials for each drug candidate . we anticipate funding these trials ourselves , and possibly with the assistance of federal grants . as we obtain results from trials , we may elect to discontinue or delay clinical trials for certain products in order to focus our resources on more promising products . completion of clinical trials may take several years , and the length of time generally varies substantially according to the type , complexity , novelty and intended use of a product candidate . the commencement and completion of clinical trials for our products may be delayed by many factors , including lack of efficacy during clinical trials , unforeseen safety issues , slower than expected patient recruitment , lack of funding or government delays . in addition , we may encounter regulatory delays or rejections as a result of many factors , including results that do not support the intended safety or efficacy of our product candidates , perceived defects in the design of clinical trials and changes in regulatory policy during the period of product development . as a result of these risks and uncertainties , we are unable to accurately estimate the specific timing and costs of our clinical development programs or the timing of material cash inflows , if any , from our product candidates . our business , financial condition and results of operations may be materially adversely affected by any delays in , or termination of , our clinical trials or a determination by the fda that the results of our trials are inadequate to justify regulatory approval , insofar as cash in-flows from the relevant drug or program would be delayed or would not occur . story_separator_special_tag style= '' font : 10pt times new roman , times , serif ; margin : 0pt 0 ; text-align : justify ; text-indent : 0.5in '' > as of december 31 , 2016 , we had working capital of $ 25.0 million , comprised primarily of cash and cash equivalents of $ 18.9 million , short-term investments of $ 7.2 million and prepaid expenses and other of $ 1.0 million , offset by $ 0.9 million of accounts payable and $ 1.2 million of accrued expenses . a significant portion of the accounts payable and accrued expenses are due to work performed in relation to our phase 3 clinical trial of tnx-102 sl in ptsd . for the years ended december 31 , 2016 and 2015 , we used approximately $ 37.3 million and $ 42.5 million of cash in operating activities , respectively , which represents cash outlays for research and development and general and administrative expenses in such periods . the decrease in cash outlays principally resulted from a reduction in clinical , non-clinical , manufacturing , medical research , and regulatory cost activities . for the year ended december 31 , 2016 , net proceeds from financing activities were $ 20.5 million , predominately from the sale of our common stock and warrants . in the comparable 2015 period , approximately $ 47.7 million was raised through the sale of shares of common stock . at december 31 , 2015 , we had cash of $ 19.2 million . our cash and cash equivalents consisted of bank deposit accounts and money market funds .
| results of operations we anticipate that our results of operations will fluctuate for the foreseeable future due to several factors , such as the progress of our research and development efforts and the timing and outcome of regulatory submissions . due to these uncertainties , accurate predictions of future operations are difficult or impossible to make . fiscal year ended december 31 , 2016 compared to fiscal year ended december 31 , 2015 research and development expenses . research and development expenses for the fiscal year ended december 31 , 2016 were $ 28.5 million , a decrease of $ 7.0 million , or 20 % , from $ 35.5 million for the fiscal year ended december 31 , 2015. this decrease is primarily due to decreased development work related to tnx-201 ( dexisometheptene mucate ) for episodic tension-type headache , including formulation development , manufacturing , human safety and efficacy trials as well as pharmacokinetic studies . this decrease is also due to decreased development work on tnx-102 sl for fibromyalgia . in 2016 , we incurred $ 16.4 million , $ 1.4 million and $ 3.3 million in clinical , non-clinical , and manufacturing , respectively , as compared to $ 16.8 million , $ 5.3 million and $ 4.4 million in 2015 , respectively . costs related to product development decreased to $ 0.3 million for the fiscal year ended december 31 , 2016 from $ 0.9 million for the fiscal year ended december 31 , 2015 , a decrease of $ 0.6 million , or 67 % . the decrease is primarily due to the reduction in active trials . 47 compensation-related expenses increased to $ 4.5 million for the fiscal year ended december 31 , 2016 , from $ 4.1 million for the fiscal year ended december 31 , 2015 , an increase of $ 0.4 million , or 10 % .
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the liabilities recorded for environmental remediation costs at superfund sites , other third party-owned sites and carpenter-owned current or former operating facilities remaining at june 30 , 2017 and 2016 were $ 16.1 million and $ 16.2 million , respectively . 65 carpenter technology corporation notes to consolidated financial statements other the company is defending various routine claims and legal actions that are incidental to its business and common to its operations , including those pertaining to product claims , commercial disputes , patent infringement , employment actions , employee benefits , compliance with domestic and foreign laws , personal injury claims and tax issues . like many other manufacturing companies in recent years , the company , from time to time , has been named as a defendant in lawsuits alleging personal injury as a story_separator_special_tag background and general our discussions below in this item 7 should be read in conjunction with our consolidated financial statements , including the notes thereto , included in this annual report on form 10-k. we are a producer and distributor of premium specialty alloys , including titanium alloys , powder metals , stainless steels , alloy steels , and tool steels as well as drilling tools . our high-performance materials and advanced process solutions are an integral part of critical applications used within the aerospace , transportation , medical and energy markets , among other sectors . building on our history of innovation , our superalloy and titanium powder technologies support a range of next-generation products and manufacturing techniques , including additive manufacturing or 3d printing . we primarily process basic raw materials such as nickel , cobalt , titanium , manganese , chromium , molybdenum , iron scrap and other metal alloying elements through various melting , hot forming and cold working facilities to produce finished products in the form of billet , bar , rod , wire and narrow strip in many sizes and finishes . our sales are distributed directly from our production plants and distribution network as well as through independent distributors . unlike many other specialty steel producers , we operate our own worldwide network of service and distribution centers . these service centers , located in the united states , canada , mexico , europe and asia allow us to work more closely with customers and to offer various just-in-time stocking programs . as part of our overall business strategy , we have sought out and considered opportunities related to strategic acquisitions , divestitures and joint collaborations as well as possible business unit dispositions aimed at broadening our offering to the marketplace . we have participated with other companies to explore potential terms and structures of such opportunities and expect that we will continue to evaluate these opportunities . while we prepare our financial statements in accordance with u.s. generally accepted accounting principles ( “ u.s . gaap ” ) , we also utilize and present certain financial measures that are not based on or included in u.s. gaap ( we refer to these as “ non-gaap financial measures ” ) . please see the section “ non-gaap financial measures ” below for further discussion of these financial measures , including the reasons why we use such financial measures and reconciliations of such financial measures to the nearest u.s. gaap financial measures . 16 business trends selected financial results for the past three fiscal years are summarized below : replace_table_token_6_th ( 1 ) see the section “ non-gaap financial measures ” below for further discussion of these financial measures . ( 2 ) includes pounds from specialty alloys operations segment , dynamet and carpenter powder products businesses . our sales are across a diversified list of end-use markets . the table below summarizes our sales by market over the past three fiscal years : replace_table_token_7_th 17 impact of raw material prices and product mix we value most of our inventory utilizing lifo inventory costing methodology . under the lifo inventory costing method , changes in the cost of raw materials and production activities are recognized in cost of sales in the current period even though these materials may have been acquired at potentially significantly different values due to the length of time from the acquisition of the raw materials to the sale of the processed finished goods to the customers . in a period of rising raw material costs , the lifo inventory valuation normally results in higher cost of sales . conversely , in a period of decreasing raw material costs , the lifo inventory valuation normally results in lower cost of sales . the volatility of the costs of raw materials has impacted our operations over the past several years . we , and others in our industry , generally have been able to pass cost increases on major raw materials through to our customers using surcharges that are structured to recover increases in raw material costs . generally , the formula used to calculate a surcharge is based on published prices of the respective raw materials for the previous month which correlates to the prices we pay for our raw material purchases . however , a portion of our surcharges to customers may be calculated using a different surcharge formula or may be based on the raw material prices at the time of order , which creates a lag between surcharge revenue and corresponding raw material costs recognized in cost of sales . the surcharge mechanism protects our net income on such sales except for the lag effect discussed above . however , surcharges have had a dilutive effect on our gross margin and operating margin percentages as described later in this report . approximately 30 percent of our net sales are sales to customers under firm price sales arrangements . firm price sales arrangements involve a risk of profit margin fluctuations , particularly when raw material prices are volatile . story_separator_special_tag we advanced our productivity and cost reduction plan through the further roll-out of the carpenter operating model in our pep businesses . in addition , the carpenter operating model helped to reduce our sao variable costs by approximately 3 percent as compared to the prior year . 19 we invested in new technology and capabilities to further strengthen our solutions portfolio . these investments in core growth areas include most notably in fiscal year 2017 the addition of titanium powder as a result of the puris acquisition . we have actively managed our business and remain in solid financial position . in fiscal 2017 , we refinanced our existing credit facility . we also acted to reduce our pension liabilities moving forward by freezing our largest defined benefit pension plan in addition to a $ 100 million voluntary pension contribution . in addition , we divested a business that did not fit our core strategic direction for cash proceeds of $ 12 million . results of operations — fiscal year 2017 compared to fiscal year 2016 for fiscal year 2017 , we reported net income of $ 47.0 million , or $ 0.99 per diluted share , compared with net income of $ 11.3 million , or $ 0.23 per diluted share , a year earlier . our fiscal year 2017 results reflect operating cost improvements driven by the implementation of the carpenter operating model and improving market conditions in many of our end-use markets . in the aerospace and defense end-use market , we experienced increasing demand for our products across our diversified sub-markets , especially engines , where we saw strong order flows related to the next generation engines . we experienced similar momentum across other markets , such as the oil and gas sub-market , where our amega west business continues to benefit from our investments in new products over the last several years . in addition , we saw stronger demand in both the aerospace and medical end-use markets for our titanium solutions . our fiscal year 2016 results reflect non-cash impairment charges consisting of excess inventory write-down totaling $ 22.5 million , goodwill impairment charges totaling $ 12.5 million and impairment of intangible assets and property , plant and equipment charges totaling $ 7.6 million . net sales net sales for fiscal year 2017 were $ 1,797.6 million , which was a 1 percent decrease from fiscal year 2016 . excluding surcharge revenue , sales were 1 percent lower than fiscal year 2016 on 3 percent lower volume . the results reflect demand challenges in the first half of fiscal year 2017 offset by the improving demand conditions in the second half of fiscal year 2017 driven by the aerospace and defense end-use market . the year over year performance was also impacted by reduced ongoing weakness in demand for material used in the transportation end-use market . geographically , sales outside the united states increased 5 percent from fiscal year 2016 to $ 599.3 million . the increase is primarily due to sales to europe in the aerospace and defense end-use market . a portion of our sales outside the united states are denominated in foreign currencies . the impact of fluctuations in foreign currency exchange rates resulted in a $ 5.1 million decrease in sales during the fiscal year 2017 compared to fiscal year 2016. international sales as a percentage of our total net sales represented 33 percent and 31 percent for fiscal year 2017 and fiscal year 2016 , respectively . sales by end-use markets we sell to customers across diversified end-use markets . the following table includes comparative information for our net sales , which includes surcharge revenue , by principal end-use markets . we believe this is helpful supplemental information in analyzing the performance of the business from period to period . replace_table_token_10_th 20 the following table includes comparative information for our net sales by the same principal end-use markets , but excluding surcharge revenue : replace_table_token_11_th sales to the aerospace and defense market decreased 1 percent from fiscal year 2016 to $ 973.3 million . excluding surcharge revenue , sales were decreased 1 percent on 2 percent lower shipment volume . the results reflect the impact of increased new engine platform demand offset by a decrease in sales of material used for fasteners , structural and distribution applications due to supply chain consolidation . sales to the energy market of $ 138.0 million reflected a 6 percent increase from fiscal year 2016 . excluding surcharge revenue , sales increased 8 percent on 8 percent higher shipment volume . the results reflect strong demand for power generation materials during the first half of fiscal year 2017. in addition , we experienced an increase in demand during the second half of fiscal year 2017 driven by improved rental activity within the oil and gas businesses . the north american quarterly average directional and horizontal rig count , an indicator of drilling activity , increased 123 percent from the same period a year ago . transportation market sales decreased 10 percent from fiscal year 2016 to $ 143.9 million . excluding surcharge revenue , sales decreased 10 percent on 14 percent lower shipment volume . the results reflect the impact of weaker demand as a result of ongoing weakness in production of passenger car and heavy duty on-road and off-road trucks . sales to the medical market sales increased 3 percent to $ 125.5 million from fiscal year 2016 . excluding surcharge revenue , sales increased 1 percent on 2 percent higher shipment volume . the results reflect improving demand for materials used in cardiology and orthopedics applications in addition to more normalized buying patterns by distributors and oems as supply chain inventory levels appear to be stabilizing . industrial and consumer market sales decreased 1 percent to $ 298.2 million for fiscal year 2017 . excluding surcharge revenue , sales decreased 2 percent on flat shipment volume .
| business segment results summary information about our operating results on a segment basis is set forth below . for more detailed segment information , see note 19 to the consolidated financial statements included in item 8 , “ financial statements and supplementary data ” . the following table includes comparative information for volumes by business segment : replace_table_token_21_th * pounds sold data for pep segment includes dynamet and carpenter powder products businesses only . the following table includes comparative information for net sales by business segment : replace_table_token_22_th the following table includes comparative information for our net sales by business segment , but excluding surcharge revenue : replace_table_token_23_th specialty alloys operations segment net sales in fiscal year 2016 for the sao segment decreased 18 percent to $ 1,481.0 million , as compared with $ 1,796.6 million in fiscal year 2015. excluding surcharge revenue , sales decreased 10 percent from fiscal year 2015. the fiscal year 2016 net sales reflected 13 percent lower shipment volume as compared to fiscal year 2015. the results reflect weakness in the energy and industrial and consumer end-use markets compared to fiscal year 2015. operating income for the sao segment in fiscal year 2016 was $ 176.9 million , or 11.9 percent of net sales ( 14.3 percent of net sales excluding surcharge revenue ) , compared to $ 155.2 million , or 8.6 percent of net sales ( 11.3 percent of net sales excluding surcharge revenue ) , for fiscal year 2015. the increase in operating income reflects operating cost improvements driven by the implementation of the carpenter operating model , an insurance recovery benefit of $ 4 million and a favorable shift in product mix . 30 performance engineered products segment net sales for fiscal year 2016 for the pep segment were $ 358.7 million as compared with $ 497.7 million for fiscal year 2015. excluding surcharge revenue , net sales were decreased 28 percent .
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the wps segment provides workplace safety and compliance products , approximately half of which are internally manufactured and half of which are externally sourced . approximately 50 % of our total sales are derived outside of the united states . foreign sales within the ids and wps segments are approximately 40 % and 70 % , respectively . the ability to provide customers with a broad range of proprietary , customized and diverse products for use in various applications across multiple customers and geographies , along with a commitment to quality and service , have made brady a leader in many of its markets . the long-term sales growth and profitability of our segments will depend not only on improved demand in end markets and the overall economic environment , but also on our ability to continuously improve the efficiency of our global operations , focus on the customer , develop and market innovative new products , and to advance our digital capabilities . in our ids business , our strategy for growth includes an increased focus on certain industries and products , a focus on improving the customer buying experience , and increasing investments in r & d . in our wps business , our strategy for growth includes a focus on workplace safety critical industries , innovative new product offerings , compliance expertise , and improving our digital capabilities . story_separator_special_tag > replace_table_token_7_th investment and other income ( expense ) investment and other income ( expense ) was $ 2.5 million in fiscal 2018 compared to $ 1.1 million in fiscal 2017 and an expense of $ 0.7 million in fiscal 2016 . the increase in investment and other income in 2018 compared to 2017 was primarily due to an increase in the market value of securities held in executive deferred compensation plans and an increase in interest income due to an increase in cash and cash equivalents . the increase in investment and other income ( expense ) in 2017 compared to 2016 was primarily due to an increase in the market value of securities held in deferred compensation plans . interest expense interest expense decreased to $ 3.2 million in fiscal 2018 compared to $ 5.5 million in fiscal 2017 and $ 7.8 million in fiscal 2016 . the decline since 2016 was due to the company 's declining principal balance under its outstanding debt agreements . income tax expense the company 's effective income tax rate was 40.1 % in fiscal 2018 . the effective income tax rate was significantly impacted by the u.s. tax reform act enacted in fiscal 2018 , which resulted in total incremental tax expense of $ 21.1 million during fiscal 2018. this incremental tax expense consisted of $ 1.0 million related to the recording of a deferred tax liability for future withholdings and income taxes on the distribution of foreign earnings , an income tax charge of $ 3.3 million related to the deemed repatriation of the historical earnings of foreign subsidiaries , and the impact of the tax reform act on the revaluation of deferred tax assets and liabilities as well as the impact on the company 's fiscal 2018 earnings from the reduced tax rate was an additional income tax expense of $ 16.8 million . as a result of the u.s. tax reform act , at this time the company estimates its effective income tax rate to be in the mid-twenties for fiscal 2019. the company 's effective income tax rate was 24.5 % in fiscal 2017 . the effective income tax rate was reduced from the applicable u.s. statutory tax rate of 35.0 % due to the generation of foreign tax credits from cash repatriations that occurred during the year and geographic profit mix , partially offset by adjustments to the reserve for uncertain tax positions . the company 's effective income tax rate was 26.7 % in fiscal 2016 . the effective income tax rate was reduced from the applicable u.s. statutory tax rate of 35.0 % due to certain adjustments to tax accruals and reserves , the generation of foreign tax credit carryforwards , r & d tax credits and the domestic manufacturer 's deduction . business segment operating results the company is organized and managed on a global basis within two reportable segments : id solutions and workplace safety . the company 's internal measure of segment profit and loss reported to the chief operating decision maker for purposes of allocating resources to the segments and assessing performance includes certain administrative costs , such as the cost of finance , information technology , human resources , and certain other administrative costs . however , interest expense , investment and other income ( expense ) , income tax expense , and certain corporate administrative expenses are excluded when evaluating segment performance . 17 following is a summary of segment information for the fiscal years ended july 31 : replace_table_token_8_th replace_table_token_9_th ( 1 ) gain on the sale of runelandhs försäljnings ab relates to the wps segment during the year ended july 31 , 2018. id solutions fiscal 2018 vs. 2017 approximately 65 % of net sales in the id solutions segment were generated in the americas region , 25 % in europe , the middle east and africa ( `` emea '' ) , and 10 % in asia pacific ( `` apac '' ) . ids sales increased 5.7 % to $ 846.1 million in fiscal 2018 , compared to $ 800.4 million in fiscal 2017 . organic sales increased 3.4 % and foreign currency fluctuations increased sales by 2.3 % due to the strengthening of other currencies when compared to the u.s. dollar in fiscal 2018 compared to fiscal 2017 . 18 the ids business in the americas realized low-single digit organic sales growth in fiscal 2018 compared to fiscal 2017 . the increase was primarily due to growth in the wire id , product id , and safety and facility id product lines . story_separator_special_tag the rate of decline in the catalog channel lessened in the final two quarters of fiscal 2018. the decline in digital sales was impacted by a transition to a new digital sales platform during fiscal 2018 , which is expected to return to sales growth in the near-term . organic sales in australia grew in the low-single digits in fiscal 2018 compared to fiscal 2017 . the wps business has diversified its product offering into many different industries in australia as sales to the mining industry became less significant over the past several years . its strategy is continuing to focus on enhancing its expertise in these industries to drive sales growth , while addressing its cost structure to improve profitability . segment profit increased to $ 31.7 million in fiscal 2018 from $ 25.6 million in fiscal 2017 , an increase of $ 6.1 million , or 23.8 % . as a percentage of net sales , segment profit increased to 9.7 % in fiscal 2018 compared to 8.2 % in the prior year . the increase in segment profit was primarily due to sales growth and reduced sg & a expense . fiscal 2017 vs. 2016 approximately 50 % of net sales in the wps segment were generated in europe , 35 % in the americas , and 15 % in australia . wps sales decreased 3.7 % to $ 312.9 million in fiscal 2017 , compared to $ 325.1 million in fiscal 2016 , which consisted of an organic sales decline of 2.0 % and a negative foreign currency impact of 1.7 % . the wps business in europe realized low-single digit organic sales growth in fiscal 2017 compared to fiscal 2016. the growth in the region was driven primarily by france and sweden due to improvements in website functionality , digital sales , and key account management . digital sales grew by double digits in the europe region in fiscal 2017 compared to fiscal 2016. organic sales in the americas declined in the high-single digits in fiscal 2017 compared to fiscal 2016. this decrease was primarily in north america due to lower response rates to catalog promotions and pricing pressures in industrial end markets . although digital sales increased in the low-single digits , the increase was not enough to balance the decline in sales through the catalog channel . in addition , pricing pressures from certain competitors have led to an acceleration of organic sales declines in the region from prior years . organic sales in australia were essentially flat in fiscal 2017 compared to fiscal 2016 , following an extended period of organic sales declines . we have started to realize some sales growth by bringing our diverse product offering to many different industries in australia as our sales to the mining industry have become less significant over the past several years . we continue to focus on enhancing our expertise in these industries to drive sales growth as well as addressing our cost structure to improve profitability . segment profit decreased to $ 25.6 million in fiscal 2017 from $ 30.8 million in fiscal 2016 , a decrease of $ 5.2 million , or 16.9 % . as a percentage of sales , segment profit decreased to 8.2 % in fiscal 2017 compared to 9.5 % in the prior year . the decrease in segment profit was primarily due to the decline in sales and reduced gross profit margins due to pricing challenges in the americas region , which was partially offset by reduced selling , general and administrative expenses . liquidity & capital resources cash and cash equivalents were $ 181.4 million at july 31 , 2018 , an increase of $ 47.5 million from july 31 , 2017 . the following summarizes the cash flow statement for fiscal years ended july 31 : replace_table_token_10_th fiscal 2018 vs. 2017 net cash provided by operating activities in fiscal 2018 was comparable with fiscal 2017. the change was driven by an increase in net earnings adjusted for non-cash items which was offset by a decrease in cash provided by working capital in support of growth and a higher incentive compensation payment when compared to prior year . 20 net cash used in investing activities was $ 2.9 million during fiscal 2018 , compared to $ 15.3 million in the prior year . the decrease in cash used in investing activities of $ 12.4 million was due to cash provided by the sale of runelandhs offset by an increase in capital expenditures which were used primarily for manufacturing equipment and facility upgrades in the united states , mexico , and europe . net cash used in financing activities was $ 90.7 million during fiscal 2018 , compared to $ 136.2 million during the prior year . the change of $ 45.5 million was primarily due to a decrease of $ 58.1 million in net credit facility and debt repayments in the current year resulting from the scheduled principal payment on the private placement note during fiscal 2017 , which was partially offset by a $ 7.6 million decrease in proceeds from stock option exercises in the current year . the effect of fluctuations in exchange rates decreased cash balances by $ 2.0 million in fiscal 2018 , primarily due to cash balances held in certain currencies that depreciated against the u.s. dollar . fiscal 2017 vs. 2016 net cash provided by operating activities increased to $ 144.0 million during fiscal 2017 compared to $ 139.0 million in the prior year . the increase in cash provided by operating activities of $ 5.0 million was primarily due to higher net earnings partially offset by lower non-cash depreciation and amortization . net cash used in investing activities was $ 15.3 million during fiscal 2017 , compared to $ 15.4 million in the prior year . net cash used in financing activities was $ 136.2 million during fiscal 2017 , compared to $ 99.6 million during the prior year .
| results of operations a comparison of results of operating income for the fiscal years ended july 31 , 2018 , 2017 , and 2016 is as follows : replace_table_token_6_th 15 references in this form 10-k to “ organic sales ” refer to net sales calculated in accordance with u.s. gaap , excluding the impact of foreign currency translation . the company 's organic sales disclosures exclude the effects of foreign currency translation as foreign currency translation is subject to volatility that can obscure underlying business trends . management believes that the non-gaap financial measure of organic sales is meaningful to investors as it provides them with useful information to aid in identifying underlying sales trends in our businesses and facilitating comparisons of our sales performance with prior periods . in fiscal 2018 , net sales increased 5.4 % to $ 1,173.9 million , compared to $ 1,113.3 million in fiscal 2017 . the increase consisted of organic sales growth of 2.6 % and a positive foreign currency impact of 3.0 % due to the strengthening of certain currencies when compared to the u.s. dollar during the year , partially offset by a sales decline of 0.2 % due to the divestiture of runelandhs försäljnings ab ( “ runelandhs ” ) , a business based in kalmar , sweden . organic sales grew 3.4 % and 0.7 % in the ids and wps segment , respectively . the ids segment realized sales growth in the product id , wire id , and the safety and facility id product lines , partially offset by a sales declines in the healthcare id product line . digital sales in the wps segment improved , but were partially offset by a sales decline in the traditional catalog and other direct sales channels .
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government and money market funds invested in government securities . concentration of credit risk with respect to accounts receivable is limited to certain customers to whom we make substantial sales . to reduce risk , we routinely assess the financial strength of our most significant customers 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 appearing elsewhere in this annual report on form 10‑k . the discussion of our financial condition and results of operations and liquidity and capital resources for the year ended december 31 , 2018 , is included in our annual report on form 10-k for the year ended december 31 , 2019 , within item 7. management 's discussion and analysis of financial condition and results of operations , and is incorporated by reference herein . we have included certain terms and abbreviations used throughout this annual report on form 10-k in the `` glossary of terms and selected abbreviations. ” description of business segments . we operate primarily through three business segments : diagnostic and information management-based products and services for the veterinary market , which we refer to as the companion animal group ( “ cag ” ) ; water quality products ( “ water ” ) ; and diagnostic products and services for livestock and poultry health and to ensure the quality and safety of milk and improve producer efficiency , which we refer to as livestock , poultry and dairy ( “ lpd ” ) . our other operating segment combines and presents our products and services for the human medical diagnostics market ( “ opti medical ” ) with our out-licensing arrangements because they do not meet the quantitative or qualitative thresholds for reportable segments . see `` part ii , item 8. financial statements and supplementary data , note 3. revenue recognition and note 17. segment reporting '' to the consolidated financial statements for the year ended december 31 , 2020 , included in this annual report on form 10-k for financial information about our segments , including our product and service categories , and our geographic areas . the following is a discussion of the strategic and operating factors that we believe have the most significant effect on the performance of our business . companion animal group our strategy is to provide veterinarians with both the highest quality diagnostic information to support more advanced medical care and information management solutions that help demonstrate the value of diagnostics to pet owners and enable efficient practice management . by doing so , we are able to build a mutually successful relationship with our veterinarian customers based on healthy pets , loyal customers and expanding practice revenues . cag diagnostics . we provide diagnostic capabilities that meet veterinarians ' diverse needs through a variety of modalities including in-clinic diagnostic solutions and outside reference laboratory services . veterinarians that utilize our full line of diagnostic modalities obtain a single view of a patient 's diagnostic results , which allows them to track and evaluate trends and achieve greater medical insight . our diagnostic capabilities generate both recurring and non-recurring revenues . revenues related to capital placements of our in-clinic idexx vetlab suite of instruments and our snap pro analyzer are non-recurring in nature in that they are sold to a particular customer only once . revenues from the associated proprietary idexx vetlab consumables , snap rapid assay test kits , reference laboratory and consulting services , and extended maintenance agreements and accessories related to our idexx vetlab instruments and our snap pro analyzer are recurring in nature , in that they are regularly purchased by our customers , typically as they perform diagnostic testing as part of ongoing veterinary care services . our recurring revenues , most prominently idexx vetlab consumables and rapid assay test kits , have significantly higher gross margins than those provided by our instrument sales . therefore , the mix of recurring and non-recurring revenues in a particular period will impact our gross margins . diagnostic capital revenue . revenues related to the placement of the idexx vetlab suite of instruments are non-recurring in nature , in that the customer will buy an instrument once over its respective product life cycle , but will purchase consumables for that instrument on a recurring basis as they use that instrument for testing purposes . during the early stage of an instrument 's life cycle , we derive relatively greater revenues from instrument placements , while consumable sales become relatively more significant in later stages as the installed base of instruments increases and instrument placement revenues begin to decline . in the early stage of an instrument 's life cycle , placements are made primarily through sales transactions . as the market for the product matures , an increasing percentage of placements are made in transactions , sometimes referred to as volume commitments , such as our idexx 360 program , or reagent rentals , in which instruments are placed at customer sites at little or no cost in exchange for a multi-year customer commitment to purchase recurring products and services . 33 we place our catalyst chemistry analyzers and vettest instruments through sales , leases , rental , and other programs . as of december 31 , 2020 , our catalyst and vettest chemistry analyzers provided for a combined active installed base of approximately 59,600 units globally , as compared to approximately 56,200 units in 2019 and approximately 50,800 units in 2018. as of december 31 , 2020 , our premium catalyst chemistry analyzers provided for an active installed base of approximatel y 49,600 un its globally , as compared to approximately 43,900 units in 2019 and approximately 37,000 units in 2018. a majority of our catalyst chemistry analyzer placements were to customers that are new to idexx , including customers who had been using instruments from one of our competitors , sometimes referred to as competitive accounts . story_separator_special_tag our in-clinic diagnostic solutions , consisting of our idexx vetlab consumable products and snap rapid assay test kits , provide real-time reference lab quality diagnostic results for a variety of companion animal diseases and health conditions . our outside reference laboratories provide veterinarians with the benefits of a more comprehensive list of diagnostic tests and access to consultations with board-certified veterinary specialists and pathologists , combined with the benefit of same-day or next-day turnaround times . we derive substantial revenues and margins from the sale of consumables that are used in idexx vetlab instruments and the multi-year consumable revenue stream is significantly more valuable than the placement of the instrument . our strategy is to increase diagnostic testing within veterinary practices by placing idexx vetlab instruments and increasing instrument utilization of consumables . utilization can increase due to a greater number of patient samples being run or to an increase in the number of tests being run per patient sample . our strategy is to increase both drivers . to increase utilization , we seek to educate veterinarians about best medical practices that emphasize the importance of chemistry , hematology , and urinalysis testing for a variety of diagnostic purposes , as well as by introducing new testing capabilities that were previously not available to veterinarians . our in-clinic diagnostic solutions also include snap rapid assay tests that address important medical needs for particular diseases prevalent in the companion animal population . we seek to differentiate these tests from those of other in-clinic test providers and reference laboratory diagnostic service providers based on critically important sensitivity and specificity , as demonstrated by peer-reviewed third-party research , as well as overall superior performance and ease of use by providing our customers with combination tests that test a single sample for up to six diseases at once , including the ability to utilize our snap pro analyzer . we further augment our product development and customer service efforts with sales and marketing programs that enhance medical awareness and understanding regarding certain diseases and the importance of diagnostic testing . we believe approximately half of all diagnostic testing by u.s. veterinarians is provided by outside reference laboratories such as idexx reference laboratories . in certain markets outside the u.s. , the prevalence of in-clinic testing may vary , and a greater or lesser percentage of diagnostic testing may be performed in reference laboratories . we attempt to differentiate our reference laboratory testing services from those of competitive reference laboratories and competitive in-clinic offerings primarily on the basis of a unique and proprietary test menu , technology employed , quality , turnaround time , customer service and tools such as vetconnect plus that demonstrate the complementary manner in which our laboratory services work with our in-clinic offerings . profitability in our lab business is supported , in part , by our expanding business scale globally . profit improvements also reflect benefits from price increases and our ability to achieve operational efficiencies . when possible , we utilize core reference laboratories to service samples from other states or countries , expanding our customer reach without an associated expansion in our reference laboratory footprint . new laboratories may operate at a loss until testing volumes achieve sufficient scale . acquired laboratories frequently operate less profitably than our existing laboratories and acquired laboratories may not achieve the profitability of our existing laboratory network for several years until we complete the implementation of operating improvements and efficiencies . therefore , in the short term , new and acquired reference laboratories generally may have a negative effect on our operating margin . recurring reference lab revenue growth is achieved both through increased testing volumes with existing customers and through the acquisition of new customers , net of customer losses . we believe the increased number of customer visits by our sales professionals as a result of the growth in our field sales organization has led to increased reference laboratory opportunities with customers who already use one of our in-clinic diagnostic modalities . in recent years , recurring reference laboratory diagnostic and consulting revenues have also been increased through reference laboratory acquisitions , customer list acquisitions , the opening of new reference laboratories , including laboratories that are co-located with large practice customers , and as a result of our up-front customer loyalty programs and our volume commitment programs . our up-front customer loyalty programs are associated with customer acquisitions and retention and provide incentives to customers in the form of cash 35 payments or idexx points upon entering multi-year contractual agreements to purchase annual minimum amounts of products or services , including reference laboratory services . our volume commitment programs , such as idexx 360 , provide customers with a free or discounted instrument or system upon entering into multi-year agreements to purchase annual minimum amounts of products and services . veterinary software , services and diagnostic imaging systems . our portfolio of practice management offerings is designed to serve the full range of customers within the north american , australian , and european markets . cornerstone , dvmax , idexx animana and idexx neo practice management systems provide superior integrated information solutions , backed by exceptional customer support and education . these practice management systems allow the veterinarian to practice better medicine and achieve the practice 's business objectives , including a quality client experience , staff efficiency and practice profitability . we market cornerstone , dvmax and idexx neo practice management systems to customers primarily in north america and australia . we market our idexx animana offering to customers primarily throughout europe . idexx animana and idexx neo practice management systems are subscription-based saas offerings designed to provide flexible pricing and a durable , recurring revenue stream , while utilizing cloud technology instead of a client server platform . while we continue to develop , sell , and support our licensed-based cornerstone and dvmax software , we are growing our installed base of subscription-based practice management offerings for new customers of idexx practice management systems .
| results of operations and trends effects of certain factors on results of operations market trends and covid-19 pandemic impact . the primary impacts of the covid-19 pandemic have been seen in our cag business . while veterinary care is widely recognized as an “ essential ” service , stay-at-home policies deployed to combat the spread of covid-19 constrained visits to veterinary practices significantly in late march 2020 through early april 2020 , pressuring diagnostic testing volumes . restrictions on sales professionals ' access to veterinary clinics also contributed to deferrals on new cag instrument placements . as stay-at-home policies were relaxed , there was a sharp rebound in clinical visit activity which accelerated through the second quarter of 2020 , and continued through the second half of 2020. weekly u.s. companion animal practice data showed improvement in same-store clinical visits trends since mid-april 2020 and solid cag market momentum has continued in early 2021. companion animal market improvement trends globally have supported a strong recovery in demand for cag diagnostic products and services . global cag diagnostics recurring revenues declined approximately 16 % in april 2020 , followed by increases of approximately 8 % in may 2020 , 30 % in june 2020 , 24 % in july 2020 , and approximately 20 % for the remainder of the third and fourth quarter of 2020. while these trends are encouraging , potential effects related to ongoing covid-19 case management efforts are challenging to predict and may pressure future revenues should enhanced social distancing policies and higher infection rates impact veterinary clinic operations in certain regions . we have also seen impacts from the covid-19 pandemic on water testing volumes . there was some disruption to compliance water testing early in the second quarter of 2020 related to business lockdown effects , as well as beach and pool closures , which has since had a solid recovery .
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on an ongoing basis , we release the income tax effects of individual items in accumulated oci as those items are sold or settled at the applicable statutory rate . new accounting standards issued but not yet effective in february 2016 , the fasb issued asu no . 2016-02 , “ leases ( topic 842 ) ” ( “ asc 842 ” ) . the fasb also issued several subsequent updates to the new guidance . the new story_separator_special_tag results of operations the following management 's discussion and analysis should be read in conjunction with our historical consolidated financial statements located in item 8. financial statements and supplementary data of this annual report . any reference to notes in the following management 's discussion and analysis refers to the notes to consolidated financial statements located in item 8. financial statements and supplementary data of this annual report . the results of operations reported and summarized below are not necessarily indicative of future operating results . this discussion also contains forward-looking statements that reflect our current views with respect to future events and financial performance . our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors , such as those set forth under item 1a . risk factors and located earlier in this annual report . executive summary our strategy we are an international offshore energy services company that provides specialty services to the offshore energy industry , with a focus on well intervention and robotics operations . we believe that focusing on these services will deliver favorable long-term financial returns . from time to time , we may make strategic investments that expand our service capabilities or add capacity to existing services in our key operating regions . we expect our well intervention fleet to expand with the completion and delivery in 2019 of the q7000 , a newbuild semi-submersible vessel . chartering newer vessels with additional capabilities , such as the three grand canyon vessels , should enable our robotics business to better serve the needs of our customers . from a longer-term perspective we also expect to benefit from our fixed fee agreement for the hp i , a dynamically positioned floating production vessel that processes production from the phoenix field for the field operator until at least june 1 , 2023. in january 2015 , helix , onesubsea llc , onesubsea b.v. , schlumberger technology corporation , schlumberger b.v. and schlumberger oilfield holdings ltd. entered into a strategic alliance agreement and related agreements for the parties ' strategic alliance to design , develop , manufacture , promote , market and sell on a global basis integrated equipment and services for subsea well intervention . the alliance leverages the parties ' capabilities to provide a unique , fully integrated offering to clients , combining marine support with well access and control technologies . we and onesubsea jointly developed a 15k irs , each owning a 50 % interest . the 15k irs was completed and placed into service in january 2018. our total investment in the 15k irs was approximately $ 17 million . in october 2016 , we and onesubsea launched the development of our first roam for an estimated cost of approximately $ 6 million for our 50 % interest . at december 31 , 2018 , our total investment in the roam was $ 5.6 million . the roam is expected to be available in 2019. economic outlook and industry influences demand for our services is primarily influenced by the condition of the oil and gas industry , and in particular , the willingness of oil and gas companies to spend on operational activities as well as capital projects . the performance of our business is also largely dependent on the prevailing market prices for oil and natural gas , which are impacted by domestic and global economic conditions , hydrocarbon production and capacity , geopolitical issues , weather , and several other factors , including : worldwide economic activity and general economic and business conditions , including available access to global capital and capital markets ; supply and demand for oil and natural gas , especially in the united states , europe , china and india ; political and economic uncertainty and geopolitical unrest , including regional conflicts and economic and political conditions in the middle east and other oil-producing regions ; actions taken by opec ; the availability and discovery rate of new oil and natural gas reserves in offshore areas ; the exploration and production of onshore shale oil and natural gas ; the cost of offshore exploration for and production and transportation of oil and natural gas ; the level of excess production capacity ; the ability of oil and gas companies to generate funds or otherwise obtain external capital for capital projects and production operations ; 31 the sale and expiration dates of offshore leases in the united states and overseas ; technological advances affecting energy exploration , production , transportation and consumption ; potential acceleration of the development of alternative fuels ; shifts in end-customer preferences toward fuel efficiency and the use of natural gas ; weather conditions and natural disasters ; environmental and other governmental regulations ; and domestic and international tax laws , regulations and policies . west texas intermediate oil prices rose to over $ 70 per barrel during 2018 before decreasing to around $ 45 per barrel towards the end of the year . volatility in oil prices creates uncertainty in oil and gas exploration and production activities . for instance , an increase in oil and gas exploration and production activities ( shale oil production in particular ) is expected when major oil producing countries including the u.s. increase output as a result of rising oil prices . increased supply without adequate levels of increase in demand , however , may weaken oil prices and industry prospects . the resulting industry environment may continue to curtail investments in offshore exploration and production as well as other offshore operational activities . story_separator_special_tag also included in the comparable year over year periods were net losses ( gains ) of $ 0.9 million in 2018 and $ ( 0.8 ) million in 2017 associated with our foreign currency exchange contracts that were not designated as cash flow hedges ( note 18 ) . net other expense for 2018 included a $ 1.1 million other than temporary loss on a note receivable ( note 3 ) . income tax provision ( benefit ) . income tax provision for 2018 was $ 2.4 million . excluding a net deferred tax benefit of $ 51.6 million as a result of the effect of u.s. tax law changes enacted in 2017 and a $ 6.3 million tax charge in 2017 attributable to a change in tax position related to our foreign taxes , we had an income tax benefit of $ 5.1 million for 2017 . the variance in our income taxes ( excluding the 2017 tax changes ) primarily reflects increased profitability in 2018 as compared to 2017 . the effective tax rate was 7.7 % for 2018 as compared to 247.5 % for 2017 . the variance was primarily attributable to the effect of the tax law changes and the change in tax position related to our foreign taxes in 2017 as well as the earnings mix between our higher and lower tax rate jurisdictions ( note 7 ) . 35 comparison of years ended december 31 , 2017 and 2016 the following table details various financial and operational highlights for the periods presented ( dollars in thousands ) : replace_table_token_11_th ( 1 ) represents the number of vessels or robotics assets as of the end of the period , including vessels under both short-term and long-term charters and excluding acquired vessels prior to their in-service dates , vessels taken out of service prior to their disposition and vessels jointly owned with third parties . ( 2 ) represents the average utilization rate , which is calculated by dividing the total number of days the vessels or robotics assets generated revenues by the total number of available calendar days in the applicable period . intercompany segment amounts are derived primarily from equipment and services provided to other business segments at rates consistent with those charged to third parties . intercompany segment revenues are as follows ( in thousands ) : replace_table_token_12_th 36 net revenues . our total net revenues increased by 19 % in 2017 as compared to 2016. increased revenues for 2017 reflected higher revenues in our well intervention segment , offset in part by revenue decreases in our robotics and production facilities segments . well intervention revenues increased by 38 % in 2017 as compared to 2016 primarily reflecting higher revenues generated from all of the well intervention vessels except for the q4000 . in brazil , the siem helix 1 achieved 96 % utilization since it commenced operations for petrobras in mid-april 2017. the siem helix 2 commenced operations for petrobras in mid-december 2017 with 53 % utilization . in the north sea , the well enhancer was 74 % utilized during 2017 while the vessel was 64 % utilized during 2016. the seawell was 78 % utilized during 2017 whereas it was 42 % utilized during 2016. in the gulf of mexico , the q5000 was 91 % utilized during 2017 as compared to being 65 % utilized during 2016. the q4000 was 75 % utilized during 2017 as compared to being 98 % utilized during 2016. the vessel was out of service for 49 days during the first half of 2017 undergoing its scheduled regulatory dry dock . additionally in 2016 , we recognized $ 15.6 million associated with cancellation of work originally scheduled to be performed by the q4000 in late 2016. robotics revenues decreased by 5 % in 2017 as compared to 2016. the decrease primarily reflected lower utilization of our robotics assets and performing work at reduced rates . some of our rov units have been affected by other industry participants laying up vessels or canceling work as a result of the oil and gas industry downturn . production facilities revenues decreased by 11 % in 2017 as compared to 2016 , which reflected reduced retainer fees from the amended hfrs agreement which was effective february 1 , 2017 , no revenue from the hfrs for 33 days as the q4000 underwent its regulatory dry dock , and lower revenues from the amendment of the agreement with the phoenix field operator for the hp i to a fixed fee agreement that commenced june 1 , 2016. gross profit ( loss ) . our 2017 gross profit increased by 34 % as compared to 2016. the gross profit related to our well intervention segment increased by 147 % in 2017 as compared to 2016 , primarily reflecting higher revenues in our north sea region . the gross loss associated with our robotics segment increased by 157 % in 2017 as compared to 2016 primarily reflecting decreased utilization for our robotics assets and performing work with lower profit margins . the gross profit related to our production facilities segment decreased by 17 % in 2017 as compared to 2016 primarily reflecting revenue decreases for the hfrs and the hp i . goodwill impairment . the $ 45.1 million impairment charge in 2016 reflects the write-off of the entire goodwill balance associated with our robotics reporting unit . gain on disposition of assets , net . the $ 1.3 million net gain on disposition of assets in 2016 was attributable to the sale of the helix 534 in december 2016. selling , general and administrative expenses .
| business activity summary we have been focused on enhancing our financial position and strengthening our balance sheet through various means including securities offerings ( the last of which occurred in march 2018 ) , which has allowed us to strategically focus on our core well intervention and robotics businesses . after commencing operations for petrobras in 2017 , both the siem helix 1 and siem helix 2 vessels achieved a full year of operations with high utilization in 2018. additionally in 2018 a third of our robotics revenues were derived from offshore renewables work involving seabed trenching ( increased from prior years ) , and we expect the growing demand for our services from the alternative ( renewable ) energy industry to continue . our robotics business also benefited from cost savings such as reduced charter costs as a result of returning the deep cygnus to its owner during the first quarter of 2018. furthermore , the 15k irs , which was jointly developed and ordered by us and onesubsea , was placed into service in january 2018 . 32 results of operations we have three reportable business segments : well intervention , robotics and production facilities . all material intercompany transactions between the segments have been eliminated in our consolidated financial statements , including our consolidated results of operations . we seek to provide services and methodologies that we believe are critical to maximizing production economics . our services cover the lifecycle of an offshore oil or gas field . we operate primarily in deepwater in the u.s. gulf of mexico , brazil , north sea , asia pacific and west africa regions . in addition to serving the oil and gas market , our robotics assets are contracted for the development of renewable energy projects ( wind farms ) .
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other expense increased in 2019 , primarily due to lower gains from sales of operating property and the $ 32 million write-off . gains from operating property sales amounted to $ 26 million , $ 64 million , and $ 158 million in 2020 , 2019 , and 2018 , respectively . loss on asset disposal during 2020 , we recorded a $ 385 million charge related to the disposal of 703 locomotives , the sales of which were completed during the fourth quarter . for more information on the impact of the charge , see note 7. other income – net other income – net increased in 2020 and 2019. the increase in 2020 was driven by the absence of the prior year $ 49 million impairment loss related to natural resource assets that were sold in 2020 , lower pension and postretirement benefit expenses , and higher returns on corporate-owned life insurance ( “ coli ” ) investments , which more than offset the absence of coal royalties and lower gains on sales of non-operating property . the increase in 2019 was driven by higher coli returns and increased gains on sales of non-operating property , which more than offset the aforementioned $ 49 million impairment loss . income taxes the effective income tax rate was 20.4 % in 2020 , compared with 22.0 % in 2019 and 23.1 % in 2018. the current year benefited from a reduction of taxes upon the resolution of our 2012 amended return ( see note 4 ) . all three years benefited from favorable tax benefits associated with stock-based compensation and coli returns . for 2021 , we expect an effective income tax rate between 23 % and 24 % . k27 financial condition , liquidity , and capital resources cash provided by operating activities , our principal source of liquidity , was $ 3.6 billion in 2020 , $ 3.9 billion in 2019 , and $ 3.7 billion in 2018. the decline in 2020 reflects a decrease in income from railway operations offset in part by lower income tax payments . the increase in 2019 was primarily the result of improved operating results . we had working capital of $ 158 million and negative working capital of $ 219 million at december 31 , 2020 , and 2019 , respectively . cash and cash equivalents totaled $ 1.1 billion and $ 580 million at december 31 , 2020 , and 2019 , respectively . we expect cash on hand combined with cash provided by operating activities will be sufficient to meet our ongoing obligations . in addition , we believe our currently-available borrowing capacity , access to additional financing , and ability to reduce property additions and shareholder distributions , including share repurchases , provide additional flexibility to meet our ongoing obligations . nonetheless , we continue to monitor the ongoing impacts of the covid-19 pandemic , which could lead to a reduction in cash flows from operations . contractual obligations at december 31 , 2020 , include long-term debt ( note 9 ) , interest on fixed-rate long-term debt , unconditional purchase obligations ( note 17 ) , long-term advances from conrail ( note 6 ) , operating leases ( note 10 ) , agreements with consolidated rail corporation ( crc ) ( note 6 ) , and unrecognized tax benefits ( note 4 ) . replace_table_token_21_th * this amount is shown in the other column because the year of settlement can not be reasonably estimated . off balance sheet arrangements consist primarily of unrecognized obligations , including unconditional purchase obligations and future interest payments on fixed-rate long-term debt , which are included in the table above . in addition , we entered into a synthetic lease during 2019 which is discussed further in note 10. cash used in investing activities was $ 1.2 billion in 2020 , compared with $ 1.8 billion in 2019 , and $ 1.7 billion in 2018. the decrease in 2020 was primarily driven by lower property additions . in 2019 , increased coli activity and higher property additions were partially offset by increased proceeds from property sales . we had the ability to borrow up to $ 750 million against our coli policies at december 31 , 2020. capital spending and track and equipment statistics can be found within the “ railway property ” section of part i of this report on form 10-k. for 2021 , we expect capital spending will approximate $ 1.6 billion . cash used in financing activities was $ 1.9 billion in 2020 , compared with $ 2.0 billion in 2019 , and $ 2.3 billion in 2018. the change in 2020 reflects lower repurchases of common stock and debt repayments , partially offset by reduced proceeds from borrowings . in 2019 , the decrease was impacted by fewer repurchases of common stock , higher debt repayments , and increased dividends . share repurchases of $ 1.4 billion in 2020 , $ 2.1 billion in 2019 , and $ 2.8 billion in 2018 resulted in the retirement of 7.4 million , 11.3 million , and 17.1 million shares , respectively . as of december 31 , 2020 , 20.7 million shares k28 remain authorized by our board of directors for repurchase . the timing and volume of future share repurchases will be guided by our assessment of market conditions and other pertinent factors . any near-term purchases under the program are expected to be made with internally generated cash , cash on hand , or proceeds from borrowings . story_separator_special_tag in may 2020 , we issued $ 800 million of 3.05 % senior notes due 2050 , resulting in $ 790 million in net proceeds . in may 2020 , we also issued $ 800 million of 3.155 % senior notes due 2055 in exchange for $ 554 million of previously issued notes ( $ 450 million at 5.1 % due 2118 , $ 42 million at 6 % due 2111 , $ 29 million at 7.9 % due 2097 , $ 26 million at 6 % due 2105 , and $ 7 million at 7.05 % due 2037 ) . as part of the debt exchange , a $ 4 million loss on extinguishment was recognized in “ other income – net. ” in may 2020 , we also renewed and amended our accounts receivable securitization program , reducing our maximum borrowing capacity from $ 450 million to $ 400 million . the term expires in may 2021. we had no amounts outstanding at december 31 , 2020 or december 31 , 2019 , and our available borrowing capacity was $ 400 million and $ 429 million , respectively . in march 2020 , we renewed and amended our five-year credit agreement . we increased the program 's borrowing capacity from $ 750 million to $ 800 million . the amended agreement expires in 2025 and provides for borrowings at prevailing rates and includes covenants . we had no amounts outstanding under this facility at december 31 , 2020 or december 31 , 2019. we discuss our credit agreement and our accounts receivable securitization program in note 9 , and we have authority from our board of directors to issue an additional $ 1.6 billion of debt or equity securities through public or private sale , all of which provide for access to additional liquidity should the need arise . our debt-to-total capitalization ratio was 46.2 % at december 31 , 2020 , compared with 44.5 % at december 31 , 2019. upcoming annual debt maturities are disclosed in note 9. overall , our goal is to maintain a capital structure with appropriate leverage to support our business strategy and provide flexibility through business cycles . application of critical accounting policies the preparation of financial statements in accordance with gaap requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities , the disclosure of contingent assets and liabilities at the date of the financial statements , and the reported amounts of revenues and expenses during the reporting period . these estimates and assumptions may require judgment about matters that are inherently uncertain , and future events are likely to occur that may require us to make changes to these estimates and assumptions . accordingly , we regularly review these estimates and assumptions based on historical experience , changes in the business environment , and other factors we believe to be reasonable under the circumstances . the following critical accounting policies are a subset of our significant accounting policies described in note 1. pensions and other postretirement benefits accounting for pensions and other postretirement benefit plans requires us to make several estimates and assumptions ( note 12 ) . these include the expected rate of return from investment of the plans ' assets and the expected retirement age of employees as well as their projected earnings and mortality . in addition , the amounts recorded are affected by changes in the interest rate environment because the associated liabilities are discounted to their present value . we make these estimates based on our historical experience and other information we deem pertinent under the circumstances ( for example , expectations of future stock market performance ) . we utilize an independent actuarial consulting firm 's studies to assist us in selecting appropriate actuarial assumptions and valuing related liabilities . for 2020 , we assumed a long-term investment rate of return of 8.25 % , which was supported by our long-term total rate of return on plan assets since inception , as well as our expectation of future returns . a one-percentage point change to this rate of return assumption would result in a $ 24 million change in annual pension expense . we review k29 assumptions related to our defined benefit plans annually , and while changes are likely to occur in assumptions concerning retirement age , projected earnings , and mortality , they are not expected to have a material effect on our net pension expense or net pension liability in the future . the net pension liability is recorded at net present value using discount rates that are based on the current interest rate environment in light of the timing of expected benefit payments . we utilize analyses in which the projected annual cash flows from the pension and postretirement benefit plans are matched with yield curves based on an appropriate universe of high-quality corporate bonds . we use the results of the yield curve analyses to select the discount rates that match the payment streams of the benefits in these plans . a one-percentage point change to this discount rate assumption would result in a $ 17 million change in annual pension expense . properties and depreciation most of our assets are long-lived railway properties ( note 7 ) . “ properties ” are stated principally at cost and are depreciated using the group method whereby assets with similar characteristics , use , and expected lives are grouped together in asset classes and depreciated using a composite depreciation rate . see note 1 for a more detailed discussion of assumptions and estimates . expenditures , including those on leased assets , that extend an asset 's useful life or increase its utility are capitalized . expenditures capitalized include those that are directly related to a capital project and may include materials , labor , and other direct costs , in addition to an allocable portion of indirect costs that relate to a capital
| summarized results of operations replace_table_token_9_th income from railway operations declined in 2020 compared to 2019 as railway operating revenues fell 13 % which exceeded a 7 % reduction in operating expenses . railway operating revenues declined as lower customer demand resulted in volume reductions . additionally , negative mix and lower fuel surcharge revenue , partially offset by increased pricing , led to lower revenue per unit . railway operating expenses decreased due to declines in fuel price and consumption , reduced employment levels , lower volumes and operational efficiency improvements . additionally , 2020 results were adversely impacted by a loss on asset disposal of $ 385 million related to locomotives sold , and by a $ 99 million impairment charge related to an equity method investment . for more information on the impact of these charges , see notes 7 and 6 , respectively . income from railway operations rose in 2019 compared to 2018 as a 3 % reduction in railway operating expenses more than offset the impact of a 1 % decline in railway operating revenues . in addition to higher income from railway operations , net income and diluted earnings per share growth in 2019 also benefited from a lower effective k19 tax rate . our continuing share repurchase program contributed to diluted earnings per share growth that exceeded that of net income . the following tables adjust our 2020 u.s. generally accepted accounting principles ( “ gaap ” ) financial results to exclude the effects of the aforementioned charges . the income tax effects on the non-gaap adjustments were calculated based on the applicable tax rates to which the non-gaap adjustments relate . we use these non-gaap financial measures internally and believe this information provides useful supplemental information to investors to facilitate making period-to-period comparisons by excluding the 2020 charges .
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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 , 2011 , commercial loans accounted for 59.8 % of the loan portfolio and retail loans accounted for 40.2 % . the company intends to continue to diversify the loan portfolio and to focus on commercial real estate and commercial and industrial lending relationships . the company 's relationship banking strategy focuses on increasing core accounts and expanding relationships through its branch network , 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 , 2011 , core deposits were 78.1 % 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 . acquisition 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 ) . 47 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 . 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 . the company maintains the allowance for loan losses through provisions for loan losses that are charged to income . charge-offs against the allowance for loan losses are taken on loans where management determines that the collection of loan principal is unlikely . recoveries made on loans that have been charged-off are credited to the allowance for loan losses . the company 's evaluation of the adequacy of the allowance for loan losses includes a review of all loans on which the collectibility of principal may not be reasonably assured . for residential mortgage and consumer loans , this is determined primarily by delinquency and collateral values . for commercial real estate and commercial loans , an extensive review of financial performance , payment history and collateral values is conducted on a quarterly basis . as part of the evaluation of the adequacy of the allowance for loan losses , each quarter management prepares an analysis that categorizes the entire loan portfolio by certain risk characteristics such as loan type ( residential mortgage , commercial mortgage , construction , commercial , etc . ) and loan risk rating . when assigning a risk rating to a loan , management utilizes a nine point internal risk rating system . loans deemed to be acceptable quality are rated 1 through 4 , with a rating of 1 established for loans with minimal risk . loans deemed to be of questionable quality are rated 5 ( watch ) or 6 ( special mention ) . story_separator_special_tag the factors include : macroeconomic conditions , such as deterioration in economic condition and limited access to capital . 49 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 , 2011. 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 is not impaired and no further quantitative analysis ( step 1 ) is warranted . 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 other-than-temporary securities impairment losses in earnings totaling $ 302,000 , $ 170,000 and $ 2.0 million in 2011 , 2010 and 2009 , respectively . 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 . in 2011 , management released the valuation allowance associated with the state net operating losses , approximately $ 840,000 , due to expectation of current and future taxable income . 50 analysis of net interest income net interest income represents the difference between income on interest-earning assets and expense on interest-bearing liabilities . net interest income depends on the relative amounts of interest-earning assets and interest-bearing liabilities and the rates of interest earned on such assets and paid on such liabilities . average balance sheet . the following table sets forth certain information for the years ended december 31 , 2011 , 2010 and 2009. for the periods indicated , the total dollar amount of interest income from average interest-earning assets and the resultant yields , as well as the interest expense on average interest-bearing liabilities is expressed both in dollars and rates . no tax equivalent adjustments were made . average balances are daily averages . replace_table_token_24_th ( 1 ) average outstanding balance amounts are at amortized cost . ( 2 ) average outstanding balances are net of the allowance for loan losses , deferred loan fees and expenses , and loan premiums and discounts and include non-accrual loans . ( 3 ) net interest income divided by average interest-earning assets . 51 rate/volume analysis . the following table presents the extent to which changes in interest rates and changes in the volume of interest-earning assets and interest-bearing liabilities have affected interest income and interest expense during the periods indicated .
| general . net income for the year ended december 31 , 2011 was $ 57.3 million , compared to $ 49.7 million for the year ended december 31 , 2010. basic and diluted earnings per share were $ 1.01 for the year ended december 31 , 2011 , compared to a basic and diluted loss per share of $ 0.88 for 2010. earnings for the year ended december 31 , 2011 reflect actions taken to reduce funding costs , with net interest income increasing $ 7.0 million , compared with the same period in 2010. in addition , the provision for loan losses decreased $ 6.6 million for the year ended december 31 , 2011 , compared with the year ended december 31 , 2010. these improvements were partially offset by an increase in non-interest expense of $ 3.7 million for year ended december 31 , 2011 , compared with the same period in 2010. net interest income . net interest income increased $ 7.0 million , or 3.4 % , to $ 216.0 million for 2011 , from $ 209.0 million for 2010. the average interest rate spread increased 6 basis points to 3.33 % for 2011 , from 3.27 % for 2010. the net interest margin increased 4 basis points to 3.49 % for 2011 , compared to 3.45 % for 2010. for the year ended december 31 , 2011 , the favorable effects of an increase in average loans outstanding and reductions in funding costs outpaced the impact of the downward repricing of earning assets and accelerated premium amortization on mortgage-backed securities . interest income decreased $ 10.8 million , or 3.8 % , to $ 275.7 million for 2011 , compared to $ 286.5 million for 2010. the decrease in interest income was attributable to a decrease in the yield on average earning assets , partially offset by an increase in average earning asset balances .
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the fair value of the impaired building was estimated using sales prices in similar real estate sales and offers received from potential purchasers of the building . in june 2011 , the company sold this building with an immaterial additional loss on the sale . 7. income taxes lexicon recognizes deferred tax liabilities and assets for the expected future tax consequences of events that have been recognized differently in the financial statements and tax returns . under this method , deferred tax story_separator_special_tag the following discussion and analysis should be read with “ selected financial data ” and our financial statements and notes included elsewhere in this annual report on form 10-k. overview we are a biopharmaceutical company focused on the discovery and development of breakthrough treatments for human disease . we have used gene knockout technologies and an integrated platform of advanced medical technologies to identify and validate , in vivo , more than 100 targets with promising profiles for drug discovery . for targets that we believe have high pharmaceutical value , we engage in programs for the discovery and development of potential new drugs . we have multiple drug programs in various stages of clinical development and have advanced small molecule compounds from a number of additional drug programs into various stages of preclinical development and research . we are working both independently and through strategic collaborations and alliances to capitalize on our technology , drug target discoveries and drug discovery and development programs . consistent with this approach , we seek to retain exclusive rights to the benefits of certain drug programs by developing drug candidates from those programs internally and to collaborate with third parties with respect to the discovery , development and commercialization of drug candidates for other targets , particularly when the collaboration provides us with access to expertise and resources that we do not possess internally or are complementary to our own . we have established drug discovery and development collaborations with leading pharmaceutical and biotechnology companies which generated near-term cash while offering us the potential to retain economic participation in products developed from the collaborations . in addition , we have established collaborations and license agreements with other leading pharmaceutical and biotechnology companies , research institutes and academic institutions under which we received fees and , in some cases , are eligible to receive milestone and royalty payments , in return for granting access to some of our technologies and discoveries . we have derived substantially all of our revenues from drug discovery and development collaborations and other collaborations and technology licenses , and will continue to do so for the foreseeable future . to date , we have generated a substantial portion of our revenues from a limited number of sources . our operating results and , in particular , our ability to generate additional revenues are dependent on many factors , including our success in establishing new collaborations and licenses , the success rate of our discovery and development efforts leading to opportunities for new collaborations and licenses , the timing and willingness of collaborators to commercialize products that would result in milestone payments and royalties and their success in such efforts , and general and industry-specific economic conditions which may affect research and development expenditures . future revenues from our existing collaborations and licenses are uncertain because they depend , to a large degree , on the achievement of milestones and payment of royalties we earn from any future products developed under the collaboration . as a result , we depend , in part , on securing new collaborations and license agreements . our ability to secure future revenue-generating agreements will depend upon our ability to address the needs of our potential future collaborators and licensees , and to negotiate agreements that we believe are in our long-term best interests . we may determine , as we have with certain of our clinical drug candidates , that our interests are better served by retaining rights to our discoveries and advancing our therapeutic programs to a later stage , which could limit our near-term revenues . because of these and other factors , our operating results have fluctuated in the past and are likely to do so in the future , and we do not believe that period-to-period comparisons of our operating results are a good indication of our future performance . since our inception , we have incurred significant losses and , as of december 31 , 2012 , we had an accumulated deficit of $ 899.8 million . our losses have resulted principally from costs incurred in research and development , general and administrative costs associated with our operations , and non-cash stock-based compensation expenses associated with stock options and restricted stock granted to employees and consultants . research and development expenses consist primarily of salaries and related personnel costs , external research costs related to our preclinical and clinical efforts , material costs , facility costs , depreciation on property and equipment , and other expenses related to our drug discovery and development programs . general and administrative expenses consist primarily of salaries and related expenses for executive and administrative personnel , professional fees and other corporate expenses , including information technology , facilities costs and general legal activities . we expect to continue to incur significant research and development costs in connection with our drug discovery and development programs . as a result , we will need to generate significantly higher revenues to achieve profitability . 30 critical accounting policies revenue recognition we recognize revenues when persuasive evidence of an arrangement exists , delivery has occurred or services have been rendered , the price is fixed or determinable , and collectibility is reasonably assured . payments received in advance under these arrangements are recorded as deferred revenue until earned . story_separator_special_tag our estimates depend on the timeliness and accuracy of the data provided by our vendors regarding the status of each program and total program spending . we periodically evaluate the estimates to determine if adjustments are necessary or appropriate based on information we receive . although we use consistent milestones or subject or patient enrollment to drive expense recognition , the assessment of these costs is a subjective process that requires judgment . upon settlement , these costs may differ materially from the amounts accrued in our consolidated financial statements . we record our research and development costs by type or category , rather than by project . significant categories of costs include personnel , facilities and equipment costs , laboratory supplies and third-party and other services . in addition , a significant portion of our research and development expenses is not tracked by project as it benefits multiple projects . consequently , fully-loaded research and development cost summaries by project are not available . stock-based compensation expense we recognize compensation expense in our statements of comprehensive loss for share-based payments , including stock options issued to employees , based on their fair values on the date of the grant , with the compensation expense recognized over the period in which an employee is required to provide service in exchange for the stock award . stock-based compensation expense for awards without performance conditions is recognized on a straight-line basis . stock-based compensation expense for awards with performance conditions is recognized over the period from the date the performance condition is determined to be probable of occurring through the time the applicable condition is met . we had stock-based compensation expense of $ 6.5 million for the year ended december 31 , 2012 , or $ 0.01 per share . as of december 31 , 2012 , stock-based compensation cost for all outstanding unvested options was $ 10.2 million , which is expected to be recognized over a weighted-average vesting period of 1.3 years . the fair value of stock options is estimated at the date of grant using the black-scholes option-pricing model . for purposes of determining the fair value of stock options , we segregate our options into two homogeneous groups , based on exercise and post-vesting employment termination behaviors , resulting in a change in the assumptions used for expected option lives and forfeitures . expected volatility is based on the historical volatility in our stock price . the following weighted-average assumptions were used for options granted in the years ended december 31 , 2012 , 2011 and 2010 , respectively : 32 replace_table_token_5_th impairment of long-lived assets our long-lived assets include property , plant and equipment , intangible assets and goodwill . we regularly review long-lived assets for impairment . the recoverability of long-lived assets , other than goodwill , is measured by comparing the assets carrying amount to the expected undiscounted future cash flows that the asset is expected to generate . determining whether an impairment has occurred typically requires various estimates and assumptions , including determining which cash flows are directly related to the potentially impaired asset , the useful life over which cash flows will occur , their amount , and the asset 's residual value , if any . we use internal cash flow estimates , quoted market prices when available and independent appraisals as appropriate to determine fair value . we derive the required cash flow estimates from our historical experience and our internal business plans and apply an appropriate discount rate . during the years ended december 31 , 2011 and 2010 , we determined that one of our buildings was impaired and therefore recorded impairment losses of $ 800,000 and $ 900,000 , respectively , which were recorded as research and development expense in the accompanying statements of comprehensive loss . in june 2011 , we sold this building with an immaterial additional loss on the sale . there were no significant impairments of long-lived assets in 2012 . goodwill is not amortized , but is tested at least annually for impairment at the reporting unit level . we have determined that the reporting unit is the single operating segment disclosed in our current financial statements . impairment is the condition that exists when the carrying amount of goodwill exceeds its implied fair value . the first step in the impairment process is to determine the fair value of the reporting unit and then compare it to the carrying value , including goodwill . we determined that the market capitalization approach is the most appropriate method of measuring fair value of the reporting unit . under this approach , fair value is calculated as the average closing price of our common stock for the 30 days preceding the date that the annual impairment test is performed , multiplied by the number of outstanding shares on that date . a control premium , which is representative of premiums paid in the marketplace to acquire a controlling interest in a company , is then added to the market capitalization to determine the fair value of the reporting unit . if the fair value exceeds the carrying value , no further action is required and no impairment loss is recognized . additional impairment assessments may be performed on an interim basis if we encounter events or changes in circumstances that would indicate that , more likely than not , the carrying value of goodwill has been impaired . there was no impairment of goodwill in 2012 , 2011 and 2010 . business combinations we allocate the purchase price of acquired businesses to the tangible and intangible assets acquired and liabilities assumed based upon their estimated fair values on the acquisition date . the purchase price allocation process requires management to make significant estimates and assumptions , especially at acquisition date with respect to intangible assets and in-process research and development . these assumptions are based in part on historical experience and are inherently uncertain .
| general and administrative expenses general and administrative expenses and dollar and percentage changes as compared to the prior year are as follows ( dollar amounts are presented in millions ) : replace_table_token_8_th 35 general and administrative expenses consist primarily of personnel costs to support our research and development activities , stock-based compensation expense , professional fees such as legal fees , and facility and equipment costs . years ended december 31 , 2012 and 2011 personnel – personnel costs decreased 4 % in 2012 to $ 8.0 million . salaries , bonuses , employee benefits , payroll taxes , recruiting and relocation costs are included in personnel costs . stock-based compensation – stock-based compensation expense increased 15 % in 2012 to $ 2.8 million . professional fees – professional fees in 2012 were $ 2.8 million , consistent with the prior year . facilities and equipment – facilities and equipment costs decreased 12 % in 2012 to $ 2.0 million , primarily due to reduced rent costs . other – other costs decreased 8 % in 2012 to $ 1.4 million . years ended december 31 , 2011 and 2010 personnel – personnel costs decreased 9 % in 2011 to $ 8.3 million due to a reduction in our personnel in february 2011. stock-based compensation – stock-based compensation expense increased 6 % in 2011 to $ 2.5 million . professional fees – professional fees decreased 24 % in 2011 to $ 2.8 million , primarily due to decreased patent-related , other legal and consulting costs . facilities and equipment – facilities and equipment costs decreased 7 % in 2011 to $ 2.3 million , primarily due to reduced maintenance costs . other – other costs decreased 19 % in 2011 to $ 1.5 million . interest income , interest expense and other income ( expense ) , net interest income .
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story_separator_special_tag financial condition and results of operations our management 's discussion and analysis of financial condition and results of operations ( “ md & a ” ) is provided in addition to the accompanying consolidated financial statements and notes to assist readers in understanding our results of operations , financial condition , and cash flows . our md & a is organized as follows : overview . discussion of our business and overall analysis of financial and other highlights affecting us to provide context for the remainder of md & a . results of operations . an analysis of our financial results comparing the year ended september 30 , 2017 ( “ fiscal 2017 ” ) to the year ended september 30 , 2016 ( “ fiscal 2016 ” ) . liquidity and capital resources . an analysis of changes in our cash flows and discussion of our financial condition and liquidity . contractual obligations . discussion of our contractual obligations as of september 30 , 2017. off-balance sheet arrangements . discussion of our off-balance sheet arrangements as of september 30 , 2017. critical accounting policies and estimates . this section provides a discussion of the significant estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosure of contingent assets and liabilities . the following discussion should be read in conjunction with our consolidated financial statements , and accompanying notes included at “ part iv , item 15. exhibits , financial statement schedules. ” the following discussion contains a number of forward-looking statements that involve a number of risks and uncertainties . words such as `` anticipates , '' `` expects , '' `` intends , '' `` goals , '' `` plans , '' `` believes , '' `` seeks , '' `` estimates , '' `` continues , '' `` may , '' `` will , '' `` should , '' and variations of such words and similar expressions are intended to identify such forward-looking statements . such statements are based on our current expectations and could be affected by the risk and uncertainties described in “ part i , item 1a . risk factors. ” our actual results may differ materially . overview alj regional holdings , inc. ( “ alj ” or “ we ” ) is a holding company that operates faneuil , inc. , or faneuil , floors-n-more , llc , d/b/a carpets n ' more , or carpets , and phoenix color corp. , or phoenix . with several members of our senior management and board of directors coming from long careers in the professional service industry , alj is focused on acquiring and operating exceptional customer service-based businesses . we continue to see our business evolve as we execute our strategy of buying attractively valued assets , such as faneuil 's may 26 , 2017 , acquisition of certain assets and assumption of certain liabilities of the customer management outsourcing business ( “ cmo business ” ) from vertex business services llc ( “ vertex ” ) , and phoenix 's july 18 , 2016 , acquisition of color optics , a leading printing and packaging solutions enterprise servicing the beauty , fragrance , cosmetic and consumer-packaged goods markets . in analyzing the financial impact of any potential acquisition , we focus on earnings , operating margin , cash flow and return on invested capital targets . we hire successful and experienced management teams to run each of our operating companies and incentivize them to drive higher profits . we are focused on increasing our revenue at each of our operating subsidiaries by investing in sales and marketing , expanding into new products and markets , and evaluating and executing on tuck-in acquisitions , while continually examining our cost structures to drive higher profits . 28 story_separator_special_tag compensation expense associated with hiring a full-time chief financial officer . we expect legal and accounting fees to incre ase as we comply with the ongoing reporting requirements of a public company . depreciation and amortization replace_table_token_14_th faneuil depreciation and amortization faneuil depreciation and amortization expense for fiscal 2017 was $ 8.1 million , an increase of $ 1.9 million , or 31.4 % , compared to $ 6.2 million for fiscal 2016. the increase was a result of new capital expenditures during fiscal 2017 and fiscal 2016 that totaled approximately $ 8.8 million and $ 5.5 million , respectively , the majority of which were to support new and existing customers . faneuil experiences increases in depreciation and amortization expenses as new customers are onboarded . carpets depreciation and amortization carpets depreciation and amortization expense for fiscal 2017 was $ 0.7 million , an increase of $ 0.1 million , or 15.0 % , compared to $ 0.6 million for fiscal 2016. carpets expects to experience an increase in depreciation and amortization expense as new automation machinery for its granite and stone facility is acquired . phoenix depreciation and amortization phoenix depreciation and amortization expense was $ 2.5 million for both fiscal 2017 and fiscal 2016. the majority of phoenix depreciation and amortization expense was included in the cost of revenue , as discussed above . interest expense interest expense for fiscal 2017 was $ 9.7 million , a $ 0.6 million increase compared to interest expense of $ 9.1 million for fiscal 2016. the increase was primarily attributable to the weighted average outstanding balance of our term loan and line of credit during fiscal 2017 compared to fiscal 2016 as a result of business acquisitions . the outstanding balance under our line of credit increased $ 5.5 million in may 2017 to fund the cmo business acquisition . the outstanding balance under our term loan increased $ 10.0 million in july 2016 to fund the color optics acquisition . to a lesser extent , the increase was attributable to the increased annual interest rates . we expect our future interest expense to fluctuate as a result of payments reducing our outstanding term loan balance , interest rate fluctuations , and additional capital lease borrowings . story_separator_special_tag investing activities during fiscal 2017 , our investing activities used $ 17.2 million of cash , mainly for the cmo business acquisition and purchases of equipment , software and leasehold improvements , which used $ 8.0 million and $ 9.3 million , respectively , slightly offset by $ 0.2 million of proceeds from the sale of assets . the majority of the capital expenditures were to support faneuil 's new customer contracts and phoenix 's purchase of production equipment . during fiscal 2016 , our investing activities used $ 9.2 million of cash , mainly for the color optics acquisition and purchases of equipment , software and leasehold improvements , which used $ 6.6 million and $ 3.7 million , respectively , partially offset by $ 1.0 million of proceeds from the sale of assets . financing activities during fiscal 2017 , our financing activities used $ 7.7 million of cash , mainly for term-loan payments totaling $ 11.0 million , $ 2.3 million for capital lease payments , partially offset by an increase in our line of credit of $ 5.5 million , which was used to fund the cmo business acquisition discussed above ( see further discussion at contractual obligations below ) . during fiscal 2016 , our financing activities used $ 6.2 million of cash , mainly for term-loan payments totaling $ 11.1 million , of which $ 3.0 million was non-mandatory , and $ 2.1 million to repurchase alj common stock , partially offset by an increase in our term loan of $ 10.0 million . contractual obligations the following table summarizes our significant contractual obligations at september 30 , 2017 , and the effect such obligations are expected to have on our liquidity and cash flows in future periods ( in thousands ) : replace_table_token_16_th 34 ( 1 ) in august 2015 , we entered into a financing agreement ( “ financing agreement ” ) with cerberus business finance , llc ( “ cerberus ” ) to borrow $ 105.0 million in a term loan ( “ cerberus term loan ” ) and have available up to $ 30.0 million in a revolving loan ( “ cerberus/pnc revolver ” ) , collectively ( “ cerberus debt ” ) . the proceeds were used to fund the acquisition of phoenix , to refinance the outstanding debt of alj , faneuil , and carpets , and to provide working capital facilities to all three of our subsidiaries and alj . in july 2016 , we entered into the first amendment to the financing agreement , which increased borrowings under the cerberus term loan by $ 10.0 million and modified certain covenants . in may 2017 , we entered into the second amendment to the financing agreement , which updated certain definitions , representations and warranties , and covenants to reflect the cmo business acquisition . in october 2017 , we entered into the third amendment to the financing agreement , which is not reflected in the above table . for further discussion of the third amendment to the financing agreement , see “ part iv , item 15. exhibits , financial statement schedules – note 13. subsequent events. ” from october 1 , 2016 , through august 16 , 2017 , interest accrued at annual rates ranging from 9.5 % to 9.8 % on the $ 10.0 million incremental debt . effective august 17 , 2017 , as a result of meeting certain loan covenants , the annual interest rate decreased to 7.8 % . during the year ended september 30 , 2017 , interest accrued at annual rates ranging from 7.5 % to 7.8 % on the remaining cerberus term loan debt . interest payments are due in arrears on the first day of each month . quarterly principal payments of approximately $ 2.2 million are due on the last day of each fiscal quarter and annual principal payments equal to 75 % of alj 's excess cash flow , as defined in the financing agreement , are due upon delivery of the audited financial statements . a final balloon payment is due at maturity , august 14 , 2020. there is a prepayment penalty equal to 1 % if the cerberus term loan is repaid prior to august 2018. we may make payments of up to $ 7.0 million against the loan with no penalty . as of september 30 , 2017 , alj 's balance on the cerberus term loan was approximately $ 96.5 million . we have the option to prepay ( and re-borrow ) the outstanding balance of the cerberus/pnc revolver , without penalty . each subsidiary has the ability to borrow under the cerberus/pnc revolver ( up to $ 30.0 million in the aggregate for all subsidiaries combined ) , but availability is limited to 85 % of eligible receivables . the cerberus/pnc revolver carries an unused fee of 0.5 % . additionally , the cerberus/pnc revolver provides for a sublimit for letters of credit up to $ 15.0 million . faneuil had a $ 2.7 million letter of credit under the financing agreement as of september 30 , 2017. the cerberus/pnc revolver has a final maturity date of august 14 , 2020. as discussed in note 3 , alj funded a portion of the cmo business acquisition by borrowing $ 5.5 million under the cerberus/pnc revolver , which accrued interest at annual rates ranging from 7.54 % to 7.8 % from the cmo business purchase date through september 30 , 2017. the remaining balance under the cerberus/pnc revolver accrued interest at annual rates ranging from 9.00 % to 9.75 % . as of september 30 , 2017 , the balance on the cerberus/pnc revolver was approximately $ 5.5 million . the cerberus debt is secured by substantially all our assets and imposes certain limitations on us , including our ability to incur debt , grant liens , initiate certain investments , declare dividends and dispose of assets . the cerberus debt also requires us to comply with certain debt covenants .
| results of operations the following table sets forth certain consolidated condensed statements of income data as a percentage of net revenue for each period as follows ( in thousands , except per share amounts ) : replace_table_token_10_th ( 1 ) percentage is calculated as segment revenue divided by consolidated revenue . ( 2 ) percentage is calculated as a percentage of the respective segment revenue . ( 3 ) includes depreciation expense of $ 5,244,000 and $ 3,973,000 during fiscal 2017 and fiscal 2016 , respectively . ( 4 ) primarily amortization of intangible assets . total depreciation and amortization for phoenix , including depreciation expense captured in cost of revenue , was $ 7,765,000 and $ 6,447,000 during fiscal 2017 and fiscal 2016 , respectively . ( 5 ) percentage is calculated as a percentage of consolidated revenue . 29 net revenue replace_table_token_11_th faneuil net revenue faneuil net revenue for fiscal 2017 was $ 158.3 million , an increase of $ 26.4 million , or 20.0 % , compared to net revenue of $ 131.8 million for fiscal 2016. the increase in net revenue was mainly attributable to new customer contracts entered into since september 2016 which added $ 17.9 million net revenue , and the cmo business acquisition , which added $ 12.6 million net revenue during fiscal 2017. the remaining change was a result of normal fluctuations in existing customer contracts .
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there were no common stock equivalents at december 31 , 2017 or december 31 , 2016. the following table sets forth the calculation of basic and diluted earnings per common share for the years ended december 31 , 2017 and 2016 : replace_table_token_31_th 3. net gains the following table summarizes the gain/ ( loss ) activity for the years ended december 31 , 2017 and 2016 : replace_table_token_32_th 4. regulatory capital requirements we require capital to fund loans , satisfy our obligations under the bank 's letters of credit , meet the deposit withdrawal demands of the bank 's customers , and satisfy our other monetary obligations . to the extent that deposits are not adequate to fund our capital requirements , we can rely on a number of funding sources , including an unsecured fed funds lines of credit with upstream correspondent banks ; secured advances with the fhlb of atlanta , which are collateralized by eligible one to four family residential mortgage loans , home equity lines of credit , commercial real estate loans , and various securities . cash may also be pledged as collateral . in addition , first united corporation has a secured line of credit with the fed discount window for use in borrowing funds up to 90 days , using municipal securities as collateral ; brokered deposits , including cds and money market funds ; and one way buy cdars/ ics funding , which is a form of brokered deposits that has become a viable supplement to brokered deposits obtained directly . at story_separator_special_tag this discussion and analysis should be read in conjunction with the consolidated financial statements and notes thereto for the years ended december 31 , 2017 and 2016 , which are included in item 8 of part ii of this annual report . overview first united corporation is a bank holding company that , through the bank and its non-bank subsidiaries , provides an array of financial products and services primarily to customers in four western maryland counties and four northeastern west virginia counties . its principal operating subsidiary is the bank , which consists of a community banking network of 24 branch offices located throughout its market areas . our primary sources of revenue are interest income earned from our loan and investment securities portfolios and fees earned from financial services provided to customers . consolidated net income available to common shareholders was $ 4.1 million for the year ended december 31 , 2017 , compared to $ 5.3 million for 2016. basic and diluted net income per common share for the year ended december 31 , 2017 were both $ .58 , compared to basic and diluted net income per common share of $ .84 for 2016. the decrease in earnings for 2017 was primarily attributable to a $ 3.2 million , or $ .49 per common share , increase in income tax expense on account of the enactment of the tax cuts and jobs act ( the “ tax act ” ) , which required us to revalue our deferred tax assets and liabilities at december 31 , 2017. when comparing 2017 to 2016 , service charge income decreased , primarily due to a reduction in non-sufficient funds ( “ nsf ” ) income , and bank owned life insurance ( “ boli ” ) income decreased due to the receipt of one-time death benefits in the second quarter of 2016. these decreases were offset by increases in net interest income of $ 1.9 million , a $ .6 million decrease in provision expense , a decrease of $ .8 million in preferred stock dividends due to the redemption in march 2017 of $ 10.0 million and november 2017 of $ 10.0 million of the corporation 's fixed rate cumulative perpetual preferred stock , series a ( the “ series a preferred stock ” ) in both march 2017 and november 2017 , and a decrease of $ .3 million in fdic premiums . the net interest margin for the year ended december 31 , 2017 , on a fully tax equivalent ( “ fte ” ) basis , increased to 3.37 % from 3.19 % for the year ended december 31 , 2016. the provision for loan losses decreased to $ 2.5 million for the year ended december 31 , 2017 compared to $ 3.1 million for the year ended december 31 , 2016. the decrease was driven by a reduction in net credit losses and reduced loan growth in 2017. specific allocations have been made for impaired loans where management has determined that the collateral supporting the loans is not adequate to cover the loan balance , and the qualitative factors affecting the allowance for loan losses ( the “ all ” ) have been adjusted based on the current economic environment and the characteristics of the loan portfolio . other operating income decreased $ .4 million for the year ended december 31 , 2017 when compared to 2016. this decrease was primarily attributable to a $ .5 million decrease in the net gains on sales of investment securities due to reduced activity in the investment portfolio in 2017 , a decrease in service charge income , primarily due to a reduction of nsf fees , a decrease in boli income due to the receipt of a one-time death claim in the second quarter of 2016 , and a decrease in other miscellaneous income related to a one-time payment received in the third quarter of 2016 from the state of west virginia for a right of way provision at one of our branch locations . these decreases were offset slightly by increased trust department and debit card income . story_separator_special_tag management believes the following critical accounting policies affect our more significant judgments and estimates used in the preparation of the consolidated financial statements . allowance for loan losses one of our most important accounting policies is that related to the monitoring of the loan portfolio . a variety of estimates impact the carrying value of the loan portfolio and resulting interest income , including the calculation of the all , the valuation of underlying collateral , and the timing of loan charge-offs . the all is established and maintained at a level that management believes is adequate to cover losses resulting from the inability of borrowers to make required payments on loans . estimates for loan losses are arrived at by analyzing risks associated with specific loans and the loan portfolio , current and historical trends in delinquencies and charge-offs , and changes in the size and composition of the loan portfolio . the analysis also requires consideration of the economic climate and direction , changes in lending rates , political conditions , legislation impacting the banking industry and economic conditions specific to western maryland and northeastern west virginia . because the calculation of the all relies on management 's estimates and judgments relating to inherently uncertain events , actual results may differ from management 's estimates . the all is also discussed below in item 7 under the heading “ allowance for loan losses ” and in note 7 to the consolidated financial statements . goodwill accounting standards codification ( “ asc ” ) topic 350 , intangibles - goodwill and other , establishes standards for the amortization of acquired intangible assets and impairment assessment of goodwill . the $ 11.0 million in recorded goodwill at december 31 , 2017 is related to the bank 's 2003 acquisition of huntington national bank branches and is not subject to periodic amortization . goodwill arising from business combinations represents the value attributable to unidentifiable intangible elements in the business acquired . goodwill is not amortized but is tested for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired . impairment testing requires that the fair value of each of an entity 's reporting units be compared to the carrying amount of its net assets , including goodwill . if the estimated current fair value of the reporting unit exceeds its carrying value , then no additional testing is required and an impairment loss is not recorded . otherwise , additional testing is performed and , to the extent such additional testing results in a conclusion that the carrying value of goodwill exceeds its implied fair value , an impairment loss is recognized . [ 25 ] for evaluation purposes , the corporation is considered to be a single reporting unit . accordingly , our goodwill relates to value inherent in the banking business and the value is dependent upon our ability to provide quality , cost effective services in a highly competitive local market . this ability relies upon continuing investments in processing systems , the development of value-added service features and the ease of use of our services . as such , goodwill value is supported ultimately by revenue that is driven by the volume of business transacted . a decline in earnings as a result of a lack of growth or the inability to deliver cost effective services over sustained periods can lead to impairment of goodwill , which could adversely impact earnings in future periods . asc topic 350 requires an annual evaluation of goodwill for impairment . the determination of whether or not these assets are impaired involves significant judgments and estimates . at december 31 , 2017 , the date of the corporation 's annual impairment test , the fair value of the corporation as determined by the price of its common stock exceeded the carrying amount of the corporation 's common equity . based on the results of the evaluation , management concluded that the recorded value of goodwill at december 31 , 2017 was not impaired . however , future changes in strategy and or market conditions could significantly impact these judgments and require adjustments to recorded asset balances . management will continue to evaluate goodwill for impairment on an annual basis and as events occur or circumstances change . accounting for income taxes we account for income taxes in accordance with asc topic 740 , “ income taxes ” . under this guidance , deferred taxes 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 . deferred tax assets and liabilities are measured using enacted tax rates that will 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 . we regularly review the carrying amount of our net deferred tax assets to determine if the establishment of a valuation allowance is necessary . if based on the available evidence , it is more likely than not that all or a portion of our net deferred tax assets will not be realized in future periods , then a deferred tax valuation allowance must be established . consideration is given to various positive and negative factors that could affect the realization of the deferred tax assets . in evaluating this available evidence , management considers , among other things , historical performance , expectations of future earnings , the ability to carry back losses to recoup taxes previously paid , length of statutory carry forward periods , experience with utilization of operating loss and tax credit carry forwards not expiring , tax planning strategies and timing of reversals of temporary differences . significant judgment is required in assessing future earnings trends and the timing of reversals of temporary differences .
| consolidated balance sheet review overview total assets at december 31 , 2017 remained unchanged from the $ 1.3 billion recorded at december 31 , 2016. comparing 2017 to 2016 , cash and interest-bearing deposits in other banks increased $ 20.4 million , the investment portfolio increased $ 2.9 million , and gross loans increased slightly by $ .6 million . net deferred tax assets decreased by $ 10.1 million largely due the use of nols in 2017 , contributions to the pension plan , a recharacterization of alternative minimum tax credit carryforwards to refundable income tax consistent with the tax act , and a revaluation of all our deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future . the latter resulted in a reduction of $ 3.2 million due to lower future tax rates under the tax act . oreo balances decreased $ .8 million due to sales of properties in 2017. the balance of our boli investments increased $ 1.2 million due to earnings in 2017. total liabilities increased by $ 28.0 million for the year ended december 31 , 2017 when compared to 2016 due primarily to an increase of $ 25.2 million in deposits , and a $ 12.8 million increase in short-term borrowings related to increased balances in treasury management overnight investments , offset by a decrease of $ 10.8 million in long-term borrowings as a result of the repayment of $ 10.8 million in tps debentures held by trust iii in march 2017. comparing december 31 , 2017 to december 31 , 2016 , shareholders ' equity decreased $ 5.3 million as a result of the corporation 's redemption of $ 20.0 million of outstanding shares of series a preferred stock during 2017 , offset by the $ 9.2 million , net of offering expenses , realized m the corporation 's common stock rights offering that was completed in march 2017 and
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generally , may , could , will , would , expect , believe , estimate , anticipate , intend , continue and similar words identify forward-looking statements . forward-looking statements appearing in this report are made pursuant to the safe harbor provisions of the private securities litigation reform act of 1995. forward-looking statements are based on our current expectations and are subject to risks and uncertainties that can cause actual results and events to differ materially from those set forth in or implied by the forward-looking statements and related assumptions contained in the entire report . such factors include , but are not limited to : product demand and market acceptance risks ; the effect of economic conditions ; weather conditions ; changes in regulatory policy ; the impact of competitive products and pricing ; changes in foreign exchange rates ; product development and commercialization difficulties ; capacity and supply constraints or difficulties ; availability of capital resources ; general business regulations , including taxes and other risks as detailed from time-to-time in the company 's reports and filings filed with the u.s. securities and exchange commission ( the sec ) . it is not possible to foresee or identify all such factors . we urge you to consider these factors carefully in evaluating the forward-looking statements contained in this report . 18 american vanguard corporation and subsidiaries ( dollars in thousands , except per share data ) story_separator_special_tag manufacturing of folex at our axis facility . in addition , greater sales of higher margin products contributed to this improvement and , to a lesser extent , higher pricing of generic product lines . operating expenses in 2011 increased by $ 16,712 to $ 83,842 or 28 % of sales as compared to $ 67,130 or 30 % in 2010. the differences in operating expenses by department are as follows : replace_table_token_5_th selling expenses increased by $ 3,665 to end at $ 23,318 for the year ended december 31 , 2011 , as compared to the same period of 2010. the main driver for increased overall cost was from expenses in support of our proprietary delivery system and other stewardship activities , wages , and travel expenses to support our expanded business . 20 american vanguard corporation and subsidiaries ( dollars in thousands , except per share data ) general and administrative expenses increased by $ 3,548 to end at $ 21,429 for the year ended december 31 , 2011 as compared to the same period of 2010. the four main drivers of this increase were an increase in amortization expense that resulted from the acquisitions made in december 2010 , an increase in stock based compensation expense relating to grants issued in december 2010 , and an increase in incentive compensation expense from the increase in overall financial performance . offsetting these increases , the company re-assessed the fair value of certain discounted deferred liabilities related to product line acquisition . research , product development costs and regulatory expenses increased by $ 5,406 to $ 18,041 for the year ended december 31 , 2011 , as compared to the same period of 2010. this is mainly due to increased studies on our new and existing products including spending related to the pcnb ssuro . freight , delivery and warehousing costs for the year ended december 31 , 2011 were $ 21,054 or 7 % of sales as compared to $ 16,961 or 7 % of sales for the same period in 2010. interest expense including capitalized interest and interest income were $ 3,457 in 2011 compared to $ 3,017 in 2010. interest costs are summarized in the following table : replace_table_token_6_th 1 the interest related to notes payable on product acquisitions and asset purchases is the amortization of the discounting on the deferred liabilities related to product acquisitions that occurred in december 2010. the company 's average overall debt for the year ended december 31 , 2011 was $ 72,908 as compared to $ 62,150 for the comparable period of the previous year . during the year we paid down to zero the revolving line and did not draw further funds as a result of continued focus on inventory , receivables and program management . as can be seen from the table above , our effective interest rate was 4.7 % for the twelve months ended december 31 , 2011. this is effectively flat in comparison to the prior year . it should also be noted that the company paid out substantially all its program liabilities for the crop year ended september 30 , 2011 during the final quarter of the year . in the prior year approximately 70 % of program liabilities were paid in the three months ended december 31 , 2010. income tax expense for 2011 amounted to $ 13,155 as compared to $ 5,190 for 2010. the 2011 effective tax rate is at 37.35 % , as compared to an effective rate of 32.1 % for 2010. the increase in effective tax rate is primarily due to lower tax benefits from federal and california r & d due to substantially higher pre-tax book income in 2011 as compared to 2010 , lower than expected domestic production activities deduction claimed in the 2010 federal income tax return , and the benefit related to stock options in 2010. net income ended at $ 22,068 or $ .79 per diluted share in 2011 as compared to $ 10,984 or $ .40 per diluted share in 2010 . 21 american vanguard corporation and subsidiaries ( dollars in thousands , except per share data ) contractual obligations and off-balance sheet arrangements we believe that our cash flows from operations and cash and cash equivalents will be sufficient to meet our working capital and capital expenditure requirements and provide us with adequate liquidity to meet our anticipated operating needs for at least the next 12 months . story_separator_special_tag our fumigants enjoyed mild gains in net sales year-over-year ( up by about 5 % ) ; in fact , fourth quarter sales in 2009 , on an historical basis , were comparatively low , as adverse weather cut short the application season for this just-in-time product . with better weather conditions , fumigant sales in 2010 have trended toward more historical norms . net sales of our fungicides , however , were down sharply ( approximately 46 % ) during 2010 as compared to 2009 , due largely to pcnb on crop uses , which experienced a decrease in net sales in the first half of the year arising from formulation issues , and in the second half of the year from the ssuro issued by usepa for domestic product . 23 american vanguard corporation and subsidiaries ( dollars in thousands , except per share data ) within the segment of other products ( which includes plant growth regulators , molluscicides and tolling activity ) , we experienced a nearly 21 % increase in net sales during 2010 as compared to 2009 ( $ 32,113 v. $ 26,472 ) . this increase is primarily due to strong sales of folex , a compound used for cotton harvest management ; not only did we benefit from increased cotton acres , but also from the fact that we completed the acquisition of the domestic def ( tribufos ) product line in late july 2010. partially offsetting folex 's gains was a drop in net sales of naa , a plant growth regulator used primarily for thinning apple blossoms ; an early frost in late 2009 obviated the need for this product in 2010 , as growers still had inventory from the prior year for use in the 2010 season . in addition , net sales of dacthal were up slightly year-over-year ; while we have benefited from the lessening of water restrictions in the western states , we have experienced curtailment of uses in europe . further , net sales of metaldehyde ( a molluscicide ) were up about 16 % over the comparable period ; this increase arose primarily from rainy conditions in the eastern and northern midwestern states and the attendant increase in slug and snail pressure . tolling revenues decreased by approximately $ 2,000 in 2010 as compared to 2009 , as a result of one order which occurred in 2009 and not in 2010. it should be noted that , included in sales were data compensation amounts of $ 868 in 2010 and $ 1,825 in 2009. within our non-crop segment , net sales were down by about 15 % ( $ 23,466 v. $ 27,444 ) compared to 2009. this decline was due mostly to lost sales of pcnb on turf uses ; the ssuro was issued in august 2010 , just before normal sales into that market . on the positive side , naled sales ( our mosquito adulticide ) were up by about 13 % ; despite persistent dry conditions in the south west . net sales of pest strips more than tripled over the prior year , in light of the market 's recognition that the active ingredient , ddvp , is one of the only compounds effective against bedbugs . these gains , however , were offset in part by reduced sales of orthene , which due to heavy pricing pressure from generic competitors , continues to carry lower margins and less emphasis in our sales plans . our cost of sales for 2010 was $ 140,538 or 62 % of net sales . this compared to $ 148,903 or 72 % of net sales for 2009. the decline in cost of sales as a percentage of net sales in 2010 arose primarily from three factors , first , in the fourth quarter of 2009 , the company recorded a one-time non-cash charge in the amount of $ 13,509 relating to adjusting inventory values to net realizable value ( impacting our crop segment cost of sales by $ 10,853 and our non-crop segment cost of sales by $ 2,656 ) . there was no such charge in 2010. second , plant capacity utilization improved in 2010 as compared to 2009 ; underutilization costs declined from approximately $ 9,439 in 2009 to $ 7,621 in 2010. third , the mix of products sold in 2010 included a greater emphasis on higher-margin sku 's , a reduction in sales of products that are subject to pricing pressure from generic competition ( e.g. , orthene and bifenthrin ) , and a drop in tolling activity for third parties , which also carries lower margins . gross profit ended at 86,321 or 38 % of net sales in 2010 as compared to $ 56,898 or 28 % of net sales in 2009. this increase is due to the non-cash charge taken in the fourth quarter of 2009 and the other factors described in the immediately preceding paragraph . operating expenses in 2010 increased by $ 3,903 to $ 67,130 or 30 % of sales as compared to $ 63,227 or 31 % in 2009. the differences in operating expenses by department are as follows : replace_table_token_9_th selling expenses in 2010 increased by $ 988 to end at $ 19,653 as compared to $ 18,665 for the same period of 2009. this increased cost included $ 500 associated with possible product issues related to sales of pcnb in canada . in addition , we incurred expenses associated with international sales as we boosted regional product stewardship activities . 24 american vanguard corporation and subsidiaries ( dollars in thousands , except per share data ) general and administrative expenses decreased by $ 117 to end at $ 17,881 in 2010 compared to $ 17,998 in 2009. the decrease was primarily the result of expenses incurred in 2009 on a potential acquisition which the company decided not to complete . these costs did not recur in 2010. furthermore , legal expenses and bad debt expense decreased by $ 118 and $ 353 respectively .
| results of operations 2011 compared with 2010 : replace_table_token_4_th overall financial performance ( including net sales and net income ) for the year ended december 31 , 2011 improved as compared to the same period in 2010. our net sales for the period are up approximately 34 % to $ 304,429 , compared to $ 226,859 for the year ended december 31 , 2010. net sales of our crop business in 2011 were $ 275,417 which constitutes an increase of about 35 % over the net sales of $ 203,393 in 2010. net sales of non-crop products for the period were $ 29,012 , which constitutes an increase of about 24 % over the net sales of $ 23,466 in the same period last year . a more detailed discussion of product groups and products having a material effect on net sales for each of the crop and non-crop segments appears below . 2011 agricultural market conditions were generally better than those of 2010. strong global demand for food , animal feed , natural fiber and bio-fuel feed stocks spurred higher than normal crop prices . in light of these market conditions , growers invested more heavily in yield enhancing inputs which fueled demand for many of the company 's most important crop protection products . rising crop commodity prices also led to an increase in acreage planted for many crops in the united states , particularly corn and cotton , which are important to our business . in 2011 , a near record 92,000+ acres of corn were planted and cotton acreage expanded to 13,000 acres from 11,000 acres one year ago and just 9,000 acres two years ago . in addition , the practice of planting corn on the same acres year-after-year ( referred to as corn-on-corn as opposed to rotating crops ) gave rise to greater primary & secondary insect pest pressure in the mid-west united states .
| 7,797 |
story_separator_special_tag interest on the senior notes when due and payable , ( ii ) failure to comply with covenants or agreements in the indenture or the senior notes which failures are not cured or waived as provided in the indenture , ( iii ) failure to pay indebtedness of the company , any subsidiary guarantor or significant subsidiary ( as defined in the indenture ) within any applicable grace period after maturity or acceleration and the total amount of such indebtedness unpaid or accelerated exceeds $ 50.0 million , ( iv ) certain events of bankruptcy , insolvency , or reorganization , ( v ) failure to pay any judgment or decree for an amount in excess of $ 50.0 million against the company , any subsidiary guarantor or any significant subsidiary that is not discharged , waived or stayed as provided in the indenture , ( vi ) cessation of any subsidiary guarantee to be in full force and effect or denial or disaffirmance by any subsidiary guarantor of its obligations under its subsidiary guarantee , and ( vii ) a default under the company 's senior subordinated notes . in the case of an event of default , the principal amount of the senior notes plus accrued and unpaid interest may be accelerated . the issuance of the senior notes was registered under the securities act of 1933 , as amended . revolving credit facility on october 7 , 2011 , we successfully completed the amendment and restatement of the credit agreement that governs our principal revolving credit facility , the revolving facility . borrowers under the revolving facility were graftech finance inc. ( “ graftech finance ” ) and graftech switzerland s.a. ( “ swissco ” ) , both wholly-owned subsidiaries . on august 28 , 2012 , as permitted by the credit agreement , graftech luxembourg ii s.à.r.l . ( “ luxembourg holdco ” ) replaced swissco as a borrower . swissco is no longer entitled to borrow loans under the revolving facility although it is entitled to request letters of credit thereunder only for its own use . under the revolving facility , we have flexibility for investments , capital expenditures , acquisitions and restricted payments and we can issue letters of credit under the revolving facility in an amount not to exceed $ 50 million . we are permitted to pay dividends and repurchase our common stock in an aggregate amount ( cumulative from october 2011 ) up to $ 75 million ( or $ 500 million , if certain leverage ratio requirements are satisfied ) , plus , each year , an aggregate amount equal to 50 % of the consolidated net income in the prior year . on april 23 , 2014 , the credit agreement was further amended and restated to provide for , among other things , a five-year tenor , reduced borrowing spreads and greater financial flexibility . the revolving facility had a maximum borrowing capacity of $ 470 million principal and matured in april 2019. on november 19 , 2014 , we amended the credit agreement to , among other things , modify the definition of ebitda to exclude certain restructuring costs , increasing availability of borrowings thereunder , and reduce maximum principal amount to $ 400 million . 41 on february 27 , 2015 , we amended and restated the credit agreement to provide for , among other things , greater financial flexibility and a new $ 40 million senior secured delayed draw term loan facility . on june 26 , 2015 , we amended the credit agreement to permit the issuance of preferred stock to brookfield . on july 28 , 2015 , we amended the credit agreement to change the terms regarding the occurrence of a default upon a change in control ( which is defined thereunder to include the acquisition by any person of more than 25 percent of graftech 's outstanding shares ) to exclude the acquisition of shares by brookfield ( see note 2 to the financial statements ) . in addition , effective upon such acquisition , the financial covenants were eased , resulting in increased availability under the revolving facility . the maximum principal amount of the revolving facility was reduced from $ 400 million to $ 375 million . the interest rate applicable to the revolving facility and the term loan facility is libor plus a margin ranging from 2.25 % to 4.75 % ( depending on our total senior secured leverage ratio ) . the borrowers pay a per annum fee ranging from 0.35 % to 0.70 % ( depending on our senior secured leverage ratio ) on the undrawn portion of the commitments under the revolving facility . the new financial covenants require us to maintain a minimum cash interest coverage ratio ranging from 1.50 to 2.50 and a maximum senior secured leverage ratio ranging from 5.75 to 3.00 , subject to adjustment over time . as of december 31 , 2015 , we had outstanding borrowings of $ 98.0 million and outstanding letters of credit of $ 7.9 million under the revolving facility . senior subordinated notes on november 30 , 2010 , in connection with the acquisition of seadrift coke lp and c/g electrodes llc , we issued senior subordinated notes for an aggregate total face amount of $ 200 million . these senior subordinated notes were non-interest bearing and scheduled to mature in 2015. because the notes were non-interest bearing , we were required to record them at their present value ( determined using an interest rate of 7 % ) . the difference between the face amount of the notes and their present value was recorded as debt discount . the debt discount was amortized using the imputed interest method , over the life of the notes . on august 11 , 2015 , we prepaid the entire $ 200,000,000 aggregate principal amount of the notes after the company 's receipt of the proceeds of the issuance of preferred stock to brookfield 's affiliate . story_separator_special_tag during 2014 , as part of our initiative to decentralize the organization and reduce the costs of the global headquarter functions , the performance measure of our existing segments was changed to reflect our new management and operating structure . all amounts below reflect this change . see note 3 to the financial statements for further discussion . business combination accounting as a result of business combination accounting resulting from our acquisition by brookfield ( see note 2 `` preferred share issuance and merger '' to the financial statements ) , the company 's financial statements are separated into two distinct periods , the period before the consummation of the brookfield transaction ( labeled predecessor ) and the period after that date ( labeled successor ) , to indicate the application the of different basis of accounting between the periods presented . there were no operational activities that changed as a result of the acquisition of the predecessor . 43 replace_table_token_4_th net sales , by reportable segment for the year ended december 31 , 2014 and 2015 were : replace_table_token_5_th an analysis of the components of change in net sales for industrial materials and engineered solutions is set forth in the following table : replace_table_token_6_th net sales . net sales for our industrial materials segment decreased from $ 840.1 million in 2014 to $ 342.0 million in the period january 1 through august 14 , 2015 , and $ 193.2 million in the period august 15 through december 31 , 2015. this decrease was driven by a 23 % decrease in volumes in our graphite electrode business caused by softening demand in the steel markets , particularly in eaf environments . this drove a decrease in the weighted average sales prices of 8 percent during 2015. our graphite electrode product line was also negatively impacted by $ 37.8 million due to foreign currency rate declines primarily in the euro region . net sales for our engineered solutions segment decreased from $ 245.2 million in 2014 to $ 96.0 million in the period january 1 through august 14 , 2015 , and $ 55.5 million in the period august 15 through december 31 , 2015. the decrease in revenue was primarily driven by both decreased pricing and volumes for our thermal solutions serving the advanced consumer electronics markets . sales of our agm products decreased $ 17.5 million driven by the non- 44 recurrence of 2014 sales of high temperature furnace systems servicing a single customer that filed for bankruptcy in october 2014. we also experienced lower demand in our products serving the oil and gas drilling markets . cost of sales . we experienced decreases in cost of sales from $ 993.1 million in 2014 to $ 399.8 million in the period january 1 through august 14 , 2015 , and $ 229.9 million in the period august 15 through december 31 , 2015. lower volumes across both industrial materials and engineered solutions segments resulted in a reduction of $ 177.7 million of cost in 2015 as compared to the same period of 2014. rationalization related expenses within cost of sales decreased by $ 43.3 million in the twelve months ended december 31 , 2015 as compared to the same period of 2014 as our larger industrial materials rationalization initiatives are substantially complete . decreases in the value of currencies in relation to the us dollar , primarily in the euro region , benefited cost of sales by $ 41.0 million in the twelve months ended december 31 , 2015 as compared to the same period of 2014. the remaining reduction in cost was driven by our improved cost structure resulting from our rationalization initiatives . research and development . research and development expenses were $ 14.8 million in 2014 compared to $ 5.6 million in the period january 1 through august 14 , 2015 , and $ 2.3 million in the period august 15 through december 31 , 2015. this decrease was primarily driven by headcount reductions and our cost cutting efforts . additionally , for the year ended december 31 , 2014 research and development was charged negative mtm adjustment of $ 2.0 million . there was no significant mtm adjustment in 2015 within research and development . selling and administrative expenses . selling and general administrative expenses decreased from $ 124.2 million 2014 to $ 81.1 million in the period january 1 through august 14 , 2015 , and $ 32.1 million in the period august 15 through december 31 , 2015. this decrease was primarily driven by a headcount reductions and cost cutting efforts . additionally , we incurred a $ 6.5 million decrease in our 2015 mtm adjustment as compared to 2014. our 2015 selling and administrative expenses also included fees associated with our proxy and tender offer totaling $ 25.0 million as compared to $ 8.2 million in 2014. rationalizations . we recorded a $ 11.6 million charge for rationalizations in 2014 compared to $ 4.5 million in the period january 1 through august 14 , 2015 , and $ 1.1 million in the period august 15 through december 31 , 2015. our largest rationalization programs were announced in 2013 and 2014. these programs have wound down through 2015 and are substantially complete . impairments . as a result of our annual goodwill impairment testing and our routine monitoring of triggering events , we recorded a goodwill impairment charge in our needle coke reporting unit totaling $ 35.4 million during the first quarter of 2015. this charge was driven by the margin contraction for petroleum needle coke and followed a similar charge totaling $ 75.7 million in the fourth quarter of 2014. during the second quarter of 2014 we announced rationalization initiatives in our engineered solutions segment resulting from deteriorated pricing and competitor responses for certain products . as a result , we recorded long-lived asset impairment charges of $ 121.6 million . segment operating income ( loss ) .
| executive summary the slow rates of global economic growth experienced in 2014 continued throughout 2015. the year began with the imf estimating 2015 growth at a rate of 3.5 % . in october 2015 , the imf estimated 2015 growth at 3.1 % and projected global activity increases to be more gradual than initially estimated . the world steel association noted that steel production , excluding china , decreased 2.8 % in 2015. additionally , as the chinese economy has slowed , exports have increased . these chinese steel exports have flooded the markets that we serve , severely impacting our customers . the capacity utilization rate in the steel industry has fallen to 70 % . this slowdown in steel production exerted continued downward pressure on both prices and volumes for our industrial materials products during the year , which negatively impacted our profitability in 2015. our industrial materials rationalization initiatives have yielded cost savings which have helped to offset the impacts from the decrease in demand . our engineered solutions segment had decreased sales and margins in 2015 resulting primarily from our advanced consumer electronics products experiencing pricing pressure and decreased demand throughout 2015. our agm product group was negatively impacted year over year as a result of the bankruptcy of a customer in a new market that we began to serve in 2014. we have combated these negative market trends in both segments by continuing to cut costs and right size our operations until we exit this down cycle . we have seven major product categories : graphite electrodes , refractory products , needle coke products , advanced graphite materials , advanced composite materials , advanced electronics technologies and advanced materials . reportable segments . our businesses are reported in the following segments : industrial materials , which consists of graphite electrodes , refractory products and needle coke products . engineered solutions , which includes advanced graphite materials , advanced composite materials , advanced electronics technologies , and advanced materials .
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overview digimarc corporation enables governments and enterprises around the world to give digital identities to media and objects that computers can sense and recognize , and to which they can react . we have developed the digimarc discover ® , digimarc barcode and intuitive computing platform that are designed to optimize the identification of all consumer brand impressions , wherever and whenever they may appear , facilitating modern mobile-centric shopping . the platform includes means to embed “ digimarc barcodes , ” invisible and inaudible barcode-like information that is recognizable by smartphones , tablets , industrial scanners , and other computer interfaces , into virtually all forms of media content , including consumer product packaging . digimarc barcodes have many applications , including facilitating remarkably faster scanning of products at retail checkout as well as improved engagement with smartphone-equipped consumers . the digimarc barcode is robust yet imperceptible by people in ordinary use , allowing for reliable , efficient , economical , globally scalable , automatic identification of media without visible computer codes like traditional barcodes . our growth strategy encompasses both our government and commercial businesses . we plan to continue investing in research and development and sales and marketing to develop and market our products , including digimarc discover , digimarc barcode and guardian , and to continue to expand our intellectual property portfolio . to protect our significant efforts in creating our technology , we have implemented an extensive intellectual property protection program that relies on a combination of patent , copyright , trademark and trade secret laws , and nondisclosure agreements and other contracts . as a result , we believe we have one of the world 's most extensive patent portfolios in the field of digital watermarking and related fields , with approximately 1,100 u.s. and foreign patents and pending patent applications as of december 31 , 2016. we continue to develop and broaden our portfolio of patented technology in the fields of media identification and management technology and related applications and systems . we devote significant resources to developing and protecting our inventions and continuously seek to identify and evaluate potential licensees for our patents . critical accounting policies and estimates the preparation of financial statements in accordance with accounting principles generally accepted in the u.s. ( “ u.s . gaap ” ) requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenue and expenses , and related disclosure of contingent assets and liabilities . on an on-going basis , we evaluate our estimates , including those related to bad debts , contingencies , goodwill , income taxes , intangible assets , marketable securities , property and equipment and revenue recognition . we base our estimates on historical experience and on other assumptions we believe to be reasonable in the circumstances . actual results may differ from these estimates under different assumptions or conditions . 23 some of our accounting policies require higher degrees of judgment than others in their application . these in clude revenue recognition , goodwill , impairment of long-lived assets , contingencies and income taxes . we believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated fina ncial statements . revenue recognition : we account for customer arrangements that encompass multiple deliverables , such as patent licenses , professional services , software licenses , and maintenance and support fees , under asc 605-25 “ multiple-element arrangements . ” for arrangements that include multiple deliverables , we identify and divide the deliverables into separate units of accounting at inception if certain criteria are met . we apply asc 985 to software deliverables when relevant . the consideration for the arrangements under asc 605-25 is allocated to the separate units of accounting using the relative selling price method . the relative selling price method allocates the consideration based on our specific assumptions rather than assumptions of a marketplace participant , and any discount in the arrangement proportionally to each deliverable on the basis of each deliverable 's selling price . applicable revenue recognition criteria are considered separately for each separate unit of accounting as follows : service revenue is generally determined based on time and materials . revenue for development and consulting services is recognized as the services are performed . billing for services rendered generally occurs within one month after the services are provided . subscription revenue , which includes revenue from the sale of digimarc discover , digimarc barcode and guardian products and services , is generally paid in advance and recognized over the term of the subscription , which is generally one to three years . license revenue is recognized when amounts owed to digimarc have been earned , are fixed or determinable ( within our normal 30 to 60 day payment terms ) , and collection is reasonably assured . if the payment terms extend beyond our normal 30 to 60 days , the fee may not be considered to be fixed or determinable , and the revenue would then be recognized when installments are due . we record revenue from certain license agreements upon cash receipt as a result of collectability not being reasonably assured . our standard payment terms for license arrangements are 30 to 60 days . extended payment terms on patent license arrangements are not considered to be fixed or determinable if payments are due beyond our standard payment terms , primarily because of the risk of substantial modification present in our patent licensing business . as such , revenue on license arrangements with extended payment terms are recognized as fees become fixed or determinable . goodwill : we account for business combinations under the acquisition method of accounting in accordance with asc 805 , “ business combinations , ” where the total purchase price is allocated to the tangible and identified intangible assets acquired and liabilities assumed based on their estimated fair values . story_separator_special_tag replace_table_token_3_th 26 replace_table_token_4_th summary total revenue decreased $ 0.4 million or 2 % to $ 21.8 million , primarily the result of lower subscription revenue . total operating expenses increased 13 % to $ 35.2 million , primarily reflecting higher investment in sales , marketing and engineering as we continue to address important opportunities in market development and delivery for digimarc discover and digimarc barcode . 27 revenue replace_table_token_5_th service . service revenue consists primarily of software development and consulting services . the majority of service revenue arrangements are structured as time and materials consulting agreements . most of our service revenue is derived from contracts with the central banks and government agency contractors . the agreements range from several months to several years in length , and our longer term contracts are subject to work plans that are reviewed and agreed upon at least annually . these contracts generally provide for billing hours worked at predetermined rates and , to a lesser extent , reimbursement for third party costs and services . increases or decreases in the services provided under these contracts are generally subject to both volume and price changes . the volume of work is generally negotiated at least annually and can be modified as the customer 's needs change . we also have provisions in our longer term contracts that allow for specific hourly rate price increases on an annual basis to account for cost of living variables . contracts with government agency contractors are generally shorter term in nature , less linear in billings and less predictable than our longer term contracts because the contracts with government agency contractors are subject to government budgets and funding . the increase in service revenue was primarily due to more program work with the central banks , partially offset by the expiration of minimum support services to iv . subscription . subscription revenue includes digimarc discover , digimarc barcode and guardian products and services , and is generally recurring in nature , paid in advance and recognized over the term of the subscription . the decrease in subscription revenue was primarily due to lower software license revenue , which is recognized over the associated 12-month support period , partially offset by growth in sales of digimarc barcode . license . license revenue originates primarily from licensing our intellectual property where we receive license fees and or royalties as our income stream . the increase in license revenue was insignificant . 28 revenue by geography replace_table_token_6_th the decrease in domestic revenue was primarily due to lower software license revenue and the expiration of minimum support services to iv . the increase in international revenue was primarily due to more program work from the central banks and higher license revenue among international customers . cost of revenue service . cost of service revenue primarily includes costs that are allocated from research , development and engineering , and sales and marketing that relate directly to performing services under our customer contracts and direct costs of program delivery . costs include : compensation , benefits , incentive compensation in the form of stock-based compensation and related costs of our software developers , quality assurance personnel , product managers , business development managers and other personnel where we bill our customers for time and materials costs ; payments to outside contractors that are billed to customers ; charges for equipment directly used by customers ; depreciation and other charges for machinery , equipment and software directly used by customers ; travel costs directly attributable to development and consulting contracts ; and charges for infrastructure and centralized costs of facilities and information technology . subscription . cost of subscription revenue primarily includes : compensation , benefits , incentive compensation in the form of stock-based compensation and related costs of operations personnel ; cost of outside contractors that provide operational support ; amortization of existing technology acquired in the acquisition of attributor ; internet service provider connectivity charges and image search data fees to support the services offered to our subscription customers ; and charges for infrastructure and centralized costs of facilities and information technology . 29 license . cost of license revenue primarily includes : amortization of capitalized patent costs ; and amortization of patent maintenance fees . gross profit replace_table_token_7_th the increase in total gross profit was due primarily to higher margins on subscription revenue . the decrease in service gross profit as a percentage of service revenue was insignificant . the increase in subscription gross profit as a percentage of subscription revenue was primarily due to lower operations and contractor costs in support of our guardian products and services . the decrease in license gross profit as a percentage of license revenue was insignificant . operating expenses we allocate certain costs of research , development and engineering , sales and marketing , and intellectual property to cost of revenue when they relate directly to our customer contracts . we record all remaining , or “ residual , ” costs as sales and marketing , research , development and engineering , general and administrative , and intellectual property expenses . sales and marketing replace_table_token_8_th sales and marketing expenses consist primarily of : compensation , benefits , incentive compensation in the form of stock-based compensation and related costs of sales and marketing employees and product managers ; travel and market research costs , and costs associated with marketing programs , such as trade shows , public relations and new product launches ; 30 professional services and outside contractors for product and marketing initiatives ; and charges for infrastructure and centralized costs of facilities and information technology . the increase in sales and marketing expenses was due primarily to : increased headcount and compensation-related expenses of $ 1.8 million ; increased charges for infrastructure and centralized costs of $ 0.3 million due to increased headcount ; increased travel expenses of $ 0.2 million ; and increased marketing and professional fees of $ 0.2 million related to market development activities .
| summary total revenue decreased $ 3.5 million or 14 % to $ 22.2 million , reflecting lower license revenue of $ 4.4 million primarily due to the end of royalty payments from verance in the fourth quarter of 2014 and license payments from nielsen in the first quarter of 2014 , partially offset by growth in service and subscription revenue . total operating expenses decreased 4 % to $ 31.2 million , reflecting lower spending in research , development and engineering , general and administrative and intellectual property , partially offset by higher investment in sales and marketing as we focus on market development and delivery for digimarc discover and digimarc barcode . 36 revenue replace_table_token_16_th the increase in service revenue was primarily due to higher billable rates under our agreement with the central banks and increased program work with a government agency contractor . the increase in subscription revenue was primarily due to higher software license revenue , which is recognized over the associated 12-month support period , and growth in digimarc barcode revenue , partially offset by lower guardian revenue . the decrease in license revenue was primarily due to the end of royalty payments from verance in the fourth quarter of 2014 and license payments from nielsen in the first quarter of 2014. revenue by geography replace_table_token_17_th the decrease in domestic revenue was primarily due to the end of royalty payments from verance in the fourth quarter of 2014 and license payments from nielsen in the first quarter of 2014 , partially offset by higher domestic service and subscription revenue . the decrease in international revenue was primarily due to lower international license revenue and lower guardian revenue from international customers , partially offset by higher service revenue from the central banks . 37 gross profit replace_table_token_18_th the decrease in total gross profit was due primarily to lower license revenue , partially offset by higher service and subscription revenue .
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