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the company agreed to reimburse servier up to a mid-double digit percentage of the total historical development costs incurred by servier in relation to clinical development activities aimed at achieving regulatory approval in the european union and the united states story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes appearing elsewhere in this annual report on form 10-k. in addition to historical information , this discussion and analysis contains forward-looking statements that involve risks , uncertainties and assumptions . our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors . we discuss factors that we believe could cause or contribute to these differences below and elsewhere in this report , including those set forth under item 1a . risk factors and under forward-looking statements in this annual report on form 10-k. overview we are a biopharmaceutical company focused on the development and commercialization of novel therapeutics to treat chronic liver diseases utilizing our proprietary bile acid chemistry . our product candidates have the potential to treat orphan and more prevalent liver diseases for which there currently are limited therapeutic solutions . our lead product candidate , obeticholic acid , or oca , is a bile acid analog , a chemical substance that has a structure based on a naturally occurring human bile acid . oca is a first-in-class product candidate that selectively binds to and induces activity in the farnesoid x receptor , or fxr , which we believe has broad liver-protective properties . we are developing oca initially for primary biliary cirrhosis , or pbc , as a second line treatment for patients who have an inadequate response to or who are unable to tolerate standard of care therapy and therefore need additional treatment . pbc is a chronic autoimmune liver disease that , if inadequately treated , may eventually lead to cirrhosis , liver failure and death . we are conducting a phase 3 clinical trial of oca in pbc , which we call the poise trial , that we anticipate will serve as the basis for seeking regulatory approval in the united states and europe . as of december 19 , 2012 , we have completed enrollment of the poise trial with 217 patients , exceeding the originally targeted number of patients by approximately 20 % . we currently expect results from the poise trial to be available in the second quarter of 2014. oca has received orphan drug designation in the united states and europe for the treatment of pbc . we own worldwide rights to oca outside of japan and china , where we have exclusively licensed the compound to dainippon sumitomo pharma , or dsp , and granted it an option to exclusively license oca in certain other asian countries . on october 16 , 2012 , we completed our initial public offering in which we sold 5,750,000 shares of common stock at $ 15.00 per share and received net proceeds of $ 78.7 million , after underwriting discounts and commissions and offering expenses payable by us . the initial public offering included the exercise in full by the underwriters of their option to purchase an additional 750,000 shares of common stock . upon the closing of our initial public offering , all 7,403,817 outstanding shares of our convertible preferred stock automatically converted into an aggregate of 7,403,817 shares of common stock . we filed an amended and restated certificate of incorporation on october 16 , 2012 to authorize 25,000,000 shares of common stock and 5,000,000 shares of undesignated preferred stock . our common stock trades on the nasdaq global market , or nasdaq , under the trading symbol icpt. we have devoted substantially all of our resources to our development efforts relating to our product candidates , including conducting clinical trials of our product candidates , providing general and administrative support for these operations and protecting our intellectual property . we do not have any products approved for sale and have not generated any revenue from product sales . from our inception until december 31 , 2012 , we have funded our operations primarily through the private and public sales of preferred stock , common stock , convertible notes and warrants to purchase common stock totaling $ 181.5 million ( net of issuance costs of $ 9.9 million ) , including $ 29.7 in net proceeds from our series c financing in august 2012 and $ 78.7 million in net proceeds from our initial public offering in october 2012 , and through the receipt of $ 16.4 million of up-front payments under our collaborative agreements . we have incurred net losses in each year since our inception in 2002. our net losses were approximately $ 15.1 million , $ 12.7 million and $ 43.6 million for the years ended december 31 , 2010 , 2011 and 2012 , respectively . as of december 31 , 2012 , we had an accumulated deficit of approximately $ 118.2 million . substantially all our net losses resulted from costs incurred in connection with our research and development 69 programs and from general and administrative costs associated with our operations , and particularly in 2012 , from the mark-to-market of our liability-classified warrants . we expect to continue to incur significant expenses and increasing operating losses for at least the next several years . story_separator_special_tag our research and development expenses consist primarily of : salaries and related overhead expenses for personnel in research and development functions ; fees paid to consultants and clinical research organizations , or cros , including in connection with our preclinical and clinical trials , and other related clinical trial fees , such as for investigator grants , patient screening , laboratory work , clinical trial database management , clinical trial material management and statistical compilation and analysis ; costs related to acquiring and manufacturing clinical trial materials ; depreciation of leasehold improvements , laboratory equipment and computers ; costs related to compliance with regulatory requirements ; and costs related to stock options or other stock-based compensation granted to personnel in research and development functions . from inception through december 31 , 2012 , we have incurred approximately $ 71.4 million in research and development expenses . we plan to increase our research and development expenses for the foreseeable future as we continue the development of oca for the treatment of pbc and other indications and to further advance the development of our other product candidates , subject to the availability of additional funding . the table below summarizes our direct research and development expenses by program for the periods indicated . our direct research and development expenses consist principally of external costs , such as fees paid to investigators , consultants , central laboratories and cros , in connection with our clinical trials , and costs related to acquiring and manufacturing clinical trial materials . we have been developing oca and other agonists of fxr , as well as tgr5 agonists , and typically use our employee and infrastructure resources across multiple research and development programs . we do not allocate salaries , stock-based compensation , employee benefit or other indirect costs related to our research and development function to specific product candidates . those expenses are included in indirect research and development expense in the table below . 71 replace_table_token_3_th the successful development of our clinical and preclinical product candidates is highly uncertain . at this time , we can not reasonably estimate the nature , timing or costs of the efforts that will be necessary to complete the remainder of the development of any of our clinical or preclinical product candidates or the period , if any , in which material net cash inflows from these product candidates may commence . this is due to the numerous risks and uncertainties associated with developing drugs , including the uncertainty of : the scope , rate of progress and expense of our ongoing , as well as any additional , clinical trials and other research and development activities ; future clinical trial results ; and the timing and receipt of any regulatory approvals . a change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate . for example , if the u.s. food and drug administration , or fda , or another regulatory authority were to require us to conduct clinical trials beyond those that we currently anticipate will be required for the completion of clinical development of a product candidate or if we experience significant delays in any of our clinical trials , we could be required to expend significant additional financial resources and time on the completion of clinical development . oca the majority of our research and development resources are focused on the phase 3 poise trial and our other planned clinical and preclinical studies and other work needed to submit oca for the treatment of pbc for regulatory approval in the united states and europe . we have incurred and expect to continue to incur significant expense in connection with these efforts , including : in january 2012 , we initiated enrollment in our poise trial , a phase 3 clinical trial in patients with pbc , and we completed patient enrollment for our poise trial in december 2012. we currently expect results from the trial to be available in the second quarter of 2014. patients who complete twelve months of treatment will be eligible to continue in an open label safety extension trial for five years . we are continuing to treat pbc patients from our phase 2 trial with oca in a long-term safety extension trial . as of january 31 , 2012 , there were 20 patients being followed in this trial and we anticipate the trial to continue through 2015. we are currently dosing both mice and rats to investigate the carcinogenic potential of oca . we anticipate dosing will be completed in the first quarter of 2014. we plan to initiate a phase 2 clinical trial evaluating the potential effects and clinical significance of oca on the lipid profile of patients with pbc , a phase 1 clinical trial in healthy volunteers to evaluate the effect of oca on the heart 's electrical cycle , known as the qt interval , and additional phase 1 clinical trials in 2013. we have contracted with third-party manufacturers to produce the quantities of oca needed for regulatory approval as well as the necessary supplies for our other contemplated trials . 72 in addition , we are evaluating oca in other chronic liver and other diseases . in connection with these efforts , we have incurred significant expenses relating to our agreement with the national institute of diabetes and digestive and kidney diseases , or niddk , for milestones related to the flint trial , a phase 2b clinical trial in patients with nonalcoholic steatohepatitis , or nash . these expenses include $ 1.0 million that was paid in june 2012 and an additional $ 1.25 million that is was paid in connection with the full enrollment of the flint trial , which occurred on november 12 , 2012. int-767 and int-777 we are currently conducting research in collaboration with servier to discover and develop additional novel tgr5 agonists .
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results of operations comparison of the years ended december 31 , 2011 and 2012 the following table summarizes our results of operations for the years ended december 31 , 2011 and 2012 , together with the changes in those items in dollars and as a percentage : replace_table_token_6_th * not meaningful or not calculable . 77 licensing revenue for the year ended december 31 , 2011 , we recorded a total of $ 1.8 million of licensing revenue , consisting of $ 1.2 million and $ 600,000 from the amortization of the up-front payments from the collaboration agreements entered into during 2011 with dsp and servier , respectively . for the year ended december 31 , 2012 , we recorded a total of $ 2.4 million of licensing revenue , consisting of $ 1.6 million and $ 824,000 from the amortization of the up-front payments from the collaboration agreements entered into during 2011 with dsp and servier , respectively . the revenue recorded for the dsp agreement increased in 2012 as the agreement was only in place for nine months of 2011. the revenue related to the up-front payment from servier was fully recognized in the third quarter of 2012. research and development expenses research and development expenses were $ 11.4 million and $ 16.2 million for the years ended december 31 , 2011 and 2012 , respectively . the net increase in research and development expenses was $ 4.8 million , or 42 % .
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libra securities acted as placement agent for mezzco , l.l.c . in the placement of the mezzanine financing and was paid a placement fee of $ 4,350,000 . mr. ravich holds a note convertible into 25 % of the equity in pds gaming , a leasing and finance company specializing in gaming equipment . conversion of the note story_separator_special_tag overview of management 's discussion and analysis of financial condition and results of operations set forth below is a discussion of the financial condition and results of operations of bh/re and our subsidiaries for the periods covered in the report . the discussion of operations herein focuses on events and the revenues and expenses during the year ended december 31 , 2005 as compared to the year ended december 31 , 2004 , and the year ended december 31 , 2004 as compared to the year ended december 31 , 2003 , as if there was no change in ownership of the aladdin . the following discussion and analysis should be read in conjunction with item 6. selected financial data and the financial statements and the notes thereto included in item 8. financial statements and supplementary data in this annual report on form 10-k. critical accounting policies and estimates significant accounting policies and estimates our consolidated financial statements are prepared in conformity with u.s generally accepted accounting principles . certain policies , including the determination of bad debt reserves , the estimated useful lives assigned to assets , asset impairment , insurance reserves and the calculation of liabilities , require that we apply significant judgment in defining the appropriate assumptions for calculating financial estimates . by their nature , these judgments are subject to an inherent degree of uncertainty . our judgments are based on historical experience , terms of existing contracts , observance of trends in the gaming industry and information available from other outside sources . there can be no assurance that actual results will not differ from our estimates . to provide an understanding of the methodology we apply , our significant accounting policies and basis of presentation are discussed below , as well as where appropriate in the notes to the consolidated financial statements . property and equipment property and equipment are stated at cost . recurring repairs and maintenance costs , including items that are replaced routinely in the casino , hotel and food and beverage departments which do not meet the company 's capitalization policy of $ 10,000 , are expensed as incurred . the company has established its capital expense policy to be reflective of its individual ongoing repairs and maintenance programs . gains or losses on dispositions of property and equipment are included in the determination of income . property and equipment are generally depreciated over the following estimated useful lives on a straight-line basis : buildings 40 years building improvements 15 to 40 years furniture , fixtures and equipment 3 to 7 years property and equipment and other long-lived assets are evaluated for impairment in accordance with the financial accounting standards board 's ( fasb ) statement of financial accounting standards ( sfas ) no . 144 , accounting for the impairment or disposal of long-lived assets . for assets to be disposed of , the asset to be sold is recognized at the lower of carrying value or fair value less costs of disposal . fair value for assets to be disposed of is estimated based on comparable asset sales , solicited offers or a discounted cash flow model . property and equipment are reviewed for impairment whenever indicators of impairment exist . if an indicator of impairment exists , the estimated future cash flows of the asset , on an undiscounted basis , are compared to the carrying value of the asset . if the undiscounted cash flows exceed the carrying value , no 25 impairment is indicated . if the undiscounted cash flows do not exceed the carrying value , then impairment is measured based on fair value compared to carrying value , with fair value typically based on a discounted cash flow model . the property and equipment and other long-lived assets that bh/re obtained in the acquisition of the aladdin were appraised by an independent third party . property and equipment and the related accumulated depreciation amounts , as well as certain intangible assets recorded in the company 's consolidated balance sheet as of december 31 , 2005 , are based on the independent third party appraisal . derivative instruments and hedging activities as further consideration to the lenders under the credit agreement , bh/re has issued warrants to purchase membership interests held by bh/re in equityco . bh/re accounts for the outstanding warrants in equityco as embedded derivative instruments in accordance with sfas no . 133 , accounting for derivative instruments and hedging activities , and sfas no . 138 , accounting for certain derivative instruments and hedging activitiesan amendment of fasb statement no . 133 . in conjunction with the mezzanine financing , mezzco issued warrants to purchase membership interests in the fully diluted equity of mezzco which contain a net cash settlement , and therefore are accounted for in accordance with emerging issues task force ( eitf ) 00-19 , accounting for derivative financial instruments indexed to , and potentially settled in , a company 's own stock . both sfas no . 133 and eitf 00-19 require that the warrants be recognized as liabilities , with changes in fair value affecting net income . see note 7. long-term debtmezzanine financing . promotional allowances casino revenues are recognized as the net win from gaming activities , which is the difference between gaming wins and losses . all other revenues are recognized as the service is provided . revenues include the retail value of food , beverage , rooms , entertainment , and merchandise provided on a complimentary basis to customers . such complimentary amounts are then deducted from revenues as promotional allowances on our consolidated statements of operations . story_separator_special_tag sheraton hotel management contract opbiz and sheraton have entered into a management contract pursuant to which sheraton provides hotel management services to the hotel , assists opbiz in the management , operation and promotion of the hotel and permits opbiz to use the sheraton brand and trademarks in the promotion of the hotel . opbiz pays sheraton a monthly fee of 4 % of gross hotel revenue and certain food and beverage outlet revenues and 2 % of rental income from third-party leases in the hotel . the management contract has a 20-year term that commenced on the completion of the aladdin acquisition and is subject to certain termination provisions by either opbiz or sheraton . sheraton is a wholly owned subsidiary of starwood , which has a 15 % equity interest in equityco and has the right to appoint two members to the equityco board of managers . recently issued accounting standards in december 2004 , the financial accounting standards board ( fasb ) issued sfas no . 123 ( r ) , share-based payment , which requires that the compensation costs relating to share-based payments transactions be recognized in financial statements based on alternative fair value models . the share-based compensation cost will be measured on fair value models of the equity or liability instruments issued . the company currently disclosed pro-forma compensation expense annually by calculating the membership unit option grants ' fair value using the black-scholes or other valuation model and disclosing the impact on net loss in a note to the financial statements . upon adoption , pro forma disclosure will no longer be an alternative . the table above reflects the estimated impact that such a change in accounting treatment 28 would have had on our net loss if it had been in effect during the years ended december 31 , 2005 , 2004 and 2003. the company will begin to apply fsas no . 123 ( r ) using the modified prospective method as of the interim reporting period ending march 31 , 2006 as provided by the securities exchange commission announcement on april 14 , 2005 which amended the effective date . based on membership unit options outstanding as december 31 , 2005 , the company estimates approximately $ 0.3 million in expense to be recorded during 2006 , $ 0.1 million in 2007 , and $ 0 thereafter . in march 2005 , the sec issued staff accounting bulleting ( sab ) no . 107 , share-based payment to provide interpretive guidance on sfas no . 123 ( r ) valuation methods , assumptions used in valuation models , and the interaction of sfas no . 123 ( r ) with existing sec guidance . sab no . 107 also requires the classification of stock compensation expense in the same financial statement line items as cash compensation , and will therefore impact our departmental expenses ( and related operating margins ) , pre-opening costs and construction in progress for our development projects , and our general and administrative expenses . story_separator_special_tag 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 . 2004 compared with 2003 hotel revenues increased 10.7 % to $ 106.1 million for the year ended december 31 , 2004 as compared to $ 95.8 million for the year ended december 31 , 2003. the hotel occupancy percentage for the year ended 31 december 31 , 2004 was 97 % as compared to 98 % for the year ended december 31 , 2003. average daily room rates increased to $ 117 for the year ended december 31 , 2004 as compared to $ 105 for the year ended december 31 , 2003 , resulting in the increase in hotel revenues . the increase in hotel revenues and average daily room rates was primarily due to an improvement in general economic conditions throughout 2004 and a higher demand for rooms in las vegas in general . hotel expenses increased 13.3 % to $ 32.8 million for the year ended december 31 , 2004 as compared to $ 28.9 million for the year ended december 31 , 2003. hotel profit margin decreased 0.7 percentage points over the same twelve-month period . the decrease in hotel profit margin was primarily due to increased employee benefit expenses and the addition of management fees paid to starwood under the management contract beginning in september 2004. 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 .
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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_4_th 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 . net revenues and overall operating results for the year ended december 31 , 2004 improved over that of the year ended december 31 , 2003 due to improvements in general economic conditions throughout 2004. the increase in operating income was primarily due to depreciation not being recorded during the first eight months of 2004 while aladdin gaming was undergoing bankruptcy proceedings and assets were classified as held for sale . 29 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 .
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other assets include tax refund receivables of $ 25.0 million at december 31 , 2020 , and $ 31.8 million at december 31 , 2019. cash outflows from operating activities include net income taxes paid of $ 643.0 million in 2020 , $ 677.3 million in 2019 , and $ 644.2 million in 2018. additional income tax benefit arising from stock-based compensation plans activity totaling $ 61.9 million in 2020 , $ 42.7 million in 2019 , and $ 40.6 million in 2018 reduced the amount of income taxes that would have otherwise been payable . these income tax benefits were recognized in the income tax provision . the story_separator_special_tag overview . our revenues and net income are derived primarily from investment advisory services provided to individual and institutional investors in u.s. mutual funds , subadvised funds , separately managed accounts , collective investment trusts , and other t. rowe price products . the other t. rowe price products include : open-ended investment products offered to investors outside the u.s. and products offered through variable annuity life insurance plans in the u.s. we also provide certain investment advisory clients with related administrative services , including distribution , mutual fund transfer agent , accounting , and shareholder services ; participant recordkeeping and transfer agent services for defined contribution retirement plans ; brokerage ; trust services ; and non-discretionary advisory services through model delivery . we manage a broad range of u.s. , international and global stock , bond , and money market mutual funds and collective investment trusts and other investment products , which meet the varied needs and objectives of individual and institutional investors . investment advisory revenues depend largely on the total value and composition of assets under our management . accordingly , fluctuations in financial markets and in the composition of assets under management affect our revenues and results of operations . additionally , approximately 30 % of our operating expenses are impacted by changes in assets under management . we incur significant expenditures to develop new products and services and improve and expand our capabilities and distribution channels in order to attract new investment advisory clients and additional investments from our existing clients . these efforts often involve costs that precede any future revenues that we may recognize from an increase to our assets under management . the general trend to passive investing has been persistent and accelerated in recent years , which has negatively impacted our new client inflows . however , over the long term we expect well-executed active management to play an important role for investors . in this regard , we remain debt-free with ample liquidity and resources that allow us to take advantage of attractive growth opportunities . we are investing in key capabilities , including investment professionals , distribution professionals , technologies , and new product offerings ; and , most importantly , we provide our clients with strong investment management expertise and service . market trends . u.s. stocks produced strong returns in 2020. shares fell sharply during the first quarter in response to the global spreading of the coronavirus and severe economic weakness following lockdown measures . starting in late march , equities rose sharply—and continued climbing throughout the year—in response to massive fiscal and monetary stimulus measures by governments and central banks around the world , as well as some economic re-opening efforts . toward the end of the year , investor sentiment was lifted further by reduced political uncertainty following former vice president joe biden 's victory over incumbent president donald trump in the november election . also , investors were encouraged by the beginning of the distribution of some coronavirus vaccines that demonstrated very high efficacy rates in drug trials . stocks in developed non-u.s. equity markets produced positive returns in u.s. dollar terms but generally lagged u.s. shares . local returns to u.s. investors were lifted by a weaker dollar against major non-u.s. currencies . in asia , most major markets rose ; japanese shares advanced about 15 % . in europe , most markets also rose , but shares in the uk declined more than 10 % due to uncertainty for most of the year about the uk 's post-brexit trade relationship with the european union . emerging markets stocks outperformed developed non-u.s. markets . asia outperformed other emerging regions , thanks to market strength in south korea , taiwan , and china . in emerging europe , turkish and russian shares declined moderately in u.s. dollar terms amid weak currencies versus the greenback . latin american shares were mostly weaker , with regional heavyweight brazil falling 19 % in u.s. dollar terms as the real plunged more than 22 % over the last year . 20 page 25 returns of several major equity market indexes for 2020 are as follows : s & p 500 index 18.4 % nasdaq composite index ( 1 ) 43.6 % russell 2000 index 20.0 % msci eafe ( europe , australasia , and far east ) index 8.3 % msci emerging markets index 18.7 % ( 1 ) returns exclude dividends global bonds produced mostly positive returns , as central banks slashed short-term interest rates and sovereign bond yields in many countries fell sharply . in the u.s. investment-grade market , corporate bonds did best , as investors sought attractive yields in a low interest rate environment . treasury securities also did well as yields dropped across the yield curve . the 10-year u.s. treasury note yield decreased from 1.92 % to 0.93 % over the last year . asset- and mortgage-backed securities produced relatively mild gains . high yield corporate bonds and tax-free municipal bonds rose but trailed the broad taxable investment-grade bond market . bonds in developed non-u.s. markets produced strong gains in u.s. dollar terms , helped by dollar weakness against the euro and , to a lesser extent , the japanese yen and the british pound . story_separator_special_tag in addition , 84 % ( 5 ) of aum in our rated u.s. mutual funds ( across primary share classes ) ended 2020 with an overall rating of 4 or 5 stars . ( 1 ) source : © 2020 morningstar , inc. all rights reserved . the information contained herein : 1 ) is proprietary to morningstar and or its content providers ; 2 ) may not be copied or distributed ; and 3 ) is not warranted to be accurate , complete , or timely . neither morningstar nor its content providers are responsible for any damages or losses arising from any use of this information . ( 2 ) source : morningstar . primary share class only . excludes money market mutual funds , funds with an operating history of less than one year , t. rowe price passive funds , and t. rowe price funds that are clones of other funds . the top chart reflects the percentage of t. rowe price funds with 1 year , 3 year , 5 year , and 10 year track record that are outperforming the morningstar category median . the bottom chart reflects the percentage of t. rowe price funds aum that has outperformed for the time periods indicated . total fund aum included for this analysis includes $ 493b for 1 year , $ 493b for 3 years , $ 493b for 5 years , and $ 484b for 10 years . ( 3 ) passive peer median was created by t. rowe price using data from morningstar . primary share class only . excludes money market mutual funds , funds with an operating history of less than one year , funds with fewer than three peers , t. rowe price passive funds , and t. rowe price funds that are clones of other funds . this analysis compares t. rowe price active funds to the applicable universe of passive/index open-end funds and etfs of peer firms . the top chart reflects the percentage of t. rowe price funds with 1 year , 3 year , 5 year , and 10 year track record that are outperforming the passive peer universe . the bottom chart reflects the percentage of t. rowe price funds aum that has outperformed for the time periods indicated . total aum included for this analysis includes $ 475b for 1 year , $ 473b for 3 years , $ 432b for 5 years , and $ 411b for 10 years . ( 4 ) composite net returns are calculated using the highest applicable separate account fee schedule . excludes money market composites . all composites compared to official gips composite primary benchmark . the top chart reflects the percentage of t. rowe price composites with 1 year , 3 year , 5 year , and 10 year track record that are outperforming their benchmarks . the bottom chart reflects the percentage of t. rowe price composite aum that has outperformed for the time periods indicated . total aum included for this analysis includes $ 1,355b for 1 year , $ 1,353b for 3 years , $ 1,328b for 5 years , and $ 1,290b for 10 years ( 5 ) the morningstar rating for funds is calculated for funds with at least a three-year history . exchange-traded funds and open-ended mutual funds are considered a single population for comparative purposes . it is calculated based on a morningstar risk-adjusted return measure that accounts for variation in a managed product 's monthly excess performance , placing more emphasis on downward variations and rewarding consistent performance . morningstar gives its best ratings of 5 or 4 stars to the top 32.5 % of all funds ( of the 32.5 % , 10 % get 5 stars and 22.5 % get 4 stars ) . the overall morningstar rating is derived from a weighted average of the performance figures associated with a fund 's 3 , 5 , and 10 year ( if applicable ) morningstar rating metrics . 20 page 30 story_separator_special_tag later in this management 's discussion and analysis section . results overview - 2019 as compared to 2018 investment advisory revenues . in 2019 , investment advisory revenues increased 5.4 % over the comparable 2018 period as average assets under our management increased $ 72.8 billion , or 7.0 % , to $ 1,109.3 billion . the average annualized fee rate earned on our assets under management was 46.1 basis points in 2019 , compared with 46.8 basis points earned in 2018. our effective fee rate declined in part due to client transfers within the complex to lower fee vehicles or share classes and , to a lesser extent , fee reductions we made to certain mutual funds and other products since 2018. further contributing to our lower effective fee rate in 2019 was a greater percentage of our assets under management in lower fee products due to lower equity valuations in the fourth quarter of 2019. operating expenses . for 2019 , operating expenses were $ 3,230.9 million as compared with $ 3,011.2 million in the 2018 period . the increase in operating expenses was primarily due to our continued strategic investments and higher bonus and stock-based compensation , which were driven by our 2019 operating results . the 2018 period also includes the non-recurring $ 15.2 million reduction in operating expenses related to the conclusion of the dell appraisal rights matter . 20 page 32 in 2019 , our non-gaap operating expenses increased 4.1 % to $ 3,149.8 million compared with 2018. see our non-gaap reconciliations later in this management 's discussion and analysis section . operating margin . our operating margin in 2019 was 42.5 % , compared with 44.0 % in 2018. the decrease in our operating margin in 2019 compared to 2018 was driven by the higher percentage growth in operating expenses related to our supplemental savings plan as compared with the percentage growth in net revenues during 2019. diluted earnings per share .
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results of operations . the following table and discussion set forth information regarding our consolidated financial results for 2020 , 2019 and 2018 on a u.s. gaap basis as well as a non-gaap basis . the non-gaap basis adjusts for the impact of our consolidated t. rowe price investment products , the impact of market movements on the supplemental savings plan liability and related economic hedges , investment income related to certain other investments , and certain nonrecurring charges and gains . replace_table_token_10_th ( 1 ) the percentage change in non-operating income is not meaningful ( n/m ) . ( 2 ) see the reconciliation to the comparable u.s. gaap measures at the end of the results of operations section of this management 's discussion and analysis . results overview - 2020 as compared to 2019 investment advisory revenues . investment advisory fees are earned based on the value and composition of our assets under management , which change based on fluctuations in financial markets and net cash flows . as our average assets under management increase or decrease in a given period , the level of our investment advisory fee revenue for that same period generally fluctuates in a similar manner . our annualized effective fee rates can be impacted by market or cash flow related shifts among asset and share classes , price changes in existing products , and asset level changes in products with tiered-fee structures . investment advisory revenues earned in 2020 increased 11.4 % over the comparable 2019 period as average assets under our management increased $ 138.6 billion , or 12.5 % , to $ 1,247.9 billion . in 2020 , we voluntarily waived $ 20.4 million , or less than 1 % , of our investment advisory fees from certain of our money market mutual funds , trusts , and other investment portfolios in order to maintain a positive yield for investors .
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further , the information about our intentions contained in this report is a statement of our intention as of the date of this report and is based upon , among other things , the existing regulatory environment , industry conditions , market conditions and prices and our assumptions as of such date . we may change our intentions , at any time and without notice , based upon any changes in such factors , in our assumptions or otherwise . unless the context indicates otherwise , as used in the following discussion , “ company ” , “ we , ” “ us , ” and “ our , ” refer to ( i ) china green agriculture , inc. ( “ green nevada ” ) , a corporation incorporated in the state of nevada ; ( ii ) green agriculture holding corporation ( “ green new jersey ” ) , a wholly-owned subsidiary of green nevada incorporated in the state of new jersey ; ( iii ) shaanxi techteam jinong humic acid product co. , ltd. ( “ jinong ” ) , a wholly-owned subsidiary of green new jersey organized under the laws of the prc ; ( iv ) xi'an jintai agriculture technology development company ( “ jintai ” ) , wholly-owned subsidiary of jinong in the prc , ( v ) xi'an hu county yuxing agriculture technology development co. , ltd. ( “ yuxing ” ) , a wholly-owned subsidiary of jinong in the prc ; ( vi ) beijing gufeng chemical products co. , ltd. , a wholly-owned subsidiary of jinong in the prc ( “ gufeng ” ) , and ( vii ) beijing tianjuyuan fertilizer co. , ltd. , gufeng 's wholly-owned subsidiary in the prc ( “ tianjuyuan ” ) . unless the context otherwise requires , all references to ( i ) “ prc ” and “ china ” are to the people 's republic of china ; ( ii ) “ u.s . dollar , ” “ $ ” and “ us $ ” are to united states dollars ; and ( iii ) “ rmb ” , “ yuan ” and renminbi are to the currency of the prc or china . overview we are engaged in the research , development , production and sale of various types of fertilizers and agricultural products in the prc through our wholly-owned chinese subsidiaries , jinong , jintai , yuxing , gufeng and tianjuyuan . our primary business is fertilizer products , specifically humic-acid based compound fertilizer produced by jinong and compound fertilizer , blended fertilizer , organic compound fertilizer , slow-release fertilizers , highly-concentrated water-soluble fertilizers and mixed organic-inorganic compound fertilizer produced by gufeng . in addition , through jintai and yuxing , we develop and produce agricultural products , such as top-grade fruits , vegetables , flowers and colored seedlings . for financial reporting purposes , our operations are organized into four business segments : fertilizer products ( jinong ) , fertilizer products ( gufeng ) , agricultural products production ( jintai ) , and agricultural products production ( yuxing ) . jintai and yuxing also serve as a research and development base for our fertilizer products . the fertilizer business conducted by jinong and gufeng generated approximately 96.4 % , 96.1 % and 88.0 % of our total revenues in the fiscal year ended june 30 , 2012 , 2011 and 2010 , respectively . it should be noted that our consolidated results for the 2010 period do not include the results of gufeng and its subsidiary , tianjuyuan , which were acquired on july 2 , 2010 . 50 fertilizer products as of june 30 , 2012 , we had developed and produced a total of 443 different fertilizer products in use , of which 126 and 317 were developed and produced by jinong and gufeng , respectively . below is a table that shows the metric tons of fertilizer sold by jinong and gufeng and the revenue per ton for the periods indicated : replace_table_token_12_th replace_table_token_13_th replace_table_token_14_th replace_table_token_15_th for the fiscal year ended june 30 , 2012 , we sold approximately 318,208 metric tons of fertilizer products , as compared to 337,769 metric tons and 22,834 metric tons for the fiscal year ended june 30 , 2011 and 2010 , respectively , which did not include sales of products by gufeng with respect to the number of metric tons we sold in 2010. for the fiscal year ended june 30 , 2012 , jinong sold approximately 61,590 metric tons of fertilizer products , as compared to 48,038 metric tons and 22,834 for the fiscal year ended june 30 , 2011 and 2010 , respectively . for the fiscal year ended june 30 , 2012 , gufeng sold approximately 256,618 metric tons of fertilizer products , as compared to 289,731 metric tons for the fiscal year ended june 30 , 2011. our sales of fertilizer products to five provinces accounted for approximately 58.9 % of our fertilizer revenue for the fiscal year ended june 30 , 2012. specifically , the provinces and their respective percentage contribution to our fertilizer revenues were beijing ( 24.2 % ) , hebei ( 16.3 % ) , jilin ( 9.0 % ) , liaoning ( 6.6 % ) and inner mongolia ( 2.8 % ) . as of june 30 , 2012 , we had a total of 943 distributors covering 22 provinces , four autonomous regions and three central government-controlled municipalities in china . jinong had 758 distributors in china . jinong 's sales are not dependent on any single distributor or any group of distributors . its top five distributors accounted for 2.1 % of jinong 's fertilizer revenues for the fiscal year ended june 30 , 2012. gufeng had 185 distributors , including some large state-owned enterprises . story_separator_special_tag general and administrative expenses general and administrative expenses consisted primarily of related salaries , rental expenses , business development , depreciation and travel expenses incurred by our general and administrative departments and legal and professional expenses including expenses incurred and accrued due to pending litigations . general and administrative expenses were $ 13,801,407 , or 6.3 % of net sales , for the fiscal year ended june 30 , 2012 , as compared to $ 14,386,699 , or 8.0 % , of net sales for the fiscal year ended june 30 2011 , a decrease of $ 585,292 , or 4.1 % . this decrease was primarily the result of the decrease of legal and investor relations fees incurred in connection with certain pending litigations in 2011. total other income ( expenses ) total other income ( expense ) consisted of income from subsidies received from the prc government , interest income , interest expenses and bank charges . total other expense for the fiscal year ended june 30 , 2012 was $ 1,165,872 , as compared to total other income of $ 160,186 for the fiscal year ended june 30 , 2011 , an increase in expense of $ 1,005,686 , or 627.8 % . the increase was mainly attributable to the $ 1,590,620 interest expense from gufeng 's outstanding short-term loans . income taxes jinong is subject to a preferred tax rate of 15 % as a result of its business being classified as a high-tech project under the prc enterprise income tax law ( “ eit ” ) that became effective on january 1 , 2008. jinong incurred income tax expenses of $ 6,597,766 for the fiscal year ended june 30 , 2012 , as compared to $ 5,157,184 for the fiscal year ended june 30 , 2011 , an increase of $ 1,440,582 , or 27.9 % , which was primarily attributable to jinong 's increased operating income . gufeng , subject to a tax rate of 25 % , incurred income tax expenses of $ 4,203,548 for the fiscal year ended june 30 , 2012 , as compared to $ 3,879,959 for the fiscal year ended june 30 , 2011 , an increase of $ 323,589 , or 8.3 % . jintai has been exempt from paying income tax as its products fall into the tax exemption list set out in the eit . yuxing has no income tax for the fiscal year ended june 30 , 2012 as a result of being exempted from paying income tax due to its products fall into the tax exemption list set out in the eit , the same treatment as jintai receives . net income net income for the fiscal year ended june 30 , 2012 was $ 41,957,825 , an increase of $ 9,043,724 , or 27.5 % , compared to $ 32,914,101 for the fiscal year ended june 30 , 2011. the increase was attributable to the increase in gross profit . net income as a percentage of total net sales was approximately 19.3 % and18.3 % for the fiscal year ended june 30 , 2012 and 2011 , respectively . 55 the fiscal year ended june 30 , 2011 compared to the fiscal year ended june 30 , 2010. the following table shows the operating results of the company on a consolidated basis for the fiscal years ended june 30 , 2011 and 2010. replace_table_token_17_th net sales total net sales for the fiscal year ended june 30 , 2011 were $ 179,717,966 , an increase of $ 127,627,214 , or 245.0 % , from $ 52,090,752 for the fiscal year ended june 30 , 2010. this increase was largely due to the inclusion of gufeng 's net sales , which contributed $ 107,081,018 , or 59.6 % , of our total net sales . our total net sales without including gufeng 's net sales for the fiscal year ended june 30 , 2011 were $ 72,636,948 , an increase of $ 20,546,196 , or 39.4 % , from $ 52.1 million for the fiscal year ended june 30 , 2010 . 56 for the fiscal year ended june 30 , 2011 , jinong 's net sales increased $ 19,812,888 , or 43.2 % , to $ 65,629,265 from $ 45,816,377 from the fiscal year ended june 30 , 2010. sales volume increased 110.4 % to 48,038 metric tons for the fiscal year ended june 30 , 2011 from 22,835 metric tons for the fiscal year ended june 30 , 2010. this increase was mainly attributable to greater sales of products including our liquid fertilizers , powder fertilizers , and particularly , the lower-margin granular fertilizers released since our 40,000 metric-ton production line began production in august 2009. in addition , jinong launched more promotional activities to increase sales . net sales at gufeng , which included one quarter of production on the new 200,000 metric ton line , for the fiscal year ended june 30 , 2011 , were $ 107.1 million . jintai 's net sales increased by $ 552,558 , or 8.8 % , to $ 6,826,933 for the fiscal year ended june 30 , 2011 from $ 6,274,375 for the same period in 2010. yuxing achieved net sales of $ 180,750 during the fiscal year ended june 30 , 2011. for fiscal year ended june 30 , 2010 , yuxing segment had no revenues . cost of goods sold total cost of goods sold for the fiscal year ended june 30 , 2011 was $ 116,097,931 , an increase of $ 94,959,379 , or 449.2 % , from $ 21,138,551 for the fiscal year ended june 30 , 2010. this significant increase was mainly due to the costs attributable to the production and sale of gufeng 's products , which accounted for 73.8 % of our cost of goods sold .
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results of operations the fiscal year ended june 30 , 2012 compared to the fiscal year ended june 30 , 2011. the following table shows the operating results of the company on a consolidated basis for the fiscal years ended june 30 , 2012 and 2011. replace_table_token_16_th net sales total net sales for the fiscal year ended june 30 , 2012 were $ 217,524,205 , an increase of $ 37,806,239 , or 21.0 % , from $ 179,717,966 for the fiscal year ended june 30 , 2011. this increase was largely due to the strong sales of humic acid liquid and compound fertilizer products from jinong and gufeng respectively , which had higher selling prices . for the fiscal year ended june 30 , 2012 , jinong 's net sales increased $ 22,539,475 , or 34.3 % , to $ 88,168,740 from $ 65,629,265 from the fiscal year ended june 30 , 2011. this increase was mainly attributable to the greater sales of humic acid fertilizer products including our liquid and powder fertilizers during this period as a result of our increased distributors and the aggressive marketing . 53 for the fiscal year ended june 30 , 2012 , net sales at gufeng were $ 121,480,943 , an increase of $ 14,399,925 , or 13.4 % , from $ 107,081,018 for the fiscal year ended june 30 , 2011. the increase was due to the increasing demand for the organic/inorganic humic acid compound fertilizer products of gufeng , higher average selling price per metric ton for the fiscal year ended june 30 , 2012 than the price for the fiscal year ended june 30 , 2011 , and higher percentage of more expensive humic acid-based fertilizers in gufeng 's product mix than in the same period in 2011. while with increase of 28 % in the average unit price per metric ton at gufeng from fiscal year 2011 to fiscal year 2012 , the total sales volume at gufeng decreased by 11 % in metric tons
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by the end of 2004 substantially all construction work had been 82 completed at wassa , except for the completion of the power line , story_separator_special_tag the following discussion and analysis should be read in conjunction with the accompanying 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 21 to the consolidated financial statements . in this form 10-k , we use the terms total production cost per ounce , total cash cost per ounce and cash operating cost per ounce . total production cost per ounce is equal to total production costs as found on our consolidated statement of operations divided by the ounces of gold sold in the period . total production costs include all mine-site operating costs , including the costs of mining , processing , maintenance , work in process inventory changes , mine-site overhead , production taxes and royalties , depreciation , depletion , amortization , asset retirement obligations and by-product 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 , foreign currency gains and losses , gains and losses on investments and income tax . total cash cost per ounce is equal to total production costs , as found on our consolidated statement of operations less depreciation , depletion , amortization and asset retirement obligation accretion divided by the number of ounces of gold sold during the period . cash operating cost per ounce 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 following table shows the derivation of these measures and a reconciliation of total cash cost per ounce and cash operating cost per ounce . 2004 2003 2002 ounces sold 147,875 74,315 124,400 ( in thousands of $ ) mining operation expense $ 39,095 $ 32,125 $ 26,747 depreciation , depletion & amortization 8,096 4,993 2,459 accretion of asset retirement obligations 645 578 total production costs gaap $ 47,836 $ 37,696 $ 29,206 ( in $ per ounce ) total production cost per ounce gaap $ 323 $ 216 $ 235 less depreciation , depletion & amortization 55 29 20 less accretion of asset retirement obligation 4 3 total cash cost per ounce $ 264 $ 184 $ 215 total cash cost per ounce $ 264 $ 184 $ 215 less royalties and production taxes 14 18 22 cash operating cost per ounce $ 250 $ 166 $ 193 these calculations of cash operating cost per ounce and total cash costs per ounce are in compliance with an industry standard for such measures as established in 1996 by the gold institute , a non-profit industry group . we use total cash cost per ounce and cash operating cost per ounce as key operating indicators . we monitor these measures monthly , comparing each month 's values to prior period 's values to detect trends that may indicate increases or decreases in operating efficiencies . these measures are also compared against budget to alert 51 management to trends that may cause actual results to deviate from planned operational results . we provide these measures to our investors to allow them to also monitor operational efficiencies of our mines . we calculate these measures for both individual operating units and on a consolidated basis . total cash cost per ounce and cash operating cost per ounce should be considered as non-gaap financial measures as defined in sec regulation s-k item 10 and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with gaap . there are material limitations associated with the use of such non-gaap measures . since these measures do not incorporate revenues , changes in working capital and non-operating cash costs , they are not necessarily indicative of operating profit or cash flow from operations as determined under gaap . changes in numerous factors including , but not limited to , mining rates , milling rates , gold grade , gold recovery , and the costs of labor , consumables and mine site general and administrative activities can cause these measures to increase or decrease . we believe that these measures are the same or similar to the measures of other gold mining companies , but may not be comparable to similarly titled measures in every instance . all figures and amounts in this item 7 are shown on a 100 % basis , which represents our current beneficial interest in gold production and revenues . once all capital has been repaid , the government of ghana would receive 10 % of the dividends from the subsidiaries owning the bogoso/prestea and wassa mines . our business through our subsidiaries and joint ventures we own a controlling interest in three significant gold properties in southern ghana in west africa : the bogoso/prestea property ( bogoso/prestea ) , the wassa property ( wassa ) and the prestea underground property ( prestea underground ) . bogoso and prestea are adjoining properties , operating as a single operation and referred to as bogoso/prestea . bogoso/prestea and the prestea underground are owned by our 90 % owned subsidiary bogoso gold limited ( bgl ) . in 2004 we sold 147,875 ounces of gold from bogoso/prestea for an average gold price of approximately $ 410 per ounce having a cash operating cost of approximately $ 250 per ounce . essentially all of our gold production to date has come from bogoso/prestea . through another 90 % owned subsidiary , wexford goldfields limited ( wgl ) , we own the wassa gold property , located some 35 kilometers east of bogoso/prestea . story_separator_special_tag exploration rights to guyanor 's paul isnard property were optioned to golden star in an earn-in agreement that provides golden star the right to acquire up to 100 % of the 433 square kilometer property via a series of option payments and exploration spending . golden star 's earn-in payments will be netted against the loan owed to golden star by guyanor as of the date of the agreement . golden star also purchased guyanor 's french guiana geologic data base , the $ 6.0 million price also being netted against the loan guyanor owed to golden star . 53 further provisions of the restructuring agreement resulted in golden star 's forgiveness of the remaining balance of the loan . in december 2004 an agreement was closed which transferred ownership of the rosebel royalty from golden star to guyanor for a price of $ 12.0 million . upon closure of the sale , guyanor recorded a new $ 12 million inter-company payable due to golden star . in january 2005 , guyanor drew down $ 6.0 million under a credit facility from a bank and paid the funds to golden star as the first installment on the sale price . the bank loan is repayable in nine equal payments of $ 666,667 beginning july 29 , 2005 and every three months thereafter . the interest rate is set at libor plus 2.5 % . interest is payable at the end of each 1 , 2 or 3 month period as the borrower may choose . guyanor is now in the process of seeking additional funding , some or all of which is expected to be equity funding , to pay the second $ 6.0 million installment due golden star by june 30 , 2005 on the rosebel royalty and to allow guyanor to fund its ongoing activities . covenants in the january 2005 loan agreement preclude guyanor from acquiring any additional debt without the bank 's approval . if guyanor is successful in obtaining equity funding , it is possible that golden star 's ownership position could be diluted below 50 % and at that point we would expect that guyanor would no longer be consolidated with golden star . as required by the loan agreement , guyanor entered into a cash-settled forward sales agreement in january 2005 with a financial institution which obligates guyanor to sell 5,700 ounces of gold to the financial institution at the end of each three month period , beginning april 20 , 2005 and every three months thereafter until july 20 , 2007. when the average gold price for the prior three month period is less than $ 421 per ounce , the financial institution will pay an amount to guyanor equal to the difference between the average price and $ 421 times 5,700 ounces . if the prior three month average price exceeds $ 421 per ounce guyanor will pay the financial institution an amount equal to the difference between the average price and $ 421 per ounce times 5,700 ounces . the hedge is structured to offset the floating price nature of the rosebel royalty by tying the royalty payments to a gold price of $ 421 per ounce . bon espoir property acquisition in october 2004 we acquired a 100 % interest in the 466 square kilometer bon espoir exploration property in french guiana from gold fields exploration b.v. for a purchase price of $ 0.3 million paid in golden star common shares and $ 0.1 million of transaction costs . the bon espoir property is located north of our paul isnard property in a geological setting interpreted by us as having many similarities to the ashanti trend area of ghana . iamgold tender offer in 2004 , we made an unsolicited tender offer to the shareholders of iamgold corporation . on august 11 , 2004 , iamgold announced that it had agreed to combine iamgold 's mining assets with certain gold mining assets of another international gold mining company to form a new gold mining company . iamgold 's management and board subsequently recommended acceptance of this plan to their shareholders . after analyzing this development we concluded that it was not in the best interests of our shareholders to continue our offer for iamgold , and our board of directors elected not to extend our tender offer which expired on august 16. no shares of iamgold were acquired . we incurred approximately $ 4.1 million of direct , incremental acquisition costs resulting from the tender offer which were expensed in the third quarter . the majority of these costs were for legal , financial advisory , printing and accounting services . gold prices gold prices have generally trended upward during most of the last three and a half years , from a low of just under $ 260 per ounce in early 2001 to a high of $ 454 in late 2004. much of the price increase has been attributed to a decrease in the value of the us dollar versus other major foreign currencies . our realized gold price for shipments during 2004 averaged $ 410 per ounce , substantially above the $ 364 per ounce average price received in 2003. change in ore type the bogoso processing plant completed processing plant-north oxide ore during the second quarter of 2004 and subsequently processed exclusively transition and non-refractory sulfide ores from the plant-north pit and from 54 stockpiles during the balance of the year , resulting in lower production and increased production costs . the bogoso processing plant is scheduled to continue processing transition and non-refractory sulfide ores until 2006 when construction of a biox ® bio-oxidation circuit is scheduled for completion , after which the bogoso plant is expected to process refractory sulfide and transition ores .
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financial results 2004 2003 2002 gold sold ( ounces ) 147,875 174,315 124,400 average price realized $ 410 $ 364 $ 311 revenues ( in thousands ) $ 65,029 $ 64,370 $ 38,802 net income ( in thousands ) $ 2,642 $ 21,956 $ 4,856 net income per share basic $ 0.019 $ 0.198 $ 0.067 56 as anticipated , operating costs increased both in absolute terms and on a per unit basis at bogoso/prestea during 2004 due primarily to the harder nature of the transition and non-refractory sulfide ores processed after april 2004. increases in fuel and electric power costs added approximately $ 1.5 million to operating costs during the year . plant maintenance , explosives , liner costs and grinding media costs all increased by a total of approximately $ 1.6 million as compared to 2003. the harder ore also required increased amounts of certain consumables which increased costs by another $ 0.7 million . we also experienced increased costs in other maintenance areas , labor , community assistance , camp costs and other overhead areas . a reduction in work-in-process inventory and a $ 0.7 million provision for redundancies also contributed to the higher costs . the lower gold output and higher mine operating costs resulted in a significant increase in unit costs . cash operating costs averaged $ 250 per ounce , compared to $ 166 per ounce in 2003 , and total cash costs averaged $ 264 per ounce , up from $ 184 per ounce in 2003. depreciation and amortization were higher than in 2003 mostly due to the amortization costs of new assets added in late 2003 and in 2004 such as the flotation plant at bogoso .
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the fair value hierarchy contains three levels as follows : level 1inputs to the story_separator_special_tag introduction the following discussion of our financial condition and results of operations should be read in conjunction with our `` selected consolidated financial data '' and our consolidated financial statements and notes thereto included herein as item 8. this discussion contains forward-looking statements . refer to `` forward-looking statements '' on page 2 and `` risk factors '' beginning on page 25 , for a discussion of the uncertainties , risks and assumptions associated with these statements . overview we design , develop , produce , support and operate a technologically-advanced portfolio of products . we supply unmanned aircraft systems , or uas , tactical missile systems and services primarily to organizations within the u.s. department of defense , or dod . we also supply charging systems and services for electric vehicles and power cycling and test systems to commercial , consumer and government customers . we derive the majority of our revenue from these business areas and we believe that the markets for these solutions have significant growth potential . additionally , we believe that some of the innovative potential products in our research and development pipeline will emerge as new growth platforms in the future , creating additional market opportunities . the success we have achieved with our current products and services stems from our investment in research and development and our ability to invent and deliver advanced solutions , utilizing our proprietary technologies , to help our government , commercial and consumer customers operate more effectively and efficiently . we develop these highly innovative solutions by working very closely with our key customers in each segment of our business and solving their most important challenges related to our areas of expertise . our core technological capabilities , developed through more than 40 years of innovation , include lightweight aerostructures , power electronics , electric propulsion systems , efficient 53 electric power generation , conversion , and storage systems , high-density energy packaging , miniaturization , ddl , aircraft payloads , controls integration , systems integration and engineering optimization coupled with professional field service capabilities . our uas business segment focuses primarily on the design , development , production , support and operation of innovative uas and tactical missile systems that provide situational awareness , multi-band communications , force protection and other mission effects to increase the security and effectiveness of our customers ' operations . our efficient energy systems , or ees , business segment focuses primarily on the design , development , production , marketing , support and operation of innovative efficient electric energy systems that address the growing demand for electric transportation solutions . revenue we generate our revenue primarily from the sale , support and operation of our small uas , tactical missile systems , electric vehicle charging systems and power cycling and test systems solutions . support for our small uas customers includes training , spare parts , product repair , product replacement , and the customer-contracted operation of our small uas by our personnel . we refer to these support activities , in conjunction with customer-funded r & d , as our services operation . we derive most of our small uas revenue from fixed-price and cost-plus-fee contracts with the u.s. government , and most of our electric vehicle charging systems and power cycling and test systems revenue from sales and service to commercial customers . cost of sales cost of sales consists of direct costs and allocated indirect costs . direct costs include labor , materials , travel , subcontracts and other costs directly related to the execution of a specific contract . indirect costs include overhead expenses , fringe benefits and other costs that are not directly charged to a specific contract . gross margin gross margin is equal to revenue minus cost of sales . we use gross margin as a financial metric to help us understand trends in our direct costs and allocated indirect costs when compared to the revenue we generate . research and development expense research and development , or r & d , is an integral part of our business model . we normally conduct significant internally funded r & d . our research and development activities focus specifically on creating capabilities that support our existing product portfolio as well as new solutions . selling , general and administrative our selling , general and administrative expenses , or sg & a , include salaries and other expenses related to selling , marketing and proposal activities , and other administrative costs . some sg & a expenses relate to market and business development activities that support both ongoing business areas as well as new and emerging market areas . these activities can be directly associated with developing requirements for and applications of capabilities created in our r & d activities . sg & a is an important financial metric that we analyze to help us evaluate the contribution of our selling , marketing and proposal activities to revenue generation . 54 other income and expenses other income and expenses includes interest income , interest expense , changes in fair value of certain financial investments , gains/losses on sale of available-for-sale equity securities and losses from equity method investments . income tax expense our effective tax rates are substantially lower than the statutory rates primarily due to research and development tax credits . critical accounting policies and estimates management 's discussion and analysis of financial condition and results of operations discusses our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . when we prepare these consolidated financial statements , we are required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period . story_separator_special_tag adjustments to original estimates for a contract 's revenue , estimated costs at completion and estimated profit or loss are often required as work progresses under a contract , as experience is gained and as more information is obtained , even though the scope of work required under the contract may not change , or if contract modifications occur . the impact of revisions in profit estimates for all types of contracts are recognized on a cumulative catch-up basis in the period in which the revisions are made . during the fiscal years ended april 30 , 2015 , 2014 and 2013 , changes in accounting estimates on fixed-price contracts recognized using the percentage of completion method of accounting are presented below . amounts representing contract change orders or claims are included in revenue only when they can be reliably estimated and their realization is probable . incentives or penalties and awards applicable to performance on contracts are considered in estimating revenue and profit rates , and are recorded when there is sufficient information to assess anticipated contract performance . 56 for the years ended april 30 , 2015 , 2014 and 2013 , favorable and unfavorable cumulative catch-up adjustments included in cost of sales were as follows ( in thousands ) : replace_table_token_6_th for the year ended april 30 , 2015 , favorable cumulative catch-up adjustments of $ 0.9 million were primarily due to final cost adjustments on 28 contracts , which individually were not material . for the same period , unfavorable cumulative catch-up adjustments of $ 1.0 million were primarily related to higher than expected costs on 170 contracts , which individually were not material . for the year ended april 30 , 2014 , favorable cumulative catch-up adjustments of $ 0.7 million were primarily due to final cost adjustments on 274 contracts , which individually were not material . for the same period , unfavorable cumulative catch-up adjustments of $ 0.3 million were primarily related to higher than expected costs on eight contracts , which individually were not material . for the year ended april 30 , 2013 , favorable cumulative catch-up adjustments of $ 1.9 million were due to final cost adjustments on 12 contracts , which individually were not material . for the same period , unfavorable cumulative catch-up adjustments of $ 0.1 million were primarily related to higher than expected costs on six contracts , which individually were not material . inventories and reserve for excess and obsolescence our policy for valuation of inventory , including the determination of obsolete or excess inventory , requires us to perform a detailed assessment of inventory at each balance sheet date , which includes a review of , among other factors , an estimate of future demand for products within specific time horizons , valuation of existing inventory , as well as product lifecycle and product development plans . inventory reserves are also provided to cover risks arising from slow-moving items . we write down our inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based on assumptions about future demand and market conditions . we may be required to record additional inventory write-downs if actual market conditions are less favorable than those projected by our management . self-insured liability we are self-insured for employee medical claims , subject to individual and aggregate stop-loss policies . we estimate a liability for claims filed and incurred but not reported based upon recent claims experience and an analysis of the average period of time between the occurrence of a claim and the time it is reported to and paid by us . we perform an annual evaluation of this policy and have determined that for all prior years during which this policy has been in effect there have been cost advantages to this policy , as compared to obtaining commercially available employee medical insurance . however , actual results may differ materially from those estimated and could have a material impact on our consolidated financial statements . impairment of long-lived assets we review the recoverability of long-lived assets whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable . the estimated future cash flows are based upon , among other things , assumptions about expected future operating performance , and may differ from actual cash flows . if the sum of the projected undiscounted cash flows ( excluding interest ) is less than the carrying value of the assets , the assets will be written down to the estimated fair value in the period in which the determination is made . 57 long-term incentive awards we grant long-term incentive awards and we establish a target payout at the beginning of each performance period . the actual payout at the end of the performance period is calculated based upon our achievement of such targets . payouts are made in cash and restricted stock units . upon vesting of the restricted stock units , we have the discretion to settle the restricted stock units in cash or stock . the cash component of the award is accounted for as a liability . the equity component is accounted for as a stock-based liability as the restricted stock units may be settled in cash or stock . at each reporting period , we reassess the probability of achieving the performance targets . the estimation of whether the performance targets will be achieved requires judgment , and to the extent actual results or updated estimates differ from our current estimates , the cumulative effect on current and prior periods of those changes will be recorded in the period estimates are revised . income taxes we are required to estimate our income taxes , which includes estimating our current income taxes as well as measuring the temporary differences resulting from different treatment of items for tax and accounting purposes . we currently have significant deferred assets , which are subject to periodic recoverability assessments .
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results of operations the following table sets forth certain historical consolidated income statement data expressed in dollars ( in thousands ) and as a percentage of revenue for the periods indicated . certain amounts may not sum due to rounding . replace_table_token_7_th 58 the following table sets forth our revenue , costs of sales and gross margin generated by each operating segment for the periods indicated : replace_table_token_8_th fiscal year ended april 30 , 2015 compared to fiscal year ended april 30 , 2014 revenue . revenue for the fiscal year ended april 30 , 2015 was $ 259.4 million , as compared to $ 251.7 million for the fiscal year ended april 30 , 2014 , representing an increase of $ 7.7 million , or 3 % . the increase in revenue was due to an increase in product deliveries of $ 10.0 million offset by a decrease in service revenue of $ 2.3 million . uas revenue increased $ 12.1 million , or 6 % , to $ 221.0 million for the fiscal year ended april 30 , 2015 , primarily due to increased product deliveries of $ 12.2 million and an increase in customer-funded r & d of $ 8.6 million , offset by a decrease in service revenue of $ 8.6 million . the increase in product deliveries was primarily due to increased product deliveries of wasp systems . the increase in customer-funded r & d was primarily due to phase two of the tern program and a switchblade derivative program . the decrease in service revenue was primarily due to decreased repair activities in small uas and switchblade services . ees revenue decreased $ 4.4 million , or 10 % , to $ 38.4 million for the fiscal year ended april 30 , 2015 , primarily due to decreased product deliveries of our industrial fast charge systems and passenger electric vehicle charging systems . cost of sales . cost of sales for the fiscal year ended april 30 , 2015 was $ 155.1 million , as compared to $ 158.1
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fair value is defined as the price that would be received to sell story_separator_special_tag financial condition and results of operations the following discussion of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and the related notes thereto included elsewhere in this annual report on form 10-k. overview we are an emerging growth molecular diagnostic company developing and marketing novel non-invasive genomics tests that seek to transform the practice of dermatology and related fields . our platform may change the diagnostic paradigm in dermatology from one that is subjective , invasive , less accurate and higher-cost to one that is objective , non-invasive , more accurate and lower-cost . our initial focus is skin cancer . we currently have one clinical commercial test , with a second ready to commercialize , that enhance the early detection of skin cancer and related conditions . our scalable genomics platform has been designed to work with a proprietary adhesive patch sample collection kit that provides a skin sample collected non-invasively . we process our tests in a clinical laboratory improvement amendments of 1988 , or clia , certified and college of american pathologists accredited commercial laboratory located in la jolla , california that is licensed by the state of california and all states requiring out-of-state licensure . we also provide our technology platform on a contract basis to large pharmaceutical companies who use the technology in their clinical trials to test for the existence of genetic targets of various diseases and to measure the response of new drugs under development . we have a history of net losses since our inception . events , trends and uncertainties the pigmented lesion assay , or pla , became eligible for medicare reimbursement on february 10 , 2020. in late october 2019 , the american medical association , or ama , provided us with a proprietary laboratory analyses code , or pla code . pricing of $ 760 for the pla code was published on december 24 , 2019 as part of the centers for medicare and medicaid services laboratory fee schedule , or clfs , for 2020. the medicare final coverage decision , or final lcd , expanded the coverage proposal in the draft lcd from one to two tests per date of service and it allows clinicians to order our pla if they have sufficient skill and experience to decide whether a pigmented lesion should be biopsied . our local medicare administrative contractor , noridian healthcare solutions , llc , or noridian , has issued its own local coverage decision , or lcd , announcing coverage of our pla . even though the effective date of noridian 's lcd was june 7 , 2020 , noridian began reimbursing us for our pla as of february 10 , 2020. with medicare coverage granted , we have the opportunity to approach commercial payors , and as a result , we believe that the pla may generate significant revenues in 2021 and 2022. despite the grant of medicare coverage for the pla , uncertainty surrounds commercial payor reimbursement , including governmental and commercial payors , of any test incorporating new technology , including tests developed using our technologies . because each payor generally determines for its own enrollees or insured patients whether to cover or otherwise establish a policy to reimburse our tests , seeking payor approvals is a time-consuming and costly process . we can not be certain that coverage for our current test and our planned future tests will be provided in the future by additional commercial payors or that existing policy decisions or reimbursement levels will remain in place or be fulfilled under existing terms and provisions . if we can not obtain or maintain coverage and reimbursement from private and governmental payors such as medicare and medicaid for our current test , or new tests or test enhancements that we may develop in the future , our ability to generate revenues could be limited . this may have a material adverse effect on our business , financial condition , results of operation , and cash flows . revenue effects related to covid-19 pandemic assay revenue beginning in march 2020 and continuing through the end of 2020 , the ongoing covid-19 pandemic has reduced patient access to clinician offices for in-person testing , which has resulted in a reduced volume of billable samples received relative to our pre-pandemic expectations . april 2020 billable sample volume was down by approximately 80 % , commensurate with the closure of dermatology offices , compared to the average monthly billable sample volume for the two months preceding the beginning of the covid-19 stay-at-home orders . despite the downturn in billable samples in april 2020 , we saw a stabilization of billable sample volume throughout the rest of the second quarter and through the fourth quarter as various states and dermatology offices opened throughout the country . billable sample volume first exceeded pre‑pandemic levels in july 2020 even without all dermatology practices returning to full operations . billable sample volume for the three months ended december 31 , 2020 was 24 % higher than billable sample volume for the three months ended september 30 , 2020 , and billable sample volume for the twelve months ended december 31 , 2020 was 75 % higher than billable sample volume for the twelve months ended december 31 , 2019. billable sample volume for the three months ended december 31 , 2020 was 69 % higher than billable sample volume for the three months ended december 31 , 2019. billable sample volumes could continue to be impacted by the ongoing covid-19 pandemic and further impacted by a resurgence of the virus in the future . 58 we have made available beginning in late april 2020 a telemedicine option for the pla , but the telemedicine market is r elatively new and unproven , especially within dermatology , and it is uncertain whether it will achieve and sustain high levels of demand , consumer acceptance and market adoption . story_separator_special_tag on august 29 , 2019 , in connection with the completion of the business combination ( as defined below ) , all of the outstanding convertible bridge notes of dermtech operations converted into company common stock , in accordance with their respective terms . business combination on august 29 , 2019 , the company and dermtech operations consummated the transactions contemplated by the agreement and plan of merger , dated as of may 29 , 2019 , by and among the company , dt merger sub , inc. , or merger sub , and dermtech operations . we refer to this agreement , as amended by that certain first amendment to agreement and plan of merger dated as of august 1 , 2019 , as the merger agreement . pursuant to the merger agreement , merger sub merged with and into dermtech operations , with dermtech operations surviving as a wholly-owned subsidiary of the company . we refer to this transaction as the business combination . immediately following the completion of the business combination , the company changed its name from constellation alpha capital corp. to dermtech , inc. and effected a one-for-two reverse stock split of its common stock , or the reverse stock split . prior to the closing of the business combination , the company 's stock was listed on the nasdaq capital market under the ticker symbol “ cnac. ” on august 30 , 2019 , the company 's common stock commenced trading on the nasdaq capital market under the ticker symbol “ dmtk. ” 2019 pipe financing on august 29 , 2019 , immediately prior to the completion of the business combination , the company issued to certain accredited investors , in a private placement transaction , or the 2019 pipe financing , an aggregate of 3,076,925 shares of common stock and 1,231 shares of series a convertible preferred stock for aggregate gross proceeds of $ 24.0 million , or $ 6.50 per share of common stock on an as-converted basis . the 2019 pipe financing was conducted pursuant to the terms of separate subscription agreements and amended and restated subscription agreements , dated between may 22 , 2019 and august 1 , 2019 , entered into by the company and the investors . after giving effect to the reverse stock split , each share of series a convertible preferred stock was convertible into 500 shares of the company 's common stock , subject to conditions and adjustment as provided in the certificate of designation of preferences , rights and limitations of series a convertible preferred stock . on august 10 , 2020 , entities affiliated with farallon capital management , l.l.c. , or the farallon entities , converted an aggregate of 1,231 shares of series a preferred stock into 615,385 shares of common stock . on september 9 , 2020 , the company filed a certificate of elimination of series a convertible preferred stock with the secretary of state of the state of delaware to eliminate its series a convertible preferred stock . 2020 pipe financing on february 28 , 2020 , the company entered into a securities purchase agreement with certain institutional investors for a private placement of the company 's equity securities , or the 2020 pipe financing . cowen and company , llc served as lead placement agent for the 2020 pipe financing with william blair & company , l.l.c . acting as joint placement agent . lake street capital markets , llc acted as co-placement agent . the 2020 pipe financing closed on march 4 , 2020. pursuant to the 2020 pipe financing , on march 4 , 2020 the company issued an aggregate of 2,467,724 shares of common stock at a purchase price of $ 10.50 per share , 3,199 shares of series b-1 convertible preferred stock , or the series b-1 shares , at a purchase price 60 of $ 10.50 per share of common stock issuable upon conversion thereof , which were convertible into an aggregate of up to 3,198,942 shares of common stock , and 524 shares of series b-2 convertible preferred stock , or the series b-2 shares , at a purchase price of $ 10.50 per share of common sto ck issuable upon conversion thereof , which are convertible into an aggregate of up to 523,809 shares of common stock , for aggregate gross proceeds of approximately $ 65.0 million . at the company 's annual meeting held on may 26 , 2020 , the company 's stockholders voted to approve the 2020 pipe financing , which resulted in the automatic conversion of the series b-1 shares into 3,198,949 shares of common stock on may 27 , 2020. each series b-2 share was convertible into 1,000 shares of the company 's common stock , subject to conditions and adjustment as provided in the certificate of designation of preferences , rights and limitations of series b-2 convertible preferred stock . on august 10 , 2020 , entities affiliated with farallon capital management , l.l.c. , or the farallon entities , converted an aggregate of 524 shares of series b‑2 preferred stock into 523,814 shares of common stock . on september 9 , 2020 , the company filed a certificate of elimination of series b-1 convertible preferred stock and certificate of elimination of series b-2 convertible preferred stock with the secretary of state of the state of delaware to eliminate its series b-1 and b-2 convertible preferred stock . 2020 at-the-market offering on november 10 , 2020 , the company entered into a sales agreement with cowen and company , llc relating to the sale of shares of the company 's common stock from time to time with an aggregate offering price of up to $ 50.0 million . in connection with this sales agreement , the company issued an aggregate of 951,792 shares of common stock at a weighted average purchase price of $ 20.97 , resulting in aggregate gross proceeds of approximately $ 20.0 million .
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results of operations fiscal years ended december 31 , 2020 and 2019 assay revenue assay revenue grew $ 2.8 million or 202 % to $ 4.2 million for fiscal year 2020 compared to $ 1.4 million for fiscal year 2019. billable samples increased to approximately 24,000 for fiscal year 2020 compared to approximately 13,700 for fiscal year 2019. sample volume is dependent on two major factors : the number of clinicians who order an assay in any given quarter and the number of assays ordered by each clinician during the period . the number of ordering clinicians and the utilization per clinician can vary based on a number of factors including the types of patients presenting skin cancer conditions , clinician reimbursement , office workflow , market awareness , clinician education and other factors . the ongoing covid-19 pandemic has negatively affected and will continue to negatively affect our assay revenue by , among other things , limiting patient access to clinician offices for in-person testing and limiting access by our sales force for in-office sales calls . contract revenue contract revenue with major pharmaceutical companies decreased $ 0.4 million to $ 1.6 million for fiscal year 2020 , or 16 % , compared to $ 2.0 million for fiscal year 2019. contract revenue can be highly variable as it is dependent on the pharmaceutical customers ' clinical trial progress , which can be difficult to forecast due to variability of patient enrollment , drug safety and efficacy and other factors . the ongoing covid-19 pandemic has negatively affected and will continue to negatively affect our pharmaceutical customers ' clinical trials . the extent of such effect on our future revenue is uncertain and will depend on the duration and extent of the effects of the ongoing covid-19 pandemic on our pharmaceutical customers ' clinical trials .
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factors that could cause or contribute to such differences include , but are not limited to , those discussed in the section titled “ risk factors , ” set forth in part i , item 1a of this annual report on form 10-k and elsewhere in this report . the forward-looking statements in this annual report on form 10-k represent our views as of the date of this annual report on form 10-k. we anticipate that subsequent events and developments will cause our views to change . however , while we may elect to update these forward-looking statements at some point in the future , we have no current intention of doing so except to the extent required by applicable law . you should , therefore , not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this annual report on form 10-k. business overview we discover , develop and sell proteins that deliver value to our clients in a growing set of industries . we view proteins as a vast untapped source of value-creating materials , and we are using our proven technologies , which we have been continuously improving over our sixteen year history , to commercialize an increasing number of novel proteins , both as proprietary codexis products and in partnership with our customers . we are a pioneer in the harnessing of computational technologies to drive biology advancements . since our inception in 2002 , we have made substantial investments in the development of our codeevolver ® protein engineering technology platform , the primary source of our competitive advantage . our technology platform is powered by proprietary , artificial intelligence-based , computational algorithms that rapidly mine our large and continuously growing library of protein variants ' performance attributes . these computational outputs enable increasingly reliable predictions for next generation protein variants to be engineered , enabling delivery of targeted performance enhancements in a time-efficient manner . in addition to its computational prowess , our codeevolver ® protein engineering technology platform integrates additional modular competencies , including robotic high-throughput screening and genomic sequencing , organic chemistry and process development which are all coordinated to create our novel protein innovations . our approach to developing commercially viable biocatalytic manufacturing processes begins by conceptually designing the most cost-effective and practical process for a targeted product . we then develop optimized protein catalysts to enable that process design using our codeevolver ® protein engineering platform technology . engineered protein catalyst candidates - many thousands for each protein engineering project - are then rapidly screened and validated in high throughput screening under relevant manufacturing operating conditions . this approach results in an optimized protein catalyst enabling cost-efficient processes that typically are relatively simple to run in conventional manufacturing equipment . this also allows for the efficient technical transfer of our process to our manufacturing partners . the successful embodiment of our codeevolver ® protein engineering technology platform in commercial manufacturing processes requires well-integrated expertise in a number of technical disciplines . in addition to those directly involved in practicing our codeevolver ® protein engineering platform technology , such as molecular biology , enzymology , microbiology , cellular engineering , metabolic engineering , bioinformatics , biochemistry and high throughput analytical chemistry , our process development projects also involve integrated expertise in organic chemistry , chemical process development , chemical engineering , fermentation process development and fermentation engineering . our integrated , multi-disciplinary approach to biocatalyst and process development is a critical success factor for our company . we initially commercialized our codeevolver ® protein engineering technology platform and products in the pharmaceuticals market , which remains our primary business focus . our customers , which include several large global pharmaceutical companies , use our technology , products and services in their manufacturing processes and process development . we have also used the technology to develop protein catalysts for use in the fine chemicals market . the fine chemicals market consists of several large market verticals , including food and food ingredients , animal feed , flavors , fragrances and agricultural chemicals . we have also begun using the codeevolver ® protein engineering technology platform to develop early stage , novel biotherapeutic product candidates , both for our customers and for our own business , most notably our lead program for the 54 potential treatment of phenylketonuria ( `` pku '' ) in humans . pku is an inherited metabolic disorder in which the enzyme that converts the essential amino acid phenylalanine into tyrosine is deficient . in october 2017 , we entered into a global development , option and license agreement ( the `` nestlé agreement '' ) with nestec ltd. ( `` nestlé health science '' ) , to advance cdx-6114 , our enzyme biotherapeutic product candidate for the potential treatment of pku . in february 2019 , nestlé health science exercised its option to obtain an exclusive license to develop and commercialize cdx-6114 . see note 16 , “ subsequent events ” in the notes to the consolidated financial statements set forth in item 8 of this annual report on form 10-k for details . in april 2018 , we entered into a strategic agreement ( the `` porton agreement '' ) with porton pharma solutions , ltd. ( `` porton '' ) to license key elements of our platform technology to porton 's global custom intermediate and active pharmaceutical ingredients ( `` api '' ) development and manufacturing business . this gives us access to a wide variety of small and medium-sized pharmaceutical customers . we are also using our technology to develop enzymes for customers using next generation sequencing ( `` ngs '' ) and polymerase chain reaction ( `` pcr/qpcr '' ) for in vitro molecular diagnostic and genomic research applications . our first enzyme is a ligase which we began marketing to customers in 2018. business segments we manage our business as two business segments : performance enzymes and novel biotherapeutics . story_separator_special_tag research and development revenues , which include license , technology access and exclusivity fees , research service fees , milestone payments , royalties , and optimization and screening fees , totaled $ 35.0 million in 2018 , an increase of 50 % , compared with $ 23.3 million in 2017 . the increase is primarily due to revenues from our collaborative arrangements with nestlé health science for the development of cdx-6114 and development of novel enzymes for nestlé health science under our strategic collaboration agreement , research and development revenue from tate & lyle and merck , and recognition of a license fee and technology transfer from porton . our products ' profitability is affected by many factors including the margin of profit on products we sell . our profit margins are affected by many factors including the costs of internal and third-party fixed and variable costs , including materials and supplies , labor , facilities and other overhead costs . profit margin data is used as a management performance measure to provide additional information regarding our results of operations on a consolidated basis . product gross margins increased to 51 % in 2018 , compared to 46 % in 2017 due to improved sales mix . research and development expenses were $ 30.0 million in 2018 , an increase of 1 % from $ 29.7 million in 2017 . the increase was primarily due to an increase in costs associated with higher headcount , higher allocable expenses , increases in lab supplies and stock compensation expense and were partially offset by a decrease in outside services which were mostly related to prior year development costs for project cdx-6114 . selling , general and administrative expenses were $ 29.3 million in 2018 , an increase of 1 % compared to $ 29.0 million in 2017 . the increase was primarily due to increases in costs associated with higher headcount , consulting and outside services , accounting fees , recruiting fees , and stock compensation expenses which were partially offset by a reduction in legal expenses related to 2017 activities and allocable expenses . net loss was $ 10.9 million , or a net loss of $ 0.21 per share , in 2018 compared to a net loss of $ 23.0 million , or a net loss of $ 0.50 per share , in 2017 . the decreases in net loss and net loss per share are primarily attributable to a net increase in revenue and reductions in product costs . the net increase in revenue is primarily attributed to research and development revenue from nestlé health science and tate & lyle partially offset by a decrease in product revenue . the reduction in product costs reflected the sale of higher gross margin products . cash and cash equivalents increased to $ 53.0 million as of december 31 , 2018 compared to $ 31.2 million as of december 31 , 2017 . in addition , net cash used in operations was $ 14.1 million in 2018 , as compared to net cash used in operations of $ 8.8 million in 2017 . we believe that based on our current level of operations , our existing cash , cash equivalents , and equity securities will provide adequate funds for ongoing operations , planned capital expenditures and working capital requirements for at least the next 12 months . in june 2017 , we entered into a loan and security agreement that allows us to borrow up to $ 10.0 million under a term loan , and up to $ 5.0 million under a revolving credit facility with 80 % of certain eligible accounts receivable as a borrowing base ( the `` credit facility '' ) . obligations under the credit facility are secured by a lien on substantially all of our personal property other 56 than our intellectual property . in september 2018 , we entered into a fourth amendment to the credit facility whereby the draw period on the term debt was extended to september 30 , 2019. we may draw on the term debt at any time prior to september 30 , 2019 , subject to customary conditions for funding including , among others , that no event of default exists . as of december 31 , 2018 , no amounts were borrowed under the credit facility and we were in compliance with the covenants for the credit facility . see note 13 , `` commitments and contingencies '' in the notes to the consolidated financial statements set forth in item 8 of this annual report on form 10-k. below is an overview of our results of operations by business segments : performance enzymes revenues increased by $ 4.7 million , or 11 % , to $ 47.1 million in 2018 , compared to 2017. the increase in revenues was due primarily to an increase in research and development revenue from tate & lyle and novartis , and the recognition of a license fee and technology transfer from porton . these increases were partially offset by a decrease in product revenue due to the variability in our customers ' manufacturing schedules . product gross margins were 51 % in 2018 , compared to 46 % in the corresponding period in 2017. the increase in product gross margins was primarily due an increase in sales of higher margin products combined with a decrease in sales of lower margin products over the prior fiscal period . research and development expense increased $ 2.1 million , or 12 % , to $ 18.9 million in 2018 , compared to 2017 , due primarily to an increase in costs associated with higher headcount , an increase in lab supplies and stock compensation expenses and an increase related to activities under the tate and lyle and novartis collaboration agreements . selling , general and administrative expense increased by $ 0.2 million , or 2 % , to $ 7.5 million in 2018 , compared to the year of 2017 , due primarily to an increase in costs associated with higher headcount .
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results of operations by segment ( in thousands , except percentages ) revenues by segment replace_table_token_10_th revenues from the performance enzymes segment increased by $ 4.7 million , or 11 % , to $ 47.1 million in 2018 , compared to $ 42.3 million in 2017 primarily due to an increase in research and development revenue from tate & lyle , merck and novartis , and on the recognition of a functional license fee from porton . this increase was partially offset by a decrease in product revenue primarily due to variability in our customers ' manufacturing schedules . revenues from the novel biotherapeutics segment increased by $ 5.8 million , or 76 % , to $ 13.5 million in 2018 , compared to $ 7.7 million in 2017. revenues from the novel biotherapeutics segment are derived primarily from research and development revenue relating to the development of our cdx-6114 product candidate in collaboration with nestlé health science . our dependence on revenues generated from nestlé health science , if lost , would have a material adverse effect on the novel biotherapeutics segment . 63 costs and operating expenses by segment replace_table_token_11_th ( 1 ) research and development expenses and selling , general and administrative expenses exclude depreciation . for a discussion of product cost of revenue , see “ results of operations ” . research and development expense in the performance enzymes segment increased by $ 2.1 million , or 12 % , to $ 18.9 million in 2018 , compared to $ 16.8 million in 2017. the increase was primarily due to $ 2.2 million in associated with increased headcount , $ 0.6 million in lab supplies costs and $ 0.5 million in stock compensation expenses . these increases were partially offset by a decrease of $ 1.2 million in allocable expenses , which include occupancy-related costs , supplies , and depreciation expense .
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f-13 netscout systems , inc. notes story_separator_special_tag the following information should be read in conjunction with the audited consolidated financial information and the notes thereto included in this annual report on form 10-k. in addition to historical information , the following discussion and other parts of this annual report contain forward-looking statements that involve risks and uncertainties . you should not place undue reliance on these forward-looking statements . actual events or results may differ materially due to competitive factors and other factors discussed in item 1a . “ risk factors ” and elsewhere in this annual report . these factors may cause our actual results to differ materially from any forward-looking statement . overview we are an industry leader for real-time operational intelligence and performance analytics for service assurance and cybersecurity solutions that are used in many of the most demanding service provider , enterprise and government networks . our solutions , based on proprietary adaptive service intelligence ( asi ) technology , help customers continuously monitor the service delivery environment to identify performance issues and to provide insight into network-based security threats . as a result , customers can quickly resolve issues that cause business disruptions or that adversely impact the user experience . we manufacture and market these products for integrated hardware and software solutions and are also well positioned to help customers deploy our software in commercial-off-the-shelf hardware and in virtualized form factors . regardless of the platform , customers use our solutions to help drive return on investment on their network and broader information technology ( it ) initiatives while reducing the tangible risks associated with downtime , poor service quality and compromised security . we report revenue and income in one reportable segment . we have been a technology innovator for three-plus decades since our founding in 1984. our solutions change how organizations manage and optimize the delivery of business applications and services , assure user experience across global internet protocol ( ip ) networks and help protect networks from unwanted security threats . through both internal development and acquisitions , we have continually enhanced and expanded our product portfolio to meet the evolving needs of customers worldwide . our software analytics capture and transform terabytes of network traffic data in real time into high value , actionable information that enables customers to optimize network performance , manage applications , enhance security and gain insight into the end user experience . our mission is to enable enterprise and service providers to realize maximum benefit with minimal risk from technology advances , like ip convergence , network function virtualization ( nfv ) , software defined networking ( sdn ) , virtualization , cloud , mobility , bring your own device ( byod ) , web and the evolving internet by managing the inherent complexity in a cost-effective manner . our asi technology , which we have developed in support of this mission , has the potential of not only expanding our leadership in our core markets , but can also serve as the underlying technology platform that can extend use of our solutions across our global customer base . our operating results are influenced by a number of factors , including , but not limited to , the mix and quantity of products and services sold , pricing , costs of materials used in our products , growth in employee-related costs , including commissions , and the expansion of our operations . factors that affect our ability to maximize our operating results include , but 32 are not limited to , our ability to introduce and enhance existing products , the marketplace acceptance of those new or enhanced products , continued expansion into international markets , development of strategic partnerships , competition , successful acquisition integration efforts , and our ability to achieve expense reductions and make structural improvements in the current economic conditions . on july 14 , 2015 , we completed the comms transaction , which was structured as a reverse morris trust transaction whereby danaher contributed the communications business to newco . the total equity consideration was approximately $ 2.3 billion based on issuing approximately 62.5 million new shares of netscout common stock to the holders of common units of newco , based on the july 13 , 2015 netscout common stock closing share price of $ 36.89 per share . the comms transaction was aimed at extending netscout 's reach into growth-oriented adjacent markets , including cybersecurity , with a broader range of market-leading products and capabilities ; strengthening its go-to-market resources to better support a larger , more diverse and more global customer base ; and increasing netscout 's scale and elevating its strategic position within key accounts . on august 19 , 2016 , we acquired certain assets and liabilities of avvasi for $ 4.6 million . avvasi 's technology allows service providers to measure , improve and monetize video in their networks . this acquisition builds on netscout 's ongoing investment in enhancing its service assurance capabilities for video traffic over 4g/lte networks . for additional information regarding the avvasi acquisition , see note 7 of our notes to consolidated financial statements . during the second quarter of fiscal year 2017 , as part of our continued integration efforts of the comms transaction , we reorganized our business units . as a result , we account for our operations under one reportable segment . on september 20 , 2016 , netscout 's stockholders approved an amendment to the third amended and restated certificate of incorporation to increase the number of authorized shares of common stock , par value $ 0.001 per share , from 150,000,000 to 300,000,000 shares . the increase in authorized shares of common stock has been reflected in our financial statements . results overview we continued to navigate through challenging market conditions , which have primarily impacted the timing and magnitude of orders with service provider customers . story_separator_special_tag product revenue is recognized upon shipment , provided that evidence of an arrangement exists , title and risk of loss have passed to the customer , and in the case of software products , when the customer has the rights and ability to access the software , fees are fixed or determinable and collection of the related receivable is reasonably assured . if any significant obligations to the customer remain post-delivery , typically involving obligations relating to installation and acceptance by the customer , revenue recognition is deferred until such obligations have been fulfilled . because many of our solutions are comprised of both hardware and more than incidental software components , we recognize revenue in accordance with authoritative guidance on both hardware and software revenue recognition . 35 our service offerings include installation , integration , extended warranty and maintenance services , post-contract customer support ( pcs ) , and other professional services including consulting and training . we generally provide software and or hardware support as part of product sales . revenue related to the initial bundled software and hardware support is recognized ratably over the support period . in addition , customers can elect to purchase extended support agreements for periods after the initial software/hardware warranty expiration . support services generally include rights to unspecified upgrades ( when and if available ) , telephone and internet-based support , updates , bug fixes and hardware repair and replacement . consulting services are recognized upon delivery or completion of performance . reimbursements of out-of-pocket expenditures incurred in connection with providing consulting services are included in services revenue , with the offsetting expense recorded in cost of service revenue . training services include on-site and classroom training . training revenues are recognized upon delivery of the training . generally , our contracts are accounted for individually . however , when contracts are closely interrelated and dependent on each other , it may be necessary to account for two or more contracts as one to reflect the substance of the group of contracts . multi-element arrangements are concurrent customer purchases of a combination of our product and service offerings that may be delivered at various points in time . for multi-element arrangements comprised only of hardware products and related services , we allocate the total arrangement consideration to the multiple elements based on each element 's fair value compared to the total relative selling price of all the elements . each element 's selling price is based on management 's best estimate of selling price ( besp ) paid by customers based on the element 's historical pricing when vendor-specific objective evidence ( vsoe ) or third-party evidence ( tpe ) does not exist . we have established besp for product elements as the average or median selling price the element was recently sold for , whether sold alone or sold as part of a multiple element transaction . we also consider our overall pricing objectives and practices across different sales channels and geographies , and market conditions . we review sales of the product elements on a quarterly basis and update , when appropriate , our besp for such elements to ensure that it reflects recent pricing experience . we have established vsoe for a majority of our service elements based on historical standalone sales or by the renewal rate offered to the customer . however certain business units we acquired as part of the comms transaction are unable to establish vsoe for undelivered elements . this occurs because the pricing for standalone sales does not occur in tight bands around a midpoint , and they are not contractually fixed . in these scenarios we have typically established besp by creating wider bands around a midpoint for stand-alone transactions or in some cases using cost plus a margin for the underlying services and products . if vsoe of fair value does not exist for a deliverable , we have determined that besp is the highest level of fair value that exists for those deliverables . for multi-element arrangements comprised only of software products and related services , we allocate a portion of the total arrangement consideration to the undelivered elements , primarily support agreements and professional services , using vsoe of fair value for the undelivered elements . the remaining portion of the total arrangement consideration is allocated to the delivered software , referred to as the residual method . vsoe of fair value of the undelivered elements is based on the price customers pay when the element is sold separately . we review the separate sales of the undelivered elements on a regular basis and update when appropriate , our vsoe of fair value for such elements to ensure that it reflects recent pricing experience . if we can not objectively determine the vsoe of the fair value of any undelivered software element , revenue is deferred until all elements are delivered and services have been performed , or until fair value can objectively be determined for any remaining undelivered elements . however , if the only undelivered element is maintenance and support , the entire arrangement fee is recognized over the service period . for multi-element arrangements comprised of a combination of hardware and software elements , the total arrangement consideration is bifurcated between the hardware and hardware-related deliverables and the software and software-related deliverables based on the relative selling prices of all deliverables as a group . then , arrangement consideration for the hardware and hardware-related services is recognized upon delivery or as the related services are provided as outlined above and revenue for the software and software-related services is allocated following the residual method and recognized based upon delivery or as the related services are provided . our products are distributed through our direct sales force and indirect distribution channels through alliances with resellers and distributors . revenue arrangements with resellers and distributors are recognized on a sell-in basis ; that is , when we deliver the product to the reseller or distributor .
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results of operations comparison of years ended march 31 , 2017 and 2016 revenue product revenue consists of sales of our hardware products and licensing of our software products . service revenue consists of customer support agreements , consulting and training . during the fiscal years ended march 31 , 2017 and 2016 , one direct customer , verizon , accounted for more than 10 % of total revenue , while no indirect channel partner accounted for more than 10 % of total revenue . replace_table_token_8_th product . the 16 % , or $ 102.1 million , increase in product revenue compared to the same period last year was primarily due to a $ 105.4 million increase in revenue from entities acquired in the comms transaction . the twelve months ended march 31 , 2016 only included eight and a half months of such revenues , as the comms transaction closed on july 14 , 2015. in addition , there was a $ 10.8 million increase from the general enterprise sector in the legacy netscout business . these increases were partially offset by a $ 14.1 million decrease in revenue from the service provider sector in the legacy netscout business . service . the 32 % , or $ 104.6 million , increase in service revenue compared to the same period last year was primarily due to a $ 106.4 million increase in revenue from entities acquired in the comms transaction . the twelve months ended march 31 , 2016 only included eight and a half months of revenues from these entities as the comms transaction closed on july 14 , 2015. this increase was partially offset by a $ 2.8 million decrease in maintenance revenue in the legacy netscout business .
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if we elect to redeem the 2014 notes on or after the aforementioned dates , we will pay an amount equal to 100 % of the principal amount story_separator_special_tag introduction our business we are one of the leading providers of offshore contract drilling services to the international oil and gas industry . we currently own and operate an offshore drilling rig fleet of 70 rigs , including seven rigs currently under construction , with drilling operations in most of the strategic markets around the globe . our rig fleet includes ten drillships , 13 dynamically positioned semisubmersible rigs , five moored semisubmersible rigs and 42 jackup rigs . our fleet is the world 's second largest amongst competitive rigs , our ultra-deepwater fleet is one of the newest in the industry , and our premium jackup fleet is the largest of any offshore drilling company . our customers include many of the leading national and international oil companies , in addition to many independent operators . we are among the most geographically diverse offshore drilling companies , with current operations and drilling contracts spanning approximately 20 countries on six continents in nearly every major offshore basin around the world . the markets in which we operate include australia , brazil , the mediterranean , mexico , the middle east , the north sea , southeast asia , the u.s. gulf of mexico and west africa . we provide drilling services on a `` day rate '' contract basis . under day rate contracts , we provide a drilling rig and rig crews and receive a fixed amount per day for each day we are performing drilling or related services . our customers bear substantially all of the ancillary costs of constructing the well and supporting drilling operations , as well as the economic risk relative to the success of the well . in addition , our customers may pay all or a portion of the cost of moving our equipment and personnel to and from the well site . we do not provide `` turnkey '' or other risk-based drilling services . our industry operating results in the offshore contract drilling industry are cyclical and directly related to the demand for drilling rigs and the available supply of drilling rigs . while the cost of moving a rig and the availability of rig-moving vessels may cause the balance of supply and demand to vary somewhat between regions , significant variations between regions are generally of a short-term nature due to rig mobility . drilling rig demand demand for drilling rigs is directly related to the regional and worldwide levels of offshore exploration and development spending by oil and gas companies , which is beyond our control . the markets for our contract drilling services are cyclical . offshore exploration and development spending may fluctuate substantially from year-to-year and from region-to-region . such spending fluctuations result from many factors , including : oil and natural gas supply and demand , regional and global economic conditions and changes therein , political , social and legislative environments in major oil-producing countries , production and inventory levels and related activities of the organization of petroleum exporting countries ( `` opec '' ) and other oil and natural gas producers , capital allocation decisions by our customers , including the relative economics of offshore development versus onshore prospects , technological advancements that impact the methods or cost of oil and natural gas exploration and development , 49 disruption to exploration and development activities due to hurricanes and other severe weather conditions and the risk thereof , and the impact that these and other events , whether caused by economic conditions , international or national climate change regulations or other factors , may have on current and expected future oil and natural gas prices . recent changes in the offshore drilling market have led to a highly competitive contracting environment . since october 1 , 2014 , the brent crude oil price has declined from approximately $ 95 per barrel to approximately $ 60 per barrel on february 23 , 2015 . operators have announced significant declines in capital spending in their 2015 budgets , including the cancellation or deferral of existing programs . these declines in capital spending levels , coupled with additional newbuild supply , have put significant pressure on day rates and utilization . we expect that 2015 will be a challenging year for drilling contractors as customers wait to gain additional clarity on commodity pricing and seek to reduce costs in the near-term by attempting to sub-let contracted rig time and re-negotiate existing contract terms . we believe the current market dynamics will create a challenging contracting environment into 2016. since most factors that affect offshore exploration and development spending are beyond our control and because rig demand can change quickly , it is difficult for us to predict future industry conditions , demand trends or future operating results . periods of low rig demand often result in excess rig supply , which generally results in reductions in utilization and day rates ; conversely , periods of high rig demand often result in a shortage of rigs , which generally results in increased utilization and day rates . drilling rig supply during the current newbuild cycle , various industry participants ordered the construction of 360 new drillships , semisubmersible rigs and jackup rigs , approximately 160 of which were delivered during the last three years . currently , there are approximately 80 competitive newbuild drillships and semisubmersible rigs reported to be under construction , of which approximately 30 are expected to be delivered before the end of 2015. roughly half of the anticipated 2015 deliveries are without contracts , leading drilling contractors to retire or stack 35 older floaters since september 2014 due to a lack of available contracting opportunities . we expect that additional floaters will be retired or stacked during 2015 as lower commodity prices have negatively impacted the number of incremental contracting opportunities . story_separator_special_tag ultra-premium harsh environment jackup rigs ensco 120 and ensco 122 commenced drilling operations under long-term contracts in the north sea during the first and fourth quarters , respectively . ultra-premium harsh environment jackup rig ensco 121 commenced drilling operations under a long-term contract in the netherlands during the second quarter . in the middle east , ensco 76 was recontracted through december 2018 and ensco 84 , ensco 96 and ensco 97 were recontracted through 2019. ensco 109 executed a long-term contract in angola , and ensco 52 executed a long-term contract in malaysia , both with an expected term of three years . during the second quarter , we entered into an agreement with lamprell energy limited to construct two premium jackup rigs ( ensco 140 and ensco 141 ) . ensco 140 and ensco 141 are significantly enhanced versions of the letorneau super 116e jackup design and will incorporate ensco 's patented canti-leverage advantage sm technology . these rigs are scheduled for delivery during the second quarter and the third quarter of 2016 , respectively . business environment floaters during the first half of 2014 , the floater contracting environment was highly competitive due to a reduction in capital spending by operators , as well as an increase in global supply due to the delivery of newbuild floaters . more recently , these challenges were exacerbated by a steep decline in commodity prices during the fourth quarter that accelerated toward year-end , which led customers to significantly reduce capital budgets for 2015. cancellations and delays of drilling programs have increased , many rigs currently contracted are being sublet thereby creating incremental supply , and certain customers are requesting contract concessions . there are limited contracting opportunities in the current market , and day rates and utilization are expected to decline during 2015. currently , there are approximately 80 competitive newbuild drillships and semisubmersible rigs reported to be under construction , of which approximately 30 are expected to be delivered before the end of 2015. roughly half 52 of the anticipated 2015 deliveries are without contracts , leading drilling contractors to retire or stack 35 older floaters since september 2014 due to a lack of available contracting opportunities . we expect that additional floaters will be retired or stacked during 2015 as lower commodity prices have negatively impacted the number of incremental contracting opportunities . jackups demand for jackups has also dropped due to the steep decline in commodity prices . cancellations and delays of drilling programs have increased , some rigs currently contracted are being sublet thereby creating incremental supply , and certain customers are requesting contract concessions . as a result , there are limited contracting opportunities in the current market , and day rates and utilization are expected to decline during 2015. currently , there are approximately 120 competitive newbuild jackup rigs reported to be under construction , of which approximately half are being built by companies that have not historically operated offshore drilling rigs . approximately 60 of these competitive newbuild jackups are expected by year-end 2015 , and most of these rigs are without contracts . as a result , we expect retirements and stacking of jackups to accelerate during 2015. currently , there are approximately 40 marketed jackups older than 30 years of age that are idle and do not have any contracted work . additionally , approximately 80 competitive jackups that are 30 years of age or older have contracts that expire during 2015. operating costs for idle rigs as well as capital expenditures required to recertify rigs during regulatory surveys may prove cost prohibitive and drilling contractors may instead elect to retire or stack these rigs . story_separator_special_tag style= '' font-family : inherit ; font-size:11pt ; font-style : italic ; text-decoration : underline ; '' > replace_table_token_14_th year ended december 31 , 2012 replace_table_token_15_th floaters during 2014 , floater revenues increased by $ 38.0 million , or 1 % , as compared to the prior year . the increase in revenues was primarily due to commencement of the ensco ds-7 drilling contract during the fourth quarter of 2013 and an increase in average day rates across our floater fleet . these increases were partially offset by a decline in utilization attributable to certain rigs . ensco 5004 and ensco 5006 were in the shipyard for capital enhancement projects during 2014 , and ensco 8503 incurred several months of uncontracted downtime primarily during the first quarter . contract drilling expense increased by $ 75.2 million , or 7 % , as compared to the prior year , primarily due to the aforementioned addition of ensco ds-7 to our floater fleet . to a lesser extent , higher personnel and repair and 56 maintenance costs also contributed to the increase in contract drilling expense . these increases were partially offset by lower contract drilling expense for ensco 5006 and lower windstorm insurance costs during 2014 following our decision to not renew our windstorm policy for floaters in the u.s. gulf of mexico . contract drilling expense during 2013 also included the aforementioned provision for doubtful accounts related to ogx receivables . we recognized a loss on impairment of $ 4.0 billion during the year ended december 31 , 2014 related to goodwill and three older , less capable floaters . detailed explanations of our loss on impairment are provided below . no impairments were recorded during the prior year period . depreciation expense increased by $ 15.9 million , or 5 % , primarily due to the addition of ensco ds-7 to our floater fleet , partially offset by lower depreciation as a result of the impairments recorded during the second quarter of 2014. during 2013 , floater revenues increased by $ 510.5 million , or 24 % , as compared to the prior year .
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results of operations the following table summarizes our consolidated results of operations for each of the years in the three-year period ended december 31 , 2014 ( in millions ) : replace_table_token_10_th revenues and contract drilling expenses increased by $ 241.1 million , or 6 % , and $ 129.8 million , or 7 % , respectively , for the year ended december 31 , 2014 as compared to the prior year . the increase in revenues was primarily due to the addition of newbuild rigs to both our floaters and jackups segments and an increase in average day rates across our existing fleet , partially offset by a decline in utilization . the increase in contract drilling expense was due to the aforementioned additions to our fleet and higher personnel and repair and maintenance costs . during 2013 , contract drilling expense included a $ 14.2 million provision for doubtful accounts for receivables related to drilling services provided to ogx petróleo e gás participações s.a. ( `` ogx '' ) . our receivables with ogx were fully reserved on our consolidated balance sheet as of december 31 , 2013 . 53 during 2014 , we recorded a non-cash loss on impairment totaling $ 4.2 billion , of which $ 3.0 billion related to impairment of our floater goodwill and $ 1.2 billion related to impairment of three floaters and ten jackups . during 2013 , revenues and contract drilling expense increased by $ 684.6 million , or 19 % , and $ 304.3 million , or 19 % , respectively , as compared to the prior year . the increase in revenues was primarily due to the addition of newbuild rigs to our floaters segment and an increase in average day rates across our existing fleet , partially offset by a decline in utilization . the increase in contract drilling expense was due the aforementioned additions to our fleet and higher personnel costs , as well as the aforementioned provision for doubtful accounts related to ogx receivables .
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however , the company does not believe it is reasonably likely that the reserve level will materially change in the foreseeable future . the company is self-insured for health and prescription claims under its group health insurance plan at all of the company 's domestic manufacturing subsidiaries . the company carries reinsurance coverage to limit its exposure for individual health claims above certain limits . third parties administer health claims and prescription medication 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 the related notes included in item 8 of this annual report on form 10-k for the year ended december 31 , 2020. the results of operations and other information included herein are not necessarily indicative of the financial condition , results of operations and cash flows that may be expected in future periods . this annual report on form 10-k , including matters discussed in this item 7. management 's discussion and analysis of financial condition and results of operations contains forward-looking statements relating to our plans , estimates and beliefs that involve important risks and uncertainties . see `` safe harbor statements under the private securities litigation reform act '' and part i , item 1a . risk factors for a discussion of uncertainties and assumptions that may cause actual results to differ materially from those expressed or implied in the forward-looking statements . this section of this annual report on form 10-k generally discusses 2020 and 2019 items and year-to-year comparisons between 2020 and 2019. discussions of 2018 items and year-to-year comparisons between 2019 and 2018 that are not included in this annual report on form 10-k can be found in part ii , item 7. management 's discussion and analysis of financial condition and results of operations of our annual r eport on form 10-k for the year ended december 31 , 201 9 . the financial condition and results of operations discussed in this management 's discussion and analysis of financial condition and results of operations are those of astec industries , inc. and its consolidated subsidiaries , collectively , the `` company , '' `` astec , '' `` we , '' `` our '' or `` us . '' business overview we design , engineer , manufacture and market equipment and components used primarily in road building and related construction activities , as well as certain other products . our products are used in each phase of road building , from quarrying and crushing the aggregate to application of the road surface for both asphalt and concrete . we also manufacture certain equipment and components unrelated to road construction , including equipment for the mining , quarrying , construction and demolition industries and port and rail yard operators ; industrial heat transfer equipment ; commercial whole-tree pulpwood chippers ; horizontal grinders ; blower trucks ; commercial and industrial burners ; and combustion control systems . our products are marketed both domestically and internationally primarily to asphalt producers ; highway and heavy equipment contractors ; utility contractors ; sand and gravel producers ; construction , demolition , recycle and crushing contractors ; mine and quarry operators ; port and inland terminal authorities ; power stations and domestic and foreign government agencies . in addition to equipment sales , we manufacture and sell replacement parts for equipment in each of our product lines and replacement parts for some competitors ' equipment . the distribution and sale of replacement parts is an integral part of our business . story_separator_special_tag widespread distribution and acceptance of an effective vaccine , among other things . these developments are constantly evolving and can not be accurately predicted . see part i , item 1a . risk factors in this annual report on form 10-k. facility closures amm - in 2018 , management decided to close and cease operations at amm , located in germany . operations ceased in 2019 , and its land and building were sold in january 2020. albuquerque - in late 2019 , we announced the closing of our albuquerque site due to market conditions and underutilization of the manufacturing facility . responsibilities for manufacturing and marketing of albuquerque product lines were transferred to other facilities within the infrastructure solutions segment in late 2019 and early 2020. the albuquerque site was closed as of march 31 , 2020 , and its land and building were sold in the third quarter of 2020. enid - in late 2019 , we impaired and discontinued enid 's oil and gas drilling product lines and sold the remaining assets in the third quarter of 2020. in october 2020 , we sold the assets related to enid 's remaining water well line of business . enid 's land and building are currently being marketed for sale . mequon - in june 2020 , we announced the closing of our mequon facility in order to simplify and consolidate operations . the mequon facility ceased production operations in august 2020 , and we entered into a real estate sales agreement for the sale of the land and building at the mequon site . the sale closed in december 2020 , and we entered into a short-term lease of the facilities to complete the transfer of the manufacturing and marketing for the mequon product lines to other facilities within the materials solutions segment in late 2020. tacoma - in january 2021 , we announced plans to close our tacoma facility in order to simplify and consolidate operations . we expect the tacoma facility to cease operations in the second quarter of 2021. manufacturing and marketing of tacoma product lines are expected be transferred to other facilities within the infrastructure solutions segment in mid-2021 . acquisitions blair - we entered into a stock purchase agreement , dated as of july 20 , 2020 , by and between oshkosh corporation for the purchase of the con-e-co ( `` blair '' ) concrete equipment company in nebraska . story_separator_special_tag excluding the $ 20.0 million wood pellet plant sale recorded in the second quarter of 2019 , total net sales decreased $ 125.2 million or 10.9 % . 24 table of contents domestic sales for 2020 were $ 817.0 million or 79.8 % of net sales compared to $ 908.5 million or 77.7 % of net sales for 2019 , a decrease of $ 91.5 million or 10.1 % . excluding the 2019 sale of a wood pellet plant , domestic sales for 2020 were $ 817.0 million or 79.8 % of net sales compared to $ 888.5 million or 77.3 % of net sales for 2019 , a decrease of $ 71.5 million or 8.0 % . we experienced decreased domestic sales for both our infrastructure solutions and materials solutions segments during 2020 , including for the discontinuation of oil and gas drilling product lines and exit of our enid site . international sales for 2020 were $ 207.4 million or 20.2 % of net sales compared to $ 261.1 million or 22.3 % of net sales for 2019 , a decrease of $ 53.7 million or 20.6 % . sales of infrastructure solutions related equipment between periods increased while equipment sold by the materials solutions segment decreased between 2019 and 2020. reported sales for 2020 were lower by $ 19.7 million for our omagh site , which experienced a government mandated temporary closure . the remaining sales decreases came from various other government mandated shutdowns in the countries in which we operate . parts sales for 2020 were $ 300.5 million or 29.3 % of net sales compared to $ 319.1 million or 27.3 % of net sales for 2019 , a decrease of $ 18.6 million or 5.8 % . the infrastructure solutions segment experienced increased parts sales in 2020 as compared to 2019 while parts sales by the materials solutions segment decreased . gross profit gross profit for 2020 was $ 240.1 million or 23.4 % of net sales as compared to $ 239.4 million or 20.5 % of net sales in 2019 , an increase of $ 0.7 million or 0.3 % . excluding the 2019 sale of a wood pellet plant , the 2020 gross profit was $ 240.1 million or 23.4 % of net sales compared to $ 219.4 million or 19.1 % of net sales for 2019 , an increase of $ 20.7 million or 9.4 % . overall gross margins were positively impacted by a change in sales mix that resulted in increased sales of higher margin products as a percentage of total sales in 2020. selling , general and administrative expense selling , general and administrative expense for 2020 was $ 166.9 million or 16.3 % of net sales compared to $ 183.9 million or 15.7 % of net sales for 2019 , a decrease of $ 17.0 million or 9.2 % , primarily due to decreased consulting fees , travel and employee-related expenses and the closure of our mequon site during 2020 , which reduced costs by $ 5.6 million . these decreases were partially offset by increased costs from the acquisitions of blair and st. bruno . research and development research and development expenses decreased $ 5.1 million or 18.8 % to $ 22.1 million in 2020 from $ 27.2 million in 2019. during 2020 , we presented various new and or improved equipment models from the 2019 research and development spending while continuing our 2020 effort on research and development of new products and improvements to existing product lines as well as adaptation of those products to other markets . due to covid-19 constraints and the ongoing restructuring , these expenses were reduced during 2020 . 25 table of contents restructuring , impairment and other asset charges , net in late 2019 , we began the process of restructuring and right-sizing in conjunction with our overall strategic transformation . restructuring , impairment and other asset charges for the year ended december 31 , 2020 and 2019 are presented below : replace_table_token_2_th in the first quarter of 2020 , as part of our ongoing assessment to consider whether events or circumstances had occurred that could more likely than not reduce the fair value of a reporting unit below its carrying value , we performed an interim goodwill impairment test as of march 31 , 2020 over the mobile asphalt equipment reporting unit . based on the results of this testing , we recorded a $ 1.6 million pre-tax non-cash impairment charge in the infrastructure solutions segment to fully impair the mobile asphalt equipment reporting unit 's goodwill . during 2020 , we impaired one of our company 's airplanes in advance of preparation for sale . the airplane is recorded as held for sale as of december 31 , 2020. gain on sale of property and equipment primarily reflects a gain on the sale of land and building from the mequon site for $ 4.7 million recorded in december 2020. other income other income increased $ 2.3 million or 766.7 % to $ 2.6 million in 2020 from $ 0.3 million in 2019 due primarily to the recognition of a gain on the sale of a business of $ 1.6 million from the disposal of enid 's oil , gas and water well product lines . in addition , we recorded a curtailment gain on the postretirement benefit plan for our mequon site in conjunction with the closure . income tax income tax benefit for the year ended december 31 , 2020 was $ 1.2 million compared to income tax expense of $ 3.0 million for 2019. the effective tax rates for 2020 and 2019 were ( 2.6 ) % and 11.9 % , respectively . our tax rates are affected by recurring items which are generally consistent from period to period , as well as discrete items that may occur in any given period but are not consistent from period to period .
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executive summary highlights of our financial results as of and for the year ended december 31 , 2020 as compared to the same period of the prior year include the following : net sales were $ 1,024.4 million , a decrease of 12.4 % gross profit was $ 240.1 million , an increase of 0.3 % income from operations increased $ 17.9 million to $ 43.0 million net income attributable to astec increased to $ 46.9 million , or 110.3 % diluted earnings per share were $ 2.05 , an increase of 109.2 % significant items impacting operations in 2020 segment updates the company consists of a total of 33 compani es that are included in our consolidated financial statements , of which 25 represent our manufacturing sites and sites that operate as sales offices for our manufacturing locations . during the first quarter of 2020 , we completed an internal reorganization focused on transitioning from a decentralized management structure to a more centralized structure with major directives and decisions being made at the segment and or parent company level . as a result of this reorganization , we realigned our reportable segments moving from three to two reportable segments ( plus corporate ) - infrastructure solutions and materials solutions . our two reportable business segments comprise sites based upon the nature of the products or services produced , the type of customer for the products , the similarity of economic characteristics , the manner in which management reviews results and the nature of the production process , among other considerations . 22 table of contents the corporate category consists of our parent company and astec insurance company ( `` astec insurance '' ) , a captive insurance company , which do not meet the requirements for separate disclosure as an operating segment or inclusion in one of the other reporting segments .
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through december 31 , 2015 , we operated our business through four operating segments representing our regional tire businesses : north america ; europe , middle east and africa ; asia pacific ; and latin america . effective january 1 , 2016 , we combined our north america and latin america strategic business units into one americas strategic business unit . we have combined the north america and latin america reportable segments effective on this date to align with the new organizational structure and the basis used for reporting to our chief executive officer beginning in 2016. our first quarter 2016 form 10-q will reflect the new segment structure with prior periods recast for comparable disclosure . volatile global industry conditions continued in 2015 , including economic weakness in europe , recessionary economic conditions and political volatility in latin america , particularly in brazil and venezuela , and slowing growth in asia pacific . in addition , we were impacted by the continued strengthening of the u.s. dollar against most foreign currencies . despite these challenging industry and economic conditions , we produced record segment operating income of $ 2,022 million in 2015 , including record segment operating income of $ 1,108 million in north america and $ 319 million in asia pacific . our 2015 results reflect a 2.6 % increase in tire unit shipments compared to 2014. in 2015 , excluding venezuela , we realized approximately $ 369 million of cost savings , including raw material cost saving measures of approximately $ 228 million , which exceeded the impact of general inflation . our raw material costs , including cost saving measures , decreased by approximately 11 % in 2015 compared to 2014. in the second quarter of 2015 , we announced that we selected san luis potosi , mexico as the site for our new consumer tire factory to serve customers in the americas . the new factory , combined with investments in our existing factories , will help us meet the demand for our products in the americas . we expect the new factory to begin production in 2017. on october 1 , 2015 , we completed the dissolution of our global alliance with sri in accordance with the terms and conditions set forth in the framework agreement , dated as of june 4 , 2015 , by and between us and sri . for further information , refer to “ item 1. business — business of goodyear — dissolution of global alliance with sumitomo rubber industries. ” we also took several steps throughout 2015 to proactively manage our balance sheet , liquidity needs and interest expense , including the amendment and restatement of our european revolving credit facility , the repricing of and $ 600 million of repayments on our second lien term loan , and the refinancing of $ 1.0 billion of senior notes and 250 million of gdte senior notes . these actions will result in aggregate annualized interest savings of approximately $ 65 million , including $ 55 million in 2016. for further information , refer to “ liquidity and capital resources. ” net sales were $ 16,443 million in 2015 , compared to $ 18,138 million in 2014 . net sales decreased in 2015 due to unfavorable foreign currency translation , primarily in emea , and lower sales in other tire-related businesses , primarily third-party chemical sales in north america . these declines were partially offset by higher tire unit volume , primarily in asia pacific . goodyear net income in 2015 was $ 307 million , compared to goodyear net income of $ 2,452 million in 2014 , and goodyear net income available to common shareholders was $ 307 million , or $ 1.12 per diluted share , compared to goodyear net income available to common shareholders of $ 2,445 million , or $ 8.78 per diluted share , in 2014 . the decrease in goodyear net income in 2015 compared to 2014 was primarily driven by an increase in income tax expense in 2015 as a result of the reversal of the valuation allowance on our u.s. deferred tax assets in the fourth quarter of 2014 and the loss on the deconsolidation of our venezuelan subsidiary , partially offset by the improvement in segment operating income and other ( income ) expense . other ( income ) expense in 2015 included increased royalty income due to the termination of a licensing agreement associated with the sale of our former engineered products business , the gain on the dissolution of the global alliance with sri and a benefit in general and product liability — discontinued products from the recovery of past costs from an asbestos insurer and changes in assumptions for probable insurance recoveries for asbestos claims . 22 our total segment operating income for 2015 was $ 2,022 million , compared to $ 1,712 million in 2014 . the $ 310 million , or 18.1 % , increase in segment operating income was due primarily to a decline in raw material costs of $ 594 million , which more than offset the impact of higher conversion costs of $ 149 million , unfavorable foreign currency translation of $ 145 million and higher selling , administrative and general expense ( `` sag '' ) of $ 70 million . segment operating income also benefited by an improvement in volume of $ 74 million . refer to `` results of operations — segment information ” for additional information . in order to drive future growth and address the volatile economic environment , we remain focused on our key strategies : continuing to focus on market-back product development ; taking a selective approach to the market , targeting profitable segments where we have competitive advantages ; improving our manufacturing efficiency and creating an advantaged supply chain focused on reducing our total delivered costs , optimizing working capital levels and delivering best in industry customer service ; focusing on cash flow to provide funding for our capital allocation plan described below ; and building top talent and teams . story_separator_special_tag our venezuelan subsidiary contributed $ 119 million in segment operating income in 2015. the various outlook items summarized below exclude the impact of our venezuelan operations in 2015 in order to provide greater clarity regarding our expectations with respect to the performance of our remaining businesses in 2016. we expect that our full-year tire unit volume for 2016 will be up approximately 3 % from 164.8 million tire units ( excluding our venezuelan subsidiary ) in 2015 , and for unabsorbed fixed overhead costs to be a benefit of approximately $ 50 million in 2016 compared to 2015. we also expect cost savings to more than offset general inflation in 2016. based on current spot rates , we expect foreign currency translation to negatively affect segment operating income by approximately $ 45 million in 2016 compared to 2015. based on current raw material spot prices , for the full year of 2016 , we expect our raw material costs will be approximately 9 % lower than 2015 , including raw material cost saving measures , and we expect the benefit of lower raw material costs to more than offset declines in price and product mix . however , natural and synthetic rubber prices and other commodity prices have experienced significant volatility , and this estimate could change significantly based on fluctuations in the cost of these and other key raw materials . we are continuing to focus on price and product mix , to substitute lower cost materials where possible and to work to identify additional substitution opportunities , to reduce the amount of material required in each tire , and to pursue alternative raw materials . refer to “ item 1a . risk factors ” for a discussion of the factors that may impact our business , results of operations , financial condition or liquidity and “ forward-looking information — safe harbor statement ” for a discussion of our use of forward-looking statements . results of operations — consolidated all per share amounts are diluted and refer to goodyear net income available to common shareholders . 2015 compared to 2014 goodyear net income in 2015 was $ 307 million , compared to goodyear net income of $ 2,452 million in 2014 . goodyear net income available to common shareholders in 2015 was $ 307 million , or $ 1.12 per share , compared to goodyear net income available to common shareholders of $ 2,445 million , or $ 8.78 per share , in 2014 . the decrease in goodyear net income and goodyear net income available to common shareholders in 2015 was primarily driven by an increase in income tax expense in 2015 following a tax benefit of $ 1,834 million in 2014 , primarily due to the reversal of the valuation allowance on our u.s. deferred tax assets in the fourth quarter of 2014. the $ 577 million after-tax loss on the deconsolidation of our venezuelan subsidiary also negatively affected 2015 results . partially offsetting these declines were improvements in segment operating income and other ( income ) expense discussed below . 24 net sales net sales in 2015 of $ 16,443 million decreased $ 1,695 million , or 9 % , compared to $ 18,138 million in 2014 due primarily to unfavorable foreign currency translation of $ 1,563 million , primarily in emea , lower sales in other tire-related businesses of $ 283 million , primarily related to a decrease in the price of third-party chemical sales in north america , and a decline in price and product mix of $ 83 million , primarily in asia pacific , as a result of the impact of lower raw material costs on pricing . net sales were also negatively impacted by $ 73 million due to our exit from the farm tire business in emea in the fourth quarter of 2014. these declines were partially offset by higher tire unit volume of $ 308 million , primarily in asia pacific and emea . consumer and commercial net sales in 2015 were $ 9,907 million and $ 3,342 million , respectively . consumer and commercial net sales in 2014 were $ 10,510 million and $ 3,849 million , respectively . the following table presents our tire unit sales for the periods indicated : replace_table_token_10_th the increase in worldwide tire unit sales of 4.2 million units , or 2.6 % , compared to 2014 , included an increase of 2.6 million replacement tire units , or 2.3 % , primarily in asia pacific . oe units increased 1.6 million units , or 3.3 % , primarily in asia pacific . the volume increases in asia pacific were primarily related to growth in china and india , and for replacement due to the fourth quarter acquisition of ngy in japan in conjunction with the dissolution of the global alliance with sri . consumer and commercial unit sales in 2015 were 152.4 million and 12.4 million , respectively . consumer and commercial unit sales in 2014 were 147.4 million and 12.6 million , respectively . cost of goods sold cost of goods sold ( “ cgs ” ) was $ 12,164 million in 2015 , decreasing $ 1,742 million , or 12.5 % , from $ 13,906 million in 2014 . cgs was 74.0 % of sales in 2015 compared to 76.7 % of sales in 2014 . cgs in 2015 decreased due to foreign currency translation of $ 1,160 million , primarily in emea , lower raw material costs of $ 594 million , primarily in north america and emea , lower costs in other tire-related businesses of $ 284 million , primarily related to lower raw material costs for third-party chemical sales in north america , and a benefit of $ 2 million ( $ 2 million after-tax and minority ) related to an indirect tax assessment in latin america . these decreases were partially offset by higher tire volume of $ 234 million and higher conversion costs of $ 149 million due to inflation on wages and benefits and other costs .
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overview our primary sources of liquidity are cash generated from our operating and financing activities . our cash flows from operating activities are driven primarily by our operating results and changes in our working capital requirements and our cash flows from financing activities are dependent upon our ability to access credit or other capital . our 2014-2016 capital allocation plan , which we have periodically updated , is intended to increase shareholder value by investing in high-return growth capital projects , providing for returns to shareholders and strengthening our balance sheet . the updated capital allocation plan provides for : growth capital expenditures of approximately $ 900 million , including our new plant in san luis potosi , mexico to capture growth in the americas . a quarterly cash dividend on our common stock of $ 0.07 per share beginning on december 1 , 2015. the payout represents an annual rate of $ 0.25 per share for 2015 and $ 0.28 per share for 2016. a share repurchase program that allows us to acquire up to $ 1.1 billion of our common stock . approximately $ 900 million of debt repayments and pension funding , further strengthening our leverage metrics and advancing our objective of achieving an investment grade credit rating . approximately $ 700 million of restructuring payments . in may 2015 , we amended and restated our european revolving credit facility . significant changes to the facility included extending the maturity to may 12 , 2020 , increasing the available commitments thereunder from 400 million to 550 million , and decreasing the interest rate by 75 basis points and the annual commitment fee by 20 basis points .
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on march 11 , 2014 , in lieu of the put call option in the original purchase agreement , the company entered into a new agreement to purchase the entire 30 % noncontrolling interest in arminak for a cash purchase price of $ 51.0 million . the purchase agreement also includes additional contingent consideration of up to story_separator_special_tag the statements in the discussion and analysis regarding industry outlook , our expectations regarding the performance of our business and the other non-historical statements in the discussion and analysis are forward-looking statements . these forward-looking statements are subject to numerous risks and uncertainties , including , but not limited to , the risks and uncertainties described in item 1a `` risk factors . '' our actual results may differ materially from those contained in or implied by any forward-looking statements . you should read the following discussion together with item 8 , `` financial statements and supplementary data . '' introduction we are a global manufacturer and distributor of products for commercial , industrial and consumer markets . we are principally engaged in six reportable segments : packaging , energy , aerospace , engineered components , cequent apea and cequent americas . on december 8 , 2014 , our board of directors approved a plan to pursue a tax-free spin-off of the businesses that comprise our cequent apea and cequent americas reportable segments . we are targeting mid-2015 for completion of the proposed spin-off , although successful completion is contingent upon several factors , including but not limited to , final authorization and approval of our board of directors , receipt of governmental and regulatory approvals of the transactions contemplated by the spin-off , receipt of a tax opinion regarding the tax-free status of the spin-off , execution of intercompany agreements and the effectiveness of a registration statement with the sec . key factors and risks affecting our reported results . our businesses and results of operations depend upon general economic conditions and we serve some customers in cyclical industries that are highly competitive and themselves significantly impacted by changes in economic conditions . global economic conditions , while remaining a bit choppy , have stabilized over the past 18 to 24 months , albeit with little or no overall economic growth , particularly in the united states . thus , while we experienced some organic growth in 2014 , the majority of our growth in 2014 compared to 2013 came via acquisition sales . based on the implementation of our organic and acquisition growth strategies , we generated year-over-year net sales increases in all six of our reportable segments . during 2014 , we took significant actions in our energy reportable segment to reassess , restructure and optimize our manufacturing and sales footprints . while net sales increased in 2014 versus 2013 , due primarily to a 16.2 % increase in fourth quarter 2014 versus 2013 sales levels , demand levels had been lower than historical levels for the past five quarters , starting in the third quarter of 2013 , both in the united states and abroad , as petrochemical plants and refinery customers deferred shutdown activity , plus we experienced decreases in engineering and construction and original equipment manufacturer ( `` oem '' ) customer activity . the demand challenges also resulted in operating margins declines from historical levels . given the reduced demand and resulting profitability challenges , we announced the closure of a sales branch in china , a manufacturing facility in brazil and the move of certain longer lead-time standard products from our houston , texas manufacturing facility to a new facility in mexico . we continue to monitor our business needs , and may need to evaluate further actions should the negative trend in sales and profitability levels continue . over the past few years , we have executed on our growth strategies via bolt-on acquisitions and geographic expansion within our existing platforms in each of our reportable segments . we have also proceeded with footprint consolidation projects within our cequent reportable segments and the aforementioned moves in our energy reportable segment , moving toward more efficient facilities and lower cost country production . while our growth strategies have significantly contributed to increased net sales levels over this time period , our earnings margins over the period of execution have declined from historical levels , primarily due to the incurrence of duplicate move , acquisition diligence and integration costs , resulting from the acquisition of businesses with historically lower margins than our legacy businesses and due to increasing business in new markets to trimas , where we make pricing decisions to penetrate new markets and do not yet have volume leverage . in addition to the energy end-market challenges , we have also incurred significant costs related to manufacturing inefficiencies associated with changes in aerospace customer demand , with the trend toward smaller lot sizes and less consistent order patterns over the past few quarters . while these challenges and endeavors have significantly impacted margins , we believe that the margins in these businesses will moderate to historical levels over time ( and have in packaging , for example , where the innovative molding and arminak & associates acquisitions have been integrated ) as we integrate our acquisitions into our businesses , right-size our facilities and staffing levels to current and expected demand levels and patterns and capitalize on productivity initiatives and volume efficiencies . story_separator_special_tag million in 2014 , from $ 79.0 million in 2013 . the decrease was primarily the result of a $ 14.7 million increase in income tax expense , plus a $ 4.9 million increase in other expenses and a $ 0.9 million increase in debt financing and extinguishment costs , partially offset by a $ 5.0 million increase in operating profit and a $ 3.3 million reduction in interest expense . 33 net income attributable to noncontrolling interest was $ 0.8 million in 2014 , compared to $ 4.5 million in 2013 . the income relates to our 70 % acquisition in arminak & associates llc ( `` arminak '' ) in february 2012 , which represents the 30 % interest not attributed to trimas corporation . on march 11 , 2014 , we acquired the remaining 30 % interest in arminak . see note 5 , `` acquisitions , '' included in item 8 , `` financial statements and supplementary data , '' within this form 10-k. see below for a discussion of operating results by reportable segment . packaging . net sales increased approximately $ 24.5 million , or 7.8 % , to $ 337.7 million in 2014 , as compared to $ 313.2 million in 2013 . sales of our specialty systems products increased by approximately $ 22.0 million , primarily due to increases in demand from our major customers in north america and europe , as well as continued growth in our revenue base in asia . sales further increased approximately $ 4.8 million as a result of the acquisition of lion holdings pvt . ltd. ( `` lion holdings '' ) in the third quarter of 2014. sales of our industrial closures declined by approximately $ 3.9 million , primarily as a result of the loss of approximately $ 10.2 million of sales associated with our italian rings and levers business sold in the third quarter of 2013 , which was partially offset by increased sales of our other industrial closures , primarily in our u.s. markets . in addition , sales also increased by approximately $ 1.6 million as a result of a net favorable currency exchange , as our reported results in u.s. dollars were positively impacted as a result of a weaker u.s. dollar relative to foreign currencies . packaging 's gross profit increased approximately $ 6.3 million to $ 118.2 million , or 35.0 % of sales in 2014 , as compared to $ 111.9 million , or 35.7 % of sales in 2013 , primarily due to the higher sales levels . gross profit margin decreased from the prior year as ongoing productivity and automation initiatives and increased sales in certain higher-margin industrial products were more than offset by a less favorable product mix shift , with sales of our lower margin specialty products comprising a larger percentage of overall sales , as well as cost incurred in asia as we add capacity to meet expected demand . packaging 's selling , general and administrative expenses remained flat at $ 38.5 million , or 11.4 % of sales in 2014 , as compared to $ 38.5 million , or 12.3 % of sales in 2013 . selling , general and administrative expenses decreased as a percent of sales , as a $ 2.0 million reduction in the arminak & associates contingent liability to estimated fair value was offset by increased selling , general and administrative costs associated with the continued investment in growth initiatives , including costs associated with the lion holdings acquisition . packaging 's operating profit decreased approximately $ 5.9 million to $ 77.9 million , or 23.1 % of sales in 2014 , as compared to $ 83.8 million , or 26.7 % of sales , in 2013 . operating profit decreased primarily due an approximately $ 10.5 million gain recognized on the sale of the italian business in the third quarter of 2013 , which included approximately $ 7.9 million related to the release of historical currency translation adjustments into net income . in addition to the impact of the italian business gain in 2013 , operating profit margin decreased further as ongoing productivity initiatives and operating leverage gained were more than offset by a less favorable product sales mix and costs associated with the lion holdings acquisition , including approximately $ 1.7 million of charges associated with the disposal of equipment which was rendered obsolete as part of our recent acquisitions . energy . net sales in 2014 increased approximately $ 1.1 million , or 0.6 % , to $ 206.7 million , as compared to $ 205.6 million in 2013 . sales increased by approximately $ 6.1 million due to our acquisitions in 2013 , including wulfrun specialised fasteners ( `` wulfrun '' ) and substantially all the business assets of tat lee ( thailand ) ltd. ( `` tat lee '' ) , as well as growth in our u.s. markets as a result of increased sales of standard gaskets and bolts , particularly in the fourth quarter of 2014. these increases were partially offset by decreased sales of approximately $ 4.5 million in china and brazil as a result of our facility closure and restructuring activities in those regions in the second quarter of 2014 , approximately $ 1.1 million as a result of lower branch sales in europe and lower demand in certain canadian markets . gross profit within energy decreased approximately $ 10.5 million to $ 35.7 million , or 17.3 % of sales , in 2014 , as compared to $ 46.2 million , or 22.5 % of sales , in 2013 , primarily due to approximately $ 6.7 million of charges associated with the closure of our china sales branch and brazilian manufacturing facility , including a charge of approximately $ 3.9 million for the estimated future unrecoverable lease obligation on our brazilian manufacturing facility .
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results of operations year ended december 31 , 2014 compared with year ended december 31 , 2013 the principal factors impacting us during the year ended december 31 , 2014 , compared with the year ended december 31 , 2013 were : the impact of our various acquisitions during 2014 and 2013 ( see below for the impact by reportable segment ) ; business unit restructuring within our energy reportable segment , under which we incurred approximately $ 13.2 million of costs during 2014 ; continued economic strength in certain of the markets our businesses serve in 2014 compared to 2013 , contributing to increased net sales in all six of our reportable segments ; the sale of our business in italy within the packaging reportable segment during 2013 , for which we recorded a pre-tax gain of approximately $ 10.5 million ; our equity offering during 2013 , where we issued 5,175,000 shares of common stock for net proceeds of approximately $ 174.7 million ; manufacturing and distribution footprint consolidation and relocation projects within our cequent americas reportable segments , under which we incurred approximately $ 3.6 million of costs during 2014 , as compared to $ 25.6 million of such costs during 2013 ; and our fourth quarter 2014 amendment to our credit agreement to add a $ 275.0 million incremental senior secured term loan a facility , and our amendment of our new credit agreement in 2013 , which allowed us to reduce interest costs . overall , net sales increased approximately $ 110.5 million , or approximately 8.0 % , to $ 1.5 billion in 2014 , as compared to $ 1.4 billion in 2013 . during 2014 , net sales increased in all six of our reportable segments . of the sales increase , approximately $ 84.4 million was due to our recent acquisitions .
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our effective tax rate may fluctuate from year to year as our operations are conducted in different taxing jurisdictions , the amount of pre-tax income fluctuates , the amounts of foreign income we anticipate will be repatriated and our estimates regarding the realizability of items such as foreign tax credits may change . we consider $ 623 million of unremitted earnings of our foreign subsidiaries to be indefinitely reinvested . we believe we have the ability to indefinitely reinvest these foreign earnings based on our expectations of profitability for our u.s. operations over the long term , our significant u.s. liquidity , and the amount of unremitted earnings of our foreign subsidiaries not considered indefinitely reinvested , for which we have provided deferred income taxes . we account for any applicable interest and penalties on uncertain tax positions as a component of our provision for income taxes on our financial statements . current income tax expense represents either nonresident withholding taxes or the liabilities expected to be reflected on our income tax returns for the current year , while the net deferred income tax expense or benefit represents the change in the balance of deferred tax assets or liabilities as reported on our balance sheet . we establish valuation allowances to reduce deferred tax assets when it is more likely than not that some portion or all of the deferred tax assets will not be realized in the future . while we have considered estimated future taxable income and ongoing prudent and feasible tax-planning strategies in assessing the need for the valuation allowances , changes in these estimates and assumptions , as well as changes in tax laws , could require us to provide for valuation allowances for our deferred tax assets . provisions for valuation allowances impact our income tax provision in the period in which such adjustments are identified and recorded . we established a deferred tax asset valuation allowance of $ 4.2 million in 2016 related to the realizability of loss carryforwards in certain of our foreign jurisdictions . 30 in march 2016 , the fasb issued asu 2016-09 , `` compensation – stock compensation improvements to employee share-based payment accounting . '' this update requires that all excess tax benefits and tax deficiencies ( including tax benefits of dividends on share-based payment awards ) should be recognized as income tax expense or benefit in the income statement . the tax effects of exercised or vested awards should be treated as discrete items in the reporting period in which they occur . an entity also should recognize excess tax benefits regardless of whether the benefit reduces taxes payable in the current period . currently , an entity must determine , for each award , whether the difference between the deduction for tax purposes and the compensation cost recognized for financial reporting purposes results in either an excess tax benefit or a tax deficiency . the amendments in this update are effective for us beginning january 1 , 2017. through december 31 , 2016 , we recognized excess tax benefits in additional paid-in capital , and tax deficiencies have been recognized as an offset to accumulated excess tax benefits . in 2017 , we expect a tax deficiency in the first quarter and , under this new standard , we will recognize it as a discrete item in the income statement rather than in additional paid-in capital . we do not anticipate that this update will have a material effect on our consolidated financial statements . for a summary of our major accounting policies and a discussion of recently adopted accounting standards , please see note 1 to our consolidated financial statements . liquidity and capital resources we consider our liquidity and capital resources adequate to support our operations and growth initiatives . at december 31 , 2016 , we had working capital of $ 754 million , including cash and cash equivalents of $ 450 million . additionally , we had $ 500 million available through our revolving credit facility under a credit agreement ( as amended , the `` credit agreement '' ) , which is scheduled to expire on october 25 , 2021 . in october 2014 , we entered into the credit agreement with a group of banks to replace our prior principal credit agreement . the credit agreement provides for a $ 300 million three-year term loan ( the `` term loan facility '' ) and a $ 500 million five-year revolving credit facility ( the `` revolving credit facility '' ) . subject to certain conditions , the aggregate commitments under the revolving credit facility may be increased to up to $ 800 million at any time upon agreement between us and existing or additional lenders . borrowings under the revolving credit facility and the term loan facility may be used for general corporate purposes . simultaneously with the execution of the credit agreement and pursuant to its terms , we repaid all amounts outstanding under , and terminated , the prior credit agreement . in november 2015 , we entered into an agreement and amendment no . 1 to credit agreement ( `` amendment no . 1 '' ) . amendment no . 1 amended the credit agreement to ( 1 ) replace the maximum leverage ratio financial covenant with a new financial covenant restricting the maximum total capitalization ratio ( defined in amendment no . story_separator_special_tag 1 to be the ratio of consolidated debt to total capitalization ) to 55 % and ( 2 ) extend the maturities of the term loan facility and the revolving credit facility by one year each , which maturity terms have since been superseded by amendment , as described below . in november 2016 , we entered into agreement and amendment no . 2 to credit agreement ( `` amendment no . 2 '' ) . amendment no . 2 amended the credit agreement to , among other things , extend the maturities of the term loan facility and the revolving credit facility to october 25 , 2019 and october 25 , 2021 , respectively , with the extending lenders , which represent 90 % of the existing commitments of the lenders , such that ( a ) the total commitments for the revolving credit facility will be $ 500 million until october 25 , 2020 and thereafter $ 450 million until october 25 , 2021 , and ( b ) the outstanding term loan maturities pursuant to the term loan facility will be $ 300 million until october 27 , 2018 and thereafter $ 270 million until october 25 , 2019. borrowings under the credit agreement bear interest at an adjusted base rate or the eurodollar rate ( both as defined in the credit agreement ) , at our option , plus an applicable margin initially based on our leverage ratio ( as defined in the credit agreement ) and , at our election , based on ratings of our senior unsecured debt by designated ratings services , thereafter to be based on such debt ratings . the applicable margin varies : ( 1 ) in the case of advances bearing interest at the 31 adjusted base rate , from 0.125 % to 0.750 % for borrowings under the revolving credit facility and from 0 % to 0.500 % for borrowings under the term loan facility ; and ( 2 ) in the case of advances bearing interest at the eurodollar rate , from 1.125 % to 1.750 % for borrowings under the revolving credit facility and from 1.000 % to 1.500 % for borrowings under the term loan facility . the adjusted base rate is the highest of ( 1 ) the per annum rate established by the administrative agent as its prime rate , ( 2 ) the federal funds rate plus 0.50 % and ( 3 ) the daily one-month libor plus 1 % . we pay a commitment fee ranging from 0.125 % to 0.300 % on the unused portion of the revolving credit facility , depending on our leverage ratio . the commitment fees are included as interest expense in our consolidated financial statements . the credit agreement contains various covenants that we believe are customary for agreements of this nature , including , but not limited to , restrictions on our ability and the ability of each of our subsidiaries to incur debt , grant liens , make certain investments , make distributions , merge or consolidate , sell assets , enter into transactions with affiliates and enter into certain restrictive agreements . we are also subject to a maximum total capitalization ratio of 55 % , as noted above . the credit agreement includes customary events of default and associated remedies . as of december 31 , 2016 , we were in compliance with all the covenants set forth in the credit agreement . in november 2014 , we completed the public offering of $ 500 million aggregate principal amount of 4.650 % senior notes due 2024 ( the `` senior notes '' ) . we pay interest on the senior notes on may 15 and november 15 of each year , beginning on may 15 , 2015. the senior notes are scheduled to mature on november 15 , 2024. we may redeem some or all of the senior notes prior to maturity at specified redemption prices . we used the net proceeds from the offering for general corporate purposes , including funding the acquisition described below , other capital expenditures and repurchases of shares of our common stock . our maximum outstanding indebtedness during 2016 under the credit agreement and senior notes was $ 800 million , and our total interest costs , including commitment fees , were $ 29.1 million . our capital expenditures , including business acquisitions , for 2016 , 2015 and 2014 were $ 143 million , $ 424 million and $ 427 million , respectively . our capital expenditures in 2016 included $ 50 million in our rov segment , $ 57 million in our subsea products segment and $ 26 million in our subsea projects segment . our capital expenditures in 2015 included our acquisition of c & c technologies , inc. ( `` c & c '' ) for approximately $ 224 million . c & c is a global provider of ocean-bottom mapping services in deepwater utilizing customized autonomous underwater vehicles and provides marine construction surveys for both surface and subsea assets , as well as satellite-based positioning services for drilling rigs and seismic and construction vessels . c & c also provides land and near-shore survey services along the u.s. gulf coast and in mexico , and performs shallow water conventional geophysical surveys in the u.s. gulf of mexico . in addition to the c & c acquisition , our capital expenditures in 2015 included : $ 58 million for upgrading and expanding our rov fleet ; $ 69 million in our subsea products segment , principally for growth of our tooling and installation and workover control systems capabilities ; and $ 52 million in our subsea projects segment , including $ 43 million related to a new subsea support vessel scheduled for delivery in 2017. our capital expenditures in 2014 included : $ 189 million for upgrading and expanding our rov fleet ; $ 113 million in our subsea products segment
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results of operations additional information on our business segments is shown in note 7 of the notes to consolidated financial statements included in this report . oilfield . the table that follows sets out revenue and profitability for the business segments within our oilfield business . in the rov section of the table that follows , `` days available '' includes all days from the first day that an rov is placed in service until the rov is retired . all days in this period are considered available days , including periods when an rov is undergoing maintenance or repairs . our rovs do not have scheduled maintenance or repair that requires significant time when the rovs are not available for utilization . replace_table_token_12_th 35 historically , we built new rovs to increase the size of our fleet in response to demand to support deepwater drilling and vessel-based inspection , maintenance and repair ( `` imr '' ) and installation work . in 2015 , as a result of declining market conditions , we began building fewer rovs , primarily to meet contractual commitments . these vehicles are designed for use around the world in water depths of 10,000 feet or more . we added 6 , 16 and 49 rovs in 2016 , 2015 and 2014 , respectively , while retiring 94 units over the three-year period and transferring one to our advanced technologies segment over that period . our rov fleet size was 280 at december 31 , 2016 , 315 at december 31 , 2015 and 336 at december 31 , 2014 . we have decreased our rov fleet size over the last two years as a result of lower market demand .
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in april 2015 , the fasb issued asu 2015-03 , interest - imputation of interest ( subtopic 835-30 ) : simplifying the presentation of debt issuance costs , which requires that debt issuance costs be story_separator_special_tag the following management discussion and analysis ( md & a ) is intended to help the reader understand our results of operations and financial condition . this md & a is provided as a supplement to , and should be read in conjunction with , our financial statements and the accompanying notes to the financial statements ( notes ) . our fiscal year ends on the saturday closest to december 31. fiscal years 2015 and 2013 each consisted of 52 weeks and ended on january 2 , 2016 and december 28 , 2013 , respectively . fiscal year 2014 consisted of 53 weeks and ended on january 3 , 2015 . the additional week in fiscal 2014 impacts the results of operations discussion below . all references to years in this md & a represent fiscal years unless otherwise noted . management overview our revenues are primarily derived by selling , implementing and supporting software solutions , clinical content , hardware , devices and services that give health care providers secure access to clinical , administrative and financial data in real or near-real time , helping them to improve quality , safety and efficiency in the delivery of health care . our fundamental strategic focus is the creation of organic growth by investing in research and development ( r & d ) to create solutions and services for the health care industry . this strategy has driven strong growth over the long-term , as reflected in five- and ten-year compound annual revenue growth rates of 14 % or more . this growth has also created an important strategic footprint in health care , with cerner ® solutions in more than 20,000 facilities worldwide , including hospitals , physician practices , laboratories , ambulatory centers , behavioral health centers , cardiac facilities , radiology clinics , surgery centers , extended care facilities , retail pharmacies , and employer sites . selling additional solutions back into this client base is an important element of our future revenue growth . we are also focused on driving growth through market share expansion by strategically aligning with health care providers that have not yet selected a supplier and by displacing competitors in health care settings that are looking to replace their current supplier . we may also supplement organic growth with acquisitions . we expect to drive growth through solutions and services that reflect our ongoing ability to innovate and expand our reach into health care . examples of these include our careaware ® health care device architecture and devices , cerner itworks services , revenue cycle solutions and services , and population health solutions and services . finally , we believe there is significant opportunity for growth outside of the united states , with many non-u.s. markets focused on health care information technology as part of their strategy to improve the quality and lower the cost of health care . beyond our strategy for driving revenue growth , we are also focused on earnings growth . similar to our history of growing revenue , our net earnings have increased at compound annual rates of 17 % or more over the most recent five- and ten-year periods . we expect to drive continued earnings growth through ongoing revenue growth coupled with margin expansion , which we expect to achieve through efficiencies in our implementation and operational processes and by leveraging r & d investments and controlling general and administrative expenses . we are also focused on continuing to deliver strong levels of cash flow , which we expect to do by continuing to grow earnings and prudently managing capital expenditures . siemens health services on february 2 , 2015 , we acquired substantially all of the assets , and assumed certain liabilities of siemens ag 's health information technology business unit , siemens health services , as further described in note ( 2 ) of the notes to consolidated financial statements . the acquired business ( now referred to as `` cerner health services '' ) offers a portfolio of enterprise-level clinical and financial health care information technology solutions , as well as departmental , connectivity , population health , and care coordination solutions globally . solutions are offered on the soarian , invision , and i.s.h.med platforms , among others . cerner health services also offers a range of complementary services including support , hosting , managed services , implementation services , and strategic consulting . we believe the acquisition enhances our organic growth opportunities as it provides us a larger base into which we can sell our combined portfolio of solutions and services . the acquisition also augments our non-u.s. footprint and growth opportunities , increases our scale for r & d investment , and adds over 5,000 highly-skilled associates that will enhance our capabilities . 25 the addition of this business has a significant impact on the comparability of our 2015 consolidated financial statements in relation to the comparative periods presented herein . story_separator_special_tag href= '' https : //www.sec.gov/archives/edgar/data/0000804753/000080475316000061/ # s4bff82908ccf9e34041201e880eabe4d '' style= '' font-family : arial ; font-size:8pt ; '' > costs of revenue cost of revenues as a percentage of total revenues was 17 % in 2015 compared to 18 % in 2014 . the lower cost of revenues as a percent of revenue was primarily driven by a lower mix of technology resale , which carries a higher cost of revenue . cost of revenues includes the cost of reimbursed travel expense , sales commissions , third party consulting services and subscription content and computer hardware , devices and sublicensed software purchased from manufacturers for delivery to clients . it also includes the cost of hardware maintenance and sublicensed software support subcontracted to the manufacturers . story_separator_special_tag this increase was primarily driven by contributions from the cerner health services business . cost of revenues was 17 % of revenues in 2015 compared to 18 % in 2014 . the lower cost of revenues as a percent of revenue was primarily driven by a lower mix of technology resale , which carries a higher cost of revenue . 29 operating expenses were 40 % of revenues in 2015 compared to 39 % in 2014 . the slight increase as a percent of revenues was primarily driven by the addition of the cerner health services business . global segment revenues increased 37 % to $ 521 million in 2015 from $ 381 million in 2014 . this increase was driven by contributions from the cerner health services business . cost of revenues was 19 % of revenues in 2015 compared to 16 % of revenues in 2014 . the higher cost of revenues in 2015 was primarily driven by a higher amount of third party resources utilized for support and services . operating expenses increased 27 % to $ 233 million in 2015 from $ 183 million in 2014 , due primarily to the addition of the cerner health services business . other , net operating results not attributed to an operating segment include expenses , such as software development , general and administrative expenses , acquisition costs and related adjustments , share-based compensation expense , and certain amortization and depreciation . these expenses increased 57 % to $ 1.1 billion in 2015 from $ 689 million in 2014 . this increase is primarily due to the addition of corporate and development personnel from our acquisition of the cerner health services business . additionally , 2015 includes amortization of acquisition-related intangibles associated with our cerner health services business , acquisition costs and related adjustments , and costs related to our voluntary separation plan of $ 79 million , $ 46 million , and $ 46 million , respectively . our 2014 fiscal year includes acquisition costs and related adjustments of $ 16 million . fiscal year 2014 compared to fiscal year 2013 replace_table_token_7_th 30 revenues & backlog revenues increased 17 % to $ 3.4 billion in 2014 , as compared to $ 2.9 billion in 2013 . system sales increased 12 % to $ 946 million in 2014 from $ 848 million in 2013 . the increase in system sales was primarily driven by strong growth in software and subscriptions of $ 65 million and $ 23 million , respectively . support and maintenance revenues increased 9 % to $ 725 million in 2014 compared to $ 662 million in 2013 . this increase was attributable to continued success at selling cerner millennium applications and implementing them at client sites . services revenue increased 23 % to $ 1.6 billion in 2014 from $ 1.3 billion in 2013 . this increase was driven by growth in cernerworks managed services of $ 70 million as a result of continued demand for our hosting services and a $ 241 million increase in professional services due to increased implementation and consulting activities . revenue backlog increased 19 % to $ 10.6 billion in 2014 compared to $ 8.9 billion in 2013 . this increase was driven by growth in new business bookings during the past four quarters , including continued strong levels of managed services , cerner itworks and cerner revenue cycle services bookings that typically have longer contract terms . costs of revenue cost of revenues as a percentage of total revenues was 18 % of total revenues in both 2014 and 2013 . operating expenses total operating expenses increased 12 % to $ 2.0 billion in 2014 , compared with $ 1.8 billion in 2013 . sales and client service expenses as a percent of total revenues were 41 % in 2014 , compared to 40 % in 2013 . these expenses increased 19 % to $ 1.4 billion in 2014 , from $ 1.2 billion in 2013 . the increase as a percent of revenue reflects a higher mix of services during the period that was driven by strong services revenue growth . software development expenses as a percent of revenue were 12 % in 2014 and 2013 . expenditures for software development reflect ongoing development and enhancement of the cerner millennium and healtheintent platforms , with a focus on supporting key initiatives to enhance physician experience , revenue cycle , and population health solutions . a summary of our total software development expense in 2014 and 2013 is as follows : replace_table_token_8_th general and administrative expenses as a percent of total revenues were 7 % in 2014 , compared to 10 % in 2013 . these expenses decreased 21 % to $ 233 million in 2014 from $ 295 million in 2013 . the 2013 amount includes a $ 106 million settlement charge , as further described in note ( 10 ) of our notes to consolidated financial statements . the decrease of $ 62 million was primarily driven by the 2013 settlement charge , offset by $ 16 million of acquisition costs related to the acquisition of siemens health services and a $ 15 million increase in corporate personnel costs , as we increased such personnel to support our overall revenue growth . amortization of acquisition-related intangibles was approximately $ 13 million in both 2014 and 2013 . non-operating items other income was $ 11 million in 2014 and $ 12 million in 2013 . refer to note ( 11 ) of the notes to consolidated financial statements for further detail on the composition of other income . 31 our effective tax rate was 32 % in both 2014 and 2013 . the rates include net favorable permanent differences recognized in both periods . refer to note ( 12 ) of the notes to consolidated financial statements for further information regarding our effective tax rate .
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results overview the company delivered strong levels of bookings , revenues , earnings and operating cash flows in 2015 . new business bookings revenue in 2015 , which reflects the value of executed contracts for software , hardware , professional services and managed services , was $ 5.4 billion , which is an increase of 28 % compared to $ 4.3 billion in 2014 . revenues for 2015 increased 30 % to $ 4.4 billion compared to $ 3.4 billion in 2014 . our fiscal year 2015 revenues include approximately $ 930 million attributable to the acquired cerner health services business . the remaining year-over-year increase in revenue reflects ongoing demand for cerner 's core solutions and services driven by our clients ' needs to keep up with regulatory requirements ; contributions from cerner itworks and revenue cycle solutions and services ; and attaining new clients . our 2015 net earnings were $ 539 million compared to $ 525 million in 2014 . diluted earnings per share were $ 1.54 in 2015 compared to $ 1.50 in 2014 . disclosure of the earnings contribution from the cerner health services business is not practicable , as we have already integrated operations in many areas . the overall increase in net earnings and diluted earnings per share was primarily a result of increased revenues , partially offset by elevated operating expenses , which included costs associated with the acquisition and integration of the cerner health services business , and our voluntary separation plan , as discussed further below . the 2015 and 2014 net earnings and diluted earnings per share reflect the impact of stock-based compensation expense . the effect of these expenses reduced the 2015 net earnings and diluted earnings per share by $ 51 million and $ 0.15 , respectively , and the 2014 net earnings and diluted earnings per share by $ 41 million and $ 0.12 , respectively .
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past-due account balances are written off when the company 's internal collection efforts have been story_separator_special_tag special note regarding forward-looking statements this annual report on form 10-k , including the information incorporated by reference herein , contains forward-looking statements within the meaning of section 27a of the securities act , and section 21e of the exchange act . all statements other than statements of historical facts are statements that could be deemed forward-looking statements . in some cases , you can identify forward-looking statements by terms such as may , will , should , expect , plan , intend , forecast , anticipate , believe , estimate , predict , potential , continue or the negative of these terms or other comparable terminology . the forward-looking statements contained in this form 10-k involve known and unknown risks , uncertainties and situations that may cause our or our industry 's actual results , level of activity , performance or achievements to be materially different from any future results , levels of activity , performance or achievements expressed or implied by these statements . these forward-looking statements are made in reliance upon the safe harbor provision of the private securities litigation reform act of 1995. these factors include those listed in part i , item 1a.risk factors of this form 10-k and those discussed elsewhere in this form 10-k. we encourage investors to review these factors carefully together with the other matters referred to herein , as well as in the other documents we file with the sec . the company may from time to time make additional written and oral forward-looking statements , including statements contained in the company 's filings with the sec . the company does not undertake to update any forward-looking statement that may be made from time to time by or on behalf of the company . although we believe that , based on information currently available to the company and its management , the expectations reflected in the forward-looking statements are reasonable , we can not guarantee future results , levels of activity , performance or achievements . you should not place undue reliance on these forward-looking statements . overview we provide vehicle sellers with a full range of services to process and sell vehicles primarily over the internet through our virtual bidding second generation internet auction-style sales technology , which we refer to as vb 2 . sellers are primarily insurance companies but also include banks and financial institutions , charities , car dealerships , fleet operators and vehicle rental companies . we sell principally to licensed vehicle dismantlers , rebuilders , repair licensees , used vehicle dealers and exporters ; however at certain locations , we sell directly to the general public . the majority of the vehicles sold on behalf of the insurance companies are either damaged vehicles deemed a total loss or not economically repairable by the insurance companies or are recovered stolen vehicles for which an insurance settlement with the vehicle owner has already been made . we offer vehicle sellers a full range of services that expedite each stage of the salvage vehicle sales process and minimize administrative and processing costs . in the united states and canada , or north america , we sell vehicles primarily as an agent and derive revenue primarily from fees paid by vehicle sellers and vehicle buyers as well as related fees for services such as towing and storage . in the united kingdom , or uk , a significant portion of our business is conducted on a principal basis , purchasing salvage vehicles outright from insurance companies and reselling the vehicles for our own account . our revenues consist of sales transaction fees charged to vehicle sellers and vehicle buyers , transportation revenue , purchased vehicle revenues , and other remarketing services . revenues from sellers are generally generated either on a fixed fee contract basis where we collect a fixed amount for selling each vehicle regardless of the selling price of the vehicle or , under our percentage incentive program , or pip program , where our fees are generally based on a predetermined percentage of the vehicle sales price . under the consignment , or fixed fee , program , we generally charge an additional fee for title processing and special preparation . although sometimes included in the consignment fee , we may also charge additional fees for the cost of transporting the vehicle to our facility , storage of the vehicle , and other incidental costs . under the consignment programs , only the fees associated with vehicle processing are recorded in revenue , not the actual 31 sales price ( gross proceeds ) . sales transaction fees also include fees charged to vehicle buyers for purchasing vehicles , storage , loading and annual registration . transportation revenue includes charges to sellers for towing vehicles under certain contracts . transportation revenue also includes towing charges assessed to buyers for delivering vehicles . purchased vehicle revenue includes the gross sales price of the vehicle which we have purchased or are otherwise considered to own and is primarily generated in the uk . operating costs consist primarily of operating personnel ( which includes yard management , clerical and yard employees ) , rent , contract vehicle towing , insurance , fuel , equipment maintenance and repair , and costs of vehicles we sold under purchase contracts . costs associated with general and administrative expenses consist primarily of executive management , accounting , data processing , sales personnel , human resources , professional fees , research and development and marketing expenses . during fiscal 2004 and fiscal 2008 , we converted all of our north american and uk sales , respectively , to an internet-based auction-style model using our vb 2 internet sales technology which employs a two-step bidding process . the first step , called the preliminary bid , allows members to submit bids up to one hour before a real time virtual auction begins . story_separator_special_tag unit volume grew by over one percent resulting in an increase in revenue of $ 7.1 million . the average dollar to pound exchange rate was 1.57 dollars to the pound and 1.59 dollars to the pound for fiscal 2010 and fiscal 2009 , respectively , and led to a reduction in service revenue of $ 0.2 million . vehicle sales . we have assumed certain contracts through our uk acquisitions that require us to act as a principal , purchasing vehicles from the insurance companies and reselling them for our own account . vehicle sales revenues were $ 130.7 million during fiscal 2010 compared to $ 127.7 million for fiscal 2009 , an increase of $ 3.0 million , or 2.4 % , above fiscal 2009. the increase in vehicle sales revenue was due to the rise in the average selling price of vehicles which resulted in increased revenue of $ 30.0 million . the rise in the average selling price per unit was primarily due to : ( i ) the increase in commodity pricing , particularly the per ton price for crushed car bodies , which has an impact on the ultimate selling price of vehicles sold for scrap and vehicles sold for dismantling ; ( ii ) the general increase in used car pricing , which has an impact on the average selling price of vehicles that are either repaired and retailed or purchased by the end user ; and ( iii ) in the uk , the continuing beneficial impact of vb 2 which we introduced to the uk in 2008 and which expands our buyer base by opening vehicle sales to buyers worldwide . we can not determine which vehicles are sold directly to 35 the end user or for scrap , dismantling , retailing , or export and , accordingly , can not quantify the specific impact of commodity pricing and used car pricing , nor can we isolate the impact that vb 2 had on the ultimate selling price of vehicles sold in the uk . the change in volume reflects the migration of certain contracts in the uk from the principal model to the agency model and resulted in a reduction in vehicle sales revenue of $ 25.0 million . the negative impact on recorded vehicle sales revenue due to the change in the gbp to usd exchange rate was $ 2.0 million . yard operation expenses . yard operation expenses were $ 320.2 million during fiscal 2010 compared to $ 324.8 million for fiscal 2009 , a decline of $ 4.6 million , or 1.4 % , below fiscal 2009. the decline was driven primarily by operational efficiencies and by reductions in subhauling costs relative to the first two quarters of fiscal 2009 when the cost of diesel fuel peaked . included in yard operation costs were depreciation and amortization expenses which were $ 34.9 million and $ 32.8 million for the fiscal years ended july 31 , 2010 and 2009 , respectively . cost of vehicle sales . the cost of vehicles sold was $ 104.7 million during fiscal 2010 compared to $ 106.0 million for fiscal 2009 , a decline of $ 1.4 million , or 1.3 % . unit volume decline led to a reduction of $ 18.0 million and was primarily due to the migration of certain contracts in the uk from a principal basis to a fee basis . cost per unit sold was up and represented a $ 17.1 million increase relative to last year . the negative impact on the cost of sales due to the change in the gbp to usd exchange rate was $ 0.5 million . general and administrative expenses . general and administrative expenses were $ 108.9 million for fiscal 2010 compared to $ 86.9 million for fiscal 2009 , an increase of $ 22.0 million , or 25.3 % . the growth in general and administrative costs was due primarily to : ( i ) increased advertising costs as we invested in events and media promotions , including nascar and nhra sponsorships , to generate new member activity ; ( ii ) the additional costs associated with the chairman and chief executive officer 's non-cash compensation package approved by the shareholders in april 2009 and ( iii ) increased headcount . these changes increased general and administrative expenses by $ 8.6 million , $ 6.1 million , and $ 4.8 million , respectively . also included in general and administrative expenses were depreciation and amortization expenses which were $ 8.3 million and $ 9.0 million for the years ended july 31 , 2010 and 2009 , respectively . other income ( expense ) . total other income was $ 0.4 million during fiscal 2010 compared to $ 2.4 million for fiscal 2009 , a decline of $ 2.0 million , or 82.3 % . net interest income declined $ 1.4 million due primarily to reduced interest yields . other income , net , declined $ 0.6 million primarily due a decline in rental income of $ 1.7 million and the loss of $ 0.8 million on the sale of an airplane in fiscal 2010 and was offset by a $ 1.1 million impairment of a note receivable , relating to the disposal of the assets of a discontinued business , and a $ 1.0 million loss on the sale of an airplane in fiscal 2009. income taxes . our effective income tax rates for fiscal 2010 and 2009 were 36.7 % and 38.7 % , respectively . the decrease was driven primarily by the reduction of state income taxes and the favorable tax treatment we received relating to certain interest expenses in the uk . net income . due to the foregoing factors , we realized net income of $ 151.6 million for fiscal 2010 , compared to net income of $ 141.1 million for fiscal 2009. liquidity and capital resources our primary source of working capital is cash generated though operations .
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results of operations fiscal 2011 compared to fiscal 2010 revenues the following table sets forth information on revenue by class ( in thousands , except percentages ) : replace_table_token_7_th service revenues . service revenues were $ 723.6 million during fiscal 2011 compared to $ 642.1 million for fiscal 2010 , an increase of $ 81.5 million , or 12.7 % , above fiscal 2010. growth in unit volume generated $ 63.9 million in additional service revenue relative to last year and was driven primarily by growth in the number of units sold on behalf of franchise and independent car dealerships , new and expanded contracts with insurance companies and the migration from the principal model to the agency model in the uk . growth in the average revenue per car sold generated $ 1.9 million in additional revenue over last year as higher scrap metal and used car pricing led to a general increase in the average selling price and , consequently , higher revenue per car sold , and was offset by growth in the percentage of volume processed from suppliers with below average revenue per car . the average dollar to pound exchange rate was 1.60 dollars to the pound and 1.57 dollars to the pound for fiscal 2011 and fiscal 2010 , respectively , and led to an increase in service revenue of $ 1.3 million . over 50 % of our service revenue is tied in some manner to the ultimate selling price of the vehicle .
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our widely known brands include at-a-glance ® , barrilito ® , derwent ® , esselte ® , five star ® , foroni ® , gbc ® , hilroy ® , kensington ® , leitz ® , marbig ® , mead ® , nobo ® , powera ® , quartet ® , rapid ® , rexel ® , swingline ® , tilibra ® , trusens ® and wilson jones ® . approximately 75 percent of our sales come from brands that occupy the no . 1 or no . 2 position in the product categories in which we compete . our top 12 brands represented $ 1.3 billion of our 2020 net sales . we distribute our products through a wide variety of retail and commercial channels to ensure that our products are readily and conveniently available for purchase by consumers and other end-users , wherever they prefer to shop . these channels include mass retailers , e-tailers , discount , drug/grocery and variety chains ; warehouse clubs ; hardware and specialty stores ; independent office product dealers ; office superstores ; wholesalers ; contract stationers , technology specialty businesses , and our direct-to-consumer channel . our products are sold primarily in the u.s. , europe , brazil , australia , canada , and mexico . for the year ended december 31 , 2020 , approximately 44 percent of our net sales were in the u.s. acco brands is in the midst of a substantive transformation of its business . today we are a global enterprise focused on developing innovative branded consumer and technology products for use in businesses , schools , and homes . sales in the commercial channels have been declining for several years , and customers within the channel have been consolidating . therefore , we have refocused our business to sell more in the mass merchant , e-commerce and technology channels to increase growth and profitability and to reduce reliance on declining customers and commoditized product categories . the commercial channel was also significantly impacted by covid-19 in 2020. as a result of both of these factors , our top five customers represented 34 percent of our sales in 2020 , compared with 4 3 p ercent in 2016. we have been strategically transforming our business to be more consumer- and brand-centric , product differentiated , and geographically diverse . we are successfully achieving this transformation through both organic initiatives and acquisitions . organically , we have grown our kensington ® computer accessories offerings and entered the wellness category with trusens ® branded air purifiers , which we plan to expand over the next few years . acco remains a leading supplier of school products , including our top-selling five star ® line of school notebooks , laminating machines , and stapling and punching products , among others . we have refreshed most of our line of shredders in emea over the past three years , improving consumer designs . this refresh includes a new line of personal shredders to capitalize on the work-from-home environment . shredder sales have remained strong , and we plan to leverage our platforms globally . during 2020 , emea also launched organization and storage products for home offices under the leitz ® wow and leitz ® cosy brands . our approach to acquisitions has been focused on consolidation , geographic expansion , and adjacency opportunities that meet our strategic and financial criteria . strategically , we are focusing on categories or geographies that provide opportunities for growth , leading brands , and channel diversity . we have made five acquisitions over the past five years . these acquisitions have meaningfully expanded our portfolio of well-known brands , enhanced our competitive position from both a product and channel perspective , and added scale to our operations . as a result , our foreign businesses contributed over half of our sales in 2020 , up from 43 percent in 2016. our most recent acquisition of powera in late 2020 is about accelerating growth and entering into an attractive consumer product adjacency of third-party video game controllers , power charging stations , and headsets . the addition of powera will meaningfully improve our organic sales growth and profitability and increase our presence in faster growing mass and e-commerce channels . powera is expected to provide strong double-digit sales growth in the u.s. , as well as opportunities for expansion internationally , particularly in europe . it greatly advances our strategic shift toward consumer , school and technology products as more than half of our sales will now come from these product categories , which offer faster growing 28 demand . on a pro forma basis , including full year powera sales for 2020 , computer and gaming products would represent approximately 22 percent of our sales . our leading product category positions provide the scale to invest in marketing and product innovation to drive profitable growth . we now expect to grow in mature markets in consumer , technology , and adjacent categories driven by new product development . we will also continue to grow in emerging markets once the impact of covid-19 subsides in latin america and parts of asia , the middle east , and eastern europe . in all of our markets , we see opportunities for sales growth through share gains , channel and geographic expansion , and product enhancements . we generate strong operating cash flow , and will continue to leverage our cost structure through acquisitions , synergies and productivity savings to drive long-term profit and operating cash flow improvement . story_separator_special_tag assistance was accounted for on a cash-received basis . as the pandemic appears to be abating in some regions , these government assistance programs are being reduced or eliminated and there can be no assurance that government assistance programs will continue or that we will continue to meet the performance criteria to obtain benefits . story_separator_special_tag the company 's three operating segments are as follows : operating segment geography primary brands primary products acco brands north america united states and canada five star ® , quartet ® , at-a-glance ® , gbc ® , swingline ® , kensington ® , mead ® , hilroy ® and powera ® computer and gaming accessories , school products , planners , storage and organization ( 3-ring binders ) , dry erase boards , laminating , binding , stapling and punching products . acco brands emea europe , middle east and africa leitz ® , rapid ® , esselte ® , kensington ® , rexel ® gbc ® , nobo ® , derwent ® and powera ® storage and organization products ( lever-arch binders , sheet protectors , indexes ) , computer and gaming accessories , stapling , punching , laminating , shredding , do-it-yourself tools , dry erase boards and writing instruments acco brands international australia/n.z. , latin america and asia-pacific tilibra ® , gbc ® , barrilito ® , foroni ® , marbig ® , kensington ® , artline ® * , wilson jones ® , powera ® , quartet ® , spirax ® and rexel ® * australia/n.z . only school notebooks , storage and organization products ( binders , sheet protectors and indexes ) , laminating , shredding , writing and arts products , janitorial supplies , dry erase boards and stapling and punching products 32 each business segment designs , markets , sources , manufactures , and sells recognized consumer , technology and other end-user demanded branded products used in businesses , schools , and homes . product designs are tailored to end-user preferences in each geographic region , and where possible , leverage common engineering , design , and sourcing . our product categories include computer and gaming accessories ; storage and organization ; notebooks ; laminating , shredding , and binding machines ; calendars ; stapling ; punching ; dry erase boards ; and do-it-yourself tools , among others . our portfolio includes both globally and regionally recognized brands . we distribute our products through a wide variety of retail and commercial channels to ensure that our products are readily and conveniently available for purchase by consumers and other end-users , wherever they prefer to shop . these channels include mass retailers , e-tailers , discount , drug/grocery and variety chains , warehouse clubs , hardware and specialty stores , independent office product dealers , office superstores , wholesalers , contract stationers , and specialist technology businesses . we also sell directly to commercial and consumer end-users through e-commerce sites and our direct sales organization . foreign exchange rates approximately 56 percent of our net sales for the year ended december 31 , 2020 , were transacted in a currency other than the u.s. dollar . additionally , we source approximately 60 percent of our products mainly from china , vietnam and other far eastern countries using u.s. dollars . as a result , the sales , profitability and cash flow of our foreign operations which transact business in their local currency are affected by the fluctuation in foreign currency rates relative to the u.s. dollar . foreign exchange rates for the currencies in most of our major markets have fluctuated during the year relative to the u.s. dollar from prior-year periods . most currencies declined in the first half of 2020 , but several of our important markets local currencies strengthened versus the u.s. dollar during the second half . the weighted average impact on sales and net income were both adverse despite there being a small benefit to operating income . changes to average exchange rates for principal currencies are detailed below : replace_table_token_6_th 33 consolidated results of operations for the years ended december 31 , 2020 and 2019 replace_table_token_7_th ( 1 ) the company acquired powera effective december 17 , 2020 ; the results of powera are included as of that date . ( 2 ) the company acquired foroni effective august 1 , 2019 ; the results of foroni are included as of that date . net sales for the year ended december 31 , 2020 , net sales decreased primarily due to lower demand resulting from covid-19 impacts in all three segments , primarily from office and school closures and a general economic slowdown . adverse foreign exchange contributed $ 16.6 million , or 0.8 percent , to the decline . net sales benefited from the powera and foroni acquisitions , which collectively added $ 24.6 million . cost of products sold cost of products sold includes all manufacturing , product sourcing and distribution costs , including depreciation related to assets used in the manufacturing , procurement , and distribution processes ; allocation of certain information technology costs supporting those processes ; inbound and outbound freight ; shipping and handling costs ; purchasing costs associated with materials and packaging used in the production processes , and inventory valuation adjustments . for the year ended december 31 , 2020 , the powera and foroni acquisitions added $ 21.8 million , or 1.6 percent . foreign exchange reduced cost of products sold $ 13.8 million , or 1.0 percent . excluding both acquisitions and foreign exchange , cost of products sold decreased , primarily due to lower comparable sales , which were partly offset by higher costs . the higher costs resulted from inflation and inefficiencies related to lower volume , both of which were partially offset by expense reductions and $ 3.4 million in government assistance , primarily provided in return for maintaining employment and wages . gross profit for the year ended december 31 , 2020 , foreign exchange reduced gross profit $ 2.8 million , or 0.4 percent , and the acquisitions contribute d $ 2.8 million , or 0.4 percent . excluding the acquisitions and foreign exchange , gross profit decreased primarily due to lower comparable sales and inefficiencies related to lower volume . 34 for the year ended december 31 , 2020 , gross profit as a percent of net sales decreased 270 basis points .
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overview of 2020 performance as used in this annual report on form 10-k , `` covid-19 impacts '' include the operational , financial , and other effects on acco brands , our customers and end users of our products , of school and business closures , work from home , remote and hybrid learning , government orders and manufacturing , distribution , supply chain and other disruptions resulting from covid-19 , and the actions acco brands , our customers and end users have taken in response to the pandemic , including actions we have taken to manage our inventory and credit risk under the circumstances . the covid-19 impacts on our business have varied and continue to vary significantly by geographic region and country depending upon a range of factors , including how seriously the pandemic is affecting public health in the country and whether and to what degree businesses and schools are open , the general seasonality of our business in that country , the nature and level of government support , and the channel structure . during 2020 , all segments were impacted by covid-19 , but emea experienced lower impacts and our international segment experienced , and continues to experience , the highest impacts , largely in latin america due to the seriousness of the pandemic and the dependence of our brazilian and mexican businesses on the sale of school products . many schools and offices in latin america have been closed since the onset of the pandemic and access to online learning is limited . in north america , following good sell-in of back-to-school products in the second quarter , our third quarter sales were adversely affected by weaker sell-out . our net sales declined $ 300.5 million , or 15.4 percent in 2020 primarily from covid-19 impacts . those impacts vary based upon the channel .
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factors that could cause or contribute to any differences include , but are not limited to , those discussed under the caption “ forward-looking information ” and under item 1a — “ risk factors. ” business overview 1-800-flowers.com , inc. and its subsidiaries ( collectively , the “ company ” ) is a leading provider of gifts designed to help customers express , connect and celebrate . for more than 40 years , 1-800-flowers.com® has been delivering smiles to customers with gifts for every occasion , including fresh flowers and the best selection of plants , gift baskets , gourmet foods , confections , jewelry , candles , balloons and plush stuffed animals . as always , our 100 % smile guarantee® backs every gift . the company 's celebrations ecosystem includes the following brands : 1-800-flowers.com® , 1-800-baskets.com® , cheryl 's cookies® , fruitbouquets.com® , harry & david® , moose munch® , the popcorn factory® , wolferman's® , personalization universe® , simply chocolate® , goodsey® , designpac® , stock yards® , and shari 's berries® . in august 2020 , the company added to its family of brands with the acquisition of personalizationmall® . through the celebrations passport® loyalty program , which provides members with free standard shipping and no service charge across our portfolio of brands , 1-800-flowers.com , inc. strives to deepen its relationships with its customers . the company also operates bloomnet® , an international floral service provider providing a broad-range of products and services designed to help professional florists grow their businesses profitably ; as well as napco sm , a resource for floral gifts and seasonal décor . business segments the company operates in the following three business segments : consumer floral , gourmet foods & gift baskets , and bloomnet . the consumer floral segment includes the operations of the company 's flagship brand , 1-800-flowers.com , fruitbouquets.com , flowerama , personalization universe and goodsey , while the gourmet foods & gift baskets segment includes the operations of harry & david ( which includes wolferman 's , moose munch and stock yards ) , cheryl 's ( which includes mrs. beasley 's ) , the popcorn factory , designpac and 1-800-baskets ( which includes simply chocolate ) and shari 's berries . the bloomnet segment includes the operations of bloomnet and napco . see item 1 in part i for a detailed description of the company 's business . fiscal 2020 results the company entered fiscal 2020 with strong revenue growth momentum , coming off of fiscal 2019 , which saw consolidated revenue increase 8.4 % in comparison to fiscal 2018 , driven by the successful implementation of several strategic growth initiatives designed to support the company 's flagship 1-800-flowers and harry & david brands . the company built upon this momentum , generating revenue growth of 8.3 % during the first nine months of fiscal 2020 , accompanied by growth in its customer files , reflecting the strength of its family of brands , its focus on technological innovation and product development , and most importantly , providing an exemplary customer experience . the company was able to leverage its business platform as this growth rate accelerated with the onset of the covid-19 pandemic , during which time we saw customers increasingly turn to our brands and product offerings to help them remain connected and express themselves during this difficult time . as a result , consolidated annual revenue grew 19.3 % , to approximately $ 1.5 billion during fiscal 2020 , while net income increased 69.7 % , to $ 59.0 million . adjusted ebitda , which excludes the impact of stock-based compensation , non-qualified plan investment appreciation/depreciation , the costs of closing our harry & david retail stores , and personalizationmall litigation and transaction costs , increased 57.8 % , to $ 129.5 million . covid-19 impact in response to the global pandemic , the company has taken actions to ensure employee safety and business continuity , informed by the guidelines set forth by local , state and federal government and health officials . these initiatives include developing a “ pandemic preparedness and response plan , ” establishing an internal “ nerve center ” to allow for communication and coordination throughout the business , designing workstream teams to promote workforce protection and supply chain management , and dedicating resources to support customers , vendors , franchisees , and our bloomnet member florists . the covid-19 pandemic has affected , and will continue to affect , our operations and financial results for the foreseeable future . while there is significant uncertainty in the overall consumer environment due to the covid-19 crisis , we are seeing strong e-commerce demand for gourmet foods and gift baskets and our floral products for holidays and every-day gifting occasions , as well as for self-consumption . entering the company 's fiscal fourth quarter , immediately following the onset of the pandemic , we saw significantly increased demand during the easter holiday period , through mother 's day , and then continuing with “ everyday ” volume through the end of the fiscal year . as we look past the end of fiscal 2020 , demand trends remain strong through the first quarter of fiscal 2021. with that said , there are headwinds ( and resulting increased costs ) that have been , and will continue to impact our operations during the foreseeable future , including the following : ● retail store closures – on march 20 , 2020 , in response to government actions , and for the safety of its employees , the company temporarily closed its cheryl 's and harry & david retail stores . affected employees were provided with company paid special covid leave pay through april 3rd , as the nation and the company worked to understand the extent and potential length of the crisis . on april 14th , the difficult decision was made to permanently close 38 of our 39 harry & david retail stores . story_separator_special_tag ebitda and adjusted ebitda we define ebitda as net income ( loss ) before interest , taxes , depreciation and amortization . adjusted ebitda is defined as ebitda adjusted for the impact of stock-based compensation , non-qualified plan investment appreciation/depreciation , and certain items affecting period to period comparability . see segment information for details on how ebitda and adjusted ebitda were calculated for each period presented . the company presents ebitda and adjusted ebitda because it considers such information meaningful supplemental measures of its performance and believes such information is frequently used by the investment community in the evaluation of similarly situated companies . the company uses ebitda and adjusted ebitda as factors used to determine the total amount of incentive compensation available to be awarded to executive officers and other employees . the company 's credit agreement uses ebitda and adjusted ebitda to measure compliance with covenants such as interest coverage and debt incurrence . ebitda and adjusted ebitda are also used by the company to evaluate and price potential acquisition candidates . ebitda and adjusted ebitda have limitations as analytical tools and should not be considered in isolation or as a substitute for analysis of the company 's results as reported under gaap . some of the limitations are : ( a ) ebitda and adjusted ebitda do not reflect changes in , or cash requirements for , the company 's working capital needs ; ( b ) ebitda and adjusted ebitda do not reflect the significant interest expense , or the cash requirements necessary to service interest or principal payments , on the company 's debts ; and ( c ) although depreciation and amortization are non-cash charges , the assets being depreciated and amortized may have to be replaced in the future and ebitda does not reflect any cash requirements for such capital expenditures . ebitda should only be used on a supplemental basis combined with gaap results when evaluating the company 's performance . 20 segment contribution margin and adjusted segment contribution margin we define segment contribution margin as earnings before interest , taxes , depreciation and amortization , before the allocation of corporate overhead expenses . adjusted segment contribution margin is defined as contribution margin adjusted for certain items affecting period-to-period comparability . see segment information for details on how segment contribution margin was calculated for each period presented . when viewed together with our gaap results , we believe segment contribution margin and adjusted segment contribution margin provide management and users of the financial statements meaningful information about the performance of our business segments . segment contribution margin and adjusted segment contribution margin are used in addition to and in conjunction with results presented in accordance with gaap and should not be relied upon to the exclusion of gaap financial measures . the material limitation associated with the use of the segment contribution margin and adjusted segment contribution margin is that they are an incomplete measure of profitability as they do not include all operating expenses or non-operating income and expenses . management compensates for these limitations when using this measure by looking at other gaap measures , such as operating income and net income . adjusted net income and adjusted net income per common share we define adjusted net income and adjusted net income per common share as net income and net income per common share adjusted for certain items affecting period to period comparability . see segment information below for details on how adjusted net income and adjusted net income per common share were calculated for each period presented . we believe that adjusted net income and adjusted net income per common share are meaningful measures because they increase the comparability of period to period results . since these are not measures of performance calculated in accordance with gaap , they should not be considered in isolation of , or as a substitute for , gaap net income and net income per common share , as indicators of operating performance and they may not be comparable to similarly titled measures employed by other companies . segment information the following table presents the net revenues , gross profit and segment contribution margin from each of the company 's business segments , as well as consolidated ebitda , adjusted ebitda and adjusted net income , for fiscal years ended june 28 , 2020 and june 30 , 2019. for segment information for the fiscal year ended july 1 , 2018 , please refer to our annual report on form 10-k for the fiscal year ended july 1 , 2018 , filed on september 14 , 2018. replace_table_token_4_th 21 reconciliation of net income to adjusted net income ( non-gaap ) : years ended june 28 , 2020 june 30 , 2019 ( in thousands , except per share data ) net income $ 58,998 $ 34,766 adjustments to reconcile net income to adjusted net income ( non-gaap ) add : personalizationmall litigation and transaction costs 2,706 - add : harry & david store closure costs 5,177 - deduct : income tax ( benefit ) on adjustments ( 1,908 ) - adjusted net income ( non-gaap ) $ 64,973 $ 34,766 basic and diluted net income per common share basic $ 0.92 $ 0.54 diluted $ 0.89 $ 0.52 basic and diluted adjusted net income per common share ( non-gaap ) basic $ 1.01 $ 0.54 diluted $ 0.98 $ 0.52 weighted average shares used in the calculation of net income and adjusted net income per common share basic 64,463 64,342 diluted 66,408 66,457 22 reconciliation of net income to adjusted ebitda ( non-gaap ) : replace_table_token_5_th ( a ) segment performance is measured based on segment contribution margin or segment adjusted ebitda , reflecting only the direct controllable revenue and operating expenses of the segments , both of which are non-gaap measurements . as such , management 's measure of profitability for these segments does not include the effect of corporate overhead , described above , depreciation and amortization , other income ( net ) , and other items that we do not consider indicative of our core operating performance .
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results of operations the company 's fiscal year is a 52- or 53-week period ending on the sunday nearest to june 30. fiscal years 2020 , 2019 and 2018 , which ended on june 28 , 2020 , june 30 , 2019 , and july 1 , 2018 , respectively , consisted of 52 weeks . net revenues replace_table_token_6_th net revenues consist primarily of the selling price of the merchandise , service or outbound shipping charges , less discounts , returns and credits . during the year ended june 28 , 2020 , net revenues increased 19.3 % in comparison to the prior year , reflecting strong execution of the company 's strategy to engage with its customers and build deeper relationships and thereby drive sustainable , long-term growth . the annual growth rate reflects “ pre-covid-19 ” growth of approximately 8.3 % through the first three quarters of fiscal 2020 , and “ post-covid-19 ” growth of 61.0 % during the fourth quarter of fiscal 2020. the company experienced growth across its three business segments , reflecting the strategic marketing and merchandising investments across the company 's brands , the continuing positive trends in everyday gifting occasions , increased self-consumption within the gourmet foods & gift baskets segment , as well as incremental revenues from shari 's berries , which was acquired on august 14 , 2019. excluding the incremental revenue contributed by shari 's berries , which was acquired on august 14 , 2019 , consolidated net revenues grew 16.3 % in fiscal 2020 compared to the prior year . during fiscal 2019 , net revenues increased 8.4 % in comparison to the prior year , due to strong customer demand for both holiday and everyday gifting occasions in our gourmet foods & gift baskets and consumer floral segments , as well as membership , transaction and services growth in the bloomnet segment .
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the gain on disposal was based on refinery selling prices , plus the sales of all associated inventories at fair value , which was significantly above the last-in , first-out carrying value of the inventories sold . the net story_separator_special_tag overview murphy oil corporation is a worldwide oil and gas exploration and production company with petroleum marketing operations in the united states and refining and marketing operations in the united kingdom . a more detailed description of the company 's significant assets can be found in item 1 of this form 10-k report . murphy generates revenue by selling oil and natural gas production to customers in the united states , canada , malaysia and other countries . additionally , the company generates revenue by selling refined petroleum and ethanol products at hundreds of locations in the united states and the united kingdom . the company 's revenue is highly affected by the prices of oil , natural gas and refined petroleum products that it sells . also , because crude oil is purchased by the company for u.k. refinery feedstocks , natural gas is purchased for fuel at its u.k. refinery , u.s. ethanol plants and at worldwide oil production facilities , and gasoline is purchased to supply its retail gasoline stations in the u.s. that are primarily located at walmart supercenters , the purchase prices for these commodities also have a significant effect on the company 's costs . in order to make a profit and generate cash in its exploration and production business , revenue generated from the sales of oil and natural gas produced must exceed the combined costs of producing these products , amortization of capital expenditures and expenses related to exploration and administration . profits and generation of cash in the company 's refining and marketing operations are dependent upon achieving adequate margins , which are determined by the sales prices for refined petroleum products less the costs of purchased refinery feedstocks and gasoline and expenses associated with manufacturing , transporting and marketing these products . murphy also incurs certain costs for general company administration and for capital borrowed from lending institutions and note holders . changes in the price of crude oil and natural gas have a significant impact on the profitability of the company , especially the price of crude oil as oil represented approximately 58 % of the total hydrocarbons produced on an energy equivalent basis ( one barrel of crude oil equals six thousand cubic feet of natural gas ) by the company in 2012. in 2013 , the company 's ratio of hydrocarbon production represented by oil is expected to be approximately two-thirds oil , one-third gas , due to a combination of growing oil production and declining north american natural gas production . if the prices for crude oil and natural gas should weaken in 2013 or beyond , the company would expect this to have an unfavorable impact on operating profits for its exploration and production business . such lower oil and gas prices could , but may not , have a favorable impact on the company 's refining and marketing operating profits . worldwide oil prices in 2012 were generally comparable to 2011 , while the sale prices for natural gas produced in north america was significantly weaker than the prior year . the sales price for a barrel of west texas intermediate ( wti ) crude oil averaged $ 94.15 in 2012 , $ 95.11 in 2011 and $ 79.61 in 2010. the nymex natural gas price per million british thermal units ( mmbtu ) averaged $ 2.83 in 2012 , $ 4.03 in 2011 and $ 4.38 in 2010. while the price of wti fell slightly in 2012 , certain other benchmark oil prices , such as dated brent , experienced small increases during the year . natural gas prices fell in 2012 primarily due to continued expansion in north american gas supply and secondly due to a warmer than normal winter season in 2012 in the u.s. and canada . gas supplies grew primarily due to a number of expanding north american unconventional gas resource plays . worldwide oil prices were significantly higher in 2011 than 2010 , but north american natural gas prices were weaker in 2011 than in the prior year . crude oil prices rose in 2011 primarily due to a combination of recovering demand and unrest in the oil-rich middle east and northern africa . while the 2011 prices of wti crude oil rose almost 20 % compared to the prior year , crude oil sold based on other worldwide benchmark prices , such as brent and tapis , rose even more than wti in that year . the 2011 rise in prices of wti crude oil , which is only used as a benchmark in north america , was held back compared to other worldwide benchmark price increases due to a somewhat temporary crude oil dislocation discount and a bit of supply/demand disparity in the continental u.s. during 2011. the disparity between crude oil and natural gas prices in north america continued to widen during both 2012 and 2011 on an energy equivalent basis due to gas production growth that exceeded demand . u.s. crude oil prices in early 2013 have been similar to 2012 average prices , while natural gas prices in north america in 2013 have thus far been slightly above the 2012 levels due to cold temperatures across much of the northern u.s. during the early winter season . 27 story_separator_special_tag attributable to an impairment charge of $ 368.6 million in 2011 to reduce the carrying value of the azurite oil field offshore republic of the congo . this was mostly offset by higher oil prices and stronger u.s. retail marketing margins in the later year . story_separator_special_tag the effective tax rate on a consolidated basis increased from 43.5 % in 2010 to 51.1 % in 2011 due to a larger percentage of earnings in higher tax jurisdictions in 2011 and due to higher exploration , impairment and other expenses in foreign jurisdictions where no income tax benefits were recognized due to no assurance that 30 these expenses would be realized in 2011 or future years to reduce taxes owed . the tax rates in both 2011 and 2010 were higher than the u.s. federal statutory rate of 35.0 % due to a combination of u.s. state income taxes , certain foreign tax rates that exceeded the u.s. federal tax rate , and certain exploration and other expenses in foreign taxing jurisdictions for which no income tax benefit is currently being recognized because of the company 's uncertain ability to obtain tax benefits for these expenses in 2011 or future years . income from discontinued operations was $ 94.2 million higher in 2011 than 2010 due to stronger u.s. refining margins in 2011 prior to the sale of the refineries near the end of the third quarter of 2011. additionally , 2011 discontinued operations included a pretax gain on sale of the two u.s. refineries of $ 18.7 million . segment results in the following table , the company 's results of operations for the three years ended december 31 , 2012 , are presented by segment . more detailed reviews of operating results for the company 's exploration and production and refining and marketing activities follow the table . replace_table_token_14_th exploration and production earnings from exploration and production ( e & p ) continuing operations were $ 905.0 million in 2012 , $ 614.2 million in 2011 and $ 776.4 million in 2010. income for e & p continuing operations in 2012 was $ 290.8 million more than in 2011. the increase was primarily attributable to lower impairment charges of $ 168.6 million in republic of the congo in 2012 , favorable tax benefits of $ 108.3 million in the current year for exploration activities in republic of the congo and suriname , plus higher crude oil and natural gas sales volumes and stronger crude oil sales prices in the current year . the company 's average realized sales price for crude oil , condensate and gas liquids in 2012 for continuing operations increased $ 1.40 per barrel over 2011. the company 's average natural gas sales prices in sarawak malaysia were also higher in 2012 than 2011 , but natural gas sales prices in 2012 in north america were significantly below 2011 levels . crude oil and liquids sales volumes increased 12 % in 2012 while natural gas sales volumes rose 7 % . the increase in hydrocarbon sales volumes in 2012 led to higher expenses for production and depreciation of $ 104.5 million and $ 288.4 million , respectively . the 2012 year had less exploration expenses of $ 108.5 million compared to 2011 , essentially due to lower expenses related to unsuccessful exploratory drilling and geophysical activities . crude oil sales volumes increased in 2012 in the u.s. primarily due to higher volumes produced in the eagle ford shale area of south texas . conventional oil sales volumes in canada in 2012 were less than 2011 primarily due to lower gross production at the terra nova field , where more downtime for maintenance occurred in the current year . synthetic oil sales volumes at syncrude increased in 2012 due to higher gross production compared to 2011. sales volumes for crude oil produced in malaysia were higher in 31 2012 primarily due to new wells brought on production at the kikeh field offshore sabah . crude oil sales volumes decreased in 2012 in republic of the congo due to field decline and a well failure at the azurite field . natural gas sales volumes in 2012 increased compared to the prior year principally due to more wells producing for a longer period in the tupper area in western canada and higher gas volumes produced in the eagle ford shale . e & p income in 2011 was $ 162.2 million less than in 2010 primarily due to a $ 368.6 million impairment charge to reduce the carrying value of the azurite oil field to fair value at year-end 2011. the 2011 period also had higher exploration expense , lower crude oil sales volumes and lower north american natural gas sales prices . however , 2011 benefited from higher oil and sarawak natural gas sales prices and higher natural gas sales volumes . the company 's realized crude oil sales prices for continuing operations averaged $ 27.43 per barrel more in 2011 than 2010. north american natural gas sales prices in 2011 were $ 0.26 per mcf below 2010 levels , but natural gas sales prices from fields offshore sarawak were higher in 2011 by $ 1.79 per mcf . crude oil , condensate and gas liquids sales volumes from continuing operations were 21 % lower in 2011 than in 2010 , compared to a decrease in oil production volumes of 19 % in 2011. oil sales volumes declined more than oil production volumes during 2011 primarily due to the timing of scheduling oil sales transactions at the kikeh field offshore malaysia . sales volumes at kikeh were below production levels in 2011 due to an increase in the volume of unsold barrels at the field at year-end 2011 , while in 2010 , kikeh sales volumes exceeded production . u.s. crude oil sales volumes were lower in 2011 than 2010 principally due to less production at the thunder hawk field in the gulf of mexico . lower crude oil sales volumes in canada in 2011 were mostly attributable to production issues and a lower company working interest percentage in 2011 at the terra nova field , but this was partially offset by higher sales volumes at the seal heavy oil field in alberta .
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results of operations murphy oil 's results of operations , with associated diluted earnings per share ( eps ) , for the last three years are presented in the following table . replace_table_token_13_th murphy oil 's net income in 2012 increased 11 % compared to 2011 primarily due to higher earnings for continuing exploration and production ( e & p ) operations , partially offset by lower earnings for continuing refining and marketing operations ( r & m ) , lower income from discontinued operations , and higher net costs of corporate activities that were not allocated to operating segments . net income in 2011 was 9 % higher than 2010 , with the improvement primarily attributable to better earnings for r & m continuing operations , higher income from discontinued operations , which was essentially attributable to strong u.s. refining results prior to sale of these assets , and lower net costs for corporate activities . lower e & p earnings for continuing operations in 2011 , primarily associated with a large impairment charge in republic of the congo , somewhat offset these favorable results in other areas . further explanations of each of these variances are found in more detail in the following sections . 2012 vs. 2011 net income in 2012 was $ 970.9 million ( $ 4.99 per diluted share ) compared to $ 872.7 million ( $ 4.49 per diluted share ) in 2011. income from continuing operations was $ 964.1 million ( $ 4.95 per diluted share ) in 2012 , up from $ 729.5 million ( $ 3.75 per diluted share ) in 2011. earnings for 2012 increased primarily due to a combination of lower impairment charges , income tax benefits , higher crude oil sales volumes , lower exploration expenses and higher u.k. r & m earnings . these were partially offset by lower north american natural gas sales prices , lower u.s. retail marketing margins , and unfavorable effects of foreign exchange compared to the prior year .
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our actual results could differ materially from those discussed in this form 10-k. in evaluating these statements , you should review part i , item 1a : risk factors and our consolidated financial statements and notes thereto included in part ii , item 8 : financial statements and supplementary data of this form 10-k. overview plug power inc. , or the company , is a leading provider of alternative energy technology focused on the design , development , commercialization and manufacture of fuel cell systems for the industrial off-road ( forklift or material handling ) market . we are focused on proton exchange membrane , or pem , fuel cell and fuel processing technologies and fuel cell/battery hybrid technologies , from which multiple products are available . a fuel cell is an electrochemical device that combines hydrogen and oxygen to produce electricity and heat without combustion . hydrogen is derived from hydrocarbon fuels such as liquid petroleum gas , or lpg , natural gas , propane , methanol , ethanol , gasoline or biofuels . hydrogen can also be obtained from the electrolysis of water . hydrogen can be purchased directly from industrial gas providers or can be produced on-site at consumer locations . 26 we concentrate our efforts on developing , manufacturing and selling our hydrogen-fueled pem gendrive ® products on commercial terms for industrial off-road ( forklift or material handling ) applications , with a focus on multi-shift high volume manufacturing and high throughput distribution sites . recent developments public offerings on january 15 , 2014 , the company completed an underwritten public offering of 10,000,000 shares of common stock and accompanying warrants to purchase 4,000,000 shares of common stock . the shares and the warrants were sold together in a fixed combination , with each combination consisting of one share of common stock and 0.40 of a warrant to purchase one share of common stock , at a price of $ 3.00 per fixed combination for gross proceeds of $ 30.0 million . the securities were placed with a single institutional investor . the warrants will have an exercise price of $ 4.00 per share , are immediately exercisable and will expire on january 15 , 2019. net proceeds , after underwriting discounts and commissions and other estimated fees and expenses payable by plug power were approximately $ 28.0 million . on march 11 , 2014 , the company completed an underwritten public offering of 3,902,440 shares of its common stock . the shares were sold at $ 5.74 per share for gross proceeds of approximately $ 22.4 million . the shares were placed with a single institutional investor . net proceeds , after underwriting discounts and commissions and other estimated fees and expenses payable by plug power were approximately $ 21.5 million . appointment of directors and chief operating officer on october 23 , 2013 , the company 's board of directors appointed gregory l. kenausis and xavier pontone to serve as directors of the company effective october 23 , 2013. mr. kenausis was appointed to serve as a class ii director with a term expiring at the annual meeting of stockholders to be held in 2016. mr. pontone was appointed to serve as a class ii director with a term expiring at the annual meeting of stockholders to be held in 2016. on october 23 , 2013 , the company appointed keith c. schmid as the chief operating officer of the company , effective october 23 , 2013. story_separator_special_tag font > cost of service revenue for the year ended december 31 , 2013 increased $ 2.6 million , or 21.3 % , to $ 14.9 million from $ 12.3 million for the year ended december 31 , 2012. the increase in the cost of service revenue was primarily related to a higher number of gencare service contracts in 2013 ( including service personnel to maintain these contracts ) which was offset by additional expenses for unanticipated warranty claims arising from gendrive component quality issues that were recorded during the year ended december 31 , 2012. cost of service revenue for the year ended december 31 , 2012 increased $ 4.3 million , or 53.0 % , to $ 12.3 million from $ 8.0 million for the year ended december 31 , 2011. the increase in the cost of service revenue was primarily related to additional expenses for unanticipated warranty claims arising from gendrive component quality issues that were recorded during the year ended december 31 , 2012 , coupled with a higher number of gencare service contracts in 2012 ( including service personnel to maintain these contracts ) . cost of research and development contract revenue . cost of research and development contract revenue includes costs associated with research and development contracts including : cash and non-cash compensation and benefits for engineering and related support staff , fees paid to outside suppliers for subcontracted components and services , fees paid to consultants for services provided , materials and supplies used and other directly allocable general overhead costs allocated to specific research and development contracts . 28 cost of research and development contract revenue for the year ended december 31 , 2013 decreased $ 0.3 million , or 10.7 % to $ 2.5 million from $ 2.8 million for the year ended december 31 , 2012. the decrease is primarily related to a reduced effort on three funded projects that are complete or near completion , partially offset by the start of a new project . cost of research and development contract revenue for the year ended december 31 , 2012 decreased $ 3.4 million , or 55.0 % to $ 2.8 million from $ 6.2 million for the year ended december 31 , 2011. this decrease is due to fewer active contracts during 2012. research and development expense . story_separator_special_tag interest and other expense for the year ended december 31 , 2013 was approximately $ 398,000 , compared to approximately $ 262,000 for the year ended december 31 , 2012. this increase is primarily related to interest expense on obligations under capital lease , which began in the fourth quarter of 2012 , and interest expense related to our finance obligation , which began in the first quarter of 2013 , offset by a decline in interest and other expenses related to our svb loan and security agreement , which expired on march 29 , 2013. interest and other expense for the year ended december 31 , 2012 was approximately $ 262,000 , compared to approximately $ 22,000 for the year ended december 31 , 2011. interest and other expense related to the svb loan and security agreement was approximately $ 256,000 and $ 12,000 , respectively , for the year ended december 31 , 2012 and december 31 , 2011. gain on sale of equity interest in joint venture . gain on sale of equity interest in joint venture represents the gain on sale of 25 % of our ownership interest in our joint venture , hypulsion . on february 29 , 2012 , we completed the formation of our joint venture with axane , s.a. , a subsidiary of air liquide , under the name hypulsion ( the jv ) . we contributed to the jv the right to use our technology , including design and technology know-how on gendrive systems , in exchange for an initial 45 % ownership of the jv . on april 19 , 2013 , axane purchased an additional 25 % ownership interest in hypulsion from the company for a cash purchase price of $ 3.3 million ( euro 2.5 million ) . we now own 20 % and axane owns 80 % of hypulsion . income taxes . the deferred tax asset generated from our net operating loss has been offset by a full valuation allowance because it is more likely than not that the tax benefits of the net operating loss carry forward will not be realized . the company also recognizes accrued interest and penalties related to unrecognized tax benefits as a component of income tax expense . income tax benefit for the year ended december 31 , 2013 was approximately $ 410,000 due to a reduction in accrued interest and penalties as a result of the expiration of the associated statute of limitations . 30 liquidity and capital resources our cash requirements relate primarily to working capital needed to operate and grow our business , including funding operating expenses , growth in inventory to support both shipments of new units and servicing the installed base , funding the growth in our genkey “ turn-key ” solution which also includes the installation of our customer 's hydrogen infrastructure as well as delivery of the hydrogen molecule , and continued development and expansion of our products . our ability to achieve profitability and meet future liquidity needs and capital requirements will depend upon numerous factors , including the timing and quantity of product orders and shipments ; the timing and amount of our operating expenses ; the timing and costs of working capital needs ; the timing and costs of building a sales base ; the timing and costs of developing marketing and distribution channels ; the timing and costs of product service requirements ; the timing and costs of hiring and training product staff ; the extent to which our products gain market acceptance ; the timing and costs of product development and introductions ; the extent of our ongoing and any new research and development programs ; and changes in our strategy or our planned activities . if we are unable to fund our operations without additional external financing and therefore can not sustain future operations , we may be required to delay , reduce and or cease our operations and or seek bankruptcy protection . we have experienced and continue to experience negative cash flows from operations and net losses . the company incurred net losses attributable to common shareholders of $ 62.7 million , $ 31.9 million and $ 27.5 million for the years ended december 31 , 2013 , 2012 and 2011 , respectively , and has an accumulated deficit of $ 849.4 million at december 31 , 2013. substantially all of our accumulated deficit been incurred in connection with our operating expenses , research and development expenses and from general and administrative costs associated with our operations . we expect that for fiscal year 2014 , our operating cash burn will be approximately $ 10- $ 15 million . net cash used in operating activities for the year ended december 31 , 2013 was $ 26.9 million . additionally , on december 31 , 2013 , we had cash and cash equivalents of $ 5.0 million and net working capital of $ 11.1 million . this compares to $ 9.4 million and $ 6.9 million , respectively , at december 31 , 2012. on january 15 , 2014 we completed an underwritten public offering of 10,000,000 shares of common stock and accompanying warrants to purchase 4,000,000 shares of common stock . the shares and the warrants were sold together in a fixed combination , with each combination consisting of one share of common stock and 0.40 of a warrant to purchase one share of common stock , at a price of $ 3.00 per fixed combination for gross proceeds of $ 30.0 million . the securities were placed with a single institutional investor . the warrants have an exercise price of $ 4.00 per share , are immediately exercisable and will expire on january 15 , 2019. net proceeds , after underwriting discounts and commissions and other estimated fees and expenses were approximately $ 28.0 million . on march 11 , 2014 , we completed an underwritten public offering of 3,902,440 shares of common stock . the shares were sold at $ 5.74 per share for gross proceeds of approximately $ 22.4 million .
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results of operations product revenue . product revenue generally includes revenue from the sale of our gendrive units . product revenue for the year ended december 31 , 2013 decreased $ 2.4 million or 11.3 % , to $ 18.4 million from $ 20.8 million for the year ended december 31 , 2012. this decrease is primarily related to fewer shipments during2013 . in the product revenue category , there were 918 fuel cell systems shipped for the year ended december 31 , 2013 as compared to 1,136 fuel cell systems shipped for the year ended december 31 , 2012. product revenue for the year ended december 31 , 2012 increased $ 1.2 million or 6.1 % , to $ 20.8 million from $ 19.6 million for the year ended december 31 , 2011. this increase is primarily related to an increase in shipments in calendar year 2012. in the product revenue category , there were 1,136 fuel cell systems shipped for the year ended december 31 , 2012 as compared to 984 fuel cell systems shipped for the year ended december 31 , 2011. service revenue : service revenue generally includes revenue from our service and maintenance contracts , hydrogen contracts , spare parts , and leased units . service revenue for the year ended december 31 , 2013 increased $ 3.1 million or 84.2 % , to $ 6.7 million from $ 3.6 million for the year ended december 31 , 2012. the increase is primarily related to new gencare service contracts placed by existing customers during 2013 . 27 service revenue for the year ended december 31 , 2012 decreased $ 16,000 or 0.4 % , to $ 3.6 million from $ 3.6 million for the year ended december 31 , 2011. the decrease is primarily related to a decline in spare part sales , partly offset by new service contracts placed by existing customers during 2012. research and development contract revenue .
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these statements are only predictions . actual events or results may differ materially . although we believe that the expectations reflected in the forward-looking statements are reasonable based on our current expectations and projections , we can not guarantee future results , levels of activity , performance or achievements . moreover , neither we , nor any other person , assume responsibility for the accuracy and completeness of the forward-looking statements . we are under no obligation to update any of the forward-looking statements after the filing of this annual report to conform such statements to actual results or to changes in our expectations . the following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes and other financial information appearing elsewhere in this annual report . readers are also urged to carefully review and consider the various disclosures made by us which attempt to advise interested parties of the factors which affect our business , including without limitation the disclosures made in item 1a of part i of this annual report under the caption “ risk factors. ” risk factors that could cause actual results to differ from those contained in the forward-looking statements include but are not limited to : our history of losses ; our lack of products that have received regulatory approval ; uncertainties inherent in clinical trials and product development programs , including but not limited to the fact that pre-clinical and clinical results may not be indicative of results achievable in other trials or for other indications , that the studies or trials may not be successful or achieve desired results , that preclinical studies and clinical trials may not commence , have sufficient enrollment or be completed in the time periods anticipated , that results from one study may not necessarily be reflected or supported by the results of other similar studies , that results from an animal study may not be indicative of results achievable in human studies , that clinical testing is expensive and can take many years to complete , that the outcome of any clinical trial is uncertain and failure can occur at any time during the clinical trial process , and that our electroporation technology and dna vaccines may fail to show the desired safety and efficacy traits in clinical trials ; the availability of funding ; the ability to manufacture vaccine candidates ; the availability or potential availability of alternative therapies or treatments for the conditions targeted by us or our collaborators , including alternatives that may be more efficacious or cost-effective than any therapy or treatment that we and our collaborators hope to develop ; our ability to receive development , regulatory and commercialization event-based payments under our collaborative agreements ; whether our proprietary rights are enforceable or defensible or infringe or allegedly infringe on rights of others or can withstand claims of invalidity ; and the impact of government healthcare laws and proposals . overview we are a biotechnology company focused on rapidly bringing to market precisely designed dna medicines to treat , cure , and protect people from diseases associated with human papillomavirus ( hpv ) , cancer , and infectious diseases . our dna medicine pipeline is comprised of three types of product candidates , dna vaccines , dna immunotherapies and dna encoded monoclonal antibodies ( dmabs ) . in clinical trials , we have demonstrated that a dna medicine can be delivered directly into cells in the body via our proprietary smart device to consistently activate robust and fully functional t cell and antibody responses against targeted cancers and pathogens . our novel dna medicine candidates are made using our proprietary syncon ® technology that creates optimized plasmids , which are circular strands of dna that can produce antigens independently inside a cell to help the person 's immune system recognize and destroy cancerous or virally infected cells . our hand-held cellectra ® smart delivery devices provide optimized uptake of our dna medicines within the cell , overcoming a key limitation of other dna-based technology approaches . human data to date have shown a favorable safety profile of our dna medicines delivered directly into cells in the body using the cellectra ® smart device in more than 6,000 administrations across more than 2,000 patients . our corporate strategy is to advance , protect , and provide our novel dna medicines to meet urgent and emerging global health needs . we continue to advance and validate an array of dna medicine candidates that target hpv-related diseases , cancer , and infectious diseases . we aim to advance these candidates through commercialization and continue to leverage third-party resources through collaborations and partnerships , including product license agreements . our partners and collaborators include apollobio corp. , astrazeneca , beijing advaccine , the bill & melinda gates foundation , coalition for epidemic preparedness innovations ( cepi ) , defense advanced research projects agency ( darpa ) , 67 geneone life science , hiv vaccines trial network , the u.s. defense threat reduction agency 's medical cbrn defense consortium ( mcdc ) , national cancer institute , national institutes of health , national institute of allergy and infectious diseases , plumbline life sciences , regeneron pharmaceuticals , roche/genentech , the university of pennsylvania , the walter reed army institute of research , and the wistar institute . we or our collaborators are currently conducting or planning clinical studies of our dna medicines for hpv-associated precancers , including cervical , vulvar , and anal dysplasia ; hpv-associated cancers , including head & neck , cervical , anal , penile , vulvar , and vaginal ; other hpv-associated disorders , such as recurrent respiratory papillomatosis , or rrp ; glioblastoma multiforme , or gbm ; prostate cancer ; hiv ; ebola ; middle east respiratory syndrome , or mers ; lassa fever ; zika virus ; and the covid-19 virus ( coronavirus ) . all of our product candidates are in the research and development phase . story_separator_special_tag product supply services arrangements that include a promise for future supply of drug product for either clinical development or commercial supply at the licensee 's discretion are generally considered as options . we assess if these options provide a material right to the licensee and if so , they are accounted for as separate performance obligations . we evaluate whether we are the principal or agent in the arrangement . we have determined that we are the principal in current arrangements as we control the product supply before it is transferred to the customer . milestone payments at the inception of each arrangement that includes milestone payments ( variable consideration ) , we evaluate whether the milestones are considered probable of being reached and estimate the amount to be included in the transaction price using the most likely amount method . if it is probable that a significant revenue reversal would not occur , the associated milestone value is included in the transaction price . milestone payments that are not within our or our collaboration partner 's control , such as regulatory approvals , are generally not considered probable of being achieved until those approvals are received . the transaction price is then allocated to each performance obligation on a relative stand-alone selling price basis , for which we recognize revenue as or when the performance obligations under the contract are satisfied . at the end of each subsequent reporting period , we re-evaluate the probability of achieving such milestones and any related constraint , and if necessary , adjust our estimate of the overall transaction price . any such adjustments are recorded on a cumulative catch-up basis , which would affect license , collaboration or other revenues and earnings in the period of adjustment . royalties for arrangements that include sales-based royalties , including milestone payments based on the level of sales , and for which the license is deemed to be the predominant item to which the royalties relate , we recognize revenue at the later of ( i ) when the related sales occur , or ( ii ) when the performance obligation to which some or all of the royalty has been allocated has been satisfied ( or partially satisfied ) . to date , we have not recognized any royalty revenue resulting from any of our collaborative arrangements . grants we have determined that as of january 1 , 2018 , accounting for our various grant agreements falls under the contributions guidance under subtopic 958-605 , not-for-profit entities-revenue recognition , which is outside the scope of topic 606 , as the government agencies granting us funds are not receiving reciprocal value for their contributions . beginning on january 1 , 2018 , all contributions received from current grant agreements are recorded as a contra-expense as opposed to revenue on the consolidated statement of operations . leases we adopted asu 2016‑02 , leases ( topic 842 ) , or `` topic 842 '' , on january 1 , 2019. for our long-term operating leases , we recognized an operating lease right-of-use asset and an operating lease liability on our consolidated balance sheets . the lease liability is determined as the present value of future lease payments using an estimated rate of interest that we would pay to borrow equivalent funds on a collateralized basis at the lease commencement date . the right-of-use asset is based on the liability adjusted for any prepaid or deferred rent . we determined the lease term at the commencement date by considering whether renewal options and termination options are reasonably assured of exercise . fixed rent expense for our operating leases is recognized on a straight-line basis over the term of the lease and is included in operating expenses on the consolidated statements of operations . variable lease payments including lease operating expenses are recorded as incurred . 69 prior period amounts continue to be reported in accordance with the historic accounting under the previous lease guidance . derivative liabilities we evaluate our debt and equity issuances to determine if those contracts or embedded components of those contracts qualify as derivatives requiring separate recognition in our financial statements . the result of this accounting treatment is that the fair value of the embedded derivative is revalued at each balance sheet date and recorded as a liability , and the change in fair value during the reporting period is recorded in other income ( expense ) in the consolidated statements of operations . in circumstances where the embedded conversion option in a convertible instrument is required to be bifurcated and there are also other embedded derivative instruments in the convertible instrument that are required to be bifurcated , the bifurcated derivative instruments are accounted for as a single , compound derivative instrument . the classification of derivative instruments , including whether such instruments should be recorded as liabilities or as equity , is reassessed at the end of each reporting period . derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument is expected within twelve months of the balance sheet date . research and development expenses our activities have largely consisted of research and development efforts related to developing electroporation delivery technologies and dna immunotherapies and vaccines . research and development expenses consist of expenses incurred in performing research and development activities including salaries and benefits , facilities and other overhead expenses , clinical trials , contract services and other outside expenses . research and development expenses are charged to operations as they are incurred . these expenses result from our independent research and development efforts as well as efforts associated with collaborations and licensing arrangements . we review and accrue clinical trial expense based on work performed , relying on estimates of total costs incurred based on patient enrollment , completion of studies and other events . we follow this method since reasonably dependable estimates of the costs applicable to various stages of a research agreement or clinical trial can be made .
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results of operations the consolidated financial data for the years ended december 31 , 2019 , 2018 and 2017 is presented in the following table and the results of these periods are used in the discussion thereafter . 70 replace_table_token_3_th ( 1 ) beginning on january 1 , 2018 , all contributions received from current grant agreements are recorded as a contra-expense as opposed to revenue on the consolidated statement of operations comparison of years ended december 31 , 2019 and 2018 revenue revenue primarily consisted of revenues under collaborative research and development arrangements , including arrangements with affiliated entities for the years ended december 31 , 2019 and 2018. our year over year total revenue decreased $ 26.4 million , or 87 % . the decrease was primarily due to the recognition of a one-time upfront payment of $ 23.0 million from apollobio during the second quarter of 2018. research and development expenses the $ 7.2 million decrease in research and development expenses for the year ended december 31 , 2019 as compared to 2018 was primarily due to a decrease in expenses related to our collaboration with astrazeneca of $ 2.9 million , a decrease in employee compensation expense of $ 2.6 million due to lower employee headcount and an increase in contra-research and development expense recorded from grant agreements of $ 2.4 million , as well as no sub-license fee expense in 2019 as compared to $ 1.9 million recorded in 2018 related to the apollobio collaboration . these decreases were offset by an increase in clinical trial related expenses of $ 3.5 million and the one-time personnel-related restructuring charge of approximately $ 1.9 million in connection with the employee termination costs incurred during the third quarter of 2019 , among other variances . 71 contributions received from current grant agreements and recorded as contra-research and development expense were $ 11.9 million and $ 9.5
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we have also audited , in accordance with the standards of the public company accounting oversight board ( united states ) , the consolidated balance sheets of the company as of december 31 , 2012 and 2011 , and the related consolidated statements of income , changes in stockholders ' equity , and cash flows for each of the three years in the period ended december 31 , 2012 , and our report dated march 11 , 2013 , expressed an unqualified opinion on those financial statements . grant thornton llp dallas , texas march 11 , 2013 - 45 - item 9b . other information . there was no information required to be disclosed in a report on form 8-k during the three months ended december 31 , 2012 that was not reported . part iii item 10. directors , executive officers and corporate governance . certain information required by part iii is omitted from this form 10-k and is incorporated herein by reference to our definitive proxy statement for our 2013 annual meeting of stockholders which we intend to file pursuant to regulation 14a under the securities exchange act of 1934 , as amended , within 120 days after december story_separator_special_tag overview we develop and manufacture products primarily for medical applications . we market components to other equipment manufacturers for incorporation in their products and sell finished devices to physicians , hospitals , clinics and other treatment centers . our medical products primarily serve the fluid delivery , cardiovascular , and ophthalmology markets . our other medical and non-medical products include valves and inflation devices used in marine and aviation safety products . in 2012 , approximately 42 percent of our sales were outside the united states . our products are used in a wide variety of applications by numerous customers . we encounter competition in all of our markets and compete primarily on the basis of product quality , price , engineering , customer service and delivery time . our strategy is to provide a broad selection of products in the areas of our expertise . research and development efforts are focused on improving current products and developing highly-engineered products that meet customer needs and serve niche markets with meaningful sales potential . proposed new products may be subject to regulatory clearance or approval prior to commercialization and the time period for introducing a new product to the marketplace can be unpredictable . we also focus on controlling costs by investing in modern manufacturing technologies and controlling purchasing processes . we have been successful in consistently generating cash from operations and have used that cash to reduce or eliminate indebtedness , to fund capital expenditures , to make investment purchases , to repurchase stock and to pay dividends . - 18 - our strategic objective is to further enhance our position in our served markets by : · focusing on customer needs ; · expanding existing product lines and developing new products ; · maintaining a culture of controlling cost ; and · preserving and fostering a collaborative , entrepreneurial management structure . for the year ended december 31 , 2012 , we reported revenues of $ 119.1 million , operating income of $ 33.6 million and net income of $ 23.6 million . story_separator_special_tag selected by us , plus one percent . from time to time prior to october 1 , 2016 and assuming an event of default is not then existing , we can convert outstanding advances under the revolving line of credit to term loans with a term of up to two years . we had no outstanding borrowings under our credit facility at december 31 , 2012 or 2011. the credit facility contains various restrictive covenants , none of which is expected to impact our liquidity or capital resources . at december 31 , 2012 , we were in compliance with all financial covenants . we believe the bank providing the credit facility is highly-rated and that the entire $ 40.0 million under the credit facility is currently available to us . if that bank were unable to provide such funds , we believe such inability would not impact our ability to fund operations . at december 31 , 2012 , we had a total of $ 44.6 million in cash and cash equivalents , short-term investments and long-term investments , a decrease of $ 10.6 million from december 31 , 2011. the principal contributor to this decrease was the payment of dividends and payments for acquisitions of property , plant and equipment , which was partially offset by the cash generated by operating activities . - 20 - cash flows provided by operations of $ 29.4 million in 2012 were primarily comprised of net income plus the net effect of non-cash expenses less net changes in working capital items . accounts receivable , accounts payable and accrued liabilities were the primary contributors to the negative net change in working capital items . the change in accounts receivable was primarily related to increased sales in the fourth quarter of 2012 as compared with the fourth quarter of 2011. the change in accounts payable and accrued liabilities was primarily related to reduced accrued compensation . at december 31 , 2012 , we had working capital of $ 49.5 million , including $ 8.0 million in cash and cash equivalents and $ 8.2 million in short-term investments . the $ 24.2 million decrease in working capital during 2012 was primarily related to decreases in cash and cash equivalents and short-term investments partially offset by decreases in accounts payable and accrued liabilities . the net decrease in cash and short-term investments was primarily related to payment of a special cash dividend in 2012. working capital items consisted primarily of cash , accounts receivable , short-term investments , inventories and other current assets minus accounts payable and other current liabilities . story_separator_special_tag capital expenditures for property , plant and equipment totaled $ 10.3 million in 2012 , compared with $ 12.0 million in 2011 and $ 4.3 million in 2010. these expenditures were primarily for machinery and equipment . we expect 2013 capital expenditures , primarily machinery and equipment , to approximate the average of the levels expended during each of the past three years . we paid cash dividends totaling $ 24.5 million , $ 3.7 million and $ 21.3 million during 2012 , 2011 and 2010 , respectively . in november 2012 , our board of directors declared a special cash dividend of $ 10.00 per share on our outstanding common stock . this dividend which totaled $ 20.2 million was paid on december 10 , 2012. in 2010 , we paid two special cash dividends totaling $ 9.00 per share on our outstanding common stock amounting to $ 18.1 million . we expect to fund future dividend payments with cash flows from operations . we purchased treasury stock totaling $ 5.3 million , $ 1.5 million and $ 1.4 million during 2012 , 2011 and 2010 , respectively . the table below summarizes debt , lease and other contractual obligations outstanding at december 31 , 2012 : replace_table_token_5_th in the current credit and financial markets , many companies are finding it difficult to gain access to capital resources . in spite of the current economic conditions , we believe our cash , cash equivalents , short-term investments and long-term investments , cash flows from operations and available borrowings of up to $ 40.0 million under our credit facility will be sufficient to fund our cash requirements for at least the foreseeable future . we believe our strong financial position would allow us to access equity or debt financing should that be necessary . additionally , we expect our cash and cash equivalents and investments , as a whole , will continue to increase in 2013. off-balance sheet arrangements we have no off-balance sheet financing arrangements . - 21 - impact of inflation we experience the effects of inflation primarily in the prices we pay for labor , materials and services . over the last three years , we have experienced the effects of moderate inflation in these costs . at times , we have been able to offset a portion of these increased costs by increasing the sales prices of our products . however , competitive pressures have not allowed for full recovery of these cost increases . new accounting pronouncements from time to time , new accounting standards updates applicable to us are issued by the fasb , which we will adopt as of the specified effective date . unless otherwise discussed , we believe the impact of recently issued standards updates that are not yet effective will not have a material impact on our consolidated financial statements upon adoption . critical accounting policies 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 accounting principles generally accepted in the united states . in the preparation of these financial statements , we make estimates and assumptions that affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosures of contingent assets and liabilities . we believe the following discussion addresses our most critical accounting policies and estimates , which are those that are most important to the portrayal of our financial condition and results and require management 's most difficult , subjective and complex judgments , often as a result of the need to make estimates about the effect of matters that are inherently uncertain . actual results could differ significantly from those estimates under different assumptions and conditions . from time to time , we accrue legal costs associated with certain litigation . in making determinations of likely outcomes of litigation matters , we consider the evaluation of legal counsel knowledgeable about each matter , case law and other case-specific issues . we believe these accruals are adequate to cover the legal fees and expenses associated with litigating these matters . however , the time and cost required to litigate these matters as well as the outcomes of the proceedings may vary from what we have projected . we maintain an allowance for doubtful accounts to reflect estimated losses resulting from the failure of customers to make required payments . on an ongoing basis , the collectability of accounts receivable is assessed based upon historical collection trends , current economic factors and the assessment of the collectability of specific accounts . we evaluate the collectability of specific accounts and determine when to grant credit to our customers using a combination of factors , including the age of the outstanding balances , evaluation of customers ' current and past financial condition , recent payment history , current economic environment , and discussions with our personnel and with the customers directly . accounts are written off when it is determined the receivable will not be collected . if circumstances change , our estimates of the collectability of amounts could be changed by a material amount . we are required to estimate our provision for income taxes and uncertain tax positions in each of the jurisdictions in which we operate . this process involves estimating our actual current tax exposure , including assessing the risks associated with tax audits , together with assessing temporary differences resulting from the different treatment of items for tax and accounting purposes . these differences result in deferred tax assets and liabilities , which are included within the balance sheet . we assess the likelihood that our deferred tax assets will be recovered from future taxable income and , to the extent we believe that recovery is more likely than not , do not establish a valuation allowance . in the event that actual results differ from these estimates , the provision for
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results of operations our net income was $ 23.6 million , or $ 11.72 per basic and $ 11.66 per diluted share , in 2012 , compared to net income of $ 26.0 million , or $ 12.90 per basic and $ 12.82 per diluted share , in 2011 and net income of $ 21.0 million , or $ 10.38 per basic and $ 10.32 per diluted share , in 2010. revenues were $ 119.1 million in 2012 , compared with $ 117.7 million in 2011 and $ 108.6 million in 2010. the 1 percent revenue increase in 2012 over 2011 and 8 percent revenue increase in 2011 over 2010 were generally attributable to higher sales volumes . increases in revenues in 2012 in our fluid delivery and cardiovascular product lines were largely offset by reduced sales to a large customer with which we have a long-term contract that had accumulated too large of an inventory of one of our products in 2011. annual revenues by product lines were as follows ( in thousands ) : replace_table_token_4_th our cost of goods sold was $ 62.9 million in 2012 and $ 57.7 million in each of 2011 and 2010. product mix , higher depreciation expense and lower manufacturing efficiencies in one product line partially offset by the impact of continued cost improvement initiatives were the primary contributors to the 9 percent increase in cost of goods sold for 2012 over 2011. gross profit in 2012 was $ 56.1 million compared with $ 60.0 million in 2011 and $ 50.9 million in 2010. our gross profit was 47 percent of revenues in 2012 , 51 percent of revenues in 2011 and 47 percent of revenues in 2010. the decrease in gross profit percentage in 2012 was primarily related to a product mix that was less favorable than 2011 's product mix .
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overview we are a designer , developer and global supplier of a broad portfolio of power semiconductors . our portfolio of power semiconductors includes over 1,400 products , and has grown significantly with the introduction of over 150 new products during the fiscal year 2014 , and over 195 and 240 new products in the fiscal years 2013 and 2012 , respectively . our teams of scientists and engineers have developed extensive intellectual properties and technical knowledge that encompass major aspects of power semiconductors , which we believe 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 approximately 420 patents and 213 patent applications in the united states as of june 30 , 2014 . 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 . during the fiscal year ended june 30 , 2014 , we continued our diversification program by developing new silicon and packaging platforms to expand our serviceable available market , or sam and offer higher performance products . our metal-oxide-semiconductor field-effect transistors , or mosfet , portfolio expanded significantly across a full range of voltage applications . for example , for the power discrete products , in the september quarter of 2013 , we released seven new products in our 600v alphalgbt portfolio with high efficiency insulated gate bipolar transistor ( igbt ) solutions ranging from 20a to 60a in the to247 package . these new products are suitable for a wide variety of applications including household appliances , commercial hvac systems , photovoltaic inverters , and industrial equipment . in addition , in the june quarter of 2014 , we released new 1350v igbt optimized for induction heating applications . the device prevents avalanche destruction from voltage transients . in the december quarter of 2013 , we also introduced a new lower voltage dual mosfet family in the common-drain configuration in both dfn 5x6 and micro-dfn 3.2x2 packages . these devices are suitable for battery pack applications to enhance battery pack performance in the latest generation ultrabooks and tablets , where low conduction loss is essential for optimizing battery life . for the power ic products , we continue to expand the product family by introducing new solutions to led lighting and led back lighting for lcd-tv . in the september quarter of 2013 , we introduced a new generation of high efficiency drmos power modules . the new device enables higher power density voltage regulator solutions which is ideal for servers , work stations , graphic cards and high-end desktop pc applications . in addition , in the same quarter , we launched a third-generation high efficiency power module with an ezpair package . this new device enables high power density voltage regulator solutions which is ideal for notebook pcs , servers , and graphic cards applications . moreover , in the june quarter of 2014 , we released dual-channel ezpower smart load switch that delivers up to 6a per channel of continuous current . these devices offer industry leading performance and allow the ideal load switch for a variety of applications . 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 . factors affecting our performance our performance is affected by several key factors , including the following : the global , regional economic and pc market conditions : because our products primarily serve consumer electronic applications , a deterioration of the global and regional economic conditions could materially affect our revenue and results of operations . in particular , because a significant amount of our revenue is derived from sales of products in the personal computer , or pc markets , such as notebooks , motherboards and notebook battery packs , a significant decline or downturn in the pc markets can have a material adverse effect on our revenue and results of operations . any decline in the pc markets would 39 have a material negative impact on the demand for our products , revenue , factory utilization , gross margin , our ability to resell excess inventory , and other performance measures . we have been executing and are continuing to execute strategies to diversify our product portfolio and penetrate into other market segments , such as the consumer , communication and industrial market segments , which we believe would mitigate and eventually overcome the reduced demand resulting from the declining pc markets . as we develop and sell new products that serve more diversified markets , we expect that sales based on the pc markets , as a percentage of the total revenue , will continue to decline . our revenue from the pc markets accounted for approximately 45.2 % , 50.0 % and 54.4 % of our total revenue for the years ended june 30 , 2014 , 2013 and 2012 , respectively . story_separator_special_tag as the volume of sales increases , we expect cost of goods sold to increase . we implemented a process to improve our factory capacity utilization rates by transferring more wafer production to our oregon fab and reducing our reliance on outside foundries . while our utilization rates can not be immune to the market conditions , our goal is to make them less vulnerable to market fluctuations . we believe our market diversification strategy and product growth will drive higher volume of manufacturing which will improve our factory utilization rates and gross margin in the long run . operating expenses our operating expenses consist of research and development , selling , general and administrative expenses and impairment of long-lived assets . we expect that our total operating expenses will generally increase over time due to our belief that our business will continue to grow . however , our operating expenses as a percentage of revenue may fluctuate from period to period . research and development expenses . our research and development expenses consist primarily of salaries , bonuses , benefits , share-based compensation expense , expenses associated with new product prototypes , travel expenses , fees for engineering services provided by outside contractors and consultants , amortization of software and design tools , depreciation of equipment and overhead costs for research and development personnel . as we continue to invest significant resources in developing new technologies and products , we expect our research and development expenses to increase . selling , general and administrative expenses . our selling , general and administrative expenses consist primarily of salaries , bonuses , benefits , share-based compensation expense , product promotion costs , occupancy costs , travel expenses , expenses related to sales and marketing activities , amortization of software , depreciation of equipment , maintenance costs and other expenses for general and administrative functions as well as costs for outside professional services , including legal , audit and accounting services . we expect our selling , general and administrative expenses to increase as we expand our business . impairment of long-lived assets : long-lived assets or asset groups are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset might not be recoverable . the recoverability of an asset or asset group is assessed by determining if the carrying value of the asset or asset group exceeds the sum of the projected undiscounted cash flows expected to result from the use and eventual disposition of the assets over the remaining economic life . the impairment loss is measured based on the difference between the carrying amount and estimated fair value . income tax expense we are subject to income taxes in various jurisdictions . significant judgment and estimates are required in determining our worldwide income tax expense . the calculation of tax liabilities involves dealing with uncertainties in the application of complex tax regulations of different jurisdictions globally . we establish accruals for potential liabilities and contingencies based on a more likely than not threshold to the recognition and de-recognition of uncertain tax positions . if the recognition threshold is met , the applicable accounting guidance permits us to recognize a tax benefit measured at the largest amount of tax benefit that is more than likely to be realized upon settlement . if the actual tax outcome of such exposures is different from the amounts that were initially recorded , the differences will impact the income tax and deferred tax provisions in the period in which such determination is made . changes in the location of taxable income ( loss ) could result in significant changes in our income tax expense . 41 we record a valuation allowance against deferred tax assets if it is more likely than not that a portion of the deferred tax assets will not be realized , based on historical profitability and our estimate of future taxable income in a particular jurisdiction . our judgments regarding future taxable income may change due to changes in market conditions , changes in tax laws , tax planning strategies or other factors . if our assumptions and consequently our estimates change in the future , the deferred tax assets may increase or decrease , resulting in corresponding changes in income tax expense . our effective tax rate is highly dependent upon the geographic distribution of our worldwide profits or losses , the tax laws and regulations in each geographical region where we have operations , the availability of tax credits and carry-forwards and the effectiveness of our tax planning strategies . story_separator_special_tag 2013 . the decrease in gross margin was primarily due to reduced average selling price mainly as a result of lower demand in the declining pc market during the current year , despite the $ 7.7 million non-recurring inventory write-down in fiscal year 2013 , partially offset by the positive impact of improved factory utilization and continued factory cost reduction efforts during the current year . we expect our gross margin to continue to fluctuate in the future as a result of variations in our product mix , factory utilization , semiconductor wafer and raw material pricing , manufacturing labor cost and general economic and pc market conditions . fiscal 2013 vs 2012 cost of goods sold was $ 272.9 million for fiscal year 2013 , an increase of $ 13.7 million , or 5.3 % , as compared to $ 259.1 million for fiscal year 2012 , primarily as a result of a $ 7.7 million non-recurring inventory write-down and increased unit shipments . the non-recurring inventory write-down was for certain excess and obsolete inventory consisting of newly developed products for desktop pc applications primarily for a major oem that were not compatible with its particular applications , and to a lesser extent , products for power supplies .
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operating results the following tables set forth our results of operations and as a percentage of revenue for the fiscal years ended june 30 , 2014 , 2013 and 2012 . our historical results of operations are not necessarily indicative of the results for any future period . replace_table_token_3_th ( 1 ) includes share-based compensation expense allocated as follows : replace_table_token_4_th revenue the following is a summary of revenue by product type : 42 replace_table_token_5_th fiscal 2014 vs 2013 total revenue was $ 318.1 million for fiscal year 2014 , a decrease of $ 19.3 million , or 5.7 % , as compared to $ 337.4 million for fiscal year 2013 . the decrease consisted of $ 19.1 million and $ 1.4 million decrease in sales of power discrete products and packaging and testing services , respectively , partially offset by an increase in sales of power ic products of $ 1.2 million . the net decrease in product revenue , including power discrete and power ic products was mainly a result of a 7.0 % decrease in average selling price primarily due to selling price erosion in the computing and consumer markets as compared to fiscal year 2013 , partially offset by a 1.2 % increase in unit shipments and to a lesser extent , a shift in product mix as a result of reduced demand for our products related to pc applications . the decrease in revenue of packaging and testing services as compared to last year was primarily due to reduced demand as a result of the declining pc market . in response to the declining pc market , we have been executing and are continuing to execute strategies to diversify our product portfolio and penetrate into other market segments , which we believe would mitigate and eventually overcome the reduced demand resulting from the declining pc market .
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the information in this section has been derived from the consolidated financial statements and footnotes thereto that appear in item 8 of this form 10-k. the information contained in this section should be read in conjunction with these consolidated financial statements and footnotes and the business and financial information provided in this form 10-k. overview fs bancorp , inc. and its subsidiary bank , 1st security bank of washington have been serving the puget sound area since 1936. originally chartered as a credit union , previously known as washington 's credit union , the credit union served various select employment groups . on april 1 , 2004 , the credit union converted to a washington state-chartered mutual savings bank . on july 9 , 2012 , the bank converted from mutual to stock ownership and became the wholly owned subsidiary of fs bancorp , inc. the company is relationship-driven delivering banking and financial services to local families , local and regional businesses and industry niches within distinct puget sound area communities , and one loan production office located in the tri-cities , washington during the fourth quarter of 2014. on january 22 , 2016 , the company completed the previously announced branch purchase from bank of america , n.a and acquired $ 186.4 million in deposits and $ 419,000 in loans based on financial information at that date . the four branches are located in the communities of port angeles , sequim , port townsend , and hadlock , washington . the branch purchase expanded our puget sound-focused retail footprint onto the olympic peninsula and provided an opportunity to extend our unique brand of community banking into those communities . the company also maintains its long-standing indirect consumer lending platform which operates throughout the west coast . the company emphasizes long-term relationships with families and businesses within the communities served , working with them to meet their financial needs . the company is actively involved in community activities and events within these market areas , which further strengthens our relationships within those markets . the company focuses on diversifying revenues , expanding lending channels , and growing the banking franchise . management remains focused on building diversified revenue streams based upon credit , interest rate , and concentration risks . our business plan remains as follows : ▪ growing and diversifying our loan portfolio ; ▪ maintaining strong asset quality ; ▪ emphasizing lower cost core deposits to reduce the costs of funding our loan growth ; ▪ capturing our customers ' full relationship by offering a wide range of products and services by leveraging our well-established involvement in our communities and by selectively emphasizing products and services designed to meet our customers ' banking needs ; and ▪ expanding the company 's markets . the company is a diversified lender with a focus on the origination of indirect home improvement loans , also referred to as fixture secured loans , commercial real estate mortgage loans , home loans , commercial business loans and second mortgage/home equity loan products . consumer loans , in particular indirect home improvement loans to finance window replacement , gutter replacement , siding replacement , solar panels , and other improvement renovations , represent the largest portion of the loan portfolio and have traditionally been the mainstay of our lending strategy . at december 31 , 2016 , consumer loans represented 28.9 % of the company 's total gross loan portfolio , down from 31.0 % at december 31 , 2015 , as real estate loan originations have increased at a faster pace than consumer loan originations during the year ended december 31 , 2016. indirect home improvement lending is dependent on the bank 's relationships with home improvement contractors and dealers . the company funded $ 71.2 million , or 5,000 loans during the year ended december 31 , 2016 , using its indirect home improvement contractor/dealer network located throughout washington , oregon , idaho , and california with four contractor/dealers responsible for 50.5 % of the funded loans dollar volume . the company began originating consumer indirect loans in the state of california in 2012 with $ 2.5 million in these loans originated during 2012. in 2016 , the company originated $ 20.5 million in the state of california and held $ 36.5 million in california originated consumer loans at december 31 , 2016. management has established a concentration limit of no more than 56 100 % of the bank 's total risk-based capital . at december 31 , 2016 , the limit was $ 93.3 million . see item 1a , “ risk factors - our business could suffer if we are unsuccessful in making , continuing and growing relationships with home improvement contractors and dealers ” of this form 10-k. since 2012 , the company has had an emphasis on diversifying lending products by expanding commercial real estate , commercial business and residential lending , while maintaining the current size of the consumer loan portfolio . the company 's lending strategies are intended to take advantage of : ( 1 ) historical strength in indirect consumer lending , ( 2 ) recent market consolidation that has created new lending opportunities and the availability of experienced bankers , and ( 3 ) strength in relationship lending . retail deposits will continue to serve as an important funding source . see item 1 , “ business : lending activities ” and item 1a , “ risk factors - risks related to our business ” in this form 10-k. the company generally underwrites the one-to-four-family loans based on the applicant 's ability to repay . this includes employment and credit history and the appraised value of the subject property . the company lends up to 100 % of the lesser of the appraised value or purchase price for one-to-four-family first mortgage loans . for first mortgage loans with a loan-to-value ratio in excess of 80 % , the company generally requires either private mortgage insurance or government sponsored insurance in order to mitigate the higher risk level associated with higher loan-to-value loans . story_separator_special_tag impairment is determined by stratifying rights into tranches based on predominant characteristics , such as interest rate , loan type , and investor type . impairment is recognized through a valuation allowance for an individual tranche , to the extent that fair value is less than the capitalized amount for the tranches . if the company later determines that all or a portion of the impairment no longer exists for a particular tranche , a reduction of the allowance may be recorded as a recovery and an increase to income . capitalized servicing rights are stated separately on the consolidated balance sheets and are amortized into noninterest income in proportion to , and over the period of , the estimated future net servicing income of the underlying financial assets . derivative and hedging activity . asc 815 , “ derivatives and hedging , ” requires that derivatives of the company be recorded in the consolidated financial statements at fair value . management considers its accounting policy for derivatives to be a critical accounting policy because these instruments have certain interest rate risk characteristics that change in value based upon changes in the capital markets . the company 's derivatives are primarily the result of its mortgage banking activities in the form of commitments to extend credit , commitments to sell loans , to-be-announced ( “ tba ” ) mortgage backed securities trades and option contracts to mitigate the risk of the commitments to extend credit . estimates of the percentage of commitments to extend credit on loans to be held for sale that may not fund are based upon historical data and current market trends . the fair value adjustments of the derivatives are recorded in the consolidated statements of income with offsets to other assets or other liabilities in the consolidated balance sheets . income taxes . income taxes are reflected in the company 's consolidated financial statements to show the tax effects of the operations and transactions reported in the consolidated financial statements and consist of taxes currently payable plus deferred taxes . accounting standards codification , asc 740 , “ accounting for income taxes , ” requires the asset and liability approach for financial accounting and reporting for deferred income taxes . deferred tax assets and liabilities result from differences between the financial statement carrying amounts and the tax bases of assets and liabilities . they are reflected at currently enacted income tax rates applicable to the period in which the deferred tax assets or liabilities are expected to be realized or settled and are determined using the assets and liability method of accounting . the deferred income provision represents the difference between net deferred tax asset/liability at the beginning and end of the reported period . in formulating the deferred tax asset , the company is required to estimate income and taxes in the jurisdiction in which the company operates . this process involves estimating the actual current tax exposure for the reported period together with assessing temporary differences resulting from differing treatment of items , such as depreciation and the provision for loan losses , for tax and financial reporting purposes . deferred tax liabilities occur when taxable income is smaller than reported income on the income statements due to accounting valuation methods that differ from tax , as well as tax rate estimates and payments made quarterly and adjusted to actual at the end of the year . deferred tax liabilities are temporary differences payable in future periods . 58 the company had a net deferred tax liability of $ 1.2 million , and $ 1.3 million , at december 31 , 2016 and 2015 , respectively . our business and operating strategy and goals the company 's primary objective is to operate 1st security bank of washington as a well capitalized , profitable , independent , community-oriented financial institution , serving customers in its primary market area defined generally as the greater puget sound market area . the company 's strategy is to provide innovative products and superior service to small businesses , industry and geographic niches , and individuals located in its primary market area . services are currently provided to communities through the main office and seven full-service banking centers . these banking centers are supported with 24/7 access to on-line banking and participation in a worldwide atm network . the company focuses on diversifying revenues , expanding lending channels , and growing the banking franchise . management remains focused on building diversified revenue streams based upon credit , interest rate , and concentration risks . the board of directors seeks to accomplish the company 's objectives through the adoption of a strategy designed to improve profitability and maintain a strong capital position and high asset quality . this strategy primarily involves : growing and diversifying the loan portfolio and revenue streams . the company intends to transition lending activities from a predominantly consumer-driven model to a more diversified consumer and business model by emphasizing three key lending initiatives : expansion of commercial business lending programs , increasing in-house originations of residential mortgage loans primarily for sale into the secondary market through the mortgage banking program ; and commercial real estate lending . additionally , the company will seek to diversify the loan portfolio by increasing lending to small businesses in the market area , as well as residential construction lending . maintaining strong asset quality . the company believes that strong asset quality is a key to long-term financial success . the percentage of non-performing loans to total gross loans was 0.1 % and 0.2 % for december 31 , 2016 and 2015 , respectively . the company 's percentage of non-performing assets to total assets at december 31 , 2016 was 0.1 % and 0.2 % at december 31 , 2015. the company has actively managed the delinquent loans and non-performing assets by aggressively pursuing the collection of consumer debts and marketing saleable properties upon which were foreclosed or repossessed , work-outs of classified assets and loan charge-offs .
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general . net income for the year ended december 31 , 2016 , increased $ 1.6 million , or 18.3 % , to $ 10.5 million , from $ 8.9 million for the year ended december 31 , 2015. the increase in net income was primarily a result of a $ 6.3 million , or 19.9 % increase in interest income , and a 6.0 million , or 34.0 % increase in noninterest income , partially offset by a $ 9.3 million , or 31.3 % increase in noninterest expense , a $ 731,000 , or 15.0 % increase in the provision for income tax expense and $ 505,000 , or 13.8 % increase in interest expense . net interest income . net interest income increased $ 5.8 million , or 20.7 % , to $ 33.9 million for the year ended december 31 , 2016 , from $ 28.0 million for the year ended december 31 , 2015. the increase in net interest income was primarily attributable to a $ 5.4 million , or 17.6 % increase in loan receivable interest income resulting from a $ 127.8 million increase in average loans receivable , net and loans held for sale over the last year , a $ 1.0 million , or 74.4 % increase in interest and dividends on investment securities , and cash and cash equivalents , primarily offset by a $ 539,000 , or 374.3 % increase in subordinated note interest expense . the subordinated note was issued on october 15 , 2015 . 63 the net interest margin ( “ nim ” ) decreased 58 basis points to 4.43 % for the year ended december 31 , 2016 , from 5.01 % for the same period last year . the decreased nim reflects continued growth in diversified , lower yielding assets including loan and investment assets . as a percentage , consumer loans to total loans were 28.9 % at december 31 , 2016 , compared to 31.0 % at december 31 , 2015 , reflecting our loan diversification strategy .
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we are committed to clinical rigor , constant innovation and a defining drive to set the industry standard to deliver safe and effective medical devices that improve lives of patients facing this difficult disease state . our peripheral arterial disease ( “ pad ” ) products , the diamondback 360 ® peripheral orbital atherectomy system ( “ oas ” ) ( “ diamondback 360 peripheral ” ) , the diamondback 360 60cm peripheral oas , the diamondback 360 4 french 1.25 peripheral oas , the diamondback 360 1.50 peripheral oas , the diamondback 360 2.00 peripheral oas , and the stealth 360 ® peripheral oas ( “ stealth 360 ” ) , are catheter-based platforms capable of treating a broad range of plaque types in leg arteries both above and below the knee , including calcified plaque , and address many of the limitations associated with existing surgical , catheter and pharmacological treatment alternatives . the micro-invasive devices use small access sheaths that can provide procedural benefits and allow physicians to treat pad patients in even the small and tortuous vessels located below the knee through alternative access sites in the ankle and foot as well as in the groin . we refer to each of the products above in this report as the “ peripheral oas. ” the fda has granted us multiple 510 ( k ) clearances for our peripheral oas devices as a therapy in patients with peripheral artery disease . see item 1 in part i of this annual report on form 10-k for additional detail . our coronary arterial disease ( “ cad ” ) product , diamondback 360 ® coronary oas ( “ coronary oas ” ) , is marketed as a treatment for severely calcified coronary arteries . the coronary oas is a catheter-based platform designed to facilitate stent delivery in patients with cad who are acceptable candidates for percutaneous transluminal coronary angioplasty or stenting due to de novo , severely calcified coronary artery lesions . the coronary oas design is similar to technology used in our peripheral oas , customized specifically for the coronary application . 32 a coronary application required us to conduct a clinical trial and file a premarket approval ( “ pma ” ) application and obtain approval from the fda . in march 2013 , we completed submission of our pma application to the fda for our orbital atherectomy system to treat calcified coronary arteries . in october 2013 , we received pma from the fda to market the coronary oas as a treatment for severely calcified coronary arteries . we commenced a commercial launch of our coronary oas following receipt of pma . in march 2017 , the company received approval from the fda to market its diamondback360 ® coronary oas micro crown , which is the only atherectomy device designed to both pilot tight , calcific lesions and treat 2.5 to 4mm vessels with a single device . we market the peripheral and coronary oas in the u.s. through a direct sales force and expend significant capital on our sales and marketing efforts to expand our customer base and utilization per customer . at our facilities , we assemble the saline infusion pump and the single-use catheter used in the peripheral oas and coronary oas with components purchased from third-party suppliers , as well as with components manufactured in-house . ancillary products are purchased from third-party suppliers . international in november 2016 , we signed an exclusive distribution agreement with medikit co. , ltd. ( “ medikit ” ) to sell our diamondback 360 ® coronary and peripheral oas in japan . in march 2017 , we received approval from japan 's ministry of health , labor and welfare for our diamondback 360 ® coronary oas micro crown . pending reimbursement approval , japan will be the first international market for any of our products . we are currently evaluating options for additional international markets to expand the coronary and peripheral opportunities . financial overview net revenues . we derive substantially all of our revenues from the sale of peripheral oas , the coronary oas and ancillary products . the peripheral oas and coronary oas each use a disposable , single-use , low-profile catheter that travels over our proprietary viperwire guide wire . the systems use a saline infusion pump as a power supply for the operation of the catheter . additional ancillary products include the viperslide lubricant and vipertrack radiopaque tape . cost of goods sold . we assemble the single-use catheter with components purchased from third-party suppliers , as well as with components manufactured in-house . the infusion pump and guide wires are purchased from third-party suppliers . our cost of goods sold consists primarily of raw materials , direct labor , and manufacturing overhead . selling , general and administrative expenses . selling , general and administrative expenses include compensation for executive , sales , marketing , finance , information technology , human resources and administrative personnel , including stock-based compensation . other significant expenses include the medical device excise tax , bad debt expense , travel , marketing costs , professional fees and professional education . research and development expenses . research and development expenses include costs associated with the design , development , testing , enhancement and regulatory approval of our products . research and development expenses include employee compensation including stock-based compensation , supplies and materials , patent expenses , consulting expenses , travel and facilities overhead . we also incur significant expenses to operate clinical trials , including trial design , third-party fees , clinical site reimbursement , data management and travel expenses . all research and development expenses are expensed as incurred . approved patent applications are capitalized and amortized using the straight-line method over their remaining estimated lives . patent amortization begins at the time of patent application approval , and does not exceed 20 years . other ( income ) and expense , net . story_separator_special_tag in accordance with fasb guidance , we record a liability in our consolidated financial statements related to legal proceedings when a loss is known or considered probable and the amount can be reasonably estimated . if the reasonable estimate of a known or probable loss is a range , and no amount within the range is a better estimate than any other , the minimum amount of the range is accrued . if a loss is reasonably possible , but not known or probable , and can be reasonably estimated , the estimated loss or range of loss is disclosed in the notes to the consolidated financial statements . in most cases , significant judgment is required to estimate the amount and timing of a loss to be recorded . 34 during fiscal 2017 we accrued $ 2.6 million related to current legal proceedings based on the estimate of the range of the loss that we believe is probable of occurring and recorded a receivable of $ 1.3 million associated with our present assessment of the probable amount of insurance proceeds we would receive related to the claim , based on the accrued amount of loss referenced above . we estimate insurance receivables based on an analysis of our policies , including their exclusions , an assessment of the nature of each claim and remaining coverage , information from its insurance carrier , and the probable loss range referenced above . we will continue to assess the probable amount of insurance proceeds expected to be received in this matter each reporting period and make adjustments , if necessary , based on additional facts as they arise . in fiscal 2016 we recorded $ 8.0 million in connection with the settlement agreement we entered into with the united states of america , acting through the u.s. attorney 's office for the western district of north carolina and on behalf of the office of inspector general of the department of health and human services , and travis thams . financing obligation . in connection with the sale of our headquarters ( the “ facility ” ) in march 2017 , we entered into an agreement to lease the facility . the lease agreement has an initial term of fifteen years , with four consecutive renewal options of five years each at our option . as the lease terms resulted in a capital lease classification , we accounted for the sale and leaseback of the facility as a financing transaction where the assets remain on our balance sheet and a financing obligation was recorded for $ 20.9 million . as lease payments are made , they will be allocated between interest expense and a reduction of the financing obligation , resulting in a value of the financing obligation that is equivalent to the net book value of the assets at the end of the lease term . at the end of the lease ( including any renewal option terms ) , we will remove the assets and financing obligation from its balance sheet . the key assumptions used in the lease analysis were related to the facility 's fair value and the interest rate . fair value - we used the most recent appraisal of the facility , performed during the buyers ' due diligence , as its fair value at the inception of the lease agreement . as the present value of minimum lease payments was more than 90 % of this fair value , the lease was determined to be a capital lease . we reviewed all possible values and believe that the appraised value is the most appropriate for use in the lease analysis . interest rate - we used our incremental borrowing rate based on a prior proposal for a term loan . management reviewed various factors and determined that the interest rate used in the calculation is reasonable . story_separator_special_tag compensation , which decreased due to the reduction in headcount and a change in vesting terms for our performance-based restricted stock awards granted in fiscal 2017 from those granted in fiscal 2016. we expect our selling , general and administrative expenses to increase as revenue grows in fiscal 2018 , but at a rate less than the rate of revenue growth . research and development expenses . research and development expenses decreased by $ 3.0 million , or 11.7 % , from $ 25.9 million for the year ended june 30 , 2016 to $ 22.9 million for the year ended june 30 , 2017 . research and development expenses relate to the specific projects to develop new products or expand into new markets , such as the development of new versions of our peripheral oas and coronary oas , and ancillary products , and pad and cad clinical studies . the decrease primarily related to the completion of enrollment in several of our clinical studies and lower payroll-related expenses from a decrease in headcount from the year ended june 30 , 2016. partially offsetting these were higher patent expense and incentive compensation expense due to performance . research and development expenses for the years ended june 30 , 2017 and 2016 include $ 1.0 million and $ 1.8 million , respectively , for stock-based compensation , which decreased due to the reduction in headcount . we generally expect to incur research and development expenses higher in fiscal 2018 than amounts incurred for the year ended june 30 , 2017 due to timing of projects and studies . fluctuations could occur based on the number of projects and studies and the timing of expenditures . restructuring charges . in march 2016 , we announced a broad-based restructuring to reduce costs as a key part of our plan to balance revenue growth with a pathway to profitability and positive cash flow . as a result , we recorded a restructuring expense of $ 2.4 million during the year ended june 30 , 2016 , which was comprised of severance and other employee related costs . we do not anticipate additional charges related to restructuring activities . legal settlement .
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results of operations the following table sets forth , for the periods indicated , our results of operations expressed as dollar amounts ( in thousands ) , and , for certain line items , the changes between the specified periods : comparison of fiscal year ended june 30 , 2017 with fiscal year ended june 30 , 2016 replace_table_token_3_th 35 net revenues . net revenues increased by $ 26.7 million , or 15.0 % , from $ 178.2 million for the year ended june 30 , 2016 , to $ 204.9 million for the year ended june 30 , 2017 . revenues from our peripheral oas increased $ 13.5 million , or 10.5 % , primarily reflecting an 11.5 % increase in the number of devices sold . sales of our coronary oas increased by approximately $ 11.2 million , or 31.2 % , reflecting 32.2 % more devices sold . the increase in peripheral and coronary oas sales are primarily due to the expansion of our customer base . other product revenue increased $ 2.0 million , or 14.1 % , during the year ended june 30 , 2017 , driven by increased sales of our peripheral and coronary oas , which the other products support . currently , all of our revenues are in the u.s. ; however , we intend to sell internationally in the future . in november 2016 , we signed an exclusive distribution agreement with medikit to sell our diamondback 360 ® coronary and peripheral oas in japan , and in march 2017 , we received approval from japan 's ministry of health , labor and welfare for our diamondback 360 ® coronary oas micro crown . we expect our revenue to increase as we continue to increase the number of physicians using the devices , increase the usage per physician , introduce new and improved products , generate additional clinical data , and expand into new geographies . cost of goods sold .
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we allocate revenues to each performance obligation within an arrangement based on estimated relative stand-alone selling price . revenue is then recognized for each performance obligation upon transfer of control of the software solution or services to the customer in an amount that reflects the consideration we expect to story_separator_special_tag the following management discussion and analysis ( `` md & a '' ) is intended to help the reader understand our results of operations and financial condition . this md & a is provided as a supplement to , and should be read in conjunction with , our financial statements and the accompanying notes to the financial statements . all references to years in this md & a represent fiscal years unless otherwise noted . refer to note ( 1 ) of the notes to consolidated financial statements for information regarding our fiscal year end . information regarding our 2017 results of operations , including a year-to-year comparison against 2018 , may 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 period ended december 29 , 2018 , which was filed with the securities and exchange commission on february 8 , 2019. management overview our revenues are primarily derived by selling , implementing , operating and supporting software solutions , clinical content , hardware , devices and services that give health care providers and other stakeholders secure access to clinical , administrative and financial data in real or near-real time , helping them to improve quality , safety and efficiency in the delivery of health care . our core strategy is to create organic growth by investing in research and development ( `` r & d '' ) to create solutions and tech-enabled services for the health care industry . we may also supplement organic growth with acquisitions or strategic investments . cerner 's long history of growth has created an important strategic footprint in health care , with cerner holding more than 25 percent market share in the u.s. acute care ehr market and a leading market share in several non-u.s. regions . foundational to our growth going forward is delivering value to this core client base , including executing effectively on our large u.s. federal contracts and cross-selling key solutions and services in areas such as revenue cycle . we are also investing in platform modernization , with a focus on delivering a software as a service platform that we expect to lower total cost of ownership , improve clinician experience and patient outcomes , and enable clients to accelerate adoption of new functionality and better leverage third-party innovations . we also expect to continue driving growth by leveraging our healtheintent platform , which is the foundation for established and new offerings for both provider and non-provider markets . the ehr-agnostic healtheintent platform enables cerner to become a strategic partner with health care stakeholders and help them improve performance under value-based contracting . the platform , along with our careaware platform , also supports offerings in areas such long-term care , home care and hospice , rehabilitation , behavioral health , community care , care team communications , health systems operations , consumer and employer , and data-as-a-service . beyond our strategy for driving revenue growth , we are also focused on earnings growth . after several years of margin compression related to slowing revenue growth , increased mix of low-margin services , and lower software demand due to the end of direct government incentives for ehr adoptions , cerner implemented a new operating structure and introduced other initiatives focused on cost optimization and process improvement in 2019. to assist in these efforts , we engaged an outside consulting firm to conduct a review of our operations and cost structure . we made good progress in 2019 and expect this progress to be reflected in improved profitability in 2020 and beyond . we are focused on ongoing identification of opportunities to operate more efficiently and on achieving the efficiencies without impacting the quality of our solutions and services and commitments to our clients . we are also focused on delivering strong levels of cash flow which we expect to accomplish by continuing to grow earnings and prudently managing capital expenditures . we expect to use future cash flow and debt , as appropriate , to meet our capital allocation objectives , which include investing in our business , potential acquisitions or other strategic investments to drive profitable growth , and returning capital to shareholders through share repurchases and dividends . results overview bookings , which reflects the value of executed contracts for software , hardware , professional services and managed services , was $ 5.99 billion in 2019 , which is a decrease of 11 % compared to $ 6.72 billion in 2018 , with the decrease primarily reflecting a more selective approach to low-margin , long-term contracts that typically represent large booking values . 26 revenues for 2019 increased 6 % to $ 5.69 billion , compared to $ 5.37 billion in 2018 . the increase in revenue reflects ongoing demand from new and existing clients for cerner 's solutions and tech-enabled services driven by their needs to keep up with regulatory requirements , adapt to changing reimbursement models , and deliver safer and more efficient care . net earnings for 2019 decreased 16 % to $ 529 million , compared to $ 630 million in 2018 . diluted earnings per share decreased 13 % to $ 1.65 in 2019 , compared to $ 1.89 in 2018 . the overall decrease in net earnings and diluted earnings per share was primarily a result of increased operating expenses , including expenses incurred in connection with our operational improvement initiatives discussed below , partially offset by increased revenues . we had cash collections of receivables of $ 5.79 billion in 2019 , compared to $ 5.49 billion in 2018 . story_separator_special_tag these expenses increased 15 % to $ 1.35 billion in 2019 , from $ 1.17 billion in 2018 . the increase is primarily due to expenses incurred in 2019 in connection with our operational improvement initiatives discussed above ; inclusive of $ 86 million of charges associated with employee separation benefits , as further discussed in note ( 1 ) of the notes to consolidated financial statements . the effects of inflation on our business during 2019 and 2018 were not significant . 31 liquidity and capital resources our liquidity is influenced by many factors , including the amount and timing of our revenues , our cash collections from our clients and the amount we invest in software development , acquisitions , capital expenditures , and our share repurchase and dividend programs . our principal sources of liquidity are our cash , cash equivalents , which primarily consist of money market funds and time deposits with original maturities of less than 90 days , short-term investments , and borrowings under our credit agreement . at the end of 2019 , we had cash and cash equivalents of $ 442 million and short-term investments of $ 100 million , as compared to cash and cash equivalents of $ 374 million and short-term investments of $ 401 million at the end of 2018 . we have entered into a credit agreement with a syndicate of lenders that provides for an unsecured $ 1.00 billion revolving credit loan facility , along with a letter of credit facility up to $ 100 million ( which is a sub-facility of the $ 1.00 billion revolving credit loan facility ) . we have the ability to increase the maximum capacity to $ 1.20 billion at any time during the credit agreement 's term , subject to lender participation and the satisfaction of specified conditions . the credit agreement expires in may 2024. as of the end of 2019 , we had outstanding revolving credit loans and letters of credit of $ 600 million and $ 30 million , respectively ; which reduced our available borrowing capacity to $ 370 million under the credit agreement . refer to note ( 10 ) of the notes to consolidated financial statements for additional information regarding our credit agreement and other sources of debt financing . we believe that our present cash position , together with cash generated from operations , short-term investments and , as appropriate , remaining availability under our credit agreement and other sources of debt financing , will be sufficient to meet anticipated cash requirements during 2020 . the following table summarizes our cash flows in 2019 and 2018 : replace_table_token_6_th cash from operating activities replace_table_token_7_th cash flows from operations decreased $ 141 million in 2019 compared to 2018 , due primarily to net refunds of taxes in 2018 along with cash payments in 2019 associated with our operational improvement initiatives discussed above . days sales outstanding was 72 days in the fourth quarter of 2019 , compared to 74 days for the third quarter of 2019 and 79 days for the fourth quarter of 2018 . 32 cash from investing activities replace_table_token_8_th cash flows from investing activities consist primarily of capital spending , investment , and acquisition activities . our capital spending in 2019 was driven by capitalized equipment purchases primarily to support growth in our managed services business , investments in a cloud infrastructure to support cloud-based solutions , building and improvement purchases to support our facilities requirements and capitalized spending to support our ongoing software development initiatives . total capital spending in 2019 exceeded 2018 levels , primarily driven by spending to support our facilities requirements , including the continued construction of our innovations campus ( office space development located in kansas city , missouri ) . capital purchases are expected to decrease in 2020 , primarily driven by the expected completion of construction on the current phases of our innovations campus in the first half of 2020. short-term investment activity historically consists of the investment of cash generated by our business in excess of what is necessary to fund operations . the 2019 and 2018 activity is impacted by excess cash being used to execute on our capital allocation strategy , including the share repurchases and cash dividends discussed below . additionally , our investment mix has changed such that our funds are more heavily held in cash and cash equivalents versus short-term and long-term investments , primarily due to interest rates currently available on cash deposits . on july 27 , 2018 , we acquired a minority interest in essence group holdings corporation for cash consideration of $ 266 million . refer to note ( 4 ) of the notes to consolidated financial statements for further information regarding this investment . in october 2019 , we acquired all of the issued and outstanding membership interests of ablevets , llc , a virginia limited liability company ( `` ablevets '' ) . ablevets is a health it engineering and consulting company specializing in cybersecurity , cloud and system development solutions for federal organizations . consideration for the acquisition was cash of $ 75 million . refer to note ( 8 ) of the notes to consolidated financial statements for further information regarding this business acquisition . we expect to continue seeking and completing strategic business acquisitions , investments , and relationships that are complementary to our business . cash from financing activities replace_table_token_9_th in may 2019 , we borrowed $ 600 million of revolving credit loans under the credit agreement . in march 2018 , we repaid our $ 75 million floating rate series 2015-c notes due february 15 , 2022. refer to note ( 10 ) of the notes to consolidated financial statements for further information regarding our outstanding indebtedness . 33 we expect to incur additional indebtedness in the next 12 months , for which the amount and timing is yet to be determined .
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results of operations fiscal year 2019 compared to fiscal year 2018 replace_table_token_3_th revenues & backlog revenues increased 6 % to $ 5.69 billion in 2019 , as compared to $ 5.37 billion in 2018 . this increase was primarily driven by a $ 181 million increase in professional services revenue due to growth in implementation activity ; growth in licensed software revenue of $ 67 million as a result of continued demand for our solutions ; and growth in managed services revenue of $ 59 million as a result of increased hosting services . refer to note ( 2 ) of the notes to consolidated financial statements for further information regarding revenues disaggregated by our business models . backlog , which reflects contracted revenue that has not yet been recognized as revenue , was $ 13.71 billion at the end of 2019 , compared to $ 15.25 billion at the end of 2018 . this decrease was primarily driven by the termination of certain client contracts , discussed further below . we expect to recognize 30 % of our backlog as revenue over the next 12 months . we believe that backlog may not necessarily be a comprehensive indicator of future revenue as certain of our arrangements may be canceled ( or conversely renewed ) at our clients ' option ; thus contract consideration related to such cancellable periods has been excluded from our calculation of backlog . however , historically our experience has been that such cancellation provisions are rarely exercised . we expect to recognize $ 760 million of revenue over the next 12 months under currently executed contracts related to such cancellable periods , which is not included in our calculation of backlog . costs of revenue costs of revenue as a percent of revenues were 19 % in 2019 , compared to 17 % in 2018 .
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generally , a non-gaap financial measure is a numerical measure of financial performance , financial position or cash flows that excludes ( or includes ) amounts that are included in ( or excluded from ) the most directly comparable measure calculated and presented in accordance with gaap . the non-gaap financial measures should be viewed as a supplement to , and not a substitute for , financial measures presented in accordance with gaap . non-gaap measures as presented herein may not be comparable to similarly titled measures used by other companies . the following combined management 's discussion and analysis of financial condition and results of operations is separately filed by duke energy corporation ( collectively with its subsidiaries , duke energy ) and its subsidiaries duke energy carolinas , llc ( duke energy carolinas ) , progress energy , inc. ( progress energy ) , duke energy progress , llc ( duke energy progress ) , duke energy florida , llc ( duke energy florida ) , duke energy ohio , inc. ( duke energy ohio ) , duke energy indiana , llc ( duke energy indiana ) and piedmont natural gas company , inc. ( piedmont ) . however , none of the registrants make any representation as to information related solely to duke energy or the subsidiary registrants of duke energy other than itself . subsequent to duke energy 's acquisition of piedmont on october 3 , 2016 , piedmont is a wholly owned subsidiary of duke energy . the financial information for duke energy includes results of piedmont subsequent to october 3 , 2016. see note 2 to the consolidated financial statements , `` acquisitions and dispositions , '' for additional information regarding the acquisition . duke energy duke energy is an energy company headquartered in charlotte , north carolina . duke energy operates in the u.s. primarily through its wholly owned subsidiaries , duke energy carolinas , duke energy progress , duke energy florida , duke energy ohio , duke energy indiana and piedmont . when discussing duke energy 's consolidated financial information , it necessarily includes the results of the subsidiary registrants , which along with duke energy , are collectively referred to as the duke energy registrants . management 's discussion and analysis should be read in conjunction with the consolidated financial statements and notes for the years ended december 31 , 2018 , 2017 and 2016 . executive overview at duke energy the fundamentals of our business are strong . in 2018 , we met our near-term financial commitments and positioned the company for sustainable long-term growth . we are focused on a stable , predictable and regulated businesses portfolio to deliver a reliable dividend with 4 to 6 percent eps growth through 2023. we have made progress advancing our long-term growth strategy that delivers value to our customers through investments in cleaner energy , grid modernization , natural gas infrastructure , and digital transformation , while also achieving constructive regulatory outcomes . the strength of our balance sheet is of vital importance to the cost-effective financing of our growth strategy , and in 2018 we took proactive steps to strengthen it by issuing $ 2 billion of equity . financial results ( a ) see results of operations below for duke energy 's definition of adjusted earnings and adjusted diluted earnings per share as well as a reconciliation of this non-gaap financial measure to net income attributable to duke energy and net income attributable to duke energy per diluted share . duke energy 's 2018 gaap reported earnings were impacted by favorable weather , improved residential volumes and ongoing cost management efforts , offset by charges which management believes are not indicative of ongoing performance , including regulatory and legislative items , impairments , a loss on the sale of a retired plant , and severance . see “ results of operations ” below for a detailed discussion of the consolidated results of operations and a detailed discussion of financial results for each of duke energy 's reportable business segments , as well as other . 40 md & a duke energy 2018 areas of focus and accomplishments operational excellence and reliability . the safety of our workforce is a core value . our employees delivered strong safety results in 2018 , and we maintained our industry-leading performance levels from 2016 and 2017. the reliable and safe operation of our power plants , electric distribution system and natural gas infrastructure is foundational to our customers , our financial results and our credibility with stakeholders . our nuclear and fossil/hydro generation fleets demonstrated strong performance , exceeding their respective reliability targets . five of our six nuclear sites have achieved inpo 1 status , the industry 's highest distinction . our electric distribution system performed well throughout the year , though we see opportunities to reduce outage durations . storm response and system restoration . 2018 was a year of intense storm activity , with hurricane florence and hurricane michael delivering a significant impact to our jurisdictions . employees and utility partners worked tirelessly to restore 3 million outages during the hurricane season . our team restored 93 percent of outages within five days during hurricane florence and 90 percent of outages within three days during hurricane michael . our ability to effectively handle all facets of the 2018 storm response efforts is a testament to our team 's extensive preparation and coordination in advance of the storm , applying lessons learned from previous storms , and on-the-ground management throughout the restoration efforts . customer satisfaction . duke energy continues to transform the customer experience through our use of customer data to better inform operational priorities and performance levels . this data-driven approach allows us to identify the investments that are the most important to the customer experience . in 2018 , we instituted more proactive communications , such as text alerts during outages , in response to customer expectations . over time our work with data analytics will result in customer satisfaction improvement as measured through j.d . power and other surveys . story_separator_special_tag management uses these non-gaap financial measures for planning and forecasting , and for reporting financial results to the board of directors , employees , stockholders , analysts and investors . adjusted diluted eps is also used as a basis for employee incentive bonuses . the most directly comparable gaap measures for adjusted earnings and adjusted diluted eps are gaap reported earnings and gaap reported eps , respectively . special items included in the periods presented include the following , which management believes do not reflect ongoing costs : costs to achieve mergers represents charges that result from strategic acquisitions . regulatory and legislative impacts in 2018 represents charges related to the duke energy progress and duke energy carolinas north carolina rate case orders and the repeal of the south carolina base load review act . for 2017 , it represents charges related to the levy nuclear project in florida and the mayo zero liquid discharge and sutton combustion turbine projects in north carolina . impairment charges in 2018 represents an impairment at citrus county cc , a goodwill impairment at commercial renewables and an other-than-temporary impairment of an investment in constitution pipeline company , llc . for 2017 and 2016 , the charges represent goodwill and other-than-temporary asset impairments at commercial renewables . sale of retired plant represents the loss associated with selling beckjord , a nonregulated generating facility in ohio . impacts of the tax act represents amounts recognized related to the tax act . severance charges relate to companywide initiatives , excluding merger integration , to standardize processes and systems , leverage technology and workforce optimization . adjusted earnings also include the operating results of the international disposal group , which has been classified as discontinued operations . management believes inclusion of the operating results of the international disposal group within adjusted earnings and adjusted diluted eps results in a better reflection of duke energy 's financial performance during the period . duke energy 's adjusted earnings and adjusted diluted eps may not be comparable to similarly titled measures of another company because other companies may not calculate the measures in the same manner . 42 md & a duke energy reconciliation of gaap reported amounts to adjusted amounts the following table presents a reconciliation of adjusted earnings and adjusted diluted eps to the most directly comparable gaap measures . replace_table_token_11_th ( a ) net of tax benefit of $ 19 million in 2018 , $ 39 million in 2017 , and $ 194 million in 2016 . ( b ) net of tax benefit of $ 63 million in 2018 and $ 60 million in 2017 . ( c ) net of $ 27 million tax benefit and $ 2 million noncontrolling interests in 2018. net of $ 28 million tax benefit in 2017 and $ 26 million in 2016 . ( d ) net of $ 25 million tax benefit . ( e ) the tax act reduced the corporate income tax rate from 35 to 21 percent , effective january 1 , 2018. as the tax change was enacted in 2017 , duke energy was required to remeasure its existing deferred tax assets and liabilities at the lower rate at december 31 , 2017. for duke energy 's regulated operations , where the reduction in the net accumulated deferred income tax liability is expected to be returned to customers in future rates , the remeasurement has been deferred as a regulatory liability . for 2018 , the amount represents a true up of existing regulatory liabilities related to the tax act . see note 23 to the consolidated financial statements , `` income taxes '' for more information . ( f ) net of tax benefit of $ 43 million in 2018 and $ 35 million in 2016 . ( g ) for 2016 , includes a loss on sale of the international disposal group . represents the gaap reported loss from discontinued operations , less the international disposal group operating results , which are included in adjusted earnings . for 2017 and 2018 , amounts reflect adjustments related to the sale of the international disposal group , primarily related to estimated tax expense . year ended december 31 , 2018 , as compared to 2017 duke energy 's full-year 2018 gaap reported eps was $ 3.76 compared to $ 4.36 for full-year 2017. in addition to the adjusted diluted eps drivers discussed below , gaap reported eps in 2018 was lower primarily due to regulatory and legislative impacts , impairment charges , severance charges and a loss on sale of a retired plant . as discussed , management also evaluates financial performance based on adjusted earnings . duke energy 's full-year 2018 adjusted diluted eps was $ 4.72 compared to $ 4.57 for full-year 2017. the increase in adjusted diluted eps was primarily due to : higher regulated electric revenues due to favorable weather and higher retail sales volumes in the current year ; positive impacts from the north carolina rate case orders ; and rider growth . partially offset by : higher interest expense due to higher debt outstanding and higher interest rates ; higher depreciation and amortization expense at electric utilities and infrastructure primarily due to rate base growth ; and a reduced tax benefit on holding company interest as a result of the tax act . year ended december 31 , 2017 , as compared to 2016 duke energy 's full-year 2017 gaap reported eps was $ 4.36 compared to $ 3.11 for full-year 2016. in addition to the adjusted diluted eps drivers discussed below , gaap reported eps in 2017 was higher primarily due to a $ 0.14 benefit per share related to the tax act in 2017 , lower costs to achieve the piedmont merger and a loss on sale and impairments associated with the sale of the international disposal group in 2016 , partially offset by charges of $ 0.14 related to regulatory settlements in electric utilities and infrastructure . as discussed , management also evaluates financial performance based on adjusted earnings .
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matters impacting future results within this item 7 , see the tax act section above as well as liquidity and capital resources below for discussion of risks associated with the tax act . 63 md & a duke energy indiana duke energy indiana introduction management 's discussion and analysis should be read in conjunction with the accompanying consolidated financial statements and notes for the years ended december 31 , 2018 , 2017 and 2016 . basis of presentation the results of operations and variance discussion for duke energy indiana is presented in a reduced disclosure format in accordance with general instruction ( i ) ( 2 ) ( a ) of form 10-k. results of operations replace_table_token_28_th the following table shows the percent changes in gwh sales and average number of customers for duke energy indiana . the below percentages for retail customer classes represent billed sales only . total sales includes billed and unbilled retail sales and wholesale sales to incorporated municipalities and to public and private utilities and power marketers . amounts are not weather-normalized . replace_table_token_29_th year ended december 31 , 2018 , as compared to 2017 operating revenues . the variance was driven primarily by : a $ 65 million increase in rate rider revenues primarily related to the edwardsport igcc plant and the tdsic rider ; a $ 50 million increase in fuel and other revenues primarily due to higher base fuel , non-native fuel and midwest independent system operator rider revenues ; a $ 13 million increase in retail sales , net of fuel revenues , due to favorable weather in the current year ; and a $ 13 million increase in weather-normal retail sales volumes .
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the company 's principal subsidiaries include three independently certificated airlines , abx air , inc. ( “ abx ” ) , capital cargo international airlines , inc. ( “ ccia ” ) and air transport international , inc. ( “ ati ” ) , and an aircraft leasing company , cargo aircraft management , inc. ( “ cam ” ) . at december 31 , 2012 , the company owned 48 cargo aircraft in serviceable condition and leased six more under operating leases . the owned fleet consisted of thirty-six boeing 767-200 aircraft , five boeing 767-300 aircraft , three boeing 757 and four mcdonnell douglas dc-8 `` combi '' aircraft . the combi aircraft are capable of simultaneously carrying passengers and cargo containers on the main flight deck . the company 's airline subsidiaries also leased four boeing 767-200 freighter aircraft and two boeing 767-300 freighter aircraft from third parties as of december 31 , 2012. in recent years we have modernized the company 's aircraft fleet , retiring less efficient boeing 727 and dc-8 aircraft and adding boeing 767-200 , boeing 767-300 and boeing 757 aircraft to the fleet . during 2013 we plan to continue adding boeing 767 and boeing 757 aircraft to the fleet by modifying former passenger aircraft . as of december 31 , 2012 , the company owned two boeing 767-300 aircraft that were being modified from passenger configuration into a standard freighter configuration , one boeing 757 aircraft undergoing standard freighter modification and two boeing 757 aircraft being prepared for service as combi aircraft . additionally , in january 2013 , the company purchased two more boeing 757 combi aircraft that are in the process of obtaining airworthiness certification for their combi modification . we expect all seven of these aircraft to enter service during 2013. the company 's largest customer is dhl network operations ( usa ) , inc. and its affiliates ( `` dhl '' ) , which accounted for 53 % of the company 's consolidated revenues in 2012 and 36 % of the company 's consolidated revenues in both 2011 and 2010. the company has had long term contracts with dhl since august 2003. commencing march 31 , 2010 , the company and dhl executed commercial agreements under which dhl leases 13 boeing 767 freighter aircraft from cam and contracted with abx to operate those aircraft under a separate crew , maintenance and insurance ( “ cmi ” ) agreement . the cmi agreement pricing is based on pre-defined fees , scaled for the number of aircraft operated and the number of flight crews provided to dhl for its u.s. network . the initial term of the cmi agreement is five years and the terms of the aircraft leases are seven years , with early termination provisions . in addition to the 13 cam-owned boeing 767 aircraft , abx also operates four dhl-owned boeing 767 aircraft under the cmi agreement . we also provide two boeing 757 aircraft to dhl under multi-year contracts . additionally , during 2012 the company 's airlines provided eight other boeing 767 aircraft and one boeing 757 aircraft to dhl under contracts and arrangements having durations of one year or less . the u.s. military comprised 16 % , 12 % and 14 % of the company 's consolidated revenues during the years ended december 31 , 2012 , 2011 and 2010 , respectively . the company 's airlines con tract their services to the air mobility command ( `` amc '' ) , through the u.s. transportation command ( `` ustc '' ) both of which are organized under the u.s. military . a substantial portion of the company 's revenues and cash flows have historically been derived from providing airlift in north america to bax global , inc. , an affiliate of db schenker ( `` bax/schenker '' ) . bax/schenker is a specialized heavy weight , business to business shipper . in july 2011 , bax/schenker announced its plans to adopt a new operating model that phased out the dedicated air cargo network in north america supported by the company . in september 2011 , bax/schenker ceased air cargo operations at its air hub in toledo , ohio and began to conduct air operations from the cincinnati/northern kentucky airport , utilizing dhl 's u.s. air hub . instead of dedicated aircraft , bax/schenker now utilizes dhl and other delivery services for its air transportation delivery requirements . the company ceased providing services to bax/schenker as of the end of 2011. the company 's revenues from 21 the services performed for bax/schenker , derived primarily by providing boeing 727 and dc-8 airlift , were $ 187.0 million and $ 194.3 million for the years ended december 31 , 2011 and 2010 , respectively . the company 's revenues from bax/schenker comprised approximately 26 % and 29 % of the company 's total revenues during the years ended december 31 , 2011 and 2010 , respectively , ( 15 % and 18 % of total revenues , excluding directly reimbursable revenues ) . the company has two reportable segments : acmi services , which primarily includes the cargo transportation operations of its three airlines and the cam segment . the company 's other business operations , which primarily provide support services to the transportation industry , include aircraft maintenance , aircraft parts sales , ground equipment leasing and mail handling services . these operations do not constitute reportable segments due to their size . results of operations summary the consolidated net earnings from continuing operations were $ 41.6 million and $ 23.9 million for 2012 and 2011 , respectively . the pre-tax earnings from continuing operations were $ 66.3 million and $ 40.9 million for 2012 and 2011 , respectively . story_separator_special_tag our customers are usually responsible for supplying the necessary aviation fuel and cargo handling services and reimbursing our airline for other operating expenses , such as landing fees , ramp expenses and certain aircraft maintenance expenses . aircraft charter agreements , including those for the u.s. military , usually require the airline to provide full service , including fuel and other operating expenses for a fixed , all-inclusive price . as of december 31 , 2012 , acmi services included 47 in-service aircraft , including 28 leased internally from cam , six leased from external providers and 13 cam-owned freighter aircraft which are under lease to dhl and operated by abx under the cmi agreement . revenues from acmi services were $ 479.0 million and $ 605.5 million during 2012 and 2011 , respectively . the decrease of $ 126.5 million is primarily the result of the discontinuation of services for bax/schenker 's north american air network . since june 30 , 2011 , we have retired all of our boeing 727 and dc-8 freighter aircraft in response to the discontinuation of bax/schenker 's north american air network in 2011. airline services revenues , which do not include revenues for the reimbursement of fuel and certain operating expenses , declined 9 % during 2012 compared to 2011 , reflecting the loss of bax/schenker revenues of $ 85.7 million during 2011. during 2011 , acmi services revenues also included $ 100.9 million for the reimbursement of fuel and other operating expenses for the bax/schenker air network . revenue declines from bax/schenker were partially offset by revenues from additional boeing 767 aircraft added to the acmi services fleet since december 31 , 2011. since december 31 , 2011 , acmi services has added two boeing 767-200 and four boeing 767-300 aircraft into the operating fleet . airline service revenues , excluding those from bax/schenker , increased $ 44.9 million during 2012 compared to 2011 , driven by these additional boeing 767 aircraft . aircraft block hours flown for customers other than bax/schenker increased 9 % during 2012 , compared to 2011. acmi services incurred pre-tax losses of $ 14.5 million during 2012 , compared to pre-tax losses of $ 13.8 million for 2011. excluding asset impairment charges of $ 20.4 million incurred during 2011 , acmi services achieved pre-tax earnings of $ 6.6 million in 2011. the operating results during 2012 were negatively impacted by the discontinuation of bax/schenker 's north american air network , the cost of training flight crew members for the boeing 767 aircraft , increased pension expenses , higher engine maintenance expenses and delays in placing aircraft into revenue service . while ati and ccia reduced the number of crew members and other employees in the acmi services segment due to the termination of the bax/schenker network , salaries and benefits expenses during 2012 included the costs of training senior , former dc-8 and boeing 727 crewmembers for the boeing 767 aircraft the boeing 757 aircraft . 24 during 2012 , four boeing 767-300 aircraft and two boeing 767-200 aircraft were added into the acmi services in-service fleet . due to sluggish economic conditions , initial deployment and redeployment of aircraft into incremental revenue generating services were delayed , thereby adversely impacting operating results for 2012. in december 2012 , dhl discontinued an acmi contract for a boeing 767 on a transatlantic flight . however , in january 2013 , we reached agreements to operate three more boeing 767-200 aircraft and a boeing 757 aircraft for dhl 's u.s. network . these aircraft replace the boeing 727 aircraft that were retired at the end of 2012. ati operates four dc-8 combi aircraft for the u.s. military . in july 2012 , the u.s. military 's air mobility command notified ati that it was awarded a two-year agreement to continue the combi aircraft flights through september 2014. ati intends to service the award with its dc-8 combi aircraft and phase-in more modern boeing 757 combi aircraft starting in the second quarter of 2013. to further streamline the operations impacted by the loss of the bax/schenker business , we began to merge the airline operations of ati and ccia during 2012. in september 2012 , ati and ccia flight crewmembers , as represented by the air line pilots association international ( `` alpa '' ) , ratified a collective bargaining agreement which allows for an integrated seniority list . the airlines and alpa completed the integration of the seniority lists in 2012 , to be effective beginning in march of 2013. we expect to complete the merger of ati and ccia 's airline operations in the first quarter of 2013. the combined operation will benefit from the standardized fleet , two person flight crew , common pilot type rating and improved reliability of the boeing 767 and boeing 757 aircraft compared to the boeing 727 and dc-8 freighter aircraft formerly operated by the airlines . revenue for acmi services depends on a number of key factors including regulatory approvals , the cost competitiveness of the airlines , aircraft reliability , market preferences for the type of aircraft that we operate and general economic conditions . continued stagnant economic conditions and market uncertainty may continue to slow the pace by which we deploy aircraft into incremental revenue operations . we may further reduce staff levels as required to match with customer demand and aircraft utilization levels . when new deployments of aircraft begin , typically start-up expenses are incurred , including those for proving flights , route authorities , overfly rights , travel and other activities which may impact future operating results . revenue-generating service may begin sometime later ; however , depending on the satisfaction of a number of conditions , including international regulations and laws , contract negotiations , flight crew availability , and arranging resources for aircraft handling . other activities the company sells aircraft parts and provides aircraft maintenance and modification services to other airlines .
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summary the consolidated net earnings from continuing operations were $ 23.9 million and $ 39.9 million for 2011 and 2010 , respectively . the pre-tax earnings from continuing operations for 2011 were $ 40.9 million , inclusive of asset impairment 28 charges and interest rate derivative losses during 2011 , compared to pre-tax earnings of $ 63.3 million in 2010 , in which no impairment charges or derivative losses were recorded . the decline in earnings from continuing operations in 2011 as compared to 2010 resulted primarily from the recognition of asset impairment charges of $ 27.1 million , interest rate derivative losses of $ 4.9 million and the write-off of $ 2.9 million of unamortized debt issuance costs related to the refinancing of the company 's debt in 2011. adjusted pre-tax earnings from continuing operations , a non-gaap measure ( see reconciliation table below ) , after removing impairment charges , net derivative losses and charges related to debt refinancing was $ 75.8 million for 2011 compared to $ 59.8 million for 2010 after removing pre-tax earnings related to dhl 's restructuring . the improved earnings , as adjusted , over 2010 , was driven primarily by cam , which placed five additional aircraft under external customer leases since december 31 , 2010. the company provided limited airlift directly to bax/schenker from september 2011 through the peak delivery season , until late december 2011. beginning in january 2012 , dhl contracted with the company 's airlines to supplement dhl 's u.s. air network to service bax/schenker freight volumes on its expanded air network without use of the company 's dc-8 aircraft and with only limited use of boeing 727 aircraft .
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our actual results could differ materially from those anticipated by forward-looking statements as a result of many factors . we discuss factors that we believe could cause or contribute to these differences below and elsewhere in this annual report on form 10-k , including those set forth under `` risk factors '' and `` special note regarding forward-looking statements . '' overview we are a leading technology company that combines advanced cloud-based data analytics and data-driven intervention platforms to achieve meaningful impact in clinical and quality outcomes , utilization , and financial performance across the healthcare landscape . we deliver value to our clients by turning data into insights and those insights into action . currently , our clients include health plans , hospitals , physicians , patients , pharmaceutical companies and researchers . 55 our large proprietary datasets , advanced integration technologies , sophisticated predictive analytics , and deep subject matter expertise allow us to provide seamless , end-to-end platforms that bring the benefits of big data and large-scale analytics to the point of care . our data analytics platforms identify gaps in care , quality , data integrity , and financial performance in our clients ' datasets . our data-driven intervention platforms enable our clients to take the insights derived from the analytics and implement unique , patient-level solutions , drive impact and enhance patient engagement . through these capabilities , and those of our subsidiary avalere , which offers data-driven advisory services and business intelligence to more than 200 pharmaceutical and life sciences enterprises , as well as an extensive array of client relationships with payors , providers and research institutions , we are able to drive high-value impact , improving quality and economics for health plans , accountable care organizations ( `` acos '' ) , hospitals , physicians , consumers and pharma/life-sciences researchers . we generate the substantial majority of our revenue through the sale or subscription licensing of our data analytics and data-driven intervention platform services . since our inception , we have experienced significant growth . for the year ended december 31 , 2015 , our revenue was $ 437.3 million , representing 21 % growth over the year ended december 31 , 2014. for the year ended december 31 , 2015 , we generated adjusted ebitda of $ 151.6 million , representing a 35 % adjusted ebitda margin and 13 % growth over the same period in the prior year . net income for the year ended december 31 , 2015 was $ 66.1 million , representing 15 % of revenue and a 1 % increase over the year ended december 31 , 2014. non-gaap net income for the year ended december 31 , 2015 was $ 75.4 million , representing 17 % of revenue and a 7 % increase over the same period in 2014. adjusted ebitda and non-gaap net income are non-gaap measures . adjusted ebitda and non-gaap net income are measures that are not presented in accordance with gaap . for a reconciliation of net income to adjusted ebitda and non-gaap net income , see `` non-gaap financial measures , '' provided in item 6selected financial data . on february 18 , 2015 , we completed our ipo of 22,222,222 shares of class a common stock and , upon the underwriters ' exercise of their option to purchase additional shares , issued an additional 3,142,581 shares of class a common stock for a total of 25,364,803 shares issued . all of the shares issued in the ipo were primary shares offered by us as none of our stockholders sold any shares in the ipo . the offering price of the shares sold in the ipo was $ 27.00 per share , resulting in net proceeds to us , after underwriters ' discounts and commissions and other expenses payable by us , of $ 639.1 million . our class a common stock is currently traded on the nasdaq global select market under the symbol `` inov . '' on september 1 , 2015 , pursuant to the terms of a share purchase agreement between the company and avalere ( the `` purchase agreement '' ) , we acquired 100 percent of the capital stock of avalere for an aggregate stated purchase price of $ 140.0 million , consisting of cash and 235,737 shares of the company 's class a common stock which are subject to resale restrictions . the addition of avalere , with its more than 200 pharmaceutical and life sciences clients , as well as an extensive array of client relationships with payors , providers and research institutions , is expected to expand our capabilities and client base into the expansive and adjacent markets of the pharmaceutical and life sciences industry . we incurred transaction costs in connection with the acquisition of approximately $ 1.5 million , which are included in general and administrative expenses . see note 3 ( business combinations ) , included elsewhere within this annual report on form 10-k for more information . during 2015 inovalon announced the introduction of data diagnostics to the healthcare marketplace . this technology provides a suite of hundreds of patient-specific analyses that can be ordered individually by clinicians on demand with the answer provided within secondsall without leaving the clinician 's workflow . the capability leverages vast amounts of data across billions of medical events , interconnectivity , and high-speed cloud-based analytics to allow physician organizations , health 56 plans , accountable care organizations ( acos ) , hospitals , integrated healthcare delivery systems , aso employer groups , government programs , and individual physicians to achieve valuable clinical insights , strong clinical and quality outcomes , utilization efficiency , and overall financial performance on demand and in real time . the technology is delivered in collaboration with quest diagnostics , the nation 's largest laboratory organization , providing large-scale distribution to clinicians through quest 's more than 200,000 care360® provider portal installations and more than 400 integrated ehr platforms serving approximately half of the physicians and hospitals in the united states . story_separator_special_tag our business model is based upon our ability to deliver value to our clients through the combination of advanced , cloud-based data analytics and data-driven intervention platforms focused on the achievement of meaningful and measureable improvements in clinical quality outcomes and financial performance in healthcare . our ability to deliver this value is dependent in part on our ability to continue to innovate , design new capabilities , and bring these capabilities to market in an enterprise scale . our continued ability to innovate our platform and bring differentiated capabilities to market is an important aspect of our business success . our investment in 58 innovation includes costs for research and development , capitalized software development , and capital expenditures related to hardware and software platforms on which our data analytics and data-driven interventions capabilities are deployed as summarized below ( in thousands , except percentages ) . replace_table_token_9_th ( 1 ) research and development primarily includes employee costs related to the development and enhancement of our service offerings . ( 2 ) capitalized software development includes capitalized costs incurred to develop and enhance functionality for our data analytics and data-driven intervention platforms . ( 3 ) research and development infrastructure investments include strategic capital expenditures related to hardware and software platforms under development or enhancement . data analytics and data-driven intervention mix . our business and operational models are highly scalable and leverage variable costs to support revenue generating activities . our data analytic service costs are less variable in nature and require lower incremental capital expenditures . as a result , following initial development and deployment investments , our big data analytics platform and data technology capabilities allow us to process significant volumes of transactions with lower incremental costs . conversely , our data- driven intervention costs are generally variable in nature and require incremental costs to generate additional revenue . as a result , the mix of our data analytics and data interventions activities affects our financial performance . client and analytical process count growth . our business is generally driven by the number of underlying patients for which our analytics and data-driven intervention platforms are being utilized . as such , we track the number of analytical processes that we run on patients each month in fulfillment of our client contracts , as totaled for the trailing 12 months . this metric is referred to as the trailing 12 month patient analytical months , or pam . we believe that pam is indicative of our overall level of analytical activity , and we expect our period-to-period comparisons of our pam to be indicative of underlying growth of our business , although changes in levels of analytical activity do not always directly translate to changes in financial performance of our business . differences in fees charged for different analytical packages exist and differences in how analytics trigger the applicability of our data-driven intervention platforms may result in increases in analytical activity that do not result in proportional increases in revenue , adjusted ebitda , net income or non-gaap net income ( and vice versa ) . therefore , in situations in which a new sow is initiated for analytical processes that have a higher than average fee rate , revenue could expand disproportionately faster than the increase in pam . 59 likewise , as was the case in the year ended december 31 , 2013 , the loss of an sow for analytical processes that have a higher than average fee rate can negatively affect revenue disproportionately more than pam . further , in 2013 , the initiation of several new sows for various analytical processes that commanded , when taken together , a lower than average fee rate offset the reduction in revenue from the aforementioned terminated sow , while pam was more than offset , and thus increased . seasonality . the nature of our customers ' end-market results in seasonality reflected in both revenue and cost of revenue differences during the year . regulatory impact of data submission deadlines in , for example , march , june , september , and january drive predictable timing of analytics and data processing activity variances from quarter to quarter . further , regulatory clinical encounter deadlines of june 30th and december 31st drive predictable intervention concentrations variances from quarter to quarter . the timing of these factors results in analytical and intervention activity mix variances which predictably impact financial performance from quarter to quarter . the trend of higher client focus on `` watchful waiting '' has increasingly shifted intervention platform usage to later in the year . macro-economic and macro-industry trends . our clients are affected , sometimes directly , and sometimes counter-intuitively , by macro- economic trends such as economic growth ( or economic recession ) , inflation , and unemployment . further , industry trends in federal and state laws and regulations , as well as emerging trends in private sector payment models , affect our clients ' businesses and their need for technologies and services to support these challenges . these factors have various effects on our business , and on occasion have resulted in the slowing or cessation of the decision-making process by clients adopting our technologies and services . on the other hand , changes in macro-economic trends and the industry landscape have accelerated the need for our technologies and services from time-to-time , particularly as regulators introduce complex requirements with which our clients must comply . shift to fully automated data-driven intervention platform services . we view the decreased proportion of revenue derived from partially automated data-driven intervention platform services as a positive reflection of our cloud-based interconnectivity and automation capabilities . the proportion of our revenue derived from pure data analytics and fully automated data-driven intervention platform services revenue is expected to continue to expand over time as a percentage of total revenue as a result of our continued expansion of our cloud-based interconnectivity technologies and the continued expansion of interconnectivity within the healthcare landscape .
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results of operations the following tables set forth our consolidated statement of operations data for each of the periods presented ( in thousands ) : replace_table_token_10_th 63 the following table sets forth our consolidated statement of operations data for each of the periods presented as a percentage of revenue : replace_table_token_11_th years ended december 31 , 2015 , 2014 , and 2013 revenue replace_table_token_12_th 2015 compared with 2014. revenue during the year ended december 31 , 2015 increased by approximately $ 75.7 million , or 21 % , as compared with the year ended december 31 , 2014. the increase was primarily attributable to an increase in revenue from new clients of $ 36.0 million along with a net increase of $ 39.7 million from existing clients . revenue for 2015 includes $ 17.5 million related to the acquisition of avalere . 2014 compared with 2013. revenue during the year ended december 31 , 2014 increased by approximately $ 65.7 million , or 22 % , as compared with the year ended december 31 , 2013. the increase was primarily attributable to an increase in revenue from new clients of $ 50.5 million along with a net increase of $ 15.2 million from existing clients . 64 cost of revenue replace_table_token_13_th 2015 compared with 2014. in 2015 , cost of revenue increased by approximately $ 33.4 million , or 30 % , compared with the year ended december 31 , 2014. the increase in cost of revenue was primarily due to the corresponding increase in revenue of $ 75.7 million or 21 % , during the period and also resulted from an increase in employee-related expenses related partially to the newly acquired data-driven advisory services service line and a greater volume of data-driven intervention platform services as a percentage of total revenue . cost of revenue as a percentage of revenue was 33 % in 2015 compared to 31 % in 2014 .
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in the event the company determines that it is more likely than not that we would be able to realize deferred tax assets story_separator_special_tag forward-looking statements the following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and related notes appearing elsewhere in this annual report on form 10-k. this discussion contains forward-looking statements reflecting our current expectations and involves risks and uncertainties . in some cases , you can identify forward-looking statements by terminology such as “ may , ” “ will , ” “ should , ” “ expect , ” “ plan , ” “ anticipate , ” “ believe , ” “ estimate , ” “ predict , ” “ intend , ” “ potential ” or “ continue ” or the negative of these terms or other comparable terminology . such statements , include but are not limited to statements regarding our expectations as to future financial performance , expense levels , liquidity sources , the capabilities and performance of our technology and products and planned changes , timing of new product releases , our business strategies , including anticipated trends , growth and developments in markets in which we target , the anticipated market adoption of our current and future products , performance in operations , including component supply management , product quality and customer service , and the anticipated benefits and risks relating to the transaction with sunpower corporation . our actual results and the timing of events may differ materially from those discussed in our forward-looking statements as a result of various factors , including those discussed below and those discussed in the section entitled “ risk factors ” included in this report . overview and 2019 highlights we are a global energy technology company . we deliver smart , easy-to-use solutions that manage solar generation , storage and communication on one intelligent platform . we revolutionized the solar industry with our microinverter technology and we produce a fully integrated solar-plus-storage solution . we have shipped more than 25 million microinverters , and over one million enphase residential and commercial systems have been deployed in more than 130 countries . we sell our solutions primarily to distributors who resell them to solar installers . we also sell directly to large installers , oems , strategic partners and homeowners . our revenue for the second half of 2019 was positively impacted by the scheduled phase-down of the investment tax credit for solar projects under section 48 ( a ) ( the “ itc ” ) of the internal revenue code of 1986 , as amended ( the “ code ” ) . the historical itc percentage was 30 % through 2019 , and the itc percentage decreased to 26 % of the basis of a solar energy system that began construction during 2020 , 22 % for 2021 , and zero for residential and 10 % for commercial if construction begins after 2021 or if the solar energy system is placed into service after 2023. as a result , several of our customers explored opportunities to purchase products in 2019 to take advantage of safe harbor guidance from the irs published in june 2018 , allowing them to preserve the historical 30 % investment tax credit for solar equipment purchased in 2019 for solar projects that are completed after december 31 , 2019 . these safe harbor purchases positively affected our revenues in the second half of 2019 and $ 49.9 million deferred revenue as of december 31 , 2019 relates to safe harbor purchases to be shipped in the first quarter of 2020. our net revenues were $ 624.3 million , $ 316.2 million and $ 286.2 million for 2019 , 2018 and 2017 , respectively . we earned net income of $ 161.1 million for 2019 compared to net losses of $ 11.6 million and $ 45.2 million for 2018 and 2017 , respectively . as of december 31 , 2019 , we had $ 251.4 million in cash and cash equivalents , $ 44.7 million in restricted cash and $ 300.3 million of working capital . our 2019 priorities included focusing on providing great customer service , high quality products , scaling business processes and profitable top line growth , and development of our ensemble technology . quality and customer service are the cornerstones of our strategy and were instrumental in our turnaround in financial performance in 2018 and 2019. we began by focusing on call center metrics in the u.s. , europe and australia , and reduced the average wait time from over 10 minutes in 2017 to 2 minutes in 2018 to under 2 minutes by the end of 2019. we introduced self-service tools such as the service-on-the-go that allow our installers and partners to submit requests from their phone in less than 60 seconds . the launch of our iq 7 series microinverter worldwide , the smallest , lightest and most powerful microinverter we have ever made , was a key factor in improving gross margin . every region of the world where our products are sold is now using this seventh-generation microinverter . during year ended december 31 , 2019 , 98 % of our microinverter shipments were iq 7. we systematically rolled out high-power and high-efficiency variants of the iq 7 microinverters in 2018. selling these variants simultaneously improved gross margin and delivered a better price per watt for the installer . enphase energy , inc. | 2019 form 10-k | 40 on january 28 , 2019 , we repaid in full the remaining principal amount of the term loans of approximately $ 39.5 million plus accrued interest and fees owed to lenders affiliated with tennenbaum capital partners , llc . story_separator_special_tag research and development employees are primarily engaged in the design and development of power electronics , semiconductors , powerline communications , networking and software functionality , and storage . we devote substantial resources to research and development programs that focus on enhancements to , and cost efficiencies in , our existing products and timely development of new products that utilize technological innovation to drive down product costs , improve functionality , and enhance reliability . we intend to continue to invest appropriate resources in our research and development efforts because we believe they are critical to maintaining our competitive position . sales and marketing expense include personnel-related expenses , travel , trade shows , marketing , customer support and other indirect costs . we expect to continue to make the necessary investments to enable us to execute our strategy to increase our market penetration geographically and enter into new markets by expanding our customer base of distributors , large installers , oems and strategic partners . we currently offer solutions targeting the residential and commercial markets in the u.s. , canada , mexico , central american markets , europe , australia , new zealand , india and certain other asian markets . we expect to continue to expand the geographic reach of our product offerings and explore new sales channels in addressable markets in the future . general and administrative expense include personnel-related expenses for our executive , finance , human resources , information technology and legal organizations , facilities costs , and fees for professional services . fees for professional services consist primarily of outside legal , accounting and information technology consulting costs . restructuring charges are the net charges resulting from restructuring initiatives implemented in 2018-2019 ( the “ 2018 plan ” ) to improve operational performance and reduce overall operating expenses . under the 2018 plan , costs included in restructuring primarily consisted of employee severance and one-time benefits , workforce reorganization charges , non-cash charges related to impairment of property and equipment , and the establishment of lease loss reserves . see note 10 . “ restructuring , ” of the notes to consolidated financial statements included in part ii , item 8 of this annual report on form 10-k for additional information . other expense , net other expense , net primarily consists of interest expense and fees under our convertible notes and term loans , and non-cash interest expense related to the accretion of debt discount and amortization of deferred financing costs . other expense , net also includes interest income on our cash balance and gains or losses upon conversion of foreign currency transactions into u.s. dollars . enphase energy , inc. | 2019 form 10-k | 42 income tax ( provision ) benefit we are subject to income taxes in the countries where we sell our products . historically , we have primarily been subject to taxation in the u.s. because we have sold the majority of our products to customers in the u.s. as we have expanded the sale of products to customers outside the u.s. , we have become subject to taxation based on the foreign statutory rates in the countries where these sales took place . as sales in foreign jurisdictions increase in the future , our effective tax rate may fluctuate accordingly . we regularly assess the ability to realize deferred tax assets based on the weight of all available evidence , including such factors as the history of recent earnings and expected future taxable income on a jurisdiction by jurisdiction basis . during the fourth quarter of fiscal year 2019 , after considering these factors , we determined that the positive evidence overcame any negative evidence , primarily due to cumulative income in recent years , and the expectation of sustained profitability in future periods and concluded that it was more likely than not that the us federal and state deferred tax assets were realizable . as a result , we released the valuation allowance against all of the u.s. federal and state deferred tax assets during the fourth quarter of fiscal year 2019. summary consolidated statements of operations the following table sets forth a summary of our consolidated statements of operations for the periods presented ( in thousands ) : replace_table_token_4_th story_separator_special_tag style= '' font-family : arial ; font-size:10pt ; color : # 000000 ; '' > , primarily due to interest earned on a higher average cash balance . interest expense of $ 9.7 million for the year ended december 31 , 2019 primarily includes $ 4.6 million related to the coupon interest incurred , debt discount and amortization of debt issuance costs with our notes due 2024 , interest expense of $ 2.7 million related to the repayment of our term loan , interest expense of $ 1.5 million related to coupon interest incurred and amortization of debt issuance costs associated with notes due 2023 , and $ 0.9 million of interest expense related to long-term financing receivable recorded as debt . interest expense of $ 10.7 million for the year ended december 31 , 2018 primarily includes interest expense related to our term loans and coupon interest incurred and amortization of debt issuance costs associated with notes due 2023. other income ( expense ) , net , of $ 5.4 million for the year ended december 31 , 2019 primarily relates to the $ 6.0 million fees paid for the repurchase and exchange of our notes due 2023 , partially offset by $ 0.6 million net gain related to foreign currency exchange and remeasurement . other income ( expense ) , net of $ 2.2 million for the year ended december 31 , 2018 includes $ 2.5 million loss due to foreign currency exchange and remeasurement , partially offset by a $ 0.4 million of valuation adjustments on our term loan .
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results of operations in this section , we discuss the results of our operations for the year ended december 31 , 2019 compared to the year ended december 31 , 2018 . for a discussion of the year ended december 31 , 2018 compared to the year ended december 31 , 2017 , please refer to part ii , item 7 , `` management 's discussion and analysis of financial condition and results of operations '' in our annual report on form 10-k for the year ended december 31 , 2018 . enphase energy , inc. | 2019 form 10-k | 43 net revenues years ended december 31 , change in 2019 2018 $ % ( in thousands , except percentages ) net revenues $ 624,333 $ 316,159 $ 308,174 97 % net revenues increased by 97 % in 2019 , as compared to 2018 , due primarily to an increase in the number of units shipped as well as increase in the average selling price per microinverter unit . we sold 6.2 million microinverter units in 2019 , as compared to 2.8 million units in 2018 . the increase in average selling price per microinverter was due to the better product mix and customer mix yielding 98 % of our shipment being from iq7 series microinverter coupled with improved pricing management . see note 3 . “ revenue recognition , ” of the notes to consolidated financial statements . cost of revenues and gross margin replace_table_token_5_th cost of revenues increased by 82 % in 2019 , as compared to 2018 , primarily due to higher volume of microinverter units sold and expedited freight costs , partially offset by a decrease in the unit cost of our products as a result of our cost reduction efforts .
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expense for rsus that have a service-based condition only are being amortized on story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and related notes thereto included elsewhere in this annual report on form 10-k. some of the information contained in this discussion and analysis or set forth elsewhere in this annual report on form 10-k , including information with respect to our plans and strategy for our business , includes forward-looking statements that involve risks and uncertainties , including those described under the heading “ special note regarding forward-looking statements. ” you should review the disclosure under part i , item 1a , “ risk factors ” in this annual report on form 10-k for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . our fiscal years ended january 31 , 2021 , january 31 , 2020 , and january 31 , 2019 , are referred to herein as fiscal 2021 , fiscal 2020 , and fiscal 2019 , respectively . overview we founded crowdstrike in 2011 to reinvent security for the cloud era . when we started the company , cyberattackers had a decided , asymmetric advantage over existing security products . we turned the tables on the adversaries by taking a fundamentally new approach that leverages the network effects of crowdsourced data applied to modern technologies such as ai , cloud computing , and graph databases . realizing that the nature of cybersecurity problems had changed but the solutions had not , we built our crowdstrike falcon platform to detect threats and stop breaches . we believe we are defining a new category called the security cloud , with the power to transform the security industry much the same way the cloud has transformed the customer relationship management , human resources , and service management industries . with our falcon platform , we created the first multi-tenant , cloud native , intelligent security solution capable of protecting workloads across on-premise , virtualized , and cloud-based environments running on a variety of endpoints such as desktops , laptops , servers , virtual machines , cloud workloads , cloud containers , mobile , and iot devices . our falcon platform is composed of two tightly integrated proprietary technologies : our easily deployed intelligent lightweight agent and our cloud-based , dynamic graph database called threat graph . our solution benefits from crowdsourcing and economies of scale , which we believe enables our ai algorithms to be uniquely effective . we call this cloud-scale ai . our single lightweight agent is installed on each endpoint or the cloud workload host and provides local detection and prevention capabilities while also intelligently collecting and streaming high fidelity data to our platform for real-time decision-making . our threat graph processes , correlates , and analyzes this data in the cloud using a combination of ai and behavioral pattern-matching techniques . by analyzing and correlating information across our massive , crowdsourced dataset , we are able to deploy our ai algorithms at cloud-scale and build a more intelligent , effective solution to detect threats and stop breaches that on-premise or single instance cloud products can not match . today , we offer 19 cloud modules via a saas subscription-based model that spans multiple large markets , including corporate workload security , security and vulnerability management , managed security services , it operations management , threat intelligence services , identity protection and log management . on june 14 , 2019 we closed our initial public offering , or ipo , in which we issued and sold 20,700,000 shares of class a common stock . the price per share to the public was $ 34.00. we received aggregate proceeds of $ 665.1 million from the ipo , net of underwriters ' discounts and commissions and before deducting estimated offering costs of $ 5.9 million . upon the closing of the ipo , all shares of our outstanding preferred stock automatically converted into 131,267,586 shares of class b common stock . in connection with our ipo , all shares of our common stock outstanding prior to our ipo were automatically converted into shares of class b common stock . in march 2020 , the world health organization declared the covid-19 outbreak to be a pandemic . since then , the covid-19 pandemic has rapidly spread across the globe and has already resulted in significant volatility , uncertainty , and economic disruption . thus far , the impact of the pandemic has been modest with some customers , particularly in heavily impacted industries , requesting special billing or payment terms . our gross retention rate for the fourth quarter of fiscal 2021 remained consistently high and our dollar-based net retention rate once again exceeded 120 percent as we continued to expand module adoption within new and existing customers . in march 2020 , we implemented several measures to help protect the health and safety of our employees around the globe including restricting all travel and transitioning 100 % of our workforce to be remote . in addition , in response to the uncertain macroeconomic environment , we converted all of our marketable securities to cash and cash equivalents , and as of january 31 , 2021 , all of our investments were classified as cash . 57 we continue to conduct business as usual with modifications to employee travel , employee work locations , customer interactions , and cancellation of certain marketing events , among other things . we will continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal , state , or local authorities , or that we determine are in the best interests of our employees , customers , partners , suppliers , and stockholders . the extent to which the covid-19 pandemic may impact our longer-term operational and financial performance remains uncertain . story_separator_special_tag we began as a solution for large enterprises , but the flexibility and scalability of our falcon platform has enabled us to seamlessly offer our solution to customers of any size—from those with hundreds of thousands of endpoints to as few as three . we have expanded our sales focus to include any organization without the need to modify our falcon platform for small and medium sized businesses . a substantial majority of our customers purchase subscriptions with a term of one year . our subscriptions are generally priced on a per-endpoint and per-module basis . we recognize revenue from our subscriptions ratably over the term of the subscription . we also generate revenue from our incident response and proactive professional services , which are generally priced on a time and materials basis . we view our professional services business primarily as an opportunity to cross-sell subscriptions to our falcon platform and cloud modules . certain factors affecting our performance adoption of our solutions . we believe our future success depends in large part on the growth in the market for cloud-based saas-delivered endpoint security solutions . many organizations have not yet abandoned the on-premise legacy products in which they have invested substantial personnel and financial resources to design and maintain . as a result , it is difficult to predict customer adoption rates and demand for our cloud-based solutions . new customer acquisition . our future growth depends in large part on our ability to acquire new customers . if our efforts to attract new customers are not successful , our revenue and rate of revenue growth may decline . we believe that our go-to-market strategy and the flexibility and scalability of our falcon platform allow us to rapidly expand our customer base . our incident response and proactive services also help drive new customer acquisitions , as many of these professional services customers subsequently purchase subscriptions to our falcon platform . many organizations have not yet adopted cloud-based security solutions , and since our falcon platform has offerings for organizations of all sizes , worldwide , and across industries , we believe this presents a significant opportunity for growth . maintain customer retention and increase sales . our ability to increase revenue depends in large part on our ability to retain our existing customers and increase the arr of their subscriptions . we focus on increasing sales to our existing customers by expanding their deployments to more endpoints and selling additional cloud modules for increased functionality . in february 2017 , we transitioned our platform from a single offering into highly-integrated offerings of multiple sku cloud modules . we initially launched this strategy with our it hygiene , next-generation antivirus , edr , managed threat hunting , and intelligence modules . we currently have 19 cloud modules that span multiple large markets . invest in growth . we believe that our market opportunity is large and requires us to continue to invest significantly in sales and marketing efforts to further grow our customer base , both domestically and internationally . our open cloud architecture and single data model have allowed us to rapidly build and deploy new cloud modules , and we expect to continue investing in those efforts to further enhance our technology platform and product functionality . in addition to our ongoing investment in research and development , we may also pursue acquisitions of businesses , technologies , and assets that complement and expand the functionality of our falcon platform , add to our technology or security expertise , or bolster our leadership position by gaining access to new customers or markets . furthermore , we expect our general and administrative expenses to increase in dollar amount for the foreseeable future given the additional expenses for accounting , compliance , and investor relations as we grow as a public company . 59 key metrics we monitor the following key metrics to help us evaluate our business , identify trends affecting our business , formulate business plans , and make strategic decisions . subscription customers we define a subscription customer as a separate legal entity that has entered into a distinct subscription agreement for access to falcon platform for which the term has not ended or with which we are negotiating a renewal contract . we do not consider our channel partners as customers , and we treat managed service security providers , who may purchase our products on behalf of multiple companies , as a single customer . while initially we focused our sales and marketing efforts on large enterprises , in recent years we have also increased our sales and marketing to small and medium sized businesses . the following table sets forth the number of our subscription customers as of the dates presented : replace_table_token_8_th we added 4,465 net new subscription customers during fiscal 2021 , including 64 from the acquisition of preempt security , for a total of 9,896 subscription customers as of january 31 , 2021 , representing 82 % growth year-over-year . annual recurring revenue ( “ arr ” ) arr is calculated as the annualized value of our customer subscription contracts as of the measurement date , assuming any contract that expires during the next 12 months is renewed on its existing terms . to the extent that we are negotiating a renewal with a customer after the expiration of the subscription , we continue to include that revenue in arr if we are actively in discussion with such an organization for a new subscription or renewal , or until such organization notifies us that it is not renewing its subscription . the following table sets forth our arr as of the dates presented : replace_table_token_9_th arr increased 75 % year-over-year and grew to $ 1.1 billion as of january 31 , 2021 , of which $ 449.6 million was net new arr added during fiscal 2021 , including $ 6.8 million from the acquisition of preempt security .
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results of operations the following tables set forth our consolidated statements of operations in dollar amounts and as a percentage of total revenue for each period presented : replace_table_token_11_th ( 1 ) includes stock-based compensation expense as follows : replace_table_token_12_th 63 ( 2 ) includes amortization of acquired intangible assets as follows : replace_table_token_13_th ( 3 ) includes acquisition-related expenses as follows : year ended january , 31 2021 2020 2019 ( in thousands ) general and administrative $ 3,758 $ — $ — total acquisition-related expenses $ 3,758 $ — $ — ( 4 ) includes amortization of debt issuance costs and discount as follows : replace_table_token_14_th the following table presents the components of our consolidated statements of operations as a percentage of total revenue for the periods presented : replace_table_token_15_th 64 comparison of fiscal 2021 and fiscal 2020 revenue the following shows total revenue from subscriptions and professional services for fiscal 2021 , as compared to fiscal 2020 : replace_table_token_16_th total revenue increased by $ 393.0 million , or 82 % , in fiscal 2021 , compared to fiscal 2020. subscription revenue accounted for 92 % of our total revenue in fiscal 2021 , and 91 % in fiscal 2020. professional services revenue accounted for 8 % of our total revenue in fiscal 2021 and 9 % in fiscal 2020. subscription revenue increased by $ 368.3 million , or 84 % , in fiscal 2021 , compared to fiscal 2020. this increase was primarily attributable to the addition of new subscription customers , as we increased our customer base by 82 % , fro m 5,431 subscription customers in fiscal 2020 to 9,896 subscription customers in fiscal 2021. s ubscription revenue from new customers , subscription revenue from the renewal of existing customers , and subscription revenue from the sale of additional endpoints and additional modules to existing customers accounted for 33 % , 36 % , and 31 % of total subscription revenue in fiscal 2021 , respectively .
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the results of operations for the periods reflected herein are not necessarily indicative of results that may be expected for future periods , and our actual results may differ materially from those discussed in the forward-looking statements as a result of various factors , including but not limited to those listed under item 1a- risk factors and included elsewhere in this form 10-k. this md & a is a supplement to our financial statements and notes thereto included elsewhere in this 10-k and is provided to enhance your understanding of our results of operations and financial condition . our discussion of results of operations is presented in millions throughout the md & a and due to rounding may not sum or calculate precisely to the totals and percentages provided in the tables . our md & a is organized as follows : overview and background . this section provides a general description of our company and reportable segments , business and industry trends , our key business strategies and background information on other matters discussed in this md & a . consolidated results of operations and operating results by business segment . this section provides our analysis and outlook for the significant line items on our consolidated statements of operations , as well as other information that we deem meaningful to an understanding of our results of operations on both a consolidated basis and a business segment basis . liquidity and capital resources . this section contains an overview of our financing arrangements and provides an analysis of trends and uncertainties affecting liquidity , cash requirements for our business , and sources and uses of our cash . critical accounting policies and estimates . this section discusses the accounting policies that we consider important to the evaluation and reporting of our financial condition and results of operations , and whose application requires significant judgments or a complex estimation process . overview and background we are one of the world 's largest door and window manufacturers , and we hold a leading position by net revenues in the majority of the countries and markets we serve . we design , produce , and distribute an extensive range of interior and exterior doors , wood , vinyl , and aluminum windows , and related products for use in the new construction , r & r of residential homes , and , to a lesser extent , non-residential buildings . we operate manufacturing and distribution facilities in 19 countries , located primarily in north america , europe , and australia . for many product lines , our manufacturing processes are vertically integrated , enhancing our range of capabilities , our ability to innovate , and our quality control as well as providing supply chain , transportation , and working capital savings . in october 2011 , certain funds managed by affiliates of onex acquired a majority of the combined voting power in the company through the acquisition of convertible debt and convertible preferred equity . after the onex investment , we began the transformation of our business from a family-run operation to a global organization with independent , professional management . the transformation accelerated after 2013 with the hiring of a new senior management team strategically recruited from a number of world-class industrial companies . our current management team has extensive experience driving operational improvement , innovation , and growth , both organically and through acquisitions . as of december 31 , 2020 , onex owned approximately 33 % of our outstanding shares of common stock . in february 2017 , we completed an initial public offering of our common stock on the new york stock exchange under the symbol “ jeld ” . business segments our business is organized in geographic regions to ensure integration across operations serving common end markets and customers . we have three reportable segments : north america , europe , and australasia . financial information related to our business segments can be found in note 16 - segment information of our financial statements included elsewhere in this 10-k. 42 back to top acquisitions in march 2019 , we acquired vpi quality windows , inc. , a leading manufacturer of vinyl windows , specializing in customized solutions for mid-rise multi-family , industrial , hospitality and commercial projects , primarily in the western u.s. vpi is located in spokane , washington . vpi is part of our north america segment . we paid $ 57.8 million in cash , net of cash acquired , for the acquisition of vpi . in april 2018 , we acquired the assets of d & k , a long-standing supplier of cavity sliders to our corinthian doors business . d & k is part of our australasia segment . in march 2018 , we acquired the remaining issued and outstanding shares and membership interests of abs , headquartered in sacramento , california . abs is a premier supplier of value-added services for the millwork industry . abs is part of our north america segment . in february 2018 , we acquired a & l , a leading australian manufacturer of residential aluminum windows and patio doors . a & l has a network of manufacturing facilities across the eastern seaboard of australia , which we expect will deliver synergies through operational savings from the implementation of jem and by leveraging the benefits of our combined supply chain . a & l is part of our australasia segment . in february 2018 , we acquired domoferm , headquartered in gänserndorf , austria . domoferm is a leading european provider of steel doors , steel door frames , and fire doors for commercial and residential markets with four manufacturing sites in austria , germany , and the czech republic . domoferm is part of our europe segment . we paid an aggregate of approximately $ 229.2 million in cash , including contingent consideration , ( net of cash acquired ) for the 2019 and 2018 acquisitions . story_separator_special_tag freight costs we incur substantial freight costs to third party logistics providers to transport raw materials and work-in-process inventory to our manufacturing facilities and to deliver finished goods to our customers . changes in freight rates and the availability of freight services can have a significant impact on our cost of goods sold . freight costs have risen significantly due to a number of factors that have affected the supply and demand of trucking services , including increased regulation , such as data logging of miles , increases in general economic activity , and an aging workforce . we attempt to mitigate some of these cost increases through various internal initiatives and to pass a substantial portion of these increases to our customers ; however , we may not realize the intended results within the intended timeframe . 44 back to top working capital and seasonality working capital , which is defined as accounts receivable plus inventory less accounts payable , fluctuates throughout the year and is affected by seasonality of sales of our products and of customer payment patterns . the peak season for home construction and remodeling in our north america and europe segments , which represent the substantial majority of our revenues , generally corresponds with the second and third calendar quarters , and therefore our sales volume is usually higher during those quarters . typically , working capital increases at the end of the first quarter and beginning of the second quarter in conjunction with , and in preparation for , our peak season , and working capital decreases starting in the third quarter as inventory levels and accounts receivable decline . inventories fluctuate for some raw materials with long delivery lead times , such as steel , as we work through prior shipments and take delivery of new orders . foreign currency exchange rates we report our consolidated financial results in u.s. dollars . due to our international operations , the weakening or strengthening of foreign currencies against the u.s. dollar can affect our reported operating results and our cash flows as we translate our foreign subsidiaries ' financial statements from their reporting currencies into u.s. dollars . in the year ended december 31 , 2020 compared to the year ended december 31 , 2019 , the depreciation or appreciation of the u.s. dollar relative to the reporting currencies of our foreign subsidiaries resulted in higher or lower reported results in such foreign reporting entities . in particular , the exchange rates used to translate our foreign subsidiaries ' financial results for the year ended december 31 , 2020 compared to the year ended december 31 , 2019 reflected , on average , the u.s. dollar strengthened against both the australian dollar and canadian dollar by 1 % and weakened against the euro by 2 % . see item 1a- risk factors - risks relating to our business and industry , item 1a- risk factors - exchange rate fluctuations may impact our business , financial condition , and results of operations , and item 7a- quantitative and qualitative disclosures about market risk- exchange rate risk . components of our operating results net revenues our net revenues are a function of sales volumes and selling prices , each of which is a function of product mix , and consist primarily of : sales of a wide variety of interior and exterior doors , including patio doors , for use in residential and non-residential applications , with and without frames , to a broad group of wholesale and retail customers in all of our geographic markets ; sales of a wide variety of windows for both residential and certain non-residential uses , to a broad group of wholesale and retail customers primarily in north america , australia , and the u.k. ; and other sales , including sales of moldings , trim board , cut-stock , glass , stairs , hardware and locks , door skins , shower enclosures , wardrobes , window screens , and miscellaneous installation and other services revenue . net revenues do not include internal transfers of products between our component manufacturing , product manufacturing and assembly , and distribution facilities . cost of sales cost of sales consists primarily of material costs , direct labor and benefit costs , including payroll taxes , repair and maintenance , depreciation , utility , rent and warranty expenses , outbound freight , insurance and benefits , supervision and tax expenses . material costs . the single largest component of cost of sales is material costs , which include raw materials , components , and finished goods purchased for use in manufacturing our products or for resale . our most significant material costs include glass , wood , wood components , doors , door facings , door parts , hardware , vinyl extrusions , steel , fiberglass , packaging materials , adhesives , resins and other chemicals , core material , and aluminum extrusions . the cost of each of these items is impacted by global supply and demand trends , both within and outside our industry , as well as commodity price fluctuations , conversion costs , energy costs , and transportation costs . the imposition of new tariffs on imports , new trade restrictions , or changes in tariff rates or trade restrictions may further impact material costs . see item 7a- quantitative and qualitative disclosures about market risk- raw materials risk . direct labor and benefit costs . direct labor and benefit costs reflect a combination of production hours , average headcount , general wage levels , payroll taxes , and benefits provided to employees . direct labor and benefit costs include wages , overtime , payroll taxes , and benefits paid to hourly employees at our facilities that are involved in the production and or distribution of our products . these costs are generally managed by each facility and headcount is adjusted according to overall and seasonal production demand . we run multi-shift operations in many of our facilities to maximize return on assets and utilization .
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consolidated results net revenues – net revenues decreased $ 54.1 million , or 1.3 % , to $ 4,235.7 million in the year ended december 31 , 2020 from $ 4,289.8 million in the year ended december 31 , 2019. the decrease was driven by a decline in core revenue of 2 % consisting of a 5 % decline in volume/mix , partially offset by a 3 % pricing benefit . gross margin – gross margin increased $ 29.4 million , or 3.4 % , to $ 901.9 million in the year ended december 31 , 2020 from $ 872.5 million in the year ended december 31 , 2019. gross margin as a percentage of net revenues was 21.3 % in the year ended december 31 , 2020 and 20.3 % in the year ended december 31 , 2019. gross margins increased due to sourcing savings and improved pricing , partially offset by unfavorable volume/mix and the effect of inflation on labor compensation . sg & a expense – sg & a expense increased $ 42.1 million , or 6.4 % , to $ 702.7 million in the year ended december 31 , 2020 from $ 660.6 million in the year ended december 31 , 2019. the increase in sg & a expense was primarily due to increased legal expenses , primarily relating to litigation and environmental accruals and fees , and estimated variable compensation , partially offset by reductions in spending relating to sales , marketing and travel as a result of cost saving measures implemented in response to covid-19 , and the non-recurrence of aquisition costs recorded in 2019. impairment and restructuring charges – impairment and restructuring charges decreased $ 11.1 million , or 51.4 % , to $ 10.5 million in the year ended december 31 , 2020 from $ 21.6 million in the year ended december 31 , 2019. charges incurred in 2020 primarily related to severance charges for ongoing restructuring projects across all segments as well as impairment charges primarily
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data revenues are recognized ratably over the contract term , except for revenues derived from customized story_separator_special_tag the following discussion of bgc partners , inc. 's financial condition and results of operations should be read together with bgc partners , inc. 's consolidated financial statements and notes to those statements , as well as the cautionary statements relating to forward-looking statements within the meaning of section 27a of the securities act of 1933 , as amended ( the securities act ) , and section 21e of the securities exchange act of 1934 , as amended ( the exchange act ) , included in this report . when used herein , the terms bgc partners , bgc , the company , we , us and our refer to bgc partners , inc. , including consolidated subsidiaries . this discussion summarizes the significant factors affecting our results of operations and financial condition during the years ended december 31 , 2016 and 2015. this discussion is provided to increase the understanding of , and should be read in conjunction with , our consolidated financial statements and the notes thereto included elsewhere in this report . overview and business environment we are a leading global brokerage company servicing the financial and real estate markets through our financial services and real estate services businesses . through our financial service brands , including bgc ® , gfi ® , sunrise tm and r.p . martin tm , among others , our financial services business specializes in the brokerage of a broad range of products , including fixed income ( rates and credit ) , foreign exchange , equities , energy and commodities , and futures . our financial services business also provides a wide range of services , including trade execution , broker-dealer services , clearing , trade compression , post trade , information , and other back-office services to a broad range of financial and non-financial institutions . our integrated platform is designed to provide flexibility to customers with regard to price discovery , execution and processing of transactions , and enables them to use voice , hybrid , or in many markets , fully electronic brokerage services in connection with transactions executed either over-the-counter ( otc ) or through an exchange . through our electronic brands including fenics ® , bgc trader tm , bgc market data , capitalab ® and lucera ® , we offer fully electronic brokerage , financial technology solutions , market data , post-trade services and analytics related to financial instruments and markets . newmark grubb knight frank ( which may be referred to as newmark , or ngkf ) is our leading commercial real estate services business . newmark offers commercial real estate tenants , owner-occupiers , investors and developers a wide range of services , including leasing and corporate advisory , investment sales and real estate finance , consulting , appraisal and valuation , project management and property and facility management . our customers include many of the world 's largest banks , broker-dealers , investment banks , trading firms , hedge funds , governments , corporations , property owners , real estate developers and investment firms . we have more than 100 offices globally in major markets including new york and london , as well as in atlanta , beijing , bogotá , boston , buenos aires , charlotte , chicago , copenhagen , dallas , denver , dubai , dublin , geneva , hong kong , houston , istanbul , johannesburg , los angeles , madrid , mexico city , miami , moscow , nyon , paris , philadelphia , rio de janeiro , san francisco , santa clara , santiago , são paulo , seoul , shanghai , singapore , sydney , tel aviv , tokyo , toronto , and washington , d.c. we remain confident in our future growth prospects as we continue to increase the scale and depth of our financial services and real estate services platforms and continue to seek market-driven opportunities to expand our business in numerous financial asset classes and other products and services . this was exemplified by our acquisition of gfi group , inc. ( gfi ) . beginning in the first quarter of 2015 , bgc began consolidating the results of gfi , which continues to operate as a separately branded division of bgc . on january 12 , 2016 , we completed the merger with gfi by acquiring 100 % of gfi 's outstanding shares ( see acquisition of gfi group , inc. ) . during 2016 , we also completed the purchase of rudesill-pera multifamily , the cre group , inc. ( cre group ) , perimeter markets , inc. , certain assets of the john buck company , llc and buck management group llc , continental realty ltd , newmark grubb mexico city , the businesses of sunrise brokers group , and walchle lear multifamily advisors . by adding these leading companies to our platform , we have greatly broadened the scope and depth of services we can provide to our clients across our consolidated business . we have also continued to make key hires around the world and integrate our recent acquisitions onto our global platform . we expect these additions to increase our revenues and earnings per share going forward . these investments underscore bgc 's ongoing commitment to make accretive acquisitions and profitable hires . confidential submission of draft registration statement for proposed initial public offering on february 9 , 2017 , we announced that we had confidentially submitted a draft registration statement on form s-1 with the u.s. securities and exchange commission ( the sec ) relating to the proposed initial public offering of the class a common stock of a newly formed subsidiary that will hold our real estate services business , which operates as newmark grubb knight frank or ngkf. the number of class a shares to be offered and the price range for the proposed offering have not yet been determined . story_separator_special_tag trayport transaction on december 11 , 2015 , we completed the sale ( the trayport transaction ) of all of the equity interests in the entities that make up the trayport business to intercontinental exchange , inc. ( ice ) . the trayport business was gfi 's electronic european energy software , trading , and market data business . the trayport transaction occurred pursuant to a stock purchase agreement , dated as of november 15 , 2015. at the closing , we received 2,527,658 shares of ice common stock issued with respect to the $ 650 million purchase price , which was adjusted at closing . through december 31 , 2016 , we have sold more than 95 % of our shares of ice common stock . trayport , prior to its sale , had generated gross revenues of approximately $ 80 million over the twelve months ended september 30 , 2015. bgc expects to pay effective cash taxes of no more than $ 64 million related to the trayport sale price , or an expected rate of less than 10 % . nasdaq transaction on june 28 , 2013 , we completed the sale of certain assets to nasdaq , inc. ( nasdaq , formerly known as nasdaq omx group , inc. ) , which purchased certain assets and assumed certain liabilities from us and our affiliates , including the espeed brand name and various assets comprising the fully electronic portion of our benchmark on-the-run u.s. treasury brokerage , market data and co-location service businesses ( espeed ) , for cash consideration of $ 750 million paid at closing , plus an earn-out of up to 14,883,705 shares of nasdaq common stock to be paid ratably in each of the fifteen years following the closing in which the consolidated gross revenue of nasdaq is equal to or greater than $ 25 million . through december 31 , 2016 , we have received 3,968,988 shares of nasdaq common stock in accordance with the agreement . the contingent future issuances of nasdaq common stock are also subject to acceleration upon the occurrence of certain events . 81 as a result of the sale of espeed , we only sold our on-the-run benchmark 2- , 3- , 5- , 7- , 10- , and 30-year fully electronic trading platform for u.s. treasury notes and bonds . we continue to offer voice brokerage for on-the-run u.s. treasuries , as well as across various other products in rates , credit , fx , market data and software solutions . as we continue to focus our efforts on converting voice and hybrid desks to electronic execution , our e-businesses , excluding trayport and revenues from inter-company data , software , and post-trade services , have continued to grow their revenues and generated $ 208.6 million of net revenues during the most recent trailing twelve-month period ended december 31 , 2016 , up 8.6 % from a year ago . these fully electronic revenues are more than double the annualized revenues of espeed , which generated $ 48.6 million in revenues for the six months ended june 30 , 2013 and was sold in the second quarter of 2013 for $ 1.2 billion ( based on the value of nasdaq stock at the time the deal was announced ) . for the purposes of this document and subsequent securities and exchange commission ( sec ) filings , all of our fully electronic businesses are referred to as fenics. these offerings include financial services segment fully electronic brokerage products , as well as offerings in market data , software solutions , and post-trade services across both bgc and gfi . fenics results do not include the results of trayport , either before or after the completed sale to ice . going forward , we expect these businesses to become an even more valuable part of bgc as they continue to grow faster than , and be substantially larger than , espeed ever was for us . financial services : the financial intermediary sector has been a competitive area that grew over the period between 1998 and 2007 due to several factors . one factor was the increasing use of derivatives to manage risk or to take advantage of the anticipated direction of a market by allowing users to protect gains and or guard against losses in the price of underlying assets without having to buy or sell the underlying assets . derivatives are often used to mitigate the risks associated with interest rates , equity ownership , changes in the value of foreign currency , credit defaults by corporate and sovereign debtors and changes in the prices of commodity products . over this same timeframe , demand from financial institutions , financial services intermediaries and large corporations had increased volumes in the wholesale derivatives market , thereby increasing the business opportunity for financial intermediaries . another key factor in the growth of the financial intermediary sector between 1998 and 2007 was the increase in the number of new financial products . as market participants and their customers strive to mitigate risk , new types of equity and fixed income securities , futures , options and other financial instruments have been developed . most of these new securities and derivatives were not immediately ready for more liquid and standardized electronic markets , and generally increased the need for trading and required broker-assisted execution . up until the second half of 2016 , our financial services businesses had faced more challenging market conditions . accommodative monetary policies by several major central banks including the federal reserve , bank of england , bank of japan and the european central bank have resulted in historically low levels of volatility and interest rates across many of the financial markets in which we operate . the global credit markets also faced structural issues such as increased bank capital requirements under basel iii . consequently , these factors contributed to lower trading volumes in our rates and credit asset classes across most geographies in which we operated .
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results of operations the following table sets forth our consolidated statements of operations data expressed as a percentage of total revenues for the periods indicated ( in thousands ) : replace_table_token_7_th year ended december 31 , 2016 compared to year ended december 31 , 2015 revenues brokerage revenues total brokerage revenues increased by $ 74.7 million , or 3.3 % , to $ 2,319.7 million for the year ended december 31 , 2016 as compared to the year ended december 31 , 2015. commission revenues increased by $ 62.4 million , or 3.2 % , to $ 1,994.2 million for the year ended december 31 , 2016 as compared to the year ended december 31 , 2015. principal transactions revenues increased by $ 12.3 million , or 3.9 % , to $ 325.5 million for the year ended december 31 , 2016 as compared to the year ended december 31 , 2015 . 97 the increase in brokerage revenues was primarily driven by increases in revenues from real estate capital markets brokerage , energy & commodities , credit and equities and other , partially offset by lower revenues in leasing and other services , foreign exchange and rates . our rates revenues decreased by $ 2.4 million , or 0.5 % , to $ 468.8 million in the year ended december 31 , 2016. the decrease in rates revenues was primarily due to industry-wide declines in wholesale market activity . our credit revenues increased by $ 20.2 million , or 7.4 % , to $ 291.8 million in the year ended december 31 , 2016. this increase was mainly due to expansion of the business into new sectors and an uptick in fully electronic credit brokerage . our fx revenues decreased by $ 21.5 million , or 6.6 % , to $ 303.3 million for the year ended december 31 , 2016. this decrease was primarily driven by lower global volumes .
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comprehensive income accumulated other comprehensive income , net is comprised of the impact of foreign currency translation adjustments in addition to unrealized gains ( losses ) on interest rate caps . in 2018 , certain stranded tax effects of $ 0.9 million were reclassified from accumulated comprehensive income to accumulated deficit . for the years ended december 31 , 2019 , 2018 and 2017 , the change in total other comprehensive income , net of tax , was a gain ( loss ) of approximately $ 1.0 million , $ ( 1.9 ) million and $ 0.9 million , respectively . during the years ended december 31 , 2019 and 2018 , $ 0.3 million and $ story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes and other financial information included elsewhere in this annual report on form 10-k. some of the information contained in this discussion and analysis , including information with respect to our plans and strategy for our business , includes forward-looking statements that involve risks and uncertainties . you should review the “ risk factors ” and `` note about forward-looking statements '' sections of this annual report on form 10-k for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . we generally refer to loans , customers and other information and data associated with each of rise , elastic , sunny and today card as elevate 's loans , customers , information and data , irrespective of whether elevate directly originates the credit to the customer or whether such credit is originated by a third party . overview we provide online credit solutions to consumers in the us and the uk who are not well-served by traditional bank products and who are looking for better options than payday loans , title loans , pawn and storefront installment loans . non-prime consumers now represent a larger market than prime consumers but are risky to underwrite and serve with traditional approaches . we 're succeeding at it - and doing it responsibly - with best-in-class advanced technology and proprietary risk analytics honed by serving more than 2.4 million customers with $ 8.1 billion in credit . our current online credit products , rise , elastic and sunny , and our recently test launched today card reflect our mission to provide customers with access to competitively priced credit and services while helping them build a brighter financial future with credit building and financial wellness features . we call this mission `` good today , better tomorrow . '' we earn revenues on the rise and sunny installment loans , on the rise and elastic lines of credit and on the today card credit card product . our revenue primarily consists of finance charges and line of credit fees . finance charges are driven by our average loan balances outstanding and by the average annual percentage rate ( “ apr ” ) associated with those outstanding loan balances . we calculate our average loan balances by taking a simple daily average of the ending loan balances outstanding for each period . line of credit fees are recognized when they are assessed and recorded to revenue over the life of the loan . we present certain key metrics and other information on a “ combined ” basis to reflect information related to loans originated by us and by our bank partners that license our brands , republic bank , finwise bank and capital community bank , as well as loans originated by third-party lenders pursuant to cso programs , which loans originated through cso programs are not recorded on our balance sheets in accordance with us gaap . see “ —key financial and operating metrics ” and “ —non-gaap financial measures. ” we use our working capital , funds provided by third-party lenders pursuant to cso programs and our credit facility with victory park management , llc ( `` vpc ” and the `` vpc facility '' ) to fund the loans we make to our rise and sunny customers and provide working capital . since originally entering into the vpc facility , it has been amended several times to increase the maximum total borrowing amount available from the original amount of $ 250 million to approximately $ 500 million at december 31 , 2019 . see “ —liquidity and capital resources—debt facilities. ” beginning in the fourth quarter of 2018 , the company also licenses its rise installment loan brand to a third-party lender , finwise bank , which originates rise installment loans in 19 states . finwise bank initially provides all of the funding and retains a percentage of the balances of all of the loans originated and sells the remaining loan participation in those rise installment loans to a third-party spv , ef spv , ltd. ( `` ef spv '' ) . prior to august 1 , 2019 , finwise bank retained 5 % of the balances and sold a 95 % participation to ef spv . on august 1 , 2019 , ef spv purchased an additional 1 % participation in the outstanding portfolio with the participation percentage revised going forward to 96 % . these loan participation purchases are funded through a separate financing facility ( the `` ef spv facility '' ) , effective february 1 , 2019 , and through cash flows from operations generated by ef spv . the ef spv facility has a maximum total borrowing amount available of $ 150 million . we do not own ef spv , but we have a credit default protection agreement with ef spv whereby we provide credit protection to the investors in ef spv against rise loan losses in return for a credit premium . story_separator_special_tag ” ending and average combined loans receivable – principal . we calculate the average combined loans receivable – principal by taking a simple daily average of the ending combined loans receivable – principal for each period . key metrics that drive the ending and average combined loans receivable – principal include the amount of loans originated in a period and the average customer loan balance . all loan balance metrics include only the 90 % participation in the related elastic line of credit advances ( we exclude the 10 % held by republic bank ) and the 96 % participation in finwise bank originated rise installment loans , but include the full loan balances on cso loans , which are not presented on our consolidated balance sheet . total combined loans originated – principal . the amount of loans originated in a period is driven primarily by loans to new customers as well as new loans to prior customers , including refinancings of existing loans to customers in good standing . average customer loan balance and effective apr of combined loan portfolio . the average loan amount and its related apr are based on the product and the underlying credit quality of the customer . generally , better credit quality customers are offered higher loan amounts at lower aprs . additionally , new customers have more potential risk of loss than prior or existing customers due to lack of payment history and the potential for fraud . as a result , newer customers typically will have lower loan amounts and higher aprs to compensate for that additional risk of loss . the effective apr is calculated based on the actual amount of finance charges generated from a customer loan divided by the average outstanding balance for the loan and can be lower than the stated apr on the loan due to waived finance charges and other reasons . for example , a rise customer may receive a $ 2,000 installment loan with a term of 24 months and a stated rate of 180 % . in this example , the customer 's monthly installment loan payment would be $ 310.86. as the customer can prepay the loan balance at any time with no additional fees or early payment penalty , the customer pays the loan in full in month eight . the customer 's loan earns interest of $ 2,337.81 over the eight-month period and has an average outstanding balance of $ 1,948.17. the effective apr for this loan is 180 % over the eight-month period calculated as follows : ( $ 2,337.81 interest earned / $ 1,948.17 average balance outstanding ) x 12 months per year = 180 % 8 months 78 in addition , as an example for elastic , if a customer makes a $ 2,500 draw on the customer 's line of credit and this draw required bi-weekly minimum payments of 5 % ( equivalent to 20 bi-weekly payments ) , and if all minimum payments are made , the draw would earn finance charges of $ 1,148. the effective apr for the line of credit in this example is 109 % over the payment period and is calculated as follows : ( $ 1,148.00 fees earned / $ 1,369.05 average balance outstanding ) x 26 bi-weekly periods per year = 109 % 20 payments the actual total revenue we realize on a loan portfolio is also impacted by the amount of prepayments and charged-off customer loans in the portfolio . for a single loan , on average , we typically expect to realize approximately 60 % of the revenues that we would otherwise realize if the loan were to fully amortize at the stated apr . from the rise example above , if we waived $ 400 of interest for this customer , the effective apr for this loan would decrease to 149 % . number of new customer loans . we define a new customer loan as the first loan made to a customer for each of our products ( so a customer receiving a rise installment loan and then at a later date taking their first cash advance on an elastic line of credit would be counted twice ) . the number of new customer loans is subject to seasonal fluctuations . new customer acquisition is typically slowest during the first six months of each calendar year , primarily in the first quarter , compared to the latter half of the year , as our existing and prospective us customers usually receive tax refunds during this period and , thus , have less of a need for loans from us . further , many us customers will use their tax refunds to prepay all or a portion of their loan balance during this period , so our overall loan portfolio typically decreases during the first quarter of the calendar year . overall loan portfolio growth and the number of new customer loans tends to accelerate during the summer months ( typically june and july ) , at the beginning of the school year ( typically late august to early september ) and during the winter holidays ( typically late november to early december ) . customer acquisition costs . a key expense metric we monitor related to loan growth is our cac . this metric is the amount of direct marketing costs incurred during a period divided by the number of new customer loans originated during that same period . new loans to former customers are not included in our calculation of cac ( except to the extent they receive a loan through a different product ) as we believe we incur no material direct marketing costs to make additional loans to a prior customer through the same product . the following tables summarize the changes in customer loans by product for the years ended december 31 , 2019 , 2018 and 2017 . replace_table_token_8_th replace_table_token_9_th ( 1 ) includes immaterial balances related to the today card , which expanded its test launch in november 2018 . 79 replace_table_token_10_th recent trends .
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results of operations this section of this form 10-k generally discusses 2019 and 2018 items and year-to-year comparisons between 2019 and 2018. discussions of 2017 items and year-to-year comparisons between 2018 and 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 31 , 2018 . the following table sets forth our consolidated statements of operations data for each of the periods indicated : replace_table_token_19_th 91 replace_table_token_20_th comparison of the years ended december 31 , 2019 and 2018 revenues replace_table_token_21_th revenues decreased by $ 39.7 million , or 5 % , from $ 786.7 million for the year ended december 31 , 2018 to $ 747.0 million for the year ended december 31 , 2019 . this decrease in revenue was primarily due to a decline in the effective apr of the combined loans receivable , partially offset by an increase in our average combined loans receivable - principal balance , as illustrated in the tables below . the decrease in other revenues is due to a decrease in marketing and licensing fees related to the rise cso programs as our cso partners stopped originating rise cso loans in ohio in april 2019 due to a state law change . 92 the tables below break out this change in revenue ( including cso fees and cash advance fees ) by product : replace_table_token_22_th _ ( 1 ) includes loans originated by third-party lenders through the cso programs , which are not included in the company 's consolidated financial statements . ( 2 ) includes immaterial balances related to the today card , which expanded its test launch in november 2018 . ( 3 ) average combined loans receivable – principal is calculated using daily combined loans receivable - principal balances .
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factors that could cause or contribute to such differences include , but are not limited to , those identified below and those discussed in “ special note regarding forward-looking statements ” and “ item 1a . risk factors. ” overview we are a leading telehealth company enabling digital delivery of care for healthcare 's key stakeholders . we empower our clients at the enterprise level with the core technology and services necessary to successfully develop and distribute telehealth programs that meet their strategic , operational , and social objectives under their own brands . the amwell platform is a complete digital care delivery solution that equips our health system , health plan and innovator , including government , clients with the tools to enable new models of care for their patients and members . our scalable technology embeds with our clients ' existing offerings and clinical workflows , spanning the continuum of care and enabling care delivery across a wide variety of clinical , retail , school and home settings . our client-focused approach drives our success as one of the largest telehealth companies . as of december 31 , 2020 , we powered the digital care programs of 58 health plans , which support over 36,000 employers and collectively represent more than 80 million covered lives , as well as 158 of the nation 's largest health systems , encompassing more than 2,000 hospitals . since inception , we have powered over 8.6 million telehealth visits for our clients , including more than 5.9 million in the year ended december 31 , 2020. our business model the amwell platform is a complete digital care delivery solution that equips our health system , health plan and innovator partners with the tools to enable new models of care for their patients and members . we sell the amwell platform on a subscription basis , which with our modular platform architecture allows our clients to introduce innovative telehealth use cases over time , expanding our subscription revenue opportunity . to support the amwell platform , we offer professional services on a fee-for-service basis and a range of patient and provider access carepoints that support hospital and home use cases and access to amg , our affiliated medical group that provides clinical services on a fee-for-service basis . the combination of the platform , services and carepoints allows our clients to deploy telehealth solutions across their full enterprise , deepening their relationships with existing and new patients and members through improved care access and coordination , cost , and quality . our contracts are typically three years in length but may be longer for our largest strategic customer partners . key factors affecting our performance we believe our future growth , success and performance are dependent on many factors , including those set forth below . while these factors present significant opportunities for us , they also represent the challenges that we must successfully address in order to grow our business and improve our results of operations . telehealth utilization telehealth utilization is a key driver of our business . a client 's overall utilization of its telehealth platform provides an important measure of the value they derive . telehealth utilization drives our business in three important ways . first , to the extent a client succeeds with its telehealth program and sees good usage , they are more likely to renew and potentially expand their contract with us . second , our health systems agreements typically include a certain number of visits conducted by their own providers annually and provide that as certain volume thresholds are exceeded , its annual license fees will rise to reflect this growing value . third , to the extent that clients utilize provider services from amg , amwell derives revenue from clinical fees . we expect that our future revenues will be driven by the growing adoption of telehealth and our ability to maintain and grow market share within that market . in the year ended december 31 , 2019 , our clients completed a total of 1.1 million visits on the amwell platform , while in the year ended december 31 , 2020 , clients significantly expanded their use of the amwell platform with 5.9 million completed visits . during the covid-19 crisis , utilization of the platform achieved levels not seen before , evident by a larger number of clients ' own providers using the amwell platform . amg providers accounted for 27 % of total visits performed versus 66 % of total visits performed on the amwell platform during the years ended december 31 , 2020 and 2019 , respectively . 57 new use patterns and functionality looking past covid-19 , we can see that some effects of the current period may be felt beyond the immediate crisis . in particular , we are seeing the growing awareness among consumers of the availability and efficacy of telehealth for many healthcare needs and we are seeing more widespread hands-on experience among providers in delivering care via telehealth . it remains unclear the extent to which the currently more relaxed regulatory environment , favorable reimbursement policies , and leniency with respect to cross-state provider licensure will become normative . however , we believe that the current experience is more likely to be favorable to telehealth and amwell 's business than otherwise over the longer term . new client acquisition we believe our ability to add net new health system and health plan clients is a key indicator of our increasing market adoption and future revenue potential . we maintain dedicated direct sales teams for both health systems and health plans focused on selling solutions that meet each of their respective needs . our direct sales teams sell our full suite of technology , services and carepoints . channel partners also play an important role in marketing and selling our products to our customer base , primarily focusing on the amwell platform and carepoints . channel partners reduce our sales cycle and lower customer acquisition costs . story_separator_special_tag the aggregate consideration for this transaction was $ 82.9 million , and included $ 48.7 million paid in cash and $ 34.3 million in equity comprised of 456,667 shares of series c preferred stock at a price of $ 75.00 per share . the agreement also included a component of contingent earnout consideration to be earned if certain financial performance metrics were achieved . there was no payout related to this consideration . the acquisition was a stock purchase and the goodwill resulting from this acquisition is not deductible for tax purposes . the results of operations of aligned have been included within our operations from the date of acquisition . seasonality visit volumes typically follow the annual flu season , rising during quarter four and quarter one and falling in the summer months . the future impact of covid-19 on seasonality is unknown as there could be additional surges and demand on telehealth visits . while we sell to and implement our solutions to clients year-round , we experience some seasonality in terms of when we enter into agreements with our clients and when we launch our solutions to members . 59 key metrics we monitor the following key metrics to help us evaluate our business , identify trends affecting our business , formulate business plans and make strategic decisions . we believe the following metrics are useful in evaluating our business : active providers : replace_table_token_3_th active providers : providers that have delivered a visit on the amwell platform at least once in the last 12 months amg : providers from our affiliated amwell medical group platform : our health plan and health system customer 's own providers ( non-amg providers ) that are active on the amwell platform health systems : replace_table_token_4_th health system : a health system is an amwell platform client whose primary business case is the delivery of care by its providers . a typical health system client has many hospitals within its system . the average number of health system clients is calculated by averaging the number of such clients under contract at the beginning and end of each fiscal year . health system subscription revenue : health system subscription revenue consists of all platform-related fees for a health system , including subscription licenses , fees related to software modules , and overage charges , and primarily represents the fee to access our platform over the contractual period . subscription revenue may include immaterial amounts from non-health system clients whose business model acts similarly to those clients . average annual contract value : average annual contract value is defined as total health system subscription revenue for the fiscal period divided by average number of health system clients . health plans : replace_table_token_5_th health plan : a health plan is an amwell platform client whose primary business case is managing the healthcare financial risk of its membership . the average number of health plan clients is calculated by averaging the number of such clients under contract at the beginning and end of each fiscal year . health plan subscription revenue : health plan subscription revenue consists of all platform-related fees for a health plan , including subscription licenses , per member/per month charges and fees related to clinical programs , and primarily represents the fee to access our platform over the contractual period . subscription revenue may include immaterial amounts from non-health plan clients whose business model acts similarly to those clients . 60 average annual contract value : annual contract value is defined as total health plan subscription revenue for the fiscal period divided by average number of health plan clients . visits : replace_table_token_6_th amg visit : an amg visit is a case completed by our amg affiliate providers and visit revenue reflects fee-for-service revenue to amg for the visit . non-gaap financial measures in addition to our financial results determined in accordance with gaap , we believe adjusted ebitda , a non-gaap measure , is useful in evaluating our operating performance . we use adjusted ebitda to evaluate our ongoing operations and for internal planning and forecasting purposes . we believe that this non-gaap financial measure , when taken together with the corresponding gaap financial measures , provides meaningful supplemental information regarding our performance by excluding certain items that may not be indicative of our business , results of operations or outlook . in particular , we believe that the use of adjusted ebitda is helpful to our investors as it is a metric used by management in assessing the health of our business and our operating performance . however , non-gaap financial information is presented for supplemental informational purposes only , has limitations as an analytical tool and should not be considered in isolation or as a substitute for financial information presented in accordance with gaap . in addition , other companies , including companies in our industry , may calculate similarly-titled non-gaap measures differently or may use other measures to evaluate their performance , all of which could reduce the usefulness of our non-gaap financial measure as a tool for comparison . a reconciliation is provided below for our non-gaap financial measure to the most directly comparable financial measure stated in accordance with gaap . investors are encouraged to review the related gaap financial measure and the reconciliation of this non-gaap financial measure to their most directly comparable gaap financial measures , and not to rely on any single financial measure to evaluate our business . adjusted ebitda adjusted ebitda is a key performance measure that our management uses to assess our operating performance . because adjusted ebitda facilitates internal comparisons of our historical operating performance on a more consistent basis , we use this measure for business planning purposes and in evaluating acquisition opportunities .
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consolidated results of operations the following table sets forth our summarized consolidated statement of operations data for the years ended december 31 , 2020 , 2019 and 2018 and the dollar and percentage change between the respective periods : replace_table_token_8_th revenue for the year ended december 31 , 2020 , the increase in revenue was substantially driven by an increase in visit revenue volume ( $ 76.5 million increase ) . visit revenue has increased due to the impact of the covid-19 crisis . revenue increase was also attributable to new clients using our platform and existing clients adding additional modules to their platform subscriptions , such as our covid-19 module . we believe that the strength of our technology platform will continue to serve as the foundation for our revenue growth . subscription revenue from health systems was $ 49.8 million for the year ended december 31 , 2020 , compared to $ 38.8 million during december 31 , 2019 , an increase of $ 11.0 million , or 28 % . revenue earned from amg patient visits increased by $ 76.5 million , or 188 % , from $ 40.7 million for the year ended december 31 , 2019 to $ 117.2 million in the december 31 , 2020. the increase was primarily driven by increased utilization across our health system and health plan clients primarily from the covid-19 pandemic as well as overall increased acceptance of telemedicine . amg visits constituted 27 % of the total visits for the year ended december 31 , 2020 , compared to 66 % for the year ended december 31 , 2019. revenue earned from services and carepoints was $ 29.7 million for the year ended december 31 , 2020 , compared to $ 24.5 million during december 31 , 2019 , an increase of $ 5.2 million , or 21 % .
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the standard will be effective for annual and interim periods beginning after december 15 , 2017 ; however , all entities are allowed to adopt the standard as early as the original effective date ( annual periods beginning after december 15 , 2016 ) . entities have the option of using either a full retrospective or a modified approach to adopt the guidance . in march 2016 , the fasb issued asu story_separator_special_tag the following should be read in conjunction with our consolidated financial statements and notes thereto included in part ii , item 8 . “ financial statements and supplementary data , ” and part i , item 1a . “ risk factors. ” general the company is a leading owner and operator of golf-related leisure and entertainment businesses . our common stock is traded on the nyse under the symbol “ ds. ” through january 1 , 2018 , we were externally managed and advised by an affiliate of fortress investment group llc , or fortress ( the “ manager ” ) . on december 21 , 2017 , we entered into definitive agreements with the manager to internalize our management ( the “ internalization ” ) , effective january 1 , 2018. for further information relating to our business , see “ item 1. business. ” 35 we report our business through the following segments : ( i ) traditional golf , ( ii ) entertainment golf , ( iii ) debt investments , and ( iv ) corporate . revenues ( including interest and investment income ) attributable to each segment are disclosed below ( in thousands ) . replace_table_token_11_th ( a ) excludes $ 0.6 million of revenue included in discontinued operations related to the sale of commercial real estate . market considerations our ability to execute our business strategy , particularly the development of our entertainment golf business , depends to a degree on our ability to monetize our debt investments , optimize our traditional golf business and obtain additional capital . during 2017 , we have substantially monetized the remaining loans and securities in our debt investments segment , see part i , item 1. business “ debt investments loans & securities. ” we have not accessed the capital markets since 2014 , and rising interest rates or stock market volatility could impair our ability to raise equity capital on attractive terms . our ability to generate income is dependent on , among other factors , our ability to raise capital and finance properties on favorable terms , deploy capital on a timely basis at attractive returns , and exit properties at favorable yields . market conditions outside of our control , such as interest rates , inflation , consumer discretionary spending and stock market volatility affect these objectives in a variety of ways . traditional golf business with respect to our traditional golf business , trends in consumer discretionary spending as well as climate and weather patterns have a significant impact on the markets in which we operate . traditional golf is subject to seasonal fluctuations caused by significant reductions in golf activities due to shorter days and colder temperatures in the first and fourth quarters of each year . consequently , a significantly larger portion of our revenue from our traditional golf operations is earned in the second and third quarters of our fiscal year . in addition , severe weather patterns can also negatively impact our results of operations . while consumer spending in the traditional golf industry has not grown in recent years , we believe improving economic conditions and improvements in local housing markets have helped and will continue to help drive membership growth and increase the number of golf rounds played . in addition , we believe growth in related industries , including leisure , fitness and entertainment , may positively impact our traditional golf business . entertainment golf business we are in the construction and development phase , as well as in the process of exploring sites for entertainment golf venues . there is competition within the bid process , and land development and construction are subject to obtaining the necessary regulatory approvals . delays in these processes could impact our business . in addition , similar to our traditional golf business , trends in consumer spending , as well as climate and weather patterns , could have a significant impact on the markets in which we will successfully operate . application of critical accounting policies management 's discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements , which have been prepared in accordance with u.s. generally accepted accounting principles ( “ gaap ” ) . the preparation of financial statements in conformity with gaap requires the use of estimates and assumptions that could affect the reported amounts of assets and liabilities , the disclosure of contingent assets and liabilities and the reported amounts of revenue and expenses . our estimates are based on information available to management at the time of preparation of the consolidated financial statements , including the result of historical analysis , our understanding and experience of the company 's operations , our knowledge of the industry and market-participant data available to us . actual results have historically been in line with management 's estimates and judgments used in applying each of the accounting policies described below and management periodically re-evaluates accounting estimates and assumptions . actual results could 36 differ from these estimates and materially impact our consolidated financial statements . however , the company does not expect our assessments and assumptions below to materially change in the future . a summary of our significant accounting policies is presented in note 2 to our consolidated financial statements , which appear in part ii , item 8 . “ financial statements and supplementary data. ” the following is a summary of our accounting policies that are most affected by judgments , estimates and assumptions . story_separator_special_tag each security is impacted by different factors and in different ways ; generally the more negative factors which are identified with respect to a given security , the more likely we are to determine that we do not expect to receive all contractual payments when due with respect to that security . significant judgment is required in this analysis . we evaluate our other investments for impairment whenever events or changes in circumstances indicate that the carrying amount might not be recoverable . the evaluation of recoverability is based on management 's assessment of the financial condition and near term prospects of the commercial real estate project , the length of time and the extent to which the market value of the investment has been less than cost , availability and cost of financing , demand for space , competition for tenants , changes in market rental rates , and operating costs . as these factors are difficult to predict and are subject to future events that may alter management 's assumptions , the values estimated by management in its recoverability analyses may not be realized , and actual losses or impairment may be realized in the future . revenue recognition on securities income on these securities is recognized using a level yield methodology based upon a number of cash flow assumptions that are subject to uncertainties and contingencies . these assumptions include the rate and timing of principal and interest receipts ( which may be subject to prepayments and defaults ) . the assumptions that impact income recognition are updated on at least a quarterly basis to reflect changes related to a particular security , actual historical data , and market changes . these uncertainties and contingencies are difficult to predict and are subject to future events , and economic and market conditions , which may alter the assumptions . valuation of derivatives our derivative instruments are carried at fair value which is based on counterparty quotations . the company reports the fair value of derivative instruments gross of cash paid or received pursuant to credit support agreements . the company accounts for its derivative instruments as non-hedge instruments and changes in market value are recorded in the consolidated statements of operations . fair values of such derivatives are subject to significant variability based on many of the same factors as the securities discussed above , including counterparty credit risk . the results of such variability , the effectiveness of our hedging strategies and the extent to which a forecasted hedged transaction remains probable of occurring , could result in a significant increase or decrease in our earnings . loans loans for which we do not have the intent or the ability to hold for the foreseeable future , or until maturity or payoff , are classified as held-for-sale . loans are presented in the consolidated balance sheets net of any unamortized discount ( or gross of any unamortized premium ) and an allowance for loan losses . revenue recognition on loans held-for-sale loans held-for-sale are carried at the lower of amortized cost or market value . interest income is recognized based on the loan 's coupon rate to the extent management believes it is collectible . purchase discounts are not amortized as interest income during the period the loan is held-for-sale , except when a pay down or sale has happened in the period . similarly , for loans acquired at a discount for credit quality , accretable yield is not recorded as interest income during the period the loan is held-for-sale . a change in the market value of the loan , to the extent that the value is not above the average cost basis , is recorded in valuation allowance . 38 a rollforward of the allowance is included in note 9 to our consolidated financial statements in part ii , item 8 . “ financial statements and supplementary data. ” acquisition accounting in connection with an acquisition of a business , assets acquired and liabilities assumed are recorded at fair value as of the acquisition date . the accounting for acquisitions requires the identification and measurement of all acquired tangible and intangible assets and assumed liabilities at their respective fair values as of the acquisition date . in measuring the fair value of net tangible and identified intangible assets acquired , management uses information obtained as a result of pre-acquisition due diligence , marketing , leasing activities and independent appraisals . the determination of fair value involves the use of significant judgment and estimation . recent accounting pronouncements see note 2 in part ii , item 8 . “ financial statements and supplementary data ” for information about recent accounting pronouncements . 39 results of operations story_separator_special_tag style= '' line-height:120 % ; text-align : justify ; font-size:10pt ; '' > replace_table_token_13_th n.m. – not meaningful 42 revenues from golf course operations revenues from golf course operations increased by $ 1.8 million during the year ended december 31 , 2016 compared to the year ended december 31 , 2015 primarily due to : ( i ) a $ 5.5 million increase in net driving range revenues at public golf properties as a result of the continued growth of the players club program , ( ii ) a $ 2.0 million increase due to additional initiation fees from new member sales and higher membership dues rates , partially offset by ( iii ) a $ 3.4 million decrease in green fee and cart rental revenue as a result of unfavorable conditions , especially in california , ( iv ) a $ 1.9 million decrease in greens and cart fees and merchandise sales from properties that were exited in 2016 and ( v ) a $ 0.4 million decrease in sales of merchandise due to unfavorable conditions , especially in california .
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consolidated results the following tables summarize the changes in our consolidated results of operations from year-to-year ( dollars in thousands ) : replace_table_token_12_th n.m. – not meaningful revenues from golf course operations revenues from golf course operations decreased by $ 4.5 million during the year ended december 31 , 2017 compared to the year ended december 31 , 2016 primarily due to : ( i ) a $ 7.5 million decrease from properties that were exited in 2016 and ( ii ) a $ 3.3 million decrease in green fee and cart rental revenue primarily as a result of unfavorable weather conditions , especially in california , partially offset by ( iii ) a $ 4.0 million increase due to additional initiation fees from new member sales and higher membership dues rates and ( iv ) a $ 2.3 million increase in net driving range revenues at public golf properties as a result of the continued member growth of the players club program . sales of food and beverages sales of food and beverages decreased by $ 1.8 million during the year ended december 31 , 2017 compared to the year ended december 31 , 2016 primarily due to a decrease from properties that were exited in 2016. operating expenses operating expenses decreased by $ 6.4 million during the year ended december 31 , 2017 compared to the year ended december 31 , 2016 primarily due to : ( i ) a $ 9.0 million decrease from properties that were exited in 2016 , partially offset by ( ii ) a $ 2.2 million increase in course cleanup , repairs and maintenance primarily due to hurricane-related damage and ( iii ) a $ 0.4 million increase in legal costs .
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the acquirer is required to also record , in the same period story_separator_special_tag financial condition and results of operations the following discussion summarizes the financial position of h & e equipment services , inc. and its subsidiaries as of december 31 , 2015 , and its results of operations for the year ended december 31 , 2015 , and should be read in conjunction with the selected financial data and our consolidated financial statements and the accompanying notes thereto included elsewhere in this annual report on form 10-k. the following discussion contains , in addition to historical information , forward-looking statements that include risks and uncertainties ( see discussion of “ forward-looking statements ” included elsewhere in this annual report on form 10-k ) . our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors , including those factors set forth under item 1a—risk factors of this annual report on form 10-k. background as one of the largest integrated equipment services companies in the united states focused on heavy construction and industrial equipment , we rent , sell and provide parts and services support for four core categories of specialized equipment : ( 1 ) hi-lift or aerial work platform equipment ; ( 2 ) cranes ; ( 3 ) earthmoving equipment ; and ( 4 ) industrial lift trucks . by providing equipment rental , sales , on-site parts , repair and maintenance functions under one roof , we are a one-stop provider for our customers ' varied equipment needs . this full service approach provides us with multiple points of customer contact , enables us to maintain a high quality rental fleet , as well as an effective distribution channel for fleet disposal and provides cross-selling opportunities among our new and used equipment sales , rental , parts sales and services operations . as of february 18 , 2016 , we operated 77 full-service facilities throughout the intermountain , southwest , gulf coast , west coast , southeast and mid-atlantic regions of the united states . our work force includes distinct , focused sales forces for our new and used equipment sales and rental operations , highly skilled service technicians , product specialists and regional managers . we focus our sales and rental activities on , and organize our personnel principally by , our four core equipment categories . we believe this allows us to provide specialized equipment knowledge , improve the effectiveness of our rental and sales force and strengthen our customer relationships . in addition , we have branch managers for each location who are responsible for managing their assets and financial results . we believe this fosters accountability in our business and strengthens our local and regional relationships . through our predecessor companies , we have been in the equipment services business for approximately 55 years . h & e equipment services l.l.c . ( “ h & e llc ” ) was formed in june 2002 through the business combination of head & engquist equipment , llc ( “ head & engquist ” ) , a wholly-owned subsidiary of gulf wide industries , l.l.c . ( “ gulf wide ” ) , and icm equipment company l.l.c . ( “ icm ” ) . head & engquist , founded in 1961 , and icm , founded in 1971 , were two leading regional , integrated equipment service companies operating in contiguous geographic markets . in the june 2002 transaction , head & engquist and icm were merged with and into gulf wide , which was renamed h & e llc . prior to the combination , head & engquist operated 25 facilities in the gulf coast region , and icm operated 16 facilities in the intermountain region of the united states . prior to our initial public offering in february 2006 , our business was conducted through h & e llc . in connection with our initial public offering , we converted h & e llc into h & e equipment services , inc. in order to have an operating delaware corporation as the issuer for our initial public offering , h & e equipment services , inc. was formed as a delaware corporation and wholly-owned subsidiary of h & e holdings l.l.c . ( “ h & e holdings ” ) , and immediately prior to the closing of our initial public offering , on february 3 , 2006 , h & e llc and h & e holdings merged with and into h & e equipment services , inc. , which survived the reincorporation merger as the operating company . effective february 3 , 2006 , h & e llc and h & e holdings no longer existed under operation of law pursuant to the reincorporation merger . business segments we have five reportable segments because we derive our revenues from five principal business activities : ( 1 ) equipment rentals ; ( 2 ) new equipment sales ; ( 3 ) used equipment sales ; ( 4 ) parts sales ; and ( 5 ) repair and maintenance services . these segments are based upon how we allocate resources and assess performance . in addition , we also have non-segmented revenues and costs that relate to equipment support activities . · equipment rentals . our rental operation primarily rents our four core types of construction and industrial equipment . we have a well-maintained rental fleet and our own dedicated sales force , focused by equipment type . we actively manage the size , quality , age and composition of our rental fleet based on our analysis of key measures such as time utilization ( which we analyze as equipment usage based on : ( 1 ) a percentage of original equipment cost , and ( 2 ) the number of rental equipment units available for rent ) , rental rate trends and targets , rental equipment dollar utilization and maintenance and repair costs , which we closely monitor . we maintain fleet quality through regional quality control managers and our parts and services operations . story_separator_special_tag sales of our rental fleet equipment allow us to manage the size , quality , composition and age of our rental fleet , and provide us with a profitable distribution channel for the disposal of rental equipment . we recognize revenue for the sale of used equipment at the time of delivery to , or pick-up by , the customer and when all obligations under the sales contract have been fulfilled and collectibility is reasonably assured . parts sales . we generate revenues from the sale of new and used parts for equipment that we rent or sell , as well as for other makes of equipment . our product support sales representatives are instrumental in generating our parts revenues . they are product specialists and receive performance incentives for achieving certain sales levels . most of our parts sales come from our extensive in-house parts inventory . our parts sales provide us with a relatively stable revenue stream that is generally less sensitive to the economic cycles that tend to affect our rental and equipment sales operations . we recognize revenues from parts sales at the time of delivery to , or pick-up by , the customer and when all obligations under the sales contract have been fulfilled and collectibility is reasonably assured . services . we derive our services revenues from maintenance and repair services to customers for their owned equipment . in addition to repair and maintenance on an as-needed or scheduled basis , we also provide ongoing preventative maintenance services to industrial customers . our after-market service provides a high-margin , relatively stable source of revenue through changing economic cycles . we recognize services revenues at the time services are rendered and collectibility is reasonably assured . our non-segmented other revenues relate to equipment support activities that we provide , such as transportation , hauling , parts freight and damage waivers , and are not generally allocated to reportable segments . we recognize non-segmented other revenues at the time of billing and after the related services have been provided . principal costs and expenses our largest expenses are the costs to purchase the new equipment we sell , the costs associated with the used equipment we sell , rental expenses , rental depreciation and costs associated with parts sales and services , all of which are included in cost of revenues . for the year period ended december 31 , 2015 , our total cost of revenues was approximately $ 694.1 million . our operating expenses consist principally of selling , general and administrative expenses . for the year ended december 31 , 2015 , our selling , general and administrative expenses were $ 220.2 million . in addition , we have interest expense related to our debt instruments . operating expenses and all other income and expense items below the gross profit line of our consolidated statements of income are not generally allocated to our reportable segments . we are also subject to federal and state income taxes . future income tax examinations by state and federal agencies could result in additional income tax expense based on probable outcomes of such matters . cost of revenues : rental depreciation . depreciation of rental equipment represents the depreciation costs attributable to rental equipment . estimated useful lives vary based upon type of equipment . generally , we depreciate cranes and aerial work platforms over a ten year estimated useful life , earthmoving over a five year estimated useful life with a 25 % salvage value , and industrial lift trucks over a seven year estimated useful life . attachments and other smaller type equipment are depreciated over a three year estimated useful life . we periodically evaluate the appropriateness of remaining depreciable lives assigned to rental equipment . 28 rental expense . rental expense represents the costs associated with rental equipment , including , among other things , the cost of servicing and maintaining our rental equipment , property taxes on our fleet and other miscellaneous costs of rental equipment . new equipment sales . cost of new equipment sold primarily consists of the equipment cost of the new equipment that is sold , net of any amount of credit given to the customer towards the equipment for trade-ins . used equipment sales . cost of used equipment sold consists of the net book value of rental equipment for used equipment sold from our rental fleet , the equipment costs for used equipment we purchase for sale or the trade-in value of used equipment that we obtain from customers in equipment sales transactions . parts sales . cost of parts sales represents costs attributable to the sale of parts directly to customers . services support . cost of services revenues represents costs attributable to service provided for the maintenance and repair of customer-owned equipment and equipment then on-rent by customers . non-segmented other . these expenses include costs associated with providing transportation , hauling , parts freight , and damage waiver including , among other items , drivers ' wages , fuel costs , shipping costs , and our costs related to damage waiver policies . selling , general and administrative expenses : our selling , general and administrative ( “ sg & a ” ) expenses include sales and marketing expenses , payroll and related benefit costs , including stock compensation expense , insurance expenses , legal and professional fees , rent and other occupancy costs , property and other taxes , administrative overhead , depreciation associated with property and equipment ( other than rental equipment ) and amortization expense associated with intangible assets . these expenses are not generally allocated to our reportable segments . interest expense : interest expense for the periods presented represents the interest on our outstanding debt instruments , including aggregate amounts outstanding under our revolving senior secured credit facility ( the “ credit facility ” ) , senior unsecured notes due 2022 and our capital lease obligations , as well as our extinguished senior unsecured notes due 2016 ( the “ old notes ” ) for the periods during which such old notes were outstanding .
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results of operations the tables included in the period-to-period comparisons below provide summaries of our revenues and gross profits for our business segments and non-segmented revenues for the years ended december 31 , 2015 , 2014 and 2013. the period-to-period comparisons of our financial results are not necessarily indicative of future results . 34 year ended december 31 , 201 5 compared to the year ended december 31 , 201 4 revenues . replace_table_token_9_th total revenues . our total revenues were approximately $ 1.0 billion for the year ended december 31 , 2015 compared to $ 1.1 billion for the year ended december 31 , 2014 , a decrease of approximately $ 50.6 million , or 4.6 % . revenues for our reportable segments and non-segmented other revenues are further discussed below . equipment rental revenues . our revenues from equipment rentals for the year ended december 31 , 2015 increased $ 38.9 million , or 9.6 % , to $ 443.0 million from $ 404.1 million in 2014 , as a result of continued strong end user demand in our construction and industrial markets . rental revenues from aerial work platforms increased approximately $ 18.5 million , while rental revenues from earthmoving equipment increased $ 17.0 million . other equipment rentals revenues increased $ 2.7 million , while crane and lift truck rental revenues increased $ 0.5 million and $ 0.2 million , respectively . our average rental rates for the year ended december 31 , 2015 increased 1.3 % compared to the year ended december 31 , 2014. rental equipment dollar utilization ( annual rental revenues divided by the average original rental fleet equipment costs ) for the year ended december 31 , 2015 decreased 1.2 % to 34.6 % from 35.8 % in 2014. the decrease in comparative rental equipment dollar utilization was the result of a decrease in rental equipment time utilization , which was partially offset by the 1.3 % increase in average rental rates .
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an analysis of our financial results comparing the twelve months ended december 31 , 2014 , 2013 and 2012 . ● liquidity and capital resources . an analysis of changes in our balance sheets and cash flows and discussion of our financial condition . ● critical accounting estimates . accounting estimates that we believe are important to understanding the assumptions and judgments incorporated in our reported financial results and forecasts . the following discussion should be read in conjunction with our consolidated financial statements and accompanying notes included elsewhere in this report . the following discussion contains forward-looking statements that reflect our plans , estimates and beliefs . our actual results could differ materially from those discussed in the forward-looking statements . factors that could cause or contribute to these differences include those discussed below and elsewhere in this report , particularly under “ part i , item 1a . risk factors , ” and in other reports we file with the sec . all references to years relate to the calendar year ended december 31 of the particular year . overview aemetis is an advanced renewable fuels and biochemicals company focused on the acquisition , development and commercialization of innovative technologies that replace traditional petroleum-based products by the conversion of first generation ethanol and biodiesel plants into advanced biorefineries . we own and operate a plant in keyes , california where we manufacture and produce ethanol , wet distillers ' grain ( wdg ) , condensed distillers solubles ( cds ) and corn oil and manufacturing and refining facility in kakinada , india where we manufacture and produce fatty acid methyl ester ( biodiesel ) , crude and refined glycerin and refined palm oil . in september 2013 , we received approval by the us environmental protection agency to produce ethanol using grain sorghum and biogas as well as approval for the keyes plant to use existing combined heat and power systems to generate higher value advanced biofuel renewable identification numbers ( rin 's ) . in addition , we are continuing to research the viability of commercializing our microbial technology , which would enable us to produce renewable industrial biofuels and biochemicals and our integrated starch-cellulose technology , which would enable us to produce ethanol from non-food feedstock . 27 north america in the second quarter of 2012 , we acquired the keyes , ca ethanol plant which we had previously been operating since april 2011 pursuant to a 5-year lease agreement with cilion , inc. the keyes plant is a dry mill ethanol production facility currently utilizing corn and grain sorghum as feedstocks . we produce four products at the keyes plant : denatured ethanol , wdg , corn oil and cds . in 2014 , we sold 100 % of the ethanol and wdg we produced to j.d . heiskell pursuant to a purchase agreement established with j.d . heiskell . corn oil was sold to j.d . heiskell and other local animal feedlots ( primarily poultry ) . small amounts of cds were sold to various local third parties . ethanol pricing is determined pursuant to a marketing agreement between us and kinergy marketing llc , and is generally based on daily and monthly pricing for ethanol delivered to the san francisco bay area , california , as published by the oil price information service ( opis ) , as well as quarterly contracts negotiated by kinergy with local fuel blenders . the price for wdg is determined monthly pursuant to a marketing agreement between the company and a.l . gilbert co. , and is generally determined in reference to the price of dry distillers grains ( ddg ) and corn . north american revenue is dependent on the price of ethanol and wet distiller 's grains . ethanol pricing is influenced by national inventory levels , corn prices and gasoline prices . distiller 's grains is influenced by the price of corn , the supply of dry distiller 's grains , and demand from the local dairy and feed markets . our revenue is further influenced by our decision to operate the plant at any capacity level , maintenance requirements , and the influences of the underlying biological processes . during 2014 , the most significant factor impacting revenue has been the price received for ethanol . on january 15 , 2013 , we temporarily idled the corn grinding and ethanol production activities at our keyes , california plant due to unfavorable market conditions for corn ethanol production , while we undertook efforts perform maintenance and to restart the plant as an advanced biofuel producer . this action was in keeping with the company 's plan to move to advanced biofuel feedstocks and inputs using a recently approved combined grain sorghum and biogas epa pathway for a significant portion of our operational capacity . operations at the ethanol plant were restarted in april 2013. in september 2013 , we received approval by the us environmental protection agency to produce ethanol using grain sorghum and biogas along with the keyes plant existing combined heat and power ( chp ) system to generate higher value advanced biofuel renewable identification numbers ( rin 's ) . india during the twelve months ended december 31 , 2014 , 2013 and 2012 , we operated our biodiesel plant in india . however , our india operations were constrained by funds available from our working capital partner and by diesel price subsidies from the india government . during 2014 , the india government eliminated subsidies for diesel and increased the sales price of diesel to the market prices . our biodiesel pricing is indexed to the price of petroleum diesel , and as such , the increase in the price of petroleum diesel is expected to favorably impact the profitability of our india operations . we continue to diversify our feedstock , our product lines and our customer base . in early 2012 , we completed the construction of glycerin and oil refining units , which enable us to produce and sell refined glycerin and refined palm oil . story_separator_special_tag depending upon the costs of these inputs in comparison to the sales price of biodiesel and glycerin , our gross margins at any given time can vary from positive to negative . factory overhead includes direct and indirect costs associated with the plant , including the cost of repairs and maintenance , consumables , maintenance , on-site security , insurance , depreciation and inbound freight . we purchase nrpo , a non-edible feedstock , for our biodiesel unit from neighboring natural oil processing plants at a discount to refined palm oil . in addition , we purchase waste fats and oils from other processing plants in india . raw material is received by truck and title passes when the goods are received at our facility . credit terms vary by vendor ; however , we generally receive 15 days of credit on the purchases . we purchase crude glycerin in the international market on letters of credit or advance payment terms . sales , marketing and general administrative expenses ( sg & a ) sg & a expenses consist of employee compensation , professional services , travel , depreciation , taxes , insurance , rent and utilities , including licenses and permits , penalties , and sales and marketing fees . pursuant to an operating agreement with secunderabad oils limited , we receive operational support and working capital . we compensate secunderabad oils limited with a percentage of the profits and losses generated from operations . payments of interest are identified as interest income while payments of profit and losses are identified as compensation for the operational support component of this agreement . we therefore include the portion of profit or losses paid to secunderabad oils limited as a component of sg & a and our sg & a component will vary based on the profits earned by operations . in addition , we market our biodiesel and glycerin through our internal sales staff , commissioned agents and brokers . commissions paid to agents are included as a component of sg & a . 29 research and development expenses ( r & d ) our india segment has no research and development activities . story_separator_special_tag font-family : times new roman ; font-size : 10pt '' > north america . gross profit increased by 158.4 % in the year ended december 31 , 2014 compared to the year ended december 31 , 2013 due to corn prices falling faster than ethanol prices . corn prices decreased by 20 % while ethanol prices decreased by 3 % during the year ended december 31 , 2014 compared to the year ended december 31 , 2013. india . the decrease of 89 % in gross profit was attributable to the decrease of 63 % in overall revenues in the year ended december 31 , 2014 compared to the year ended december 31 , 2013. we had only one international shipment of distilled biodiesel as well as domestic sales of biodiesel and refined glycerin in the year ended december 31 , 2014 compared to one large domestic sale of biodiesel and sales of refined glycerin , and crude and refined palm oil sales in the year ended december 31 , 2013. operating expenses r & d fiscal year ended december 31 ( in thousands ) replace_table_token_8_th the decrease in r & d expenses in our north america segment for the year ended december 31 , 2014 compared to the year ended december 31 , 2013 is due to a decrease in depreciation and amortization of $ 169 thousand and a decrease in taxes , utilities , and other of $ 23 thousand offset by an increase of professional fees and lab equipment of $ 44 thousand and an increase in salaries of $ 68 thousand . sg & a fiscal year ended december 31 ( in thousands ) replace_table_token_9_th 31 selling , general and administrative expenses ( sg & a ) . sg & a expenses consist primarily of salaries and related expenses for employees , marketing expenses related to sales of ethanol and wdg in north america and biodiesel and other products in india , as well as professional fees , other corporate expenses , and related facilities expenses . north america . sg & a expenses as a percentage of revenue in the year ended december 31 , 2014 decreased to 6 % as compared to 9 % in the corresponding period of 2013. the decrease in sg & a in the year ended december 31 , 2014 was primarily attributable to : ( i ) reclassification of fixed costs from cost of goods sold to sg & a in early 2013 related to idling of the plant of approximately $ 2.5 million , ( ii ) decrease in 2014 stock compensation expense of approximately $ 0.5 million , and $ 0.1 million decrease in other expenses , offset by ( iii ) increase in marketing fees of $ 0.8 million , and ( iv ) increases of $ 0.9 million in consultant and financial advisory fees , $ 0.3 million in legal fees , and $ 0.3 million in engineering services during year ended december 31 , 2014. india . sg & a expenses as a percentage of revenue in the year ended december 31 , 2014 decreased slightly to 8 % as compared to 9 % in the year ended december 31 , 2013.our single largest expense in sg & a is the operational support fees paid to secunderabad oils limited based on the working capital provided . these fees are computed as a percentage of operating profits . during the 2014 , the working capital support decreased by 32 % hence decreasing the overall sg & a expenses . in addition , the 63 % decrease in revenues resulted in decreased marketing , travel , and other miscellaneous expense of $ 1.1 million . other income/expense fiscal year ended december 31 ( in thousands ) replace_table_token_10_th other income/expense . other ( income ) expense consisted primarily of interest , amortization and extinguishment expense attributable to debt facilities acquired by our parent company , our subsidiaries universal biofuels pvt .
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results of operations year ended december 31 , 2014 compared to year ended december 31 , 2013 revenues our revenues are derived primarily from sales of ethanol and wdg in north america and biodiesel and glycerin in india . fiscal year ended december 31 ( in thousands ) replace_table_token_5_th north america . the increase in revenues in north america segment for the year ended december 31 , 2014 reflects the full year operation of the keyes , ca plant compared to the operation of the keyes , ca plant for only 9 months in 2013. the full year of operation of our plant increased gallons sold in ethanol and wdg by 42 % and 36 % , respectively , while the average price decreased by 3 % and 9 % , respectively to $ 2.54 per gallon and $ 91.81 per ton . for the year ended december 31 , 2014 , we generated approximately 78 % of revenues from sales of ethanol , and 19 % of revenues from sales of wdg and 3 % of revenues from corn oil and syrup sales compared to 77 % of revenues from sales of ethanol , and 21 % of revenues from sales of wdg and 2 % of revenues from corn oil and syrup sales for the year ended december 31 , 2013. for the year ended december 31 , 2014 , plant operations averaged 109 % of nameplate capacity compared to 103 % for the nine months of operations in 2013. india .
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in addition , entities must disclose sufficient information to enable users of financial statements to story_separator_special_tag the following management 's discussion and analysis of financial condition and results of operations ( “ md & a ” ) should be read in conjunction with the consolidated financial statements and the accompanying footnotes . md & a includes the following sections : business 30 natus is a leading provider of neurology , newborn care , and hearing and balance assessment healthcare products and services used for the screening , diagnosis , detection , treatment , monitoring and tracking of common medical ailments in newborn care , hearing impairment , neurological dysfunction , neurosurgery , epilepsy , sleep disorders , neuromuscular diseases and balance and mobility disorders . year 2018 overview our consolidated revenue increased by $ 29.9 million for the year ended december 31 , 2018 compared to the year ended december 31 , 2017 . this increase was driven by the addition of our neurosurgery business , organic growth in our otometrics business unit , offset by a decline in newborn care driven by non-recurring orders from the prior year and product line rationalization . net loss was $ 22.9 million , or $ 0.69 per share in the year ended december 31 , 2018 , compared with net loss of $ 20.3 million , or $ 0.62 per diluted share in 2017 . this decrease in income was primarily the result of restructuring expenses of $ 37.2 million incurred in 2018 related to costs associated with the company 's executive management transition and goodwill impairment charge related to our gnd business . these restructuring expenses were offset by a reduction in tax expense in 2018 of $ 34.7 million compared to 2017. the reduction in tax expense was driven by a one-time tax cost of $ 20.5 million in 2017 relating to the transition tax on the deemed repatriation of all foreign subsidiary earnings ( excluding state and fin 48 tax impacts ) and a non-cash charge to establish a valuation allowance against a significant portion of the u.s. deferred tax assets related to carryforward of foreign tax credits , each due to the enactment in december 2017 of tax cuts and jobs act of 2017 ( the “ act ” ) . partially offsetting this non-recurring tax cost in 2017 , the reduction of the u.s. federal tax rate from 35 % to 21 % percent in 2018 resulted in lower tax expense of $ 8.6 million . recent developments on january 15 , 2019 , natus announced the implementation of a new organizational structure designed to improve operational performance and make it a stronger , more profitable company . natus intends to consolidate its three business units , neuro , newborn care and otometrics into “ one natus . '' this initiative is designed to create a single , unified company with globally led operational teams in sales & marketing , manufacturing , r & d , quality , and general and administrative functions . the new structure is expected to provide for increased transparency , efficiency and cross-functional collaboration across common technologies , processes and customer channels . natus expects to transition to the new structure with further implementation stages continuing throughout 2019. the description of natus ' strategic business units that is contained in this annual report describes such strategic business units as they existed during the fiscal year ended december 31 , 2018. application of critical accounting policies we prepare our financial statements in accordance with accounting principles generally accepted in the united states of america ( “ gaap ” ) . in so doing , we must often make estimates and use assumptions that can be subjective and , consequently , our actual results could differ from those estimates . for any given individual estimate or assumption we make , there may also be other estimates or assumptions that are reasonable . we believe that the following critical accounting policies require the use of significant estimates , assumptions , and judgments . the use of different estimates , assumptions , and judgments could have a material effect on the reported amounts of assets , liabilities , revenue , expenses , and related disclosures as of the date of the financial statements and during the reporting period . revenue recognition revenue is recognized when obligations under the terms of a contract with a customer are satisfied ; generally this occurs with the transfer of control of devices , supplies , or services . revenue is measured as the amount of consideration the company expects to receive in exchange for transferring goods or providing services . for the majority of devices and supplies , the company transfers control and recognizes revenue when products ship from the warehouse to the customer . the company generally does not provide rights of return on devices and supplies . freight charges billed to customers are included in revenue and freight-related expenses are charged to cost of revenue . depending on the terms of the arrangement , the company may also defer the recognition of a portion of the consideration received because it has to satisfy a future obligation ( e.g . installation ) . judgment is required to determine the standalone selling price ( “ ssp ” ) for each distinct performance obligation . the company 's estimate of ssp is a point estimate . the estimate is 31 calculated annually for each performance obligation that is not sold separately . in instances where ssp is not directly observable , such as when the company does not sell the product or service separately , the ssp is determined using information that may include market conditions and other observable inputs . the company sells separately-priced service contracts that extend maintenance coverages for both medical devices and data management systems beyond the base agreements to customers . the separately priced service contracts range from 12 months to 36 months . the company receives payment at the inception of the contract and recognizes revenue ratably over the service period . story_separator_special_tag our evaluation of includes an analysis of historical sales by product , projections of future demand by product , and an analysis of obsolescence by product . adjustments to the value of inventory establish a new cost basis and are considered permanent even if circumstances later suggest that increased carrying amounts are recoverable . if demand is higher than expected , natus may sell inventory that had previously been written down . story_separator_special_tag primarily from revenue generated from our retcam acquisition in july 2016 and sales to the venezuela ministry of health in the first quarter of 2017. supplies revenue decreased 8 % compared to the prior year on lower demand due to lower birth rates and supplies customers converting to our peloton screening service . services revenue decreased by 3 % compared to the prior year due primarily to the completion of services performed for the venezuela ministry of health in 2016 and the completion of certain contracted services in our neometrics data management business . for the year ended december 31 , 2017 , all otometrics revenue was incremental as we acquired this business on january 3 , 2017. no single customer accounted for more than 10 % of our revenue in either 2017 or 2016. revenue from domestic sales increased 8 % to $ 270.9 million in 2017 , from $ 250.7 million in 2016 due to the acquisition of otometrics and growth in our newborn care business . revenue from international sales increased 75 % in 2017 to $ 230.1 million from $ 131.2 million in 2016 primarily due to the 2017 acquisition of otometrics . revenue from domestic sales was 54 % of total revenue in 2017 compared to 66 % of total revenue in 2016 , and revenue from international sales was 46 % of total revenue in 2017 compared to 34 % of total revenue in 2016. cost of revenue and gross profit 36 replace_table_token_16_th for the year ended december 31 , 2017 , our gross profit as a percentage of sales decreased by 5.4 % compared to the prior year . this decrease in gross profit was driven by the acquisition of otometrics whose products have lower margins than our neuro and newborn care products , higher warranty reserve for our neoblue phototherapy system recall , and unfavorable geographic mix as we sold more product through our international distributor channels which yield low gross margin than our direct sales . operating costs replace_table_token_17_th marketing and selling marketing and selling expenses increased in 2017 compared to 2016. this is primarily driven by our acquisition of otometrics . research and development research and development expenses increased during the year ended december 31 , 2017 compared to the prior year . this is primarily driven by activities related primarily to the remediation of certain deficiencies identified by the fda in our newborn care business as well as the otometrics acquisition . general and administrative general and administrative expenses increased during the year ended december 31 , 2017 compared to the prior year . the increase is related primarily to the otometrics acquisition . intangibles amortization intangibles amortization increased in 2017 compared to 2016. the increase is mainly driven by additional intangible amortization from the acquisition of otometrics and , to a lesser extent , the integra asset acquisition as well as the 2016 neuroquest and retcam acquisitions . restructuring restructuring costs decreased during the year ended december 31 , 2017 compared to the prior year . in the prior year we experienced higher expenses related to facilities consolidation and severance expense to reduce redundant costs as well as restructuring charges related mostly to the abandonment of two facilities . other income ( expense ) , net 37 other income ( expense ) , net consists of interest income , interest expense , net currency exchange gains and losses , and other miscellaneous income and expense . we reported other expense , net of $ 3.6 million in 2017 , compared to $ 0.4 million in 2016. we reported $ 1.0 million of foreign currency exchange gains in 2017 versus $ 0.3 million of foreign currency losses in 2016. this increase was driven primarily by the changing value of foreign currencies in which we transact . interest expense was $ 5.1 million in 2017 compared to $ 0.4 million in 2016 due to interest expense payments on our $ 155.0 million debt outstanding while interest income of $ 0.4 million in 2017 was $ 0.3 million more than the amount reported for 2016. provision for income tax the effective tax rate ( “ etr ” ) for 2017 was 494.0 % as compared to 22.4 % for 2016. the significantly higher effective tax rate in 2017 compared with 2016 is primarily due to the impacts of the 2017 tax act , including the repatriation tax on accumulated foreign earnings and re-measurement of net deferred tax assets . other increases include withholding taxes from distribution of income and additional tax expense related to the settlement of tax audits in foreign jurisdictions , offset by change in geographic mix of income and utilization of certain tax credits in domestic and foreign jurisdictions . liquidity and capital resources liquidity is our ability to generate sufficient cash flows from operating activities to meet our obligations and commitments . in addition , liquidity includes the ability to obtain appropriate financing and to raise capital . therefore , liquidity can not be considered separately from capital resources that consist of our current funds and the potential to increase those funds in the future . we plan to use these resources in meeting our commitments and in achieving our business objectives . we believe that our current cash and cash equivalents and any cash generated from operations will be sufficient to meet our ongoing operating requirements for the foreseeable future . as of december 31 , 2018 , we had cash and cash equivalents outside the u.s. in certain of our foreign operations of $ 46.8 million .
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results of operations the following table sets forth for the periods indicated selected consolidated statement of income data as a percentage of total revenue . our historical operating results are not necessarily indicative of the results for any future period . replace_table_token_11_th 33 comparison of 2018 and 2017 revenue replace_table_token_12_th for the year ended december 31 , 2018 , neuro revenue increased by 15 % compared to the prior year . devices and systems revenue increased by 17 % compared to the prior year due primarily to the addition of acquired neurosurgery products and growth in eeg sales . supplies revenue for 2018 increased 12 % which was also driven by the addition of our neurosurgery business and organic growth in our neurodiagnostic supply business . services revenue from gnd increased 1 % compared to the prior year . for the year ended december 31 , 2018 , newborn care revenue decreased by 14 % compared to the prior year . devices and systems revenue decreased by 18 % . the decrease is primarily due to the recognition of $ 10.0 million of revenue in the first half of 2017 from our contract with the government of venezuela which did not reoccur in 2018. we also experienced a one-time shipment of neoblue blanket backlog in the first quarter of 2017 and a one-time shipment of hearing devices and supplies to china , japan , and australia in the second quarter of 2017. supplies revenue decreased 9 % compared to the prior year related to revenue contract with the government of venezuela , which did not reoccur in 2018 , as well as product line rationalization . services revenue decreased by 9 % compared to the prior year primarily due to a lower collection per screen on our peloton hearing screening service . for the year ended december 31 , 2018 , otometrics revenue increased 12 % compared to the prior year .
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in addition , in connection with certain significant corporate transactions , deerfield , at its option , may ( i ) require aerie to prepay all or a portion of the principal amount of the 2014 convertible notes , plus accrued and unpaid interest , or ( ii ) convert all or a portion of the principal amount of the 2014 convertible notes into shares of common stock or receive the consideration deerfield would have received had deerfield converted the 2014 convertible notes immediately prior to the consummation of the transaction . the 2014 convertible notes provide for an increase in the conversion rate if deerfield elects to convert their 2014 convertible notes in connection with a significant corporate transaction . the current maximum increase to the initial conversion rate , in connection with a story_separator_special_tag the following management 's discussion and analysis should be read in conjunction with our audited financial statements and related notes that appear elsewhere in this annual report on form 10-k. this management 's discussion and analysis contains forward-looking statements that involve risks and uncertainties . please see “ special note regarding forward-looking statements ” for additional factors relating to such statements , and see “ risk factors ” in part i , item 1a of this report for a discussion of certain risk factors applicable to our business , financial condition and results of operations . past operating results are not necessarily indicative of operating results in any future periods . overview we are a clinical-stage pharmaceutical company focused on the discovery , development and commercialization of first-in-class therapies for the treatment of patients with glaucoma and other diseases of the eye . our two advanced stage product candidates are designed to lower intraocular pressure , or iop , in patients with open-angle glaucoma and ocular hypertension . both product candidates are small molecule eye-drops dosed once-daily and have shown in preclinical and clinical trials to be effective in lowering iop , with novel mechanisms of action , or moas , and a positive safety profile . our lead product candidate is once-daily rhopressa ophthalmic solution ( netarsudil ophthalmic solution ) 0.02 % ( “ rhopressa ” ) . we resubmitted our new drug application ( “ nda ” ) with the u.s. food and drug administration ( “ fda ” ) for rhopressa on february 28 , 2017 and expect a standard 12-month fda review period for the nda from the date of resubmission . our initial submission , announced in september 2016 , was withdrawn as a result of a contract manufacturer of our drug product not being prepared for pre-approval inspection by the fda . the nda submission included our second phase 3 registration trial for rhopressa , named “ rocket 2 , ” as the pivotal clinical trial and our initial phase 3 registration trial , named “ rocket 1 , ” as supportive in nature . we successfully completed the 90-day efficacy component of rocket 2 in september 2015 when the trial achieved its primary efficacy endpoint of demonstrating non-inferiority of rhopressa compared to timolol . the final primary baseline iops for rocket 2 were above 20 mmhg , or millimeters of mercury , to below 25 mmhg . we also included as supportive data the 90-day efficacy results of rocket 4 and mercury 1 , each as further discussed below , with the nda submission for rhopressa . in rocket 2 , in addition to successfully achieving non-inferiority to timolol at the primary efficacy endpoint range , the 12-month safety data from this registration trial also confirmed a positive safety profile for the drug and demonstrated a consistent iop lowering effect throughout the 12-month period at the specified 8 a.m. measurement time points . in the primary efficacy results from mercury 1 , rhopressa demonstrated non-inferiority to latanoprost , the most commonly prescribed drug for the treatment of patients with glaucoma . we are also conducting a third phase 3 registration trial for rhopressa , named “ rocket 3 , ” in canada , which is designed as a supplementary 12-month safety-only trial and is not required for nda filing purposes . rocket 3 commenced in september 2014 and patients are no longer being enrolled in this trial . further , we are conducting a fourth phase 3 registration trial for rhopressa , named “ rocket 4 , ” in the u.s. , which is designed to generate adequate six-month safety data for european regulatory approval , which we expect to file for in the second half of 2018. in october 2016 , we announced the 90-day efficacy results from rocket 4 where rhopressa achieved its primary efficacy endpoint of demonstrating non-inferiority of rhopressa compared to timolol for patients with baseline iops ranging from above 20 mmhg to below 25 mmhg , and also at a pre-specified secondary range from above 20 mmhg to below 28 mmhg . we are developing rhopressa as the first of a new class of compounds that is designed to lower iop in patients through novel moas . we believe that , if approved , rhopressa will represent the first new moas for lowering iop in patients with glaucoma in over 20 years . based on preclinical studies and clinical data to date , we expect that rhopressa , if approved , will have the potential to compete with non-pga ( prostaglandin analog ) products as a preferred adjunctive therapy to pgas , due to its targeting of the diseased tissue known as the trabecular meshwork , or tm , its demonstrated iop-lowering ability at consistent levels across tested baselines with once-daily dosing relative to currently marketed non-pga products , its potential synergistic effect with pga products , its once daily dosing and its lack of serious drug related adverse events . story_separator_special_tag in 2016 , we terminated our collaboration and license arrangements with graybug , inc. for drug delivery technology and elected not to extend our collaboration agreement with ramot at tel aviv university , ltd. for a preclinical anti-beta amyloid molecule . neither of these collaborations represented a material financial commitment by aerie . our strategy includes developing our business outside of north america , including obtaining regulatory approval on our own for our current product candidates in europe and japan . for commercialization outside of north america , we expect to explore partnership opportunities through collaboration and licensing arrangements in europe and japan . in 2015 , we revised our corporate structure to align with our business strategy outside of north america by establishing aerie pharmaceuticals limited , a wholly-owned subsidiary ( “ aerie limited ” ) , and aerie pharmaceuticals ireland limited , a wholly owned subsidiary ( “ aerie ireland limited ” ) . we assigned the beneficial rights to our non-u.s. and non-canadian intellectual property for our lead product candidates to aerie limited ( the “ ip assignment ” ) . as part of the ip assignment , we and aerie limited entered into a research and development cost sharing agreement pursuant to which we and aerie limited will share the costs of the development of intellectual property and aerie limited and aerie ireland limited entered into a license arrangement pursuant to which aerie ireland limited will develop and commercialize the beneficial rights of the intellectual property assigned as part of the ip assignment . in 2016 , we assigned the beneficial rights to certain of our intellectual property in the united states and canada to aerie distribution , inc. , a wholly owned subsidiary ( “ aerie distribution ” ) , and amended and restated the research and development cost sharing agreement to transfer our rights and obligations under the agreement to aerie distribution . in january 2017 , we entered into a lease agreement for a new manufacturing plant in athlone , ireland . the building shell was constructed by the industrial development agency of ireland and we are in the early stages of building out the plant . if we obtain regulatory approval , the manufacturing plant is expected to produce commercial supplies of our current product candidates , with commercial product supply of rhopressa tm from the plant expected to be available by 2020. we have incurred net losses since our inception in june 2005. our operations to date have been limited to research and development and raising capital . as of december 31 , 2016 , we had an accumulated deficit of $ 316.6 million . we recorded net losses of $ 99.1 million , $ 74.4 million and $ 48.1 million for the years ended december 31 , 2016 , 2015 and 2014 , respectively . we anticipate that a substantial portion of our capital resources and efforts in the foreseeable future will be focused on completing the development and obtaining regulatory approval and preparing for potential commercialization and manufacturing of our product candidates . we incurred increased research and development expenses for the year ended december 31 , 2016 as compared to the year ended december 31 , 2015 as we continued to initiate and conduct clinical trials for rhopressa and roclatan and pursue regulatory approval . as we prepare for commercialization , we will incur increasing levels of commercial , sales , marketing and manufacturing expenses . since our initial public offering ( “ ipo ” ) in october 2013 , we are also incurring additional expenses associated with operating as a public company . as a result , we expect to continue to incur significant operating losses until such a time when our product candidates are commercially successful , if at all . prior to our ipo , we raised net cash proceeds of $ 78.6 million from the private placement of convertible preferred stock and convertible notes . prior to and in connection with our ipo , all outstanding shares of convertible preferred stock and all convertible notes were converted into shares of common stock . on october 30 , 2013 , we completed our ipo and raised net proceeds of approximately $ 68.3 million , after deducting underwriting discounts and commissions of $ 5.4 million and expenses of $ 3.6 million . since our ipo , we have issued $ 125.0 million aggregate principal amount of senior secured convertible notes ( the “ 2014 convertible notes ” ) , for which we received net proceeds of approximately $ 122.9 million , after deducting discounts and certain expenses of $ 2.1 million , have issued 5,933,712 shares of our common stock under our former “ at-the-market ” sales agreements , for which we received net proceeds of approximately $ 146.6 million , after deducting commissions at a rate of up to 3 % of the gross sales price per share sold and other fees and expenses , and have issued 2,542,373 shares of our common stock pursuant to an underwriting agreement , dated september 15 , 2016 , with cantor fitzgerald & co. , for which we received net proceeds of approximately $ 71.0 million , after deducting the underwriting discount , fees and expenses of approximately $ 4.0 million . our cash , cash equivalents and investments totaled $ 233.7 million as of december 31 , 2016 and are currently expected to provide sufficient resources for our ongoing needs . see “ -operating capital requirements. ” 68 to date , we have not generated product revenue and we do not expect to generate product revenue unless and until we successfully complete development and obtain regulatory approval for one or more of our product candidates . if we do not successfully commercialize any of our product candidates , we may be unable to generate product revenue or achieve profitability . we may be required to obtain further funding through public or private offerings , debt financing , collaboration and licensing arrangements or other sources .
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results of operations comparison of the years ended december 31 , 2016 and 2015 the following table summarizes the results of our operations for the years ended december 31 , 2016 and 2015 : replace_table_token_7_th 73 general and administrative expenses general and administrative expenses increased by $ 13.8 million for the year ended december 31 , 2016 as compared to the year ended december 31 , 2015 . this increase was primarily associated with the expansion of our employee base to support the growth of our operations and preparatory commercial manufacturing activities , which commenced in 2016. personnel costs increased by $ 6.2 million , including an increase in salaries and related expenses of $ 3.6 million and an increase in employee stock based compensation expense of $ 2.6 million . our preparatory commercial manufacturing activities have primarily been related to the validation and scale-up of our current manufacturing activities for which we incurred $ 7.5 million of expenses during the year ended december 31 , 2016 . research and development expenses for the year ended december 31 , 2016 , our research and development activity was primarily associated with phase 3 registration trials for rhopressa and roclatan . research and development expenses increased by $ 7.9 million for the year ended december 31 , 2016 as compared to the year ended december 31 , 2015 . costs for roclatan increased by $ 11.6 million , including increased direct clinical costs of $ 11.1 million and increased direct non-clinical costs of $ 0.5 million primarily as a result of commencing mercury 1 and mercury 2 in september 2015 and march 2016 , respectively . costs for rhopressa decreased by $ 10.0 million as direct clinical costs decreased by $ 5.7 million and direct non-clinical costs decreased by $ 4.3 million due to the timing of our clinical trials and initial nda submission .
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the warrants have an exercise price of $ 22.40 , are exercisable immediately and will terminate on july 24 , 2014. the warrants have no anti-dilution ratcheting provision therefore ; they did not increase as a result of the 2011 shareholders ' rights offering . 2011 shareholders ' rights offering on march 10 , 2011 , nephros announced the completion of its rights offering and private placement that together resulted in gross proceeds of approximately $ 3.2 million and net proceeds of approximately $ 2.3 million to nephros after deducting the payments to lambda investors llc and after estimated expenses of the rights offering . in the rights offering , nephros sold 4,964,854 units at $ 0.40 per unit for gross proceeds of approximately $ 2.0 million , resulting in the issuance of 4,964,854 shares of common stock and warrants to purchase an aggregate of 4,590,171 shares of common stock . the warrants expire on march 10 , 2016 and have an exercise price of $ 0.40 per share . on march 10 , 2011 , based on the completion of the rights offering , lambda investors llc , the company 's largest stockholder , purchased in a private placement 3,009,711 units at a per unit purchase price of $ 0.40 for aggregate gross proceeds of approximately $ 1.2 million , pursuant to a purchase agreement between nephros and lambda investors llc . each unit consisted of one share of common stock and a warrant to purchase 0.924532845 shares of common stock at an exercise price of $ 0.40 per share for a period of five years following the issue date of the warrant , resulting in lambda investors llc acquiring 3,009,711 shares of common stock and a warrant to purchase 2,782,577 shares of common stock . net proceeds , after deducting the aggregate of $ 666,650 in payments due lambda investors llc were approximately $ 537,000 . on january 10 , 2011 , the company 's stockholders voted to implement a 1:20 reverse stock split of the company 's common stock . the reverse split became effective on march 11 , 2011. all of the share and per share amounts discussed in these financial statements on form 10-k have been adjusted to reflect the effect of this reverse split . warrants exercised during 2012 and 2011 shareholders exercised 1,096,313 for proceeds of approximately $ 438,000 and 436,668 warrants for proceeds of approximately $ 174,000 for the years ended december 31 , 2012 and 2011 , respectively . note 9 - 401 ( k ) plan the company has established a 401 ( k ) deferred contribution retirement plan ( the “ 401 ( k ) plan ” ) which covers all employees . the 401 ( k ) plan provides for voluntary employee contributions of up to 15 % of annual earnings , as defined . as of january 1 , 2004 , the company began matching 100 % of the first 3 % and 50 % of the next 2 % of employee earnings to the 401 ( k ) plan . the company contributed and expensed $ 49,000 and $ 28,000 in 2012 and 2011 , respectively . note 10 - commitments and contingencies manufacturing and suppliers the company has not and does not intend in the near future , to manufacture any of its products and components . with regard to the olpur md190 and md220 , on story_separator_special_tag the following discussion includes forward-looking statements about our business , financial condition , and results of operations , including discussions about management 's expectations for our business . these statements represent projections , beliefs and expectations based on current circumstances and conditions and in light of recent events and trends , and you should not construe these statements either as assurances of performances or as promises of a given course of action . instead , various known and unknown factors are likely to cause our actual performance and management 's actions to vary , and the results of these variances may be both material and adverse . a list of the known material factors that may cause our results to vary , or may cause management to deviate from its current plans and expectations , is included in item 1a “ risk factors. ” the following discussion should also be read in conjunction with the consolidated financial statements and notes included herein . 23 going concern our independent registered public accounting firm has included an explanatory paragraph in their report on our financial statements included in this form 10-k which expressed doubt as to our ability to continue as a going concern . the accompanying financial statements have been prepared assuming that we will continue as a going concern , however , there can be no assurance that we will be able to do so . our recurring losses and difficulty in generating sufficient cash flow to meet our obligations and sustain our operations raise substantial doubt about our ability to continue as a going concern , and our consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty . business overview nephros is a commercial stage medical device company that develops and sells high performance liquid purification filters . our filters , which we call ultrafilters , are primarily used in dialysis centers and healthcare facilities for the production of ultrapure water and bicarbonate . because our ultrafilters capture contaminants as small as 0.005 microns in size , they eliminate a wide variety of bacteria , viruses , fungi , parasites , and endotoxins harmful to humans . all of our ultrafilters use proprietary hollow fiber technology . story_separator_special_tag this model requires the input of highly subjective assumptions and elections including expected stock price volatility and the estimated life of each award . in addition , the calculation of compensation costs requires that we estimate the number of awards that will be forfeited during the vesting period . the fair value of stock-based awards is amortized over the vesting period of the award . for stock awards that vest based on performance conditions ( e.g . achievement of certain milestones ) , expense is recognized when it is probable that the condition will be met . accounts receivable we provide credit terms to our customers in connection with purchases of our products . we periodically review customer account activity in order to assess the adequacy of the allowances provided for potential collection issues and returns . factors considered include economic conditions , each customer 's payment and return history and credit worthiness . adjustments , if any , are made to reserve balances following the completion of these reviews to reflect our best estimate of potential losses . inventory reserves our inventory reserve requirements are based on factors including the products ' expiration date and estimates for the future sales of the product . if estimated sales levels do not materialize , we will make adjustments to our assumptions for inventory reserve requirements . 25 accrued expenses we are required to estimate accrued expenses as part of our process of preparing financial statements . this process involves identifying services which have been performed on our behalf , and the level of service performed and the associated cost incurred for such service as of each balance sheet date in our financial statements . examples of areas in which subjective judgments may be required include costs associated with services provided by contract organizations for the preclinical development of our products , the manufacturing of clinical materials , and clinical trials , as well as legal and accounting services provided by professional organizations . in connection with such service fees , our estimates are most affected by our understanding of the status and timing of services provided relative to the actual levels of services incurred by such service providers . the majority of our service providers invoice us monthly in arrears for services performed . in the event that we do not identify certain costs , which have begun to be incurred , or we under- or over-estimate the level of services performed or the costs of such services , our reported expenses for such period would be too low or too high . the date on which certain services commence , the level of services performed on or before a given date and the cost of such services are often determined based on subjective judgments . we make these judgments based upon the facts and circumstances known to us in accordance with generally accepted accounting principles . results of operations story_separator_special_tag these capitalized costs were fully amortized by the first quarter of 2011. other income/expense other income in the amount of approximately $ 69,000 for the year ended december 31 , 2012 was primarily due to approximately $ 55,000 arising from the sale of fully depreciated manufacturing equipment sold to medica in october 2012. in addition , approximately $ 18,000 was related to the write-offs of vendor invoices which are no longer due . other income was partially offset by $ 4,000 related to foreign currency losses on invoices paid to an international supplier . other expense in the amount of approximately $ 2,000 for the year ended december 31 , 2011 was due to foreign currency loss on invoices paid to an international supplier . off-balance sheet arrangements we did not engage in any off-balance sheet arrangements during the periods ended december 31 , 2012 and december 31 , 2011. liquidity and capital resources our future liquidity sources and requirements will depend on many factors , including : · receipt of scheduled payments per the bellco s.r.l . license agreement ; · the availability of additional financing , through the sale of equity securities or otherwise , on commercially reasonable terms or at all ; · the market acceptance of our products , and our ability to effectively and efficiently produce and market our products ; · the continued progress in and the costs of clinical studies and other research and development programs ; · the costs involved in filing and enforcing patent claims and the status of competitive products ; and · the cost of litigation , including potential patent litigation and any other actual or threatened litigation . 27 we expect to put our current capital resources to the following uses : · for the marketing and sales of our water-filtration products ; · to pursue business development opportunities with respect to our chronic renal treatment system ; and · for working capital purposes . in response to liquidity issues experienced with our auction rate securities , and in order to facilitate greater liquidity in our short-term investments , on march 27 , 2008 , our board of directors adopted an investment , risk management and accounting policy . such policy limits the types of instruments or securities in which we may invest our excess funds in the future to : u.s. treasury securities ; certificates of deposit issued by money center banks ; money funds by money center banks ; repurchase agreements ; and eurodollar certificates of deposit issued by money center banks . this policy provides that our primary objectives for investments shall be the preservation of principal and achieving sufficient liquidity to meet our forecasted cash requirements . in addition , provided that such primary objectives are met , we may seek to achieve the maximum yield available under such constraints . on march 10 , 2011 we completed our rights offering and private placement that together resulted in gross proceeds of approximately $ 3.2 million to us .
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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 annual results of operations will be impacted for the foreseeable future by several factors including the progress and timing of expenditures related to our research and development efforts , marketing expenses related to product launches , timing of regulatory approval of our various products and market acceptance of our products . 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 . the fiscal year ended december 31 , 2012 compared to the fiscal year ended december 31 , 2011 revenues total revenues for the year ended december 31 , 2012 were approximately $ 1,807,000 compared to approximately $ 2,214,000 for the year ended december 31 , 2011. total revenues decreased approximately $ 407,000 , or 18 % as a result of decreases of approximately $ 733,000 related to our md filters in europe , $ 346,000 related to the office of naval research , whose contract ended as of march 2012 , and approximately $ 33,000 related to the steris project .
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debt discounts and deferred financing fees are presented net of long-term debt , less the current portion in the consolidated balance sheet and are amortized to interest expense through maturity . 4. financial instruments and story_separator_special_tag the following discussion should be read in conjunction with the consolidated financial statements of berry global group , inc. and its subsidiaries and the accompanying notes thereto , which information is included elsewhere herein . this discussion contains forward-looking statements and involves numerous risks and uncertainties , including , but not limited to , those described in the `` risk factors '' section . our actual results may differ materially from those contained in any forward-looking statements . segment level discussion of the results is disclosed in a manner consistent with the organization structure at the end of the presented period . the company 's fiscal year is based on fifty-two or fifty-three week periods . fiscal 2017 and fiscal 2015 were fifty-two week periods and fiscal 2016 was a fifty-three week period . overview berry global group , inc. ( `` berry , '' `` we , '' or the `` company '' ) is a leading provider of value-added engineered materials , nonwoven specialty materials and consumer packaging with a track record of delivering high-quality customized solutions to our customers . we sell our products predominantly into stable , consumer-oriented end-markets , such as healthcare , personal care , and food and beverage . our customers consist of a diverse mix of leading global , national , mid-sized regional and local specialty businesses . the size and scope of our customer network allows us to introduce new products we develop or acquire to a vast audience that is familiar with our business . in fiscal 2017 , no single customer represented more than 5 % of net sales and our top ten customers represented 16 % of net sales . we believe our manufacturing processes and our ability to leverage our scale to reduce expenses positions us as a low-cost manufacturer relative to our competitors . story_separator_special_tag conditions of the purchase agreement . the company expects to realize annual cost synergies of approximately $ 20 million from the completion of the clopay transaction . 13 aep industries inc. in january 2017 , the company acquired aep industries inc. ( `` aep '' ) for a purchase price of $ 791 million , net of cash acquired . a portion of the purchase price consisted of issuing 6.4 million of berry common shares which were valued at $ 324 million at the time of closing . aep manufactures and markets an extensive and diverse line of polyethylene and polyvinyl chloride flexible plastic packaging products with consumer , industrial , and agricultural applications . the acquired business is operated in our engineered materials segment . to finance the purchase , the company entered into an incremental assumption agreement to increase the commitments under the company 's existing term loan credit agreement by $ 500 million due 2024. the company expects annual cost synergies of approximately $ 80 million from the aep transaction with full realization expected in fiscal 2018. adchem corp in june 2017 , the company acquired adchem corp 's ( `` adchem '' ) tapes business for a purchase price of $ 49 million . adchem is a leader in the development of high performance adhesive tape systems for the automotive , construction , electronics , graphic arts , medical and general tape markets . the acquired business is operated in our engineered materials segment . to finance the purchase , the company used existing liquidity . avintiv inc. in october 2015 , the company acquired 100 % of the capital stock of avintiv inc. ( `` avintiv '' ) for a purchase price of $ 2.26 billion , net of cash acquired . avintiv was one of the world 's leading developers , producers , and marketers of nonwoven specialty materials used in hygiene , infection prevention , personal care , industrial , construction , and filtration applications . with 23 locations in 14 countries , an employee base of over 4,500 people , the broadest range of process technologies in the nonwoven industry , and strategically located manufacturing facilities , avintiv was positioned as a global supplier to many of the same leading consumer and industrial product manufacturers as berry 's existing business . to finance the purchase , the company issued $ 400 million aggregate principal amount of 6.0 % second priority senior secured notes due 2022 and entered into an incremental assumption agreement to increase the commitments under the company 's existing term loan credit agreement by $ 2.1 billion due 2022. the results of avintiv have been included in the consolidated results of the company since the date of the acquisition . the company estimates that approximately $ 80 million of annual cost synergies were realized from the avintiv acquisition . discussion of results of operations for fiscal 2017 compared to fiscal 2016 consistent with historical presentation , acquisition ( businesses acquired in the last twelve months ) sales and operating income disclosed within this section represents the historical results from acquisitions for the comparable prior year period . the remaining change disclosed represents the changes from the prior period on a combined basis . business integration expenses consist of restructuring and impairment charges , acquisition related costs , and other business optimization costs . tables present dollars in millions . replace_table_token_5_th the net sales increase of $ 606 million is primarily attributed to acquisition net sales of $ 788 million and selling price increases of $ 60 million due to the pass through of higher resin prices , partially offset by a negative $ 136 million impact from a 2 % base volume decline , $ 98 million from extra days in fiscal 2016 , and a slight negative impact from foreign currency changes . story_separator_special_tag the change in currency translation gains were primarily attributed to locations utilizing the euro , pound sterling , and brazilian real as their functional currency . unrealized gains on pension plans in the current period were primarily attributable to actuarial gains from an increase in the underlying discount rate . as part of the overall risk management , the company uses derivative instruments to reduce exposure to changes in interest rates attributed to the company 's floating-rate borrowings and records changes to the fair value of these instruments in accumulated other comprehensive income . the change in fair value of these instruments in fiscal 2017 versus fiscal 2016 is primarily attributed to a change in the forward interest curve between measurement dates . discussion of results of operations for fiscal 2016 compared to fiscal 2015 consistent with historical presentation , acquisition ( businesses acquired in the last twelve months ) sales and operating income disclosed within this section represents the historical results from acquisitions for the comparable prior year period . the remaining change disclosed represents the changes from the prior period on a combined basis . business integration expenses consist of restructuring and impairment charges , manufacturing inefficiencies associated with cost reduction plans , major innovation start-up and other business optimization costs . tables present dollars in millions . replace_table_token_14_th the net sales increase of $ 1,608 million is primarily attributed to acquisition net sales of $ 1,935 million , partially offset by a $ 237 million decline in selling prices due to the pass through of lower raw material costs , a negative $ 29 million impact from a less than 1 % base volume decline , and a $ 61 million negative impact from foreign currency changes . the operating income increase of $ 173 million is primarily attributed to a $ 117 million improvement in our product mix and price/cost spread including contribution from sourcing synergies , acquisition operating income of $ 118 million , and $ 10 million from net productivity improvements in manufacturing . these improvements were partially offset by a $ 55 million increase in depreciation and amortization expense primarily related to purchase accounting adjustments associated with the avintiv acquisition , a $ 12 million negative impact from foreign currency changes , a $ 6 million impact from the less than 1 % base volume declines , and a slight increase in selling , general and administrative expenses . replace_table_token_15_th 16 net sales in the engineered materials segment decreased by $ 74 million primarily attributed to selling price decreases of $ 73 million due to the pass through of lower resin prices and an $ 8 million unfavorable impact from currency translation partially offset by a $ 9 million impact from a 1.5 % base volume improvement . increased shipping days in the first quarter had approximately 2.0 % impact on fiscal 2016 volumes . the operating income increase of $ 33 million is primarily attributed to a $ 39 million improvement in our product mix and price/cost spread , a $ 2 million improvement in productivity in manufacturing , and a slight decrease in selling , general and administrative expenses , partially offset by a $ 6 million non-cash legal reserve , and negative impact from foreign currency changes . the improvement in selling , general and administrative expenses is primarily attributed cost reduction efforts partially offset by increased shipping days in the first quarter and higher accrued performance-based bonus expense . replace_table_token_16_th net sales in the health , hygiene & specialties segment increased by $ 1,750 million primarily attributed to acquisition net sales of $ 1,935 million partially offset by selling price decreases of $ 86 million due to the pass through of lower resin prices , a $ 53 million unfavorable impact from foreign currency , and a negative $ 49 million impact from a 2.0 % volume decline . the volume decline is primarily attributed to a negative impact due to decreased shipping days in avintiv 's prior year december quarter , strategic pricing actions and improvements in the product mix in europe . the operating income increase of $ 137 million is primarily attributed to acquisition operating income of $ 118 million , a $ 63 million improvement in our product mix and price/cost spread including contribution from sourcing synergies , an $ 13 million increase from net productivity improvements in manufacturing , and a $ 11 million decrease in selling , general and administrative expenses , partially offset by a $ 40 million increase in depreciation and amortization expense primarily related to purchase accounting adjustments associated with the avintiv acquisition , $ 7 million from base volume declines , an $ 10 million increase in business integration costs , and a $ 11 million unfavorable impact from foreign currency changes . the increase in business integration expenses is the result of restructuring costs associated with the avintiv acquisition and a $ 2 million impairment charge related to plant shutdowns . replace_table_token_17_th net sales in the consumer packaging segment decreased by $ 68 million primarily attributed to selling price decreases of $ 78 million due to the pass through of lower resin prices , partially offset by improved base volumes . increased shipping days in the first quarter had approximately 2.0 % favorable impact on volumes partially offset by product light-weighting , product redesign and softer consumer packaged food demand . the operating income increase of $ 3 million is primarily attributed to a $ 19 million decrease in business integration and restructuring expenses , and a $ 15 million improvement in our product mix and price/cost spread , partially offset by a $ 15 million increase in selling , general and administrative expenses primarily attributed to increased shipping days in the first quarter and higher accrued performance-based bonus expense , a $ 14 million increase in depreciation and amortization expense , and a $ 4 million decline in operating performance in manufacturing .
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executive summary business . the company 's operations are organized into three operating segments : engineered materials , health , hygiene & specialties , and consumer packaging . the structure is designed to align us with our customers , provide improved service , and drive future growth in a cost efficient manner . the engineered materials segment primarily consists of tapes and adhesives , polyethylene based film products , can liners , printed films , and specialty coated , and laminated products . the health , hygiene & specialties segment primarily consists of nonwoven specialty materials and films used in hygiene , infection prevention , personal care , industrial , construction and filtration applications . the consumer packaging segment primarily consists of containers , foodservice items , closures , overcaps , bottles , prescription containers , and tubes . in october 2016 , the company realigned portions of our operating segments in order to leverage geographic management teams and commercial activities . the international portion of our retail & industrial product line was moved from engineered materials to the specialties product line within health , hygiene & specialties , resulting in a $ 140 million and $ 148 million movement in net sales in fiscal 2016 and fiscal 2015 , respectively . additionally , to align the newly acquired aep business with our existing core films business , $ 306 million and $ 340 million of net sales were moved from consumer packaging to engineered materials in the fiscal 2016 and fiscal 2015 , respectively . as result of these organizational realignments , we have recast prior period segment amounts . 12 raw material trends . our primary raw material is plastic resin . polypropylene and polyethylene account for approximately 90 % of our plastic resin pounds purchased . plastic resins are subject to price fluctuations , including those arising from supply shortages and changes in the prices of natural gas , crude oil and other petrochemical intermediates from which resins are produced .
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loans are generally placed on non-accrual status when they become 90 days past due unless management believes the loan is adequately collateralized and in the story_separator_special_tag this discussion presents management 's analysis of the financial condition and results of operations as of and for the years ended december 31 , 2011 , 2010 and 2009. this discussion should be read in conjunction with our consolidated financial statements and the notes related thereto presented elsewhere in this report . see also cautionary note regarding forward-looking statements. critical accounting policies we have established various accounting policies that govern the application of gaap in the preparation of our consolidated financial statements . our significant accounting policies are described in the notes to consolidated financial statements , note 2 summary of significant accounting policies. certain accounting policies require us to make significant estimates and assumptions that have a material impact on the carrying value of certain assets and liabilities , and we consider these critical accounting policies . we use estimates and assumptions based on historical experience and other factors that we believe to be reasonable under the circumstances . actual results could differ significantly from these estimates and assumptions , which could have a material impact on the carrying value of assets and liabilities at the balance sheet dates and our results of operations for the reporting periods . management has discussed the development and selection of these critical accounting policies with the audit committee of hanmi financial 's board of directors . allowance for loan losses we believe the allowance for loan losses and allowance for off-balance sheet items are critical accounting policies that require significant estimates and assumptions that are particularly susceptible to significant change in the preparation of our financial statements . our allowance for loan losses methodologies incorporate a variety of risk considerations , both quantitative and qualitative , in establishing an allowance for loan losses that management believes is appropriate at each reporting date . quantitative factors include our historical loss experiences on 14 segmented loan pools by type and risk rating , delinquency and charge-off trends , collateral values , changes in non-performing loans , and other factors . qualitative factors include the general economic environment in our markets , delinquency and charge-off trends , and the change in non-performing loans . concentration of credit , change of lending management and staff , quality of loan review system , and change in interest rate are other qualitative factors that are considered in our methodologies . see financial condition allowance for loan losses and allowance for off-balance sheet items , results of operations provision for credit losses and notes to consolidated financial statements , note 2 summary of significant accounting policies for additional information on methodologies used to determine the allowance for loan losses and allowance for off-balance sheet items . loan sales we normally sell sba and residential mortgage loans to secondary market investors . when sba guaranteed loans are sold , we generally retain the right to service these loans . we record a loan servicing asset when the benefits of servicing are expected to be more than adequate compensation to a servicer , which is determined by discounting all of the future net cash flows associated with the contractual rights and obligations of the servicing agreement . the expected future net cash flows are discounted at a rate equal to the return that would adequately compensate a substitute servicer for performing the servicing . in addition to the anticipated rate of loan prepayments and discount rates , other assumptions ( such as the cost to service the underlying loans , foreclosure costs , ancillary income and float rates ) are also used in determining the value of the loan servicing assets . loan 55 servicing assets are discussed in more detail in notes to consolidated financial statements , note 2 summary of significant accounting policies and note 5 loans presented elsewhere herein . we reclassify certain nonperforming loans to loans held for sale . in such reclassification , we take into consideration of the following factors , but are not limited to ; npl and or classified status , non-accrual status , and days delinquent ; possibility of rehabilitation or workout for the near future and long term earning capability as an asset ; number of times the note was modified ; overall debt coverage ratio ; whether the debt is on troubled debt restructure status ; the location of the collateral ; and the borrower 's overall financial condition . the fair value of nonperforming loans held for sale is generally based upon the recent appraisal , quotes , bids or sales contract price which approximate the fair value . nonperforming loans held for sale are recorded at the lower of cost or fair value . investment securities the classification and accounting for investment securities are discussed in more detail in notes to consolidated financial statements , note 2 summary of significant accounting policies presented elsewhere herein . under fasb asc 320 , investment , investment securities generally must be classified as held-to-maturity , available-for-sale or trading . the appropriate classification is based partially on our ability to hold the securities to maturity and largely on management 's intentions with respect to either holding or selling the securities . the classification of investment securities is significant since it directly impacts the accounting for unrealized gains and losses on securities . unrealized gains and losses on trading securities flow directly through earnings during the periods in which they arise . investment securities that are classified as held-to-maturity are recorded at amortized cost . unrealized gains and losses on available-for-sale securities are recorded as a separate component of stockholders ' equity ( accumulated other comprehensive income or loss ) and do not affect earnings until realized or are deemed to be other-than-temporarily impaired . story_separator_special_tag the increase in net income for the year ended december 31 , 2011 as compared to the year ended december 31 , 2010 was primarily due to the lower levels of provision for 57 credit losses of $ 12.1 million compared to $ 122.5 million in 2010. the decline in net losses for the year ended december 31 , 2010 as compared to the year ended december 31 , 2009 was primarily the result of lower levels of provision for credit losses of $ 122.5 million compared to $ 196.4 million in 2009. for the years ended december 31 , 2011 , 2010 and 2009 , our income per diluted share was $ 1.38 , and loss per diluted share was $ ( 7.46 ) and $ ( 20.56 ) , respectively . on july 27 , 2010 , we completed a registered rights and best efforts public offering of our common stock by which we raised $ 116.8 million in net proceeds . as a result , we satisfied the $ 100 million capital contribution requirement set forth in the final order and the bank has met the threshold for being considered well-capitalized for regulatory purposes since september 30 , 2010. on november 18 , 2011 , we completed an underwritten public offering of our common stock by which we raised $ 77.1 million in net proceeds . as a result , we satisfied the tangible stockholders ' equity to total tangible assets ratio requirement of not less than 9.5 percent , set forth in the final order as of december 31 , 2011. based on submissions to and consultations with our regulators , we believe that the bank has taken the required corrective action and has complied with substantially all of the requirements of the final order and the written agreement . for a further discussion of the bank 's capital condition and capital resources , see capital resources and liquidity. we have made continuous efforts to improve our asset quality through proactive loan monitoring , accelerated problem loan resolutions , and sales of non-performing assets . in accordance with our liquidity preservation strategy , funds raised from the secondary stock offerings and sales of loans were placed into highly liquid assets . as a result , we maintained a strong liquidity position with $ 700.4 million in cash and marketable securities as of december 31 , 2011. significant financial highlights include : the company 's total risk-based capital ratio improved to 18.66 percent as of december 31 , 2011 compared to 12.32 percent as of december 31 , 2010. the bank 's tangible common equity to tangible assets also improved to 12.48 percent as of december 31 , 2011 compared to 8.59 percent as of december 31 , 2010. non-performing loans decreased to $ 52.4 million , or 2.70 percent of total gross loans , as of december 31 , 2011 compared to $ 142.4 million , or 6.38 percent as of december 31 , 2010. the coverage ratio of the allowance to non-performing loans increased to 171.71 percent as of december 31 , 2011 compared to 102.54 percent as of december 31 , 2010. the cost of funds and deposit decreased through changes in the composition of our deposit portfolio . the average funding cost decreased by 29 basis points to 1.41 percent for the year ended december 31 , 2011 compared to 1.70 percent for the year ended december 31 , 2010. the average deposit cost decreased by 33 basis points to 1.00 percent for the year ended december 31 , 2011 compared to 1.33 percent for the year ended december 31 , 2010. net interest margin improved by 13 basis points to 3.68 percent for the year ended december 31 , 2011 compared to 3.55 percent for the year ended december 31 , 2010. operating efficiency improved with total non-interest expense down 13.2 percent to $ 84.0 million for the year ended december 31 , 2011 from $ 96.8 million for the year ended december 31 , 2010. as a result , the efficiency ratio improved to 67.2 percent for the year december 31 , 2011 from 73.7 percent for the year ended december 31 , 2010 . 58 outlook for fiscal 2012 for 2012 , our priorities will be to enhance our capital position , continue to improve our credit quality and to comply fully with all of the requirements of the final order and the written agreement . we believe that our proactive initiatives to manage credit risk exposure have resulted in improvement of our asset quality over the past several quarters . we are committed to refine our credit risk management systems to meet the challenges of our changing economic environment . based on our current liquidity position , we have begun to consider strategic changes . we are currently planning to develop innovative new products and services as well as generate quality new loans to expand our existing customer base with the goal of improving our profitability . based on our current liquidity position , we have begun to consider strategic changes . we are currently planning to develop innovative new products and services as well as generate quality new loans to expand our existing customer base with the goal of improving our profitability . in the event that the final order and the written agreement are lifted , we intend to pay interest in arrears on our outstanding junior subordinated debentures to bring them current . we continue to evaluate available options to enhance our capital position . responding to the rapidly changing economy , additional capital from alternative sources may be necessary to provide us with adequate capital resources to support our business , our level of problem assets and our operations . story_separator_special_tag basis point decrease in 2010 to 4.85 percent from 5.13 percent in 2009 , primarily due to lower yields on investment securities , which was partially offset by an increase in loan portfolio yield .
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results of operations net interest income , net interest spread and net interest margin our earnings depend largely upon net interest income , which is the difference between the interest income received from our loan portfolio and other interest-earning assets and the interest paid on deposits and borrowings . the difference between the yield earned on interest-earning assets and the cost of interest-bearing liabilities is net interest spread. net interest income , when expressed as a percentage of average total interest-earning assets , is referred to as the net interest margin. net interest income is affected by the change in the level and mix of interest-earning assets and interest-bearing liabilities , referred to as volume changes. our net interest income also is affected by changes in the yields earned on interest-earning assets and rates paid on interest-bearing liabilities , referred to as rate changes. interest rates charged on loans are affected principally by the demand for such loans , the supply of money available for lending purposes and competitive factors . those factors are affected by general economic conditions and other factors beyond our control , such as federal economic policies , the general supply of money in the economy , income tax policies , governmental budgetary matters and the actions of the frb . 59 the following table shows the average balances of assets , liabilities and stockholders ' equity ; the amount of interest income and interest expense ; the average yield or rate for each category of interest-earning assets and interest-bearing liabilities ; and the net interest spread and the net interest margin for the periods indicated . replace_table_token_9_th ( 1 ) average balances for loans include non-accrual loans and net of deferred fees and related direct costs . loan fees have been included in the calculation of interest income .
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standby letters of credit generally are contingent upon the failure of the customer to perform according to the terms of the underlying contract story_separator_special_tag this section presents management 's perspective on our financial condition and results of operations and highlights material changes to our financial condition and results of operations as of and for the years ended december 31 , 2019 and 2018 . the following discussion and analysis should be read in conjunction with our consolidated financial statements and related notes contained herein . to the extent that this discussion describes prior performance , the descriptions relate only to the periods listed , which may not be indicative of our future financial outcomes . in addition to historical information , this discussion contains forward-looking statements that involve risks , uncertainties and assumptions that could cause results to differ materially from management 's expectations . factors that could cause such differences are discussed in the sections titled “ cautionary note regarding forward-looking statements ” at the beginning of this document and “ item 1a . risk factors. ” general we are a bank holding company that operates through two reportable segments : bank and investment management . through tristate capital bank , a pennsylvania chartered bank ( the “ bank ” ) , the bank seg ment provides commercial banking services to middle-market businesses and private banking services to high-net-worth individuals and trusts . the bank segment generates most of its revenue from interest on loans and investments , swap fees , loan fees , and liquidity and treasury management related fees . its primary source of funding for loans is deposits and its secondary source of funding is borrowings . the bank 's largest expenses are interest on these deposits and borrowings , and salaries and related empl oyee benefits . through chartwell investment partners , llc , an sec registered investment adviser ( “ chartwell ” ) , the investment manage ment segment provides advisory and sub-advisory investment management services primarily to institutional investors , mutual funds and individual investors . it also supports marketing efforts for chartwell 's proprietary investment products through chartwell tsc securities corp. , our registered broker/dealer subsidiary ( “ ctsc securities ” ) . the investment management segme nt generates its revenue from investment management fees earned on assets under management and its largest expenses are salaries and related employee benefits . this discussion and analysis present our financial condition and results of operations on a consolidated basis , except where significant segment disclosures are necessary to better explain the operations of each segment and related variances . in particular , the discussion and analysis of non-interest income and non-interest expense is reported by segment . we measure our performance primarily through our net income available to common shareholders , earnings per common share ( “ eps ” ) and total revenue . other salient metrics include the ratio of allowance for loan and lease losses to loans ; net interest margin ; the efficiency ratio of the bank segment ; return on average assets ; return on average common equity ; regulatory leverage and risk-based capital ratios , assets under management and ebitda of the investment management segment . executive overview tristate capital holdings , inc. ( “ we , ” “ us , ” “ our , ” the “ holding company , ” the “ parent company , ” or the “ company ” ) is a bank holding company headquartered in pittsburgh , pennsylvania . the company has three wholly owned subsidiaries : the bank , chartwell , and ctsc securities . through the bank , we serve middle-market businesses in our primary markets throughout the states of pennsylvania , ohio , new jersey and new york . we also serve high-net-worth individuals and trusts on a national basis through our private banking channel . we market and distribute our products and services through a scalable , branchless banking model , which creates significant operating leverage throughout our business as we continue to grow . through chartwell , our investment management subsidiary , we provide investment management services primarily to institutional investors , mutual funds and individual investors on a national basis . ctsc securities , our broker/dealer subsidiary , supports marketing efforts for chartwell 's proprietary investment products that require sec or financial industry regulatory authority , inc. ( “ finra ” ) licensing . 2019 compared to 2018 operating performance for the year ended december 31 , 2019 , our net income available to common shareholders was $ 54.4 million compared to $ 52.3 million in 2018 , an increase of $ 2.1 million , or 4.1 % . this increase was primarily due to the net impact of ( 1 ) a $ 13.7 million , or 12.0 % , increase in our net interest income ; ( 2 ) an increase in the credit to provision for loan and lease losses of $ 763,000 ; ( 3 ) an increase of $ 4.9 million , or 10.2 % , in non-interest income ; offset by ( 4 ) an increase of $ 11.0 million , or 10.9 % , in our non-interest expense ; ( 5 ) a $ 2.5 million increase in income taxes ; and ( 6 ) an increase in preferred stock dividends of $ 3.6 million . our diluted earnings per share ( “ eps ” ) was $ 1.89 for the year ended december 31 , 2019 , compared to $ 1.81 in 2018 . the increase in diluted eps was a result of the continued growth of our business lines , which was the driver of additional net income available to common shareholders . 45 for the year ended december 31 , 2019 , total revenue increased $ 18.0 million , or 11.2 % , to $ 179.4 million from $ 161.4 million in 2018 , driven largely by higher net interest income and swap fees for the bank . story_separator_special_tag this increase was primarily due to the net impact of ( 1 ) a $ 22.1 million , or 24.1 % , increase in our net interest income ; ( 2 ) a decrease in the credit to provision for loan losses of $ 418,000 ; ( 3 ) an increase of $ 951,000 , or 2.0 % , in non-interest income ; offset by ( 4 ) an increase of $ 9.7 million , or 10.6 % , in our non-interest expense ; ( 5 ) a $ 3.5 million decrease in income taxes ; and ( 6 ) an increase in preferred stock dividends of $ 2.1 million . 46 our diluted eps was $ 1.81 for the year ended december 31 , 2018 , compared to $ 1.32 in 2017 . the increase in diluted eps was a result of our continued growth in net income available to common shareholders . for the year ended december 31 , 2018 , total revenue increased $ 23.4 million , or 16.9 % , to $ 161.4 million from $ 138.0 million in 2017 , driven by higher net interest income and swap fees for the bank , as well as higher investment management fees for chartwell . our net interest margin was 2.26 % for the year ended december 31 , 2018 , as compared to 2.25 % in 2017 . the increase in net interest margin for the year ended december 31 , 2018 , was driven by an increase in the yield on loans , largely offset by an increase in the cost of funds . our non-interest income is largely comprised of investment management fees for chartwell , which totaled $ 37.6 million for the year ended december 31 , 2018 , as compared to $ 37.1 million in 2017. the increase was driven by higher assets under management related to the columbia acquisition and net inflows , partially offset by market depreciation . for the year ended december 31 , 2018 , the bank 's efficiency ratio was 53.09 % , as compared to 57.39 % in 2017 , primarily as a result of growth in total revenue , tempered by the growth in non-interest expense . our non-interest expense to average assets for the year ended december 31 , 2018 , was 1.93 % , as compared to 2.15 % in 2017 . our return on average assets was 1.00 % for the year ended december 31 , 2018 , as compared to 0.89 % in 2017 . our return on average common equity was 12.57 % for the year ended december 31 , 2018 , as compared to 10.30 % in 2017 . the increase in these ratios is due to continued growth in earnings . total assets of $ 6.04 billion as of december 31 , 2018 , increased $ 1.26 billion , or 26.3 % , from december 31 , 2017 . loans held-for-investment grew by $ 948.6 million to $ 5.13 billion as of december 31 , 2018 , an increase of 22.7 % from december 31 , 2017 , as a result of growth in our commercial and private banking loan portfolios . total deposits increased $ 1.06 billion , or 26.7 % , to $ 5.05 billion as of december 31 , 2018 , from $ 3.99 billion as of december 31 , 2017 . our ratio of adverse-rated credits to total loans declined to 0.48 % at december 31 , 2018 , from 0.71 % at december 31 , 2017. our ratio of allowance for loan losses to loans decreased to 0.26 % as of december 31 , 2018 , from 0.34 % as of december 31 , 2017 , reflecting low non-performing loans and lower levels of provision required for private banking loans . our book value per common share increased $ 1.66 , or 12.2 % , to $ 15.27 as of december 31 , 2018 , from $ 13.61 as of december 31 , 2017 , largely as a result of an increase in our net income available to common shareholders , partially offset by the issuance of restricted stock and the purchase of treasury shares during year ended december 31 , 2018. results of operations net interest income net interest income represents the difference between the interest received on interest-earning assets and the interest paid on interest-bearing liabilities . net interest income is affected by changes in the volume of interest-earning assets and interest-bearing liabilities and changes in interest yields earned and interest rates paid . net interest income comprised 70.8 % , 70.3 % and 66.2 % of total revenue for the years ended december 31 , 2019 , 2018 and 2017 , respectively . 47 the table below reflects an analysis of net interest income , on a fully taxable equivalent basis , for the periods indicated . the adjustment to convert certain income to a fully taxable equivalent basis consists of dividing tax-exempt income by one minus the statutory federal income tax rate of 21 % for 2019 , 21 % for 2018 and 35 % for 2017 . replace_table_token_15_th ( 1 ) calculated on a fully taxable equivalent basis . 48 the following table provides information regarding the average balances and yields earned on interest-earning assets and the average balances and rates paid on interest-bearing liabilities for the years ended december 31 , 2019 , 2018 and 2017 . non-accrual loans are included in the calculation of average loan balances , while interest payments collected on non-accrual loans are recorded as a reduction to principal . where applicable , interest income and yield are reflected on a fully taxable equivalent basis and have been adjusted based on the statutory federal income tax rate of 21 % for 2019 , 21 % for 2018 and 35 % for 2017 . replace_table_token_16_th ( 1 ) calculated on a fully taxable equivalent basis . net interest income for the years ended december 31 , 2019 and 2018 .
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summary of significant accounting policies and note 6 , allowance for loan and lease losses , for more details on the company 's allowance for loan and lease losses . the following table summarizes the allowance for loan and lease losses , as of the dates indicated : replace_table_token_27_th as of december 31 , 2019 , we had specific reserves totaling $ 171,000 related to impaired loans with an aggregated total outstanding balance of $ 171,000 . as of december 31 , 2018 , we had specific reserves totaling $ 437,000 related to impaired loans with an aggregated total outstanding balance of $ 2.2 million . all loans with specific reserves were on non-accrual status as of december 31 , 2019 and december 31 , 2018 . the following tables summarize allowance for loan and lease losses and the percentage of loans by loan category , as of the dates indicated : replace_table_token_28_th allowance for loan and lease losses as of december 31 , 2019 and 2018 . our allowance for loan and lease losses was $ 14.1 million , or 0.21 % of loans , as of december 31 , 2019 , as c ompared to $ 13.2 million , or 0.26 % of loans , as of december 31 , 2018 . our allowance for loan and lease losses related to private banking loans increased $ 31,000 from december 31 , 2018 to december 31 , 2019 , which was attributable to higher general reserves due to growth in this portfolio , partially offset by lower specific reserves on non-performing loans . our allowance for loan and lease losses related to commercial and industrial loans decreased $ 502,000 from december 31 , 2018 to december 31 , 2019 , which was attributable to lower general reserves due to an improved credit loss history .
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as part of the acquisition , the company recorded goodwill of story_separator_special_tag forward-looking statements certain statements in this filing and future filings by the company with the sec , in the company 's press releases or other public or shareholder communications or in oral statements made with the approval of an authorized executive officer , contain forward-looking statements , as defined in the private securities litigation reform act . these statements may be identified by the use of phrases such as “ anticipate , ” “ believe , ” “ expect , ” “ forecasts , ” “ projects , ” “ will , ” “ can , ” “ would , ” “ should , ” “ could , ” “ may , ” or other similar terms . there are a number of factors , many of which are beyond the company 's control that could cause actual results to differ materially from those contemplated by the forward-looking statements . factors that may cause actual results to differ materially from those contemplated by such forward-looking statements include , among others , the following possibilities : ( 1 ) local , regional , national and international economic conditions and the impact they may have on the company and its customers and the company 's assessment of that impact ; ( 2 ) changes in the level of nonperforming assets and charge-offs ; ( 3 ) changes in estimates of future reserve requirements based upon the periodic review thereof under relevant regulatory and accounting requirements ; ( 4 ) the effects of and changes in trade and monetary and fiscal policies and laws , including the interest rate policies of the federal reserve board ( `` frb '' ) ; ( 5 ) inflation , interest rate , securities market and monetary fluctuations ; ( 6 ) political instability ; ( 7 ) acts of war or terrorism ; ( 8 ) the timely development and acceptance of new products and services and perceived overall value of these products and services by users ; ( 9 ) changes in consumer spending , borrowings and savings habits ; ( 10 ) changes in the financial performance and or condition of the company 's borrowers ; ( 11 ) technological changes ; ( 12 ) acquisitions and integration of acquired businesses ; ( 13 ) the ability to increase market share and control expenses ; ( 14 ) changes in the competitive environment among financial holding companies ; ( 15 ) the effect of changes in laws and regulations ( including laws and regulations concerning taxes , banking , securities and insurance ) with which the company and its subsidiaries must comply including those under the dodd-frank act ; ( 16 ) the effect of changes in accounting policies and practices , as may be adopted by the regulatory agencies , as well as the public company accounting oversight board , the financial accounting standards board ( `` fasb '' ) and other accounting standard setters ; ( 17 ) changes in the company 's organization , compensation and benefit plans ; ( 18 ) the costs and effects of legal and regulatory developments including the resolution of legal proceedings or regulatory or other governmental inquiries and the results of regulatory examinations or reviews ; ( 19 ) greater than expected costs or difficulties related to the integration of new products and lines of business ; and ( 20 ) the company 's success at managing the risks involved in the foregoing items . the company cautions readers not to place undue reliance on any forward-looking statements , which speak only as of the date made , and advises readers that various factors including , but not limited to , those described above , could affect the company 's financial performance and could cause the company 's actual results or circumstances for future periods to differ materially from those anticipated or projected . unless required by law , the company does not undertake , and specifically disclaims any obligations to , publicly release any revisions that may be made to any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements . general the financial review , which follows focuses on the factors affecting the consolidated financial condition and results of operations of the company and its wholly-owned subsidiaries , the bank , nbt financial services and nbt holdings during 2017 and , in summary form , the preceding two years . collectively , the registrant and its subsidiaries are referred to herein as “ the company. ” net interest margin is presented in this discussion on a fully taxable equivalent ( `` fte '' ) basis . average balances discussed are daily averages unless otherwise described . the audited consolidated financial statements and related notes as of december 31 , 2017 and 2016 and for each of the years in the three-year period ended december 31 , 2017 should be read in conjunction with this review . amounts in prior period consolidated financial statements are reclassified whenever necessary to conform to the 2017 presentation . critical accounting policies the company has identified policies as being critical because they require management to make particularly difficult , subjective and or complex judgments about matters that are inherently uncertain and because of the likelihood that materially different amounts would be reported under different conditions or using different assumptions . these policies relate to the allowance for loan losses , pension accounting and provision for income taxes . management of the company considers the accounting policy relating to the allowance for loan losses to be a critical accounting policy given the uncertainty in evaluating the level of the allowance required to cover credit losses inherent in the loan portfolio and the material effect that such judgments can have on the results of operations . while management 's current evaluation of the allowance for loan losses indicates that the allowance is appropriate , under adversely different conditions or assumptions , the allowance may need to be increased . story_separator_special_tag total loans increased $ 386.7 million , or 6.2 % , from december 31 , 2016 to december 31 , 2017. increases in commercial real estate , consumer and commercial loans were the primary drivers of the increase in total loans from 2016 as the company experienced strong originations in 2017 in the upstate new york , pennsylvania and new england markets . 34 the following table reflects the loan portfolio by major categories for the years indicated : composition of loan portfolio replace_table_token_9_th residential real estate mortgages consist primarily of loans secured by first or second deeds of trust on primary residences . loans in the commercial and agricultural categories , including commercial and agricultural real estate mortgages , consist primarily of short-term and or floating rate loans made to small and medium-sized entities . consumer loans include $ 1.2 billion of indirect installment loans to individuals , which is secured by automobiles and other personal property including marine , recreational vehicles and manufactured housing , as of december 31 , 2017 and 2016. consumer loans also consist of direct installment loans to individuals secured by similar collateral . although automobile loans have generally been originated through dealers , all applications submitted through dealers are subject to the company 's normal underwriting and loan approval procedures . in addition , the consumer loan portfolio as of december 31 , 2017 and 2016 includes $ 403.6 million $ 374.9 million , respectively , of unsecured consumer loans across a national footprint originated through our relationship with national technology-driven consumer lending companies that began 10 years ago as the result of our investment in springstone financial llc ( `` springstone '' ) . advances of credit through this specialty lending business line are to prime borrowers and are subject to the company 's underwriting standards . real estate construction and development loans include commercial construction and development and residential construction loans . commercial construction loans are for small and medium-sized office buildings and other commercial properties and residential construction loans are primarily for projects located in upstate new york and northeastern pennsylvania . risks associated with the commercial real estate portfolio include the ability of borrowers to pay interest and principal during the loan 's term , as well as the ability of the borrowers to refinance at the end of the loan term . the following table , maturities and sensitivities of certain loans to changes in interest rates , summarizes the maturities of the commercial and agricultural and real estate construction and development loan portfolios and the sensitivity of those loans to interest rate fluctuations at december 31 , 2017. scheduled repayments are reported in the maturity category in which the contractual payment is due . maturities and sensitivities of certain loans to changes in interest rates remaining maturity at december 31 , 2017 ( in thousands ) within one year after one year but within five years after five years total floating/adjustable rate : commercial , commercial real estate , agricultural and agricultural real estate $ 474,290 $ 419,618 $ 1,335,712 $ 2,229,620 fixed rate : commercial , commercial real estate , agricultural and agricultural real estate 65,990 441,692 290,967 798,649 total $ 540,280 $ 861,310 $ 1,626,679 $ 3,028,269 securities and corresponding interest and dividend income the average balance of securities available for sale ( `` afs '' ) increased $ 113.1 million , or 9.1 % , from 2016 to 2017. the fte yield on average afs securities was 2.14 % for 2017 compared to 1.98 % in 2016. the average balance of securities held to maturity ( `` htm '' ) increased from $ 487.8 million in 2016 to $ 507.6 million in 2017. at december 31 , 2017 , htm securities were comprised primarily of tax-exempt municipal securities . the fte yield on htm securities increased from 2.51 % in 2016 to 2.66 % in 2017 . 35 the average balance of federal reserve bank and fhlb stock increased to $ 46.7 million in 2017 from $ 38.9 million in 2016. the fte yield from investments in federal reserve bank and fhlb stock increased from 5.08 % in 2016 to 5.64 % in 2017. securities portfolio replace_table_token_10_th our mortgage backed securities , u.s. agency notes and cmos are all “ prime/conforming ” and are guaranteed by fannie mae , freddie mac , the fhlb , the federal farm credit banks or ginnie mae ( “ gnma ” ) . gnma securities are considered equivalent to u.s. treasury securities , as they are backed by the full faith and credit of the u.s. government . currently , there are no securities backed by subprime mortgages in our investment portfolio . the following tables set forth information with regard to contractual maturities of debt securities at december 31 , 2017 : replace_table_token_11_th funding sources and corresponding interest expense the company utilizes traditional deposit products such as time , savings , now , money market and demand deposits as its primary source for funding . other sources , such as short-term fhlb advances , federal funds purchased , securities sold under agreements to repurchase , brokered time deposits and long-term fhlb borrowings are utilized as necessary to support the company 's growth in assets and to achieve interest rate sensitivity objectives . the average balance of interest-bearing liabilities increased $ 263.1 million from 2016 and totaled $ 5.8 billion in 2017. the rate paid on interest-bearing liabilities increased from 0.41 % in 2016 to 0.45 % in 2017. this increase in rates and increase in average balances caused an increase in interest expense of $ 3.4 million , or 15.1 % , from $ 22.5 million in 2016 to $ 25.9 million in 2017 . 36 deposits average interest bearing deposits increased $ 96.2 million , or 2.0 % , from 2016 to 2017 , due primarily to organic deposit growth . average money market deposits increased $ 28.8 million or 1.7 % during 2017 compared to 2016. average now accounts increased $ 75.8 million or 7.0 % during 2017 as compared to 2016. the average balance of savings accounts increased $ 79.3
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overview significant factors management reviews to evaluate the company 's operating results and financial condition include , but are not limited to : net income and earnings per share , return on assets and equity , net interest margin , noninterest income , operating expenses , asset quality indicators , loan and deposit growth , capital management , liquidity and interest rate sensitivity , enhancements to customer products and services , technology advancements , market share and peer comparisons . the following information should be considered in connection with the company 's results for the fiscal year ended december 31 , 2017 : ● net income for 2017 was $ 82.2 million , the highest in the company 's history , and up from $ 78.4 million in 2016 . ● net income for 2017 excluding the $ 4.4 million estimated one-time , non-cash charge recorded in the provision for income taxes related to tax reform was $ 86.6 million , up 10.4 % from 2016 . 31 ● net interest margin for 2017 increased 4 basis points driven by increases in loans and securities . ● continued demand deposit growth strategies resulting in 8.4 % growth in average deposits from 2016 to 2017 . ● asset quality indicators showed stability from last year : ▪ nonperforming loans to total loans were 0.47 % at december 31 , 2017 compared to 0.65 % at december 31 , 2016 ; ▪ past due loans to total loans decreased to 0.63 % at december 31 , 2017 from 0.64 % at december 31 , 2016 ; and ▪ net charge-offs to average loans were 0.42 % for 2017 compared to 0.39 % in 2016 . ● increased efforts to grow noninterest income with focus on organic growth of our wealth management businesses .
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we assume no obligation to update these forward‑looking statements to reflect actual results or changes in factors or assumptions affecting forward‑looking statements , except as may be required by law . overview the semiconductor capital equipment industry is subject to cyclical swings in capital spending by semiconductor chip manufacturers . capital spending is influenced by demand for semiconductors and the products using them , the utilization rate and capacity of existing semiconductor chip manufacturing facilities and changes in semiconductor technology , all of which are outside of our control . as a result , our revenue may fluctuate from year to year and period to period . our established cost structure does not vary significantly with changes in volume . we may also experience fluctuations in operating results and cash flows depending on our revenue level . despite a significant slowdown in memory spending in the second half of 2018 , revenue increased by nearly 8 % over 2017 , with systems revenue increasing by 6.7 % , and revenues from customer support & innovation ( “ cs & i ” ) , our aftermarket business , increasing by nearly 10 % . 2018 full year gross margin exceeded 40 % and cash increased by 33 % to nearly $ 178 million . our 2018 results were the product of hard work across the company over prior years to expand the purion install base to a large and diverse group of customers . we have focused on key markets in the mature process technology sector such as image sensor , power device and mature foundry and logic . we developed purion product extensions specifically for these markets , becoming key partners with these customers . as a result , our fourth quarter 2018 revenues showed a split of 68 % mature process technology and 32 % memory , illustrating our expansion into the mature process technology sector , and the reduction in our dependence on memory customers . for the full year the mix was 54 % mature process technology and 46 % memory . we also continued to work diligently to ensure that manufacturing and operating expense levels remain well aligned to business conditions . the market for our systems and aftermarket products and services is represented by a relatively small number of companies . in 2018 , the top 20 semiconductor chip manufacturers accounted for approximately 88.8 % of total semiconductor capital equipment spending , down from 90.9 % in 2017. our net revenue from our ten largest customers accounted for 76.9 % of total revenue for the year ended december 31 , 2018 compared to 73.3 % and 70.2 % of revenue for the years ended december 31 , 2017 and 2016 , respectively . for the year ended december 31 , 2018 , we had two customers representing 20.1 % and 12.1 % of total revenue , respectively . critical accounting estimates management 's discussion and analysis of our financial condition and results of operations are based upon axcelis ' consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . the preparation of these financial statements requires management 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 and assumptions . management 's estimates are based 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 18 liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . we believe the following accounting policies are critical in the portrayal of our financial condition and results of operations and require management 's most significant judgments and estimates in the preparation of our consolidated financial statements . for additional accounting policies see note 2 to the consolidated financial statements for the year ended december 31 , 2018 included in this annual report on form 10-k. revenue recognition our accounting policies relating to the recognition of revenue require management to make estimates , determinations and judgments based on historical experience and on various other assumptions , which include ( i ) the existence of a contract with the customer , ( ii ) the identification of the performance obligations in the contract , ( iii ) the value of any variable consideration in the contract , ( iv ) the stand alone selling price of multiple obligations in the contract , for the purpose of allocating the consideration in the contract , and ( v ) determining when a performance obligation has been met . our revenue recognition policies are set forth in section ( i ) of note 2 , summary of significant accounting policies , to the consolidated financial statements for the year ended december 31 , 2018 included in this annual report on form 10-k. recognition of revenue based on incorrect judgments , including an erroneous allocation of the estimated sales price between the units of accounting , could result in inappropriate recognition of revenue , or incorrect timing of revenue recognition , which could have a material effect on our financial condition and results of operations . impairment of long‑lived assets we record impairment losses on long‑lived assets when events and circumstances indicate that these assets might not be recoverable . recoverability is measured by a comparison of the assets ' carrying amount to their expected future undiscounted net cash flows . if such assets are considered to be impaired , the impairment is measured based on the amount by which the carrying value exceeds its fair value . actual performance could be materially different from our current forecasts , which could impact estimates of undiscounted cash flows and may result in the impairment of the carrying amount of the long‑lived assets in the future . story_separator_special_tag we evaluate the weight of all available evidence such as historical losses , the expected timing of the reversals of existing temporary differences and projected future taxable income to determine whether it is more likely than not that some portion or all of the net deferred income tax assets will not be realized . our income tax expense includes the largest amount of tax benefit for an uncertain tax position that is more likely than not to be sustained upon audit based on the technical merits of the tax position . settlements with tax authorities , the expiration of statutes of limitations for particular tax positions , or obtaining new information on particular tax positions may cause a change to the effective tax rate . we recognize accrued interest related to unrecognized tax benefits as interest expense and penalties as operating expense . story_separator_special_tag 23 gross profit / gross margin the following table sets forth our gross profit : replace_table_token_3_th 2018 compared with 2017 product gross margin from product revenue was 43.2 % for the twelve months ended december 31 , 2018 , compared to 39.3 % for the twelve months ended december 31 , 2017. the increase in gross margin of 3.9 % resulted from improved margins on purion systems and a lower excess reserve for inventory due to a $ 6.2 million write-down of legacy inventory in 2017. services gross margin from services revenue was 0.6 % for the twelve months ended december 31 , 2018 , compared to ( 8.3 ) % for the twelve months ended december 31 , 2017. the increase in gross margin in the recent period is primarily attributable to decreased costs on service contracts . 2017 compared with 2016 product gross margin from product revenue was 39.3 % for the twelve months ended december 31 , 2017 , compared to 39.0 % for the twelve months ended december 31 , 2016. the increase in gross margin of 0.3 % resulted from improved margins on purion systems , partially offset by a $ 6.2 million write-down of legacy inventory in 2017. services gross margin from services revenue was ( 8.3 ) % for the twelve months ended december 31 , 2017 , compared to 19.0 % for the twelve months ended december 31 , 2016. the decrease in gross margin is primarily attributable to increased costs on service contracts . 24 operating expenses the following table sets forth our operating expenses : replace_table_token_4_th our operating expenses consist primarily of personnel costs , including salaries , commissions , bonuses , stock-based compensation and related benefits and taxes ; project material costs related to the design and development of new products and enhancement of existing products ; and professional fees , travel and depreciation expenses . personnel costs are our largest expense , representing $ 74.3 million , or 62.1 % of our total operating expenses , for the year ended december 31 , 2018 ; $ 64.5 million , or 63.0 % , of our total operating expenses for the year ended december 31 , 2017 ; and $ 47.6 million , or 57.5 % , of our total operating expenses for the year ended december 31 , 2016. research and development replace_table_token_5_th our ability to remain competitive depends largely on continuously developing innovative technology , with new and enhanced features and systems and introducing them at competitive prices on a timely basis . accordingly , based on our strategic plan , we establish annual r & d budgets to fund programs that we expect will drive competitive advantages . 2018 compared with 2017 research and development expense was $ 51.9 million in 2018 , an increase of $ 8.8 million , or 20.4 % , compared with $ 43.1 million in 2017. the increase was primarily due to increased headcount and to project costs to support development of new purion products and extensions . 2017 compared with 2016 research and development expense was $ 43.1 million in 2017 , an increase of approximately $ 8.7 million , or 25.2 % , compared with $ 34.4 million in 2016. the increase was primarily due to variable incentive plan expense and to a lesser extent to increased headcount . 25 sales and marketing replace_table_token_6_th our sales and marketing expenses result primarily from the sale of our equipment and services through our direct sales force . 2018 compared with 2017 sales and marketing expense was $ 34.6 million in 2018 , an increase of $ 6.1 million , or 21.3 % , compared with $ 28.5 million in 2017. the increase was primarily due to increased headcount . 2017 compared with 2016 sales and marketing expense was $ 28.5 million in 2017 , an increase of $ 4.7 million , or 19.7 % , compared with $ 23.8 million in 2016. the increase was primarily due to variable incentive plan expense and to a lesser extent to increased headcount . general and administrative replace_table_token_7_th our general and administrative expenses result primarily from the costs associated with our executive , finance , information technology , legal and human resource functions . 2018 compared with 2017 general and administrative expense was $ 33.2 million in 2018 , an increase of $ 2.4 million , or 7.8 % compared with $ 30.8 million in 2017. the increase was primarily due to increases in professional and consulting fees and to a lesser extent , increased headcount . 2017 compared with 2016 general and administrative expense was $ 30.8 million in 2017 , an increase of $ 6.4 million , or 26.0 % compared with $ 24.5 million in 2016. the increase was primarily due to variable incentive plan expense and to a lesser extent to increased headcount . 26 restructuring we from time to time incur expenses relating to restructuring . 2017 compared with 2016 during the year ended december 31 , 2016 we recorded $ 0.3 million to restructuring expense due to a consolidation in our customer base .
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results of operations the following table sets forth our results of operations as a percentage of total revenue : replace_table_token_1_th 21 revenue the following table sets forth our revenue : replace_table_token_2_th 2018 compared with 2017 product product revenue , which includes new system sales , sales of spare parts , product upgrades and used system sales was $ 415.9 million or 94.0 % of revenue in 2018 , compared with $ 387.1 million , or 94.3 % of revenue in 2017. the increase in product revenue in 2018 was primarily driven by an increase in the number of purion systems sold . a portion of our revenue from system sales is deferred until installation and other services related to future deliverables are performed . the total amount of deferred revenue at december 31 , 2018 and 2017 was $ 22.6 million and $ 18.1 million , respectively . the increase was primarily due to the increased number of systems sold in the current year . services services revenue , which includes the labor component of maintenance and service contracts and fees for service hours provided by on‑site service personnel , was $ 26.7 million , or 6.0 % of revenue for 2018 , compared with $ 23.4 million , or 5.7 % of revenue for 2017. although services revenue should increase with the expansion of the installed base of systems , it can fluctuate from period to period based on capacity utilization at customers ' manufacturing facilities , which affects the need for equipment service . 2017 compared with 2016 product product revenue was $ 387.1 million or 94.3 % of revenue in 2017 , compared with $ 244.3 million , or 91.5 % of revenue in 2016. the increase in product revenue in 2017 was primarily driven by an increase in the number of purion systems sold . the total amount of deferred revenue at december 31 , 2017 and 2016 was $ 18.1 million and $ 11.0 million , respectively .
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the following table sets forth the amounts of stock option grants made to our neos on march 19 , 2012. name number of options story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with our audited consolidated financial statements and the related notes included elsewhere in this annual report . 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 the sections entitled special note regarding forward-looking statements and item 7a . risk factors. we assume no obligation to update any of these forward-looking statements . please note that we effected an 8 for 1 common stock split on january 19 , 2012 , and all historical common stock and per share information has been changed to reflect the common stock split . overview we are a leading global it services provider focused on complex software product development services , software engineering and vertically-oriented custom development solutions . since our inception in 1993 , we have been serving independent software vendors , or isvs , and technology companies . the foundation we have built serving isvs and technology companies has enabled us to differentiate ourselves in the market for software engineering skills and technology capabilities . our work with these clients exposes us to their customers ' challenges across a variety of industry verticals. this has enabled us to develop vertical-specific domain expertise and grow our business in multiple industry verticals , including banking and financial services , business information and media , travel and hospitality and retail and consumer . our delivery centers in belarus , ukraine , russia , hungary , kazakhstan and poland are strategically located in centers of software engineering talent and educational excellence across cee or the cis . our applications , tools , methodologies and infrastructure allow us to seamlessly deliver services and solutions from our delivery centers to global clients , thereby further strengthening our relationships with them . we also have client management locations in the united states , united kingdom , germany , sweden , russia , switzerland and kazakhstan . our clients primarily consist of forbes global 2000 corporations located in north america , europe and the cis . our focus on delivering quality to our clients is reflected by an average of 86.0 % and 70.5 % of our revenues in 2011 coming from clients that had used our services for at least two and three years , respectively . recent developments on february 13 , 2012 , we completed our initial public offering of 6,900,000 shares of our common stock , which included 900,000 shares of our common stock sold by us pursuant to an over-allotment option granted to the underwriters , were sold at a price to the public of $ 12.00 per share . of the 6,900,000 shares of common stock sold , we issued and sold 2,900,000 shares of common stock and our selling stockholders sold 4,000,000 shares of common stock , resulting in gross proceeds to us of $ 34.8 million , and $ 29.5 million in net proceeds to us after deducting underwriting discounts and commissions of $ 2.3 million and estimated offering expenses of approximately $ 3.0 million . we did not receive any proceeds from the sale of common stock by the selling stockholders . factors affecting our results of operations we have benefited significantly from growth in the global software development services industry . growth in the industry is driven by the needs of major corporations to maintain and upgrade the technology and services required to operate in a cost-efficient manner . software companies are also increasingly outsourcing work to it services providers in order to streamline and reduce the cost of the software development process . the cee 52 software development services market is growing rapidly due to its large pool of skilled it professionals , highly-developed infrastructure , strong government support and incentives , the geographic and cultural proximity between cee countries and europe and the desire of clients to diversify their use of software development services to multiple delivery locations . the growth in the global software development services industry has also increased the cost of attracting and retaining high quality it professionals in cee and the cis at a higher rate than we have historically faced . in addition , we face competition from offshore it services providers in emerging outsourcing destinations with low wage costs such as india and china and our clients ' buying patterns could change if they become more price sensitive and accepting of low-cost suppliers . we believe the epam brand name and our reputation are important corporate assets that help distinguish our services from those of our competitors and also contribute to our efforts to recruit and retain talented employees in cee and the cis . we seek to accurately manage our pricing and cost estimates when negotiating contract terms with our clients to ensure we are able to maintain appropriate levels of project profitability while providing a high quality of service . we also seek to maintain optimal resource utilization levels and productivity with the efficient allocation of our it professionals and facilities in our development centers in cee and the cis . story_separator_special_tag the volume of work we perform for specific clients is likely to vary from year to year , as we are typically not any client 's exclusive external it services provider , and a major client in one year may not contribute the same amount or percentage of our revenues in any subsequent year . operating expenses cost of revenues ( exclusive of depreciation and amortization ) the principal components of our cost of revenues ( exclusive of depreciation and amortization ) are salaries , employee benefits and stock compensation expense , travel costs and subcontractor fees . salaries and other compensation expenses of our it professionals are allocated to cost of revenues regardless of whether they are actually performing services during a given period . selling , general and administrative expenses selling , general and administrative expenses represent expenses associated with promoting and selling our services and include such items as senior management , administrative personnel and sales and marketing personnel salaries , stock compensation expense and related fringe benefits , legal and audit expenses , commissions , insurance , operating lease expenses , travel costs and the cost of advertising and other promotional activities . in addition , we pay a membership fee of 1 % of revenues collected in belarus to the administrative organization of the belarus hi-tech park . our selling , general and administrative expenses have increased primarily as a result of our expanding operations , acquisitions , and the hiring of a number of senior managers to support our growth . we expect our selling , general and administrative expenses to continue to increase in absolute terms as our business expands but will generally remain steady or slightly decrease as a percentage of our revenues . provision for income taxes determining the consolidated provision for income tax expense , deferred income tax assets and liabilities and related valuation allowance , if any , involves judgment . as a global company , we are required to calculate and provide for income taxes in each of the jurisdictions in which we operate . during 2011 , 2010 and 2009 , we had $ 49.9 million , $ 30.3 million and $ 14.3 million , respectively , in income before provision for income taxes attributed to our foreign jurisdictions . the statutory tax rate in our foreign jurisdictions is lower than the statutory u.s. tax rate . additionally , we have secured special tax benefits in belarus and hungary as described below . as a result , our provision for income taxes is low in comparison to income before taxes due to the benefit received from increased income earned in low tax jurisdictions . the foreign tax rate differential represents this significant reduction . changes in the geographic mix or estimated level of annual pre-tax income can also affect our overall effective income tax rate . 56 our provision for income taxes also includes the impact of provisions established for uncertain income tax positions , as well as the related net interest . tax exposures can involve complex issues and may require an extended period to resolve . although we believe we have adequately reserved for our uncertain tax positions , we can not assure you that the final tax outcome of these matters will not be different from our current estimates . we adjust these reserves in light of changing facts and circumstances , such as the closing of a tax audit , statute of limitation lapse or the refinement of an estimate . to the extent that the final tax outcome of these matters differs from the amounts recorded , such differences will impact the provision for income taxes in the period in which such determination is made . our subsidiary in belarus is a member of the belarus hi-tech park , in which member technology companies are 100 % exempt from the current belarusian income tax rate of 24 % . the on high-technologies park decree , which created the belarus hi-tech park , is in effect for a period of 15 years from july 1 , 2006. our subsidiary in hungary benefits from a tax credit of 10 % of annual qualified salaries , taken over a four-year period , for up to 70 % of the total tax due for that period . we have been able to take the full 70 % credit for 2007 , 2008 , 2009 , 2010 and 2011. the hungarian tax authorities repealed the tax credit beginning with 2012. credits earned in years prior to 2012 , will be allowed until fully utilized . we anticipate full utilization up to the 70 % limit until 2014 , with full phase out in 2015. our domestic income before provision for income taxes differs from the north america segment operating profit because segment operating profit is a management reporting measure , which does not take into account most corporate expenses , as well as the majority of non-operating costs and stock compensation expenses . we do not hold our segment managers accountable for these expenses , as they can not influence these costs within the scope of their operating authority , nor do we believe it is practical to allocate these costs to specific segments as they are not directly attributable to any specific segment . all our segments are treated consistently with respect to such expenses when determining segment operating profit . story_separator_special_tag representing an increase of 66.8 % from a $ 2.2 million loss in 2010. the increase was primary attributable to the movement of the russian ruble , belarusian ruble and the euro against the u.s. dollar .
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results of operations the following table sets forth a summary of our consolidated results of operations by amount and as a percentage of our revenues for the periods indicated . this information should be read together with our audited consolidated financial statements and related notes included elsewhere in this annual report . the operating results in any period are not necessarily indicative of the results that may be expected for any future period . replace_table_token_15_th 57 ( 1 ) includes stock-based compensation expense of $ 1,365 , $ 1,314 and $ 785 for the years ended december 31 , 2011 , 2010 and 2009 , respectively . ( 2 ) includes stock-based compensation expense of $ 1,501 , $ 1,625 and $ 1,626 for the years ended december 31 , 2011 , 2010 and 2009 , respectively . 2011 compared to 2010 revenues revenues were $ 334.5 million in 2011 , representing an increase of 50.8 % from $ 221.8 million in 2010. the increase was primarily driven by the following factors : strong performance across all of our key verticals . in particular , banking and financial services continued to experience an increase in revenues on strong demand from existing clients , with revenues growing by $ 33.6 million , or 78.4 % , to $ 76.4 million in 2011 as compared to $ 42.8 million in 2010 ; strong performance across all of our geographies .
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30 , 2002 ) to december 31 , 2009 additional common common stock paid-in deferred stock accumulated shares amount capital compensation subscribed deficit total replace_table_token_7_th f-6 ir biosciences holding , inc. and subsidiary ( a development stage company ) consolidated statement of stockholders ' deficit from date of inception ( october 30 , 2002 ) to december 31 , 2009 additional common common stock paid-in deferred stock accumulated shares amount capital compensation subscribed deficit total replace_table_token_8_th f-7 ir biosciences holding , inc. and subsidiary ( a development stage company ) consolidated statement of stockholders ' deficit from date of inception ( october 30 , 2002 ) to december 31 , 2009 additional common common stock paid-in deferred stock accumulated shares amount capital compensation subscribed deficit total replace_table_token_9_th f-8 ir biosciences holding , inc. and subsidiary ( a development stage company ) consolidated statement of stockholders ' deficit from date of inception ( october 30 , 2002 ) to december 31 , 2009 additional common common stock paid-in deferred stock accumulated shares amount capital compensation subscribed deficit total replace_table_token_10_th f-9 ir biosciences holding , inc. and subsidiary ( a development stage company ) consolidated statement of stockholders ' deficit from date of inception ( october 30 , 2002 ) to december 31 , 2009c additional common common stock paid-in deferred stock accumulated shares amount capital compensation subscribed deficit total replace_table_token_11_th f-10 ir biosciences holding , inc. and subsidiary ( a development stage company ) consolidated statement of stockholders ' deficit from date of inception ( october 30 , 2002 ) to december 31 , 2009 additional common common stock paid-in deferred stock accumulated shares amount capital compensation subscribed deficit total replace_table_token_12_th f-11 ir biosciences holding , inc. and subsidiary ( a development stage company ) consolidated statement of stockholders ' deficit from date of inception ( october 30 , 2002 ) to december 31 , 2009 additional common common stock paid-in deferred stock accumulated shares amount capital compensation subscribed deficit total replace_table_token_13_th f-12 ir biosciences holding , inc. and subsidiary ( a development stage company ) consolidated statement of stockholders ' deficit from date of inception ( october 30 , 2002 ) to december 31 , 2009 additional common common stock paid-in deferred stock accumulated shares amount capital compensation subscribed deficit total replace_table_token_14_th f-13 ir biosciences holding , inc. and subsidiary ( a development stage company ) consolidated statement of stockholders ' deficit from date of inception ( october 30 , 2002 ) to december 31 , 2009 additional common common stock paid-in deferred stock accumulated shares amount capital compensation subscribed deficit total replace_table_token_15_th f-14 ir biosciences holding , inc. and subsidiary ( a development stage company ) consolidated statement of stockholders ' deficit from date of inception ( october 30 , 2002 ) to december 31 , 2009 additional common common stock paid-in deferred stock accumulated shares amount capital compensation subscribed deficit total replace_table_token_16_th f-15 ir biosciences holding , inc. and subsidiary ( a development stage company ) consolidated statement of stockholders ' deficit from date of inception ( october 30 , 2002 ) to december 31 , 2009 story_separator_special_tag the following discussion of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and the related notes that are included in this report . 57 some of the statements contained in this “ management 's discussion and analysis of financial condition and results of operation ” and elsewhere in this report are forward-looking statements that involve substantial risks and uncertainties . all statements other than historical facts contained in this report , including statements regarding our future financial position , business strategy and plans and objectives of management for future operations , are forward-looking statements . in some cases , you can identify forward-looking statements by terminology such as “ believes , ” “ expects , ” “ anticipates , ” “ intends , ” “ estimates , ” “ may , ” “ will , ” “ continue , ” “ should , ” “ plan , ” “ predict , ” “ potential ” and other similar expressions . we have based these forward-looking statements on our current expectations and projections about future events and financial trends that we believe may affect our financial condition , results of operations , business strategy and financial needs . our actual results could differ materially from those anticipated in these forward-looking statements , which are subject to a number of risks , uncertainties and assumptions described in the “ risk factors ” section and elsewhere in this report . company history we were originally incorporated in the state of delaware in june 1985 under the name vocaltech , inc. to develop , design , manufacture and market products utilizing proprietary speech-generated tactile feedback devices . we completed our initial public offering of our securities in october 1987. in january 1992 , we effected a 1-for-6.3 reverse stock split of our common stock . we changed our name to innotek , inc. in november 1992. in december 1994 , we acquired all of the outstanding stock of innovisions , inc. , a developer and marketer of skin protective products , discontinued our prior operations in their entirety and changed our name to dermarx corporation . in april 2000 , we effected a reverse merger with a subsidiary of go public network , inc. , which was engaged in assisting early-stage development and emerging growth companies with financial and business development services . we changed our name to gopublicnow.com , inc. , effected a 1-for-5 reverse stock split and discontinued our prior operations in their entirety . in november 2000 , we changed our name to gpn network , inc. in july 2001 , we discontinued the operations of gpn network , inc. in their entirety and began looking for appropriate merger partners . story_separator_special_tag however , there can be no assurance that we will be successful in obtaining additional funding from human health commercial development partners , institutional or private investors . if we are not successful in raising additional funds , we will need to significantly curtail clinical trial expenditures and to further reduce staff and administrative expenses and may be forced to cease operations . total outstanding current liabilities were approximately $ 722,575 ( 31 % ) higher at the end of 2009 with approximately $ 3,085,501 at december 31 , 2009 , as compared to approximately $ 2,362,926 at december 31 , 2008. the company started accounting for derivative liabilities associated with warrants issued in 2008 on january 1 , 2009 , which increased liabilities in 2009 by approximately $ 2,256,200. in july 2008 , we received a total of $ 11,250 from the exercise of an aggregate of 30,000 common stock purchase warrants of common stock at $ 0.375 per share by five investors . in december 2006 , we completed a private placement , whereby we sold an aggregate of $ 5,482,600 worth of units , consisting of shares of common stock and warrants , to accredited investors . in consideration of the investment , we granted to each investor certain registration rights and anti-dilution rights . we agreed that not before 180 days after the closing of the private placement and not later than 190 days thereafter , that we would file with the sec an appropriate registration statement to register these shares along with the shares underlying the warrants . in the event that we failed to comply with the filing deadline , there was a 1 % penalty for each 30 day period ( or pro rata portion thereof ) paid to each investor in cash or additional shares . this penalty amounts to an aggregate of 342,662 shares and 171,331 warrants per 30 day period until such a time as a registration statement that includes these shares and warrants is filed or 12 months . because we complied with the filing deadline , as of december 31 , 2008 , we are not subject to any penalty . 59 since our inception , we have been seeking additional third-party funding . during such time , we have retained a number of different investment banking firms to assist us in locating available funding ; however , we have not yet been successful in obtaining any of the long-term funding needed to make us into a commercially viable entity . during the period from october 2002 to december 31 , 2008 , we were able to obtain financing of $ 17,557,526 from the private placements of our securities ( which resulted in net proceeds to us of $ 16,462,779 ) . in january 2008 we sold $ 2 million in secured convertible debentures which resulted in net proceeds to us of $ 1,815,000. in june 2008 we sold an additional $ 1 million of the secured convertible debentures as per the terms of the securities purchase agreement with ya global investments l.p. in august 2008 we sold $ 5 million in secured convertible debentures to a group of funds managed by brencourt advisors llp . we currently need additional financing to fund our immediate operating expenses . if we are not successful in generating sufficient liquidity from operations or in raising sufficient capital resources , it would have a material adverse effect on our business , results of operations , liquidity and financial condition . while we have raised capital to meet our working capital and financing needs in the past through debt and equity financings , additional financing will be required in order to implement our business plan and to meet our current and projected cash flow deficits from operations and development . there can be no assurance that we will be able to consummate future debt or equity financings in a timely manner on a basis favorable to us , or at all . if we are unable to raise needed funds , we will not be able to develop or enhance our potential products , take advantage of future opportunities or respond to competitive pressures or unanticipated requirements . a material shortage of capital will require us to take drastic steps such as reducing our level of operations , disposing of selected assets or seeking an acquisition partner . during fiscal year 2010 , we will pay our chief executive officer , chief financial officer and chief scientific officer an aggregate of $ 775,000 pursuant to their employment agreements . as of december 31 , 2009 we have $ 9,068,889 in notes payable , of which $ 2,000,000 is current on december 31 , 2009 and of which $ 1,500,000 is callable by the noteholder at any time after december 31 , 2009. any amount redeemed by this call provision will be subject to a 20 % redemption premium payable to the holder of the note . the company and the lender are currently in negotiations to restructure the terms of the call provision . an additional $ 1,000,000 matures on may 31 , 2011 and the remaining balance of $ 6,068,889 will mature in 2013 and beyond . until such time , if at all , as we receive adequate funding , we intend to continue to defer payment of all of our obligations which are capable of being deferred , which actions have resulted in some vendors demanding cash payment for their goods and services in advance , and other vendors refusing to continue to do business with us . we do not expect to generate a positive cash flow from our operations for at least several years , if at all , due to anticipated expenditures for research and development activities , administrative and marketing activities , and working capital requirements and expect to continue to attempt to raise further capital through one or more further private placements . we believe
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result of operations comparison of results for the fiscal year ended december 31 , 2009 , to the fiscal year ended december 31 , 2008. revenues we have not generated any revenues from operations from our inception . we believe we will begin earning revenues from operations during calendar year 2010 as we transition from a development stage company . 61 costs and expenses from our inception through december 31 , 2009 , we have incurred losses of $ 27,759,973. these expenses were associated principally with equity-based compensation to employees and consultants , product development costs and professional services , interest expense and equity based compensation to stockholders for the penalty incurred for the late registration of shares . selling , general and administrative expenses we were successful in cutting costs in 2009. selling , general and administrative expenses were reduced from $ 5,024,013 for the fiscal year ended december 31 , 2008 to $ 3,126,423 for the fiscal year ended december 31 , 2009 , a cost savings of $ 1,897,590 or approximately 38 % . this was mostly because payroll and related expenses were cut by $ 418,411 ( 29.8 % ) from $ 1,405,528 in 2008 to $ 987,117 in 2009 , research and development cost were reduced by 732,787 ( 56.7 % ) , legal and accounting fees were reduced by $ 310,312 ( 33.9 % ) , non-cash compensation was reduced by $ 128,972 ( 35.8 % ) and travel and entertainment costs were reduced by $ 94,444 ( 49.4 % ) .
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actual results may differ materially from those contained in these forward-looking statements . for additional information regarding our cautionary disclosures , see the “ cautionary note regarding forward-looking statements ” at the beginning of this annual report . overview bank first corporation is a wisconsin corporation that was organized primarily to serve as the holding company for bank first , n.a . bank first , n.a. , which was incorporated in 1894 , is a nationally-chartered bank headquartered in manitowoc , wisconsin . it is a member of the federal reserve , and is regulated by the occ . including its headquarters in manitowoc , wisconsin , the bank has 22 banking locations in manitowoc , outagamie , brown , winnebago , sheboygan , waupaca , ozaukee , monroe , and jefferson counties in wisconsin . the bank offers loan , deposit and treasury management products at each of its banking locations . as with most community banks , the bank derives a significant portion of its income from interest received on loans and investments . the bank 's primary source of funding is deposits , both interest-bearing and noninterest-bearing . in order to maximize the bank 's net interest income , or the difference between the income on interest-earning assets and the expense of interest-bearing liabilities , the bank must not only manage the volume of these balance sheet items , but also the yields earned on interest-earning assets and the rates paid on interest-bearing liabilities . to account for credit risk inherent in all loans , the bank maintains an alll to absorb possible losses on existing loans that may become uncollectible . the bank establishes and maintains this allowance by charging a provision for loan losses against operating earnings . beyond its net interest income , the bank further receives income through the net gain on sale of loans held for sale as well as servicing income which is retained on those sold loans . in order to maintain its operations and bank locations , the bank incurs various operating expenses which are further described within the “ results of operations ” later in this section . the bank is a 49.8 % member of a data processing subsidiary , ufs , llc , which provides core data processing , endpoint management cloud services , cyber security and digital banking solutions for over 60 midwest banks . the bank , through its 100 % owned subsidiary tvg holdings , inc. , also holds a 40 % ( up from 30 % due to a purchase of member interest on october 1 , 2019 ) ownership interest in ansay & associates , llc , an insurance agency providing clients primarily located in wisconsin with insurance and risk management solutions . these unconsolidated subsidiary interests contribute noninterest income to the bank through their underlying annual earnings . as of december 31 , 2020 , the company had total consolidated assets of $ 2.72 billion , total loans of $ 2.19 billion , total deposits of $ 2.32 billion and total stockholders ' equity of $ 294.9 million . the company employs approximately 314 full-time equivalent employees and has an assets-to-fte ratio of approximately $ 8.7 million . for more information , see the company 's website at www.bankfirstwi.bank . 44 recent acquisitions on july 12 , 2019 , the company completed a merger with partnership , a bank holding company headquartered in cedarburg , wisconsin , pursuant to the agreement and plan of bank merger , dated as of january 22 , 2019 and as amended on april 30 , 2019 , by and among the company and partnership , whereby partnership merged with and into the company , and partnership bank , partnership 's wholly-owned banking subsidiary , merged with and into the bank . partnership 's principal activity was the ownership and operation of partnership bank , a state-chartered banking institution that operated four ( 4 ) branches in wisconsin at the time of closing . the merger consideration totaled approximately $ 49.6 million . pursuant to the terms of the merger agreement , partnership shareholders had the option to receive either 0.34879 shares of the company 's common stock or $ 17.3001 in cash for each outstanding share of partnership common stock , and cash in lieu of any remaining fractional share . the stock versus cash elections by the partnership shareholders were subject to final consideration being made up of approximately $ 14.3 million in cash and 534,659 shares of company common stock , valued at approximately $ 35.3 million ( based on a value of $ 66.03 per share on the closing date ) . on may 15 , 2020 , the company completed a merger with timberwood , a bank holding company headquartered in tomah , wi , pursuant to the agreement and plan of bank merger , dated as of november 20 , 2019 , by and among the company and timberwood , whereby timberwood was merged with and into the company , and timberwood bank , timberwood 's wholly owned banking subsidiary , was merged with and into the bank . timberwood 's principal activity was the ownership and operation of timberwood bank , a state-chartered banking institution that operated one ( 1 ) branch in wisconsin at the time of closing . the merger consideration totaled approximately $ 29.8 million . pursuant to the terms of the merger agreement , timberwood shareholders received 5.1445 shares of the company 's common stock for each outstanding share of timberwood common stock , and cash in lieu of any remaining fractional share . company stock issued totaled 575,641 shares valued at approximately $ 29.4 million , with cash of $ 0.4 million comprising the remainder of merger consideration . the company accounted for these transactions under the acquisition method of accounting , and thus , the financial position and results of operations of partnership and timberwood prior to the consummation date were not included in the accompanying consolidated financial statements . story_separator_special_tag fair values are subject to refinement for up to one year after the closing date of an acquisition as information relative to closing date fair values becomes available . results of operations of the acquired business are included in the statement of income from the effective date of the acquisition . 46 allowance for loan and lease losses—originated the alll is established through a provision for loan losses charged to expense as losses are estimated to have occurred . loan losses are charged against the allowance when management believes that the collectability of the principal is unlikely . subsequent recoveries , if any , are credited to the allowance . management regularly evaluates the alll using general economic conditions , our past loan loss experience , composition of the portfolio , credit worthiness of the borrowers , the estimated value of the underlying collateral , the assumptions about cash flow , determination of loss factors for estimating credit losses and other relevant factors . this evaluation is inherently subjective since it requires material estimates that may be susceptible to significant change . the alll consists of specific reserves for certain impaired loans and general reserves for non-impaired loans . specific reserves reflect estimated losses on impaired loans from management 's analyses developed through specific credit allocations . the specific credit reserves are based on regular analyses of impaired non-homogenous loans . these analyses involve a high degree of judgment in estimating the amount of loss associated with specific loans , including estimating the amount and timing of future cash flows and collateral values . the general reserve is based on our historical loss experience which is updated quarterly . the general reserve portion of the alll also includes consideration of certain qualitative factors such as ( 1 ) changes in lending policies and or underwriting practices , ( 2 ) national and local economic conditions , ( 3 ) changes in portfolio volume and nature , ( 4 ) experience , ability and depth of lending management and other relevant staff , ( 5 ) levels of and trends in past-due and nonaccrual loans and quality , ( 6 ) changes in loan review and oversight , ( 7 ) impact and effects of concentrations and ( 8 ) other issues deemed relevant . management believes that the current alll is adequate . while management uses available information to recognize losses on loans , future additions to the allowance may be necessary based on changes in economic conditions . in addition , various regulatory agencies , as an integral part of their examination process , periodically review the alll . such agencies may require us to recognize additions to the allowance based on their judgments of information available to them at the time of their examination . allowance for loan and lease losses—acquired the alll for acquired loans is calculated using a methodology similar to that described for originated loans . performing acquired loans are subsequently evaluated for any required allowance at each reporting date . such required allowance for each loan pool is compared to the remaining fair value discount for that pool . if greater , the excess is recognized as an addition to the allowance through a provision for loan losses . if less than the discount , no additional allowance is recorded . charge-offs and losses first reduce any remaining fair value discount for the loan pool and once the discount is depleted , losses are applied against the allowance established for that pool . for purchase credit impaired loans after an acquisition , cash flows expected to be collected are recast for each loan periodically as determined appropriate by management . if the present value of expected cash flows for a loan is less than its carrying value , impairment is reflected by an increase in the alll and a charge to the provision for loan losses . if the present value of the expected cash flows for a loan is greater than its carrying value , any previously established alll is reversed and any remaining difference increases the accretable yield which will be taken into income over the remaining life of the loan . loans which were considered tdrs by the acquired institution prior to the acquisition are not required to be classified as tdrs in our consolidated financial statements unless or until such loans would subsequently meet our criteria to be classified as such , since acquired loans were recorded at their estimated fair values at the time of the acquisition . 47 impaired investment securities unrealized gains or losses considered temporary and the noncredit portion of unrealized losses deemed other-than-temporary are reported as an increase or decrease in accumulated other comprehensive income . the credit related portion of unrealized losses deemed other-than-temporary is recorded in current period earnings . realized gains or losses , determined on the basis of the cost of specific securities sold , are included in earnings . we evaluate securities for other-than-temporary impairment at least on a quarterly basis , and more frequently when economic or market concerns warrant such evaluation . as part of such monitoring , the credit quality of individual securities and their issuers are assessed . in addition , management considers the length of time and extent that fair value has been less than cost , the financial condition and near-term prospects of the issuer , and that the company does not have the intent to sell the security and it is more likely than not that it will not have to sell the security before recovery of its cost basis . adjustments to market value that are considered temporary are recorded as a separate component of equity , net of tax . if an impairment of security is identified as other-than-temporary based on information available such as the decline in the credit worthiness of the issuer , external market ratings or the anticipated or realized elimination of associated dividends , such impairments are further analyzed to determine if a credit loss exists .
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results of operations results of operations for the years ended december 31 , 2020 and 2019 general . net income increased $ 11.3 million , or 42.5 % , to $ 38.0 million for the year ended december 31 , 2020 , from $ 26.7 million for the year ended december 31 , 2019. the primary reasons for the increase in profitability were increased net interest and service charge income from the added scale as a result of the acquisitions of partnership and timberwood , significant growth in our loan portfolio through participation in ppp , and robust retail mortgage lending which led to a large increase in gains on sales of mortgage loans to the secondary market . this was offset by larger provisions for loan losses during 2020 , as well as increased expenses related to personnel , facilities and data processing as part of the same added scale from the aforementioned acquisitions . 2020 profitability was further negatively impacted by higher losses on sales of foreclosed properties and a penalty related to the early extinguishment of long-term debt . 49 net interest income . the management of interest income and expense is fundamental to our financial performance . net interest income , the difference between interest income and interest expense , is the largest component of the company 's total revenue . management closely monitors both total net interest income and the net interest margin ( net interest income divided by average earning assets ) . we seek to maximize net interest income without exposing the company to an excessive level of interest rate risk through our asset and liability policies . interest rate risk is managed by monitoring the pricing , maturity and repricing options of all classes of interest-bearing assets and liabilities . our net interest margin can also be adversely impacted by the reversal of interest on nonaccrual loans and the reinvestment of loan payoffs into lower yielding investment securities and other short-term investments .
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for contracts with multiple performance obligations , we allocate the contract 's transaction price to each performance obligation based story_separator_special_tag the following discussion and analysis should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this annual report on form 10-k. this discussion and analysis also contains forward-looking statements and should also be read in conjunction with the disclosures and information contained in “ disclosure regarding forward-looking statements ” and “ risk factors ” in this annual report on form 10-k. we use the terms “ accenture , ” “ we , ” the “ company , ” “ our ” and “ us ” in this report to refer to accenture plc and its subsidiaries . all references to years , unless otherwise noted , refer to our fiscal year , which ends on august 31. for example , a reference to “ fiscal 2019 ” means the 12-month period that ended on august 31 , 2019 . all references to quarters , unless otherwise noted , refer to the quarters of our fiscal year . we use the term “ in local currency ” so that certain financial results may be viewed without the impact of foreign currency exchange rate fluctuations , thereby facilitating period-to-period comparisons of business performance . financial results “ in local currency ” are calculated by restating current period activity into u.s. dollars using the comparable prior-year period 's foreign currency exchange rates . this approach is used for all results where the functional currency is not the u.s. dollar . overview revenues are driven by the ability of our executives to secure new contracts , to renew and extend existing contracts , and to deliver services and solutions that add value relevant to our clients ' current needs and challenges . the level of revenues we achieve is based on our ability to deliver market-leading services and solutions and to deploy skilled teams of professionals quickly and on a global basis . our results of operations are affected by economic conditions , including macroeconomic conditions and levels of business confidence . there continues to be significant volatility and economic and geopolitical uncertainty in many markets around the world , which may impact our business . we continue to monitor the impact of this volatility and uncertainty and seek to manage our costs in order to respond to changing conditions . there also continues to be volatility in foreign currency exchange rates . the majority of our revenues are denominated in currencies other than the u.s. dollar , including the euro , u.k. pound and japanese yen . unfavorable fluctuations in foreign currency exchange rates have had and could have in the future a material effect on our financial results . effective september 1 , 2018 , we adopted financial accounting standards board ( “ fasb ” ) accounting standards update ( “ asu ” ) no . 2014-09 , revenue from contracts with customers ( topic 606 ) . in connection with the adoption , we present total revenues and no longer report revenues before reimbursements ( net revenues ) . this change has no impact on operating income but does affect ratios calculated as a percentage of revenue , such as operating margin . prior period results have been revised to reflect the fiscal 2019 presentation . for additional information , see note 1 ( summary of significant accounting policies ) to our consolidated financial statements under item 8 , “ financial statements and supplementary data. ” summary of results revenues for fiscal 2019 increased 5 % in u.s. dollars and 8.5 % in local currency compared to fiscal 2018 . demand for our services and solutions continued to be strong , resulting in growth across all areas of our business . during fiscal 2019 , revenue growth in local currency was very strong in resources , strong in communications , media & technology , products , and health & public service and modest in financial services . we experienced local currency revenue growth that was very strong in growth markets , strong in north america and solid in europe . revenue growth in local currency was strong in both outsourcing and consulting during fiscal 2019 . while the business environment remained competitive , we experienced pricing improvement in several areas of our business . we use the term “ pricing ” to mean the contract profitability or margin on the work that we sell . in our consulting business , revenues for fiscal 2019 increased 5 % in u.s. dollars and 8 % in local currency compared to fiscal 2018 . consulting revenue growth in local currency in fiscal 2019 was led by very strong growth in resources , strong growth in health & public service , products and communications , media & technology and modest growth in financial services . our consulting revenue growth continues to be driven by strong demand for digital- , cloud- and security-related services and assisting clients with the adoption of new technologies . in addition , clients continue to be focused on initiatives designed to deliver cost savings and operational efficiency , as well as projects to integrate their global operations and grow and transform their businesses . in our outsourcing business , revenues for fiscal 2019 increased 6 % in u.s. dollars and 9 % in local currency compared to fiscal 2018 . outsourcing revenue growth in local currency in fiscal 2019 was led by very strong growth in resources , communications , media & technology and products , solid growth in financial services and modest 27 growth in health & public service . we continue to experience growing demand to assist clients with the operation and maintenance of digital-related services and cloud enablement . in addition , clients continue to be focused on transforming their operations to improve effectiveness and cost efficiency . as we are a global company , our revenues are denominated in multiple currencies and may be significantly affected by currency exchange rate fluctuations . story_separator_special_tag the impact of tax law changes decreased diluted earnings per share by $ 0.40 in fiscal 2018 . excluding the impact of these changes , diluted earnings per share would have been $ 6.74 for fiscal 2018 . we have presented our effective tax rate and diluted earnings per share excluding the impacts of the tax law changes in fiscal 2018 , as we believe doing so facilitates understanding as to both the impact of these changes and our financial performance when comparing these periods . our operating income and diluted earnings per share are affected by currency exchange rate fluctuations on revenues and costs . most of our costs are incurred in the same currency as the related revenues . where practical , we seek to manage foreign currency exposure for costs not incurred in the same currency as the related revenues , such as the costs associated with our global delivery model , by using currency protection provisions in our customer contracts and through our hedging programs . for more information on our hedging programs , see note 8 ( financial instruments ) to our consolidated financial statements under item 8 , “ financial statements and supplementary data. ” bookings new bookings for fiscal 2019 were $ 45.5 billion , with consulting bookings of $ 24.7 billion and outsourcing bookings of $ 20.8 billion . we provide information regarding our new bookings , which include new contracts , including those acquired through acquisitions , as well as renewals , extensions and changes to existing contracts , because we believe doing so provides useful trend information regarding changes in the volume of our new business over time . new bookings can vary significantly quarter to quarter depending in part on the timing of the signing of a small number of large outsourcing contracts . the types of services and solutions clients are demanding and the pace and level of their spending may impact the conversion of new bookings to revenues . for example , outsourcing bookings , which are typically for multi-year contracts , generally convert to revenue over a longer period of time compared to consulting bookings . information regarding our new bookings is not comparable to , nor should it be substituted for , an analysis of our revenues over time . new bookings involve estimates and judgments . there are no third-party standards or requirements governing the calculation of bookings . we do not update our new bookings for material subsequent terminations or reductions related to bookings originally recorded in prior fiscal years . new bookings are recorded using then-existing foreign currency exchange rates and are not subsequently adjusted for foreign currency exchange rate fluctuations . the majority of our contracts are terminable by the client on short notice with little or no termination penalties , and some without notice . under topic 606 , only the non-cancelable portion of these contracts is included in our performance obligations . accordingly , a significant portion of what we consider contract bookings is not included in our remaining performance obligations . 29 critical accounting policies and estimates the preparation of our consolidated financial statements in conformity with u.s. generally accepted accounting principles requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses . we continually evaluate our estimates , judgments and assumptions based on available information and experience . because the use of estimates is inherent in the financial reporting process , actual results could differ from those estimates . certain of our accounting policies require higher degrees of judgment than others in their application . these include certain aspects of accounting for revenue recognition and income taxes . revenue recognition determining the method and amount of revenue to recognize requires us to make judgments and estimates . specifically , complex arrangements with nonstandard terms and conditions may require contract interpretation to determine the appropriate accounting , including whether promised goods and services specified in an arrangement are distinct performance obligations and should be accounted for separately . other judgments include determining whether performance obligations are satisfied over-time or at a point-in-time and the selection of the method to measure progress towards completion . we measure progress towards completion for technology integration consulting services using costs incurred to date relative to total estimated costs at completion . revenues , including estimated fees , are recorded proportionally as costs are incurred . the amount of revenue recognized for these contracts in a period is dependent on our ability to estimate total contract costs . we continually evaluate our estimates of total contract costs based on available information and experience . additionally , the nature of our contracts gives rise to several types of variable consideration , including incentive fees . many contracts include incentives or penalties related to costs incurred , benefits produced or adherence to schedules that may increase the variability in revenues and margins earned on such contracts . we conduct reviews prior to signing such contracts to evaluate whether these incentives are reasonably achievable . our estimates are monitored over the lives of our contracts and are based on an assessment of our anticipated performance , historical experience and other information available at the time . for additional information , see note 2 ( revenues ) to our consolidated financial statements under item 8 , “ financial statements and supplementary data. ” income taxes on december 22 , 2017 , the u.s. enacted the tax cuts and jobs act ( the “ tax act ” ) , which significantly changed u.s. tax law . the tax act lowered the u.s. statutory federal income tax rate from 35 % to 21 % , effective january 1 , 2018 , resulting in a blended u.s. statutory federal income tax rate of 25.7 % for our fiscal year ended august 31 , 2018 and a u.s. statutory federal income tax rate of 21.0 % for our fiscal year ended august 31 , 2019.
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results of operations for fiscal 2018 compared to fiscal 2017 revenues ( by operating group , geographic region and type of work ) were as follows : replace_table_token_5_th _ n/m = not meaningful amounts in table may not total due to rounding . ( 1 ) effective september 1 , 2018 , we adopted fasb asu no . 2014-09 , revenue from contracts with customers ( topic 606 ) and eliminated our net revenues presentation . prior period amounts have been revised to conform with the current period presentation . in addition , we updated operating group results for fiscal 2018 to include an acquisition previously categorized within other . ( 2 ) effective september 1 , 2017 , we revised the reporting of our geographic regions as follows : north america ( the united states and canada ) , europe and growth markets ( asia pacific , latin america , africa and the middle east ) . four countries , including russia , were previously in growth markets , but are now included in europe . fiscal 2017 amounts have been reclassified to conform to the current period presentation . revenues the following revenues commentary discusses local currency revenue changes for fiscal 2018 compared to fiscal 2017 : operating groups communications , media & technology revenues increased 14 % in local currency , driven by growth across all geographic regions in software & platforms and communications & media , led by software & platforms in north america . financial services revenues increased 8 % in local currency , driven by growth across all industry groups and geographic regions , led by banking & capital markets in europe and growth markets . health & public service revenues increased 7 % in local currency , driven by growth in public service across all geographic regions and health in north america . products revenues increased 11 % in local currency , driven by growth across all geographic regions , in consumer goods , retail & travel services and industrial .
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pursuant to the purchase agreements for each of these acquisitions , payments were made by us to the selling shareholders ( 1 ) upon closing of the transaction , ( 2 ) in some cases , upon the acquired businesses achieving specific financial performance targets over a number of years ( earn-outs ) , and ( 3 ) in one case , upon the buyout of an obligation to make earn-out payments . these payments are collectively referred to as acquisition-related payments. certain acquisition-related payments were subsequently redistributed by such selling shareholders among themselves in amounts that were not consistent with their ownership interests story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with the information under part iiitem 6. selected financial data , and our historical audited consolidated financial statements and related notes appearing under part iiitem 8. financial statements and supplementary data. the following discussion and analysis of our financial condition and results of operations contains forward-looking statements and involves numerous risks and uncertainties , including , without limitation , those described under part iitem 1a . risk factors and forward-looking statements of this annual report on form 10-k. actual results may differ materially from those contained in any forward-looking statements . 22 overview we are a leading provider of operational and financial consulting services . we help clients in diverse industries improve performance , comply with complex regulations , reduce costs , recover from distress , leverage technology , and stimulate growth . we team with our clients to deliver sustainable and measurable results . our professionals employ their expertise in healthcare administration , finance and operations to provide our clients with specialized analyses and customized advice and solutions that are tailored to address each client 's particular challenges and opportunities . we provide consulting services to a wide variety of both financially sound and distressed organizations , including healthcare organizations , leading academic institutions , governmental entities , fortune 500 companies , medium-sized businesses , and the law firms that represent these various organizations . we provide our services and manage our business under three operating segments : health and education consulting , legal consulting , and financial consulting . see part iitem 1. businessoverviewour services included elsewhere in this annual report on form 10-k for a detailed discussion of our three segments . see note 4 discontinued operations under part iiitem 8. financial statements and supplementary data for additional information about our discontinued operations . how we generate revenues a large portion of our revenues is generated by our full-time consultants who provide consulting services to our clients and are billable to our clients based on the number of hours worked . a smaller portion of our revenues is generated by our other professionals , also referred to as full-time equivalents , consisting of specialized finance and operational consultants and contract reviewers , all of whom work variable schedules as needed by our clients . other professionals also include our document review and electronic data discovery groups , as well as full-time employees who provide software support and maintenance services to our clients . our document review and electronic data discovery groups generate revenues primarily based on number of hours worked and units produced , such as pages reviewed or amount of data processed . we translate the hours that these other professionals work on client engagements into a full-time equivalent measure that we use to manage our business . from time to time , our full-time consultants may provide software support and maintenance or document review and electronic data discovery services based on demand for such services and the availability of our full-time consultants . we refer to our full-time consultants and other professionals collectively as revenue-generating professionals . revenues generated by our full-time consultants are primarily driven by the number of consultants we employ and their utilization rates , as well as the billing rates we charge our clients . revenues generated by our other professionals , or full-time equivalents , are largely dependent on the number of consultants we employ , their hours worked and billing rates charged , as well as the number of pages reviewed and amount of data processed in the case of our document review and electronic data discovery groups , respectively . we generate the majority of our revenues from providing professional services under three types of billing arrangements : time-and-expense , fixed-fee , and performance-based . time-and-expense billing arrangements require the client to pay based on either the number of hours worked , the number of pages reviewed , or the amount of data processed by our revenue-generating professionals at agreed upon rates . we recognize revenues under time-and-expense billing arrangements as the related services are rendered . time-and-expense engagements represented 44.2 % , 45.9 % and 42.3 % of our revenues in 2011 , 2010 and 2009 , respectively . in fixed-fee billing arrangements , we agree to a pre-established fee in exchange for a predetermined set of professional services . we set the fees based on our estimates of the costs and timing for completing the engagements . it is the client 's expectation in these engagements that the pre-established fee will not be exceeded except in mutually agreed upon circumstances . we recognize revenues under fixed-fee billing arrangements using a proportionate 23 performance approach , which is based on work completed to-date versus our estimates of the total services to be provided under the engagement . for the years ended december 31 , 2011 , 2010 and 2009 , fixed-fee engagements represented approximately 35.4 % , 40.3 % and 39.4 % , respectively , of our revenues . in performance-based fee billing arrangements , fees are tied to the attainment of contractually defined objectives . we enter into performance-based engagements in essentially two forms . first , we generally earn fees that are directly related to the savings formally acknowledged by the client as a result of adopting our recommendations for improving operational and cost effectiveness in the areas we review . story_separator_special_tag these administrative function costs include corporate office support costs , certain office facility costs , costs relating to accounting and finance , human resources , legal , marketing , information technology and company-wide business development functions , as well as costs related to overall corporate management . critical accounting policies management 's discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america ( gaap ) . the notes to our consolidated financial statements include disclosure of our significant accounting policies . we review our financial reporting and disclosure practices and accounting policies to ensure that our financial reporting and disclosures provide accurate information relative to the current economic and business environment . the preparation of financial statements in conformity with gaap requires management to make assessments , estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements , as well as the reported amounts of revenues and expenses during the reporting period . critical accounting policies are those policies that we believe present the most complex or subjective measurements and have the most potential to impact our financial position and operating results . while all decisions regarding accounting policies are important , we believe that there are four accounting policies that could be considered critical . these critical accounting policies relate to revenue recognition , allowances for doubtful accounts and unbilled services , carrying values of goodwill and other intangible assets , and valuation of net deferred tax assets . 25 revenue recognition we recognize revenues in accordance with fasb asc topic 605 revenue recognition. under fasb asc topic 605 , revenue is recognized when persuasive evidence of an arrangement exists , the related services are provided , the price is fixed or determinable and collectability is reasonably assured . we generate the majority of our revenues from providing professional services under three types of billing arrangements : time-and-expense , fixed-fee , and performance-based . time-and-expense billing arrangements require the client to pay based on either the number of hours worked , the number of pages reviewed , or the amount of data processed by our revenue-generating professionals at agreed upon rates . we recognize revenues under time-and-expense arrangements as the related services are rendered . in fixed-fee billing arrangements , we agree to a pre-established fee in exchange for a predetermined set of professional services . we set the fees based on our estimates of the costs and timing for completing the engagements . we recognize revenues under fixed-fee billing arrangements using a proportionate performance approach , which is based on work completed to-date versus our estimates of the total services to be provided under the engagement . estimates of total engagement revenues and cost of services are monitored regularly during the term of the engagement . if our estimates indicate a potential loss , such loss is recognized in the period in which the loss first becomes probable and reasonably estimable . in performance-based billing arrangements , fees are tied to the attainment of contractually defined objectives . we do not recognize revenues under performance-based billing arrangements until all related performance criteria are met . we also generate revenues from licensing two types of proprietary software to clients . license revenue from our research administration and compliance software is recognized in accordance with fasb asc topic 985-605 , generally in the month in which the software is delivered . license revenue from our revenue cycle management software is sold only as a component of our consulting projects , and the services we provide are essential to the functionality of the software . therefore , revenues from these software licenses are recognized over the term of the related consulting services contract in accordance with fasb asc topic 605-35. clients that have purchased one of our software licenses can pay an annual fee for software support and maintenance . annual support and maintenance fee revenue is recognized ratably over the support period , which is generally one year . these fees are billed in advance and included in deferred revenues until recognized . we have arrangements with clients in which we provide multiple elements of services under one engagement contract . revenues under these types of arrangements are allocated to each element based on the element 's fair value in accordance with fasb asc topic 605 and recognized pursuant to the criteria described above . provisions are recorded for the estimated realization adjustments on all engagements , including engagements for which fees are subject to review by the bankruptcy courts . expense reimbursements that are billable to clients are included in total revenues and reimbursable expenses , and typically an equivalent amount of reimbursable expenses are included in total direct costs and reimbursable expenses . reimbursable expenses are primarily recognized as revenue in the period in which the expense is incurred . subcontractors that are billed to clients at cost are also included in reimbursable expenses . differences between the timing of billings and the recognition of revenue are recognized as either unbilled services or deferred revenues in the accompanying consolidated balance sheets . revenues recognized for services performed but not yet billed to clients are recorded as unbilled services . client prepayments and retainers are classified as deferred revenues and recognized over future periods as earned in accordance with the applicable engagement agreement . allowances for doubtful accounts and unbilled services we maintain allowances for doubtful accounts and for services performed but not yet billed based on several factors , including the historical percentages of fee adjustments and write-offs by practice group , an assessment of a client 's ability 26 to make required payments and the estimated cash realization from amounts due from clients . the allowances are assessed by management on a regular basis . these estimates may differ from actual results .
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segment results health and education consulting revenues health and education consulting segment revenues decreased $ 35.6 million , or 9.5 % , to $ 338.3 million for the year ended december 31 , 2010 from $ 373.9 million for the year ended december 31 , 2009. revenues from time-and-expense engagements , fixed-fee engagements , performance-based engagements and software support and maintenance arrangements represented 21.0 % , 58.2 % , 17.4 % and 3.4 % of this segment 's revenues in 2010 , respectively , compared to 22.2 % , 52.4 % , 22.9 % and 2.5 % , respectively , in 2009. of the overall $ 35.6 million decrease in revenues , $ 51.3 million was attributable to our full-time billable consultants , partially offset by an increase of $ 15.7 million attributable to our full-time equivalents . the $ 51.3 million decrease in full-time billable consultant revenues reflected a decrease in the demand for our services , combined with a decrease in discretionary spending by our clients as well as delayed decisions by clients on new client engagements in early 2010. also contributing to the decrease was a $ 26.8 million decrease in revenue from performance-based fee engagements in 2010 compared to 2009. performance-based fee engagements may cause significant variations in revenues and operating results due to the timing of achieving the performance-based criteria . the health and education consulting segment experienced a decrease in the average number of consultants , as well as a decrease in the average billing rate per hour .
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mi protects mortgage lenders from all or a portion of default-related losses on residential mortgage loans made to home buyers who generally make down payments of less than 20 % of the home 's purchase price . by protecting lenders and investors from credit losses , we help facilitate the availability of mortgages to prospective , primarily first-time , u.s. home buyers , thus promoting homeownership and helping to revitalize our residential communities . mi also facilitates the sale of these mortgage loans in the secondary mortgage market , most of which are sold to fannie mae and freddie mac . our business strategy is to become a leading national mi company with our principal focus on writing insurance on high quality , low down payment residential mortgages in the united states . following our formation , we focused our efforts on organizational development , capital raising and other start-up related activities . in november 2011 , we entered into a definitive agreement to acquire mac financial holding corporation and its wisconsin licensed insurance subsidiaries , mortgage assurance corporation , mortgage assurance reinsurance inc one and mortgage assurance reinsurance inc two , each a wisconsin corporation , which we renamed national mortgage insurance corporation ( “ nmic ” ) , national mortgage reinsurance inc one ( “ re one ” ) and national mortgage reinsurance inc two ( “ re two ” ) , respectively . in april 2012 , we raised net proceeds of approximately $ 510 million from a private placement of our common stock ( the `` private placement '' ) and completed the acquisition of mac financial holding corporation and its insurance subsidiaries . the proceeds from the private placement were and will be primarily used to capitalize our insurance subsidiaries and fund our operating expenses until our insurance subsidiaries generate positive cash flows . on september 30 , 2013 , we merged mac financial holding corporation into nmih , with nmih surviving the merger , and we merged re two into nmic , with nmic surviving the merger . in january 2013 , fannie mae and freddie mac ( collectively the “ gses ” ) approved nmic as a qualified mi provider on loans purchased by the gses . with our gse approval , our customers who originate loans insured by nmic may sell such loans to the gses ( as of april 1 , 2013 for freddie mac and as of june 1 , 2013 for fannie mae ) . our primary insurance subsidiary , nmic , requires a certificate of authority , or insurance license , in each state or jurisdiction where we issue insurance policies . we applied for a certificate of authority in each of the 50 states and d.c. in june 2012. we are currently licensed in 49 states and d.c. on november 8 , 2013 , we filed a final prospectus announcing the sale of approximately 2.1 million shares of common stock through our ipo . the principal reason for conducting the ipo was to expedite an increase in the number of holders of our common stock to permit a listing of our common stock on the nasdaq . obtaining a listing on the nasdaq satisfied certain contractual obligations we had to our stockholders under a registration rights agreement we entered into in connection with the private placement . on november 12 , 2013 , the underwriters exercised their option in full to purchase an additional 315,000 shares of common stock at a price of $ 13.00 per share , before underwriting discounts . the offering closed on november 14 , 2013. gross proceeds to us were $ 31.4 million . net proceeds from the offering were approximately $ 28 million , after an approximate 6 % underwriting fee and other offering expenses and reimbursements pursuant to the underwriting agreement . following our ipo , and to meet our obligations under the registration rights agreement , we filed a final prospectus on december 9 , 2013 registering 51,101,434 class a common shares . these shares had previously been issued during our private placement . through our primary mortgage insurance subsidiary , nmic , a monoline mi company , and its affiliated reinsurance company , re one , we provide residential mi in the united states . we are one of seven companies in the u.s. who offer such insurance . we believe the mi industry has significant barriers to entry due to the substantial capital necessary to fund operations and satisfy gse requirements , the need for a customer-integrated operating platform capable of issuing and servicing mortgage insurance policies , the competitive positions and established customer relationships of existing mortgage insurance providers , and in order to conduct mi business nationwide , the need to obtain and maintain insurance licenses in all 50 states and d.c. additionally , the resource commitment required by customers , and larger lenders in particular , to connect to a new mortgage insurance platform , such as ours , is significant , and absent a critical need , such as the capital constraints in the mi industry during the financial crisis , they have historically , in our view , been reluctant to make such an investment . we were formed at a time when the severe dislocation in the private mortgage insurance industry caused by the financial crisis created a need for newly capitalized mortgage insurers and this has facilitated our efforts to establish relationships with lenders . 57 since the company 's inception , our efforts to build our mi business have included , among other things , building an executive management team and hiring other key officers and directors and staff , building our operating processes , designing and developing our business and technology applications , environment and infrastructure , and obtaining state licenses and gse approval . nmic works to differentiate itself primarily by prompt and predictable underwriting , thereby aiming to provide our customers with a higher degree of confidence of coverage than our competitors provide . story_separator_special_tag as conditions of obtaining licenses in alabama , arizona , california , florida , missouri , new york , ohio and texas , nmic entered into agreements with the alabama department of insurance ( `` aldoi '' ) , the california insurance department ( “ cadoi ” ) , the florida office of insurance regulation ( `` fldoi '' ) , the missouri department of insurance ( “ modoi ” ) , the new york state department of financial services ( “ nydoi ” ) , the ohio department of insurance ( `` ohdoi '' ) and the texas commissioner of insurance ( “ txdoi ” ) . the agreements with the cadoi , fldoi , modoi , nydoi , ohdoi and txdoi , provide , among other things , that : nmic ( i ) refrain from paying any dividends ; ( ii ) retain all profits ; and ( iii ) other than in florida , maintain a risk-to-capital ratio not to exceed 20 to 1 , for three years from the date of gse approval ( i.e. , until january 2016 ) ; and certain start-up compensation expenses and equity compensation in the form of stock options and restricted stock units ( `` rsus '' ) shall not be allocated to or assumed as a cost or expense by nmic . in its agreements with the fldoi and nydoi , nmic is required to obtain the fldoi 's and nydoi 's respective prior written approvals to significantly deviate from the plan of operations and or financial projections that were submitted to the fldoi and nydoi in connection with nmic 's license applications in those states . in addition , if the lawsuit brought by pmic 's receiver is determined adversely to any of our officers who are named as defendants in the lawsuit ( including our chief executive officer , chief financial officer , chief sales officer and vice president of sales operations , analytics & planning ) , we may be required to remove and replace those officers under the terms of the agreements with the aldoi , fldoi , nydoi and txdoi , as a condition of nmic obtaining certificates of authority in those states . in connection with nmic 's license applications in california , missouri and new york , nmih entered into agreements with the cadoi , modoi and nydoi requiring nmih to contribute capital to nmic as necessary to maintain nmic 's risk-to-capital ratio at or below 20 to 1 for three years from the date of gse approval . in the agreement with the fldoi , nmih agreed , consistent with conditions of the gse approval , to downstream additional capital from time to time , as needed , to maintain nmic 's risk-to-capital ratio at or below 15 to 1. in addition , our operation plan filed with the wisconsin oci and other state insurance departments in connection with nmic 's applications for licensure includes the expectation that nmih will downstream additional capital , if needed , so that nmic does not exceed an 18 to 1 risk-to-capital ratio . re one is also a party to the agreement with the cadoi . additionally , and as part of the approval process with the gses , we are required for the first three years of operations ( expiring december 31 , 2015 ) to maintain nmic 's risk-to-capital ratio at no greater than 15 to 1 and at all times to maintain nmic 's total statutory capital of at least $ 150 million . for further discussion of the gse approvals , see `` — gse approvals , '' below . capital position in addition to the requirement that nmic adhere to the above minimum capital requirements , in 16 states , nmic is also subject to regulatory minimum capital requirements based on its insured risk-in-force . while formulations of this minimum capital may vary in each jurisdiction , the most common measure allows for a maximum permitted risk-to-capital ratio of 25 to 1. as a new entrant to the mi business , our insurance writings to date have been minimal compared to the volume of insurance we expect to write as our business grows in the near future . 59 as of december 31 , 2013 , nmic 's primary risk-in-force was approximately $ 36.5 million on a total of 653 policies in force and pool risk-in-force was approximately $ 93.1 million on a total of approximately 22,000 loans . based on nmic 's reported total statutory capital of $ 182 million at december 31 , 2013 , nmic 's risk-to-capital ratio was 0.6:1 , significantly below the contractual and regulatory maximum risk-to-capital thresholds . as our insurance writings grow and our risk-in-force increases , our risk-to-capital ratio will increase and nmic 's risk-to-capital metrics will become more important to an evaluation of its compliance with all of the capital requirements to which it is subject . state insurance regulators and the gses are currently examining their respective risk-to-capital ratio requirements to determine whether in light of the recent financial crisis , changes are needed to more accurately assess mortgage insurers ' ability to withstand stressful economic conditions . the naic has formed a working group to explore , among other things , whether the risk-to-capital requirements applicable to mortgage insurers should be overhauled . we , along with other mi companies are working with the mortgage guaranty insurance working group of the financial condition ( e ) committee of the naic . the working group will determine and make a recommendation to the financial condition ( e ) committee of the naic as to what changes , if any , the working group believes are necessary to the solvency regulation for mi companies , including changes to the mortgage guaranty insurers model act ( model # 630 ) . we have participated in the working group since early 2013 and continue to advocate for a strong capital model , as the industry migrates from a risk-to-capital metric to a more traditional risk-based capital approach .
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mortgage insurance results prior to the completion of our private placement , our activities were focused on organizational development , capital raising and other start-up related activities . additionally , for the period from may 19 , 2011 through the majority of 2013 , our efforts were primarily directed toward attracting an executive management team and other key officers and directors , hiring staff , building our operating processes , designing and developing our business and technology applications , environment and infrastructure , and securing state licensing and gse approval for our mortgage insurance subsidiaries . since we commenced writing mi on a limited test basis in april 2013 , we have become a fully operational mi company , with direct premiums written of $ 3.5 million and primary insurance -in-force of $ 161.7 million and pool insurance-in-force of $ 5.1 billion for the year ended december 31 , 2013. national mortgage insurance corporation & national mortgage reinsurance inc one - combined results for
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we utilize our deep expertise in structure-based drug discovery , translational research and patient-driven precision medicine , which we collectively refer to as our kinnate discovery engine , to develop our targeted therapies . we focus our discovery and development efforts on three patient populations : ( 1 ) those with cancers that harbor known oncogenic drivers ( gene mutations that cause cancers ) with no currently available targeted therapies , ( 2 ) those with genomically well-characterized tumors that have intrinsic resistance to currently available treatments ( non-responders ) , and ( 3 ) those whose tumors have acquired resistance over the course of therapy to currently available treatments . we believe our unique approach may enable us to develop drugs with an increased probability of clinical success while reducing the cost and risk of drug development . our most advanced product candidate is kin-2787 , which is a raf inhibitor we are developing for the treatment of patients with lung cancer , melanoma and other solid tumors . unlike currently available treatments that target only class i braf kinase mutations , we have designed kin-2787 to target class ii and class iii braf mutations , where it would be a first-line targeted therapy , in addition to covering class i braf mutations . we anticipate filing an ind for our raf candidate with the fda in the first half of 2021. additionally , we are evaluating fgfr inhibitor candidates for the treatment of patients with icc and uc . our lead fgfr candidate , kin-3248 is designed to address clinically observed genomic alterations in fgfr2 and fgfr3 that drive resistance to current therapies . we anticipate filing an ind for kin-3248 with the fda in the first half of 2022. our raf and fgfr candidates have demonstrated proof of concept in preclinical models and , subject to our planned ind submissions taking effect , we anticipate initiating a phase 1 clinical trial for kin-2787 in 2021 and an additional phase 1 clinical trial for kin-3248 program in the first half of 2022. we are also advancing a number of other small molecule research programs , including a cdk12 inhibitor in our kin004 program to target the treatment of oc , tnbc and mcrpc . since our inception in 2018 , we have devoted substantially all of our resources to research and development activities , including with respect to our raf and fgfr programs and other research programs , business planning , establishing and maintaining our intellectual property portfolio , hiring personnel , raising capital , and providing general and administrative support for these operations . we do not have any products approved for commercial sale , and we have not generated any revenue from product sales or other sources since inception . our ability to generate product revenue sufficient to achieve profitability , if ever , will depend on the successful development and eventual commercialization of one or more of our product candidates which we expect , if it ever occurs , will take a number of years . we also do not own or operate , and currently have no plans to establish , any manufacturing facilities . we rely , and expect to continue to rely , on third parties for the manufacture of our product candidates for preclinical and clinical testing , as well as for commercial manufacturing if any of our product candidates obtain marketing approval . we believe that this strategy allows us to maintain a more efficient infrastructure by eliminating the need for us to invest in our own manufacturing facilities , equipment and personnel while also enabling us to focus our expertise and resources on the development of our product candidates . to date , we have financed our operations primarily through proceeds from the issuance of common stock and private placements of our convertible preferred stock . as of december 31 , 2020 , we had cash and cash equivalents and short-term investments of $ 396.9 million . based on our current operating plan , we believe that our current cash and cash equivalents will be sufficient to fund our planned operating expenses and capital expenditure requirements for at least the next 12 months . we have incurred significant losses since the commencement of our operations . our net losses for the years ended december 31 , 2020 and 2019 were $ 35.8 million and $ 12.0 million , respectively , and we expect to continue to incur significant and increasing losses for the foreseeable future as we continue to advance our product candidates and any future product candidates from discovery through preclinical development and into clinical trials as we seek regulatory approval for these product candidates . our net losses may fluctuate significantly from period to period , depending on the timing of expenditures on our research and development activities . as of december 31 , 2020 , we had an accumulated deficit of $ 53.3 million . 98 we expect our expenses and capital requirements will increase substantially in connection with our ongoing activities as we : ● advance our raf and fgfr programs from discovery and preclinical development into and through clinical development ; ● advance the development of our other small molecule research programs , including our cdk12 inhibitor ; ● expand our pipeline of product candidates through our own product discovery and development efforts ; ● seek to discover and develop additional product candidates ; ● seek regulatory approvals for any product candidates that successfully complete clinical trials ; ● establish a sales , marketing and distribution infrastructure to commercialize any approved product candidates and related additional commercial manufacturing costs ; ● implement operational , financial and management systems ; ● attract , hire and retain additional clinical , scientific , management and administrative personnel ; ● maintain , expand , protect and enforce our intellectual property portfolio , including patents , trade secrets and know how ; and ● operate as a public company . we will require substantial additional funding to develop our product candidates and support our continuing operations . story_separator_special_tag external expenses are recognized based on an evaluation of the progress to completion of specific tasks using information provided to us by our service providers or our estimate of the level of service that has been performed at each reporting date . we track external expenses on a lead program and other program basis . however , we do not track internal costs on a program specific basis because these costs are deployed across multiple programs and , as such , are not separately classified . we utilize third party contractors for our research and development activities and cmos for our manufacturing activities and we do not have our own laboratory or manufacturing facilities . therefore , we have no material facilities expenses attributed to research and development . product candidates in later stages of development generally have higher development costs than those in earlier stages . as a result , we expect that our research and development expenses will increase substantially over the next several years as we advance our product candidates through preclinical studies into and through clinical trials , continue to discover and develop additional product candidates and expand our pipeline , maintain , expand , protect and enforce our intellectual property portfolio , and hire additional personnel . the successful development of our product candidates is highly uncertain , and we do not believe it is possible at this time to accurately project the nature , timing and estimated costs of the efforts necessary to complete the development of , and obtain regulatory approval for , any of our product candidates . to the extent our product candidates continue to advance into clinical trials , as well as advance into larger and later-stage clinical trials , our expenses will increase substantially and may become more variable . we are also unable to predict when , if ever , we will generate revenue from our product candidates to offset these expenses . our expenditures on current and future preclinical and clinical programs are subject to numerous uncertainties in timing and cost to completion . the duration , costs and timing of preclinical studies and clinical trials and development of our product candidates will depend on a variety of factors , including : ● the timing and progress of preclinical and clinical development activities ; ● the number and scope of preclinical and clinical programs we decide to pursue ; ● our ability to maintain our current research and development programs and to establish new ones ; ● establishing an appropriate safety profile with ind-enabling toxicology studies ; ● successful patient enrollment in , and the initiation and completion of , clinical trials ; ● per subject trial costs ; ● the number of trials required for regulatory approval ; 100 ● the countries in which the trials are conducted ; ● the length of time required to enroll eligible subjects and initial clinical trials ; ● the number of subjects that participate in the trials ; ● the drop-out and discontinuation rate of subjects ; ● potential additional safety monitoring requested by regulatory authorities ; ● the duration of subject participation in the trials and follow-up ; ● the successful completion of clinical trials with safety , tolerability and efficacy profiles that are satisfactory to applicable regulatory authorities ; ● the receipt of regulatory approvals from applicable regulatory authorities ; ● the timing , receipt and terms of any marketing approvals and post-marketing approval commitments from applicable regulatory authorities ; ● the extent to which we establish collaborations , strategic partnerships or other strategic arrangements with third parties , if any , and the performance of any such third party ; ● obtaining and retaining research and development personnel ; ● establishing commercial manufacturing capabilities or making arrangements with cmos ; ● development and timely delivery of commercial-grade drug formulations that can be used in our planned clinical trials and for commercial launch ; and ● obtaining , maintaining , defending and enforcing patent claims and other intellectual property rights . any changes in the outcome of any of these factors could significantly impact the costs , timing and viability associated with the development of our product candidates . general and administrative general and administrative expenses in 2019 consisted of fees paid to ftl and fsc for various services such as finance , audit , accounting , human resources , technology , facilities , and other management services necessary for our operations , as well as for legal expenses . general and administrative expenses in 2020 consisted of salaries and benefits , travel and stock-based compensation expense for personnel in executive , human resources , finance and administrative functions ; professional fees for legal , patent , consulting , accounting and audit services ; and expenses for technology and facilities . we expense general and administrative expenses in the periods in which they are incurred . we expect that our general and administrative expenses will increase substantially over the next several years as we hire additional personnel to support the continued research and development of our programs and growth of our business . we also anticipate that we will incur substantially higher expenses as a result of operating as a public company , including expenses related to accounting , audit , legal , regulatory , compliance with the rules and regulations of the sec , sarbanes-oxley act and those of any national securities exchange on which our securities are traded , director and officer insurance , investor and public relations , and other administrative and professional services . other income interest income interest income primarily consists of interest income generated from our cash equivalents in interest-bearing money market accounts and short-term investments . 101 story_separator_special_tag text-align : left ; color : # 000000 ; '' > ● attract , hire and retain additional clinical , scientific , management and administrative personnel ; ● maintain , expand , protect and enforce our intellectual property portfolio , including patents , trade secrets and know how ; and ● operate as a public company .
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results of operations comparison of the years ended december 31 , 2020 and 2019 the following table summarizes our results of operations for the periods indicated : replace_table_token_1_th research and development expenses the following table summarizes our research and development expenses incurred during the periods indicated : replace_table_token_2_th research and development expenses were $ 29.2 million for the year ended december 31 , 2020 , compared to $ 9.0 million for the year ended december 31 , 2019 , an increase of $ 20.2 million . the increase was primarily driven by an increase of $ 14.3 million in external expenses for our raf and fgfr programs . in addition , internal research and development expenses increased $ 3.8 million as a result of us hiring additional research and development personnel beyond those who were engaged through ftl and fsc in 2019 , allowing us to increase our capabilities , and higher stock-based compensation . the remainder of the increase was external expenses for other non-lead programs and for unallocated costs reflecting increased spend in early-stage pipeline research . general and administrative expenses general and administrative expenses were $ 6.8 million for the year ended december 31 , 2020 , compared to $ 3.1 million for the year ended december 31 , 2019 , an increase of $ 3.7 million . this increase was primarily driven by the hiring of additional senior management in 2020 , higher stock-based compensation , an increase in accounting fees related to our ipo , and an expansion of our activity .
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some of the information contained in this discussion and analysis or set forth elsewhere in this annual report , including information with respect to our plans and strategy for our business , includes forward-looking statements that involve risks and uncertainties . you should review item 1a . `` risk factors '' and `` special note regarding forward-looking statements '' in this annual report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . executive overview story_separator_special_tag increased gmv processed through our platform , resulting in higher variable subscription fees . opportunities and risks dynamic e-commerce landscape . we will need to continue to innovate in the face of a rapidly changing e-commerce landscape if we are to remain competitive , and we will need to effectively manage our growth , especially related to our international expansion . retailers and branded manufacturers . as consumer preferences potentially shift from smaller retailers , we need to continue to add large retailers and branded manufacturers as profitable customers . these customers generally pay a lower percentage of gmv as fees to us based on the relatively higher volume of their gmv processed through our platform . to help drive our future growth , we have made significant investments in our sales force and allocated resources focused on growing our customer base of large retailers and branded manufacturers . we continue to focus our efforts on increasing value for our customers to support higher rates . increasing complexity and fragmentation of e-commerce . although e-commerce continues to expand as retailers and branded manufacturers continue to increase their online sales , it is also becoming more complex and fragmented due to the hundreds of channels available to retailers and branded manufacturers and the rapid pace of change and innovation across those channels . in order to gain consumers ' attention in a more crowded and competitive online marketplace , many retailers and an increasing number of branded manufacturers sell their merchandise through multiple online channels , each with its own rules , requirements and specifications . in particular , third-party marketplaces are an increasingly important driver of growth for a number of large online retailers and branded manufacturers , and as a result we need to continue to support multiple channels in a variety of geographies in order to support our targeted revenue growth . as of december 31 , 2017 , we supported 89 marketplaces , up from over 70 at december 31 , 2016 . global growth in e-commerce . we believe the growth in e-commerce globally presents an opportunity for retailers and branded manufacturers to engage in international sales . however , country-specific marketplaces are often the market share leaders in their regions , as is the case for alibaba in asia . in order to help our customers capitalize on this potential market opportunity , and to address our customers ' needs with respect to cross-border trade , we intend to continue to invest in our international operations , specifically in the asia pacific region . doing business overseas involves substantial challenges , including management attention and resources needed to adapt to multiple languages , cultures , laws and commercial infrastructure , as further described in this report under the caption `` risks related to our international operations . '' our senior management continuously focuses on these and other trends and challenges , and we believe that our culture of innovation and our history of growth and expansion will contribute to the success of our business . we can not , however , assure you that we will be successful in addressing and managing the many challenges and risks that we face . 33 key financial and operating metrics the average revenue generated by our customers is a primary determinant of our revenue . we calculate this metric by dividing our revenue for a particular period by the average monthly number of customers during the period , which is calculated by taking the sum of the number of customers at the end of each month in the period and dividing by the number of months in the period . we typically calculate average revenue per customer in absolute dollars on a rolling twelve-month basis , but we may also calculate percentage changes in average revenue per customer on a quarterly basis in order to help us evaluate our period-over-period performance . for purposes of this metric and the number of customers metric described below , we include all customers who subscribe to at least one of our solutions , excluding the approximately 50 net new customers acquired from our 2017 acquisition of hublogix commerce corp. , or hublogix ( renamed channeladvisor fulfillment , inc. ) , and customers subscribing only to certain legacy product offerings that are no longer part of our strategic focus . the number of customers decreased slightly in 2017. we continue our focus on obtaining large retailer and branded manufacturer customers , which may represent a smaller number of customers , but a potentially larger source of predictable or sustaining recurring revenue . adjusted ebitda represents our earnings before interest expense , income tax expense ( benefit ) and depreciation and amortization , adjusted to eliminate stock-based compensation expense , which is a non-cash item , a one-time charge of $ 2.5 million in 2017 for vdas related to sales taxes , headquarters relocation and related costs in 2015 and one-time severance and related costs in 2015 ( refer to note 6 to our consolidated financial statements included elsewhere in this annual report for additional information regarding the one-time charge for vdas related to sales taxes in 2017 ) . accordingly , we believe that adjusted ebitda provides useful information to management and others in understanding and evaluating our operating results . story_separator_special_tag we invoice our customers for the implementation fee at the inception of the arrangement . fixed subscription and implementation fees that have been invoiced are initially recorded as deferred revenue and are generally recognized ratably over the contract term . we invoice and recognize revenue from the variable portion of subscription fees in the period in which the related gmv or advertising spend is processed , assuming that the four conditions specified above have been met . comparison of 2017 to 2016 revenue increased by 8.2 % , or $ 9.3 million , to $ 122.5 million for the year ended december 31 , 2017 due to an increase in the average revenue per customer . on a trailing twelve-month basis , average revenue per customer increased 8.5 % , to $ 42,693 for the year ended december 31 , 2017 as compared to $ 39,339 for the year ended december 31 , 2016 . the increase in the average revenue per customer was primarily driven by revenue growth of 8.3 % from our marketplaces solution . the growth of our marketplaces solution was largely attributable to an overall increase in transaction volume and , to a lesser extent , to modest overall increases in the percentage fees assessed on the fixed and variable portions of gmv under our contractual arrangements with some of our customers during the period . because we generally enter into annual contracts with our customers , we may renegotiate either or both of the fixed and variable components of the pricing structure of a customer 's contract each year . in addition , the increase in average revenue per customer was due in part to our established customers who have increased their revenue over time on our platform . in general , as customers mature they generate a higher amount of gmv from which we derive revenue and in some cases they may subscribe to additional modules on our platform , thereby increasing our subscription revenue . 37 comparison of 2016 to 2015 revenue increased by 12.5 % , or $ 12.6 million , to $ 113.2 million for the year ended december 31 , 2016 due to an increase in the average revenue per customer . on a trailing twelve-month basis , average revenue per customer increased 14.0 % to $ 39,339 for the year ended december 31 , 2016 as compared to $ 34,513 for the year ended december 31 , 2015 . the increase in the average revenue per customer was primarily driven by revenue growth of 16.3 % from our marketplaces solution from 2015 to 2016. cost of revenue cost of revenue primarily consists of : salaries and personnel-related costs for employees providing services to our customers and supporting our platform infrastructure , including benefits , bonuses and stock-based compensation ; co-location facility costs for our data centers ; infrastructure maintenance costs ; and fees we pay to credit card vendors in connection with our customers ' payments to us . comparison of 2017 to 2016 cost of revenue decreased by 6.0 % , or $ 1.7 million , to $ 26.0 million for the year ended december 31 , 2017 , with the change being comprised primarily of decreases of : $ 1.1 million in compensation and employee-related costs , including stock-based compensation expense , due to changes in headcount ; and $ 0.5 million in co-location and infrastructure maintenance costs primarily associated with closing a data center and retiring servers used to support legacy product offerings that are no longer part of our strategic focus . comparison of 2016 to 2015 cost of revenue increased by 6.9 % , or $ 1.8 million , to $ 27.6 million for the year ended december 31 , 2016 , with the change being comprised of increases ( decreases ) of : $ 1.7 million in compensation and employee-related costs mainly due to additional headcount to support our customers ; $ 0.4 million in contractor costs primarily to support our international services team ; and $ 0.2 million in rent and facilities costs due to the relocation of our corporate headquarters in the fourth quarter of 2015 ; partially offset by $ 0.4 million reduction in hosting , co-location and infrastructure maintenance costs primarily due to our migration to a public cloud infrastructure . 38 operating expenses sales and marketing expense sales and marketing expense consists primarily of : salaries and personnel-related costs for our sales and marketing and customer support employees , including benefits , bonuses , stock-based compensation and commissions ; marketing , advertising and promotional event programs ; and corporate communications . comparison of 2017 to 2016 sales and marketing expense increased by 12.2 % , or $ 6.9 million , to $ 63.5 million for the year ended december 31 , 2017 with the change being comprised primarily of increases of : $ 4.5 million in compensation and employee-related costs , mainly due to additional headcount in our sales organization ; and $ 2.1 million in marketing and advertising expenses , promotional event programs and travel costs to support expanding marketing activities to continue to grow our business . comparison of 2016 to 2015 sales and marketing expense increased by 5.3 % , or $ 2.8 million , to $ 56.6 million for the year ended december 31 , 2016 with the change being comprised of increases of : $ 2.5 million in compensation and employee-related costs , mainly due to additional headcount in our sales organization , stock-based compensation and the payment of increased sales commissions ; and $ 0.3 million in recruiting fees , namely for expanding our international sales personnel , and consulting fees . research and development expense research and development expense consists primarily of : salaries and personnel-related costs for our research and development employees , including benefits , bonuses and stock-based compensation ; costs related to the development , quality assurance and testing of new technology and enhancement of our existing platform technology ; and consulting expenses .
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financial results total revenue of $ 122.5 million for the year ended december 31 , 2017 increased 8.2 % year over year ; average revenue per customer of $ 42,693 for the year ended december 31 , 2017 increased 8.5 % compared to $ 39,339 for the prior year ; revenue was comprised of 76.3 % and 23.7 % fixed and variable subscription fees , respectively , for the year ended december 31 , 2017 compared to fixed and variable subscription fees of 76.0 % and 24.0 % , respectively , for the year ended december 31 , 2016 ; revenue derived from customers located outside of the united states as a percentage of total revenue was 21.9 % for the year ended december 31 , 2017 compared to 21.7 % for the prior year ; gross margin of 78.8 % for the year ended december 31 , 2017 improved by 320 basis points compared to gross margin of 75.6 % for the prior year ; operating margin of ( 13.5 ) % for the year ended december 31 , 2017 declined 130 basis points compared to operating margin of ( 12.2 ) % for the prior year ; net loss for the year ended december 31 , 2017 was $ 16.6 million compared to net loss of $ 8.0 million for the prior year ; adjusted ebitda of $ 4.6 million for the year ended december 31 , 2017 decreased 38.6 % compared to adjusted ebitda of $ 7.4 million for the prior year ; cash and cash equivalents was $ 53.4 million at december 31 , 2017 compared to $ 65.4 million at december 31 , 2016 ; and operating cash flow was $ ( 3.0 ) million for the year ended december 31 , 2017 compared to $ 11.6 million for the prior year .
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this section provides additional information regarding our businesses , current developments , results of operations , cash flows , financial condition , contractual commitments and critical accounting policies . cautionary note concerning forward-looking statements certain statements in this annual report on form 10-k constitute forward-looking statements within the meaning of the private securities litigation reform act of 1995 , including statements regarding our business , marketing and operating strategies , integration of acquired businesses , new service offerings , financial prospects , and anticipated sources and uses of capital . words such as “ anticipates , ” “ estimates , ” “ expects , ” “ projects , ” “ intends , ” “ plans , ” “ believes , ” and terms of similar substance used in connection with any discussion of future operating or financial performance identify forward-looking statements . where , in any forward-looking statement , we express an expectation or belief as to future results or events , such expectation or belief is expressed in good faith and believed to have a reasonable basis , but there can be no assurance that the expectation or belief will result or be accomplished . the following is a list of some , but not all , of the factors that could cause actual results or events to differ materially from those anticipated : continued consolidation of distribution customers and production studios ; a failure to secure affiliate agreements or renewal of such agreements on less favorable terms ; changes in the distribution and viewing of television programming , including the expanded deployment of personal video recorders , vod , internet protocol television , mobile personal devices and personal tablets and their impact on television advertising revenue ; rapid technological changes ; the inability of advertisers or affiliates to remit payment to us in a timely manner or at all ; general economic and business conditions ; industry trends , including the timing of , and spending on , feature film , television and television commercial production ; spending on domestic and foreign television advertising ; disagreements with our distributors over contract interpretation ; fluctuations in foreign currency exchange rates and political unrest and regulatory changes in international markets , from events including brexit ; market demand for foreign first-run and existing content libraries ; the regulatory and competitive environment of the industries in which we , and the entities in which we have interests , operate ; uncertainties inherent in the development of new business lines and business strategies ; uncertainties regarding the financial performance of our equity method investees ; integration of acquired businesses ; uncertainties associated with product and service development and market acceptance , including the development and provision of programming for new television and telecommunications technologies ; future financial performance , including availability , terms , and deployment of capital ; the ability of suppliers and vendors to deliver products , equipment , software , and services ; the outcome of any pending or threatened litigation ; availability of qualified personnel ; the possibility or duration of an industry-wide strike or other job action affecting a major entertainment industry union ; changes in , or failure or inability to comply with , government regulations , including , without limitation , regulations of the fcc and adverse outcomes from regulatory proceedings ; changes in income taxes due to regulatory changes or changes in our corporate structure ; changes in the nature of key strategic relationships with partners , distributors and equity method investee partners ; competitor responses to our products and services and the products and services of the entities in which we have interests ; threatened terrorist attacks and military action ; 32 reduced access to capital markets or significant increases in costs to borrow ; and a reduction of advertising revenue associated with unexpected reductions in the number of subscribers . for additional risk factors , refer to item 1a , “ risk factors. ” these forward-looking statements and such risks , uncertainties , and other factors speak only as of the date of this annual report on form 10-k , and we expressly disclaim any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement contained herein , to reflect any change in our expectations with regard thereto , or any other change in events , conditions or circumstances on which any such statement is based . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > 3 % . this was due to increases at our u.s. networks offset by decreases at our international networks . 34 costs of revenues costs of revenues increased 4 % . excluding the impact of foreign currency fluctuations , the acquisition of eurosport france in march 2015 and the disposition of the company 's radio business , costs of revenues increased 7 % for the year ended december 31 , 2016 . the increase was primarily attributable to increased spending for content on our networks , particularly sports rights and associated production costs , and increases in content impairments in northern europe as a result of changes in programming strategies . content amortization was $ 1.7 billion and $ 1.6 billion for the years ended december 31 , 2016 and december 31 , 2015 , respectively . selling , general and administrative selling , general and administrative expenses consist principally of employee costs , marketing costs , research costs , occupancy and back office support fees . selling , general and administrative expenses increased 1 % . excluding the impact of foreign currency fluctuations and the disposition of the company 's radio business , selling , general and administrative expenses increased 5 % for the year ended december 31 , 2016 . the increase was due to increases in mark-to-market equity-based compensation expense from increases in the company 's stock price and marketing expense . depreciation and amortization depreciation and amortization expense includes depreciation of fixed assets and amortization of finite-lived intangible assets . story_separator_special_tag replace_table_token_8_th ( a ) selling , general and administrative expenses exclude mark-to-market equity-based compensation , restructuring and other charges , and gains ( losses ) on dispositions . ( b ) amortization of deferred launch incentives is included as a reduction of distribution revenue for reporting in accordance with gaap but is excluded from adjusted oibda . 37 the table below presents our adjusted oibda by segment , with a reconciliation of consolidated net income available to discovery communications , inc. to total adjusted oibda ( in millions ) . replace_table_token_9_th u.s. networks the table below presents , for our u.s. networks segment , revenues by type , certain operating expenses , contra revenue amounts , adjusted oibda and a reconciliation of adjusted oibda to operating income ( in millions ) . replace_table_token_10_th revenues distribution revenue increased 7 % , primarily due to contractual rate increases that include market adjustments for certain recent contract renewals partially offset by slight declines in subscribers . 38 advertising revenue increased 2 % , due to inventory management and pricing increases , partially offset by a decline in ratings . other revenue increased 26 % , primarily due to increases in services provided to equity method investees . costs of revenues costs of revenues remained consistent with the prior period . content amortization was $ 716 million and $ 714 million for 2016 and 2015 , respectively . selling , general and administrative selling , general and administrative expenses increased 2 % as increased spending on marketing was offset by decreases in personnel costs . adjusted oibda adjusted oibda increased 8 % , primarily due to increases in distribution and advertising revenue . international networks the following table presents , for our international networks segment , revenues by type , certain operating expenses , certain contra revenue amounts , adjusted oibda and a reconciliation of adjusted oibda to operating income ( in millions ) . in addition , see the international networks ' table in `` results of operations – 2016 vs. 2015 – items impacting comparability '' for more information on eurosport . replace_table_token_11_th revenues distribution revenue increased 3 % . excluding the impact of foreign currency fluctuations and the acquisition of eurosport france in march 2015 , distribution revenue increased 9 % . the increase was mostly due to increases in rates in europe and increases in subscribers and rates in latin america . such growth is consistent with the value negotiated in new arrangements following investment in sports content in markets in europe and the continued development of the pay-tv markets in latin america . advertising revenue decreased 5 % . excluding the impact of foreign currency fluctuations and the disposition of the company 's radio business , advertising revenue increased 3 % . the increase was primarily driven by ratings and volume in southern europe , and , to a lesser extent , pricing , ratings and volume in ceemea , partially offset by lower ratings in northern europe and lower price , ratings and volume in asia . other revenue decreased 22 % . excluding the impact of foreign currency fluctuations and the disposition of the company 's radio business , other revenue decreased 17 % due to a reduction in sublicensing revenue for eurosport . 39 costs of revenues costs of revenues increased 6 % . excluding the impact of foreign currency fluctuations , the acquisition of eurosport france in march 2015 , and the disposition of the company 's radio business , costs of revenues increased 11 % . the increase was mostly attributable to increased spending on content , particularly sports rights and associated production costs , and increases in content impairments , primarily in northern europe as a result of changes in programming strategies . content amortization was $ 976 million and $ 906 million for 2016 and 2015 , respectively . selling , general and administrative selling , general and administrative expenses decreased 4 % . excluding the impact of foreign currency fluctuations and the disposition of the company 's radio business , selling , general and administrative expenses increased 4 % . the components of selling , general and administrative expenses included increases in personnel expenses and marketing costs . adjusted oibda adjusted oibda decreased 12 % . excluding the impact of foreign currency fluctuations and the disposition of the company 's radio business , adjusted oibda decreased 3 % . the decrease was primarily due to higher content expense partially offset by increases in distribution revenue . education and other the following table presents our education and other operating segments ' revenues , certain operating expenses , adjusted oibda , and a reconciliation of adjusted oibda to operating income ( in millions ) . replace_table_token_12_th adjusted oibda decreased $ 8 million . the decrease was primarily due to additional operational spending to invest in education 's digital textbooks , which more than offset improvements in operating expenses at the studios business . corporate and inter-segment eliminations the following table presents our unallocated corporate amounts including revenue , certain operating expenses , adjusted oibda and a reconciliation of adjusted oibda to operating loss ( in millions ) . replace_table_token_13_th corporate operations primarily consist of executive management , administrative support services and substantially all of our equity-based compensation . adjusted oibda remained consistent with the prior period . 40 the increase in mark-to-market equity-based compensation expense was primarily attributable to an increase in discovery 's stock price in 2016 compared to 2015 . changes in stock price are a key driver of fair value estimates used in the attribution of expense for stock appreciation rights ( `` sars '' ) and performance-based restricted stock units ( `` prsus '' ) . by contrast , stock options and service-based restricted stock units ( `` rsus '' ) are fair valued at grant date and amortized over their vesting period without mark-to-market adjustments . the expense associated with stock options and rsu 's is included in adjusted oibda as a component of selling , general and administrative expense .
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business overview we are a global media company that provides content across multiple distribution platforms , including pay-tv , fta and broadcast television , websites , digital distribution arrangements and content licensing agreements . our portfolio of networks includes prominent television brands such as discovery channel , our most widely distributed global brand , tlc , animal planet , id , velocity ( known as turbo outside of the u.s. ) and eurosport , a leading sports entertainment pay-tv programmer across europe and asia . we also develop and sell curriculum-based education products and services and operate production studios . our objectives are to invest in content for our networks to build viewership , optimize distribution revenue , capture advertising sales and create or reposition branded channels and businesses that can sustain long-term growth and occupy a desired content niche with strong consumer appeal . our strategy is to maximize the distribution , ratings and profit potential of each of our branded networks . in addition to growing distribution and advertising revenues for our branded networks , we are extending content distribution across new platforms , including brand-aligned websites , web-native networks , on-line streaming , mobile devices , vod and broadband channels , which provide promotional platforms for our television content and serve as additional outlets for advertising and distribution revenue . audience ratings are a key driver in generating advertising revenue and creating demand on the part of cable television operators , dth satellite operators , telecommunication service providers , and other content distributors , that deliver our content to their customers . our content spans genres including survival , exploration , sports , lifestyle , general entertainment , heroes , adventure , crime and investigation , health and kids . we have an extensive library of high-definition content and own rights to much of our content and footage , which enables us to exploit our library to launch brands and services into new markets quickly .
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loss on extinguishment of debt in connection with the refinancing of our indebtedness in the first quarter of 2011 , we incurred a $ 3.0 million loss on the extinguishment of debt . interest expense , net interest expense , net decreased $ 0.6 million or 1.9 % to $ 29.3 million for the year ended december 31 , 2012 from $ 29.9 million for the year ended december 31 , 2011. the decrease was primarily due to charges aggregating $ 5.2 million associated with the debt refinancing in the first quarter of 2011 , partially offset by increased average debt balances . income tax expense our income tax expense was $ 19.3 million and $ 0.6 million for the years ended december 31 , 2012 and 2011 , respectively . our effective tax rate was 619.8 % and 0.6 % for the years ended december 31 , 2012 and 2011 , respectively . our effective tax rates differed from the u.s. corporate statutory tax rate of 35.0 % , primarily due to the mix of pre-tax income earned in foreign jurisdictions and our limited ability to utilize net operating loss carryforwards in certain jurisdictions , primarily in the united states . 44 index to financial statements we record a valuation allowance when it is more likely than not that some portion or all of the deferred tax assets will not be realized . as of december 31 , 2012 and 2011 , a valuation allowance of $ 90.4 million and $ 54.2 million , respectively , has been provided for net operating loss carryforwards and other deferred tax assets . we increased our valuation allowance by $ 36.2 million in 2012 , of which $ 30.7 million represents current period net operating losses and a reversal of the benefit recorded for prior net operating losses and $ 5.5 million represents changes in other comprehensive income ( loss ) . we reduced our valuation allowance by $ 12.2 million in 2011 of which $ 17.3 million represents the benefit of utilizing net operating losses and the assessment of our ability to utilize net operating losses in future periods , partially offset by a $ 5.1 million increase which represents changes in other comprehensive income ( loss ) . excluding the change in our valuation allowance , our effective tax rate would have been a 366.1 % benefit and a 19.5 % expense for the years ended december 31 , 2012 and 2011 , respectively . our pre-tax income is generated in a number of jurisdictions and is subject to a number of different effective tax rates that are significantly lower than the u.s. corporate statutory tax rate of 35.0 % . for the year ended december 31 , 2012 , we earned $ 63.0 million of pre-tax income in jurisdictions with a full year effective tax rate of 8.7 % . for the year ended december 31 , 2011 , we earned $ 83.6 million of pre-tax income in jurisdictions with a full year effective tax rate of 11.6 % . net income ( loss ) net loss was $ 16.2 million or $ 0.50 per diluted share for the year ended december 31 , 2012 , a decrease of $ 107.1 million compared to net income of $ 90.9 million or $ 2.81 per diluted share for the year ended december 31 , 2011. net loss for the year ended december 31 , 2012 included charges of approximately $ 16.4 million , net of tax , associated with a property tax dispute in france , impairment related charges , storm related charges , restructuring and related charges , a retirement plan settlement charge and costs associated with our march 2012 offering , partially offset by $ 6.9 million , net of tax , associated with the lbi settlement . these items , net of tax , increased our diluted loss per share by $ 0.30 for the year ended december 31 , 2012. net income for the year ended december 31 , 2011 included charges of approximately $ 9.8 million , net of tax , or $ 0.31 per diluted share associated with restructuring and related charges , costs associated with debt refinancing , costs associated with a secondary public offering of our common stock and charges associated with evaluating acquisition transactions . the impact of the change in our deferred tax asset valuation allowance increased our diluted loss per share by $ 0.95 for the year ended december 31 , 2012 and increased our diluted earnings per share by $ 0.54 for the year ended december 31 , 2011. year ended december 31 , 2011 compared to year ended december 31 , 2010 sales revenue sales revenue increased $ 209.1 million or 17.0 % to $ 1,437.5 million for the year ended december 31 , 2011 from $ 1,228.4 million for the year ended december 31 , 2010. the increase was largely due to global product sales price increases of $ 177.8 million , which were primarily in response to higher raw material costs and changes in foreign currency exchange rates of $ 42.0 million , partially offset by decreased sales volumes of $ 15.3 million . sales volumes were 303.0 kilotons for the year ended december 31 , 2011 and 307.1 kilotons for the year ended december 31 , 2010. the following factors influenced our sales revenue in each of our core end use markets : advanced materials . sales revenue increased $ 36.4 million or 9.9 % to $ 402.6 million for the year ended december 31 , 2011 from $ 366.2 million for the year ended december 31 , 2010. sales revenue increased primarily due to global price increases implemented in response to rising raw material costs , on lower volumes . story_separator_special_tag we saw continued growth of innovation-led volumes , driven by growth in european and asia pacific pvc replacement in medical and certain personal care applications . the innovation-led volume increases were offset by volume declines in less differentiated applications . 45 index to financial statements adhesives , sealants and coatings . sales revenue increased $ 78.6 million or 18.7 % to $ 499.7 million for the year ended december 31 , 2011 from $ 421.1 million for the year ended december 31 , 2010. sales revenue growth was primarily due to global price increases implemented in response to rising raw material costs . the increase was also attributable to increased sales volume into lubricant and additives applications , as well as higher volumes in our more differentiated hsbc polymer grades , including innovation-led volume growth in health and beauty gel applications , and innovation-led usbc growth in polychloroprene rubber replacement applications . these increases were partially offset by volume declines in our less differentiated polymer grades within our usbc portfolio . paving and roofing . sales revenue increased $ 88.0 million or 25.8 % to $ 429.3 million for the year ended december 31 , 2011 from $ 341.3 million for the year ended december 31 , 2010. the increase was primarily due to global price increases implemented in response to rising raw material costs . we experienced improved european demand for our paving products and , to a lesser extent , in north america . global roofing demand was down primarily due to lower demand in north america , partially offset by innovation-led volume gains in europe . cariflex tm . sales revenue increased $ 7.4 million or 8.1 % to $ 99.3 million for the year ended december 31 , 2011 from $ 91.9 million for the year ended december 31 , 2010. the increase reflects the continued volume growth of our cariflex irl , primarily used in surgical glove and condom applications . furthermore , we saw continued volume growth for cariflex ir in medical and coating applications . cost of goods sold cost of goods sold increased $ 193.4 million or 20.8 % to $ 1,121.3 million for the year ended december 31 , 2011 from $ 927.9 million for the year ended december 31 , 2010. the increase was driven largely by increased monomer costs in the amount of $ 145.0 million , which includes the year-over-year $ 54.2 million positive impact associated with the spread between the fifo and ecrc basis , and to a lesser extent $ 21.6 million in higher operating costs , and a $ 39.3 million increase from changes in foreign currency exchange rates , partially offset by $ 12.5 million due to lower sales volumes . gross profit gross profit increased $ 15.7 million or 5.2 % to $ 316.2 million for the year ended december 31 , 2011 from $ 300.5 million for the year ended december 31 , 2010. our reported gross profit under fifo was higher than what it would have been under ecrc by approximately $ 66.3 million for the year ended december 31 , 2011 and $ 12.1 million for the year ended december 31 , 2010. see factors affecting our results of operations raw materials and product mix above . operating expenses research and development . research and development expense increased $ 4.4 million or 18.5 % primarily due to an increase in employee related costs commensurate with additions to staffing levels among our scientists and higher maintenance and operational costs . research and development expenses were 1.9 % of sales revenue for both of the years ended december 31 , 2011 and 2010. selling , general and administrative . selling , general and administrative expenses increased $ 9.3 million or 10.1 % primarily due to an increase in employee related costs as well as approximately $ 3.6 million of costs incurred during the year ended december 31 , 2011 associated with the proposed joint venture with fpcc . selling , general and administrative expenses were 7.1 % of sales revenue for the year ended december 31 , 2011 and 7.5 % of sales revenue for the year ended december 31 , 2010 . 46 index to financial statements depreciation and amortization . depreciation and amortization expense increased $ 13.5 million or 27.5 % primarily due to higher levels of capital expenditures and the accelerated depreciation of the coal-burning boilers at our belpre , ohio facility associated with the epa regulations for controlling hazardous air emission from industry boilers . loss on extinguishment of debt in connection with the refinancing of our indebtedness in the first quarter of 2011 , we incurred a $ 3.0 million loss on the extinguishment of debt . interest expense , net interest expense , net increased $ 5.9 million or 24.6 % to $ 29.9 million for the year ended december 31 , 2011 from $ 24.0 million for the year ended december 31 , 2010 , primarily due to a $ 4.2 million write-off of debt issuance costs and a $ 1.0 million payment to exit an interest rate swap agreement related to the debt refinancing that occurred in the first quarter of 2011. the average debt balances outstanding were $ 397.9 million at an average effective interest rate of 7.5 % ( 6.2 % excluding the above mentioned write-off of debt issuance costs and the settlement of our interest rate swap agreement associated with the debt refinancing ) for the year ended december 31 , 2011 and $ 388.3 million at an average effective interest rate of 6.2 % for the year ended december 31 , 2010. income tax expense our income tax expense was $ 0.6 million and $ 15.1 million for the years ended december 31 , 2011 and 2010 , respectively . our effective tax rates were 0.6 % for the year ended december 31 , 2011 and 13.5 % for the year ended december 31 , 2010. our effective tax
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factors affecting our results of operations raw materials and product mix . our results of operations are directly affected by the cost of raw materials . we use butadiene , styrene , and isoprene as our primary raw materials in manufacturing our products . on a fifo basis , these monomers together represented approximately $ 732.9 million , $ 658.9 million and $ 515.9 million or 61.5 % , 58.8 % and 55.6 % of our total cost of goods sold for the years ended december 31 , 2012 , 2011and 2010 , respectively . since the cost of our three primary raw materials comprise a significant amount of our total cost of goods sold , our selling prices for our products and therefore our total sales revenue is impacted by movements in our raw material costs , as well as the cost of other inputs . in addition , product mix can have an impact on our overall unit selling prices , since we provide an extensive product offering and therefore experience a wide range of unit selling prices . the cost of these monomers has generally correlated with changes in energy prices , supply and demand factors , and prices for natural and synthetic rubber . average butadiene purchase prices were lower during 2012 compared to 2011. average isoprene and styrene purchase prices were higher in 2012 compared to 2011 , with a more significant increase in isoprene prices . average butadiene , isoprene and styrene purchase prices were higher in 2011 compared to 2010 . 41 index to financial statements we use the fifo basis of accounting for inventory and cost of goods sold , and therefore gross profit . in periods of raw material price volatility , reported results under fifo will differ from what the results would have been if cost of goods sold were based on ecrc .
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we estimate the global snm market is now approximately $ 650 million to $ 700 million and believe it is a growing market that is currently about one to three percent penetrated . until we entered the market , it was serviced by medtronic as a single participant . we believe our proprietary r-snm system , the first rechargeable snm system marketed worldwide , offers significant advantages , and is well positioned to capture market share and penetrate and grow this attractive market . our r-snm system is designed to last approximately 15 years in the human body , is only 5cc in volume , offers broad mri access , ease of use , intuitive programmers , and the longest recharging interval among rechargeable snm systems . we have marketing approvals in europe , canada , and australia for all relevant clinical indications and initiated limited commercial efforts in england , the netherlands and canada in late 2018. revenue in 2020 from international operations in the netherlands , england , canada , switzerland , norway and germany , was approximately $ 4.0 million . our initial pma application for our r-snm system for the treatment of fi was approved by the fda on september 6 , 2019 , and our pma application for our r-snm system for the treatment of oab and ur was approved by the fda on november 13 , 2019. we are primarily focused on commercializing our products in the united states , which accounts for the vast majority of snm sales worldwide . we have established a significant commercial infrastructure , with over 220 sales personnel and clinical specialists and we continue to make significant investments to build our commercial organization to market and support our products . when making hiring decisions for these roles , we prioritize individuals with strong sales backgrounds and experience in snm therapy and other neurostimulation applications , and who also have existing relationships with urologists and urogynecologists . revenue in 2020 from accounts located across the united states was approximately $ 107.5 million . in january 2020 , the fda approved an enhanced , second-generation programmer for our r-snm system under a pma supplement . the new programmer features , among other things , a predictive programming algorithm that translates intra-operative responses and suggests how to program the patient for optimum therapy , thereby reducing the need to adjust post-implant therapy . in april 2020 , the fda approved a second-generation ins for our r-snm system under a pma supplement . the second-generation ins extends the recharge interval for patients to only once a month for about one hour and for some patients , up to once every two months . the second-generation ins began shipping to customers in the u.s. during the third quarter of 2020. in june 2020 , the fda approved a new wireless patient remote control with smartmri technology for our r-snm system under a pma supplement . the new remote control simplifies the process by which patients can receive a full-body magnetic resonance imaging ( mri ) . an mri technician can perform a simple check using a patient 's remote control immediately prior to an mri , avoiding the need for the patient to visit their implanting physician 's office or involving our personnel . in july 2020 , the fda approved 3t full-body mri conditional labeling for our r-snm system under a pma supplement . with this incremental approval , our r-snm system is mri compatible for both 1.5t and 3t full-body scans . in september 2020 , health canada approved a second-generation rechargeable ins for our r-snm system , which the company began shipping upon approval . in february 2021 , the fda approved a third-generation ins for our r-snm system under a pma supplement . the third-generation ins upgrades the embedded software in the ins and the functionality of the patient remote control . these modifications give patients the ability to make broader stimulation parameter 78 adjustments at home , including selecting a second therapy program that was set post-operatively based on interoperative findings . our ability to generate revenue and become profitable will depend on our ability to continue to successfully commercialize our r-snm system and any product enhancements we may advance in the future . we expect to derive future revenue by increasing patient and physician awareness of our r-snm system . if we are unable to accomplish any of these objectives , it could have a significant negative impact on our future revenue . if we fail to generate sufficient revenue in the future , our business , results of operations , financial condition , cash flows , and future prospects would be materially and adversely affected . we also intend to continue to make investments in research and development efforts to develop improvements and enhancements to our r-snm system . in the united states , the cost required to treat each patient is reimbursed through various third-party payors , such as commercial payors and government agencies . most large insurers have established coverage policies in place to cover snm therapy . certain commercial payors have a patient-by-patient prior authorization process that must be followed before they will provide reimbursement for snm therapy . outside the united states , reimbursement levels vary significantly by country and by region , particularly based on whether the country or region at issue maintains a single-payor system . snm therapy is eligible for reimbursement in canada , australia , and certain countries in europe , such as germany , france , and the united kingdom . annual healthcare budgets generally determine the number of snm systems that will be paid for by the payor in these single-payor system countries and regions . we currently outsource the manufacture of the implantable components of our r-snm system . we plan to continue with an outsourced manufacturing arrangement for the foreseeable future . our contract manufacturers are all recognized in their field for their competency to manufacture the respective portions of our r-snm system and have quality systems established that meet fda requirements . story_separator_special_tag however , if the pandemic continues to evolve into a long-term severe worldwide health crisis , there could be a material adverse effect on our business , results of operations , financial condition , and cash flows . amf license agreement on october 1 , 2013 , we entered into the license agreement , pursuant to which amf granted us the amf ip relating to amf licensed products . under the license agreement , for each calendar year beginning in 2018 , we are obligated to pay amf a royalty on an amf licensed product-by-amf licensed product basis if one of the following conditions applies : ( i ) one or more valid claims within any of the patents licensed to us by amf covers such amf licensed products or the manufacture of such amf licensed products or ( ii ) for a period of 12 years from the first commercial sale 80 anywhere in the world of such amf licensed product , in each case . the foregoing royalty is calculated as the greater of ( a ) 4 % of all net revenue derived from the amf licensed products , and ( b ) the minimum royalty , payable quarterly . the minimum royalty automatically increases each year , subject to a maximum amount of $ 200,000 per year . during the years ended december 31 , 2020 , 2019 , and 2018 , we have recorded royalties of $ 4.4 million , $ 0.6 million , and $ 0.1 million , respectively . we have 60 days to pay amf the royalty amount due under the license agreement , and if we fail to pay amf within such 60-day period , amf may , at its election , convert the exclusive license to a non-exclusive license or terminate the license agreement . 81 components of our results of operations net revenue revenue in 2020 from u.s. operations was $ 107.5 million . revenue in 2020 from international operations in the netherlands , england , canada , switzerland , norway and germany , was approximately $ 4.0 million . cost of goods sold and gross margin cost of goods sold consists primarily of acquisition costs of the components of our r-snm system , third-party contract labor costs , overhead costs , as well as distribution-related expenses such as logistics and shipping costs . the overhead costs include the cost of material procurement and operations supervision and management personnel . we expect overhead costs as a percentage of revenue to decrease as our sales volume increases . cost of goods sold also include other expenses such as scrap and inventory obsolescence . we expect cost of goods sold to increase in absolute dollars primarily as , and to the extent , our revenue grows . we expect gross margin to vary based on regional differences in pricing and discounts negotiated by customers . we calculate gross margin as gross profit divided by revenue . we expect future gross margin will be affected by a variety of factors , including manufacturing costs , the average selling price of our r-snm system , the implementation of cost-reduction strategies , inventory obsolescence costs , which may occur when new generations of our r-snm system are introduced , and to a lesser extent , the sales mix between the united states , canada , europe and australia as our average selling price in the united states is expected to be higher than in canada , europe and australia and foreign currency exchange rates . our gross margin may increase over the long term to the extent our production volumes increase and we receive discounts on the costs charged by our contract manufacturers , thereby reducing our per unit costs . additionally , our gross margin may fluctuate from quarter to quarter due to seasonality . research and development expenses research and development expenses consist primarily of employee compensation , including stock-based compensation , product development , including testing and engineering , and clinical studies to develop and support our r-snm system , including clinical study management and monitoring , payments to clinical investigators , and data management . other research and development expenses include consulting and advisory fees , royalty expense , travel expenses , and equipment-related expenses and other miscellaneous office and facilities expenses related to research and development programs . research and development costs are expensed as incurred . we expect to continue incurring research and development expenses in the future as we develop next generation versions of our r-snm system and expand to new markets . we expect research and development expenses as a percentage of revenue to vary over time depending on the level and timing of initiating new product development efforts and new clinical development activities . the following table summarizes our research and development expenses by functional area for the years ended december 31 , 2020 , 2019 , and 2018 ( in thousands ) : replace_table_token_2_th 82 general and administrative expenses general and administrative expenses consist primarily of employee compensation , including stock-based compensation , and spending related to finance , information technology , human resource functions , consulting , legal , and professional service fees . other general and administrative expenses include director and officer insurance premiums , investor relations costs , office-related expenses , facilities and equipment rentals , bad debt expense , and travel expenses . we expect our general and administrative expenses will significantly increase in absolute dollars as we increase our headcount and expand administrative personnel to support our growth and operations as a public company including finance personnel and information technology services . additionally , we anticipate increased legal expenses associated with our patent infringement litigation with medtronic .
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results of operations comparison of the years ended december 31 , 2020 and 2019 the following table shows our results of operations for the years ended december 31 , 2020 and 2019 ( in thousands , except percentages ) : replace_table_token_3_th net revenue net revenue was $ 111.5 million in fiscal year 2020 and was derived from the sale of our r-snm systems to customers in the united states , europe and canada . net revenue was $ 13.8 million in fiscal year 2019 and was derived from the sale of our r-snm systems to customers in the united states , europe and canada . the increase in net revenue is primarily due to the commercial launch in the united states in the fourth quarter of 2019 , partially offset by a decrease in sales in europe and canada as related to the covid-19 pandemic . cost of goods sold and gross margin we incurred $ 44.4 million of cost of goods sold in fiscal year 2020 , compared to $ 6.5 million in fiscal year 2019. gross margin was 60.2 % in fiscal year 2020 , compared to 53.0 % gross margin in fiscal year 2019. the increase in gross margin is primarily due to higher sales volume as well as the commercial launch in the united states in the fourth quarter of 2019 , which has higher average sales prices .
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the non-gaap financial measures should be viewed as a supplement to , and not a substitute for , financial measures presented in accordance with gaap . non-gaap measures as presented herein may not be comparable to similarly titled measures used by other companies . the following combined management 's discussion and analysis of financial condition and results of operations is separately filed by duke energy corporation and its subsidiaries . duke energy carolinas , llc , progress energy , inc. , duke energy progress , llc , duke energy florida , llc , duke energy ohio , inc. , duke energy indiana , llc and piedmont natural gas company , inc .. however , none of the registrants make any representation as to information related solely to duke energy or the subsidiary registrants of duke energy other than itself . management 's discussion and analysis should be read in conjunction with the consolidated financial statements and notes for the years ended december 31 , 2019 , 2018 and 2017 . see `` item 7. management 's discussion and analysis of financial condition and results of operations , '' in duke energy 's annual report on form 10-k for the year ended december 31 , 2018 , filed with the sec on february 28 , 2019 , for a discussion of variance drivers for the year ended december 31 , 2018 , as compared to december 31 , 2017. duke energy duke energy is an energy company headquartered in charlotte , north carolina . duke energy operates in the u.s. primarily through its wholly owned subsidiaries , duke energy carolinas , duke energy progress , duke energy florida , duke energy ohio , duke energy indiana and piedmont . when discussing duke energy 's consolidated financial information , it necessarily includes the results of the subsidiary registrants , which along with duke energy , are collectively referred to as the duke energy registrants . executive overview at duke energy the fundamentals of our business are strong and allow us to deliver growth in earnings and dividends in a low-risk , predictable and transparent way . in 2019 , we met our near-term financial commitments and positioned the company for sustainable long-term growth . we are focused on a business portfolio that will deliver a reliable dividend with 4 % to 6 % eps growth through 2024. this growth is supported by our capital plan , timely cost-recovery mechanisms in most jurisdictions and our ability to manage our cost structure . the strength of our balance sheet is of vital importance to the cost-effective financing of our growth strategy , and in 2019 we continued to strengthen it by issuing $ 2 billion of preferred equity and $ 2.5 billion of common stock through a forward sales agreement which is expected to settle on or prior to december 31 , 2020. financial results ( a ) see results of operations below for duke energy 's definition of adjusted earnings and adjusted diluted eps as well as a reconciliation of this non-gaap financial measure to net income available to duke energy and net income available to duke energy per diluted share . 40 md & a duke energy duke energy 's 2019 net income available to duke energy corporation ( gaap reported earnings ) were impacted by : favorable rate case and rider recovery outcomes , net of regulatory lag , and ongoing cost management efforts in electric utilities and infrastructure ; improved margins and increased acp investment in gas utilities and infrastructure ; and growth in project investments in commercial renewables . see “ results of operations ” below for a detailed discussion of the consolidated results of operations and a detailed discussion of financial results for each of duke energy 's reportable business segments , as well as other where financing costs increased in 2019 to fund segment operations and other liquidity needs . 2019 areas of focus and accomplishments operational excellence , safety and reliability . the reliable and safe operation of our power plants , electric distribution system and natural gas infrastructure in our communities is foundational to our customers , our financial results and our credibility with stakeholders . our regulated generation fleet performance was strong throughout the year . all of our nuclear sites have achieved the industry 's highest distinction rating . our electric distribution system performed well throughout the year , with outage durations down when adjusted for storms . the safety of our workforce is a core value . our employees delivered strong safety results in 2019 , and we are at or near the top of our industry . storm response and system restoration . the 2019 atlantic hurricane season was the fourth consecutive year of above-average damaging storms . our ability to effectively handle all facets of the 2019 storm response efforts is a testament to our team 's extensive preparation and coordination , applying lessons learned from previous storms , and to on-the-ground management throughout the restoration efforts . notably in 2019 duke energy earned eei 's emergency recovery award , our 22nd eei award since 1998 and a strong affirmation of the work of our employees to support customers when they need us most . customer satisfaction . duke energy continues to transform the customer experience through our use of customer data to better inform operational priorities and performance levels . this data-driven approach allows us to identify the investments that are the most important to the customer experience . in 2019 , we instituted billing and payment-related communications and options , and we continue to enhance outage-related communications to customers . constructive regulatory and legislative outcomes . one of our long-term strategic goals is to achieve modernized regulatory constructs in our jurisdictions . modernized constructs provide benefits , which include improved earnings and cash flows through more timely recovery of investments , as well as stable pricing for customers . in 2019 , duke energy , north carolina regulators and environmentalists reached an agreement to permanently close all remaining coal ash basins in north carolina . story_separator_special_tag regulatory and legislative impacts in 2018 represents charges related to the duke energy progress and duke energy carolinas north carolina rate case orders and the repeal of the south carolina base load review act . sale of retired plant represents the loss associated with selling beckjord , a nonregulated generating facility in ohio . impacts of the tax act represents amounts recognized related to the tax act . severance charges relate to companywide initiatives , excluding merger integration , to standardize processes and systems , leverage technology and workforce optimization . duke energy 's adjusted earnings and adjusted diluted eps may not be comparable to similarly titled measures of another company because other companies may not calculate the measures in the same manner . 42 md & a duke energy reconciliation of gaap reported amounts to adjusted amounts the following table presents a reconciliation of adjusted earnings and adjusted diluted eps to the most directly comparable gaap measures . replace_table_token_18_th ( a ) net of tax expense of $ 3 million in 2019. net of tax benefit of $ 27 million and noncontrolling interests of $ 2 million in 2018 . ( b ) net of tax benefit of $ 19 million . ( c ) net of tax benefit of $ 63 million . ( d ) net of $ 25 million tax benefit . ( e ) the tax act reduced the corporate income tax rate from 35 % to 21 % , effective january 1 , 2018. as the tax change was enacted in 2017 , duke energy was required to remeasure its existing deferred tax assets and liabilities at the lower rate at december 31 , 2017. for duke energy 's regulated operations , where the reduction in the net accumulated deferred income tax liability is expected to be returned to customers in future rates , the remeasurement has been deferred as a regulatory liability . this amount represents a true up of existing regulatory liabilities related to the tax act . see note 24 to the consolidated financial statements , `` income taxes '' for more information . ( f ) net of tax benefit of $ 43 million . year ended december 31 , 2019 , as compared to 2018 gaap reported eps was $ 5.06 for the year ended december 31 , 2019 , compared to $ 3.76 for the year ended december 31 , 2018 . the increase in gaap reported earnings was primarily due to current year favorable rate case and rider recovery outcomes , an adjustment related to income tax recognition for equity method investments , growth in commercial renewables from new solar farms commencing commercial operations and prior year regulatory and legislative impacts , impairments , severance , loss on sale of a retired plant and costs to achieve merger . this favorability was partially offset by higher depreciation and higher financing costs in the current year . the equity method investment adjustment was immaterial and relates to prior years . as discussed and shown in the table above , management also evaluates financial performance based on adjusted diluted eps . duke energy 's adjusted diluted eps was $ 5.06 for the year ended december 31 , 2019 , compared to $ 4.72 for the year ended december 31 , 2018 . segment results the remaining information presented in this discussion of results of operations is on a gaap basis . management evaluates segment performance based on segment income . segment income is defined as income from continuing operations net of income attributable to noncontrolling interests and preferred stock dividends . segment income includes intercompany revenues and expenses that are eliminated in the consolidated financial statements . duke energy 's segment structure includes the following segments : electric utilities and infrastructure , gas utilities and infrastructure and commercial renewables . the remainder of duke energy 's operations is presented as other . see note 3 to the consolidated financial statements , “ business segments , ” for additional information on duke energy 's segment structure . 43 md & a segment results - electric utilities and infrastructure electric utilities and infrastructure replace_table_token_19_th year ended december 31 , 2019 , as compared to 2018 electric utilities and infrastructure 's results were impacted by positive contributions from the duke energy carolinas and duke energy progress north carolina and south carolina rate cases and duke energy florida 's base rate adjustments due to the citrus county cc being placed in service . these drivers were partially offset by higher depreciation from a growing asset base and higher interest expense . the following is a detailed discussion of the variance drivers by line item . operating revenues . the variance was driven primarily by : a $ 603 million increase in retail pricing primarily due to the duke energy carolinas and duke energy progress north carolina and south carolina rate cases and duke energy florida 's base rate adjustments related to citrus county cc being placed in service . partially offset by : a $ 45 million decrease in weather-normal retail sales volumes . operating expenses . the variance was driven primarily by : a $ 428 million increase in depreciation and amortization expense primarily due to additional plant in service and new depreciation rates associated with the duke energy carolinas and duke energy progress north carolina and south carolina rate cases and duke energy florida 's citrus county cc being placed in service ; and a $ 41 million increase in property and other taxes primarily due to higher property taxes for additional plant in service at duke energy florida and current year property tax reassessments at duke energy progress and duke energy ohio .
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matters impacting future results on november 13 , 2013 , the puco issued an order authorizing recovery of mgp costs at certain sites in ohio with a deadline to complete the mgp environmental investigation and remediation work prior to december 31 , 2016. this deadline was subsequently extended to december 31 , 2019. duke energy ohio has filed a request for extension of the deadline . a hearing on that request has not been scheduled . disallowance of costs incurred , failure to complete the work by the deadline or failure to obtain an extension from the puco could result in an adverse impact on duke energy ohio 's results of operations , financial position and cash flows . see note 4 to the consolidated financial statements , “ regulatory matters , ” for additional information . within this item 7 , see liquidity and capital resources for discussion of risks associated with the tax act . duke energy indiana results of operations replace_table_token_32_th the following table shows the percent changes in gwh sales and average number of customers for duke energy indiana . the below percentages for retail customer classes represent billed sales only . total sales includes billed and unbilled retail sales and wholesale sales to incorporated municipalities , public and private utilities and power marketers . amounts are not weather-normalized . replace_table_token_33_th year ended december 31 , 2019 , as compared to 2018 operating revenues . the variance was driven primarily by : a $ 21 million decrease in wholesale power revenues primarily due to the expiration of a contract with a wholesale customer ; a $ 16 million decrease in other transmission ftr revenues due to lower congestion ; and a $ 14 million decrease in weather-normal retail sales volume . operating expenses .
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while the use of derivative instruments limits the risk of adverse commodity price and interest rate movements , such use may also limit future product revenues and interest expense from favorable price and rate movements . in addition , we do not utilize derivative instruments for speculative purposes . as of december 31 , 2019 , we were unhedged with respect to ngl and natural gas production and we had no interest rate hedges outstanding . the following is a story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and notes thereto included in part ii , item 8 , “ financial statements and supplementary data. ” all dollar amounts presented in the tables that follow are in thousands unless otherwise indicated . also , due to the combination of different units of volumetric measure and the number of decimal places presented and rounding , certain results may not calculate explicitly from the values presented in the tables . overview and executive summary we are an independent oil and gas company engaged in the onshore exploration , development and production of crude oil , ngls and natural gas . our current operations consist of drilling unconventional horizontal development wells and operating our producing wells in the eagle ford , in gonzales , lavaca , fayette and dewitt counties in south texas . industry environment and recent operating and financial highlights commodity price and other economic conditions crude oil prices exhibited significant volatility throughout 2019 with a range between high and low prices of approximately $ 20 per barrel . this volatility has continued into february of 2020 and has included significant swings on a daily basis . in addition to the traditional domestic ( i.e. , significant production from the permian basin and mature shale plays including the eagle ford , etc . ) and global ( i.e. , middle east capacity , etc . ) supply and demand factors , the impact of certain geopolitical and other dynamics have had a significant daily impact on crude oil and other commodity prices as well . for example , middle east tensions have approached levels with military involvement not experienced in many years . in addition , the global economic impact of the coronavirus is continuing to evolve and its uncertainty has been reflected in daily commodity price volatility . while impacting us to a lesser extent , ngl and natural gas pricing has steadily declined from year-end 2018 levels due primarily to excess domestic supply and milder winter weather through january of 2020. collectively , these trends have had a substantial impact on the rate of growth in our product revenues . these factors are anticipated to maintain downward pressure on commodity prices for the near term . since february 2019 , we have contracted for our drilling rigs on a pad-to-pad basis and the day rates charged for these services as well as casing costs have declined throughout 2019. in addition , costs associated with our dedicated frac services agreement including certain component stimulation product and service costs have also declined in 2019. we anticipate that many of these costs will continue a declining trend into 2020. costs incurred for most oilfield products and services associated with operating our properties remained relatively stable during 2019 and are anticipated to behave similarly into 2020 with moderate declines in certain costs consistent with recent industry experience . capital expenditures and development progress during 2019 , we incurred capital expenditures of approximately $ 356 million with 97 percent directed to drilling and completion projects . we drilled and completed a total of 48 gross ( 43.3 net ) wells . in a series of transactions , we acquired certain of our joint venture partners ' working interests in selected properties for which we are the operator for approximately $ 6.5 million . through our drilling program and these acquisitions , we operated a total of 510 gross ( 430.1 net ) wells in the eagle ford as of december 31 , 2019. through selected acquisitions , certain property exchanges and other transactions , we added or renewed approximately 3,500 net acres to our eagle ford lease portfolio during 2019. sequential quarterly analysis the following summarizes certain key operating and financial highlights for the three months ended december 31 , 2019 with comparison to the three months ended september 30 , 2019 as presented in the table that follows . the year-over-year highlights for 2019 and 2018 are addressed in further detail in the discussions for financial condition and story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > our primary sources of liquidity include our cash on hand , cash provided by operating activities and borrowings under the credit facility . the credit facility provides us with up to $ 1.0 billion in borrowing commitments . the current borrowing base under the credit facility is also $ 500 million . as of february 27 , 2020 , we had $ 133.2 million of availability under the credit facility . our cash flows from operating activities are subject to significant volatility due to changes in commodity prices for crude oil , ngl and natural gas products , as well as variations in our production . the prices for these commodities are driven by a number of factors beyond our control , including global and regional product supply and demand , weather , product distribution , refining and processing capacity and other supply chain dynamics , among other factors . in order to mitigate this volatility , we entered into derivative contracts with a number of financial institutions , all of which are participants in the credit facility , hedging a portion of our estimated future crude oil production through the end of 2021. the level of our hedging activity and duration of the financial instruments employed depend on our desired cash flow protection , available hedge prices , the magnitude of our capital program and our operating strategy . story_separator_special_tag the availability under the credit facility may not exceed the lesser of the aggregate commitments or the borrowing base . the borrowing base under the credit facility is redetermined semi-annually , generally in april and october of each year . additionally , the credit facility lenders may , at their discretion , initiate a redetermination at any time during the six-month period between scheduled redeterminations . the credit facility is available to us for general corporate purposes including working capital . we had $ 0.4 million in letters of credit outstanding as of december 31 , 2019 and 2018 , respectively . 42 the credit facility is scheduled to mature in may 2024 ; provided that on june 30 , 2022 , unless we have either extended the maturity date of our $ 200 million second lien credit agreement dated as of september 29 , 2017 , or the second lien facility , to a date that is at least 91 days after may 7 , 2024 or have repaid our second lien facility in full , the maturity date of the credit facility will mean june 30 , 2022. the outstanding borrowings under the credit facility bear interest at a rate equal to , at our option , either ( a ) a customary reference rate plus an applicable margin ranging from 0.50 % to 1.50 % , determined based on the average availability under the credit facility or ( b ) a customary london interbank offered rate , or libor , plus an applicable margin ranging from 1.50 % to 2.50 % , determined based on the average availability under the credit facility . interest on reference rate borrowings is payable quarterly in arrears and is computed on the basis of a year of 365/366 days , and interest on libor borrowings is payable every one , three or six months , at our election , and is computed on the basis of a year of 360 days . as of december 31 , 2019 , the actual weighted-average interest rate on the outstanding borrowings under the credit facility was 3.75 % . unused commitment fees are charged at a rate of 0.375 % to 0.50 % , depending upon utilization . the credit facility is guaranteed by us and all of our subsidiaries , or the guarantor subsidiaries . the guarantees under the credit facility are full and unconditional and joint and several . substantially all of our consolidated assets are held by the guarantor subsidiaries . there are no significant restrictions on our ability or any of the guarantor subsidiaries to obtain funds through dividends , advances or loans . the obligations under the credit facility are secured by a first priority lien on substantially all of our assets . second lien facility . on september 29 , 2017 , we entered into the $ 200 million second lien facility . the maturity date under the second lien facility is september 29 , 2022. the outstanding borrowings under the second lien facility bear interest at a rate equal to , at our option , either ( a ) a customary reference rate based on the prime rate plus an applicable margin of 6.00 % or ( b ) a customary libor rate plus an applicable margin of 7.00 % . as of december 31 , 2019 , the actual interest rate on outstanding borrowings under the second lien facility was 8.81 % . amounts under the second lien facility were borrowed at a price of 98 % with an initial interest rate of 8.34 % resulting in an effective interest rate of 9.89 % . interest on reference rate borrowings is payable quarterly in arrears and is computed on the basis of a year of 365/366 days , and interest on eurocurrency borrowings is payable every one or three months ( including in three month intervals if we select a six-month interest period ) , at our election and is computed on the basis of a year of 360 days . we have the right , to the extent permitted under the credit facility and an intercreditor agreement between the lenders under the credit facility and the lenders under the second lien facility , to prepay loans under the second lien facility at any time , subject to the following remaining prepayment premiums ( in addition to customary “ breakage ” costs with respect to eurocurrency loans ) : during the period ending september 29 , 2020 , 101 % of the amount being prepaid ; and thereafter , no premium . the second lien facility also provides for the following remaining prepayment premiums in the event of a change in control that results in an offer of prepayment that is accepted by the lenders under the second lien facility : during the period ended september 29 , 2020 , 101 % of the amount being prepaid ; and thereafter , no premium . the second lien facility is collateralized by substantially all of the company 's and its subsidiaries ' assets with lien priority subordinated to the liens securing the credit facility . the obligations under the second lien facility are guaranteed by us and the guarantor subsidiaries . covenant compliance . the credit facility requires us to maintain ( 1 ) a minimum current ratio ( as defined in the credit facility , which considers the the unused portion of the total commitment as a current asset ) of 1.00 to 1.00 , and ( 2 ) a maximum leverage ratio ( consolidated indebtedness to ebitdax , each as defined in the credit facility ) , in each case measured as of the last day of each fiscal quarter of 4.00 to 1.00. the second lien facility has no financial covenants .
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results of operations that follow . daily production increased one percent to 29,314 boepd , from 29,003 boepd due primarily to the number of wells turned to sales in the second half of 2019. during the fourth quarter of 2019 , we turned to sales 11 gross ( 9.9 net ) wells compared to 20 gross ( 18.3 net ) wells turned to sales in the third quarter of 2019. of the wells turned to sales in the third quarter of 2019 , ten gross ( 9.0 net ) wells were turned to sales in late august and september of 2019. total production increased one percent to 2,697 mboe from 2,668 mboe . product revenues increased approximately four percent to $ 123.2 million from $ 118.4 million due primarily to six percent higher crude oil volume partially offset by one percent lower crude oil prices . ngl revenues were 13 percent higher due to 26 percent higher prices partially offset by 10 percent lower volume . natural gas revenues declined six percent due to an 11 percent decrease in volume partially offset by a five percent increase in prices . production and lifting costs ( consisting of loe and gpt ) declined on an absolute and per unit basis to $ 16.1 million and $ 5.98 per boe from $ 18.5 million and $ 6.92 per boe due primarily to lower utility charges , maintenance costs and chemical costs .
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the following table summarizes research and development expenses incurred by the story_separator_special_tag forward-looking statements the following discussion of our financial condition and results of operations contains forward-looking statements within the meaning of section 27a of the securities act of 1933 and section 21e of the securities exchange act of 1934. forward-looking statements are based on our management 's beliefs and assumptions and on information currently available to our management . all statements other than statements of historical facts are forward-looking statements for purposes of these provisions , including those relating to future events or our future financial performance and financial guidance . in some cases , you can identify forward-looking statements by terminology such as may , might , will , should , expect , plan , anticipate , project , believe , estimate , predict , potential , intend or continue , the negative of terms like these or other comparable terminology , and other words or terms of similar meaning in connection with any discussion of future operating or financial performance . these statements are only predictions . all forward-looking statements included in this annual report on form 10-k are based on information available to us on the date hereof , and we assume no obligation to update any such forward-looking statements . any or all of our forward-looking statements in this document may turn out to be wrong . 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 seattle genetics is a biotechnology company focused on the development and commercialization of targeted therapies for the treatment of cancer . our marketed product adcetris ® , or brentuximab vedotin , received accelerated approval in the united states in august 2011 and approval with conditions in canada in february 2013 for patients with relapsed hodgkin lymphoma or relapsed systemic anaplastic large cell lymphoma , or salcl . adcetris is an antibody-drug conjugate , or adc , comprising an anti-cd30 monoclonal antibody attached by a protease-cleavable linker to a microtubule disrupting agent , monomethyl auristatin e ( mmae ) , utilizing our proprietary technology . we have a broad development strategy for adcetris evaluating its potential application in earlier lines of therapy for patients with hodgkin lymphoma or mature t-cell lymphoma , including salcl , or mtcl , and in other cd30-positive malignancies . we are collaborating with takeda pharmaceutical company limited , or takeda , to develop and commercialize adcetris on a global basis . under this collaboration , seattle genetics has retained commercial rights for adcetris in the united states and its territories and in canada and takeda has commercial rights in the rest of the world . adcetris was granted conditional marketing authorization in the european union in october 2012 for patients with relapsed hodgkin lymphoma or relapsed salcl . we and takeda had received marketing authorizations by regulatory authorities in 39 countries , including those described above , as well as japan , australia , switzerland , south korea and singapore , and takeda continues to pursue marketing authorizations in multiple other countries . in addition , we have five clinical-stage adc programs , which consist of sgn-cd19a , sgn-cd33a , sgn-liv1a , asg-22me , and asg-15me . we recently announced plans to advance a novel adc that targets cd70 , sgn-cd70a , into phase 1 clinical development during the second half of 2014. in addition , we have multiple pre-clinical-stage programs that are being developed as potential candidates for future clinical-stage development . we also have collaborations for our adc technology with a number of biotechnology and pharmaceutical companies , including abbvie biotechnology ltd. ( formerly part of abbott laboratories ) , or abbvie ; bayer pharma ag , or bayer ; celldex therapeutics , inc. , or celldex ; daiichi sankyo co. , ltd. , or daiichi sankyo ; genentech , inc. , a member of the roche group , or genentech ; glaxosmithkline llc , or gsk ; pfizer , inc. , or pfizer , psma development company llc , a subsidiary of progenics pharmaceuticals inc. , or progenics ; and takeda ; as well as adc co-development agreements with agensys , inc. , an affiliate of astellas pharma , inc. , or agensys , genmab a/s , or genmab , and oxford biotherapeutics ltd. , or obt . 48 the commercial potential of adcetris and the ability to realize that potential by us and takeda remains uncertain . our success in effectively commercializing adcetris will continue to require , among other things , effective sales , marketing , manufacturing , distribution , information systems and pricing strategies , our ability to demonstrate in the medical community the safety and efficacy of adcetris and its potential advantages , and our ability to comply with applicable laws and regulations . our success could be unfavorably impacted by adverse events or competition . the u.s. food and drug administration , or fda , granted accelerated approval of adcetris which means that we are , among other things , obligated to conduct specific post-approval clinical studies to confirm patient benefit as a condition of that approval . similarly , takeda is required to conduct post-approval confirmatory studies as a condition to the conditional marketing authorization of adcetris by the european commission and regulatory authorities in other countries . in addition , we currently expect that future adcetris sales growth , if any , will depend primarily on our ability to expand adcetris ' labeled indications of use . accordingly , we are exploring the use of adcetris in earlier lines of therapy in patients with hodgkin lymphoma and mtcl , and in other cd30-positive malignancies . story_separator_special_tag our efforts to expand adcetris ' labeled indications of use will require additional time and investment in clinical trials to complete and we may not be successful . our ability to successfully commercialize adcetris and to expand its labeled indications of use are subject to a number of risks and uncertainties , including those discussed in part i , item 1a of this annual report on form 10-k. we also expect that amounts earned from our collaboration agreements will continue to be an important source of our revenues and cash flows . these revenues will be impacted by future development funding and the achievement of development , clinical and commercial milestones by our collaborators under our existing collaboration and license agreements , including , in particular , our adcetris collaboration with takeda , as well as entering into new collaboration and license agreements . our results of operations may vary substantially from year to year and from quarter to quarter and , as a result , we believe that period to period comparisons of our operating results may not be meaningful and should not be relied upon as being indicative of our future performance . financial summary our revenues are generated from a combination of adcetris sales , collaboration and license agreements , and royalties from the sale of adcetris outside the united states and canada . collaboration revenues reflect the earned amount of upfront technology access fees , milestone payments , reimbursement for support and materials supplied to our collaborators , and development cost-sharing under our product collaborations . under our adcetris collaboration with takeda , we are entitled to receive royalties based on a percentage of takeda 's net sales in its territories . total revenues increased to $ 269.3 million in 2013 , compared to $ 210.8 million in 2012. this increase primarily reflects an increase in collaboration and license agreement revenues and , to a lesser extent , increased net product sales . total costs and expenses increased 24 % to $ 332.1 million in 2013 , compared to $ 268.1 million in 2012. the increase in expenses primarily reflects increases in adcetris collaboration activities , including product supply to takeda and clinical development efforts to explore additional potential applications of adcetris , as well as investment in our adc pipeline programs . as of december 31 , 2013 , we had $ 374.3 million in cash , cash equivalents and short-term investments , and $ 230.2 million in total stockholders ' equity . critical accounting policies the preparation of financial statements in accordance with generally accepted accounting principles , or gaap , requires us to make estimates , assumptions and judgments that affect the reported amounts of assets , 50 liabilities , revenues and expenses , and related disclosures of contingent assets and liabilities . we believe the following critical accounting policies describe the more significant judgments and estimates used in the preparation of our financial statements . revenue recognition . our revenues are comprised of adcetris net product sales , amounts earned under our collaboration and licensing agreements and royalties . revenue recognition is predicated upon persuasive evidence of an agreement existing , delivery of products or services being rendered , amounts payable being fixed or determinable , and collectibility being reasonably assured . net product sales we sell adcetris through a limited number of pharmaceutical distributors . customers order adcetris through these distributors and we typically ship product directly to the customer . we record product sales when title and risk of loss pass , which generally occurs upon delivery of the product to the customer . product sales are recorded net of estimated government-mandated rebates and chargebacks , distribution fees , estimated product returns and other deductions . accruals are established for these deductions and actual amounts incurred are offset against applicable accruals . we reflect these accruals as either a reduction in the related account receivable from the distributor , or as an accrued liability depending on the nature of the sales deduction . sales deductions are based on our estimates that consider payer mix in target markets , industry benchmarks and experience to date . these estimates involve a substantial degree of judgment . government-mandated rebates and chargebacks : we have entered into a medicaid drug rebate agreement with the centers for medicare & medicaid services . this agreement provides for a rebate to participating states based on covered purchases of adcetris . medicaid rebates are invoiced to us by participating states . we estimate medicaid rebates based on a third party study of the payer mix for adcetris , information on utilization by medicaid-eligible patients who received assistance through seagen secure , our patient assistance program and experience to date . we also have completed our federal supply schedule , or fss , agreement under which certain u.s. government purchasers receive a discount on eligible purchases of adcetris . we have entered into a pharmaceutical pricing agreement with the secretary of health and human services which enables certain entities that qualify for government pricing under the public health services act , or phs , to receive discounts on their qualified purchases of adcetris . under these agreements , distributors process a chargeback to us for the difference between wholesale acquisition cost and the applicable discounted price . as a result of our direct-ship distribution model , we can identify the entities purchasing adcetris and this information enables us to estimate expected chargebacks for fss and phs purchases based on each entity 's eligibility for the fss and phs programs . we also review actual rebate and chargeback information to further refine these estimates . distribution fees , product returns and other deductions : our distributors charge a fee for distribution services that they perform on our behalf which is determined based on sales volume to each distributor and the negotiated fee . we allow for the return of product that is within 30 days of its expiration date or that is damaged .
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results of operations years ended december 31 , 2013 , 2012 and 2011 net product sales we sell adcetris in the u.s. and canada . our net product sales were as follows : replace_table_token_5_th we began selling adcetris following its accelerated approval by the fda in august 2011. net sales increased in 2012 compared to 2011 due to a full year of commercial sales in the 2012 period . net sales increased in 2013 compared to 2012 due to a higher average selling price for adcetris resulting from price increases that we instituted in january and july of 2013. sales volumes decreased slightly from 2012 to 2013. we believe that the lower sales volume in the 2013 period was primarily due to the depletion of the prevalence pool of patients in adcetris ' approved indications and the transition to an incidence-based flow of patients eligible for treatment with adcetris as discussed above . for the reasons discussed above , we expect that future adcetris sales growth , if any , will be primarily dependent on future price increases and our ability to expand the labeled indications of use . in this regard , we expect a moderate increase in net product sales in 2014 compared to 2013. we record product sales net of estimated government-mandated rebates and chargebacks , distribution fees , product returns and other deductions . these are generally referred to as gross-to-net deductions . gross-to-net deductions , net of related payments and credits , are summarized as follows : replace_table_token_6_th 55 as more fully described above , our gross-to-net deductions include government-mandated rebates and chargebacks , distribution fees , product returns and commercial coinsurance assistance . mandatory government discounts are the most significant component of our total gross to net deductions .
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you should review the sections titled “ special note regarding forward-looking statements ” for a discussion of forward-looking statements and in part i , item 1a , “ risk factors ” , for a discussion of 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 and elsewhere in this annual report on form 10-k. overview we are a technology platform that uses a massive network , leading technology , operational excellence and product expertise to power movement from point a to point b. we develop and operate proprietary technology applications supporting a variety of offerings on our platform . we connect consumers with providers of ride services , merchants and food delivery services as well as public transportation networks . we use this same network , technology , operational excellence and product expertise to connect shippers with carriers in the freight industry . we are also developing technologies that provide new solutions to solve everyday problems . covid-19 in march 2020 , the world health organization declared the outbreak of the coronavirus disease ( “ covid-19 ” ) a pandemic . the covid-19 pandemic has rapidly changed market and economic conditions globally , impacting drivers , delivery people , merchants , consumers and business partners , as well as our business , results of operations , financial position and cash flows . various governmental restrictions , including the declaration of a federal national emergency , multiple cities ' and states ' declarations of states of emergency , school and business closings , quarantines , “ shelter at home ” orders , restrictions on travel , limitations on social or public gatherings , and other social distancing measures have had , and may continue to have , an adverse impact on our business and operations , including , for example , by reducing the global demand for mobility rides . the significant adverse changes in the economic and market conditions resulting from covid-19 triggered the recognition of pre-tax impairment charges of $ 1.7 billion in the first quarter of 2020 , principally relating to our investment in didi . for additional information on impairment charges , refer to note 3 - investments and fair value measurement and note 7 – goodwill and intangible assets in the notes to the consolidated financial statements included in part ii , item 8 , “ financial statements and supplementary data , ” of this annual report on form 10-k. covid-19 response initiatives we continue to prioritize the health and safety of our consumers , drivers and merchants and the communities we serve . as one of the world 's largest platforms for work , we continue to believe that we will play an important role in the economic recovery of cities around the globe . we are focused on navigating the challenges presented by covid-19 through preserving our liquidity and managing our cash flow by taking preemptive action to enhance our ability to meet our short-term liquidity needs . the pandemic has reduced the demand for our mobility offering globally . we have responded to the covid-19 pandemic by launching new , or expanding existing , services or features on an expedited basis , particularly those related to delivery of food and other goods . to comply with social distancing guidelines of national , state and local governments , we have temporarily suspended uberpool , our shared mobility offering , globally and implemented “ leave at door ” delivery options for delivery offerings . additionally , we have asked that all employees who are able to do so work remotely . in addition , to support those whose earning opportunities have been depressed as a result of the covid-19 pandemic , as well as communities hit hard during this unprecedented period , we announced and implemented several initiatives during the first quarter of 2020 , including a financial assistance program , for drivers who are impacted by the pandemic , as well as personal protective equipment disbursement . while we continue to assess the impact from the covid-19 outbreak , we are unable to accurately predict the full impact of covid-19 on our business , results of operations , financial position and cash flows due to numerous uncertainties , including the severity of the disease , the duration of the outbreak , any future waves or resurgences of the virus , variants of the virus , the timing of widespread adoption of vaccines against the virus , additional actions that may be taken by governmental authorities , the further impact on the business of drivers , merchants , consumers , and business partners , and other factors identified in part i , item 1a . “ risk factors ” of this annual report on form 10-k. driver classification developments the classification of drivers is currently being challenged in courts , by legislators and by government agencies in the united states and abroad . we are involved in numerous legal proceedings globally , including putative class and collective class action lawsuits , demands for arbitration , charges and claims before administrative agencies , and investigations or audits by labor , social 52 security , and tax authorities that claim that drivers should be treated as our employees ( or as workers or quasi-employees where those statuses exist ) , rather than as independent contractors . of particular note are proceedings in california , where on may 5 , 2020 , the california attorney general , in conjunction with the city attorneys for san francisco , los angeles and san diego , filed a complaint in san francisco superior court ( the “ court ” ) against uber and lyft , alleging that drivers are misclassified , and sought an injunction and monetary damages related to the alleged competitive advantage caused by the alleged misclassification of drivers . on august 10 , 2020 , the court issued a preliminary injunction order prohibiting us from classifying drivers as independent contractors and from violating various wage and hour laws . story_separator_special_tag ( 5 ) net income ( loss ) attributable to uber technologies , inc. includes stock-based compensation expense of $ 172 million , $ 4.6 billion and $ 827 million during the years ended december 31 , 2018 , 2019 and 2020 , respectively . * * percentage not meaningful . highlights for 2020 overall gross bookings declined by $ 7.1 billion in 2020 , down 11 % , or 9 % on a constant currency basis , compared to 2019. mobility gross bookings declined 44 % , on a constant currency basis , year-over-year from 2019 , and ended the fourth quarter down 47 % , on a constant currency basis , showing continued recovery from the second quarter year-over-year decline of 73 % year-over-year , on a constant currency basis . delivery gross bookings grew 110 % from 2019 , on a constant currency basis , outpacing delivery trip growth driven by a 32 % increase in basket sizes globally driven by stay-at-home order demand related to covid-19 . revenue was $ 11.1 billion , or down 14 % year-over-year , reflecting the impact of covid-19 on our mobility business , partially offset by overall growth in our delivery business . revenue improved every quarter from the second quarter of 2020 , with a take rate of 19.2 % in 2020. net loss attributable to uber technologies , inc. was $ 6.8 billion , a 20 % improvement year-over-year , reflecting reductions in our fixed cost structure , as well as increased variable cost efficiencies , and included $ 827 million of stock-based compensation expense . adjusted ebitda loss was $ 2.5 billion , improving $ 197 million from 2019 with mobility adjusted ebitda profit of $ 1.2 billion , despite mobility gross bookings decline of 44 % , on a constant currency basis . additionally , delivery adjusted ebitda loss of $ 873 million , improved $ 499 million and delivery adjusted ebitda margin as a percentage of delivery revenue improved to ( 22.4 ) % from ( 97.9 ) % , compared to 2019. we ended the year with $ 6.8 billion in cash , cash equivalents and short-term investments . 54 2020 significant developments acquisitions careem on january 2 , 2020 , we completed the acquisition of substantially all of the assets of careem inc. ( “ careem ” ) . dubai-based careem was founded in 2012 , and provides primarily ridesharing and , to a lesser extent , meal delivery , and payments services to millions of users in cities across the middle east , north africa , and pakistan . cornershop on july 6 , 2020 , we completed our purchase of a controlling interest in cornershop cayman ( “ cornershop ” ) in all jurisdictions where we received regulatory approval or did not require regulatory approval . in january 2021 , we obtained regulatory approval in mexico . cornershop operates an online grocery delivery platform primarily in chile and mexico . routematch on july 14 , 2020 , we acquired 100 % of the equity of routematch , a software company offering specialized software and solutions to transit agencies , serving customers in the united states and australia . the acquisition is expected to accelerate our development in the transit space . postmates on december 1 , 2020 , we completed the acquisition of postmates , inc. ( “ postmates ” ) , an on-demand delivery platform in the united states . the acquisition brings together our global mobility and delivery platform with postmates ' distinctive delivery business in the united states . for additional information on acquisitions , see note 18 – business combinations included in part ii , item 8 , “ financial statements and supplementary data , ” of this annual report on form 10-k. divestitures uber eats india to zomato on january 21 , 2020 , we entered into a definitive agreement and completed the divestiture of uber 's food delivery operations in india ( “ uber eats india ” ) to zomato media private limited ( “ zomato ” ) in exchange for ( i ) compulsorily convertible cumulative preference shares of zomato representing , when converted , 9.99 % of the total voting capital of zomato and ( ii ) a non-interest bearing note receivable to be repaid over the course of four years for reimbursement by zomato of goods and services tax . jump and investment in lime on may 7 , 2020 , we entered into a series of transactions and agreements with neutron holdings , inc. dba lime ( “ lime ” ) including the divestiture of certain assets of our dockless e-bikes and e-scooters business and operations operated as jump , which was included in our new mobility offering . for additional information , see note 19 - divestitures included in part ii , item 8 , “ financial statements and supplementary data , ” of this annual report on form 10-k. note issuances and redemption issuance of 2025 senior notes in may 2020 , we issued five-year notes with an aggregate principal amount of $ 1.0 billion due on may 15 , 2025 ( the “ 2025 senior notes ” ) in a private placement to qualified institutional buyers pursuant to rule 144a under the securities act of 1933 , as amended ( the “ securities act ” ) . issuance of 2028 senior notes in september 2020 , we issued eight-year notes with an aggregate principal amount of $ 500 million due on january 15 , 2028 ( the “ 2028 senior notes ” ) in a private placement to qualified institutional buyers pursuant to rule 144a under the securities act . redemption of 2023 senior notes on october 2020 , the net proceeds from the 2028 senior notes , along with cash on hand , were used to redeem all of our outstanding 2023 senior notes .
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results of operations the following table summarizes our consolidated statements of operations for each of the periods presented ( in millions ) : replace_table_token_4_th ( 1 ) our revenue and cost of revenue , exclusive of depreciation and amortization for 2018 and 2019 have been retrospectively adjusted to reflect the implementation of our new accounting policy adopted in the fourth quarter of 2020. there was no net impact to loss from operations or net income ( loss ) attributable to uber technologies , inc. for any periods presented . refer to note 1 - description of business and summary of significant accounting policies to our consolidated financial statements included in part ii , item 8 , “ financial statements and supplementary data , ” of this annual report on form 10-k for further information on the change in accounting policy . 59 the following table sets forth the components of our consolidated statements of operations for each of the periods presented as a percentage of revenue ( 1 ) : replace_table_token_5_th ( 1 ) totals of percentage of revenues may not foot due to rounding . comparison of the years ended december 31 , 2018 , 2019 and 2020 revenue replace_table_token_6_th 2020 compared to 2019 revenue decreased $ 1.9 billion , or 14 % , primarily attributable to a decline in gross bookings of 11 % , or 9 % on a constant currency basis . the decrease in gross bookings was primarily driven by a decline in mobility gross bookings of 46 % , or 44 % on a constant currency basis , due to adverse impacts from covid-19 . the decrease was partially offset by delivery gross bookings growth of 109 % , or 110 % on a constant currency basis , due to an increase in food delivery orders and higher basket sizes as a result of stay-at-home order demand related to covid-19 .
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our revenues typically fluctuate due to the seasonality of our industry , customer buying patterns , product innovation , the nature and level of competition for health and fitness products , our ability to procure products to meet customer demand , the level of spending on , and effectiveness of , our media and advertising programs and our ability to attract new customers and maintain existing sales relationships . in addition , our revenues are highly susceptible to economic factors , including , among other things , the overall condition of the economy and the availability of consumer credit in both the united states and canada . our profit margins may vary in response to the aforementioned factors and our ability to manage product costs . profit margins may also be affected by fluctuations in the costs or availability of materials used to manufacture our products , product warranty costs , higher or lower fuel prices , and changes in costs of other distribution or manufacturing-related services . our operating profits or losses may also be affected by the efficiency and effectiveness of our organization . historically , our operating expenses have been influenced by media costs to produce and air television advertisements of our products , facility costs , operating costs of our information and communications systems , product supply chain management , customer support and new product development activities . in addition , our operating expenses have been affected from time-to-time by asset impairment charges , restructuring charges and other significant unusual or infrequent expenses . as a result of the above and other factors , our period-to-period operating results may not be indicative of future performance . you should not place undue reliance on our operating results and should consider our prospects in light of the risks , expenses and difficulties typically encountered by us and other companies , both within and outside our industry . we may not be able to successfully address these risks and difficulties and , consequently , we can not assure you of any future growth or profitability . for more information , see our discussion of risk factors located at part i , item 1a of this report . overview we are committed to providing innovative , quality solutions to help people achieve a fit and healthy lifestyle . our principal business activities include designing , developing , sourcing and marketing high-quality cardiovascular and strength fitness products and related accessories for consumer home use , primarily in the united states and canada . our products are sold under some of the most recognized brand names in the fitness industry : nautilus ® , bowflex ® , schwinn ® , schwinn fitness and universal ® . we market our products through two distinct distribution channels , direct and retail , which we consider to be separate business segments . our direct business offers products directly to consumers through television advertising , the internet and catalogs . our retail business offers our products through a network of third-party retailers with stores and websites located in the united states and internationally . our net sales in 2011 were $ 180.4 million , an increase of $ 12.0 million , or 7.1 % , compared to net sales of $ 168.5 million in 2010 , largely due to the continued strong demand for our treadclimber products . this increase was partially offset by comparably lower sales for home gyms and other strength products . growth in treadclimber sales continues to be driven by consumer acceptance , more effective media advertising and improving consumer credit approval rates . in september 2010 , we completed our transition to a new consumer credit program with a new primary third-party financing provider , ge capital retail bank , formerly ge money bank ( `` ge '' ) . the relationship with ge has expanded the ability of our customers to obtain third-party consumer financing for buying our products . in addition , we added one secondary third-party consumer credit financing provider during the third quarter of 2010 and another in early 2011 , both of which offer credit to certain qualified consumers whose credit applications have been declined by ge . as a result of these actions , combined consumer credit approvals by our primary and secondary u.s. third-party financing providers increased from 15 % in 2010 to 25 % in 2011. income from continuing operations was $ 2.5 million for 2011 , compared to a loss from continuing operations of $ 9.8 million for 2010 . diluted income per share from continuing operations for 2011 was $ 0.08 , compared to diluted loss per share of $ ( 0.32 ) for 2010 . the significant improvement in results of continuing operations for 2011 was largely attributable to 13 increased sales and a 13.3 % reduction in operating expenses achieved primarily through more cost efficient media advertising expenditures . selling and marketing expenses as a percent of net sales declined to 30.2 % for 2011 from 38.0 % for 2010 . during 2011 , we allocated a larger portion of our media expenditures toward our treadclimber product line , compared to 2010. in addition , we began implementing a lower cost internet-based advertising strategy for our home gyms in 2011 , which is designed to capitalize on the extensive product awareness that currently exists among consumers for our bowflex rod-based home gyms . in 2012 , we expect to dedicate the majority of our media advertising budget to treadclimbers and a new product , corebody reformer , which was launched in november 2011. net income , including loss from the discontinued commercial operation , was $ 1.4 million for 2011 , an improvement of $ 24.3 million over net loss of $ 22.8 million for 2010 . diluted net income per share for 2011 was $ 0.05 , as compared to diluted net loss per share of $ ( 0.74 ) for 2010 . story_separator_special_tag litigation , status of the lawsuits ( including settlement initiatives ) , legislative developments and other factors . story_separator_special_tag as a result , combined consumer credit approvals by our primary and secondary u.s. third-party financing providers increased from 15 % in 2010 to 25 % in 2011. we expect that average consumer credit financing approval rates in 2012 will approximate the 2011 level or improve modestly as we continue to optimize our credit program offerings . gross margin of our direct business was 53.9 % in 2011 , a decrease of 200 basis points compared to 2010 . the comparative decrease in direct gross margin was primarily attributable to relatively higher warranty costs associated with cardio products , as compared to strength products , increased costs of certain products , largely arising from changes in foreign currency exchange rates , and higher year-over-year sales of in-home assembly services , which are sold at low margins . retail net sales of our retail business were $ 68.6 million in 2011 , an increase of $ 0.8 million , or 1.2 % , compared to retail net sales of $ 67.8 million in 2010 , primarily driven by growth among our e-commerce retail customers . in 2011 , retail sales of strength products increased by 2.9 % , primarily due to higher sales of home gyms , and sales of cardio products increased by 0.2 % , compared to 2010 . gross margin of our retail business was 23.4 % in 2011 , a decrease of 420 basis points compared to 2010 , primarily due to increased costs of certain products , largely arising from changes in foreign currency exchange rates , and higher supply chain costs , including freight . operating expenses operating expenses were $ 74.9 million in 2011 , a decrease of $ 11.5 million , or 13.3 % , compared to operating expenses of $ 86.3 million in 2010 . this reduction was achieved primarily through more effective media advertising , which enabled more 17 efficient spending . in addition , general and administrative expenses decreased by $ 2.2 million in 2011 , compared to 2010 . selling and marketing selling and marketing expenses were $ 54.5 million in 2011 , a decrease of $ 9.5 million , or 14.9 % , compared to 2010 . advertising expense of our direct business , a component of selling and marketing expenses , in 2011 was $ 28.6 million , a decrease of $ 12.0 million , or 29.6 % , compared to 2010 . the comparative decrease in direct advertising expenses was primarily attributable to management 's decision in early 2011 to shift advertising away from the mature home-gym category and to increase the media investment in our treadclimber product line . since early 2011 , we have marketed home gyms through more cost efficient online media . lower comparable direct advertising expenses were offset in part by higher consumer credit financing costs , as a result of sequentially improving consumer credit approval rates , and the availability of additional secondary consumer financing providers in 2011 , as compared to 2010. general and administrative general and administrative expenses were $ 17.1 million in 2011 , a decrease of $ 2.2 million , or 11.5 % , compared to 2010 , primarily due to lower depreciation , personnel and occupancy expenses . research and development research and development expenses were $ 3.2 million in 2011 , an increase of $ 0.3 million , or 10.9 % , compared to 2010 , as we increased our investment in new product development resources and capabilities . other income and expense interest expense we incurred interest expense of $ 0.5 million in 2011 in connection with our long-term note payable , compared to $ 0.1 million in 2010 . we have not borrowed under our current financing agreement with bank of the west , other than to fund our outstanding letters of credit . other expense other expense was less than $ 0.1 million in 2011 , compared to $ 0.5 million in 2010 , primarily due to changes in foreign currency exchange gains and losses . income tax expense income tax expense was $ 0.7 million in 2011 , compared to income tax expense of $ 0.6 million in 2010 , and primarily relates to taxable income generated in canada and the result of the company 's uncertain tax positions . we increased our valuation allowances in 2010 to reduce u.s. deferred income tax assets generated during the respective years to the amounts expected , more likely than not , to be realized . as a result , generally we did not recognize u.s. income tax benefits associated with our operating loss in 2010 . discontinued operation loss from discontinued operation , net of income taxes , was $ 1.1 million in 2011 , compared to a loss of $ 13.0 million in 2010 , as we completed the disposal of the assets of our former commercial business in april 2011. loss from discontinued operation in 2011 and 2010 was net of reductions of $ 0.9 million and $ 3.7 million , respectively , in the amount of pre-tax disposal loss previously estimated in connection with the divestiture of our commercial business . some expenses may be incurred in 2012 in connection with the settlement of contingencies arising from and directly related to our commercial business prior to its disposal . liquidity and capital resources as of december 31 , 2011 , we had $ 17.4 million of cash and cash equivalents , compared to $ 14.3 million as of december 31 , 2010 . the principal source of this increase in liquidity was cash provided by operating activities of $ 4.6 million in 2011 , compared to cash used in operating activities of $ 10.7 million in 2010 . management believes that sufficient funds will be 18 available to meet our expected cash needs for at least the next twelve months , based on cash currently on hand and anticipated cash flows from operations .
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results of operations critical accounting policies and estimates the preparation of financial statements in conformity with generally accepted accounting principles requires estimates and assumptions that affect the reported amounts of assets and liabilities , revenues and expenses , and related disclosures of contingent assets and liabilities in the consolidated financial statements . an accounting estimate is considered to be critical if it meets both of the following criteria : ( i ) the estimate requires assumptions about matters that are highly uncertain at the time the accounting estimate is made , and ( ii ) different estimates reasonably could have been used , or changes in the estimate that are reasonably likely to occur from period to period may have a material impact on the presentation of our financial condition , changes in financial condition or results of operations . our critical accounting policies and estimates are discussed below . we have not made any material changes in the methodologies we use in our critical accounting estimates during the past three fiscal years and we do not believe there is a reasonable likelihood that there will be a material change in the future assumptions or estimates we use . however , if our assumptions or estimates change in future periods , the impact on our financial position and operating results could be material . sales discounts and allowances product sales and shipping revenues are reported net of promotional discounts and return allowances . we estimate the revenue impact of retail sales incentive programs based on the planned duration of the program and historical experience . if the amount of our retail sales incentives can be reasonably estimated , we record the impact of such incentives at the later of the time we notify our customer of the sales incentive , or the time of the sale . if actual amounts differ from our estimates , revenue is adjusted .
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the notes would either be paid upon consummation of our initial business combination , without interest , or , at the lender 's discretion , up to $ 500,000 of the notes may be converted upon consummation of our business combination into private units at a price of $ 10.00 per unit ( which , for example , would result in the holders being issued units to acquire 55,000 ordinary shares ( which includes 5,000 shares issuable upon conversion of rights ) and warrants to purchase 25,000 ordinary shares if $ 500,000 of notes were so converted ) . our shareholders have approved any issuance of the units and underlying securities upon conversion of such notes , to the extent an optional conversion is included and the holder wishes to so convert them at the time of the consummation of our initial business combination . if we do not complete a business combination , the loans would not be repaid . on april 9 , 2018 , our sponsor agreed to loan to us an additional $ 500,000 pursuant to a non-convertible non-interest bearing promissory note , which will be repaid promptly after the date on which we consummate a business combination . in the event that we are unable to consummate a business combination , as described in the prospectus relating to the ipo , the balance of such note will be forgiven and our sponsor will not be entitled to any payment thereunder . 30 the holders of our insider shares issued and outstanding on the date of the ipo , as well as the holders of the private units ( and all underlying securities ) and any securities our initial shareholders , officers , directors or their affiliates may be issued in payment of working capital loans made to us , will be entitled to registration rights pursuant to an agreement to be signed prior to or on the effective date of the ipo . the holders of a majority of these securities are entitled to make up to two demands that we register such securities . the holders of the majority of the insider shares can elect to exercise these registration rights at any time commencing three months prior to the date on which these ordinary shares are to be released from escrow . the holders of a majority of the private units or securities issued in payment of working capital loans made to us can elect to exercise these registration rights at any time after we consummate a business combination . in addition , the holders have certain “ piggy-back ” registration rights with respect to registration statements filed subsequent to our consummation of a business combination . we will bear the expenses incurred in connection with the filing of any such registration statements . we will reimburse our officers and directors for any reasonable story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial statements and the notes thereto contained elsewhere in this report . certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties . overview we were formed on november 28 , 2016 as a blank check company for the purpose of entering into a merger , share exchange , asset acquisition , stock purchase , recapitalization , reorganization or other similar business combination , with one or more target businesses . our efforts to identify a prospective target business will not be limited to any particular industry or geographic location . we have not selected any target business for our initial business combination . we presently have no revenue , have had losses since inception from incurring formation costs and have had no operations other than the active solicitation of a target business with which to complete a business combination . we have relied upon the sale of our securities and loans from our officers and directors to fund our operations . on october 30 , 2017 , we consummated our ipo of 18,000,000 units . each unit consists of one ordinary share , one-half of a redeemable public warrant and one right to receive 1/10 of an ordinary share upon the consummation of our initial business combination . the units were sold at an offering price of $ 10.00 per unit , generating gross proceeds of $ 180,000,000. the company granted the underwriters a 45-day option to purchase up to 2,700,000 additional units to cover over-allotments , if any . on october 30 , 2017 , simultaneously with the consummation of the ipo , we consummated a private placement with our sponsor of 475,000 private units at a price of $ 10.00 per private unit , generating total proceeds of $ 4,750,000. the underwriters exercised the over-allotment option in part and , on november 3 , 2017 , the underwriters purchased 2,636,293 over-allotment option units , which were sold at an offering price of $ 10.00 per unit , generating gross proceeds of $ 26,362,930. on november 3 , 2017 , simultaneously with the sale of the over-allotment units , the company consummated the private sale of an additional 52,726 private units to our sponsor , generating gross proceeds of $ 527,260. on november 3 , 2017 , the underwriters canceled the remainder of the over-allotment option . in connection with the cancellation of the remainder of the over-allotment option , the company canceled an aggregate of 15,927 ordinary shares issued to our sponsor prior to the ipo and private placement . as of december 31 , 2017 , a total of $ 206,362,930 of the net proceeds from the ipo ( including the partial exercise of the over-allotment option ) and the private placements were in a trust account established for the benefit of the company 's public shareholders . our management has broad discretion with respect to the specific application of the net proceeds of ipo and story_separator_special_tag the notes would either be paid upon consummation of our initial business combination , without interest , or , at the lender 's discretion , up to $ 500,000 of the notes may be converted upon consummation of our business combination into private units at a price of $ 10.00 per unit ( which , for example , would result in the holders being issued units to acquire 55,000 ordinary shares ( which includes 5,000 shares issuable upon conversion of rights ) and warrants to purchase 25,000 ordinary shares if $ 500,000 of notes were so converted ) . our shareholders have approved any issuance of the units and underlying securities upon conversion of such notes , to the extent an optional conversion is included and the holder wishes to so convert them at the time of the consummation of our initial business combination . if we do not complete a business combination , the loans would not be repaid . on april 9 , 2018 , our sponsor agreed to loan to us an additional $ 500,000 pursuant to a non-convertible non-interest bearing promissory note , which will be repaid promptly after the date on which we consummate a business combination . in the event that we are unable to consummate a business combination , as described in the prospectus relating to the ipo , the balance of such note will be forgiven and our sponsor will not be entitled to any payment thereunder . 30 the holders of our insider shares issued and outstanding on the date of the ipo , as well as the holders of the private units ( and all underlying securities ) and any securities our initial shareholders , officers , directors or their affiliates may be issued in payment of working capital loans made to us , will be entitled to registration rights pursuant to an agreement to be signed prior to or on the effective date of the ipo . the holders of a majority of these securities are entitled to make up to two demands that we register such securities . the holders of the majority of the insider shares can elect to exercise these registration rights at any time commencing three months prior to the date on which these ordinary shares are to be released from escrow . the holders of a majority of the private units or securities issued in payment of working capital loans made to us can elect to exercise these registration rights at any time after we consummate a business combination . in addition , the holders have certain “ piggy-back ” registration rights with respect to registration statements filed subsequent to our consummation of a business combination . we will bear the expenses incurred in connection with the filing of any such registration statements . we will reimburse our officers and directors for any reasonable story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial statements and the notes thereto contained elsewhere in this report . certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties . overview we were formed on november 28 , 2016 as a blank check company for the purpose of entering into a merger , share exchange , asset acquisition , stock purchase , recapitalization , reorganization or other similar business combination , with one or more target businesses . our efforts to identify a prospective target business will not be limited to any particular industry or geographic location . we have not selected any target business for our initial business combination . we presently have no revenue , have had losses since inception from incurring formation costs and have had no operations other than the active solicitation of a target business with which to complete a business combination . we have relied upon the sale of our securities and loans from our officers and directors to fund our operations . on october 30 , 2017 , we consummated our ipo of 18,000,000 units . each unit consists of one ordinary share , one-half of a redeemable public warrant and one right to receive 1/10 of an ordinary share upon the consummation of our initial business combination . the units were sold at an offering price of $ 10.00 per unit , generating gross proceeds of $ 180,000,000. the company granted the underwriters a 45-day option to purchase up to 2,700,000 additional units to cover over-allotments , if any . on october 30 , 2017 , simultaneously with the consummation of the ipo , we consummated a private placement with our sponsor of 475,000 private units at a price of $ 10.00 per private unit , generating total proceeds of $ 4,750,000. the underwriters exercised the over-allotment option in part and , on november 3 , 2017 , the underwriters purchased 2,636,293 over-allotment option units , which were sold at an offering price of $ 10.00 per unit , generating gross proceeds of $ 26,362,930. on november 3 , 2017 , simultaneously with the sale of the over-allotment units , the company consummated the private sale of an additional 52,726 private units to our sponsor , generating gross proceeds of $ 527,260. on november 3 , 2017 , the underwriters canceled the remainder of the over-allotment option . in connection with the cancellation of the remainder of the over-allotment option , the company canceled an aggregate of 15,927 ordinary shares issued to our sponsor prior to the ipo and private placement . as of december 31 , 2017 , a total of $ 206,362,930 of the net proceeds from the ipo ( including the partial exercise of the over-allotment option ) and the private placements were in a trust account established for the benefit of the company 's public shareholders . our management has broad discretion with respect to the specific application of the net proceeds of ipo and
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results of operations our entire activity from inception up to october 25 , 2017 was related to the company 's formation , the ipo and general and administrative activities . since the ipo , our activity has been limited to the evaluation of business combination candidates , and we will not be generating any operating revenues until the closing and completion of our initial business combination . we expect to generate small amounts of non-operating income in the form of interest income on cash and cash equivalents . interest income is not expected to be significant in view of current low interest rates on risk-free investments ( treasury securities ) . we expect to incur increased expenses as a result of being a public company ( for legal , financial reporting , accounting and auditing compliance ) , as well as for due diligence expenses . we expect our expenses to increase substantially after this period . for the year ended december 31 , 2017 , we had a net income of $ 337,250. during the year ended december 31 , 2017 , we incurred $ 85,806 of formation and operating costs ( not charged against shareholders ' equity ) , consisting mostly of general and administrative expenses , and we recorded $ 423,056 of interest income from investments in our trust account . for the period from november 28 , 2016 ( inception ) through december 31 , 2016 , we had net losses of $ 9,502 , which was comprised of formation and operating costs . 17 liquidity and capital resources as of december 31 , 2017 , we had cash outside our trust account of $ 165,405 , available for working capital needs . all remaining cash was held in the trust account and is generally unavailable for our use , prior to an initial business combination .
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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 elsewhere in this annual report on form 10-k. the forward-looking information we have provided in this annual report on form 10-k pursuant to the safe harbor established under the private securities litigation reform act of 1995 should be evaluated in the context of these factors . forward-looking statements speak only as of the date they were made , and we undertake no obligation to update or revise such statements , except as required by the federal securities laws . the following discussion should be read in conjunction with , and is qualified in its entirety by reference to , our audited consolidated financial statements , including the notes thereto . overview we are a diversified specialty consumer finance company providing a broad array of loan products primarily to customers with limited access to consumer credit from banks , thrifts , credit card companies , and other traditional lenders . we began operations in 1987 with four branches in south carolina and have expanded our branch network to 264 locations in the states of south carolina , texas , north carolina , tennessee , alabama , oklahoma , new mexico , and georgia as of december 31 , 2013. most of our loan products are secured , and each is structured on a fixed rate , fixed term basis with fully amortizing equal monthly installment payments , repayable at any time without penalty . our loans are sourced through our multiple channel platform , including in our branches , through direct mail campaigns , independent and franchise automobile dealerships , online credit application networks , retailers , and our consumer website . we operate an integrated branch model in which nearly all loans , regardless of origination channel , are serviced through our branch network , providing us with frequent in-person contact with our customers , which we believe improves our credit performance and customer loyalty . our goal is to consistently and soundly grow our finance receivables and manage our portfolio risk while providing our customers with attractive and easy-to-understand loan products that serve their varied financial needs . our diversified product offerings include : small installment loans as of december 31 , 2013 , we had approximately 271,900 small installment loans outstanding , representing $ 289.0 million in finance receivables . large installment loans as of december 31 , 2013 , we had approximately 12,300 large installment loans outstanding , representing $ 43.3 million in finance receivables . automobile purchase loans as of december 31 , 2013 , we had approximately 19,300 automobile purchase loans outstanding , representing $ 181.1 million in finance receivables . 46 retail purchase loans as of december 31 , 2013 , we had approximately 31,200 retail purchase loans outstanding , representing $ 31.3 million in finance receivables . insurance products we offer our customers optional payment protection insurance options relating to many of our loan products . our primary sources of revenue are interest and fee income from our loan products , of which interest and fees relating to installment loans and automobile purchase loans have historically been the largest component . in 2009 , we introduced retail purchase loans and expanded our automobile purchase loans to offer loans through online credit application networks . in addition to interest and fee income from loans , we derive revenue from insurance products sold to customers of our direct loan products . revision to financial statements . during 2013 , the company completed the implementation of internal controls over financial reporting as required by the sarbanes-oxley act of 2002. in connection with that work and as reported in november 2013 , the company discovered that its accounting for state franchise taxes was incorrect . further , as the company completed the close of its year-end accounting , it identified other errors related to interest income , insurance premiums , compensated absences , and income taxes . collectively , the errors result in an overstatement of net income for the years ended december 31 , 2010 through december 31 , 2012. the company considered both the quantitative and qualitative factors within the provisions of the securities and exchange commission staff accounting bulletin no . 99 , materiality , and staff accounting bulletin no . 108 , considering the effects of prior year misstatements when quantifying misstatements in current year financial statements . based on this evaluation , the company concluded that the errors were immaterial to the previously issued financial statements and those financial statements can continue to be relied upon . therefore , the company has made immaterial corrections to its previously filed financial statements included in this annual report on form 10-k filing to reflect the corrections in the proper period . future filings that include prior periods will be revised , as needed , when filed . factors affecting our results of operations our business is driven by several factors affecting our revenues , costs , and results of operations , including the following : growth in loan portfolio . the revenue that we derive from interest and fees from our loan products is largely driven by the amount of loans that we originate . story_separator_special_tag in october 2013 , the board revised its standard compensation arrangement for its non-employee directors , and it awarded the company 's directors stock with a cash election for tax obligations for annual service commencing in 2013. the award was fully vested at the time of the grant , and the company incurred $ 1.2 million of incremental director compensation expense in 2013. excluding the one-time expenses related to the secondary offerings and director compensation , our efficiency ratio for 2013 would have been 40.5 % . components of results of operations interest and fee income . our interest and fee income consists primarily of interest earned on outstanding loans . we cease accruing interest on a loan when the customer is contractually past due 90 days . interest accrual resumes when the customer makes at least one full payment and the account is less than 90 days contractually past due . loan fees are additional charges to the customer , such as loan origination fees , acquisition fees , and maintenance fees , as permitted by state law . the fees may or may not be refundable to the customer in the event of an early payoff , depending on state law . fees are accreted to income over the life of the loan on the constant yield method and are included in the truth in lending disclosure we make to our customers . insurance income . our insurance income consists of revenue from the sale of various optional credit insurance products and other payment protection options offered to customers who obtain loans directly from us . we do not sell insurance to non-borrowers . the type and terms of our optional credit insurance products vary from state to state based on applicable laws and regulations . we offer optional credit life insurance , credit accident and health insurance , and involuntary unemployment insurance . we require property insurance on any personal property securing loans and offer customers the option of providing proof of such insurance purchased from a third party in lieu of purchasing property insurance from us . we also require proof of liability and collision insurance for any vehicles securing loans , and we obtain automobile insurance on behalf of customers who permit their other insurance coverage to lapse . we issue insurance certificates as agents on behalf of an unaffiliated insurance company and then remit to the unaffiliated insurance company the premiums we collect ( net of refunds on prepaid loans ) . the unaffiliated insurance company cedes life insurance premiums to our wholly-owned insurance subsidiary , rmc reinsurance , ltd. ( rmc reinsurance ) , as written and non-life premiums as earned . as of december 31 , 2013 , we had pledged a $ 1.9 million letter of credit to the unaffiliated insurance company to secure payment of life insurance claims . we maintain a cash reserve for life insurance claims in an amount determined by the unaffiliated insurance company . the unaffiliated insurance company maintains the reserves for non-life claims . other income . our other income consists primarily of late charges assessed on customers who fail to make a payment within a specified number of days following the due date of the payment , fees for extending the due date of a loan , and returned check charges . due date extensions are only available to a customer once every thirteen months , are available only to customers who are current on their loans , and must be approved by personnel at our headquarters . provision for credit losses . provisions for credit losses are charged to income in amounts that we judge as sufficient to maintain an allowance for credit losses at an adequate level to provide for losses on the related finance receivables portfolio . credit loss experience , contractual delinquency of finance receivables , the value of underlying collateral , and management 's judgment are factors used in assessing the overall adequacy of the 49 allowance and the resulting provision for credit losses . our provision for credit losses fluctuates so that we maintain an adequate credit loss allowance that accurately reflects our estimates of losses in our loan portfolio . therefore , changes in our charge-off rates may result in changes to our provision for credit losses . while management uses the best information available to make its evaluation , future adjustments to the allowance may be necessary if there are significant changes in economic conditions or portfolio performance . general and administrative expenses . our general and administrative expenses are comprised of four categories : personnel , occupancy , marketing , and other . we typically measure our general and administrative expenses as a percentage of total revenue , which we refer to as our efficiency ratio . our personnel expenses are the largest component of our general and administrative expenses and consist primarily of the salaries , bonuses , and benefits associated with all of our branch , field , and headquarters employees , and related payroll taxes . our occupancy expenses consist primarily of the cost of renting our branches , all of which are leased , as well as the utility and other non-personnel costs associated with operating our branches . our marketing expenses consist primarily of costs associated with our direct mail campaigns ( including postage and costs associated with selecting recipients ) and maintaining our web site , as well as telephone directory advertisements and some local marketing by branches . these costs are expensed as incurred . other expenses consist primarily of various other expenses , including legal , audit , office supplies , credit bureau charges , and postage . our general and administrative expenses have increased as a result of the additional legal , accounting , insurance , and other expenses associated with being a public company . for a discussion regarding how risks and uncertainties associated with the current regulatory environment may impact our future expenses , net income , and overall financial condition , see item 1a , risk factors. consulting and advisory fees .
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results of operations the following tables summarize key components of our results of operations for the periods indicated , both in dollars and as a percentage of total revenue : replace_table_token_15_th 51 regional management corp. selected financial data years ended december 31 , 2013 and 2012 ( unaudited ) ( in thousands ) replace_table_token_16_th replace_table_token_17_th replace_table_token_18_th ( 1 ) represents gross balance of loan originations , including unearned finance charges replace_table_token_19_th 52 replace_table_token_20_th replace_table_token_21_th comparison of the year ended december 31 , 2013 , versus the year ended december 31 , 2012 the following is a discussion of the changes by product type : small installment loans small installment loans ( loans with an original principal balance of $ 2,500 or less ) outstanding increased by $ 100.4 million , or 53.3 % , to $ 289.0 million at december 31 , 2013 , from $ 188.6 million at december 31 , 2012. our direct mail campaigns drove significant loan growth in existing and new branches . in addition , the growth in receivables at the branches opened in 2013 contributed to the growth in overall small installment loans outstanding . large installment loans large installment loans outstanding decreased by $ 8.7 million , or 16.7 % , to $ 43.3 million at december 31 , 2013 , from $ 52.0 million at december 31 , 2012. the decrease was primarily due to the application of the company 's underwriting standards on large loans purchased in the prior year resulting in smaller renewals and originations than those loans originally purchased . in addition , we increased our internal small installment loan limit from $ 2,000 to $ 2,500 in some states in order to achieve consistency with our enterprise-wide limit , which caused a shift of some loans in those states from the large installment loan category to the small installment loan category . automobile purchase loans automobile purchase loans outstanding increased by $ 12.5 million , or 7.4 % , to $ 181.1
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significant estimates of the company can include , among other things , valuation of goodwill and intangible assets , medical claims payable , other medical liabilities , stock compensation assumptions , tax contingencies and legal story_separator_special_tag the following discussion and analysis of the company 's financial condition and results of operations should be read in conjunction with the company 's selected financial data and the company 's financial statements and the accompanying notes included herein . the following discussion may contain “ forward-looking statements ” within the meaning of the securities act and the exchange act . when used in this form 10-k , the words “ estimate , ” “ anticipate , ” “ expect , ” “ believe , ” “ should ” and similar expressions are intended to be forward-looking statements . although the company believes that its plans , intentions and expectations reflected in such forward-looking statements are reasonable , it can give no assurance that such plans , intentions or expectations will be achieved . prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties , and that actual results may differ materially from those contemplated by such forward-looking statements . important 33 factors currently known to management that could cause actual results to differ materially from those in forward-looking statements are set forth under the heading “ risk factors ” in item 1a and elsewhere in this form 10-k. capitalized or defined terms included in this item 7 have the meanings set forth in item 1 of this form 10-k. business overview the company is engaged in the healthcare management business , and is focused on meeting needs in areas of healthcare that are fast growing , highly complex and high cost , with an emphasis on special population management . the company provides services to health plans and other mcos , employers , labor unions , various military and governmental agencies , tpas , consultants and brokers . the company 's business is divided into three segments , based on the services it provides and or the customers that it serves . see item 1— “ business ” for more information on the company 's business segments . results of operations the following table summarizes , for the periods indicated , consolidated operating results ( in thousands ) : replace_table_token_4_th ( 1 ) includes stock compensation expense of $ 39,116 , $ 29,472 and $ 25,501 for the years ended december 31 , 2017 , 2018 and 2019 , respectively . ( 2 ) includes changes in fair value of contingent consideration of $ 696 , $ 1,307 and $ ( 2,124 ) for the years ended december 31 , 2017 , 2018 and 2019 , respectively . 2019 compared to 2018 net revenue , cost of care , cost of goods sold , and direct service costs and other operating expenses net revenue , cost of care , cost of goods sold , and direct service costs and other operating expense variances are addressed within the segment results that follow . depreciation and amortization depreciation and amortization expense decreased by 0.9 percent or $ 1.1 million from 2018 to 2019 , primarily due to asset maturation after 2018. interest expense interest expense increased by $ 0.8 million from 2018 to 2019 mainly due to higher interest rates . 34 interest and other income interest and other income increased by $ 5.1 million from 2018 to 2019 primarily due to higher yields . income taxes the company 's effective income tax rate was 44.0 percent in 2018 and 30.8 percent in 2019. these rates differ from the applicable federal statutory income tax rate for each year primarily due to state income taxes , permanent differences between book and tax income , and changes to the valuation allowances . the company also accrues interest and penalties related to uncertain tax positions in its provision for income taxes . the effective income tax rate for 2019 was lower than 2018 , primarily due to ( i ) suspension of the non-deductible patient protection and affordable care act health insurer fee ( “ hif ” ) fees in 2019 , and ( ii ) an increased relative impact in 2018 of the permanent differences for hif fees and executive compensation as a result of reduced earnings . the statutes of limitations regarding the assessment of federal and most state and local income taxes for 2015 expired during 2019. as a result , $ 3.5 million of tax contingency reserves recorded as of december 31 , 2018 were reversed in 2019 , of which $ 2.8 million was reflected as a reduction to income tax expense and $ 0.7 million as a decrease to deferred tax assets . additionally , $ 0.3 million of accrued interest was reversed in 2019 and reflected as a reduction to income tax expense due to the closing of statutes of limitations on tax assessments . the statutes of limitations regarding the assessment of federal and most state and local income taxes for 2014 expired during 2018. as a result , $ 3.0 million of tax contingency reserves recorded as of december 31 , 2017 were reversed in 2018 , of which $ 2.4 million was reflected as a reduction to income tax expense and $ 0.6 million as a decrease to deferred tax assets . additionally , $ 0.2 million of accrued interest was reversed in 2018 and reflected as a reduction to income tax expense due to the closing of statutes of limitations on tax assessments . 2018 compared to 2017 net revenue , cost of care , cost of goods sold , and direct service costs and other operating expenses net revenue , cost of care , cost of goods sold , and direct service costs and other operating expense variances are addressed within the segment results that follow . depreciation and amortization depreciation and amortization expense increased by 14.7 percent or $ 17.0 million from 2017 to 2018 , primarily due to asset additions after 2017 and acquisition activity . story_separator_special_tag pharmacy management 's services are provided under contracts with health plans , employers , state medicaid programs , medicare part d and other government agencies . the following table summarizes , for the periods indicated , operating results for the pharmacy management segment ( in thousands , except state count ) : replace_table_token_6_th 2019 compared to 2018 managed care and other revenue managed care and other revenue related to pharmacy management increased by 10.4 percent or $ 25.0 million from 2018 to 2019. this increase is primarily due to increased formulary management revenue of $ 13.7 million mainly due to utilization , higher revenue in government pharmacy of $ 5.6 million mainly due to increased membership , increased medical pharmacy revenue of $ 4.7 million mainly due to favorable settlements , and other net favorable variances of $ 1.0 million . pbm and dispensing revenue pbm and dispensing revenue related to pharmacy management decreased by 14.8 percent or $ 388.6 million from 2018 to 2019. this decrease is primarily due to terminated contracts of $ 325.8 million and decreased membership 39 and utilization of $ 154.6 million , mainly due to a reduction in the part d footprint . these decreases were partially offset by new contracts implemented after ( or during 2018 ) of $ 83.8 million , customer guarantee penalties in 2018 of $ 3.3 million and other favorable variances of $ 4.7 million . cost of goods sold cost of goods sold decreased by 15.9 percent or $ 391.7 million from 2018 to 2019. this decrease is primarily due to terminated contracts of $ 320.8 million , decreased membership and utilization of $ 139.9 million and other favorable variances of $ 10.7 million . these decreases were partially offset by new contracts implemented after ( or during ) 2018 of $ 79.7 million . as a percentage of the portion of net revenue that relates to pbm , cost of goods sold decreased from 94.0 percent in 2018 to 92.8 percent in 2019 , mainly due to business mix . direct service costs direct service costs increased by 8.2 percent or $ 24.4 million from 2018 to 2019. the increase is primarily due to an increase in discretionary benefits , an increase in stock compensation expense and new business growth . direct service costs increased as a percentage of revenue from 10.4 percent in 2018 to 12.9 percent in 2019 due to higher discretionary benefits . 2018 compared to 2017 managed care and other revenue managed care and other revenue related to pharmacy management decreased by 12.1 percent or $ 33.1 million from 2017 to 2018. this decrease is primarily due to decreased formulary management revenue of $ 20.5 million , lower revenue in government pharmacy of $ 5.6 million , decreased medical pharmacy revenue of $ 3.3 million , terminated contracts of $ 1.2 million and other net unfavorable variances of $ 5.0 million . these decreases were partially offset by new contracts implemented after ( or during ) 2017 of $ 2.5 million . pbm and dispensing revenue pbm and dispensing revenue related to pharmacy management increased by 5.4 percent or $ 134.4 million from 2017 to 2018. this increase is primarily due to new contracts implemented after ( or during ) 2017 of $ 154.4 million and other net favorable variances of $ 0.3 million . these increases were partially offset by terminated contracts of $ 17.0 million and customer guarantee penalties in 2018 of $ 3.3 million . cost of goods sold cost of goods sold increased by 5.4 percent or $ 126.2 million from 2017 to 2018. this increase is primarily due to new contracts implemented after ( or during ) 2017 of $ 147.2 million , partially offset by terminated contracts of $ 16.3 million and decreased membership and utilization of $ 4.7 million . as a percentage of the portion of net revenue that relates to pbm , cost of goods sold is consistent with 2017 at 94.0 percent . direct service costs direct service costs decreased by 1.3 percent or $ 3.8 million from 2017 to 2018. the decrease is primarily due to a decrease in stock compensation due to acquisition related awards which became fully vested in the prior year , partially offset by higher costs to support new business . 40 corporate segment the corporate segment of the company is comprised primarily of amounts not allocated to the healthcare and pharmacy management segments that are largely associated with costs related to being a publicly traded company . the following table summarizes , for the periods indicated , operating results for the corporate segment ( in thousands ) : replace_table_token_7_th 2019 compared to 2018 net expenses related to corporate , which includes eliminations , increased 37.5 percent or $ 9.6 million , primarily due to higher discretionary benefits in 2019. as a percentage of revenue , corporate and elimination increased from 0.3 percent in 2018 to 0.5 percent in 2019 , mainly due to decreased revenue and higher discretionary benefits . 2018 compared to 2017 net expenses related to corporate , which includes eliminations , decreased 19.4 percent or $ 6.2 million , primarily due to lower discretionary benefits in 2018 , higher corporate development costs in 2017 related to the swh acquisition and a litigation settlement recorded in 2017 partially offset by higher stock compensation expense in 2018. as a percentage of revenue , corporate and elimination decreased from 0.5 percent in 2017 to 0.3 percent in 2018 , mainly due to increased revenue from business growth , higher corporate development costs in 2017 and lower discretionary benefits . inter segment revenues and expenses healthcare subcontracts with pharmacy management to provide pharmacy benefits management services for certain of healthcare 's customers . in addition , pharmacy management provides pharmacy benefits management for the company 's employees covered under its medical plan . as such , revenue , cost of goods sold and direct service costs and other related to these arrangements are eliminated within the corporate segment .
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segment results the company manages and measures operational performance through three segments : healthcare , pharmacy management and corporate . the company evaluates performance of its segments based on segment profit . management uses segment profit information for internal reporting and control purposes and considers it important in making decisions regarding the allocation of capital and other resources , risk assessment and employee compensation , among other matters . stock compensation expense and changes in fair value of contingent consideration recorded in relation to acquisitions are included in direct service costs and other operating expenses ; however , these amounts are excluded from the computation of segment profit . the non-controlling portion of alphacare 's segment loss is also excluded from the computation of segment profit in 2017. healthcare the healthcare segment includes the company 's : ( i ) management of behavioral healthcare services and eap services , ( ii ) management of other specialty areas including diagnostic imaging and musculoskeletal management , and ( iii ) the integrated management of physical , behavioral and pharmaceutical healthcare for special populations , delivered through magellan complete care . the healthcare segment 's behavioral & specialty health division provides management services to health plans , accountable care organizations , employers , state medicaid agencies , the united states military and various federal government agencies for whom magellan provides carve-out management services for behavioral health , employee assistance plans , and other areas of specialty healthcare including diagnostic imaging , musculoskeletal management , cardiac , and physical medicine . the mcc division contracts with state medicaid agencies and cms to manage care for beneficiaries under various medicaid and medicare programs . 36 the following table summarizes , for the periods indicated , operating results for the healthcare segment ( in thousands ) : replace_table_token_5_th ( 1 ) may include some duplicate count of membership for customers that contract with magellan for both behavioral and other specialty management services .
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we also provide trademark and licensing services to the hotels , two hotels owned by affiliates of mr. wirth and one unrelated hotel property . our results are significantly affected by occupancy and room rates at the hotels , our ability to manage costs , and changes in the number of available suites caused by acquisition and disposition activities . results are also significantly impacted by overall economic conditions and conditions in the travel industry . unfavorable changes in these factors could negatively impact hotel room demand and pricing , which would reduce our profit margins on rented suites . additionally , our ability to manage costs could be adversely impacted by significant increases in operating expenses , resulting in lower operating margins . management expects greater demand and steady supply to continue . however , either a further increase in supply or a further decline in demand could result in increased competition , which could have an adverse effect on the revenue of the hotels in their respective markets . although we experienced stronger economic conditions during fiscal year 2016 , recent volatility may result in a weakening of the economy during 2017. we expect the major challenge for fiscal year 2017 to be the continuation of strong competition for corporate leisure group and government business in the markets in which we operate , which may affect our ability to increase room rates while maintaining market share . we believe that we have positioned the hotels to remain competitive through selective refurbishment , by carrying a relatively large number of two-room suites at each location and by maintaining a robust guest internet access system . our strategic plan is to obtain the full benefit of our real estate equity and to migrate our focus from a hotel owner to a hospitality service company by expanding our trademark license , management , reservation , and advertising services , through ibc hotels . for more information on our strategic plan , including information on our progress in disposing of our hotel properties , see “ future positioning ” in this management 's discussion and analysis of financial condition and results of operations . in furtherance of our strategic plan , we have significantly expanded ibc hotels , a wholly owned subsidiary of innsuites hospitality trust , which provides services to approximately 6,300 properties . we believe this new hotel network provides independent hotel owners a competitive advantage against traditional franchised brands in their markets . the network provides a booking system and loyalty program . ibc hotels charges a 10 % booking fee , which we believe , increases the independent hotel 's profits . competitors of ibc hotels can charge anywhere from a 30 % to 50 % booking fee . inndependent inncentives , ibc 's loyalty program , allows hoteliers to benefit from guests who frequently stay at ibc independent hotels . in addition , on january 8 , 2016 , ibc hotels and the trust , purchased substantially all of the assets of international vacation hotels , a technology company located in dallas , texas which provides reservation services to over 600 independent international hotels . for more information about the acquisition of international vacation hotels , see note 27 of our consolidated financial statements - “ acquisition of international vacation hotels ” . 7 we are planning significant expansion of ibc hotels during the next couple of fiscal years as we concentrate our sales and marketing efforts towards consumers . we anticipate the ibc hotels sales and marketing efforts to increase our revenues and decrease our consolidated net loss over the next couple of fiscal years . for each reservation , ibc hotels receives a 10 % transactional fee plus reimbursement of our credit card processing fees associated with the reservation . we can not provide any assurance that our plans will be successful or in line with our expectations . throughout item 7 , we refer to continuing and discontinued operations . as discussed , our strategic plan is to no longer be in the business of owning and operating hotels . accordingly , all hotel properties that are currently held for sale have been included in the discontinued operations throughout the form 10-k. we have a single hotel property , yuma that is included in continuing operations until such time as it is in a condition for sale . we expect to have the property for sale by january 31 , 2017. general the following discussion should be read in conjunction with our consolidated financial statements and notes thereto appearing elsewhere in this form 10-k. at january 31 , 2016 , we owned through our sole general partner 's interest in the partnership a direct 50.91 % interest in the albuquerque , new mexico hotel , and a 50.93 % direct interest in the yuma , arizona hotel . additionally , at january 31 , 2016 , we , together with the partnership , owned a 51.01 % interest in a hotel located in tucson , arizona and a 51.65 % interest in a hotel located in ontario , california . at january 31 , 2015 , we owned through our sole general partner 's interest in the partnership a 72.11 % interest in the tucson , arizona hotel , direct 50.82 % interest in the albuquerque , new mexico hotel , and a 73.61 % direct interest in the yuma , arizona hotel . additionally , at january 31 , 2015 , we , together with the partnership , owned a 51.01 % interest in another hotel located in tucson , arizona and a 51.71 % interest in a hotel located in ontario , california . we purchased 0 and 9,903 partnership class a units of our sole general partner interest during the years ended january 31 , 2016 and 2015 , respectively . story_separator_special_tag revenue – discontinued operations : hotel operations & corporate overhead segment – discontinued operations discontinued operations consists of our hotel operations at our hotel tucson city center innsuites property in tucson , arizona ( “ tucson st. mary 's ” ) , which we sold on october 14 , 2015 , our remaining tucson , arizona property , our albuquerque , new mexico property and our ontario , california property . for the twelve months ended january 31 , 2016 , we had total revenue of approximately $ 10,848,000 compared to approximately $ 11,828,000 for the twelve months ended january 31 , 2015 , a decrease of approximately $ 980,000 due in part to the sale of our tucson st. mary 's property . 11 we realized a 7.6 % decrease in room revenues during fiscal year 2016 as room revenues were approximately $ 9,945,000 for fiscal year 2016 as compared to approximately $ 10,759,000 during fiscal year 2015. food and beverage revenue was approximately $ 811,000 for fiscal year 2016 as compared to approximately $ 916,000 during fiscal year 2015 , a decrease of approximately $ 105,000. food and beverage revenues decreased due in part to the sale of one of our tucson , arizona properties and continued market oriented pressures in our ontario , california property . during fiscal year 2017 , we expect occupancy to be steady with additional pressures on our rates and steady food and beverage revenues but can provide no assurance that occupancy will not decrease . other revenue was approximately $ 92,000 for fiscal year 2016 as compared to approximately $ 154,000 during fiscal year 2015 , a decrease of approximately $ 62,000. other revenues decreased due in part to the sale of our tucson st. mary 's property . we anticipate that at least one additional hotel will be sold during fiscal year 2017 but we can provide no assurance that such sale will occur on terms favorable to us or in our expected time frame , or at all . we anticipate steady revenues at each of our remaining hotel properties included in discontinued operations during fiscal year 2017. expenses – discontinued operations : hotel operations & corporate overhead segment – discontinued operations overall , we anticipate that at least one additional hotel will be sold during fiscal year 2017. we anticipate expenses to remain steady at each of our remaining hotel properties including discontinued operations during fiscal year 2017 but can not provide assurance that such expenses will not increase . total expenses decreased during fiscal year 2016 as compared to fiscal year 2015 as a result of the sale of one of our tucson , arizona properties . total expenses including net interest expense , of approximately $ 11,063,000 for the fiscal year ended january 31 , 2016 reflects a decrease of approximately $ 563,000 compared to total expenses of approximately $ 11,626,000 for the fiscal year ended january 31 , 2015. the decrease was due in part to the sale of our tucson st. mary 's property . room expenses consisting of salaries and related employment taxes for property management , front office , housekeeping personnel , reservation fees and room supplies were approximately $ 3,451,000 for the fiscal year ended january 31 , 2016 compared to approximately $ 3,138,000 in the prior year period for approximately a $ 313,000 , or 10 % , increase in costs . our occupancy at our ontario , california property increased during fiscal year 2016 which resulted in an increase in room expenses , offset by the sale of our one of our tucson , arizona properties . food and beverage expenses included food and beverage costs , personnel and miscellaneous costs to provide guests additional evening alcoholic beverages , dinners , snacks very large banquet events at the hotel property sold in tucson , arizona . for the fiscal year ended january 31 , 2016 , food and beverage expenses were approximately $ 793,000 as compared to approximately $ 822,000 for the fiscal year ended january 31 , 2015 , an decrease of approximately $ 29,000 , or 3.5 % . these costs decreased as a direct result of the sale of the tucson st. mary 's property . telecommunications expense , consisting of telephone and internet costs , for the fiscal year ended january 31 , 2016 were approximately $ 6,000 as compared to the prior fiscal year ended january 31 , 2015 at approximately $ 10,000 , a decrease of approximately $ 4,000. we anticipates these expenses will continue to decrease as we sell additional hotel properties during the fiscal year ending january 31 , 2017. general and administrative expenses include overhead charges for management and administration of the hotel properties . general and administrative expenses of approximately $ 1,289,000 for the fiscal year ended january 31 , 2016 decreased approximately $ 81,000 from approximately $ 1,370,000 for the fiscal year ended january 31 , 2015 primarily due to increased bad debt expenses , credit card expenses , professional fees and management fees at our ontario , california property and our tucson , arizona property . sales and marketing expense slightly decreased from approximately $ 791,000 for the fiscal year ended january 31 , 2015 to approximately by $ 788,000 for the fiscal year ended january 31 , 2016. due to additional economic pressures at our remaining tucson , arizona property , we added additional sales and marketing resources which increased our sales and marketing expenses . the increase was offset by the sale of our tucson st. mary 's property .
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overview a summary of total trust operating results for the fiscal years ended january 31 , 2016 and 2015 is as follows : replace_table_token_5_th a summary of operating results by segment for the fiscal years ended january 31 , 2016 and 2015 is as follows : replace_table_token_6_th replace_table_token_7_th our overall results in fiscal year 2016 were positively affected by an increase in revenues which were reduced by an increase in operating expenses which included our growing ibc hotels division and our inability to control our income tax expenses . 9 revenue – continuing operations : hotel operations & corporate overhead segment – continuing operations continuing operations consist primarily of our hotel operations at our yuma , arizona property . for the twelve months ended january 31 , 2016 , we had total revenue of approximately $ 3,422,000 compared to approximately $ 2,825,000 for the twelve months ended january 31 , 2015 , an increase of approximately $ 597,000. after completing our remodel of our yuma , arizona property in 2015 , we realized a 28 % increase in room revenues during fiscal year 2016 as room revenues were approximately $ 3,115,000 for fiscal year 2016 as compared to approximately $ 2,428,000 during fiscal year 2015. food and beverage revenue was approximately $ 29,000 for fiscal year 2016 as compared to approximately $ 39,000 during fiscal year 2015 , a decrease of approximately $ 10,000. our yuma , arizona hotel property is a mid-size property with limited food and beverage operations . during fiscal year 2017 , we expect occupancy to be steady with additional pressures on our rates and steady food and beverage revenues .
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significant components of the company 's taxable reit subsidiary 's deferred income tax assets and liabilities were as follows as of the indicated dates ( in thousands ) : replace_table_token_29_th ( a ) excludes $ 3.5 million in remaining net operating loss carryforwards which expire beginning story_separator_special_tag this section of this annual report on form 10-k generally discusses 2019 and 2018 items and year-to-year comparisons between 2019 and 2018. discussions of 2017 items and year-to-year comparisons between 2018 and 2017 that are not included in this annual report can be found in “ management 's discussion and analysis of financial condition and results of operations ” in part ii , item 7 of the company 's annual report on form 10-k for the fiscal year ended december 31 , 2018. overview capstead operates as a self-managed reit earning income from investing in a leveraged portfolio of residential mortgage pass-through securities consisting of relatively short-duration arm agency securities , which reset to more current interest rates within a relatively short period of time and are considered to have limited , if any , credit risk . by investing in arm agency securities , the company is positioned to benefit from future recoveries in financing spreads that typically contract during periods of rising interest rates and to experience smaller fluctuations in portfolio values compared to leveraged portfolios containing a significant amount of longer-duration fixed-rate mortgage securities . duration is a common measure of market price sensitivity to interest rate movements . a shorter duration generally indicates less interest rate risk . capstead reported for gaap purposes a net loss of $ 35 million or $ ( 0.62 ) per diluted common share in 2019 , compared to 2018 earnings of $ 50 million or $ 0.34 per diluted common share . the company reported core earnings of $ 64 million or $ 0.50 per diluted common share for the year ended december 31 , 2019. see “ reconciliation of gaap and non-gaap financial measures ” for more information on core earnings . the gaap net loss in 2019 includes $ 91 million in losses on hedging-related derivatives primarily related to declining interest rates . gaap and core earnings in 2019 benefited from higher portfolio yields while being negatively impacted by higher borrowing costs and lower average portfolio balances . book value per common share declined to $ 8.62 per share at december 31 , 2019 primarily due to decreases in swap valuations and the initial dilution effects of issuing nine million shares of common stock , partially offset by increases in portfolio valuations . capstead finances its residential mortgage investments by leveraging its long-term investment capital with secured borrowings consisting primarily of borrowings under repurchase arrangements with commercial banks and other financial institutions . long-term investment capital totaled $ 1.17 billion at december 31 , 2019 , consisting of $ 823 million of common and $ 251 million of preferred stockholders ' equity together with $ 98 million of unsecured borrowings maturing in 2035 and 2036. capstead 's residential mortgage investments decreased by $ 743 million to $ 11.22 billion at december 31 , 2019 as the company did not replace all of its portfolio runoff and sold $ 305 million ( cost basis ) in arm securities largely in response to increases in market volatility and declining interest rates . secured borrowings decreased $ 704 million to $ 10.28 billion . portfolio leverage ( secured borrowings divided by long-term investment capital ) decreased to 8.77 to one at december 31 , 2019 from 9.49 to one at december 31 , 2018. management continuously evaluates portfolio leverage levels in light of changes to market conditions . common equity issuances on august 1 , 2019 the company completed a public offering for nine million shares of common stock raising $ 75 million for a net price of $ 8.34 after underwriting discounts and offering expenses . the proceeds were deployed into additional arm agency securities and used for general corporate purposes . subsequent to year-end , capstead issued 1.4 million shares of common stock through an at-the-market continuous offering program , net of placement fees and other costs , for net proceeds of $ 11 million . additional amounts of equity capital may be raised in the future under continuous offering programs or 14 by other means , subject to market conditions , compliance with federal securities laws and blackout periods associated with the dissemination of important company-s pecific news . book value per common share book value per common share ( total stockholder 's equity , less liquidation preferences for outstanding shares of preferred stock , divided by outstanding shares of common stock ) as of december 31 , 2019 was $ 8.62 , a decrease of $ 0.77 or 8.2 % from december 31 , 2018 book value of $ 9.39 , primarily reflecting $ 1.44 in derivative-related declines in value and $ 0.10 in initial dilution related to the issuance of additional common equity , partially offset by $ 0.75 in portfolio-related increases in unrealized gains . all but $ 2 million of capstead 's residential mortgage investments portfolio and all of its derivatives are recorded at fair value on the company 's balance sheet and are therefore included in the calculation of book value per share of common stock . none of the company 's borrowings are recorded at fair value . fair value is impacted by market conditions , including changes in interest rates , and the availability of financing at reasonable rates and leverage levels , among other factors . see note 8 to the consolidated financial statements for additional disclosures regarding fair values of financial instruments held or issued by the company . residential mortgage investments the following table illustrates the progression of capstead 's portfolio of residential mortgage investments for the indicated periods ( in thousands ) : replace_table_token_3_th capstead 's investment strategy focuses on managing a portfolio of residential mortgage investments consisting almost exclusively of arm agency securities . story_separator_special_tag approximately 19 % , or $ 974 million of the company 's current-reset arm securities with average net wacs of 2.82 % and fully-indexed wacs of 3.49 % will reset in rate for the first time in less than 18 months based on indices in effect at december 31 , 2019. after consideration of any applicable initial fixed-rate periods , at december 31 , 2019 approximately 92 % , 4 % and 3 % of the company 's arm securities were backed by mortgage loans that reset annually , semi-annually and monthly , respectively , while approximately 1 % reset every five years . at december 31 , 2019 approximately 4 % of the company 's portfolio was backed by interest-only loans , with remaining interest-only payment periods averaging 15 months . all percentages are based on averages of the characteristics of mortgage loans underlying each security and calculated using unpaid principal balances as of the indicated date . secured borrowings and related derivatives capstead finances its residential mortgage investments by leveraging its long-term investment capital primarily with borrowings under repurchase arrangements with commercial banks and other financial institutions . the company maintains the beneficial interest in the specific securities pledged during the term of each repurchase arrangement and receives the related principal and interest payments . the terms and conditions of secured borrowings are negotiated on a transaction-by-transaction basis when each such borrowing is initiated or renewed . none of the company 's counterparties are obligated to renew or otherwise enter into new borrowings at the conclusion of existing borrowings . collateral requirements in excess of amounts borrowed ( referred to as “ haircuts ” ) averaged 4.6 percent of the fair value of pledged residential mortgage pass-through securities at december 31 , 2019. after considering haircuts and related interest receivable on the collateral , as well as interest payable on these borrowings , the company had $ 574 million of capital at risk with its lending counterparties at december 31 , 2019. the company did not have capital at risk with any single counterparty exceeding 8 % of total stockholders ' equity at december 31 , 2019. secured borrowing rates are generally fixed based on prevailing rates corresponding to the terms of the borrowings . interest may be paid monthly or at the termination of a borrowing at which time the company may enter into a new borrowing at prevailing haircuts and rates with the same counterparty or repay that counterparty and negotiate financing with a different counterparty . when the fair value of pledged securities declines due to changes in market conditions or the publishing of monthly security pay-down factors , lenders typically require the company to post additional securities as collateral , pay down borrowings or fund cash margin accounts with the counterparties in order to re-establish the agreed-upon collateral requirements , referred to as margin calls . conversely , if collateral fair values increase , lenders are required to release collateral back to the company pursuant to company-issued margin calls . as of december 31 , 2019 , the company 's secured borrowings totaled $ 10.28 billion with 21 counter-parties at average rates of 2.10 % , before the effects of currently-paying interest rate swap agreements . the company typically uses two- and three-year term interest rate swap agreements with variable rate receipts primarily based on three-month libor , sofr or fed funds to help mitigate exposure to rising short-term interest rates . during 2019 , the company took advantage of declining market rates to replace $ 4.6 billion of longer-term swaps with new two-year contracts at significantly lower rates to the benefit of future earnings . at year-end the company held $ 7.40 billion notional amount of portfolio financing-related interest rate swap agreements at fixed rates averaging 1.77 % , with contract expirations occurring at various dates through the fourth quarter of 2022 and a weighted average expiration of 20 months . in addition , at year-end the company held a series of $ 500 million notional amount three-month eurodollar futures contracts with a weighted average rate of 1.62 % with maturities through june 2020. including the effects of these derivatives , the company 's residential mortgage investments and secured borrowings had estimated durations at december 31 , 2019 of 15 and 14¼ months , respectively , for a net 17 duration gap of approximately ¾ months – see “ interest rate risk ” for further information about the company 's sensitivity to changes in market interest rates . the company intends to continue to manage interest rate risk associated with holding and financing its residential mortgage investments by utilizing suitable derivative financial instruments such as interest rate swap agreements , eurodollar futures and longer-maturity secured borrowings , if available at attractive rates and terms . off-balance sheet arrangements and contractual obligations as of december 31 , 2019 , capstead did not have any off-balance sheet arrangements . the company 's contractual obligations at december 31 , 2019 were as follows ( in thousands ) : replace_table_token_5_th * secured borrowings include an interest component based on contractual rates in effect at year-end . unsecured borrowings include an interest component based on market interest rate expectations as of year-end . obligations under interest rate swap agreements are net of variable-rate payments owed to the company under the agreements ' terms that are based on market interest rate expectations as of year-end . utilization of long-term investment capital and potential liquidity capstead 's investment strategy involves managing an appropriately leveraged portfolio of arm agency securities that management believes can produce attractive risk-adjusted returns over the long term , while reducing , but not eliminating , sensitivity to changes in interest rates . the potential liquidity inherent in the company 's unencumbered residential mortgage investments is as important as the actual level of cash and cash equivalents carried on the balance sheet because secured borrowings generally can be increased or decreased on a daily basis to meet cash flow requirements and otherwise manage capital resources efficiently .
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results of operations replace_table_token_10_th ( a ) see “ reconciliation of gaap and non-gaap financial measures ” for a reconciliation of these financial measures and the company 's rationale for using these non-gaap financial measures . ( b ) secured borrowing rates exclude the effects of amortization of the net unrealized gains and losses included in accumulated other comprehensive income ( loss ) upon de-designation on march 1 , 2019 of related derivatives held for hedging purposes of ( 0.14 ) % and include net interest cash flows from that date on non-designated derivatives of 0.21 % during 2019 to better compare the components of financing spreads on residential mortgage investments with prior periods . ( c ) calculated using core earnings less preferred dividends on an annualized basis over average common equity for the period . 22 2019 compared to 2018 capstead reported for gaap purposes a net loss of $ 35 million or $ ( 0.62 ) per diluted common share during 2019. this compares to net income of $ 50 million or $ 0.34 per diluted common share for 2018. gaap net income was negatively affected during 2019 primarily by losses on hedging-related derivatives of $ 91 million due largely to declining interest rates . valuation adjustments for secured borrowings-related derivatives are recorded in results of operations beginning march 1 , 2019 with the discontinuance of hedge accounting . previously these amounts were recorded in accumulated other comprehensive income ( loss ) . capstead 's core earnings , a non-gaap financial measure , totaled $ 64 million or $ 0.50 per diluted common share during 2019 , compared to core earnings of $ 50 million or $ 0.34 per diluted common share for 2018. core earnings in 2019 benefited from higher cash yields and lower investment premium amortization while being negatively impacted by higher borrowing rates .
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as of january 31 , 2013 , the aggregate intrinsic value ( the aggregate difference between the closing stock price of the company 's common stock on january 31 , 2013 , and the exercise price of the outstanding options ) that would have been received by the option holders if all options had been exercised was $ 1,188,000 for all exercisable options and $ 1,624,000 for all options outstanding . the weighted average remaining contractual terms for these options are 3.2 years for options that are exercisable and 4.4 years for all options outstanding . the total aggregate intrinsic value of options exercised during fiscal 2013 and 2012 was $ 241,000 and $ 1,320,000 , respectively . restricted stock units ( rsus ) and restricted stock awards ( rsas ) aggregated information regarding rsus and rsas granted under the plan is summarized below : rsas & rsus weighted average grant date fair value outstanding at january 31 , 2012 $ granted 96,900 8.10 exercised expired or canceled outstanding at january 31 , 2013 96,900 $ 8.10 as of january 31 , 2013 , there was $ 492,000 of unrecognized compensation expense related to unvested rsus and rsas . share-based compensation expense has been recognized as follows : replace_table_token_22_th employee stock purchase plan ( espp ) : astro-med 's espp allows eligible employees to purchase shares of common stock at a 15 % discount from fair market value on the date of purchase . a total of 247,500 shares were initially reserved for issuance under this plan . summarized plan activity is as follows : replace_table_token_23_th employee stock ownership plan : astro-med has an employee stock ownership plan ( esop ) providing retirement benefits to all eligible employees . annual contributions in amounts determined by the company 's board of directors are invested by the esop 's trustees in shares of common stock of astro-med . contributions may be in cash or stock . astro-med 's contributions ( paid or accrued ) amounted to $ 100,000 in both fiscal 2013 and 2012 and were recorded as compensation expense . all shares owned by the esop have been allocated to participants . 46 note 8income taxes the components of income from continuing operations before income taxes are as follows : replace_table_token_24_th the components of the provision ( benefit ) for income taxes from continuing operations are as follows : replace_table_token_25_th the provision ( benefit ) for income taxes from continuing operations differs from the amount computed by applying the statutory federal income tax rate of 35 % in fiscal 2013 and 34 % in fiscal 2012 to income before income taxes due to the following : replace_table_token_26_th 47 the components of deferred income tax expense arise from various temporary differences and relate to items included in the statement of income . the tax effects of temporary differences that gave rise to significant portions of the deferred tax assets and liabilities are as follows : replace_table_token_27_th at january 31 , 2013 , we have state net operating loss carryforwards of $ 131,000 , which can be used to offset future tax liabilities and expire at various dates beginning in fiscal 2024. at january 31 , 2013 we have state research and development credit carryforwards of approximately $ 349,000 , which can be used to offset future tax liabilities and expire at various dates beginning in fiscal 2013. the valuation allowance at january 31 , 2013 relates to certain state research and development tax credit carryforwards which are expected to expire unused . the change in the valuation allowance is a decrease of approximately $ 49,000 and represents a reduction in the reserve due to the expiration of research and development credits expiring during the current year net of federal benefit . the company reasonably believes that it is possible that some unrecognized tax benefits , accrued interest and penalties could decrease income tax expense in the next year due to either the review of previously filed tax returns or the expiration of certain statutes of limitation . a reconciliation of unrecognized tax benefits , excluding interest and penalties follows : replace_table_token_28_th if the $ 941,000 is recognized , $ 580,000 would decrease the effective tax rate in the period in which each of the benefits story_separator_special_tag overview astro-med is a multi-national enterprise , which designs , develops , manufactures , distributes and services a broad range of products that acquire , store , analyze and present data in multiple formats . the company organizes its structure around a core set of competencies , including research and development , manufacturing , service , marketing and distribution . it markets and sells its products and services through the following two sales product groups : test and measurement product group ( t & m ) offers a suite of rugged printer products designed for military and commercial applications to be used in the avionics industry to print weather maps , communications and other critical flight information . t & m also comprises a suite of telemetry recorder products sold to the aerospace and defense industries , as well as portable data acquisition recorders , which offer diagnostic and test functions to a wide range of manufacturers including automotive , energy , paper and steel fabrication . quicklabel systems product group ( quicklabel ) offers label printer hardware , labeling software , servicing contracts , and label and ink consumable products that digitally print color labels on a broad range of label and tag substrates . on january 31 , 2013 , the company completed the sale of substantially all of the assets of its grass technologies product group ( grass ) in order to focus on its existing core businesses . story_separator_special_tag included in net cash flow used by financing activities for fiscal 2013 were dividends paid of $ 2,595,000. dividends paid in fiscal 2012 were $ 2,055,000. the company 's annual dividend per share was $ 0.35 in fiscal 2013 and $ 0.28 in fiscal 2012. the company purchased 110,000 shares of its common stock in fiscal 2013 at a price of $ 7.00 per share . since the inception of the common stock buy back program in fiscal 1997 , the company has repurchased a total of 1,530,010 shares of its common stock . at january 31 , 2013 , the company 's board of directors has authorized the purchase of an additional 390,000 shares of the company 's common stock in the future . contractual obligations , commitments and contingencies astro-med is subject to contingencies , including legal proceedings and claims arising out of its businesses that cover a wide range of matters , such as : contract and employment claims ; workers compensation claims ; product liability claims ; warranty claims ; and claims related to modification , adjustment or replacement of component parts of units sold . while it is impossible to ascertain the ultimate legal and financial liability with respect to contingent liabilities , including lawsuits , we believe that the aggregate amount of such liabilities , if any , in excess of amounts provided or covered by insurance , will not have a material adverse effect on our consolidated financial position or results of operations . it is possible , however , that results of operations for any particular future period could be materially affected by changes in our assumptions or strategies related to these contingencies or changes out of the company 's control . critical accounting policies and estimates astro-med 's discussion and analysis of financial condition and results of operations are based upon the company 's consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . certain of our accounting policies require the application of judgment in selecting the appropriate assumptions for calculating financial estimates . by their nature , these 19 judgments are subject to an inherent degree of uncertainty . we periodically evaluate the judgments and estimates used for our critical accounting policies to ensure that such judgments and estimates are reasonable for our interim and year-end reporting requirements . these judgments and estimates are based on the company 's historical experience , current trends and information available from other sources , as appropriate . if different conditions result from those assumptions used in our judgments , the results could be materially different from our estimates . we believe the following are our most critical accounting policies as they require significant judgments and estimates in the preparation of our financial statements : revenue recognition : our product sales are recognized when all of the following criteria have been met : persuasive evidence of an arrangement exists ; price to the buyer is fixed or determinable ; delivery has occurred and legal title and risk of loss have passed to the customer ; and collectability is reasonably assured . when other significant obligations remain after products are delivered , revenue is recognized only after such obligations are fulfilled . returns and customer credits are infrequent and are recorded as a reduction to sales . rights of return are not included in sales arrangements . revenue associated with products that contain specific customer acceptance criteria is not recognized before the customer acceptance criteria are satisfied . when a sale arrangement involves training or installation , the deliverables in the arrangement are evaluated to determine whether they represent multiple element arrangements . this evaluation occurs at inception of the arrangement and as each item in the arrangement is delivered . the total fee from the arrangement is allocated to each unit of accounting based on its relative fair value . fair value for each element is established generally based on the sales price charged when the same or similar element is sold separately . we allocate revenue to each element in our multiple-element arrangements based upon their relative selling prices . we determine the selling price for each deliverable based on a selling price hierarchy . the selling price for a deliverable is based on our 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 . revenue allocated to each element is then recognized when the basic revenue recognition criteria for that element have been met . the amount of product revenue recognized is affected by our judgments as to whether an arrangement includes multiple elements . infrequently , astro-med recognizes revenue for non-recurring engineering ( nre ) fees for product modification orders upon completion of agreed-upon milestones . revenue is deferred for any amounts received prior to completion of milestones . certain of our nre arrangements include formal customer acceptance provisions . in such cases , we determine whether we have obtained customer acceptance for the specific milestone before recognizing revenue . infrequently , the company receives requests from customers to hold product being purchased from us for the customers ' convenience . we recognize revenue for such bill and hold arrangements provided the transaction meets the following criteria : a valid business purpose for the arrangement exists ; risk of ownership of the purchased product has transferred to the buyer ; there is a fixed delivery date that is reasonable and consistent with the buyer 's business purpose ; the product is ready for shipment ; the payment terms are customary ; we have no continuing performance obligation in regards to the product and the product has beensegregated from our inventories .
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results of operations the following table presents the net sales of each of the company 's segments , as well as the percentage of total sales and change from prior year . as previously noted , the company 's grass segment has been classified as a discontinued operation and therefore not presented in the table or discussion below . replace_table_token_3_th fiscal 2013 compared to fiscal 2012 astro-med 's sales in fiscal 2013 were $ 61,224,000 , representing a slight increase as compared to prior year sales of $ 60,724,000. domestic sales of $ 44,613,000 increased 2.4 % from the prior year sales of $ 43,570,000. international sales of $ 16,611,000 includes an unfavorable impact of $ 846,000 due to foreign exchange rates and reflects a 3.2 % decrease as compared to the prior year . hardware sales in fiscal 2013 were $ 25,169,000 , a 9.2 % increase as compared to prior year 's sales of $ 23,044,000 and represents 41.1 % of total sales as compared to 37.9 % of sales in the prior year . both product groups achieved growth in the current year , with t & m 's hardware sales up 5.0 % and quicklabel 's hardware sales up 17.2 % . the primary drivers of this increase relate to increases in t & m 's rugged and tmx product line sales and the increase in sales due to the introduction of quicklabel 's new kiaro ! product line . the increase in the current year 's hardware sales was tempered by lower sales of t & m 's recorder and data acquisition product lines and quicklabel 's vivo ! and zeo ! product lines .
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the tax act significantly revises how companies compute their u.s corporate tax liability by , among other provisions , reducing the corporate tax rate from 35 % to 21 % for tax years beginning after december 31 , 2017 , implementing a territorial tax system , and requiring a mandatory one-time tax on u.s. owned undistributed foreign earnings and profits known as the transition tax . story_separator_special_tag the following discussion of our financial condition and results of operations contains forward-looking statements within the meaning of the federal securities laws that involve material risks and uncertainties . this discussion should be read in conjunction with “ a warning about forward-looking statements ” on page 3 and “ risk factors ” under item 1a of this annual report . in addition , our discussion of the financial condition and results of operations of quidel corporation in this item 7 should be read in conjunction with our consolidated financial statements and the related notes included elsewhere in this annual report . overview and executive summary we have a leadership position in the development , manufacturing and marketing of rapid diagnostic testing solutions . these diagnostic testing solutions are separated into our four product categories : rapid immunoassays , cardiac immunoassays , specialized diagnostic solutions and molecular diagnostic solutions . we sell our products directly to end users and distributors , in each case , for professional use in physician offices , hospitals , clinical laboratories , reference laboratories , urgent care clinics , leading universities , retail clinics , pharmacies and wellness screening centers . we market our products through a network of distributors and through a direct sales force . the company operates in one business segment that develops , manufactures and markets our four product categories . for the year ended december 31 , 2018 , total revenue increased 88 % to $ 522.3 million as compared to the year ended december 31 , 2017 primarily due to the acquisition of the triage and bnp businesses from alere on october 6 , 2017 , which represented 51 % of our total revenues for the year ended december 31 , 2018 . see further discussion in note 12 in the consolidated financial statements in part ii , item 8 of this annual report . for the years ended december 31 , 2018 , 2017 and 2016 , sales of our influenza products accounted for 24 % , 39 % , and 37 % respectively , of total revenue . additionally , a significant portion of our total revenue is from a relatively small number of distributors . approximately 44 % , 54 % and 44 % of our total revenue for the years ended december 31 , 2018 , 2017 and 2016 , respectively , were related to sales through our three largest distributors . our primary objective is to increase shareholder value by building a broader-based diagnostic company capable of delivering revenue growth and consistent operating results . our strategy is to identify potential market segments that provide , or are expected to provide , significant total market opportunities , and in which we can be successful by applying our expertise and know-how to develop differentiated technologies and products . our diagnostic testing solutions are designed to provide specialized results that serve a broad range of customers , by addressing the market requirements of ease of use , reduced cost , increased test accuracy and reduced time to result . our current approach is to offer products in the following product categories : rapid immunoassay tests for use in physician offices , hospital laboratories and emergency departments , retail clinics , eye health settings , pharmacies and other urgent care or alternative site settings ; cardiac immunoassay tests for use in physician offices , hospital laboratories and emergency departments , and other urgent care or alternative site settings ; specialized diagnostic solutions , including dfa and culture-based tests for the clinical virology laboratory and other products serving the bone health , autoimmune and complement research communities ; and molecular diagnostic tests for use in hospitals , moderately complex physician offices , laboratories and other settings . our current focus to accomplish our primary objective includes the following : leveraging our current infrastructure to develop and launch new rapid immunoassays and cardiac immunoassays such as additional assays for our sofia ® and sofia ® 2 analyzers and triage ® meterpro ® systems ; developing a molecular diagnostics franchise that incorporates three distinct testing platforms , solana ® , amplivue ® , and savanna ® and that leverages our molecular assay development competencies ; and strengthening our position with distribution partners and our end-user customers to gain more emphasis on our products . 36 our current initiatives to execute this strategy include the following : provide products that can compete effectively in the healthcare market where cost and quality are important ; complete the integration of the triage and bnp businesses acquired in late 2017 ; strengthen and leverage our international infrastructure to support the integration of the triage and bnp businesses and enhance our global footprint to support our international operations and future growth ; focus our research and development efforts on three areas : new proprietary product platform development ; the creation of improved products and new products for existing markets and unmet clinical needs ; and pursuit of collaborations with , or acquisitions of , other companies for new and existing products and markets that advance our strategy to develop differentiated technologies and products ; strengthen our market and brand leadership in current markets by acquiring and or developing and introducing clinically superior diagnostic solutions ; strengthen our direct sales force to enhance relationships with integrated delivery networks , laboratories and hospitals , with a goal of driving growth through improved physician and laboratorian satisfaction ; leverage our wireless connectivity and data management systems , including cloud-based tools ; support payer evaluation of diagnostic tests and establishment of favorable reimbursement rates ; provide clinicians with validated studies that encompass the clinical efficacy and economic efficiency of our diagnostic story_separator_special_tag acquisition and integration costs acquisition and integration costs for the year ended december 31 , 2017 increased to $ 16.5 million from $ 0.7 million in 2016 primarily attributable to due diligence and integration costs related to the acquisition of the triage and bnp businesses on october 6 , 2017. other expense , net interest expense , net primarily relates to accrued interest for the coupon and accretion of the discount on our $ 172.5 million 3.25 % convertible senior notes issued in december 2014 , accrued interest and amortization of deferred loan costs associated with the senior credit facility , and interest paid on our lease obligation associated with our san diego mckellar facility . the increase in interest expense of $ 5.4 million for the year ended december 31 , 2017 was primarily due to the interest incurred under the senior credit facility entered into in connection with the acquisition of the triage and bnp businesses . gain on extinguishment of debt for the year ended december 31 , 2016 related to the purchase of $ 5.2 million in aggregate principal of our convertible senior notes . income taxes we recognized an income tax expense of $ 0.1 million and a benefit of $ 2.4 million for the years ended december 31 , 2017 and 2016 , respectively . the primary factors contributing to our tax expense in 2017 is the recognition of $ 0.4 million of deferred tax expenses from indefinite-lived assets , namely goodwill that is being amortized for tax , and current tax expense of $ 0.3 million related to state income taxes . these expenses were offset by an income tax benefit of $ 0.6 million for alternative minimum tax ( amt ) credits which are now refundable based on the law changes in the tax act . liquidity and capital resources as of december 31 , 2018 and 2017 , our principal sources of liquidity consisted of the following ( in thousands ) : replace_table_token_9_th ( 1 ) adjusted working capital as of december 31 , 2018 excludes the current portion of the convertible senior notes of $ 54.4 million as such notes may be settled at the company 's option in cash or a combination of cash and shares of common stock . 41 as of december 31 , 2018 , we had $ 43.7 million in cash and cash equivalents , a $ 7.6 million increase from the prior year . our cash requirements fluctuate as a result of numerous factors , such as the extent to which we generate cash from operations , progress in research and development projects and integration activities , competition and technological developments and the time and expenditures required to obtain governmental approval of our products . in addition , we intend to continue to evaluate candidates for new product lines , company or technology acquisitions or technology licensing . if we decide to proceed with any such transactions , we may need to incur additional debt or issue additional equity , to successfully complete the transactions . our primary source of liquidity , other than our holdings of cash and cash equivalents , has been cash flows from operations and financing . cash generated from operations provides us with the financial flexibility we need to meet normal operating , investing and financing needs . we anticipate that our current cash and cash equivalents , together with cash provided by operating activities will be sufficient to fund our near-term capital and operating needs for at least the next 12 months . normal operating needs include the planned costs to operate our business , including amounts required to fund working capital and capital expenditures . our primary short-term needs for capital , which are subject to change , include expenditures related to : support of commercialization efforts related to our current and future products , including support of our direct sales force and field support resources ; interest on and repayments of our convertible senior notes , revolving credit facility , deferred consideration , contingent consideration and lease obligations ; the continued advancement of research and development efforts ; acquisitions of equipment and other fixed assets for use in our current and future manufacturing and research and development facilities ; the integration of our recent acquisitions ; and potential strategic acquisitions and investments . the amended and restated credit agreement provides us with a revolving credit facility of $ 175.0 million , of which $ 53.2 million was outstanding as of december 31 , 2018 . the revolving credit facility matures on august 31 , 2023. our convertible senior notes due in 2020 have a coupon rate of 3.25 % and are convertible as of december 31 , 2018 . the principal balance outstanding as of december 31 , 2018 was $ 58.5 million . during the year ended december 31 , 2018 , $ 108.8 million in principal was settled for 3.7 million shares of our common stock . see note 3 of the notes to consolidated financial statements in part ii , item 8 of this annual report under the heading “ convertible senior notes ” . as of december 31 , 2018 , we have $ 19.1 million in fair value of contingent considerations and $ 187.2 million of deferred consideration associated with acquisitions to be settled in future periods . on december 12 , 2018 , the company 's board of directors authorized a new stock repurchase program , pursuant to which up to $ 50.0 million of the company 's shares of common stock may be purchased through december 12 , 2020. we expect our revenue and operating expenses will significantly impact our cash management decisions .
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results of operations comparison of years ended december 31 , 2018 and 2017 total revenues the following table compares total revenues for the years ended december 31 , 2018 and 2017 ( in thousands , except percentages ) : replace_table_token_5_th for the year ended december 31 , 2018 , total revenues increased 88 % to $ 522.3 million . the increase in total revenues was driven primarily by cardiac immunoassay full year impact of revenue from the acquisition of the triage and bnp businesses . the company also realized increases in rapid immunoassay revenues due primarily to growth in influenza products , bolstered by a robust cold and flu season in the first quarter of 2018. molecular products were up 42 % over prior year driven by continued revenue growth on the solana platform . gross profit gross profit increased by 102 % over prior year , to $ 315.7 million , or 60 % of revenue for the year ended december 31 , 2018 , compared to $ 156.1 million , or 56 % of revenue for the year ended december 31 , 2017 . the increased gross profit was mainly driven by the full year impact of the cardiac immunoassay products from the acquisition of the triage and bnp businesses and increased influenza sales in the current year . gross margins increased by 420 basis points during 2018 due to higher volumes with the addition of cardiac immunoassay products , lower inventory step-up amortization and improved product mix in the current year .
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distributions received are included in our consolidated statements of cash flows as story_separator_special_tag the following management 's discussion and analysis of financial condition and results of operations ( `` md & a '' ) is provided to assist in understanding our company , operations and current business environment and should be considered a supplement to , and read in conjunction with , the accompanying consolidated financial statements and notes included within part ii—item 8 financial statements and supplementary data , as well as the discussion of our business and related risk factors in part i—item 1 business and part i—item 1a risk factors , respectively . our fiscal year unless otherwise indicated , ( a ) all $ amounts are in usd , ( b ) comparisons are to comparable prior periods , and ( c ) 2017 , 2016 and 2015 refers to the 12 months ended december 31 , 2017 , december 31 , 2016 , and december 31 , 2015 , respectively . for 2016 , the consolidated statement of operations includes millercoors ' results of operations for the period from january 1 , 2016 , to october 10 , 2016 , on an equity method basis of accounting and from october 11 , 2016 , to december 31 , 2016 , on a consolidated basis of accounting . where indicated , we have reflected unaudited pro forma financial information for 2016 and 2015 which gives effect to the acquisition and the related financing as if they were completed on january 1 , 2015 , the first day of the company 's 2015 fiscal year . operational measures we have certain operational measures , such as stws and strs , which we believe are important metrics . stw is a metric that we use in our business to reflect the sales from our operations to our direct customers , generally wholesalers . we believe the stw metric is important because it gives an indication of the amount of beer and adjacent products that we have produced and shipped to customers . str is a metric that we use in our business to refer to sales closer to the end consumer than stws , which generally means sales from our wholesalers or our company to retailers , who in turn sell to consumers . we believe the str metric is important because , unlike stws , it provides the closest indication of the performance of our brands in relation to market and competitor sales trends . acquisition on october 11 , 2016 , we completed the acquisition of sabmiller plc 's ( `` sabmiller '' ) 58 % economic interest and 50 % voting interest in millercoors and all trademarks , contracts and other assets primarily related to the `` miller international business , '' as defined in the purchase agreement , outside of the u.s. and puerto rico ( the `` acquisition '' ) from anheuser-busch inbev sa/nv ( `` abi '' ) . the acquisition was completed for $ 12.0 billion in cash , subject to a downward purchase price adjustment as described in the purchase agreement . this purchase price `` adjustment amount , '' as defined in the purchase agreement , required payment to mcbc if the unaudited ebitda for the miller international business for the twelve months prior to closing was below $ 70 million . on january 21 , 2018 , mcbc and abi entered into a settlement agreement related to the purchase price adjustment under the purchase agreement . subsequently , on january 26 , 2018 , pursuant to the settlement agreement , abi paid to mcbc $ 330.0 million , of which $ 328.0 million constitutes the adjustment amount . this settlement occurred following the finalization of purchase accounting and , as a result , we expect the settlement proceeds related to the adjustment amount to be recorded as a gain within special items , net in our consolidated statement of operations for the three months ended march 31 , 2018. therefore , the amount will not impact the fair value of consideration transferred for the purpose of the previously disclosed purchase accounting . mcbc and abi also agreed to certain mutual releases as further described in the settlement agreement which was filed as an exhibit to a current report on form 8-k filed january 22 , 2018. executive summary we are one of the world 's largest brewers and have a diverse portfolio of owned and partner brands , including global priority brands blue moon , coors banquet , coors light , miller genuine draft , miller lite , and staropramen , regional champion brands carling , molson canadian and other leading country-specific brands , as well as craft and specialty beers such as creemore springs , cobra , doom bar , henry 's hard and leinenkugel 's . with centuries of brewing heritage , we have been crafting high-quality , innovative products with the purpose of delighting the world 's beer drinkers and with the ambition to be the first choice for our consumers and customers . our success depends on our ability to make our products available to meet a wide range of consumer segments and occasions . in 2017 , we continued to focus on building our brand strength and transforming our portfolio toward the above premium , flavored malt beverages , craft and cider segments . further , we continued to focus on generating higher returns on our invested capital , managing our working capital and delivering a greater return on investment for our shareholders . during the first quarter of 2017 , we issued the 2017 notes ( as defined in part ii—item 8 financial statements and supplementary data , note 38 12 , `` debt '' of the notes ) , and within the first nine months of 2017 , we fully repaid our term loans , all of which will generate future interest savings and will contribute to meeting our deleveraging commitments . as part of our deleveraging commitments we also made a discretionary cash contribution of $ 200 million to the u.s. story_separator_special_tag during the year we focused on gaining segment share in premium , accelerating performance in above premium and stabilizing our below premium brand volume . in the premium segment , coors banquet completed its eleventh consecutive year of volume growth . we also grew our share of the premium light segment with both miller lite and coors light . miller lite completed its thirteenth consecutive quarter of increased segment share which elevated the brand to the number three beer in america , according to nielsen . coors light remained the number two beer and completed its eleventh consecutive quarter of increased segment share . in above premium , blue moon belgian white grew during each quarter and continued to acquire incremental tap handles while leinenkugel 's was up low-single digits for the year , carried by summer shandy 's best volume year in the brand 's history . our below premium brand volumes showed a trend improvement relative to recent years led by the keystone family . in our canada segment , we drove positive pricing and mix resulting from lower year-over-year contract brewing volume . however , volume declined as a result of market pressure in quebec and weak industry performance in ontario . we reported income from continuing operations before income taxes of $ 212.8 million in 2017 compared to a loss of $ 125.6 million in 2016 primarily driven by lower special charges due to indefinite-lived intangible asset brand impairment charges incurred in 2016 of $ 495.2 million , positive pricing , cost savings and favorable foreign currency impacts , partially offset by lower volume , cycling lower distribution costs from the prior year , cost inflation , higher brand amortization , and higher compensation expense . in our europe segment , our continued portfolio premiumization and mix management positively impacted our performance as we grew volumes in our above premium brands . in 2017 , we reported income from continuing operations before income taxes of $ 281.0 million , versus income of $ 149.7 million in 2016 , primarily driven by the first quarter 2017 reversal of the indirect tax provision which was recognized in the fourth quarter of 2016 and higher net pension benefits . we also grew our market share as brand volumes increased 10.3 % in europe . our international segment reported a loss from continuing operations before income taxes of $ 19.7 million in 2017 , compared to a loss of $ 39.7 million in the prior year , primarily driven by special charges as a result of total alcohol prohibition in the state of bihar , india which resulted in an aggregate impairment charge of $ 30.8 million recorded in 2016. this improvement was also driven by the addition of the results of the millercoors puerto rico business , which were previously included as part of the u.s. segment , volume growth in several latin american markets , and the addition of the miller global brands . overall improvements in the international segment were partially offset by the transfer of royalty and export volume to the europe segment and the loss of the modelo contract in japan . 40 brand highlights : global priority brand volume increased 2.8 % in 2017 versus 2016 , driven by growth in europe , canada and international , partially offset by declines in the u.s. the overall increase is driven by growth from all global priority brands with the exception of coors light as discussed below . blue moon belgian white global brand volume increased 4.1 % in 2017 versus 2016 , due to strong growth globally . carling brand volume in europe decreased by 0.6 % versus 2016 , driven by a decrease of 2.3 % in the mainstream lager market in u.k. however , carling maintained its share within its segment compared to the prior year . coors global brand volume - coors light global brand volume declined 2.9 % in 2017 versus 2016 , as lower volumes in the u.s. and canada were partially offset by strong performance in europe and international . although volumes in the u.s. were lower than prior year , coors light gained share of the premium light segment for the eleventh consecutive quarter . the declines in canada were the result of ongoing competitive pressures in quebec and ontario . coors banquet global brand volume increased 4.2 % in 2017 versus 2016 , due to continued strong performance in the u.s. and canada . miller global brand volume - miller lite and miller genuine draft global brand volumes increased 1.3 % and 116.1 % in 2017 versus 2016 , respectively , due to the addition of the miller global brands business . additionally , miller lite gained share of the premium light segment in the u.s. for the thirteenth consecutive quarter . molson canadian brand volume in canada decreased 4.7 % during 2017 versus the prior year , primarily driven by challenging economic conditions in ontario and competitive pressures in the west . staropramen global brand volume increased 2.7 % during 2017 versus 2016 , driven by growth outside of the brand 's primary market . worldwide brand volume as a result of the acquisition , we aligned our volume reporting policies resulting in adjustments to our historically reported volumes . specifically , financial volume for all consolidated segments has been recast to include contract brewing and wholesaler non-owned brand volumes ( including factored brands in europe and non-owned brands distributed in the u.s. ) , as the corresponding sales are reported within our gross sales amounts . we have also modified our worldwide brand volume definition to include an adjustment from stws to strs for timing impacts . worldwide brand volume ( or `` brand volume '' when discussed by segment ) reflects owned brands sold to unrelated external customers within our geographic markets , net of returns and allowances , royalty volume , an adjustment from stws to strs and our proportionate share of equity investment brand volume calculated consistently with mcbc owned volume .
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results of operations united states segment we have presented unaudited pro forma financial information of the u.s. segment for 2016 and 2015 to enhance comparability of financial information between periods . results for the period from january 1 , 2016 , through october 10 , 2016 , are actual results of millercoors utilized in preparing mcbc 's share of millercoors earnings when we historically accounted for millercoors under the equity method of accounting , and , therefore , its results of operations were reported as equity income within mcbc 's consolidated statements of operations . results for the period from october 11 , 2016 , through december 31 , 2016 , are actual results recorded when millercoors was fully consolidated within our results of operations . we have aggregated these reported 2016 results and applied pro forma adjustments to arrive at combined u.s. segment pro forma financial information for the full year 2016. we have also included actuals and pro forma financial information for 2015. replace_table_token_19_th n/m = not meaningful ( 1 ) pro forma amounts give effect to the acquisition as if it had occurred at the beginning of fiscal year 2015 and have been updated to reflect that effective january 1 , 2017 , the results of the millercoors puerto rico business , which were previously included as part of the u.s. segment , are now reported within the international segment . see part ii - item 7 management 's discussion and analysis , `` unaudited pro forma financial information , '' for details of pro forma adjustments . ( 2 ) historical financial volumes have been recast to reflect the impacts of aligning policies on reporting financial volumes as a result of the acquisition . see `` worldwide brand volume '' above for further details . ( 3 ) on a reported basis , includes gross inter-segment sales , purchases , and volumes which are eliminated in the consolidated totals .
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please read this discussion in conjunction with the consolidated financial statements and notes included in this form 10-k. cautionary statement regarding forward-looking statements our statements , trend analyses and other information contained in this report and elsewhere ( such as in filings by cno with the sec , press releases , presentations by cno or its management or oral statements ) relative to markets for cno 's products and trends in cno 's operations or financial results , as well as other statements , contain forward-looking statements within the meaning of the federal securities laws and the private securities litigation reform act of 1995. forward-looking statements typically are identified by the use of terms such as `` anticipate , '' `` believe , '' `` plan , '' `` estimate , '' `` expect , '' `` project , '' `` intend , '' `` may , '' `` will , '' `` would , '' `` contemplate , '' `` possible , '' `` attempt , '' `` seek , '' `` should , '' `` could , '' `` goal , '' `` target , '' `` on track , '' `` comfortable with , '' `` optimistic , '' `` guidance , '' `` outlook '' and similar words , although some forward-looking statements are expressed differently . you should consider statements that contain these words carefully because they describe our expectations , plans , strategies and goals and our beliefs concerning future business conditions , our results of operations , financial position , and our business outlook or they state other `` forward-looking '' information based on currently available information . the `` risk factors '' in item 1a provide examples of risks , uncertainties and events that could cause our actual results to differ materially from the expectations expressed in our forward-looking statements . assumptions and other important factors that could cause our actual results to differ materially from those anticipated in our forward-looking statements include , among other things : changes in or sustained low interest rates causing reductions in investment income , the margins of our fixed annuity and life insurance businesses , and sales of , and demand for , our products ; expectations of lower future investment earnings may cause us to accelerate amortization , write down the balance of insurance acquisition costs or establish additional liabilities for insurance products ; general economic , market and political conditions and uncertainties , including the performance and fluctuations of the financial markets which may affect the value of our investments as well as our ability to raise capital or refinance existing indebtedness and the cost of doing so ; the ultimate outcome of lawsuits filed against us and other legal and regulatory proceedings to which we are subject ; our ability to make anticipated changes to certain non-guaranteed elements of our life insurance products ; our ability to obtain adequate and timely rate increases on our health products , including our long-term care business ; the receipt of any required regulatory approvals for dividend and surplus debenture interest payments from our insurance subsidiaries ; mortality , morbidity , the increased cost and usage of health care services , persistency , the adequacy of our previous reserve estimates , changes in the health care market and other factors which may affect the profitability of our insurance products ; changes in our assumptions related to deferred acquisition costs or the present value of future profits ; the recoverability of our deferred tax assets and the effect of potential ownership changes and tax rate changes on their value ; our assumption that the positions we take on our tax return filings will not be successfully challenged by the irs ; changes in accounting principles and the interpretation thereof ; our ability to continue to satisfy the financial ratio and balance requirements and other covenants of our debt agreements ; 47 our ability to achieve anticipated expense reductions and levels of operational efficiencies including improvements in claims adjudication and continued automation and rationalization of operating systems ; performance and valuation of our investments , including the impact of realized losses ( including other-than-temporary impairment charges ) ; our ability to identify products and markets in which we can compete effectively against competitors with greater market share , higher ratings , greater financial resources and stronger brand recognition ; our ability to generate sufficient liquidity to meet our debt service obligations and other cash needs ; changes in capital deployment opportunities ; our ability to maintain effective controls over financial reporting ; our ability to continue to recruit and retain productive agents and distribution partners ; customer response to new products , distribution channels and marketing initiatives ; our ability to maintain the financial strength ratings of cno and our insurance company subsidiaries as well as the impact of our ratings on our business , our ability to access capital , and the cost of capital ; regulatory changes or actions , including : those relating to regulation of the financial affairs of our insurance companies , such as the calculation of risk-based capital and minimum capital requirements , and payment of dividends and surplus debenture interest to us ; regulation of the sale , underwriting and pricing of products ; and health care regulation affecting health insurance products ; changes in the federal income tax laws and regulations which may affect or eliminate the relative tax advantages of some of our products or affect the value of our deferred tax assets ; availability and effectiveness of reinsurance arrangements , as well as the impact of any defaults or failure of reinsurers to perform ; the performance of third party service providers and potential difficulties arising from outsourcing arrangements ; the growth rate of sales , collected premiums , annuity deposits and assets ; interruption in telecommunication , information technology or other operational systems or failure to maintain the security , confidentiality or privacy of sensitive data on such systems ; events of terrorism , cyber attacks , natural disasters or other catastrophic events , including losses from a disease pandemic ; ineffectiveness story_separator_special_tag the worksite division will focus on worksite and group sales for businesses , associations , and other membership groups , interacting with customers at their place of employment . by creating a dedicated worksite division , we will bring a sharper focus to this high-growth business while further capitalizing on the strength of our recent wbd acquisition . we will also centralize certain functional areas previously housed in the three business segments , including marketing , business unit finance , sales training and support , and agent recruiting , among others . we will continue to market our products under our three primary brands : bankers life , washington national and colonial penn . all policy , contract , and certificate terms , conditions , and benefits remain unchanged . we will begin reporting under a different segment structure focused on product types beginning in the first quarter of 2020 based on the way management will make operating decisions and assess performance going forward . prior period results will be reclassified to conform to the new reporting structure . 50 the following summarizes our earnings for the three years ending december 31 , 2019 ( dollars in millions , except per share data ) : replace_table_token_9_th 51 ( a ) management believes that an analysis of net operating income provides a clearer comparison of the operating results of the company from period to period because it excludes : ( i ) loss related to reinsurance transaction , including impact of taxes ; ( ii ) net realized investment gains or losses from sales and impairments , net of related amortization and taxes ; ( iii ) net change in market value of investments recognized in earnings , net of taxes ; ( iv ) fair value changes due to fluctuations in the interest rates used to discount embedded derivative liabilities related to our fixed index annuities , net of related amortization and taxes ; ( v ) fair value changes related to the agent deferred compensation plan , net of taxes ; ( vi ) loss on extinguishment of debt ; ( vii ) changes in the valuation allowance for deferred tax assets and other tax items ; and ( viii ) other non-operating items consisting primarily of earnings attributable to vies . adjusted ebit is presented as net operating income excluding corporate interest expense and income tax expense . the table above reconciles the non-gaap measure to the corresponding gaap measure . in addition , management uses these non-gaap financial measures in its budgeting process , financial analysis of segment performance and in assessing the allocation of resources . we believe these non-gaap financial measures enhance an investor 's understanding of our financial performance and allows them to make more informed judgments about the company as a whole . these measures also highlight operating trends that might not otherwise be apparent . however , adjusted ebit and net operating income are not measurements of financial performance under gaap and should not be considered as alternatives to cash flow from operating activities , as measures of liquidity , or as alternatives to net income as measures of our operating performance or any other measures of performance derived in accordance with gaap . in addition , adjusted ebit and net operating income should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items . adjusted ebit and net operating income have limitations as analytical tools , and you should not consider such measures either in isolation or as substitutes for analyzing our results as reported under gaap . our definitions and calculation of adjusted ebit and net operating income are not necessarily comparable to other similarly titled measures used by other companies due to different methods of calculation . at cno , our mission is to enrich lives by providing financial solutions that help protect the health and retirement needs of middle-income americans , while building enduring value for all our stakeholders . we remain committed to our strategic priorities to grow the franchise ; engage consumers with valuable products , services and experiences ; expand to the right to reach slightly younger , wealthier consumers within the middle market ; and deploy excess capital to its highest and best use . our middle-market focus and diverse distribution are key strengths and opportunities for cno . we have career agents at bankers life , wholly-owned and independent distributors at washington national and a direct-to-consumer business at colonial penn to reach consumers according to their buying preferences . our product portfolio mix is well-aligned to the retirement , healthcare , supplemental health and income accumulation needs of working-age consumers as well as those in and near retirement . as americans live longer into their retirement years , consumers need holistic retirement income planning , which includes our insurance and annuity solutions , and the investment choices offered by our broker-dealer and growing force of registered investment advisors . specifically , we are focused on the following priorities : growth maximize our product portfolio to ensure it meets our customers ' needs for integrated products and advice covering a broad range of their financial goals respond effectively to evolving customer preferences expand and enhance elements of our broker-dealer and registered investment advisor program continue our strategy to reach slightly younger and wealthier consumers within the middle-income market increase the speed-to-market for new products that are a good fit for our customers make strategic , measured changes to our business practices to improve our competitive advantage continue to invest in technology to support agent productivity and our customer experience increase profitability and return on equity maintain our strong capital position and favorable financial metrics work to increase our return on equity maintain pricing discipline 52 effectively manage risk and deploy capital maintain an active enterprise risk management process utilize excess cash flow to maximize long-term returns maintain a competitive dividend payout ratio continue to invest in talent attract , retain and develop the best talent to help us drive sustainable profitable growth recruit , develop and retain our agent force critical
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results of operations the following tables and narratives summarize the operating results of our segments ( dollars in millions ) : replace_table_token_14_th 61 ( a ) these non-gaap measures as presented in the above table and in the following segment financial data and discussions of segment results exclude the loss related to reinsurance transaction , net realized investment gains ( losses ) , fair value changes in embedded derivative liabilities , net of related amortization , fair value changes related to the agent deferred compensation plan , loss on extinguishment of debt , net revenue pursuant to transition services agreement , earnings attributable to vies and before income taxes . these are considered non-gaap financial measures . a non-gaap measure is a numerical measure of a company 's performance , financial position , or cash flows that excludes or includes amounts that are normally excluded or included in the most directly comparable measure calculated and presented in accordance with gaap . these non-gaap financial measures of `` pre-tax operating earnings '' differ from `` income ( loss ) before income taxes '' as presented in our consolidated statement of operations prepared in accordance with gaap due to the exclusion of the loss related to reinsurance transaction , realized investment gains ( losses ) , fair value changes in embedded derivative liabilities , net of related amortization , fair value changes related to the agent deferred compensation plan , loss on extinguishment of debt , net revenue pursuant to transition services agreement and earnings attributable to vies . we measure segment performance excluding these items because we believe that this performance measure is a better indicator of the ongoing businesses and trends in our business . our primary investment focus is on investment income to support our liabilities for insurance products as opposed to the generation of realized investment gains ( losses ) , and a long-term focus is necessary to maintain profitability over the life of the business .
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words such as anticipates , estimates , expects , projects , intends , plans , believes and words and terms of similar substance used in connection with any discussion of future operating or financial performance identify forward-looking statements . where , in any forward-looking statement , we express an expectation or belief as to future results or events , such expectation or belief is expressed in good faith and believed to have a reasonable basis , but there can be no assurance that the expectation or belief will result or be achieved or accomplished . the following include some but not all of the factors that could cause actual results or events to differ materially from those anticipated : the inability of advertisers or affiliates to remit payment to us in a timely manner or at all ; general economic and business conditions ; industry trends , including the timing of , and spending on , feature film , television and television commercial production ; spending on domestic and foreign television advertising and foreign first-run and existing content libraries ; the regulatory and competitive environment of the industries in which we , and the entities in which we have interests , operate ; continued consolidation of broadband distribution and production companies ; uncertainties inherent in the development of new business lines and business strategies ; financial performance of our equity method investees may differ from current estimates used and impact our results of operations ; integration of acquired businesses ; uncertainties associated with product and service development and market acceptance , including the development and provision of programming for new television and telecommunications technologies ; changes in the distribution and viewing of television programming , including the expanded deployment of personal video recorders , video on demand ( vod ) , internet protocol television , mobile personal devices and personal tablets and their impact on television advertising revenue ; rapid technological changes ; future financial performance , including availability , terms , and deployment of capital ; fluctuations in foreign currency exchange rates and political unrest in international markets ; the ability of suppliers and vendors to deliver products , equipment , software and services ; the outcome of any pending or threatened litigation ; availability of qualified personnel ; the possibility of an industry-wide strike or other job action affecting a major entertainment industry union , or the duration of any existing strike or job action ; changes in , or failure or inability to comply with , government regulations , including , without limitation , regulations of the federal communications commission and adverse outcomes from regulatory proceedings ; changes in income taxes applicable to our operations due to regulatory changes or changes in our corporate structure ; changes in the nature of key strategic relationships with partners and equity method investee partners ; competitor responses to our products and services and the products and services of the entities in which we have interests ; threatened terrorist attacks and military action ; reduced access to capital markets or significant increases in costs to borrow ; a failure to secure affiliate agreements or renewal of such agreements on less favorable terms ; and a reduction of advertising revenue associated with unexpected reductions in the number of subscribers . for additional risk factors , refer to item 1a , risk factors . these forward-looking statements and such risks , uncertainties and other factors speak only as of the date of this annual report and we expressly disclaim any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement contained herein , to reflect any change in our expectations with regard thereto , or any other change in events , conditions or circumstances on which any such statement is based . story_separator_special_tag were operated as 50-50 ventures between us and the bbc . we determined that we were the primary beneficiary of the ventures , and therefore , consolidated them prior to the acquisition . with this acquisition , we wholly own and operate most of our international television networks , except for channels in japan and canada , which are operated by equity method investees that have strategically important local investment partners . on february 17 , 2010 , we acquired all interests in an uplink facility in the u.k. , including its employees and operations , for a payment of $ 35 million . the uplink facility has been included in the international networks segment operating results since the date of acquisition . on september 1 , 2010 , we sold antenna audio limited , which was a component of our international networks segment , which is reported as discontinued operations for all periods presented . similar to our u.s. networks segment , the primary sources of revenues for international networks are fees charged to operators who distribute our networks , which primarily include cable and dth satellite service providers , and from advertising sold on our television networks . distribution fees are based on the number of subscribers receiving our programming and are recognized net of launch incentives . international television markets vary in their stages of development . some , notably the u.k. , are more advanced digital multi-channel television markets , while others remain in the analog environment with varying degrees of investment from operators in expanding channel capacity or converting to digital . advertising revenues are dependent upon a number of factors including the stage of development of pay television markets , number of subscribers to our channels , viewership demographics , the popularity of our programming , and our ability to sell commercial time over a group of channels . in developing pay television markets , we expect advertising revenue growth will result from subscriber growth , our localization strategy , and the shift of advertising spending from broadcast to pay television . in relatively mature markets , such as western europe , increased market penetration and distribution are unlikely to drive rapid growth in those markets . story_separator_special_tag the increase in costs of revenues was principally related to higher content expense of $ 155 million , which primarily reflects our continued investment in content , the international expansion of tlc , $ 26 million for content impairments and accelerated content amortization , and $ 11 million for charges associated with the licensing of selected library titles . costs of revenues also increased due to higher distribution costs and sales commissions . selling , general and administrative selling , general and administrative expenses , which principally comprise employee costs , marketing costs , research costs , occupancy , and back office support fees , decreased $ 2 million . excluding the impact of foreign currency fluctuations and the effect of no longer consolidating the discovery health network , selling , general and administrative expenses decreased 2 % , or $ 19 million . the decrease in selling , general and administrative expenses was primarily due to decreases of $ 83 million for stock-based compensation . stock-based compensation expense decreased $ 100 million due to a decline in outstanding unit awards and stock appreciation rights ( sars ) , which are cash-settled awards , partially offset by an increase in expense of $ 17 million for stock options , performance based restricted stock units ( prsus ) and service based restricted stock units ( rsus ) . the decreases in stock-based compensations expense were partially offset by higher employee compensation costs , increases in headcount , increased costs related to the international expansion of tlc , greater presence in ceemea , and increased research costs related to obtaining ratings services for additional networks . depreciation and amortization depreciation and amortization expense , which includes depreciation of fixed assets and amortization of finite-lived intangible assets , decreased $ 11 million . excluding the impact of foreign currency fluctuations , depreciation and amortization expense decreased 16 % , or $ 23 million , due to lower asset balances as a result of property , equipment and intangible assets becoming fully depreciated in prior periods . restructuring and impairment charges in 2011 , we recorded $ 30 million of restructuring and impairment charges , which was comprised of $ 10 million of exit and restructuring charges and a $ 20 million goodwill impairment charge . exit and restructuring charges for 2011 primarily related to various employee terminations and organizational changes . the goodwill impairment charge was due to lower than expected operating performance at our commerce business , which is a component of our u.s. networks segment . during 2010 , we recorded $ 25 million of restructuring and impairment charges , which was comprised of $ 14 million of exit and restructuring charges and an $ 11 million goodwill impairment charge . exit and restructuring charges for 2010 related to the realignment of our reporting regions at our international networks segment , cost reduction initiatives in the u.s. , and the contribution of the discovery health network to own . the charges primarily consisted of severance costs associated with the elimination of certain positions and contract termination expenses . the goodwill impairment charge was due to lower than expected operating performance at our postproduction audio business , which is a component of our education and other segment . gains on dispositions in connection with the contribution of the discovery health network to own on january 1 , 2011 , we recorded a pretax gain of $ 129 million , which represents the fair value of the investment retained less the book basis of contributed assets . interest expense , net interest expense , net , was relatively flat in 2011 compared to the prior year , due to an increase in the amount of outstanding debt offset by a decrease in interest expense related to realized losses on interest rate swaps recorded during the prior year . during 2010 , most of our interest rate swaps either matured or were settled prior to maturity as a result of refinancing most of our debt in june 2010. loss on extinguishment of debt in june 2010 , we refinanced most of our outstanding debt . in connection with the repayment of $ 2.9 billion of existing debt outstanding under our term loans and private senior notes , we recognized a $ 136 million loss on extinguishment of debt , which included $ 114 million for make-whole premiums , $ 12 million of noncash write-offs of unamortized deferred financing costs and $ 10 million for the repayment of the original issue discount from our term loans . 30 other expense , net other expense , net consisted of the following ( in millions ) . replace_table_token_8_th the decrease in realized losses on derivative instruments is a result of reducing the derivatives held by us as part of the issuance of senior notes on june 30 , 2010. the decrease in losses from equity method investments was primarily attributable to changes associated with our investment in own . while we recognized 100 % of own 's losses prior to own 's launch on january 1 , 2011 , we have recognized 50 % of own 's losses subsequent to the launch . during 2012 , the company expects operating losses at own to exceed the balance of equity contributions recorded by own . once the equity balance of own is depleted , discovery expects to continue to fund own and will record 100 % of any future operating losses of own in loss from equity investees , net . future net income generated by own will initially be allocated 100 % to us until previously recognized losses in excess of our ownership percentage have been recouped . provision for income taxes for 2011 and 2010 , our provisions for income taxes were $ 425 million and $ 288 million and the effective tax rates were 27 % and 31 % , respectively .
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business overview we are a global nonfiction media and entertainment company that provides programming across multiple distribution platforms throughout the world . we distribute customized programming , in over 40 languages , in the u.s. and over 200 other countries and territories . our global portfolio of networks includes prominent television brands such as discovery channel , one of the first nonfiction networks and our most widely distributed global brand , tlc and animal planet . we also have a diversified portfolio of websites and other digital media services , develop and sell curriculum-based products and services , and provide postproduction audio services . our objectives are to invest in content for our networks to build viewership , optimize distribution revenue , capture advertising sales , and create or reposition additional branded channels and businesses that can sustain long-term growth and occupy a desired programming niche with strong consumer appeal . our strategy is to optimize the distribution , ratings , and profit potential of each of our branded networks . in addition to growing distribution and advertising revenue for our branded networks , we are extending content distribution across new platforms , including brand-aligned websites , mobile devices , vod , broadband channels and on-line streaming , which provide promotional platforms for our television programming and serve as additional outlets for advertising and distribution revenue . 25 our media content is designed to target key audience demographics and the popularity of our programming creates a reason for advertisers to purchase commercial time on our channels . audience ratings are a key driver in generating advertising revenue and creating demand on the part of cable television operators , dth satellite operators , and other content distributors to deliver our programming to their customers .
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our business is to maximize production and cash flow from our offshore properties in the shallow waters of the gulf of mexico ( “ gom ” ) and onshore texas and wyoming properties and to use that cash flow to explore , develop , exploit , increase production from and acquire crude oil and natural gas properties in west texas , the onshore texas gulf coast and the rocky mountain regions of the united states . since 2016 , we have been focused on the development of our southern delaware basin acreage in pecos county , texas ( “ bullseye ” ) . as of december 31 , 2018 , we were producing from twelve wells over our 15,400 gross ( 6,500 net ) acre position , prospective for the wolfcamp a , wolfcamp b and second bone spring formations . in december 2018 , we purchased an additional 4,200 gross operated ( 1,700 net ) acres and 4,000 gross non-operated ( 200 net ) acres to the northeast of our existing acreage ( “ ne bullseye ” ) for approximately $ 7.5 million . we paid $ 3.2 million cash in december 2018 , with the balance to be paid by the earlier of the commencement of completion operations on the third well on the acreage acquired or october 1 , 2019. we currently expect that bullseye and ne bullseye will be the primary focus of our drilling program for 2019. our production for the year ended december 31 , 2018 was approximately 16.0 bcfe ( or 43.9 mmcfe/d ) and was 62 % offshore and 38 % onshore . our production for the three months ended december 31 , 2018 was approximately 3.7 bcfe ( or 39.8 mmcfe/d ) and was 63 % offshore and 37 % onshore . as of december 31 , 2018 , our proved reserves were approximately 38 % offshore and 62 % onshore and were 60 % proved developed , which were approximately 62 % offshore and 38 % onshore . revenues and profitability our revenues , profitability and future growth depend substantially on our ability to find , develop and acquire natural gas and oil reserves that are economically recoverable , as well as prevailing prices for natural gas and oil . reserve replacement generally , producing properties offshore in the gulf of mexico have high initial production rates , followed by steep declines . likewise , initial production rates on new wells in the onshore resource plays start out at a relatively high rate with a decline curve which results in 60 % to 70 % of the ultimate recovery of present value occurring in the first eighteen months of the well 's life . we must locate and develop , or acquire , new natural gas and oil reserves to replace those being depleted by production . substantial capital expenditures are required to find , develop and or acquire natural gas and oil reserves . a prolonged period of depressed commodity prices could have a significant impact on the value and volumetric quantities of our proved reserve portfolio , assuming no other changes in our development plans . use of estimates the preparation of our financial statements requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements , and the reported amounts of revenues and expenses during the reporting periods . actual results could differ from those estimates . significant estimates with regard to these financial statements include estimates of remaining proved natural gas and oil reserves , the timing and costs of our future drilling , development and abandonment activities , and income taxes . see “ item 1a . risk factors ” for a more detailed discussion of a number of other factors that affect our business , financial condition and results of operations . 52 going concern assessment as discussed below under “ capital resources and liquidity , ” our credit facility ( as defined below ) currently matures on october 1 , 2019. over the past few months , we have been in discussions with our current lenders and other sources of capital regarding a possible refinancing and or replacement of our existing credit facility . there is no assurance , however , that such discussions will result in a refinancing of the credit facility on acceptable terms , if at all , or provide any specific amount of additional liquidity for future capital expenditures . these conditions raise substantial doubt about our ability to continue as a going concern . however , the accompanying financial statements have been prepared assuming we will continue to operate as a going concern , which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business . the accompanying financial statements do not include adjustments that might result from the outcome of the uncertainty , including any adjustments to reflect the possible future effects of the recoverability and classification of recorded asset amounts or amounts and classifications of liabilities that might be necessary should we be unable to continue as a going concern . as discussed below under “ capital resources and liquidity , ” management is evaluating plans to refinance and or replace the credit facility . story_separator_special_tag roman , times , serif ; font-size : 10pt ; '' > exploration expenses we reported approximately $ 1.6 million and $ 1.1 million of exploration expenses for the years ended december 31 , 2018 and 2017 , respectively , which were primarily related to geological and geophysical software , seismic data licensing fees and mapping services . story_separator_special_tag net cash flows used in investing activities were $ 65.5 million for the year ended december 31 , 2017. we expended $ 66.6 million in cash capital costs , primarily related to drilling and or completing wells in the southern delaware basin and acquiring or extending unproved leases , partially offset by $ 1.1 million in cash proceeds from the sale of non-core properties . cash flows provided by financing activities were approximately $ 7.2 million for the year ended december 31 , 2018 compared to $ 30.8 million used in financing activities in 2017. included in 2018 activity was $ 33.0 million in proceeds from our equity offering and approximately $ 25.4 million in net repayments of outstandings under our credit facility ( defined below ) . 2017 activity was primarily related to net borrowings under our credit facility . credit facility our $ 500 million revolving credit facility with royal bank of canada and other lenders ( the “ credit facility ” ) currently matures on october 1 , 2019. the borrowing base under the facility is redetermined each november and may . on november 2 , 2018 , the company entered into the sixth amendment to the credit facility ( the “ sixth amendment ” ) , whereby the current borrowing base was reaffirmed at $ 105 million and was reduced to $ 90 million on january 31 , 2019. the sixth amendment also provided for , among other things : ( i ) reducing the letter of credit issuance commitment capacity from $ 20.0 million to $ 5.0 million ; ( ii ) waiving compliance with the required minimum 1.00 to 1.00 current ratio for the fiscal quarters ended september 30 , 2018 and december 31 , 2018 ; ( iii ) eliminating an exception from the restriction on payment of dividends , stock repurchases or redemptions of equity for repurchases under certain circumstances ; ( iv ) waiving advance notice and a requirement for delivery of a revised reserve report related to the liberty and hardin county , texas asset sale ; and ( v ) required delivery to the administrative agent of internally-prepared monthly consolidated financial statements of the company within 25 days of the end of such month . 58 as of december 31 , 2018 , we had $ 60.0 million outstanding under the credit facility , and $ 1.9 million in outstanding letters of credit . as of december 31 , 2018 , the borrowing availability under the credit facility was $ 43.1 million . the credit facility contains restrictive covenants which , among other things , restricts the declaration or payment of dividends by contango , prevents the repurchase of shares and requires a current ratio of greater than or equal to 1.0 and a leverage ratio of less than or equal to 3.50 , both as defined in the credit facility agreement . our compliance with these covenants is tested each quarter . at december 31 , 2018 , we were in compliance with all of our covenants under the credit facility . however , we were not in compliance with the current ratio covenant as of september 30 , 2018 and obtained a waiver for such non-compliance , if any , for the quarters ending september 30 , 2018 and december 31 , 2018. the credit facility also contains events of default that may accelerate repayment of any borrowings and or termination of the facility . events of default include , but are not limited to , audited financials that include a going concern qualification , payment defaults , breach of certain covenants , bankruptcy , insolvency or change of control events . as of december 31 , 2018 , we were in compliance with all of our covenants under the credit facility agreement . see note 12 to our financial statements - “ indebtedness ” for a more detailed description of terms and provisions of our credit facility . pursuit of refinancing and other liquidity-enhancing alternatives over the past few months , we have been in discussions with our current lenders and other sources of capital regarding a possible refinancing and or replacement of our existing credit facility , which matures on october 1 , 2019. there is no assurance , however , that such discussions will result in a refinancing of the credit facility on acceptable terms , if at all , or provide any specific amount of additional liquidity for future capital expenditures . these conditions raise substantial doubt about our ability to continue as a going concern . however , the accompanying financial statements have been prepared assuming we will continue to operate as a going concern , which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business . the accompanying financial statements do not include adjustments that might result from the outcome of the uncertainty , including any adjustments to reflect the possible future effects of the recoverability and classification of recorded asset amounts or amounts and classifications of liabilities that might be necessary should we be unable to continue as a going concern . the refinancing and or replacement of the credit facility could be made in conjunction with a substantial acquisition or disposition , an issuance of unsecured or non-priority secured debt or preferred or common equity , non-core property monetization , potential monetization of certain midstream and or water handling facilities , etc . or a combination of the foregoing . these discussions have included a possible new , replacement or extended credit facility that would be expected to provide additional borrowing capacity for future capital expenditures . while we review such liquidity-enhancing alternative sources of capital , we intend to continue to minimize our drilling program capital expenditures in the southern delaware basin and pursue a reduction in our borrowings under the credit facility , including through a reduction in cash general and administrative expenses and the possible sale of additional non-core properties .
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results of operations the table below sets forth our average net daily production data in mmcfe/d from our fields for each of the periods indicated : replace_table_token_22_th ( 1 ) includes a decreased production rate of 4.2 mmcfe/d due to downtime related to compressor installation and maintenance during the three months ended june 30 , 2018. our gom production was not materially affected by hurricane michael which passed through the northeastern gom in october 2018 . ( 2 ) includes a decreased production rate of 0.8 mmcfe/d due to temporary pipeline limitations during the three months ended june 30 , 2017 and 0.5 mmcfe/d for the three months ended december 31 , 2018 . ( 3 ) south timbalier 17 ceased production in august 2017 . ( 4 ) includes woodbine production from madison and grimes counties and conventional production in others . decrease in production during three months ended december 31 , 2018 is primarily due to the liberty and hardin county property sale in november 2018 . ( 5 ) includes eagle ford and buda production from karnes , zavala and dimmit counties , and conventional production in others , prior to june 30 , 2018. does not include karnes county in the three months ended june 30 , 2018 and forward due to its sale in march 2018 . ( 6 ) includes onshore wells primarily in east texas and wyoming . 53 year ended december 31 , 2018 compared to year ended december 31 , 2017 the table below sets forth revenue , production data , average sales prices and average production costs associated with our sales of natural gas , oil and natural gas liquids ( `` ngls '' ) from continuing operations for the years ended december 31 , 2018 and 2017. oil , condensate and ngls are compared with natural gas in terms of cubic feet of natural gas equivalents . one barrel of oil , condensate or ngl is the energy equivalent of six mcf of natural gas .
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see “ cautionary note regarding forward-looking statements , ” “ business ” and “ risk factors , ” sections elsewhere in this annual report on form 10-k. in the following discussion and analysis of results of operations and financial condition , certain financial measures may be considered “ non-gaap financial measures ” under securities and exchange commission rules . these rules require supplemental explanation and reconciliation , which is provided in this annual report on form 10-k. enersys ' management uses the non-gaap measures , ebitda and adjusted ebitda , in its computation of compliance with loan covenants . these measures , as used by enersys , adjust net earnings determined in accordance with gaap for interest , taxes , depreciation and amortization , and certain charges or credits as permitted by our credit agreements , that were recorded during the periods presented . enersys ' management uses the non-gaap measures , primary working capital and primary working capital percentage ( see definition in “ overview ” below ) along with capital expenditures , in its evaluation of business segment cash flow and financial position performance . these non-gaap disclosures have limitations as analytical tools , should not be viewed as a substitute for cash flow or operating earnings determined in accordance with gaap , and should not be considered in isolation or as a substitute for analysis of the company 's results as reported under gaap , nor are they necessarily comparable to non-gaap performance measures that may be presented by other companies . this supplemental presentation should not be construed as an inference that the company 's future results will be unaffected by similar adjustments to operating earnings determined in accordance with gaap . overview enersys ( the “ company , ” “ we , ” or “ us ” ) is the world 's largest manufacturer , marketer and distributor of industrial batteries . we also manufacture , market and distribute products such as battery chargers , power equipment , battery accessories , and outdoor equipment enclosure solutions . additionally , we provide related aftermarket and customer-support services for our products . we market our products globally to over 10,000 customers in more than 100 countries through a network of distributors , independent representatives and our internal sales force . we operate and manage our business in three geographic regions of the world—americas , emea and asia , as described below . our business is highly decentralized with manufacturing locations throughout the world . more than half of our manufacturing capacity is located outside the united states , and approximately 60 % of our net sales were generated outside the united states . the company has three reportable business segments based on geographic regions , defined as follows : americas , which includes north and south america , with our segment headquarters in reading , pennsylvania , usa ; emea , which includes europe , the middle east and africa , with our segment headquarters in zurich , switzerland ; and asia , which includes asia , australia and oceania , with our segment headquarters in singapore . we evaluate business segment performance based primarily upon operating earnings exclusive of highlighted items . highlighted items are those that the company deems are not indicative of ongoing operating results , including those charges that the company incurs as a result of restructuring activities and those charges and credits that are not directly related to ongoing business segment performance . all corporate and centrally incurred costs are allocated to the business segments based principally on net sales . we evaluate business segment cash flow and financial position performance based primarily upon capital expenditures and primary working capital levels ( see definition of primary working capital in “ liquidity and capital resources ” below ) . although we monitor the three elements of primary working capital ( receivables , inventory and payables ) , our primary focus is on the total amount due to the significant impact it has on our cash flow . 22 our management structure , financial reporting systems , and associated internal controls and procedures , are all consistent with our three geographic business segments . we report on a march 31 fiscal year-end . our financial results are largely driven by the following factors : global economic conditions and general cyclical patterns of the industries in which our customers operate ; changes in our selling prices and , in periods when our product costs increase , our ability to raise our selling prices to pass such cost increases through to our customers ; the extent to which we are able to efficiently utilize our global manufacturing facilities and optimize our capacity ; the extent to which we can control our fixed and variable costs , including those for our raw materials , manufacturing , distribution and operating activities ; changes in our level of debt and changes in the variable interest rates under our credit facilities ; and the size and number of acquisitions and our ability to achieve their intended benefits . we have two primary product lines : reserve power products and motive power products . net sales classifications by product line are as follows : reserve power products are used for backup power for the continuous operation of critical applications in telecommunications systems , uninterruptible power systems , or “ ups ” applications for computer and computer-controlled systems , and other specialty power applications , including security systems , premium starting , lighting and ignition applications , in switchgear , electrical control systems used in electric utilities , large-scale energy storage , energy pipelines , in commercial aircraft , satellites , military aircraft , submarines , ships and tactical vehicles . reserve power products also include thermally managed cabinets and enclosures for electronic equipment and batteries . motive power products are used to provide power for electric industrial forklifts used in manufacturing , warehousing and other material handling applications as well as mining equipment , diesel locomotive starting and other rail equipment . story_separator_special_tag our fiscal 2014 operating results reflected the vast majority of the estimated $ 6.0 million favorable annualized pre-tax earnings impact of the fiscal 2012 programs . during fiscal 2013 , the company announced further restructurings related to improving the efficiency of its manufacturing operations in emea , primarily consisting of cash expenses for employee severance-related payments and non-cash expenses associated with the write-off of certain fixed assets and inventory . the company estimates that these actions will result in the reduction of approximately 130 employees upon completion . our fiscal 2014 operating results reflect approximately $ 4.0 million of the estimated $ 7.0 million of favorable annualized pre-tax earnings impact of the fiscal 2013 programs . the company expects to be committed to an additional $ 0.7 million of restructuring charges related to these programs during fiscal 2015 , and expects to complete the program during fiscal 2015. during fiscal 2014 , the company announced additional restructuring programs to improve the efficiency of its manufacturing , sales and engineering operations in emea including the restructuring of its manufacturing operations in bulgaria . the restructuring of the bulgaria operations was announced during the third quarter of fiscal 2014 and consists of the transfer of motive power and a portion of reserve power battery manufacturing to the company 's facilities in western europe . the company estimates that the total charges for all actions announced during fiscal 2014 will amount to approximately $ 26.5 million , primarily from non-cash charges related to the write-off of fixed assets and inventory of approximately $ 12.0 million , along with cash charges for employee severance-related payments and other charges of $ 14.5 million . the company estimates that these actions will result in the reduction of approximately 510 employees upon completion . our fiscal 2014 operating results reflect approximately $ 1.0 million of the total estimated $ 20.0 million of favorable annualized pre-tax earnings impact 24 of the fiscal 2014 programs . the company expects to be committed to an additional $ 7.5 million of restructuring charges related to these programs during fiscal 2015 , and expects to complete the program during fiscal 2015. critical accounting policies and estimates our significant accounting policies are described in notes to consolidated financial statements in item 8. in preparing our financial statements , management is required to make estimates and assumptions that , among other things , affect the reported amounts in the consolidated financial statements and accompanying notes . these estimates and assumptions are most significant where they involve levels of subjectivity and judgment necessary to account for highly uncertain matters or matters susceptible to change , and where they can have a material impact on our financial condition and operating performance . we discuss below the more significant estimates and related assumptions used in the preparation of our consolidated financial statements . if actual results were to differ materially from the estimates made , the reported results could be materially affected . revenue recognition we recognize revenue when the earnings process is complete . this occurs when risk and title transfers , collectibility is reasonably assured and pricing is fixed or determinable . shipment terms to our battery product customers are either shipping point or destination and do not differ significantly between our business segments of the world . accordingly , revenue is recognized when risk and title is transferred to the customer . amounts invoiced to customers for shipping and handling are classified as revenue . taxes on revenue producing transactions are not included in net sales . we recognize revenue from the service of reserve power and motive power products when the respective services are performed . management believes that the accounting estimates related to revenue recognition are critical accounting estimates because they require reasonable assurance of collection of revenue proceeds and completion of all performance obligations . also , revenues are recorded net of provisions for sales discounts and returns , which are established at the time of sale . these estimates are based on our past experience . asset impairment determinations we test for the impairment of our goodwill and indefinite-lived trademarks at least annually and whenever events or circumstances occur indicating that a possible impairment has been incurred . we utilize financial projections , certain cash flow measures , as well as our market capitalization in the determination of the estimated fair value of these assets . with respect to our other long-lived assets other than goodwill and indefinite-lived trademarks , we test for impairment when indicators of impairment are present . an asset is considered impaired when the undiscounted estimated net cash flows expected to be generated by the asset are less than its carrying amount . the impairment recognized is the amount by which the carrying amount exceeds the fair value of the impaired asset . in making future cash flow analyses of goodwill and other long-lived assets , we make assumptions relating to the following : the intended use of assets and the expected future cash flows resulting directly from such use ; industry-specific economic conditions ; competitor activities and regulatory initiatives ; and client and customer preferences and patterns . we believe that an accounting estimate relating to asset impairment is a critical accounting estimate because the assumptions underlying future cash flow estimates are subject to change from time to time and the recognition of an impairment could have a material impact on our financial statements . litigation and claims from time to time , the company has been or may be a party to various legal actions and investigations including , among others , employment matters , compliance with government regulations , federal and state employment laws , including wage and hour laws , contractual disputes and other matters , including matters arising in the ordinary course of business . these claims may be brought by , among others , governments , customers , suppliers and employees .
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overview our sales in fiscal 2014 were $ 2.5 billion , an 8.6 % increase from prior year 's sales primarily due to improvement in organic volume and acquisitions of approximately 5 % and 3 % , respectively . gross margin percentage in fiscal 2014 increased by 40 basis points to 25.4 % compared to fiscal 2013 , mainly due to organic volume of 5 % and improved pricing offsetting increased commodity costs . our fourth quarter gross margin was the highest compared to other quarters in the fiscal year . a discussion of specific fiscal 2014 versus fiscal 2013 operating results follows , including an analysis and discussion of the results of our reportable segments . net sales net sales by reportable segment were as follows : replace_table_token_4_th the americas segment 's revenue increased by $ 140.7 million or 12.5 % in fiscal 2014 , as compared to fiscal 2013 , primarily due to an increase in organic volume , acquisitions and pricing of approximately 7 % , 5 % and 1 % , respectively , partially offset by a negative currency translation impact of approximately 1 % . the emea segment 's revenue increased by $ 39.9 million or 4.3 % in fiscal 2014 , as compared to fiscal 2013 primarily due to an increase of 1 % each in organic volume and pricing and a 2 % increase due to currency translation impact . 28 the asia segment 's revenue increased by $ 16.2 million or 7.2 % in fiscal 2014 as compared to fiscal 2013 . higher organic volume and acquisitions contributed approximately 10 % and 2 % , respectively , partially offset by a decrease in pricing and currency translation impact of approximately 2 % and 3 % , respectively .
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81 oconee federal financial corp. notes to the consolidated financial statements ( continued ) as of and for the years ended june 30 , 2013 and 2012 ( amounts in thousands , except share and per share data ) note 6deposits presented below story_separator_special_tag overview oconee federal savings and loan association has historically operated as a traditional thrift institution headquartered in seneca , south carolina . our principal business consists of attracting retail deposits from the general public in our market area and investing those deposits , together with funds generated from operations , in one- to four-family residential mortgage loans and , to a much lesser extent , non-residential mortgage , construction and land and other loans . we also invest in u.s. government and federal agency securities and mortgage-backed securities . our revenues are derived principally from the interest on loans and securities and loan fees and service charges . our primary sources of funds are deposits and principal and interest payments on loans and securities . at june 30 , 2013 , we had total assets of $ 370.1 million , total deposits of $ 292.4 million and total equity of $ 76.2 million . a significant majority of our assets consist of long-term , fixed-rate residential mortgage loans and , to a much lesser extent , investment-quality securities , which we have funded primarily with deposit accounts and the repayment of existing loans . we generally do not rely on outside borrowings . our results of operations depend primarily on our net interest income . net interest income is the difference between the interest income we earn on our interest-earning assets , consisting primarily of loans , investment securities ( including u.s. government and federal agency securities and mortgage-backed securities ) and other interest-earning assets , primarily interest-earning deposits at other financial institutions , and the interest paid on our interest-bearing liabilities , consisting primarily of savings and transaction accounts and certificates of deposit . our results of operations also are affected by our provisions for loan losses , non-interest income and non-interest expense . non-interest income currently consists primarily of service charges on deposit accounts and miscellaneous other income . non-interest expense currently consists primarily of compensation and employee benefits , occupancy and equipment expenses , data processing , professional and supervisory fees , office expense and other operating expenses . our results of operations also may be affected significantly by general and local economic and competitive conditions , changes in market interest rates , governmental policies and actions of regulatory authorities . other than our loans for the construction of one- to four-family residential mortgage loans , we do not offer `` interest only '' mortgage loans on one- to four-family residential properties ( where the borrower pays interest for an initial period , after which the loan converts to a fully amortizing loan ) . we also do not offer loans that provide for negative amortization of principal , such as `` option arm '' loans , where the borrower can pay less than the interest owed on his or her loan , resulting in an increased principal balance during the life of the loan . we do not offer `` subprime loans '' ( loans that generally target borrowers with weakened credit histories typically characterized by payment delinquencies , previous charge-offs , judgments , bankruptcies , or borrowers with questionable repayment capacity as evidenced by low credit scores or high debt-burden ratios ) or alt-a loans ( generally defined as loans having less than full documentation ) . our securities are typically high-quality securities issued or guaranteed by the u.s. government or by freddie mac , fannie mae or ginnie mae , all of which are u.s. government-sponsored enterprises . critical accounting policies we consider accounting policies that require management to exercise significant judgment or discretion or make significant assumptions that have , or could have , a material impact on the carrying 46 value of certain assets or on income , to be critical accounting policies . we consider the following to be our critical accounting policies : allowance for loan losses . our allowance for loan losses is the estimated amount considered necessary to reflect probable losses inherent in the loan portfolio at the balance sheet date . the allowance is established through the provision for loan losses , which is charged against income . in determining the allowance for loan losses , management makes significant estimates and has identified this policy as one of the most critical for us . the methodology for determining the allowance for loan losses is considered a critical accounting policy by management due to the high degree of judgment involved , the subjectivity of the assumptions utilized and the potential for changes in the economic environment that could result in changes to the amount of the recorded allowance for loan losses . as a substantial amount of our loan portfolio is collateralized by real estate , appraisals of the underlying value of property securing loans and discounted cash flow valuations of properties are critical in determining the amount of the allowance required for specific loans . assumptions for appraisals and discounted cash flow valuations are instrumental in determining the value of properties . overly optimistic assumptions or negative changes to assumptions could significantly impact the valuation of a property securing a loan and the related allowance determined . the assumptions supporting such appraisals and discounted cash flow valuations are carefully reviewed by management to determine that the resulting values reasonably reflect amounts realizable on the related loans . management performs a quarterly evaluation of the allowance for loan losses . the analysis of the allowance for loan losses has two components : specific and general allocations . specific allocations are made for loans that are determined to be impaired . impairment loss is measured by determining the present value of expected future cash flows or , for collateral-dependent loans , the fair value of the collateral adjusted for market conditions and selling expenses . story_separator_special_tag our non-performing assets and troubled debt restructurings totaled $ 3.0 million , or 0.82 % of total assets at june 30 , 2013. our total nonperforming loans to total loans ratio was 0.89 % at june 30 , 2013. total loan delinquencies , 30 days or more past due , as of june 30 , 2013 , were $ 10.1 million , or 4.5 % of total loans . comparison of financial condition at june 30 , 2013 and june 30 , 2012 our total assets decreased $ 7.7 million , or 2.0 % , to $ 370.1 million at june 30 , 2013 from $ 377.8 million at june 30 , 2012. the decrease in total assets of $ 7.7 million was largely due to the 48 repurchase of $ 7.8 million of shares of common stock during the year ended june 30 , 2013 coupled with a decrease in our total deposits of $ 946 thousand . these decreases and the purchase of $ 8.0 million of bank owned life insurance during the year resulted in a decrease of total cash and cash equivalents of $ 9.7 million at june 30 , 2013. total net loans decreased $ 28.7 million , or 11.5 % , to $ 221.2 million at june 30 , 2013 , offset partially by an increase in securities available-for-sale of $ 23.4 million , or 36.3 % , to $ 88.0 million at june 30 , 2013 from $ 64.5 million at june 30 , 2012 as we continued to redeploy funds from loan repayments to purchase high-quality investments primarily bonds issued by government sponsored enterprises . loans continued to decrease due to lower demand for our loan products and increased competition from other lenders in our market area offering lower fixed rate mortgage products during this period of very low mortgage rates . deposits decreased modestly by $ 946 thousand , or 0.32 % , to $ 292.4 million at june 30 , 2013 from $ 293.4 million at june 30 , 2012. the decrease in deposits reflected a decrease in certificates of deposit of $ 7.8 million , or 3.5 % , offset partially by an increase in now , money market and regular savings accounts of $ 6.9 million , or 10.2 % . the declining interest rate environment has slowed overall deposit growth , particularly in certificates of deposit , which historically have yielded higher rates . we generally do not accept brokered deposits , and no brokered deposits were accepted during the 12 months ended june 30 , 2013. we had no advances from the federal home loan bank of atlanta as of june 30 , 2013 and 2012. we have credit available under a loan agreement with the federal home loan bank of atlanta in the amount of 11 % of total assets , or approximately $ 41.1 million at june 30 , 2013. total equity decreased $ 6.8 million , or 8.2 % , to $ 76.2 million at june 30 , 2013 , compared with $ 83.0 million at june 30 , 2012. the decrease resulted from the repurchase of $ 7.8 million of shares of our common stock during the year ended june 30 , 2013 , payment of dividends of $ 2.4 million , and a change in accumulated other comprehensive income of $ 1.2 million , which was offset partially by net income of $ 4.0 million . comparison of operating results for the years ended june 30 , 2013 and june 30 , 2012 story_separator_special_tag thousand , or 2.3 % , to $ 5.5 million for the year ended june 30 , 2013 from $ 5.6 million for the year ended june 30 , 2012. the decrease in noninterest expenses was primarily related to a decrease in the provision for real estate owned and related expenses of $ 452 thousand , or 76.1 % , to $ 142 thousand for the year ended june 30 , 2013 from $ 594 thousand and to a lesser extent by decreases in data processing expenses of $ 45 thousand and fdic deposit insurance expense of $ 46 thousand . these decreases more than offset the increase in salaries and employee benefits of $ 469 thousand . approximately $ 217 thousand of the increase in salaries and employee benefits is related to the increase in esop expense and expense associated with our equity incentive plans . esop expense increased $ 47 thousand , or 21.7 % , to $ 264 thousand for the year ended june 30 , 2013 from $ 217 thousand for the year ended june 30 , 2012 , which was primarily a result of increases in our stock prices during the year ended 2013 used in determining compensation expense for esop shares earned . stock based compensation expense for the year ended june 30 , 2013 was $ 227 thousand compared with $ 57 thousand for the year ended june 30 , 2012. the reason was due to the fact that we did not recognize a full year 's expense related to our equity incentive plans during the year ended june 30 , 2012 because the initial grant of options and awards under the equity incentive plans occurred in the third quarter of that fiscal year and expenses associated with options and awards are recognized ratably over the vesting period . the remaining portion of the increase is related to the addition of a new banking officer to serve as the company 's controller and pay increases of approximately 5 % for each employee . income tax expense . the provision for income taxes was $ 2.4 million for year ended june 30 , 2013 compared with $ 2.6 million at june 30 , 2012. our effective tax rates for the years ended june 30 , 2013 and 2012 were and , respectively . the decrease in our effective tax rates is primarily related to the increase income from bank owned life insurance , which is not taxable for income tax purposes .
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general . net income remained relatively the same at $ 4.0 million for the years ended june 30 , 2013 and 2012. net interest income before the provision for loan losses decreased $ 249 thousand , or , 2.1 % , to $ 11.8 million for the year ended june 30 , 2013 from $ 12.1 million for the year ended june 30 , 2012. noninterest income remained relatively unchanged at $ 410 thousand for the year ended june 30 , 2013 as compared with $ 412 thousand for the year ended june 30 , 2012. total noninterest expenses decreased $ 128 thousand , or 2.3 % , to $ 5.5 million for the year ended june 30 , 2013 from $ 5.6 million at june 30 , 2012. interest income . interest income decreased $ 1.3 million , or 8.4 % , to $ 14.0 million for the year ended june 30 , 2013 from $ 15.3 million for the year ended june 30 , 2012. the decrease was the result of both a decrease in the average yield on earnings assets to 3.85 % for the year ended june 30 , 2013 from 4.18 % for the year ended june 30 , 2012 , and a decrease in the average balances of interest earning assets to $ 363.9 million from $ 364.9 million for the same periods . the decline in the average balances of interest earning assets is primarily a reflection of the decline in average loans due to the decline in demand in our market area . interest income on loans decreased $ 1.5 million , or 10.6 % , to $ 12.7 million for the year ended june 30 , 2013 from $ 14.3 million for the year ended june 30 , 2012 , reflecting shrinking loan demand . the average balance of loans decreased $ 23.7 million , or 9.1 % to $ 235.6 million for the year ended june 30 , 2013 from $ 259.2 million for the year ended june 30 , 2012.
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in some cases , you can identify forward-looking statements by terminology such as “ may , ” “ might , ” “ will , ” “ should , ” “ expect , ” “ plan , ” “ anticipate , ” “ project , ” “ believe , ” “ estimate , ” “ predict , ” “ potential , ” “ intend ” or “ continue , ” the negative of terms like these or other comparable terminology , and other words or terms of similar meaning in connection with any discussion of future operating or financial performance . these statements are only predictions . all forward-looking statements included in this annual report on form 10-k are based on information available to us on the date hereof , and we assume no obligation to update any such forward-looking statements . any or all of our forward-looking statements in this document may turn out to be wrong . 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 in “ part i item 1a—risk factors. ” we caution investors that our business and financial performance are subject to substantial risks and uncertainties . you should read the following discussion and analysis in conjunction with the selected financial data and our consolidated financial statements and notes thereto included elsewhere in this annual report on form 10-k. overview seagen is a biotechnology company that develops and commercializes targeted therapies to treat cancer . we are commercializing adcetris for the treatment of certain cd30-expressing lymphomas , padcev for the treatment of certain metastatic urothelial cancers , and tukysa for treatment of certain metastatic her2-positive breast cancers . we are also advancing a pipeline of novel therapies for solid tumors and blood-related cancers designed to address unmet medical needs and improve treatment outcomes for patients . many of our programs , including adcetris and padcev , are based on our antibody-drug conjugate , or adc , technology that utilizes the targeting ability of monoclonal antibodies to deliver cell-killing agents directly to cancer cells . in october 2020 , we changed our corporate name from seattle genetics , inc. to seagen inc. , reflecting the global expansion of our operations . 2020 highlights and recent developments corporate reported net product sales of $ 1 billion for full year 2020. entered into oncology collaborations with merck under which we received $ 725 million in upfront payments and $ 1 billion through an equity investment by merck . continued to make strategic investments in our pipeline , commercial launches , infrastructure , and headcount to support our future growth . adcetris reported the five-year update of the phase 3 echelon-1 clinical trial which showed treatment with adcetris in combination with avd resulted in superior long-term outcomes when compared to abvd , which includes bleomycin , in frontline advanced hodgkin lymphoma . expanded clinical program including initiation of phase 3 trial in relapsed and refractory diffuse large b-cell lymphoma and expanded a trial in frontline hodgkin lymphoma to evaluate stage i and ii patients . expanded indication approved in the european union and first approval in china for our partner takeda . padcev commercial launch with astellas , for patients with previously treated metastatic urothelial cancer , following fda approval in december 2019 . 86 announced positive topline results from ev-301 phase 3 trial showing that padcev significantly improved overall survival in previously treated metastatic urothelial cancer patients . data to support global marketing applications . announced positive topline results from second cohort of ev-201 pivotal trial . data to support additional indication in the u.s. initiated ev-302 phase 3 trial in first-line metastatic urothelial cancer in combination with pembrolizumab . received breakthrough therapy designation in first-line advanced urothelial cancer for padcev in combination with pembrolizumab . tukysa commercial launch following fda approval for patients with previously treated metastatic her2-positive breast cancer , including patients with brain metastases in april 2020. received ex-u.s. regulatory approvals in australia , canada , singapore and switzerland under the project orbis initiative of the fda oncology center of excellence . received marketing authorization in the european union in february 2021. entered into exclusive license and co-development agreement with merck to commercialize tukysa in asia , the middle east and latin america and other regions outside of the u.s. , canada and europe . pipeline announced positive results from tisotumab vedotin pivotal trial in patients with previously treated recurrent or metastatic cervical cancer . data used to support approval application submitted in the u.s. in february 2021. entered into a global co-development and co-commercialization agreement with merck for our drug candidate ladiratuzumab vedotin . initiated phase 1 trials of two novel drug candidates , sgn-b6a and sea-tgt . also refer to part i item 1 “ business ” for more information about our products , pipeline , technologies , research programs , and future plans for our clinical programs , including recent key business achievements . outlook we recognize revenue from adcetris product sales in the u.s. and canada , and padcev and tukysa products sales in th e u.s. while we anticipate that sales of adcetris will increase in 2021 as compared to 2020 , we have experienced and expect continued impacts associated with the covid-19 pandemic , which appear to be reducing the rate of hodgkin lymphoma diagnoses , and an increase in gross-to-net deductions that we believe is due to a shift in the locations where adcetris is administered , which has increased the proportion of adcetris sales through the federal 340b drug discount program . story_separator_special_tag our ongoing research , development , manufacturing and commercial activities will require substantial amounts of capital and may not ultimately be successful . we expect that we will incur substantial expenses , and we will require significant financial resources and additional personnel in order to advance the development of , to pursue , obtain and maintain regulatory approvals for , and to commercialize our products and product candidates , and expand our pipeline . in addition , we may pursue new operations or continue the expansion of our existing operations , including with respect to our plans to build a commercial infrastructure in europe and to otherwise continue to expand our operations internationally . as a result , we may need to raise additional capital , and our operating expenses may fluctuate as a result of such activities . we may also incur milestone payment obligations to certain of our licensors as our product candidates progress through clinical trials towards potential commercialization . 88 we are closely evaluating the impacts of the evolving effects of the covid-19 pandemic on our ability and the ability of our collaborators to effectively market , sell and distribute our products and to develop our products and product candidates . while our field-based personnel are engaging in limited in-person interactions , they are primarily using electronic communication , such as emails , phone calls and video conferences . many healthcare professionals that we normally call on are working a greater proportion of their working schedule from home and are facing additional demands on their time during the ongoing covid-19 pandemic . we are experiencing increased competition for virtual appointments with healthcare professionals and a significant reduction in the number of interactions our sales personnel are having with physicians . we expect the different quality of electronic interactions as compared with in-person interactions , as well as the reduced quantity of interactions during the covid-19 pandemic , to reduce the effectiveness of our sales personnel , as well as those of our collaborators , which could negatively affect our product sales and those of our collaborators , as well as physician awareness of our products . with respect to padcev and tukysa specifically , we have not launched a product using primarily virtual communication channels in the past and can not predict the effects that this approach will ultimately have on demand for padcev or tukysa . however , we believe that the need to conduct these activities virtually is negatively impacting our ability to connect with key customers , including those familiar with competitive products , and our ability to conduct payor engagements . we face a number of challenges that will limit our ability to fully resume in-person interactions for the foreseeable future , including increasing covid-19 infection rates in many states , the potential for more severe outbreaks , the need to navigate varying restrictions for entering healthcare facilities and employee childcare obligations during virtual school sessions . in addition , the effects of the covid-19 pandemic continue to evolve rapidly , and we may subsequently be forced to , or subsequently determine that we should , resume a more restrictive remote work model , whether as a result of further spikes or surges in covid-19 infection or hospitalization rates or otherwise . moreover , the long-term effects of the covid-19 pandemic are also unknown and it is possible that following the pandemic , healthcare institutions could alter their policies with respect to in person visits by pharmaceutical company representatives . covid-19 related restrictions could also present product distribution challenges as we utilize recently initiated distribution channels for tukysa . we also expect that the conversion of medical conferences to a virtual format may reduce our ability to effectively disseminate scientific information about our products , which may result in decreased physician awareness of our products , their approved indications and their efficacy and safety . the evolving effects of the covid-19 pandemic may also negatively affect our product sales due to challenges in patient access to healthcare settings , significant increases in unemployment and the resulting loss of individual health insurance coverage , and inability to access government healthcare programs due to backlogs , some or all of which appear to be affecting diagnosis rates and may affect side effect management , course of treatment and increase enrollment in our patient support programs . with respect to adcetris specifically , impacts associated with the covid-19 pandemic appear to be reducing the rate of hodgkin lymphoma diagnoses . in addition , we have experienced lower than expected levels of our research and development spending , in part as a result of the covid-19 pandemic . this includes some delays in clinical trial enrollment as well as reduced travel due to the conversion of medical and scientific meetings to virtual format . while we do not at this time anticipate the need to revise our publicly reported projected clinical milestone dates as a result of the effects of the covid-19 pandemic , there may be some impacts to our clinical study timelines , which , depending upon the duration and severity of the evolving effects of the covid-19 pandemic , could ultimately delay data availability . in addition , many of our non-essential on-site research activities are currently significantly reduced as a result of the covid-19 pandemic , which may negatively impact the number of investigational new drug application , or ind , candidates entering our clinical pipeline in future years .
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financial summary for 2020 , our total revenues increased to $ 2.2 billion , compared to $ 916.7 million in 2019. this growth was driven by $ 975.2 million collaboration and lice nse agreement revenues recognized related to the agreements we entered into with merck during 2020 , the u.s. launches of padcev beg inning in december 2019 and tukysa in april 2020 , respectively , as well as higher adcetris net product sales . for 2020 , total costs and expenses increased to $ 1.6 billion , compared to $ 1.1 billion in 2019. this primarily reflected higher cost of sales , higher selling , general and administrative expenses , and higher research and development expenses . as of december 31 , 2020 , we had $ 2.7 billion in cash , cash equivalents and investments and $ 3.5 billion in total stockholders ' equity . comparability we adopted asc topic 842—leases on january 1 , 2019 , resulting in a change to our accounting policy for leases . we recorded a liability to make lease payments and a right-of-use asset representing our right to use the underlying assets for the applicable lease terms in our consolidated balance sheet at january 1 , 2019. we used the modified retrospective method transition option . accordingly , 2018 comparative information has not been adjusted and continues to be reported under previous accounting standards . for additional information , refer to note 3 of the notes to consolidated financial statements included in part ii item 8 of this annual report on form 10-k. in 2018 , we acquired cascadian for $ 10.00 per share in cash , or approximately $ 614.1 million . cascadian was included in our results of operations as of the acquisition date . accordingly , the results discussed below were impacted by the timing of this acquisition .
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the following summarizes activity under polaris ' credit arrangements ( story_separator_special_tag the following discussion pertains to the results of operations and financial position of the company for each of the three years in the period ended december 31 , 2014 , and should be read in conjunction with the consolidated financial statements and the notes thereto included elsewhere in this report . overview in 2014 , we had record sales and net income , with our fifth straight year of double digit growth in both sales and net income . this growth is fueled by award-winning innovative new products leading to continued market share leadership in side-by-side vehicles and atvs . in 2014 , we also experienced growth in our snowmobiles , motorcycles , international and small vehicles businesses . the overall north american powersports industry continued its positive trend with mid-single digit percentage growth in 2014. our north america retail sales to consumers increased 12 percent in 2014 , helping to drive total full year company sales up 19 percent to a record $ 4.48 billion . despite the global economy remaining difficult , our international sales increased 16 percent due to continued market share growth in all product categories and strong results by our recent european acquisitions . full year earnings reflect the success of our ongoing product innovation , as 19 percent sales growth , partially offset by a decrease in the gross profit percentage of 23 basis points , drove net income from continuing operations up 19 percent to $ 454.0 million , with diluted earnings per share from continuing operations increasing 23 percent to a record $ 6.65 per share . these increases came while we continued to invest in numerous longer-term diversification and growth opportunities . in 2014 , we began to receive benefits from prior investments while continuing to invest in both product development and strategic initiatives . we introduced over twenty new orv models in 2014 , including the all-new rzr ® xp 900 trail and rzr xp4 900 trail , several new value models , and two models in a newly defined category of single-seat , ride-in atvs , the polaris ace . we also introduced nine new snowmobiles in the all-new axys chassis platform . in our motorcycles line , we added two new models to the iconic indian motorcycle ® brand—the 2015 roadmaster ® , a luxury touring motorcycle , and the scout , polaris ' first mid-sized motorcycle . additionally , we introduced the revolutionary all-new three-wheel motorcycle , slingshot ® , our first roadster motorcycle . we also acquired kolpin and pro armor , adding two industry leading accessory companies to polaris ' pg & a activities . operationally , we expanded production capacity and capabilities at all manufacturing facilities in the u.s. and mexico , and completed the construction of the manufacturing plant in opole , poland , our first manufacturing operation outside of north america , where production began in late 2014. in january 2015 , we announced plans to build a new production facility in huntsville , alabama to provide additional capacity and flexibility . the 600,000 square-foot facility will focus on off-road vehicle production . we will break ground on the facility in the first quarter of 2015 with completion expected in the first half of 2016. on january 29 , 2015 , we announced that our board of directors approved a 10 percent increase in the regular quarterly cash dividend to $ 0.53 per share for the first quarter of 2015 , representing the 20th consecutive year of increased dividends to shareholders . this increase reflects the continued momentum and potential of our business and the strength of our balance sheet . 24 story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > 2013 . 26 pg & a sales increased 33 percent to $ 611.3 million for 2013 compared to 2012. the sales increase in 2013 was driven by double digit percent increases in all product lines and categories , which was primarily driven by the addition of over 300 new model year 2014 accessories , including additions to the family of lock & ride attachments that add comfort , style and utility to orvs and motorcycles . sales of pg & a to customers outside of north america increased 26 percent during 2013 compared to 2012. pg & a sales also increased over the prior year periods due to the inclusion of klim in our consolidated financial statements since it was acquired in december 2012 , and aixam related pg & a since it was acquired in april 2013. sales by geographic region were as follows : replace_table_token_7_th significant regional trends were as follows : united states : sales in the united states for 2014 increased 23 percent compared to 2013 , primarily resulting from higher shipments in all product lines and related pg & a , improved pricing and more sales of higher priced side-by-side vehicles . the united states represented 75 percent , 72 percent and 72 percent of total company sales in 2014 , 2013 and 2012 , respectively . sales in the united states for 2013 increased 18 percent compared to 2012 , primarily resulting from higher shipments in all product lines and related pg & a , improved pricing and more sales of higher priced side-by-side vehicles . canada : canadian sales decreased two percent in 2014 compared to 2013 . negative currency rate movements was the primary contributor for the decrease in 2014 , which had an unfavorable seven percent impact on sales for 2014 compared to 2013 , partially offset by sales of higher priced side-by-side vehicles and motorcycles . sales in canada represented 10 percent , 12 percent and 14 percent of total company sales in 2014 , 2013 , and 2012 , respectively . story_separator_special_tag income from financial services increased 35 percent to $ 45.9 million in 2013 compared to $ 33.9 million in 2012. the increase in 2013 is primarily due to a nine percent increase in retail credit contract volume and increased profitability generated from the retail credit portfolios with sheffield , ge and capital one , and higher income from dealer inventory financing through polaris acceptance . 29 remainder of the income statement : replace_table_token_12_th interest expense . the increase in 2014 compared to 2013 is primarily due to increased debt levels through borrowings on our existing revolving credit facility and the additional borrowing of $ 100.0 million through our amended master note purchase agreement in december 2013. the increase in 2013 compared to 2012 , is primarily related to the increased debt levels through borrowings in the 2013 fourth quarter on our existing revolving credit facility and additional borrowings of $ 100.0 million through our amended master note purchases agreement in november 2013 used to partially fund the $ 497.5 million buyback of outstanding polaris shares held by fuji . equity in loss of other affiliates . increased losses at eicher-polaris private limited ( eppl ) were the result of an increase in the joint venture 's pre-production activities . we record our proportionate 50 percent share of eppl gains and losses . other expense ( income ) , net . the change primarily relates to foreign currency exchange rate movements and the corresponding effects on foreign currency transactions and balance sheet positions related to our foreign subsidiaries from period to period . provision for income taxes . the higher income tax rate for 2014 was primarily due to lower income generated from our international operations which generally have lower income tax rates . for 2014 and 2013 , the income tax provision was positively impacted by the united states congress extending the research and development income tax credit . however , in 2013 the research and development credit extension was retroactive to 2012 , resulting in two years of benefit in 2013. in addition , we also had a favorable impact in 2013 from the release of certain income tax reserves due to favorable conclusions of federal income tax audits . the favorable impact from these items totaled $ 8.2 million and was recorded as a reduction to income tax expense in the first quarter of 2013 . 30 net income . the 2013 loss from discontinued operations is a result of a 2013 unfavorable jury verdict in a previously disclosed lawsuit involving a collision between a 2001 polaris virage personal watercraft and a boat . the jury awarded approximately $ 21.0 million in damages of which our liability was $ 10.0 million . we reported a loss from discontinued operations , net of tax , of $ 3.8 million in 2013 for an additional provision for our portion of the jury award and legal fees . the liability was fully paid by the end of 2013. there was no income or loss from discontinued operations in 2014 or 2012. in september 2004 , we announced our decision to cease manufacturing marine products . since then , any material financial results of that division have been recorded in discontinued operations . no additional charges are expected from this lawsuit . weighted average shares outstanding . the decrease in the weighted average diluted shares outstanding is primarily due to the company 's november 2013 purchase of 3.96 million shares of polaris stock previously held by fhi heavy industries ltd ( `` fuji '' ) under a share repurchase agreement with fuji . this buyback more than offset the issuance of shares under employee compensation plans and resulted in a decrease to the 2014 , and to a lesser extent due to the timing of the transaction , the 2013 weighted average diluted shares outstanding . critical accounting policies the significant accounting policies that management believes are the most critical to aid in fully understanding and evaluating our reported financial results include the following : revenue recognition , sales promotions and incentives , dealer holdback programs , share-based employee compensation , product warranties and product liability . revenue recognition . revenues are recognized at the time of shipment to the dealer , distributor or other customers . historically , product returns , whether in the normal course of business or resulting from repurchases made under the floorplan financing program , have not been material . however , we have agreed to repurchase products repossessed by the finance companies up to certain limits . our financial exposure is limited to the difference between the amount paid to the finance companies and the amount received on the resale of the repossessed product . no material losses have been incurred under these agreements . we have not historically recorded any significant sales return allowances because we have not been required to repurchase a significant number of units . however , an adverse change in retail sales could cause this situation to change . polaris sponsors certain sales incentive programs and accrues liabilities for estimated sales promotion expenses and estimated holdback amounts that are recognized as reductions to sales when products are sold to the dealer or distributor customer . sales promotions and incentives . we provide for estimated sales promotion and incentive expenses , which are recognized as a reduction to sales at the time of sale to the dealer or distributor . examples of sales promotion and incentive programs include dealer and consumer rebates , volume incentives , retail financing programs and sales associate incentives . sales promotion and incentive expenses are estimated based on current programs and historical rates for each product line . we record these amounts as a liability in the consolidated balance sheet until they are ultimately paid . at december 31 , 2014 and 2013 , accrued sales promotions and incentives were $ 138.6 million and $ 123.1 million , respectively , resulting primarily from an increase in the volume of units sold and an increase in the level of dealer inventories in 2014 .
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results of operations sales : sales were $ 4,479.6 million in 2014 , a 19 percent increase from $ 3,777.1 million in 2013 . the following table is an analysis of the percentage change in total company sales for 2014 compared to 2013 and 2013 compared to 2012 : replace_table_token_5_th the volume increases in 2014 and 2013 are primarily the result of shipping more orvs , snowmobiles , motorcycles , small vehicles and related pg & a items to dealers given increased consumer retail demand for our products worldwide . product mix and price contributed six percent and seven percent to the growth for 2014 and 2013 , respectively , primarily due to the positive benefit of a greater number of higher priced orvs sold to dealers relative to our other businesses . the impact from currency rates on our canadian and other foreign subsidiaries ' sales , when translated to u.s. dollars , decreased sales by one percent in both 2014 and 2013 compared to the respective prior years . our components of sales were as follows : replace_table_token_6_th orv sales of $ 2,909.0 million in 2014 , which include core atv , ranger and rzr side-by-side vehicles , and the company 's new ace category , increased 15 percent from 2013 . this increase reflects continued market share gains for both atvs and side-by-side vehicles driven by strong consumer enthusiasm for our orv offerings , including an expanded line-up of innovative new models and the introduction of the new ace category . polaris ' north american orv unit retail sales to consumers increased low-double digits percent for 2014 compared to 2013 , with atv unit retail sales growing mid-single digits percent and side-by-side vehicle unit retail sales increasing double-digits percent over the prior year .
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in this annual report , words such as “ may , ” “ will , ” “ expect , ” “ anticipate , ” “ estimate , ” “ intend , ” and similar expressions ( as well as other words or expressions referencing future events , conditions or circumstances ) are intended to identify forward-looking statements , as described elsewhere herein . as a result of many factors , including those factors set forth in the “ risk factors ” section of this annual report , our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . overview we are a biopharmaceutical company dedicated to the discovery , development and delivery of life-changing treatments that provide hope to underserved patient communities . founded in 2011 , our goal is to transform the treatment and care of sickle cell disease , or scd , a lifelong , devastating inherited blood disorder that is marked by red blood cell , or rbc , destruction and occluded blood flow and hypoxia , which leads to anemia , stroke , multi-organ failure , severe pain crises , and shortened patient life span . our mission is driven by the historical lack of understanding , investment and attention given to scd . although the fundamental cause of scd has been understood for decades , therapeutic innovation and access to care has significantly lagged compared to many other rare diseases . for example , there are approximately three times more individuals in the u.s. living with scd than cystic fibrosis , or cf . however , since the enactment of the orphan drug act passed in 1983 , only four drugs have been approved for scd compared to 15 drugs approved for cf . as a result of the lack of treatment options , patients with scd suffer serious morbidity and premature mortality . in november 2019 , the u.s. food and drug administration , or fda , granted accelerated approval for our first medicine , oxbryta ® ( voxelotor ) tablets for the treatment of scd in adults and children 12 years of age and older . oxbryta , an oral therapy taken once daily , is the first fda-approved treatment that directly inhibits sickle hemoglobin , or hbs , polymerization , the root cause of scd . by early december 2019 , we began to make oxbryta available to patients through our specialty pharmacy partner network . in addition , we established gbt source solutions ® , a comprehensive program for patients who are prescribed oxbryta that provides a wide range of practical , educational and financial support customized to each patient 's needs . in addition , we have focused on securing reimbursement and expanding patient access . by the end of september 2020 , one quarter ahead of our goal , we secured broad oxbryta reimbursement coverage for 90 % of lives covered by payers either through published policies or verified patient adjudication . we also secured fee-for-service medicaid coverage in 44 states , including all 17 priority states where most scd patients live . we have a number of ongoing clinical trials of oxbryta . the phase 2a hope-kids 1 study , an open-label , single- and multiple-dose trial , is evaluating the safety , tolerability , pharmacokinetics and exploratory treatment effect of oxbryta in pediatric patients aged 4 to 17 years with scd . the phase 3 hope-kids 2 study , a post-approval confirmatory study we initiated in december 2019 as a condition of the accelerated approval of oxbryta in the united states , uses transcranial doppler , or tcd , flow velocity to seek to demonstrate a decrease in stroke risk in children 2 to 15 years of age . the active phase 4 study , a pilot , open-label , single-arm study , aims to evaluate the effect of oxbryta on exercise capacity , as measured by cardiopulmonary exercise testing ( cpet ) in patients 12 years of age and older with scd . we also expect to conduct additional clinical studies of oxbryta , including to seek to expand the potential approved product label into younger pediatric populations as well as to study further the efficacy and safety profile of oxbryta for scd patients . in january 2021 , the european medicines agency , or ema , accepted for review our marketing authorization application , or maa , seeking full marketing authorization of oxbryta to treat hemolytic anemia 95 ( which is low hemoglobin due to red blood cell destruction ) in scd patients ages 12 years and older , and the maa is undergoing standard review by the ema . in addition , we plan to submit by mid-2021 a supplemental new drug application , or snda , to expand the current oxbryta label to include treatment of scd in children ages 4 to 11 years , under the fda 's accelerated approval pathway . thereafter , we also plan to submit a new drug application , or nda , for a new age-appropriate formulation for this patient population . to provide early access prior to potentially receiving additional marketing approval , we have established an expanded access protocol for eligible scd patients in the united states and an early access program for eligible scd patients for outside the united states . in addition , we have entered into an exclusive agreement with biopharma-middle east and africa , or biopharma-mea , to distribute oxbryta in the six countries that make up the gcc region ( bahrain , kuwait , oman , qatar , saudi arabia , and the united arab emirates ) , where the u.s. approval of oxbryta can be referenced to allow for access to the medicine while health authorities conduct their reviews . story_separator_special_tag we drew down the remaining $ 74.8 million net of debt issuance costs in november 2020. our net losses were $ 247.6 million for the year ended december 31 , 2020 , $ 266.8 million for the year ended december 31 , 2019 and $ 174.2 million for the year ended december 31 , 2018. as of december 31 , 2020 , we had an accumulated deficit of $ 986.5 million . substantially all of our net losses have resulted from costs incurred in connection with our research and development programs and from selling , general and administrative costs associated with our operations . we had $ 494.8 million in cash and cash equivalents and $ 66.1 million in marketable securities as of december 31 , 2020. critical accounting polices and estimates our management 's discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements , which have been prepared in accordance with united states generally accepted accounting principles , or 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 and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements , as well as the reported expenses incurred during the reporting periods . our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . we believe that the accounting policies discussed below are critical to understanding our historical and future performance , as these policies relate to the more significant areas involving management 's judgments and estimates . revenue recognition pursuant to accounting standards codification , topic 606 , revenue from contracts with customers , or asc 606 , we recognize revenue upon transfer of control of promised products or services to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services . 97 to determine revenue recognition for arrangements that we determine are within the scope of asc 606 , we perform the following five steps : ( i ) identify the contract ( s ) with a customer ; ( ii ) identify the performance obligations in the contract ; ( iii ) determine the transaction price ; ( iv ) allocate the transaction price to the performance obligations in the contract ; and ( v ) recognize revenue when ( or as ) we satisfy a performance obligation . we only apply the five-step model to contracts when it is probable that we will collect substantially all of the consideration we are entitled to in exchange for the goods or services we transfer to the customer . product sales , net our product sales consist of u.s. sales of oxbryta , which we began shipping to customers in december 2019. prior to december 2019 , we had no product sales . we sell oxbryta to a limited number of specialty pharmacies and a specialty distributor , or collectively , customers . these agreements with our customers provide for transfer of title to the product at the time the product has been delivered to the customers . the customers subsequently dispense our product directly to a patient or resell our product to hospitals and certain pharmacies . we recognize revenue on product sales when the customers obtain control of our product , which occurs at a point in time , typically upon delivery to our customers . it is at that point that we have a right to payment and that our customers obtain title and the risks and rewards of ownership . shipping and handling activities are considered to be fulfillment activities rather than a separate performance obligation . payment terms are typically 30-60 days following delivery to our customers . because payment is expected shortly after delivery , we do not adjust the amount of consideration expected to be received for the effects of a significant financing component . we consider the effects of items that can decrease the transaction price such as variable consideration and consideration payable to customers or payer . amounts related to such items are estimated at contract inception and updated at the end of each reporting period as additional information becomes available . the amount of variable consideration may be constrained and is included in the transaction price only to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved . revenue from product sales is recorded after considering the impact of the following variable consideration amounts along with the constraint at the time of revenue recognition : rebates : we are subject to government mandated rebates for medicaid drug rebate program , medicare part d prescription drug benefit program , and other government health care programs in the united states . rebate amounts are based upon contractual agreements or legal requirements with public sector benefit providers . we use the expected-value method for estimating these rebates based on statutory discount rates and expected utilization . the expected utilization of rebates is estimated based on third party data from the specialty pharmacies and specialty distributor . estimates for these rebates are adjusted quarterly to reflect the most recent information . we record an accrued liability for unpaid rebates related to products for which control has been transferred to customers . prompt payment discounts : we provide discounts to our customers if they pay for our products within a defined period of time after title transfers , which terms are explicitly stated in the contract . we use the most-likely-amount method for estimating prompt payment discounts . we expect that our customers will earn prompt payment discounts .
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results of operations comparison of the years ended december 31 , 2020 and 2019 replace_table_token_5_th * change is not meaningful product sales , net product sales consist of sales of oxbryta , which was approved by the fda in late november 2019. we commenced shipments of oxbryta and fully launched with a deployed sales force in early december 2019. cost of sales cost of sales of $ 2.0 million and $ 48,000 for the year ended december 31 , 2020 and 2019 , respectively , is related to certain costs incurred after fda approval related to the cost of oxbryta sold . prior to receiving fda approval for oxbryta in november 2019 , we recorded all costs incurred in the manufacture of oxbryta as research and development expense . we expect to sell inventory previously expensed to research and development throughout 2021 , and , accordingly we expect our costs of product sales of oxbryta to increase as a percentage of net sales in future periods as we produce and sell inventory that reflects the full cost of manufacturing the product . research and development research and development expenses consist primarily of costs incurred for the development of oxbryta and product candidates , which include : employee-related expenses , which include salaries , benefits and stock-based compensation ; expenses incurred under agreements with consultants , third-party research and manufacturing organizations , and investigative clinical trial sites that conduct research and development activities on our behalf ; the costs related to production of clinical supplies , including fees paid to contract manufacturers ; laboratory and vendor expenses related to the execution of nonclinical studies and clinical trials ; payments upon achievement of certain clinical development and regulatory milestones in relation with license agreement ; and 101 facilities and other allocated expenses , which include expenses for rent and maintenance of facilities , depreciation and amortization expense and other supplies .
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the following table sets forth information about the stock options and rsus that were granted under the itt educational services , inc. amended and restated 2006 equity compensation plan ( the amended 2006 plan ) effective february 4 , 2014 to each named executive officer , other than mr. dean , as described above . replace_table_token_28_th ( 1 ) the effective date story_separator_special_tag the following discussion should be read with the selected financial data and the consolidated financial statements and notes to consolidated financial statements included elsewhere in this report . this management 's discussion and analysis of financial condition and results of operations is based on our consolidated financial statements , which have been prepared in conformity with generally accepted accounting principles in the united states . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amount of assets , liabilities , revenue , expenses and contingent assets and liabilities . actual results may differ from those estimates and judgments under different assumptions or conditions . in this management 's discussion and analysis of financial condition and results of operations , when we discuss factors that contributed to a change in our financial condition or results of operations , we disclose the primary factors that materially contributed to that change in the order of significance . executive summary in 2014 , a number of events and factors impacted our results of operations , financial position , cash flows and liquidity , the most significant of which included the following : we made payments aggregating $ 170.3 million related to the peaks program and the cuso program ; the ed letter of credit was issued for our account , and we provided approximately $ 89.3 million in cash collateral for the ed letter of credit and other outstanding letters of credit , which funds are not available for use by us and could be paid to the issuing bank for the letters of credit if the letters of credit are drawn upon ; we borrowed $ 100.0 million under the new financing agreement , and utilized all of the funds from that borrowing to repay outstanding borrowings under the amended credit agreement , to provide a portion of the cash collateral required related to the letters of credit and to pay fees in connection with the financing agreement ; the amount of institutional scholarships and awards provided to our students increased significantly , and new and total student enrollment in education programs decreased , in each case , compared to the prior year ; and the peaks trust was consolidated in our consolidated financial statements for the entire year , and the cuso was consolidated in our consolidated financial statements beginning on september 30 , 2014. these events and factors are described further in this management 's discussion and analysis of financial condition and results of operations and in the notes to consolidated financial statements contained in this annual report on form 10-k. we continue to have significant cash payment obligations in connection with the peaks program and the cuso program . based on various assumptions , including the historical and projected performance and collection of the peaks trust student loans , we believe that we will make payments under the peaks guarantee of approximately : $ 29.8 million in 2015 ; $ 4.3 million in 2016 ; and $ 15.3 million in 2020. based on various assumptions , including the historical and projected performance and collections of the cuso student loans , the following table sets forth , in the periods indicated , our projections of the estimated amount of regular payments and discharge payments that we expect to pay ( or that we expect will be owed by us , which amounts could be reduced prior to payment thereof by the amount of recoveries from charged-off loans owed to us ) and the estimated amount of recoveries from charged-off loans that we expect to be paid to us by the cuso ( or that we may utilize to offset a portion of the amounts of regular payments or discharge payments owed by us ) : replace_table_token_8_th ( 1 ) represents the discharge payment of $ 2.7 million that we made on march 19 , 2015 pursuant to the terms of the fifth amendment to cuso rsa . -46- we believe that the vast majority of the $ 78.7 million of estimated payments projected to be paid after 2017 will be made by us in 2018. the estimated future payment amounts and timing related to the cuso rsa assume , among other factors , that we do not make any discharge payments in 2015 , 2016 or 2017 ( other than the discharge payment made in march 2015 pursuant to the terms of the fifth amendment to cuso rsa ) and do make discharge payments to the fullest extent possible in 2018 and later years . if we do not make the discharge payments as assumed in 2018 and later years , we estimate that we would make approximately $ 100.3 million of regular payments in 2018 through approximately 2026. of this amount , approximately $ 18.6 million to $ 20.0 million would be paid annually in each of 2018 through 2021 , and approximately $ 22.7 million in the aggregate , would be paid in 2022 through 2026. we also have debt service and principal repayment obligations under the financing agreement . we estimate that in 2015 , the amount of those cash payment obligations will be approximately $ 19.3 million . in the event of a default by us under the financing agreement , the lenders could declare the full amount of the term loans then outstanding to be immediately due and payable in full . our obligations under the financing agreement are secured by a security interest in substantially all of our and our subsidiaries ' assets , including a mortgage on all of our and our subsidiaries ' owned real estate . story_separator_special_tag while our consolidated financial statements for periods after february 28 , 2013 reflect the results of operations , financial condition and cash flows of the peaks trust , we do not actively manage the operations of the peaks trust , and the assets of the consolidated peaks trust can only be used to satisfy the obligations of the peaks trust . our obligations under the peaks guarantee remain in effect , until the peaks senior debt and the peaks trust 's fees and expenses are paid in full , as discussed further in note 15 commitments and contingencies of the notes to consolidated financial statements . in periods prior to the respective dates of the consolidations , we concluded that we were not required to consolidate the cuso and peaks trust in our consolidated financial statements , because we believed we did not have the power to direct the activities that most significantly impacted the economic performance of the cuso and the peaks trust and , therefore , we were not the primary beneficiary of the cuso and the peaks trust . see note 8 variable interest entities of the notes to consolidated financial statements , for a further discussion of the peaks consolidation and the cuso consolidation . unless otherwise noted , the information in this management 's discussion and analysis of financial condition and results of operations is presented and discussed on a consolidated basis , including the cuso and the peaks trust as of and following the applicable consolidation dates . certain information is also provided , however , regarding our results of operations , financial condition and cash flows on a basis that excludes the impact of the cuso and the peaks trust . we identify and describe our education programs and education-related services on this basis as our core operations ( core operations ) . the presentation of the core operations financial measures differs from the presentation of our consolidated financial measures determined in accordance with generally accepted accounting principles in the united states ( gaap ) . we believe that the presentation of the core operations information assists investors in comparing current period information against prior periods during which the cuso and the peaks trust were not consolidated . in addition , our management believes that the core operations information provides useful information to investors , because it : allows more meaningful information about our ongoing operating results , financial condition and cash flows ; helps in performing trend analyses and identifying trends that may otherwise be masked or distorted by items that are not part of the core operations ; and provides a higher degree of transparency of our core results of operations , financial condition and cash flows . the following tables set forth selected data from our balance sheets , statements of operations and statements of cash flows as of and for the years ended : december 31 , 2014 , regarding : the core operations on a stand-alone basis ; the peaks trust on a stand-alone basis ; the cuso on a stand-alone basis ; the elimination of transactions between the peaks trust and core operations , and the elimination of transactions between the cuso and core operations , in each case as a result of the applicable consolidation ; and the core operations , the cuso and the peaks trust consolidated in accordance with gaap ; and december 31 , 2013 , regarding : the core operations on a stand-alone basis ; the peaks trust on a stand-alone basis ; the elimination of transactions between the peaks trust and core operations , as a result of the peaks consolidation ; and the core operations and the peaks trust consolidated in accordance with gaap ; and december 31 , 2012. the information presented related to 2014 and 2013 also constitutes the reconciliation of our non-gaap core operations , peaks trust and cuso data to the related gaap consolidated financial measures . following the tables , we describe the effect of the peaks consolidation and the cuso consolidation , as applicable , on the financial statement information presented , including the components attributable to the core operations , the peaks trust and the cuso . certain reclassifications have been made to the presentation of the selected data in the following tables for the year ended december 31 , 2013 to conform to the current year presentation . for the years ended december 31 , 2014 and 2013 , all income tax amounts related to the peaks trust and cuso have been included in core operations . -48- replace_table_token_9_th -49- replace_table_token_10_th in accordance with asc 810 , the assets and liabilities of the cuso were treated as having been acquired by us at their fair values as of september 30 , 2014. the carrying values of the assets and liabilities of the cuso are included on our consolidated balance sheet as of december 31 , 2014. the assets of the cuso consist primarily of cash and the cuso student loans . the liabilities of the cuso consist primarily of the cuso secured borrowing obligation , which is discussed further below under critical accounting policies and estimates cuso secured borrowing obligation . the carrying values of the assets and liabilities related to the cuso program that had been included as balance sheet items related to our core operations and consisted of the revolving note , other receivables ( which consisted of recoveries from charged-off cuso student loans that were owed to us , but were not paid to or offset by us ) and the contingent liability , were eliminated from our consolidated balance sheet as of december 31 , 2014. although the assets and liabilities of the cuso are presented on our consolidated balance sheets following the cuso consolidation , the assets of the cuso can only be used to satisfy the obligations of the cuso .
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variations in quarterly results of operations our quarterly results of operations have tended to fluctuate within a fiscal year due to the timing of student matriculations . each of our four fiscal quarters has 12 weeks of earned tuition revenue . the academic schedule generally does not affect our incurrence of most of our costs , however , and costs do not fluctuate significantly on a quarterly basis . the revenue recognized in our fiscal quarters has been impacted by fluctuations in our institutions ' total student enrollment . these fluctuations were primarily due to changing patterns of student matriculations and variations in student persistence , which were primarily attributable to the number of graduates in the fiscal quarter and student retention in certain courses . these factors are discussed in greater detail below under results of operations. in addition , the increased amount of our institutional scholarships and awards , primarily the opportunity scholarship , has reduced revenue per student in the various periods compared to the same prior year periods . the following table sets forth the core operations revenue per student for the periods indicated : replace_table_token_16_th core operations revenue per student is calculated by dividing all revenue from core operations by the total student enrollment in education programs as of the beginning of the applicable fiscal period . -57- results of operations the following table sets forth the percentage relationship of certain statement of operations data to revenue for the periods indicated : replace_table_token_17_th the following table sets forth our total student enrollment in education programs as of the dates indicated : replace_table_token_18_th total student enrollment in education programs as of march 31 , 2015 was 51,201 , a decrease of 10.4 % as compared to 57,125 as of march 31 , 2014. total student enrollment in education programs includes all new and continuing students .
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as of the date of the rickland orchards acquisition , we estimated the original fair value of the contingent consideration to be approximately $ 7.6 million . during the remainder of fiscal 2013 and fiscal 2014 , we recorded interest accretion expense on the contingent consideration liability of $ 0.2 million and $ 0.4 million , respectively . at june 28 , 2014 , we remeasured the fair value of the contingent consideration using actual operating results through june 28 , 2014 and our revised forecasted operating results for rickland orchards for the remainder of 2014 , 2015 and 2016. as a result of lower than expected net sales results for rickland orchards , and the unlikelihood of rickland orchards story_separator_special_tag the following management 's discussion and analysis of financial condition and results of operations contains forward-looking statements that involve risks and uncertainties . our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors , including those set forth under item 1a , `` risk factors '' and under the heading `` forward-looking statements '' below and elsewhere in this report . the following discussion should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this report . general we manufacture , sell and distribute a diverse portfolio of branded , high quality , shelf-stable foods and household products , many of which have leading regional or national market shares . in general , we position our branded products to appeal to the consumer desiring a high quality and reasonably priced product . we complement our branded product retail sales with institutional and food service sales and limited private label sales . our company has been built upon a successful track record of both organic and acquisition-driven growth . our goal is to continue to increase sales , profitability and cash flows through organic growth , strategic acquisitions and new product development . we intend to implement our growth strategy through the following initiatives : expanding our brand portfolio with disciplined acquisitions of complementary branded businesses , continuing to develop new products and delivering them to market quickly , leveraging our multiple channel sales and distribution system and continuing to focus on higher growth customers and distribution channels . since 1996 , we have successfully acquired and integrated more than 35 brands into our company . most recently , on april 23 , 2014 , we completed the acquisition of specialty brands of america , inc. , including the bear creek country kitchens , spring tree , cary 's , macdonald 's , new york flatbreads and canoleo brands , from affiliates of american capital , ltd. and certain individuals . on october 7 , 2013 , we acquired rickland orchards llc , including the rickland orchards brand , from natural instincts llc . on july 8 , 2013 , we completed the acquisition of pirate brands , llc , including the pirate 's booty , smart puffs and original tings brands , from affiliates of vmg partners and driven capital management and certain other entities and individuals . on may 7 , 2013 , we acquired the truenorth nut cluster brand from demet 's candy company . and on october 31 , 2012 , we completed the acquisition of the new york style , old london , jj flats and devonsheer brands from chipita america , inc. we refer to these acquisitions in this report as the `` specialty brands acquisition , '' `` rickland orchards acquisition , '' `` pirate brands acquisition , '' `` truenorth acquisition '' and `` new york style acquisition , '' respectively . each of these five recent acquisitions has been accounted for using the acquisition method of accounting and , accordingly , the assets acquired , liabilities assumed and results of operations of the acquired businesses are included in our consolidated financial statements from the respective dates of acquisition . these acquisitions and the application of the acquisition method of accounting affect comparability between periods . we are subject to a number of challenges that may adversely affect our businesses . these challenges , which are discussed above under item 1a , `` risk factors '' and below under the heading `` forward-looking statements , '' include : fluctuations in commodity prices and production and distribution costs . we purchase raw materials , including agricultural products , meat , poultry , ingredients and packaging materials from growers , commodity processors , other food companies and packaging suppliers located in u.s. and foreign locations . raw materials and other input costs , such as fuel and transportation , are subject to fluctuations in price attributable to a number of factors . fluctuations in commodity prices can lead to retail price volatility and intensive price competition , and can influence consumer and trade buying 31 patterns . the cost of raw materials , fuel , labor , distribution and other costs related to our operations can increase from time to time significantly and unexpectedly . we attempt to manage cost inflation risks by locking in prices through short-term supply contracts and advance commodities purchase agreements and by implementing cost saving measures . we also attempt to offset rising input costs by raising sales prices to our customers . however , increases in the prices we charge our customers may lag behind rising input costs . competitive pressures also may limit our ability to quickly raise prices in response to rising costs . we expect cost increases for raw materials in the marketplace during 2015 and are currently locked into our supply and prices for a majority of our most significant commodities ( excluding , among others , maple syrup ) through fiscal 2015 at a cost increase of less than 1 % of cost of goods sold . during fiscal 2014 , we had a minimal cost decrease . story_separator_special_tag estimating future cash flows and calculating the fair value of assets requires significant estimates and assumptions by management . goodwill and other intangible assets our total assets include substantial goodwill and unamortizable intangible assets ( trademarks ) . these assets are tested for impairment at least annually and whenever events or circumstances occur indicating that goodwill or unamortizable intangibles might be impaired . we perform the annual impairment tests as of the last day of each fiscal year . the annual goodwill impairment test involves a two-step process . the first step of the impairment test involves comparing our company 's market capitalization with our company 's carrying value , including goodwill . if the carrying value of our company exceeds our market capitalization , we perform the second step of the impairment test to 33 determine the amount of the impairment loss . the second step of the goodwill impairment test involves comparing the implied fair value of goodwill with the carrying value and recognizing a loss for the difference . we test our unamortizable intangibles by comparing the fair value with the carrying value and recognize a loss for the difference . we estimate the fair value of our unamortizable intangibles based on discounted cash flows that reflect certain third party market value indicators . calculating our fair value for these purposes requires significant estimates and assumptions by management . we completed our annual impairment tests for fiscal 2014 , 2013 and 2012 with no adjustments to the carrying values of goodwill and unamortizable intangibles . however , materially different assumptions regarding the future performance of our businesses could result in significant impairment losses . in addition , any significant decline in our market capitalization , even if due to macroeconomic factors , could put pressure on the carrying value of our goodwill . a determination that all or a portion of our goodwill or unamortizable intangible assets are impaired , although a non-cash charge to operations , could have a material adverse effect on our business , consolidated financial condition and results of operations . income tax expense estimates and policies as part of the income tax provision process of preparing our consolidated financial statements , we are required to estimate our income taxes . this process involves estimating our current tax expenses together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes . these differences result in deferred tax assets and liabilities . we then assess the likelihood that our deferred tax assets will be recovered from future taxable income and to the extent we believe the recovery is not likely , we establish a valuation allowance . further , to the extent that we establish a valuation allowance or increase this allowance in a financial accounting period , we include such charge in our tax provision , or reduce our tax benefits in our consolidated statements of operations . we use our judgment to determine our provision or benefit for income taxes , deferred tax assets and liabilities and any valuation allowance recorded against our deferred tax assets . there are various factors that may cause these tax assumptions to change in the near term , and we may have to record a valuation allowance against our deferred tax assets . we can not predict whether future u.s. federal and state income tax laws and regulations might be passed that could have a material effect on our results of operations . we assess the impact of significant changes to the u.s. federal and state income tax laws and regulations on a regular basis and update the assumptions and estimates used to prepare our consolidated financial statements when new regulations and legislation are enacted . we recognize the benefit of an uncertain tax position that we have taken or expect to take on the income tax returns we file if it is more likely than not that such tax position will be sustained based upon its technical merits . pension expense we have defined benefit pension plans covering substantially all of our employees . our funding policy is to contribute annually not less than the amount recommended by our actuaries . the funded status of our pension plans is dependent upon many factors , including returns on invested assets and the level of certain market interest rates . we review pension assumptions regularly and we may from time to time make voluntary contributions to our pension plans , which exceed the amounts required by statute . during fiscal 2014 and 2013 , we made total pension contributions to our pension plans of $ 1.8 million and $ 4.8 million , respectively . changes in interest rates and the market value of the securities held by the plans could materially change , positively or negatively , the funded status of the plans and affect the level of pension expense and required contributions in fiscal 2015 and beyond . 34 our discount rate assumption for our three defined benefit plans changed from 4.815 % at december 28 , 2013 to 3.882 % at january 3 , 2015. while we do not presently anticipate a change in our fiscal 2015 assumptions , as a sensitivity measure , a 0.25 % decline or increase in our discount rate would increase or decrease our pension expense by approximately $ 0.4 million and $ 0.3 million , respectively . similarly , a 0.25 % decrease or increase in the expected return on pension plan assets would increase or decrease our pension expense by approximately $ 0.2 million . we expect to make $ 3.5 million of defined benefit pension plan contributions during fiscal 2015. acquisition accounting our consolidated financial statements and results of operations include an acquired business 's operations after the completion of the acquisition . we account for acquired businesses using the acquisition method of accounting , which requires that the assets acquired and liabilities assumed be recorded at the date of acquisition at their respective fair values .
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results of operations the following table sets forth the percentages of net sales represented by selected items reflected in our consolidated statements of operations . the comparisons of financial results are not necessarily indicative of future results : replace_table_token_8_th as used in this section the terms listed below have the following meanings : net sales . our net sales represents gross sales of products shipped to customers plus amounts charged to customers for shipping and handling , less cash discounts , coupon redemptions , slotting fees and trade promotional spending . gross profit . our gross profit is equal to our net sales less cost of goods sold . the primary components of our cost of goods sold are cost of internally manufactured products , purchases of finished goods from co-packers , a portion of our warehousing expenses plus freight costs to our distribution centers and to our customers . selling , general and administrative expenses . our selling , general and administrative expenses include costs related to selling our products , as well as all other general and administrative expenses . some of these costs include administrative , marketing and internal sales force employee compensation and benefits costs , consumer advertising programs , brokerage costs , a portion of our warehousing expenses , information technology and communication costs , office rent , utilities , supplies , professional services , acquisition-related expenses and other general corporate expenses . impairment of intangible assets . impairment on intangible assets represents a reduction of the carrying value of amortizable intangible assets to fair value when the carrying value of the assets is no longer recoverable . gain on change in fair value of contingent consideration . gain on change in fair value of contingent consideration represents decreases in the fair value of the contingent consideration liability relating to additional purchase price earn-out payments that are contingent upon the achievement of certain operating results by acquired businesses . amortization expense .
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the following is a description of the company 's operating segments : mobile industries provides bearings , mechanical power transmission components , drive- and roller-chains , augers and related products and services to original equipment manufacturers and suppliers of agricultural , construction and mining equipment , passenger cars , light trucks , medium and heavy-duty trucks , rail cars and locomotives , as well as to automotive and heavy truck aftermarket distributors . process industries provides bearings , mechanical power transmission components , industrial chains , and related products and services to original equipment manufacturers and suppliers of power transmission , energy and heavy industries machinery and equipment . this includes rolling mills , cement and aggregate processing equipment , paper mills , sawmills , printing presses , cranes , hoists , drawbridges , wind energy turbines , gear drives , drilling equipment , coal conveyors , coal crushers , marine and food processing equipment . this segment also serves the aftermarket through its global network of authorized industrial distributors . aerospace and defense provides bearings , helicopter transmission systems , rotor head assemblies , turbine engine components , gears and other precision flight-critical components for commercial and military aviation applications and provides aftermarket services , including repair and overhaul of engines , transmissions and fuel controls , as well as aerospace bearing repair and component reconditioning . additionally , this segment manufactures precision bearings , higher-level assemblies and sensors for manufacturers of health and positioning control equipment . steel produces more than 450 grades of carbon and alloy steel , which are sold as ingots , bars and tubes in a variety of chemistries , lengths and finishes . this segment 's metallurgical expertise and operational capabilities result in customized solutions for the automotive , industrial and energy sectors . timken ® specialty steels feature prominently in a wide variety of end products including oil country drill pipe , bits and collars , gears , hubs , axles , crankshafts and connecting rods , bearing races and rolling elements , and bushings , fuel injectors and wind energy shafts . the company 's strategy balances corporate aspirations for sustained growth with a determination to optimize the company 's existing business portfolio , thereby generating strong profits and cash flows . timken pursues its growth strategy through differentiation and expansion . for differentiation , the company leverages its technological capabilities to enhance existing products and services and to create new products that capture value for its customers . the company recently broadened its product offering by expanding a line of spherical , cylindrical and housed bearings , developing new products and services including the new ecoturn ® seal for the railroad industry and introducing numerous new custom-developed grades of specialty alloy steel . regarding expansion , the company 's strategy is to grow in attractive market sectors , with particular emphasis on those industrial markets that value the reliability offered by the company 's products and create significant aftermarket demand , thereby providing a lifetime of opportunity in both product sales and services . the company 's strategy also encompasses expanding its portfolio in new geographic spaces with an emphasis in asia . the company 's acquisition strategy is directed at complementing its existing portfolio and expanding the company 's market position globally . simultaneously , the company works to optimize its existing business with specific initiatives aimed at transformation and execution . this includes diversifying the overall portfolio of businesses and products to create further value and profitability , which can include addressing or repositioning underperforming product lines and segments , revising market sector or geographic strategies and divesting non-strategic assets . the company drives execution by embracing a continuous improvement culture that is charged with lowering costs , eliminating waste , increasing efficiency , encouraging organizational agility and building greater brand equity . 17 the following items highlight certain of the company 's more significant strategic accomplishments in 2011 : in october 2011 , the company completed the acquisition of drives llc ( drives ) for $ 92 million . drives is a leading manufacturer of highly engineered drive-chains , roller-chains and conveyor augers for the agricultural and industrial applications . based in fulton , illinois , drives employs 430 associates and had trailing 12-month sales through september 2011 of approximately $ 100 million . sales and ebit for the timken drives business is reported in the company 's mobile industries and process industries segments based on customer application . in august 2011 , the company and the university of akron announced an open-innovation agreement to accelerate technology . the two organizations plan to combine their expertise in materials and surface engineering technologies at newly established laboratories in the university of akron 's college of engineering . in july 2011 , the company and stark state college broke ground on a jointly developed 18,000 square foot wind energy research and development center in canton , ohio , on the stark state college campus . this new center will be focused on advanced development of bearing systems for wind turbines and other ultra-large applications . in july 2011 , the company acquired the assets of philadelphia gear corp. ( philadelphia gear ) , a leading provider of high-performance gear drives and components with a strong focus on value-added aftermarket capabilities in the industrial and military marine sectors , for $ 200 million . based in king of prussia , pennsylvania , with approximately 220 associates , philadelphia gear had trailing 12-month sales through june 2011 of approximately $ 100 million . the timken gears and services business is included in the process industries segment . in 2011 , the company launched initiatives to enhance productivity and increase output at two of its canton , ohio steel facilities . these changes will effectively create new capacity at both of these steel facilities to support growing demand for finished bar products and billets for tubing product which serve customers in the global industrial , oil and gas , and mobile markets . story_separator_special_tag in 2010 , the impairment charges of $ 4.7 million primarily related to fixed asset impairment charges at the company 's facility in mesa , arizona and its former manufacturing facility in sao paulo , brazil . the severance and related benefit costs of $ 6.4 million recognized in 2010 primarily related to manufacturing workforce reductions that began in 2009 to realign the company 's organization , improve efficiency and reduce costs . the exit costs of $ 10.6 million recognized in 2010 primarily related to environmental remediation costs at the company 's former manufacturing facility in sao paulo , brazil and a former manufacturing plant in columbus , ohio . refer to note 10 impairment and restructuring in the notes to the consolidated financial statements for additional discussion . interest expense and income : replace_table_token_12_th interest expense for 2011 decreased compared to 2010 primarily due to lower financing costs as a result of the refinancing of the company 's $ 500 million amended and restated credit agreement ( senior credit facility ) , which occurred in may 2011. the company expects to recognize approximately $ 1.3 million of deferred financing costs on an annual basis , compared to $ 3.0 million under the previous credit facility . interest income increased for 2011 compared to 2010 primarily due to higher interest rates on invested cash balances . income tax expense : replace_table_token_13_th the effective tax rate on the pretax income for 2011 was favorable relative to the u.s. federal statutory rate primarily due to earnings in certain foreign jurisdictions where the effective tax rate is less than 35 % , the u.s. manufacturing deduction , the u.s. research tax credit and the net effect of other u.s. tax items , partially offset by losses at certain foreign subsidiaries where no tax benefit could be recorded , u.s. state and local taxes and the net effect of other discrete items . the effective tax rate for 2010 was favorable relative to the u.s. federal statutory rate primarily due to earnings in certain foreign jurisdictions where the effective tax rate is less than 35 % , the u.s. manufacturing deduction , the u.s. research tax credit and the net effect of other u.s. tax items , partially offset by losses at certain foreign subsidiaries where no tax benefit could be recorded , and u.s. state and local taxes . the effective tax rate for 2010 also includes the net impact of a $ 21.6 million charge in the first quarter to record the deferred tax impact of the patient protection and affordable care act of 2010 ( as amended ) ( ppaca ) , partially offset by a $ 19.8 million tax benefit in the fourth quarter to record the benefit of contributions made to a newly established voluntary employee benefit association ( veba ) trust to fund certain retiree healthcare costs . the change in the effective tax rate in 2011 compared to 2010 was primarily due to certain discrete tax expense items recorded in 2011 and higher u.s. state and local taxes , partially offset by earnings in certain foreign jurisdictions where the effective tax rate is less than 35 % . 21 business segments : effective january 1 , 2011 , the primary measurement used by management to measure the financial performance of each segment is ebit ( earnings before interest and taxes ) . prior to january 1 , 2011 , the primary measurement used by management to measure the financial performance of each segment was adjusted ebit ( earnings before interest and taxes , excluding the effect of impairment and restructuring , manufacturing rationalization and integration charges , one-time gains or losses on the disposal of non-strategic assets , allocated receipts received or payments made under the u.s. continued dumping and subsidy offset act ( cdsoa ) and gains and losses on the dissolution of subsidiaries ) . the change in 2011 was primarily due to the completion of most of the company 's previously-announced restructuring initiatives . segment results for 2010 and 2009 have been reclassified to conform to the 2011 presentation of segments . refer to note 14 segment information in the notes to the consolidated financial statements for the reconciliation of ebit by segment to consolidated income before income taxes . the presentation below reconciles the changes in net sales for each segment reported in accordance with u.s. gaap to net sales adjusted to remove the effects of acquisitions made in 2011 and 2010 and currency exchange rates . the effects of acquisitions and currency exchange rates are removed to allow investors and the company to meaningfully evaluate the percentage change in net sales on a comparable basis from period to period . during the third quarter of 2011 , the company completed the acquisition of substantially all of the assets of philadelphia gear , which is part of the process industries segment . during the fourth quarter of 2011 , the company completed the acquisition of drives , the results of which are reported in the mobile industries and process industries segments based on customer application . during the fourth quarter of 2010 , the company completed the acquisition of substantially all of the assets of city scrap and salvage co. ( city scrap ) , which is part of the steel segment . during the third quarter of 2010 , the company completed the acquisition of qm bearings , which is part of the process industries segment . the year 2010 represents the base year for which the effects of currency are measured ; as such , currency is assumed to be zero for 2010. mobile industries segment : replace_table_token_14_th the mobile industries segment 's net sales , excluding the effects of acquisitions and currency-rate changes , increased 10.7 % in 2011 compared to 2010 , primarily due to higher volume of approximately $ 140 million and pricing and surcharges of approximately $ 30 million .
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results of operations : 2010 compared to 2009 overview : replace_table_token_19_th the company reported net sales for 2010 of $ 4.1 billion , compared to $ 3.1 billion in 2009 , a 29.1 % increase . sales in 2010 were higher across all business segments except for the aerospace and defense segment . the increase in sales was primarily driven by strong demand from the mobile industries and steel segments and the industrial distribution channel within the process industries segment , as well as higher surcharges , partially offset by lower sales in the aerospace and defense segment . for 2010 , diluted earnings per share were $ 2.81 , compared to a net loss per share of $ 1.39 for 2009. income from continuing operations per diluted share was $ 2.73 for 2010 , compared to a net loss from continuing operations of $ 0.64 for 2009. the company 's results for 2010 reflect the improvement of the end-market sectors served principally by the mobile industries and steel segments , higher surcharges , improved manufacturing performance , lower restructuring costs and the favorable impact of prior-year restructuring initiatives , partially offset by lower demand from aerospace and defense customers , higher raw material costs and related lifo expense and higher expense related to incentive compensation plans . the income from discontinued operations recognized in 2010 is the result of favorable working capital adjustments from the sale of the company 's nrb operations , completed in december 2009 , while the loss from discontinued operations was due to the negative impact of the deteriorating global economy on nrb 's business operations .
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financial guaranty contracts provide an unconditional and irrevocable guaranty that protects the holder of a financial obligation against non-payment of principal and interest when due . public finance obligations insured or assumed through reinsurance by the company consist primarily of general obligation bonds supported by the issuers ' taxing powers , tax-supported bonds and revenue bonds and other obligations of states , their political subdivisions and other municipal issuers supported by the issuers ' or obligors ' covenant to impose and collect fees and charges for public services or specific projects . public finance obligations include obligations backed by the cash flow from leases or other revenues from projects serving substantial public purposes , including government office buildings , toll roads , health care facilities and utilities . structured finance obligations insured or assumed through reinsurance by the company are backed by pools of assets such as residential mortgage loans , consumer or trade receivables , securities or other assets having an ascertainable cash flow or market value and generally issued by special purpose entities . the company currently does not underwrite u.s. rmbs . debt obligations guaranteed by the company 's insurance subsidiaries are generally awarded ratings that are the same rating as the financial strength rating of the assured guaranty subsidiary that has guaranteed that obligation . investors in products insured by agm or agc frequently rely on rating agency ratings . therefore , low financial strength ratings or uncertainty over agm 's or agc 's abilities to maintain their financial strength ratings would have a negative impact on the demand for their insurance product . a downgrade by moody 's or s & p of the financial strength ratings of the company 's insurance subsidiaries may have a negative impact on the company 's liquidity . a downgrade may trigger ( 1 ) increased claims on some of the company 's insurance policies , in certain cases , on a more accelerated basis than when the original transaction closed ; or ( 2 ) termination payments or collateral posting under cds contracts . a downgrade in the financial strength ratings may also enable beneficiaries of the company 's policies to cancel the credit protection offered by the company and cease paying premium . a downgrade may also enable primary insurance companies that had ceded business to the company to recapture a significant portion of its in-force financial guaranty reinsurance business . executive summary the following discussion and analysis of the company 's financial condition and results of operations should be read in conjunction with the company 's consolidated financial statements and accompanying notes which appear elsewhere in this form 10-k. it contains forward looking statements that involve risks and uncertainties . please see `` forward looking statements '' for more information . the company 's 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 form 10-k , particularly under the headings `` risk factors '' and `` forward looking statements . '' this executive summary of management 's discussion and analysis highlights selected information and may not contain all of the information that is important to readers of this form 10-k. for a complete description of events , trends and uncertainties , as well as the capital , liquidity , credit , operational and market risks and the critical accounting policies and estimates affecting the company , this form 10-k should be read in its entirety . 76 economic environment the company continued to be the most active provider of financial guaranty insurance in 2011 as a result of its financial strength and its ability to maintain its financial strength ratings in the double-a ratings category throughout the financial crisis . all of the company 's pre-2007 financial guaranty competitors , except agm , which the company acquired in 2009 , have had their financial strength ratings downgraded by rating agencies to below investment grade levels or are no longer rated , rendering them unable to underwrite new business . however , business conditions have been difficult for the entire financial guaranty insurance industry since mid-2007 and the company has faced challenges in maintaining its market penetration that continue today . while the overall economic environment in the u.s. at the end of 2011 was stronger than in 2010 , housing prices have not stabilized , unemployment rates have declined but remain relatively high and the ultimate credit experience on u.s. rmbs transactions underwritten from the end of 2004 through 2008 by many financial institutions , including the financial guaranty insurers , remains poor . furthermore , while hiring trends have improved , unemployment levels remain high and may take years to return to pre-recession levels , which may adversely affect assured guaranty 's loss experience on rmbs . in addition , the economic recession has also affected the credit performance of other markets , including securitizations of trust preferred securities ( `` trups '' ) that include subordinated capital and notes issued by banks , mortgage real estate investment trusts and insurance companies . the u.s. municipal bond market , which has been the company 's principal market since 2007 , has also changed significantly during the past three years . municipal credits have experienced increased budgetary stress . in addition , many states and towns have significant unfunded pension and retiree health care liabilities that create additional budgetary stress . although total state tax collections as well as sales tax and personal income tax collections grew in 2011 , overall tax collections are still weak compared with recent historical standards . in 2011 , new issuance volume in the u.s. and international public finance sectors did not return to historical levels , and the market for financial guaranty insurance was hampered by ratings uncertainty and municipal rating recalibrations . story_separator_special_tag loss and lae in 2011 benefited significantly from increased estimates of recoveries for breaches of r & w which largely offset increases in projected losses on the u.s. rmbs portfolio . reported loss and lae includes the recognition of losses due to amortization of the deferred premium revenue component of the stand-ready obligation . net economic loss development measures changes in the ultimate expected losses of the company and was $ 123.8 million in 2011 driven primarily by increases in projected losses on greek exposures and other structure finance obligations . in 2011 , the company focused on three principal strategies : loss mitigation , including the pursuit of recoveries for r & w breaches and of servicing improvements ; strengthening its capital position to address s & p 's new bond insurance rating criteria ; and new business development . loss mitigation net expected loss to be paid for both financial guaranty insurance and credit derivatives increased $ 123.8 million in 2011. the company continued its risk remediation strategies which lowered losses and also created additional rating agency capital . the following are examples of the strategies employed by the company . the bank of america agreement ( see `` results of operationsconsolidated results of operationslosses in insured portfoliou.s . rmbs loss mitigation '' ) and progress made on negotiations with other significant u.s rmbs r & w providers reduced expected losses by $ 1,038.5 million in 2011. for transactions with other sponsors of u.s. rmbs , against which the company is pursuing r & w claims , the company has continued to review additional loan files and has found breach rates consistent with those in the bank of america transactions and has therefore increased the benefit for r & w to reflect the probability that actual recovery rates may be higher than originally expected . excluding the benefit for r & w , expected loss to be paid on u.s. rmbs increased by $ 1,039.2 million , which reflects a slower recovery in the housing market than previously anticipated . the company is continuing to purchase attractively priced big obligations it had already insured in order to mitigate losses , which resulted in a reduction to net expected loss to be paid of $ 429.1 million as of december 31 , 2011. as of december 31 , 2011 , the carrying value of assets purchased for loss mitigation purposes was $ 452.7 million , with a par of $ 1,560.4 million . the company has established a group to mitigate rmbs losses by influencing mortgage servicing , including , if possible , causing the transfer of servicing or establishing special servicing . as a result of the company 's efforts , at december 31 , 2011 the servicing of approximately $ 934 million of mortgage loans had been transferred to a new servicer and another $ 2.3 billion of mortgage loans were being special serviced . ( `` special servicing '' is an industry term referencing more intense servicing applied to delinquent loans aimed at mitigating losses . ) the company also agreed to terminate its exposure to certain structured finance risks , and it reassumed risks that it had ceded to certain lower rated reinsurers . improve capital position since s & p 's january 2011 announcement that it planned to change its bond insurer rating criteria , the company has been pursuing strategies to improve its rating agency capital position . in addition to its focus on loss mitigation and new business development , the company increased capital under rating agency capital models by agreeing to terminate cds with net par of $ 11.5 billion , resulting in $ 24.7 million in accelerated revenues . in addition , several cmbs cds contracts , which carried high rating agency capital charges , were terminated for a payment of $ 22.5 million in 2011. in addition , in january 2012 , agc and agm entered into an aggregate excess of loss reinsurance facility that covers certain u.s. public finance credits insured or reinsured by agc or agm as of 79 september 30 , 2011. at agc 's and agm 's option , the facility will cover losses occurring from january 1 , 2012 through december 31 , 2019 or from january 1 , 2013 through december 31 , 2020. the contract terminates , unless agc and agm choose to extend it , on january 1 , 2014. the facility attaches when agc 's or agm 's net losses exceed in the aggregate $ 2 billion and covers a portion of the next $ 600 million of losses , with the reinsurers assuming pro rata in the aggregate $ 435 million of the $ 600 million of losses and agc and agm jointly retaining the remaining $ 165 million of losses . the reinsurers are required to be rated at least aa- ( stable outlook ) through december 31 , 2014 or to post collateral sufficient to provide agm and agc with the same reinsurance credit as reinsurers rated aa- . this facility provides additional rating agency capital credit . new business development management believes that the company is able to provide value not only by insuring the timely payment of scheduled interest and principal amounts when due , but also through its underwriting skills and surveillance capabilities , particularly with regard to the u.s. public finance market . few individual or even institutional investors have the analytic resources to cover the tens of thousands of municipal credits in the market . through its financial guaranty , the company undertakes the tasks of credit selection , analysis , negotiation of terms , surveillance and , if necessary , remediation . management believes this allows retail investors to participate more widely , institutional investors to operate more efficiently , and smaller , less well-known issuers to gain market access on a more cost-effective basis .
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cash flow summary replace_table_token_63_th operating cash flows in 2011 and 2010 include cash flows from fg vies . claims paid on consolidated fg vies are presented in the consolidated cash flow statements as paydowns on fg vie liabilities in financing activities as opposed to operating activities . excluding consolidated fg vies the increase in operating cash flows was mainly due to the cash proceeds received under the bank of america agreement . operating cash flows in 2010 include a full year of agmh activity compared to only six months in 2009 as well as net cash inflows for consolidated vies . excluding consolidated vies , the decrease in operating cash flows in 2010 was due primarily to higher outflows for net paid losses , interest , other expenses and taxes , offset in part by premium on financial guaranty and credit derivatives . interest payments were $ 91.6 million in 2011 compared to $ 92.2 million in 2010 and $ 56.4 million in 2009. taxes paid were $ 33.5 million in 2010 compared to $ 39.2 million in 2010 and $ 27.8 million in 2009. net premiums and credit derivative inflows increased in 2010 due to the inclusion of a full year of agmh activity . investing activities were primarily net sales ( purchases ) of fixed maturity and short-term investment securities . investing cash flows in 2011 and 2010 include $ 760.4 million inflow and $ 424.0 million inflow for fg vies , respectively . the 2009 investing cash outflows was due primarily to the cost of the agmh acquisition of $ 546.0 million , net of cash acquired of $ 87.0 million , purchases of fixed maturity securities with the cash generated from common share and equity units offerings and positive cash flows from operating activities . financing activities consisted primarily of paydowns of fg vies . financing cash flows in 2011 and 2010 include $ 1,053.3 million outflow and $ 650.9
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the company purchased $ 26,151,079 of investments while having sales and principal payments received of $ 26,965,492. the company had net unrealized losses of $ 1,836,406 at december 31 , 2018 compared to $ 844,379 at december 31 , 2017. from december 31 , 2017 to december 31 , 2018 , net loans receivable increased by $ 148,693,597 ( 24 % ) to $ 778,298,606. the addition of $ 143,918,642 in loans at fair value from the hometown acquisition along with continued production in the multi-family , agriculture , hospitality and small business administration ( “ sba ” ) lending were the primary drivers for growth in 2018. during the year , commercial real estate loans increased $ 61,055,038 ( 23 % ) , permanent 1-4 family loans increased $ 26,110,020 ( 25 % ) , commercial loans increased $ 24,846,644 ( 26 % ) , construction loans increased $ 23,810,413 ( 37 % ) , and consumer and other loans increased $ 8,374,570 ( 34 % ) . the company continues to focus its lending efforts in the commercial , owner occupied real estate and small business lending categories . as of december 31 , 2018 , management identified loans totaling $ 20,552,000 as impaired with a related allowance for loan losses of $ 1,612,000. impaired loans increased by $ 9,725,000 during 2018 , compared to the balance of $ 10,827,000 at december 31 , 2017. from december 31 , 2017 to december 31 , 2018 , the allowance for loan losses increased $ 888,151 to $ 7,995,569. in addition to the provision for loan losses of $ 1,225,000 recorded by the company during the year ended december 31 , 2018 , loan charge-offs of specific loans ( previously classified as nonperforming ) exceeded recoveries by $ 336,849 for the year ended december 31 , 2018. the increase in the allowance is primarily due to the increased loan balances during 2018 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 , 2018 and december 31 , 2017 was 1.02 % and 1.12 % , respectively . the allowance for loan losses , as a percentage of nonperforming loans outstanding , as of december 31 , 2018 and december 31 , 2017 was 61.1 % and 71.3 % , 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 $ 2.45 million at december 31 , 2018. goodwill increased $ 1,434,982 ( 100 % ) and core deposit intangible increased $ 2,980,910 ( 100 % ) as of december 31 , 2018. the increases are due to the hometown acquisition and are further discussed in note 6 to the condensed consolidated financial statements . from december 31 , 2017 to december 31 , 2018 , deposits increased $ 142,254,472 ( 23 % ) to $ 749,618,822. deposit balances totaling $ 161,248,424 ( at fair value ) were added as a result of the hometown acquisition . excluding the acquired balances , checking and savings transaction balances decreased by $ 40,855,842 and certificates of deposit increased $ 22,077,932. the decline in transaction balances were primarily a result of a decrease of $ 34,591,000 in one brokered money market relationship and various declines in accounts acquired by hometown . overall , brokered deposits decreased $ 18,173,000 during 2018. 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 increased $ 11,000,000 ( 12 % ) from $ 94,300,000 as of december 31 , 2017 to $ 105,300,000 as of december 31 , 2018 due to increased borrowings to fund growth . note payable to bank increased $ 5,000,000 ( 100 % ) when compared to december 31 , 2017 due to the company borrowing $ 5,000,000 from another financial institution . the funds were used to provide additional capital for funding bank asset growth . the note carries a variable interest rate tied to three-month libor and matures on june 28 , 2020 . 46 subordinated debentures increased $ 6,295,829 ( 41 % ) from $ 15,465,000 to $ 21,760,829 as of december 31 , 2018. the increase is due to the assumption of hometown bancshares statutory trust i as part of the hometown acquisition . premises and equipment increased $ 9,488,067 ( 89 % ) from $ 10,607,094 to $ 20,095,161 as of december 31 , 2018. the increase is primarily due to the hometown acquisition . from december 31 , 2017 to december 31 , 2018 , stockholders ' equity ( including unrealized depreciation on available-for-sale securities , net of tax ) increased $ 5,587,099 ( 7 % ) to $ 80,478,592. net income for the year ended december 31 , 2018 exceeded dividends paid or declared by $ 5,150,378. the equity portion of the company 's unrealized losses on available-for-sale securities and effects of interest rate swaps decreased by $ 246,563 during 2018. on a per common share basis , stockholders ' equity increased from $ 17.10 as of december 31 , 2017 to $ 18.18 as of december 31 , 2018. average balances , interest and average yields the following table shows the balances as of december 31 , 2018 of various categories of interest-earning assets and interest-bearing liabilities and the corresponding yields and costs , and , for the periods indicated : ( 1 ) the average balances of various categories of interest-earning assets and interest-bearing liabilities , ( 2 ) the total interest earned or paid thereon , and ( 3 ) the resulting weighted story_separator_special_tag 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 . 49 non-interest income . non-interest income increased $ 824,620 ( 14 % ) due to a few significant factors . the company recognized an increase in service charge income of $ 814,950 ( 69 % ) and debit card interchange income of $ 285,753 ( 35 % ) primarily due to the hometown acquisition . also , the company continued its emphasis on sba lending that increased gains on the sale of sba loans by $ 84,002 ( 11 % ) . the increase in income above was offset by increased losses on foreclosed assets of $ 542,896 ( 298 % ) compared to 2017. the company recognized write-downs of foreclosed assets held for sale , including two properties acquired through the acquisition of hometown . the re-measurements and write-downs were due to a lack of sales activity , further review of surrounding property values and reductions in the property 's listing price ( in most cases ) . non-interest expense . non-interest expense increased $ 9,855,247 ( 50 % ) due to a few significant factors . one-time merger expense related to the hometown acquisition totaled $ 3,520,727. the costs relate to legal , accounting and investment advisory fees , as well as the cost incurred for termination of a specific vendor core processing contract of approximately $ 2 million . salaries and employee benefits increased $ 2,878,168 ( 24 % ) which was primarily due to the addition of hometown employees and our continued expansion in the joplin , missouri market and increases in other key areas of commercial banking , operations and technology . the company 's occupancy expense increased $ 1,866,791 ( 85 % ) 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 our new headquarter facility and the ongoing expansion in the joplin , missouri market has also played a significant factor in the increase in expense . amortization expense of the core deposit intangible from the hometown acquisition was $ 408,571 for 2018. there was no amortization during 2017. professional service expenses increased $ 282,581 ( 52 % ) , primarily due to the company meeting thresholds to be considered an accelerated filer with the u.s. securities and exchange commission , which comes with increased auditor attestation requirements on the company 's internal controls . the increases above were partially offset by the elimination of impairment charges on solar credit investments incurred during 2017 , which totaled $ 440,571. income taxes . the provision for income taxes decreased $ 715,936 ( 28 % ) over 2017 which is primarily due to the impact of the tax cuts and jobs act ( the “ act ” ) signed into law on december 22 , 2017. as a result of the act , in 2017 , the company was required to revalue its deferred tax assets and deferred tax liabilities to account for the future impact of lower corporate tax rates , which resulted in a one-time charge to income tax expense of approximately $ 1.0 million . in 2018 , the company 's federal tax rate was reduced from 34 % to 21 % as a result of the act . cash dividends paid . the company paid dividends of $ 0.12 per share on april 19 , 2018 to stockholders of record as of april 9 , 2018 , $ 0.12 per share on july 19 , 2018 , to stockholders of record as of july 9 , 2018 , and $ .12 per share on october 19 , 2018 , to stockholders of record as of october 9 , 2018. the company also declared a cash dividend of $ 0.13 per share on december 21 , 2018 , which was paid on january 14 , 2019 , to stockholders of record on january 4 , 2019. during 2018 , 2017 and 2016 , the company paid $ 2,132,221 , $ 1,767,486 and $ 1,415,180 in dividends on common stock . 50 results of operations - comparison of year ended december 31 , 201 7 and december 31 , 201 6 interest rates replace_table_token_26_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 , 2017 and december 31 , 2016 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 . rates trended upward during 2017 as the federal reserve open market committee ( “ fomc ” ) increased the discount rate by 25 basis points in march , june and december 2017. as of december 31 , 2017 , the prime rate was 4.5 % which is a 75 basis point increase from december 31 , 2016. interest income . total interest income increased $ 4,051,407 ( 16 % ) . the average balance of interest-earning assets increased $ 78,175,000 ( 12 % ) , while the yield on average interest earning assets increased 13 basis points to 4.14 % . interest income on loans increased $ 4,139,313 ( 18 % ) . the average loan receivable balance increased $ 94,444,000 ( 18 % ) while the average yield decreased 3 basis points to 4.51 % . the company experienced strong loan activity during 2017. however , pricing on loans is challenging due to significant competition on new and renewing credits .
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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 , hospitality , small business administration ( “ sba ” ) and 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 mdf and the 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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the primary objective for consumer applications is to provide users of mobile consumer devices such as smartphones , media players , tablet pcs and other consumer electronics products with a large screen viewing experience produced by a small embedded projector . these potential products would allow users to watch movies and videos , play video games , and display images and other data onto a variety of surfaces , freeing users from the limitations of a small , palm-sized screen . the picop could be further modified to be embedded into a pair of glasses to provide the mobile user with a see-through or occluded personal display to view movies , play games or access other content . the picop with some modification could be embedded into a vehicle or integrated into a portable standalone aftermarket device to create a high-resolution head-up display ( hud ) that could project point-by-point navigation , critical operational , safety and other information important to the vehicle operator . the enterprise products employing our technology would allow users in field-based professions such as service repair or sales to view and share information such as schematics for equipment repair and sales data and orders within crm applications on a larger , more user-friendly interface . we also see potential for embedding the picop laser display engine in industrial products where our displays could be used for 3d measuring and digital signage , enhancing the overall user experience of these applications . we currently market and sell our showwx line of accessory pico projectors , which use our picop display engine through a network of global distributors . we continue to enter into a limited number of development agreements with commercial and u.s. government customers to develop advanced prototypes and demonstration units based on our light scanning technologies . we have incurred substantial losses since inception and expect to incur a substantial loss during the fiscal year ending december 31 , 2012. key accounting policies and estimates our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosure of contingent liabilities . we evaluate our estimates on an on-going basis . we base our estimates on historical experience , terms of existing contracts , our evaluation of trends in the display and image capture industries , information provided by our current and prospective customers and strategic partners , information available from other outside sources , and on various other assumptions we believe to be reasonable under the circumstances . the results form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . we believe the following key accounting policies require more significant judgments and estimates used in the preparation of our consolidated financial statements : revenue recognition . our product sales generally include acceptance provisions . we recognize product revenue upon acceptance of the product by the customer or expiration of the contractual acceptance period , after which there are no rights of return . we have entered into agreements with resellers and distributors , as well as selling directly to the public . sales made to resellers and distributors are recognized using either the sell-through method or upon expiration of the contractually agreed-upon acceptance period , depending on our ability to reasonably estimate returns . some of the agreements with resellers and distributors contain price-protection clauses , and revenue is recognized net of these 17 amounts . sales made directly to the public are recognized either upon expiration of the contractual acceptance period after which there are no rights of return , or net of estimated returns and allowances . provisions are made for warranties at the time revenue is recorded . our quarterly revenue may vary substantially due to the timing of product orders from customers , production constraints and availability of components and raw materials . we recognize contract revenue as work progresses on long-term , cost plus fixed fee , and fixed price contracts using the percentage-of-completion method , which relies on estimates of total expected contract revenue and costs . we have developed processes that allow us to make reasonable estimates of the cost to complete a contract . when we begin work on the contract and at the end of each accounting period , we estimate the labor , material and other costs required to complete the contract using information provided by our technical team , project managers , vendors , outside consultants and others and compare these to costs incurred to date . since our contracts generally require some level of technology development to complete , the actual cost required to complete a contract can vary from our estimates . recognized revenues are subject to revisions as actual cost becomes certain . revisions in revenue estimates are reflected in the period in which the facts that give rise to the revision become known . historically , we have made only immaterial revisions in the estimates to complete the contract at each reporting period . in the future , revisions in these estimates could significantly impact recognized revenue in any one reporting period . if the u.s. government cancels a contract , we would receive payment for work performed and costs committed to prior to the cancellation . we recognize contract revenue on the sale of prototype units and evaluation kits upon acceptance of the deliverables by the customer or expiration of the contractual acceptance period , after which there are no rights of return . cost of revenue . cost of revenue includes both the direct and allocated indirect costs of performing on development contracts and producing prototype units , evaluation kits , showwx and rov units . story_separator_special_tag the decrease in research and development expense during 2011 , compared to the same period in 2010 , is primarily attributable to decreased subcontractor costs associated with advanced research and decreased payroll costs due to reductions in staffing levels , compared to the prior year . in 2011 , we aggressively managed our operating expenses as part of our strategy to simplify operations and significantly reduce our 2011 cash requirements as we focused our efforts on development of the next-generation of our picop technology based on direct green lasers . as a result , our research and development expense significantly decreased for 2011 compared to 2010. we believe that a substantial level of continuing research and development expense will be required to develop additional commercial products using the picop technology . accordingly , we anticipate our level of research and development spending will continue to be substantial . sales , marketing , general and administrative expense . 2011 2010 $ change % change ( in thousands ) sales , marketing , general and administrative $ 13,314 $ 15,252 $ ( 1,938 ) ( 12.7 ) sales , marketing , general and administrative expense includes compensation and support costs for marketing , sales , management and administrative staff , and for other general and administrative costs , including legal and accounting services , consultants and other operating expenses . the decrease in cost during 2011 compared to the same period in 2010 is primarily due to decreased payroll costs due to reductions in staffing levels . 21 in 2011 , we aggressively managed our operating expenses as part of our strategy to simplify operations and significantly reduce our 2011 cash requirements as we focused our efforts on development of the next-generation of our picop technology based on direct green lasers . as a result , our sales , marketing , general and administrative expense decreased for 2011 compared to 2010. interest income and expense . replace_table_token_7_th replace_table_token_8_th the decrease in interest income in 2011 from 2010 results primarily from lower average cash , investment securities balances , and interest rates . the decrease in interest expense in 2011 from 2010 results primarily from lower average balances on our capital leases and our outstanding loan for leasehold improvements . realized loss on sale of investment securities at december 31 , 2009 , we held $ 3.0 million par value student loan auction-rate securities ( slars ) , fair valued at $ 2.7 million . in march and december 2010 , one of the issuers redeemed a total of $ 200,000 of our slars at par value through a voluntary lottery redemption program . in december 2010 , we sold our remaining slars for proceeds of approximately $ 2.4 million and recorded a loss of $ 127,000 which is included in `` realized loss on sale of investment securities '' on the consolidated statement of operations . gain on derivative instruments , net . replace_table_token_9_th prior to 2011 , we had common stock warrants outstanding that were issued in connection with certain notes . the warrants met the definition of derivative instruments that must be accounted for as liabilities because we could not engage in certain corporate transactions affecting the common stock unless we made a cash payment to the holders of the warrants . we recorded changes in the fair values of the warrants in the statement of operations each period . in july 2008 , warrants to purchase 750,000 shares of common stock expired unexercised . during 2010 , the remaining 1,552,000 expired unexercised . the change in value of the warrants of $ 840,000 in 2010 was recorded as a non-operating gain and is included in `` gain on derivative instruments , net '' in the consolidated statement of operations . income taxes . no provision for income taxes has been recorded because we have experienced net losses from inception through december 31 , 2011. at december 31 , 2011 , we had net operating loss carry-forwards of approximately $ 283.2 million for federal income tax reporting purposes . in addition , we have research and development tax credits of $ 5.8 million . the net operating loss carry-forwards and research and development credits available to offset future taxable income , if any , will expire in varying amounts from 2017 to 2031 if not previously utilized . in 2011 , $ 2.1 million in net operating loss carry-forwards expired . the research and development tax credits and the remaining net operating losses are scheduled to expire between 2017 and 2031. in certain circumstances , as specified in the internal revenue code , a 50 % or more ownership change by certain combinations of our shareholders during any three-year period would result in a limitation on our ability to utilize a portion of our net operating loss carry-forwards . we have determined that such a change of ownership occurred during 1996 and that the annual utilization of loss carry-forwards generated through the period of that change will be limited to approximately $ 1.6 million . we recognize interest accrued and penalties related to unrecognized tax benefits in tax expense . we did not have any unrecognized tax benefits at december 31 , 2011 or at december 31 , 2010 . 22 year ended december 31 , 2010 compared to year ended december 31 , 2009 product revenue . replace_table_token_10_th pico projector revenue includes the sales of showwx which was launched in september 2009 and the showwx+ which was launched in november 2010. bar code revenue includes the sales of rov bar code scanners . the decrease in bar code revenue for the year ended december 31 , 2010 compared to the same period in 2009 was due to our decreased investment in our bar code product during 2009. the backlog of product orders at december 31 , 2010 was approximately $ 12.7 million , compared to $ 3.8 million at december 31 , 2009. contract revenue .
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results of operations year ended december 31 , 2011 compared to year ended december 31 , 2010 product revenue . replace_table_token_3_th pico projector revenue includes the sales of our showwx line of accessory pico projectors and related accessories , and picop engines . pico projector revenue was higher for the year ended december 31 , 2011 than the same period in 2010 , as a result of increased sales of our picop engines compared to the prior year and a one-time sale of our pico projectors to one customer . bar code revenue was lower for the year ended december 31 , 2011 compared to the same period in 2010 , due to our decision to stop marketing our bar code product during 2009 and focus on commercializing the picop technology . we do not expect to increase our investment in the bar code product in the future . our quarterly revenue may vary substantially due to the timing of product orders from customers , production constraints and availability of components and raw materials . the backlog of product orders at december 31 , 2011 was approximately $ 1.4 million , compared to $ 12.7 million at december 31 , 2010. product backlog is scheduled for delivery within one year . in september 2011 , we received orders of $ 3.5 million from esplus for embedded display engines , the majority of which were scheduled for delivery in the fourth quarter of 2011. during the fourth quarter of 2011 , esplus determined that it needed additional time to mature the commercial readiness of its media player product and elected to defer picop engine shipments into 2012. as a result , we have removed orders of $ 2.8 million from this customer from our product backlog as of december 31 , 2011. we are working with esplus to determine a new delivery schedule . 19 contract revenue .
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full repayment of term loan on november 7 , 2012 , the company entered into a loan story_separator_special_tag forward-looking statements the following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and related notes appearing elsewhere in this annual report on form 10-k. this discussion contains forward-looking statements reflecting our current expectations and involves risks and uncertainties . in some cases , you can identify forward-looking statements by terminology such as “ may , ” “ will , ” “ should , ” “ expect , ” “ plan , ” “ anticipate , ” “ believe , ” “ estimate , ” “ predict , ” “ intend , ” “ potential ” or “ continue ” or the negative of these terms or other comparable terminology . for example , statements regarding our expectations as to future financial performance , expense levels and liquidity sources are forward-looking statements . our actual results and the timing of events may differ materially from those discussed in our forward-looking statements as a result of various factors , including those discussed below and those discussed in the section entitled “ risk factors ” and elsewhere in this report . overview we deliver microinverter technology for the solar industry that increases energy production , simplifies design and installation , improves system uptime and reliability , reduces fire safety risk and provides a platform for intelligent energy management . we were founded in march 2006 and have grown rapidly to become the market leader in the microinverter category . since our first commercial shipment in mid-2008 , we have sold over 7.2 million microinverters as of december 31 , 2014 , which represents over 1.6 gigawatt ( ac ) of solar pv generating capacity . we currently offer microinverter systems targeting the residential and commercial markets in the united states , canada , the united kingdom , france , the benelux region , certain other european markets , australia and new zealand . we sell our microinverter systems primarily to distributors who resell them to solar installers . we also sell directly to large installers and through original equipment manufacturers ( “ oems ” ) and strategic partners . historically , revenues generated from the u.s. market have represented more than 80 % of our total revenues , with the remainder from canada , europe and asia pacific region . we have experienced significant revenue growth since our first commercial shipment in mid-2008 . our net revenues were $ 343.9 million , $ 232.8 million and $ 216.7 million for 2014 , 2013 and 2012 , respectively , which reflects deeper market penetration and broader acceptance of microinverter technology . we incurred net losses of $ 8.1 million , $ 25.9 million and $ 38.2 million for 2014 , 2013 and 2012 , respectively , as we continued to invest substantial resources to support the growth of our business , including marketing and developing our products , expanding into new product markets and geographies , maintaining and enhancing our research and development operations and personnel-related costs due to growth in headcount . our full-time employee headcount has grown from 384 at december 31 , 2012 to 539 at december 31 , 2014. recent operating results in 2014 , we grew our revenues , improved gross margin and operating margin and improved cash flows provided by operating activities . we grew our net revenues to $ 343.9 million in 2014 , as compared to $ 232.8 million in 2013 , representing an increase of $ 111.1 million or 48 % . our net loss was $ 8.1 million in 2014 , as compared to a net loss of $ 25.9 million in 2013 , representing a decrease of $ 17.8 million or 69 % . we generated cash flows from operations of $ 24.2 million in 2014 compared to approximately break-even in 2013. components of consolidated statements of operations net revenues we generate net revenues from sales of our microinverter systems , which include microinverter units , an envoy communications gateway device , and our enlighten web-based monitoring service . we sell to distributors , large installers , oems and strategic partners . our revenue is affected by changes in the volume and average selling prices of our microinverter systems , driven by supply and demand , sales incentives , and competitive product offerings . our revenue growth is dependent on our ability to develop and introduce new products to meet the changing technology and performance requirements of our customers , the diversification and expansion of our revenue base , and our ability to market our products in a manner that increases awareness for microinverter technology and differentiates us in the marketplace . 30 cost of revenues and gross profit cost of revenues is comprised primarily of product costs , warranty , manufacturing personnel and logistics costs , freight costs , depreciation and amortization of test equipment and hosting services costs . our product costs are impacted by technological innovations , such as advances in semiconductor integration and new product introductions , economies of scale resulting in lower component costs , and improvements in production processes and automation . certain costs , primarily personnel and depreciation and amortization of test equipment , are not directly affected by sales volume . we outsource our manufacturing to third-party contract manufacturers and generally negotiate product pricing with them on a quarterly basis . we believe our contract manufacturing partners have sufficient production capacity to meet the growing demand for our products for the foreseeable future . however , shortages in the supply of certain key raw materials could adversely affect our ability to meet customer demand for our products . in addition , third parties , including one of our contract manufacturers , serve as our logistics providers by warehousing and delivering our products in north america , europe , australia and new zealand . story_separator_special_tag 33 sales and marketing replace_table_token_9_th 2014 compared to 2013. sales and marketing expenses increased by $ 9.9 million in 2014 as compared to 2013. this increase was primarily due to a 30 % increase in sales and marketing headcount , which resulted in increased expense of $ 9.1 million from salaries , incentive compensation and stock-based compensation . in addition , increased marketing activities mostly from trade shows and use of outside consultants contributed $ 1.3 million to the increase . the increase was partially offset by $ 0.5 million in bad debt recoveries . 2013 compared to 2012. sales and marketing expenses increased by $ 5.1 million in 2013 as compared to 2012 , primarily due to increases in customer service headcount and operations in domestic and international markets . personnel-related costs increased by $ 4.0 million , which included a $ 0.6 million increase in non-cash stock-based compensation . costs associated with establishing our presence in australia contributed an additional $ 1.8 million to the increase in 2013. the increase was partially offset by a decrease in marketing expenses primarily attributable to lower expenditures on trade shows of $ 0.6 million . general and administrative replace_table_token_10_th 2014 compared to 2013. general and administrative expenses increased by $ 7.1 million in 2014 as compared to 2013. this increase was primarily due to an increase in personnel-related costs of $ 4.6 million related to modest headcount growth and increases in incentive and stock-based compensation for existing employees . in addition , an increase in the use of outside consultants including advisory services for our secondary offering and acquisition contributed $ 1.6 million to the increase . the remaining increase was attributable to facilities-related costs , information technology costs and other general corporate expenses . 2013 compared to 2012. general and administrative expenses decreased by $ 0.9 million in 2013 as compared to 2012 , primarily as a result of decreased use of outside consultants and professional services . other income ( expense ) , net replace_table_token_11_th 2014 compared to 2013. other expense remained flat at $ 2.9 million in 2014 and 2013 , respectively , and primarily consisted of interest expense and foreign currency transaction losses . in december 2014 , we recorded $ 0.3 million of interest expense related to the write-off of deferred financing costs and the unaccrued portion of the end of term fee in connection with the voluntary prepayment of our term loan with hercules technology growth capital , inc. 2013 compared to 2012. other expense decreased by $ 3.5 million in 2013 as compared to 2012. the decrease was primarily attributable to the $ 2.8 million charge recorded as interest expense in 2012 upon conversion of our convertible facility at our ipo . in addition , interest expense related to outstanding debt balances was lower in 2013 , as compared to 2012 , due to lower average debt levels . 34 liquidity and capital resources as of december 31 , 2014 , we had $ 42.0 million in cash and cash equivalents and no debt . cash and cash equivalents held in the united states were $ 37.0 million and consisted primarily of non-interest bearing checking deposits , with the remainder held in various foreign subsidiaries . the following table summarizes our cash flows for the periods presented ( in thousands ) : replace_table_token_12_th cash flows from operating activities for 2014 , net cash provided by operating activities was $ 24.2 million . our net loss of $ 8.1 million was more than offset by non-cash charges and net changes in operating assets and liabilities . non-cash charges included $ 9.7 million of stock-based compensation , $ 8.3 million of depreciation and amortization and $ 1.4 million of other non-cash charges . in addition , cash provided by net changes in operating assets and liabilities was $ 12.8 million . sources of cash totaled $ 34.1 million resulting from an increase of $ 25.3 million in accounts payable , accrued and other liabilities , an increase of $ 5.3 million in deferred revenues and an increase of $ 3.5 million in warranty obligations . the increases in accounts payable , deferred revenues and warranty obligations were primarily attributable to higher sales volume and inventory purchases . accrued and other liabilities increased primarily due to amounts due under our annual incentive compensation plan . uses of cash included a $ 13.7 million increase in accounts receivable , a $ 5.0 million increase in inventory and a $ 2.5 million increase in prepaid expenses and other assets . the increases were primarily attributable to higher sales volume and higher inventory requirements to support anticipated year-over-year sales growth in the first quarter of 2015. for 2013 , net cash used in operating activities was $ 0.9 million . our net loss of $ 25.9 million was substantially offset by non-cash charges and net changes in operating assets and liabilities . non-cash items included $ 7.0 million of depreciation and amortization , $ 6.9 million of stock-based compensation , a provision for doubtful accounts of $ 0.7 million and $ 0.4 million of non-cash interest expense . in addition , cash provided by net changes in operating assets and liabilities was $ 10.0 million . for 2012 , net cash used in operating activities was $ 44.6 million primarily resulting from a net loss of $ 38.2 million . the net loss was partially offset by non-cash items including , depreciation and amortization of $ 5.6 million , stock-based compensation of $ 4.8 million and interest expense of $ 4.8 million . in addition , the effect of changes in net operating assets and liabilities resulted in the use of cash totaling $ 22.2 million . cash flows from investing activities net cash used in investing activities primarily relates to capital expenditures to support our growth . for 2014 , net cash used in investing activities of $ 16.5 million included purchases of test and assembly equipment and the development of software for internal use .
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summary consolidated statements of operations the following table sets forth a summary of our consolidated statements of operations for the periods presented ( in thousands ) : replace_table_token_5_th comparison of 2014 , 2013 and 2012 net revenues replace_table_token_6_th 2014 compared to 2013. net revenues increased by 48 % to $ 343.9 million in 2014 , as compared to 2013. the increase in net revenues was primarily driven by sales of our fourth generation microinverter , which was launched in mid-2013 , and continued strength in our core u.s. residential market . the number of microinverter units sold increased by 59 % from 1,625,000 units in 2013 to 2,580,000 units in 2014. revenues grew year-over year at a slightly slower pace than units shipped due to a decline in the average selling price , which was consistent with trends in the solar industry . 2013 compared to 2012. net revenues increased by 7 % to $ 232.8 million in 2013 , as compared to 2012. the increase in net revenues was primarily due to the increase in microinverter units shipped as well as a larger mix of microinverter accessories . the number of microinverter units sold increased by 8 % from 1,510,000 units in 2012 to 1,625,000 units in 2013. substantially all units shipped in both years consisted of our third generation product . revenues grew year-over year at a slightly slower pace than units shipped due a decline in the average selling price , which was consistent with trends in the solar industry . 32 cost of revenues and gross margin replace_table_token_7_th 2014 compared to 2013. cost of revenues increased by 40 % in 2014 , as compared to 2013 , while net revenues increased by 48 % . the increase in cost of revenues was primarily due to an increase in the number of microinverter units sold to customers , consistent with the overall increase in net revenues as described above .
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the following table shows our derivative instruments measured at gross fair value as reflected in the consolidated balance sheets in derivative asset/liability as of december 31 , 2013 and 2012 : as of december 31 , 2013 as of december 31 , 2012 assets liabilities assets liabilities foreign exchange contracts $ — $ 2,160 $ 733 $ 253 the following table shows the effect of our derivative instruments designated as cash flow hedges for the years ended december 31 , 2013 and 2012 : 39 replace_table_token_12_th 8. fair value measurements derivative instruments and hedging activities the values of our derivative instruments are derived from pricing models using inputs based upon market information , including contractual terms , market prices and yield curves . the inputs to the valuation pricing models are observable in the market , and as such are generally classified as level 2 in the fair value hierarchy . restructuring charges accrued restructuring costs were valued using a discounted cash flow model . significant assumptions used in determining the amount of the estimated liability for closing a facility are the estimated liability for future lease payments on vacant facilities and the discount rate utilized to determine the present value of the future expected cash flows . if the assumptions regarding early termination and the timing and amounts of sublease payments prove to be inaccurate , we may be required to record additional losses , or conversely , a future gain , in the consolidated statements of operations and comprehensive income ( loss ) . in the future , if we sublease for periods that differ from our assumption or if an actual buy-out of a lease differs from our estimate , we may be required to record a gain or loss . future cash flows also include estimated property taxes through the remainder of the lease term , which are valued based upon historical tax payments . given that the restructuring charges were valued using our internal estimates using a discounted cash flow model , we have classified the accrued restructuring costs as level 3 in the fair value hierarchy . long-lived assets we periodically , on at least an annual basis , evaluate potential impairments of our long-lived assets . in our annual evaluation or when we determine that the carrying value of a long-lived asset may not be recoverable , based upon the existence of one or more indicators of impairment , we evaluate the projected undiscounted cash flows related to the assets . if these cash flows are less than the carrying values of the assets , we measure the impairment based on the excess of the carrying value of the long-lived asset over the long-lived asset 's fair value . where appropriate , we use a probability-weighted approach to determine our future cash flows , based upon our estimate of the likelihood of certain scenarios , primarily whether we expect to sell new business within a current location . these estimates are consistent with our internal projections and external communications and public disclosures . there were no long-lived assets impaired during 2013 or 2012. in 2010 , we committed to a plan to sell the buildings and land at our closed facilities in laramie , wyoming and greeley , colorado . we received estimates of the selling prices of this real estate , and have reduced the value of the buildings and land to fair value , less costs to sell , or approximately $ 4,102 at december 31 , 2012. the measurement of the fair value of the buildings was based upon our third-party real estate broker 's non-binding estimate of fair value using the observable market information regarding sale prices of comparable assets . during 2012 , we committed to sell our enid , oklahoma facility , which had a carrying value of $ 867 . as these inputs to the determination of fair value are based upon non-identical assets and use significant unobservable inputs , we have classified the assets as level 3 in the fair value hierarchy as of december 31 , 2012. during 2013 , we reclassified our laramie , wyoming facility to held and used , sold the greeley , colorado facility ( refer to note 9 , `` property , plant & equipment , `` for additional information ) and reopened our enid , oklahoma facility ; therefore , we had no assets held for sale at december 31 , 2013. fair value hierarchy the following tables set forth our assets and liabilities measured at fair value on a recurring basis and a non-recurring basis by story_separator_special_tag the following discussion analyzes our consolidated financial condition as of december 31 , 2013 and 2012 , and our consolidated results of operations for the years then ended . we are considered a `` smaller reporting company '' under applicable regulations of the sec and are therefore eligible for relief from certain disclosure requirements . in accordance with such provisions , we have elected to provide our audited consolidated statements of operations and comprehensive ( loss ) , cash flows and changes in stockholders ' equity for two , rather than three , years . overview startek is a comprehensive contact center and business process outsourcing service company with employees we call brand warriors who for over 25 years have been committed to making a positive impact on our clients ' business results . our mission is to enable and empower our brand warriors to promote our clients ' brands every day and bring value to our stakeholders . we accomplish this by aligning with our clients ' business objectives . story_separator_special_tag latin america gross profit as a percentage of revenue increased from ( 4.7 % ) to 3.6 % due to the higher headcount and asset utilization . 18 selling , general and administrative expenses selling , general and administrative expenses decreased from $ 29.6 million in 2012 to $ 28.8 million in 2013 and decreased significantly as a percentage of revenue in 2013 compared with 2012 from 15.0 % to 12.5 % , respectively . the decrease as a percentage of revenue was the result of revenue growth and continued focus on cost control . impairment losses and restructuring charges , net during 2013 , we recognized $ 0.5 million in impairment losses in our latin america segment associated with the furniture , fixtures and leasehold improvements at our site in costa rica after an impairment analysis indicated estimated future cash flows were insufficient to support the carrying values . we also reversed $ 0.4 million of restructuring charges during this period due to expenses reimbursable under the sublease at our victoria , texas facility . impairment losses and restructuring charges totaled $ 4.1 million for 2012. the $ 4.1 million expense in 2012 consisted of the following activities in our domestic segment : $ 3.1 million of impairment losses related to long-lived assets such as computer equipment , software , equipment and furniture and fixtures for which the future cash flows did not support the carrying value of the assets in our decatur , illinois and jonesboro , arkansas facilities ; $ 0.5 million of restructuring charges related to lease , utilities , maintenance , and security expense that will continue to be incurred for the decatur , illinois location ; $ 0.7 million of restructuring charges related to revised estimates of our expected lease term for our regina , saskatchewan site ; partially offset by a reversal of $ 0.2 million of restructuring charges related to our grand junction , colorado site that was re-opened in the third quarter of 2012. interest and other income ( expense ) , net interest and other income ( expense ) , net for 2013 was $ 1.6 million compared to $ ( 0.3 ) million in 2012. the $ 1.6 million includes losses on disposal of assets related to our it transformation project of $ 1.0 million , loss on sale leaseback transaction of $ 0.5 million and loss on disposal of assets previously held for sale of $ 0.1 million . income tax income tax expense for 2013 was $ 0.2 million compared to $ 0.1 million in 2012. the current period income tax expense is the tax impact of the income tax provision for canadian operations . our u.s. operations have a valuation allowance recorded on u.s. deferred tax assets and we have tax holidays in the philippines , costa rica and honduras . net loss as a result of the factors described above , net loss was $ 6.4 million for the year ended december 31 , 2013 , compared to $ 10.5 million for the year ended december 31 , 2012. liquidity and capital resources our primary sources of liquidity are generally cash flows generated by operating activities and from available borrowings under our revolving credit facility . we have historically utilized these resources to finance our operations and make capital expenditures associated with capacity expansion , upgrades of information technologies and service offerings , and business acquisitions . due to the timing of our collections of large billings with our major customers , we have historically needed to draw on our line of credit periodically for ongoing working capital needs . based on current expectations , we believe our cash from operations and capital resources will be sufficient to operate our business for at least the next 12 months . as of december 31 , 2013 , working capital totaled $ 31.6 million and our current ratio was 2.11:1 , compared to working capital of $ 36.4 million and a current ratio of 2.50:1 at december 31 , 2012 . 19 net cash flows provided by operating activities in 2013 was $ 6.2 million compared to net cash provided by operating activities of $ 2.9 million for 2012. the $ 3.3 million increase in net cash flows from operating activities was due to a $ 1.8 million decrease in non-cash items such as depreciation and amortization , impairment charges , losses on asset disposals and stock-based compensation , offset by a $ 1.0 million net decrease in cash flows from assets and liabilities and a $ 4.1 million decrease in net loss . net cash used in investing activities in 2013 of $ 5.6 million primarily consisted of $ 8.8 million of capital expenditures and cash paid for acquisitions of $ 2.1 million , partially offset by the proceeds from the sale of assets of $ 3.4 million and proceeds from a sale leaseback transaction of $ 1.3 million . this compares to 2012 net cash used in investing activities of $ 2.8 million primarily for capital expenditures of $ 7.3 million , partially offset by the proceeds from the sale leaseback transaction of our kingston , ontario property of $ 3.9 million . net cash provided by financing activities in 2013 of $ 1.2 million was primarily attributed to borrowings from our line of credit . during the year ended december 31 , 2013 we borrowed approximately $ 41.4 million and repaid approximately $ 40.4 million on our credit facility . this compares to 2012 net cash provided by financing activities of seven thousand , primarily for proceeds from purchases of our common stock under our employee stock purchase plan offset by payments on capital lease obligations .
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variability of operating results we have experienced and expect to continue to experience some quarterly variations in revenue and operating results due to a variety of factors , many of which are outside our control , including : ( i ) timing and amount of costs incurred to expand capacity in order to provide for volume growth from existing and future clients ; ( ii ) changes in the volume of services provided to principal clients ; ( iii ) expiration or termination of client projects or contracts ; ( iv ) timing of existing and future client product launches or service offerings ; ( v ) seasonal nature of certain clients ' businesses ; and ( vi ) variability in demand for our services by our clients depending on demand for their products or services and or depending on our performance . critical accounting policies and estimates the preparation of consolidated financial statements requires us to make estimates and assumptions . these estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period . we base our accounting estimates on historical experience and other factors that we believe to be reasonable under the circumstances . actual results could differ from those estimates . 20 we have discussed the development and selection of critical accounting policies and estimates with our audit committee . we believe that the following critical accounting policies involve our more significant judgments and estimates used in the preparation of our consolidated financial statements . impairment of long-lived assets we periodically , on at least an annual basis , evaluate potential impairments of our long-lived assets .
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the amendments in asu 2015-16 require an entity to present separately on the face of the income statement , or disclose in the notes , the portion of the amount recorded in story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and related notes included elsewhere in this annual report . this discussion and analysis contains forward-looking statements that involve risks , uncertainties and assumptions . you should review the “ risk factors ” and “ cautionary note concerning forward-looking statements ” sections of this annual report for a discussion of certain of the important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements described in the following discussion and analysis . certain amounts and percentages in this discussion and analysis have been rounded for convenience of presentation . overview we are a medical device company that develops and commercializes solutions for the treatment of musculoskeletal solutions . today we are primarily focused on implants that promote healing in patients with spine disorders . in 2017 , we launched excelsiusgps , a revolutionary robotic guidance and navigation system that supports minimally invasive and open orthopedic and neurosurgical procedures , with screw placement applications in spine and orthopedic surgery . we completed our first sale of excelsiusgps in the fourth quarter of 2017. also in the fourth quarter of 2017 , we launched our first products for the treatment of patients who have experienced orthopedic trauma . we are an engineering-driven company with a history of rapidly developing and commercializing advanced products and procedures to assist surgeons in effectively treating their patients and address new treatment options . since our inception in 2003 , we have launched over 180 products and offer a comprehensive product portfolio of innovative and differentiated products addressing a broad array of musculoskeletal pathologies , anatomies and surgical approaches . all of our current products fall into one of two categories : innovative fusion or disruptive technologies . our innovative fusion products comprise fusion products designed to treat a wide variety of musculoskeletal disorders and can be used in a variety of surgical approaches . we believe our innovative fusion products have features and characteristics that provide advantages for surgeons and potentially contribute to better outcomes for patients as compared to competing traditional fusion products . we define disruptive technologies as those that represent a significant shift in the treatment of musculoskeletal disorders or trauma by allowing for novel surgical procedures , improvements to existing surgical procedures and or the treatment of musculoskeletal disorders earlier in the continuum of care . we believe the use of disruptive technologies may improve patient outcomes and reduce costs given the expected lower morbidity rates , shorter patient recovery times and shorter hospital stays associated with these procedures . additionally , disruptive technologies may help patients avoid progression of spinal disc disease sometimes caused by traditional surgical options such as spinal fusion . our current portfolio of approved and pipeline disruptive technology products includes products that allow for minimally invasive surgical ( “ mis ” ) techniques , as well as new treatment alternatives , including imaging , navigational and robotics ( “ inr ” ) technologies ; motion preservation technologies , such as dynamic stabilization , total disc replacement and interspinous process spacer products ; regenerative biologics technologies ; and interventional pain management solutions , including treatments for vertebral compression fractures . while we group our products into two categories , our products are not limited to a particular technology , platform or surgical approach . instead , our goal is to offer surgeons a complete suite of products they can use to most effectively treat their patients , based on the patient 's specific anatomy and condition and the surgeon 's particular training and surgical preference . 55 to date , the primary market for our products has been the united states , where we sell our products through a combination of direct sales representatives employed by us and distributor sales representatives employed by our exclusive independent distributors , who distribute our products on our behalf for a commission that is generally based on a percentage of sales . we believe there is significant opportunity to strengthen our position in the u.s. market by increasing the size of our u.s. sales force and we intend to add additional direct and distributor sales representatives in the future . during the year ended december 31 , 2017 , our international sales accounted for approximately 17 % of our total sales . the international sales total includes a full year of results following the september 1 , 2016 acquisition of the international operations and distribution channel of alphatec holdings , inc. ( “ alphatec international ” ) . we have sold our products in 54 countries outside the united states through a combination of direct sales representatives employed by us and international distributors . we believe there are significant opportunities for us to increase our presence in both existing and new international markets through the continued expansion of our direct and distributor sales forces and the commercialization of additional products . components of our results of operations we manage our business globally within one operating segment , which is consistent with how our management reviews our business , makes investment and resource allocation decisions and assesses operating performance . sales today , we sell primarily implants and related disposables , primarily to hospitals , for use by spine surgeons to treat spine disorders . we generally consign our surgical sets , which contain our implants , disposables , surgical instruments and cases to our sales representatives , and the sets are maintained with the sales representatives or at our hospital customers that purchase the implants and related disposables used in the surgeries . story_separator_special_tag critical accounting policies and estimates the preparation of the consolidated financial statements requires us to make assumptions , estimates and judgments that affect the reported amounts of assets and liabilities , the disclosures of contingent assets and liabilities as of the date of the consolidated financial statements , and the reported amounts of sales and expenses during the reporting periods . certain of our more critical accounting policies require the application of significant judgment by management in selecting the appropriate assumptions for calculating financial estimates . by their nature , these judgments are subject to an inherent degree of uncertainty . on an ongoing basis , we evaluate our judgments , including but not limited to those related to inventories , recoverability of long-lived assets and the fair value of our common stock . we use historical experience and other assumptions as the basis for our judgments and making these estimates . because future events and their effects can not be determined with precision , actual results could differ significantly from these estimates . any changes in those estimates will be reflected in our consolidated financial statements as they occur . while our significant accounting policies are more fully described in “ part ii ; item 8. financial statements and supplementary data ; notes to consolidated financial statements ; note 1. background and summary of significant accounting policies ” below in this annual report , we believe that the following accounting policies and estimates are most critical to a full understanding and evaluation of our reported financial results . the critical accounting policies addressed below reflect our most significant judgments and estimates used in the preparation of our consolidated financial statements . we have reviewed these critical accounting policies with the audit committee of our board . 58 revenue recognition . we recognize revenue when persuasive evidence of an arrangement exists , product delivery has occurred , pricing is fixed or determinable , and collection is reasonably assured . we generate a significant portion of our revenue from consigned inventory maintained at hospitals or with sales representatives . for these products , we recognize revenue at the time the product has been used or implanted . for all other transactions , we recognize revenue when title to the goods and risk of loss transfer to customers , provided there are no remaining performance obligations that will affect the customer 's final acceptance of the sale . our policy is to classify shipping and handling costs billed to customers as sales and the related expenses as cost of goods sold . in general , our customers do not have any rights of return or exchange . excess and obsolete inventory . we state inventories at the lower of cost or market . we determine cost on a first-in , first-out basis . the majority of our inventory is finished goods , because we primarily utilize third-party suppliers to source our products . we periodically evaluate the carrying value of our inventories in relation to the estimated forecast of product demand , which takes into consideration the estimated life cycle of product releases . when quantities on hand exceed estimated sales forecasts , we record a write-down for excess inventories , which results in a corresponding charge to cost of goods sold . charges incurred for excess and obsolete inventory were $ 11.5 million , $ 12.8 million and $ 9.9 million for the years ended december 31 , 2017 , 2016 and 2015 , respectively . the need to maintain substantial levels of inventory impacts the risk of carrying excess inventory . many of our products come in sets which feature components in a variety of sizes so that the implant or device may be customized to the patient 's needs . in order to market our products effectively , we must often maintain and provide surgeons and hospitals with consignment implant sets , back-up products and products of different sizes . for each surgery , fewer than all of the components of the set are used , and therefore certain portions of the set may be considered excess inventory since they are not likely to be used . one of our primary business goals is to focus on continual product innovation . though we believe this provides us with a competitive advantage , it also increases the risk that our products will become excess or obsolete inventory prior to sale or prior to the end of their anticipated useful lives . when we introduce new products or next-generation products , we may be required to take charges for excess and obsolete inventory that have a significant impact on the value of our inventory or on our operating results . goodwill and intangible assets . goodwill represents the excess purchase price over the fair values of the identifiable assets acquired less the liabilities assumed . we acquired goodwill in connection with the various acquisitions completed . goodwill is tested for impairment at a minimum on an annual basis . the fair value is estimated using an income and discounted cash flow approach . we performed our qualitative goodwill and indefinite-lived intangible assets impairment tests in the fourth quarter of 2017 and determined that fair value of our reporting units is substantially in excess of carrying value . intangible assets consist of purchased in-process research and development ( “ ipr & d ” ) , developed technology , supplier networks , patents , customer relationships and non-compete agreements . intangible assets with finite useful lives are amortized over the period of estimated benefit using the straight-line method and estimated useful lives ranging from one to seventeen years . intangible assets are tested for impairment annually or whenever events or circumstances indicate that a carrying amount of an asset ( asset group ) may not be recoverable . if impairment is indicated , we measure the amount of the impairment loss as the amount by which the carrying amount exceeds the fair value of the asset . fair value is generally determined using a discounted future cash flow analysis .
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results of operations year ended december 31 , 2017 compared to the year ended december 31 , 2016 sales the following table sets forth , for the periods indicated , our sales by product category and geography expressed as dollar amounts and the changes in sales between the specified periods expressed in dollar amounts and as percentages : replace_table_token_5_th product launches continue to be a driving force in our sales growth , particularly from products launched during the last three years . innovative fusion sales increased by $ 39.8 million due primarily to increases in alphatec international sales and sales of quartex ® , which were offset partially by pricing pressure . the growth in disruptive technology of $ 32.2 million was due primarily to sales of expandable interbody , minimally invasive and regenerative biologics products launched in the past three years and from sales of excelsiusgps in the fourth quarter of 2017 . replace_table_token_6_th in the united states , the increase in sales of $ 29.7 million was due primarily to expansion into new territories and increased penetration in existing territories . the region experienced strong sales in disruptive technology products , led by sales of expandable interbody products and regenerative biologics and excelsius gps . internationally , the increase in sales of $ 42.3 million was primarily due to incremental sales from the alphatec international acquisition and increased penetration in japan . on a constant currency basis , our international sales grew $ 41.1 million , or by 66.9 % , due to expansion into new international territories . our worldwide sales increased 12.8 % on a constant currency basis . for additional information regarding the alphatec international acquisition , please refer to “ part ii ; item 8. financial statements and supplementary data ; notes to consolidated financial statements ; note 2. acquisitions ” and for additional information regarding constant currency , please refer to “ non-gaap financial measures ” below .
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the excess of the consideration transferred over the estimated fair value of the story_separator_special_tag executive overview we are a leading global technology solutions provider to high-value segments of the food and beverage industry with focus on proteins , liquid foods and automated guided vehicle systems . we design , produce , and service sophisticated products and systems for multi-national and regional customers through our foodtech segment . we also sell critical equipment and services to domestic and international air transportation customers through our aerotech segment . our elevate plan was designed to capitalize on the leadership position of our businesses and favorable macroeconomic trends . the elevate plan is based on a four-pronged approach to deliver continued growth and margin expansion . accelerate new product & service development . we are accelerating the development of innovative products and services to provide customers with solutions that enhance yield and productivity and reduce lifetime cost of ownership . grow recurring revenue . we are capitalizing on our extensive installed base to expand recurring revenue from aftermarket parts and services , equipment leases , consumables and our airport services offerings . execute impact initiatives . we are enhancing organic growth through initiatives that enable us to sell the entire foodtech portfolio globally , including enhancing our international sales and support infrastructure , localizing targeted products for emerging markets , and strategic cross selling of products . in aerotech , we plan to continue to develop advanced military product offering and customer support capability to service global military customers . additionally , our impact initiatives are designed to support the reduction in operating costs including strategic sourcing , relentless continuous improvement ( lean ) efforts , and the optimization of organizational structure . maintain a disciplined acquisition program . we are also continuing our strategic acquisition program focused on companies that add complementary products , which enable us to offer more comprehensive solutions to customers , and meet our strict economic criteria for returns and synergies . we developed the jbt operating system in 2018 , introducing a new level of process rigor across the company beginning in 2019. the system is designed to standardize and streamline reporting and problem resolution processes for increased visibility , efficiency , effectiveness and productivity in all business units . our approach to environmental , social and corporate governance ( esg ) builds on our culture and long tradition of concern for our employees ' health , safety , and well-being ; partnering with our customers to find ways to make better use of the earth 's precious resources ; and giving back to the communities where we live and work . our foodtech equipment and technologies continue to deliver quality performance while striving to minimize food waste , extend food product life , and maximize efficiency in order to create shared value for our food and beverage customers . our aerotech equipment business offers a variety of power options , including electrically powered ground support equipment , that help customers meet their environmental objectives.we recognize the responsibility we have to make a positive impact on our shareholders , the environment and our communities in a manner that is consistent with our fiduciary duties . we have engaged in structured education for enhancing inclusive leadership skills in our organization designed to ensure more diversity in our leadership and hiring practices . we have completed a comprehensive evaluation to determine which esg topics are most pressing for our business resulting in a materiality matrix informing our development of an esg strategy , balanced to ensure we invest responsibly in initiatives that can address the risks and opportunities presented by esg . we evaluate our operating results considering key performance indicators including segment operating profit , segment operating profit margin , segment ebitda ( adjusted when appropriate ) and segment ebitda margins . 31 during the third quarter of 2020 , we initiated a management succession plan after tom giacomini , the company 's former president and chief executive officer , resigned his employment with the company . the company named brian deck as interim president and chief executive officer and matt meister as interim chief financial officer effective september 22 , 2020 , and each as official successors to those roles effective december 11 , 2020 and december 14 , 2020 , respectively . the company also named alan feldman as interim chairman of its board of directors effective june 20 , 2020 and as official successor to this role effective on september 22 , 2020. business conditions and outlook during 2020 , despite significant decline in our revenues , our operating margins declined only marginally , due to expense control , the strength of our aftermarket business and the contribution from recent acquisitions . additionally , we have continued to enhance our internal operating efficiency with the ongoing benefits of our restructuring program and management through the jbt operating system . in terms of top–line growth , the environment in 2020 was characterized by business uncertainty which impacted our ability to convert commercial activity into order commitments at foodtech . passenger air travel came to a halt in the early months of 2020 and has not experienced a meaningful recovery to date . this has significantly impacted aerotech revenue which we expect may not fully recover until 2024. moreover , recurring revenue ( aftermarket parts and services and lease revenues ) , which represented more than 44 % of total jbt revenue , has provided stability and reliable profitability demonstrating a resilient model built to sustain such unusual market forces . while the demand environment at foodtech has improved since the early days of the pandemic , the economic environment has changed indefinitely and jbt is evolving to continue supporting our food and air transportation customers during a difficult period . we have also captured sustainable structural improvements from our restructuring program . in addition , the real-time production information provided by the jbt operating system enables us to proactively align costs with current market conditions . story_separator_special_tag we are also availing ourselves of benefits under the cares act including both deferred tax payments and tax credits related to the covid-19 pandemic . we have reduced spending more broadly across the company including reductions in bonus and other employee compensation , reduced hiring , implemented furloughs and layoffs , reduced work hours , significantly reduced discretionary spending and travel , and limited capital spending to critical needs . human capital related cost reductions such as reductions in bonus and other employee compensation have been implemented company-wide , with a focus on reducing discretionary spending for the company as a whole . furloughs and lay-offs are driven by individual business unit needs , and are based largely on current and anticipated customer demand within that business . we have developed contingency plans to further reduce costs and use of capital if the situation deteriorates . in addition , we are selectively resuming investments to ensure continued investment in product development , human capital , and customer support where market conditions are more favorable . we have taken significant actions to keep our employees safe throughout the covid-19 pandemic . in march , we formed the covid-19 crisis response team , a team of senior leaders across jbt that developed and deployed policies , programs and protocols to ensure the consistent and effective management of risk to jbt and our employees throughout the crisis . this included , but is not limited to , global travel guidelines , ppe and social distancing requirements , required location protocols , testing and return-to-work policies . as of the date of this filing , most of our factories , suppliers and warehouses remain operational . we have taken a number of steps under the guidance of our crisis response team to protect the health and safety of our workers in our facilities , including daily symptoms screening for clearance to work , social distancing requirements in our workplaces , face covering requirements where social distancing is not possible , facilitation of work from home arrangements for our employees who can perform work functions remotely , and global travel restrictions consistent with the centers for disease control and prevention and local government guidelines . our crisis response team issues frequent guidance to our managers and employees to reinforce the protocols and policies designed to keep our employees safe , and maintain our business operations . furthermore , we have largely maintained our supply chain to date through our geographically diversified supplier base , and are providing enhanced remote support options and extended hours to our customers to support them through the disruption caused by the pandemic . despite reduced capital expenditures and cost cutting measures , we have protected our investment in product development . we will continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal , state or local authorities or that we determine are in the best interests of our employees and our other stakeholders . 33 non-gaap financial measures the results for the periods ended december 31 , 2020 , 2019 and 2018 include several items that affect the comparability of our results . these non-gaap financial measures exclude certain amounts that are included in a measure calculated under u.s. gaap , or include certain amounts that are excluded from a measure calculated under u.s. gaap . by excluding or including these items , we believe we provide greater transparency into our operating results and trends , and a more meaningful comparison of our ongoing operating results , consistent with how management evaluates performance . management uses these non-gaap financial measures in financial and operational evaluation , planning and forecasting . the adjustments generally fall within the following categories : restructuring costs , m & a related costs , pension-related costs , constant currency adjustments and other major items affecting comparability of our ongoing operating results . beginning in the third quarter of 2020 , we adjusted certain of our non-gaap financial measures for management succession costs . on september 24 , 2020 , we announced that our former ceo resigned following a leave of absence . management succession costs in the year include severance paid to our former ceo , net of the reversal of stock based compensation expense for forfeited equity awards , and costs related to filling executive positions in connection with this transition . we did not incur management succession costs in any prior periods presented in this report . we are excluding management succession costs from certain non-gaap financial measures because they are not part of our regular compensation program , and we believe that excluding the effects of costs associated with the recruiting and implementing transition of our chief executive positions allows more meaningful period-to-period comparisons of our ongoing operating results . the non-gaap financial measures presented in this report may differ from similarly-titled measures used by other companies . the non-gaap financial measures are not intended to be used as a substitute for , nor should they be considered in isolation of , financial measures prepared in accordance with u.s. gaap . additional details for each non-gaap financial measure follow : free cash flow : we define free cash flow as cash provided by continuing operating activities , less capital expenditures , plus proceeds from sale of fixed assets and pension contributions . for free cash flow purposes we consider contributions to pension plans to be more comparable to payment of debt , and therefore exclude these contributions from the calculation of free cash flow . we use free cash flow internally as a key indicator of our liquidity and ability to service debt , invest in business combinations , and return money to shareholders . we believe this information is useful to investors because it provides an understanding of the cash available to fund these initiatives .
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results of continuing operations a discussion of our results of operations for 2020 compared to 2019 is set forth below . for a discussion of our results of operations , including our segment results of operations , for 2019 compared to 2018 , refer to the discussion under the sub-caption `` 2019 compared with 2018 '' in item 7 – management 's discussion and analysis of financial condition and results of operations in part ii of our annual report on form 10–k for the fiscal year ended december 31 , 2019 , which discussion is incorporated by reference herein . consolidated results of operations replace_table_token_6_th 2020 compared with 2019 total revenue in 2020 decreased $ 217.9 million compared to 2019. this is a 11 % decrease , with a 14 % decline in organic revenue and a marginal unfavorable currency translation , partially offset by a 3 % increase from acquisitions . the decline in organic revenue was caused by a significant disruption in orders as customers delayed capital expenditures as a result of the covid-19 pandemic . operating income margin was 9.4 % in 2020 compared to 9.7 % in 2019 , a decrease of 30 bps , and was as a result of the following items : gross profit margin increased 20 bps to 30.9 % compared to 30.7 % in 2019. this increase was the result of favorable mix with contribution from acquisitions as well as higher recurring revenue for jbt foodtech . selling , general and administrative expense decreased in dollars due to lower acquisition-related costs , cost reduction actions taken in reaction to the covid-19 pandemic , and lower stock based compensation expense due to a decline in the company 's performance in 2020 and forfeitures related to management succession .
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see note 10 for a discussion of the assumptions used by the company in determining the grant date fair value of options granted under the black-scholes option pricing model , as well as a summary of the stock option activity under the company 's stock-based compensation plans for the year ended december 31 , 2014 . income taxes income taxes are recorded in accordance with asc topic story_separator_special_tag the following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the notes to those consolidated financial statements included in item 15 of this annual report on form 10-k. this discussion contains forward-looking statements that involve significant risks and uncertainties . as a result of many factors , such as those set forth under `` risk factors '' and elsewhere in this annual report on form 10-k , our actual results may differ materially from those anticipated in these forward-looking statements . please also refer to the section under heading `` forward-looking statements . '' overview we are a clinical stage biopharmaceutical company focused on the discovery , development and commercialization of novel therapeutic candidates that are based on the mechanisms that the human body uses to regulate the growth and repair of its cells and tissues . our research focuses on key natural regulators of cellular growth and repair , particularly the transforming growth factor-beta ( tgf-ß ) protein superfamily . we are leaders in discovering and developing therapeutic candidates that regulate cellular growth and repair . by combining our discovery and development expertise , including our proprietary knowledge of the tgf-ß superfamily , and our internal protein engineering and manufacturing capabilities , we have built a highly productive discovery and development platform that has generated innovative therapeutic candidates with novel mechanisms of action . these differentiated therapeutic candidates have the potential to significantly improve clinical outcomes for patients across many fields of medicine , and we have focused our discovery and development efforts on treatments for cancer and rare diseases . we have four internally discovered therapeutic candidates that are currently in clinical trials . our lead programs , luspatercept and sotatercept , are partnered with celgene corporation ( celgene ) . during 2015 , we and celgene plan to initiate a phase 3 clinical trial with luspatercept in patients with ß-thalassemia and a phase 3 clinical trial with luspatercept or sotatercept in patients with myelodysplastic syndromes ( mds ) . luspatercept and sotatercept are designed to promote red blood cell production through a novel mechanism , and we are developing these molecules to treat anemia and associated complications in patients with ß-thalassemia and mds . the red blood cell complications of ß-thalassemia are generally unresponsive to currently approved drugs , and mds is a heterogeneous disease for which certain subgroups of patients have no approved drug therapy . sotatercept is also designed to promote increases in bone mineral density . we and celgene are developing sotatercept for the treatment of the final stage of chronic kidney disease , end-stage renal disease , a disorder characterized by anemia and a mineral and bone disorder that leads to bone loss and heart disease . the mineral and bone disorder in these patients is not well-managed with current therapies . our third clinical stage therapeutic candidate , dalantercept , is designed to treat cancers by inhibiting blood vessel formation through a mechanism that is distinct from , and potentially synergistic with , the dominant class of cancer drugs that inhibit blood vessel formation , the vascular endothelial growth factor , or vegf , pathway inhibitors . we are developing dalantercept primarily for use in combination with vegf pathway inhibitors to produce better outcomes for cancer patients . our fourth therapeutic candidate , ace-083 , is designed to promote muscle growth and function in specific , treated muscle groups . in 2014 , we initiated a phase 1 clinical trial with ace-083 in healthy volunteers , and we expect to initiate one or more phase 2 clinical trials with ace-083 in 2015. we are developing sotatercept and luspatercept through our exclusive worldwide collaborations with celgene . as of january 1 , 2013 , celgene became responsible for paying 100 % of worldwide development costs for both programs . we may receive up to an additional $ 560.0 million of potential development , regulatory and commercial milestone payments and , if these therapeutic candidates are commercialized , we will receive a royalty on net sales in the low-to-mid 20 % range . we will co-promote sotatercept and luspatercept , if approved , in north america for which our commercialization costs will be entirely funded by celgene . we have not entered into partnerships for dalantercept or ace-083 and we retain worldwide rights to these programs . as of december 31 , 2014 , our operations have been funded primarily by $ 105.1 million in equity investments from venture investors , $ 219.3 million from public investors , $ 64.2 million in equity investments from our collaboration partners and $ 216.8 million in upfront payments , milestones , and net research and development payments from our collaboration partners . we estimate that we have spent approximately $ 122.3 million on research and development for the three year period from 2012 through 2014. we expect to continue to incur significant expenses and increasing operating losses over at least the next several years . we expect our expenses will increase substantially in connection with our ongoing activities , as we : conduct clinical trials for dalantercept and ace-083 ; 63 continue our preclinical studies and potential clinical development efforts of our existing preclinical therapeutic candidates ; continue research activities for the discovery of new therapeutic candidates ; manufacture therapeutic candidates for our preclinical studies and clinical trials ; seek regulatory approval for our therapeutic candidates ; and operate as a public company . story_separator_special_tag of the phase 2 clinical trials that are underway for sotatercept , luspatercept and dalantercept , we are expensing the costs of seven clinical trials of luspatercept and dalantercept , of which the four for luspatercept are reimbursed by celgene . we are also expensing the costs of a phase 1 clinical trial for ace-083 . 65 we manage certain activities such as clinical trial operations , manufacture of therapeutic candidates , and preclinical animal toxicology studies through third-party cros . the only costs we track by each therapeutic candidate are external costs such as services provided to us by cros , manufacturing of preclinical and clinical drug product , and other outsourced research and development expenses . we do not assign or allocate to individual development programs internal costs such as salaries and benefits , facilities costs , lab supplies and the costs of preclinical research and studies . our external research and development expenses for sotatercept , luspatercept , dalantercept , ace-031 ( for which development was suspended in april 2013 ) and ace-083 ( for which development commenced in the fourth quarter of 2013 ) during the years ended december 31 , 2014 , 2013 and 2012 , are as follows : replace_table_token_4_th _ ( 1 ) as of january 1 , 2013 , expenses associated with sotatercept and luspatercept are reimbursed 100 % by celgene . these reimbursements are recorded as revenue and are presented as cost-sharing , net . in the periods presented , celgene conducted most of the development activities for sotatercept , and we do not incur and are not reimbursed for expenses related to development activities directly conducted by celgene . ( 2 ) in april 2013 , we and shire ag , or shire , determined not to further advance the development of ace-031 , and shire terminated our collaboration agreement , effective as of june 30 , 2013 . ( 3 ) other expenses include unallocated employee and contractor-related expenses , facility expenses , lab supplies and miscellaneous expenses . contract manufacturing expenses contract manufacturing expenses consist primarily of costs incurred for the production of bulk drug substance for third parties other than our partners . the costs generally include employee-related expenses including salary and benefits , direct materials and overhead costs including rent , depreciation , utilities , facility maintenance and insurance . we do not have any current contract manufacturing arrangements . general and administrative expenses general and administrative expenses consist primarily of salaries and related costs for personnel , including stock-based compensation and travel expenses for our employees in executive , operational , finance and human resource functions and other general and administrative expenses including directors ' fees and professional fees for accounting and legal services . since the completion of our initial public offering in september 2013 , we have experienced increased expenses related to audit , legal , regulatory and tax-related services associated with maintaining compliance with exchange listing and securities and exchange commission requirements , director and officer insurance premiums , and investor relations costs associated with being a public company . we anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support our continued research and development and potential commercialization of our therapeutic candidates . additionally , if and when we believe regulatory approval of a therapeutic candidate appears likely , to the extent that we are undertaking commercialization of such therapeutic candidate ourselves , we anticipate an increase in payroll and related expenses as a result of our preparation for commercial operations . other expense , net other expense , net consists primarily of interest expense from our previous venture debt facility , interest income earned on cash and cash equivalents , and the re-measurement gain or loss associated with the change in the fair value of our preferred stock and common stock warrant liabilities . 66 we use the black-scholes option pricing model to estimate the fair value of the warrants . we base the estimates in the black-scholes option pricing model , in part , on subjective assumptions , including stock price volatility , risk-free interest rate , dividend yield , and the fair value of the preferred stock or common stock underlying the warrants . critical accounting policies and significant judgments and estimates our management 's 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. generally accepted accounting principles . the preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , and expenses and the disclosure of contingent assets and liabilities in our consolidated financial statements . on an ongoing basis , we evaluate our estimates and judgments , including those related to revenue recognition , accrued expenses and stock-based compensation . we also utilize significant estimates and assumptions in determining the fair value of our common stock and the fair value of our liability-classified warrants to purchase preferred stock and common stock . we base our estimates on historical experience , known trends and events , and various other factors that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . while our significant accounting policies are described in more detail in the notes to our consolidated financial statements appearing elsewhere in this annual report on form 10-k , we believe the following accounting policies to be most critical to the judgments and estimates used in the preparation of our consolidated financial statements . revenue recognition we have primarily generated revenue through collaboration arrangements with strategic partners for the development and commercialization of our therapeutic candidates . we recognize revenue in accordance with accounting standards codification ( asc ) topic 605 , revenue recognition .
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results of operations comparison of the years ended december 31 , 2014 and 2013 replace_table_token_5_th revenue . we recognized revenue of $ 14.6 million in the year ended december 31 , 2014 , compared to $ 57.2 million in year ended december 31 , 2013 . the $ 42.6 million decrease was primarily due to the $ 17.0 million in milestone payments received during 2013 in connection with our celgene collaboration for the first patient dosed in a phase 2 trial in luspatercept and initiation of a phase 2b study of sotatercept in end-stage renal disease patients , and recognizing $ 24.3 million of deferred revenue related to shire . shire ended our collaboration as of june 30 , 2013 and there is no shire related revenue during 2014. celgene deferred revenue also decreased $ 1.0 million during 2014 as we complete our deliverables under the collaboration agreement . net cost sharing revenue decreased $ 0.3 million due to an increase in celgene cost sharing revenue of $ 0.3 million offset by a $ 0.6 million decrease in net cost-sharing revenue from shire . 70 the following table shows revenue from all sources for the years presented . replace_table_token_6_th research and development expenses . research and development expenses were $ 50.9 million in the year ended december 31 , 2014 , compared to $ 36.1 million in the year ended december 31 , 2013 .
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material nonrecurring adjustments excluded from the story_separator_special_tag forward-looking statements please note that in this annual report on form 10-k clarus corporation ( which may be referred to as the “ company , ” “ clarus , ” “ we , ” “ our ” or “ us ” ) may use words such as “ appears , ” “ anticipates , ” “ believes , ” “ plans , ” “ expects , ” “ intends , ” “ future , ” and similar expressions which constitute forward-looking statements within the meaning of the safe harbor provisions of the private securities litigation reform act of 1995. forward-looking statements are made based on our expectations and beliefs concerning future events impacting the company and therefore involve a number of risks and uncertainties . we caution that forward-looking statements are not guarantees and that actual results could differ materially from those expressed or implied in the forward-looking statements . potential risks and uncertainties that could cause the actual results of operations or financial condition of the company to differ materially from those expressed or implied by forward-looking statements in this annual report on form 10-k include , but are not limited to , the overall level of consumer demand on our products ; general economic conditions and other factors affecting consumer confidence , preferences , and behavior ; disruption and volatility in the global currency , capital and credit markets ; the financial strength of the company 's customers ; the company 's ability to implement its business strategy ; the ability of the company to execute and integrate acquisitions ; changes in governmental regulation , legislation or public opinion relating to the manufacture and sale of bullets and ammunition by our sierra segment , and the possession and use of firearms and ammunition by our customers ; the company 's exposure to product liability or product warranty claims and other loss contingencies ; stability of the company 's manufacturing facilities and suppliers , including in light of disease epidemics and health-related concerns such as the coronavirus ; the impact that global climate change trends may have on the company and its suppliers and customers ; the company 's ability to protect patents , trademarks and other intellectual property rights ; any breaches of , or interruptions in , our information systems ; fluctuations in the price , availability and quality of raw materials and contracted products as well as foreign currency fluctuations ; our ability to utilize our net operating loss carryforwards ; changes in tax laws and liabilities , tariffs , legal , regulatory , political and economic risks ; and the company 's ability to maintain a quarterly dividend . more information on potential factors that could affect the company 's financial results can be found under item 1a.—risk factors of this annual report on form 10-k. all forward-looking statements included in this annual report on form 10-k are based upon information available to the company as of the date of this annual report on form 10-k , and speak only as the date hereof . we assume no obligation to update any forward-looking statements to reflect events or circumstances after the date of this annual report on form 10-k. story_separator_special_tag our operating plans and strategies . management 's estimates of fair value are based upon assumptions believed to be reasonable , but which are inherently uncertain and unpredictable . i f we do not achieve the results reflected in the assumptions and estimates , our goodwill impairment evaluations could be adversely affected , and we may impair a portion or all of our intangible assets , which would adversely affect our operating results in the period of impairment . · we account for income taxes using the asset and liability method . the asset and liability method provides that deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities , and for operating loss and tax credit carryforwards . we may make assumptions , judgments and estimates in order to determine the future taxable income available to support the recoverability of deferred tax assets at a more-likely-than-not threshold . the sources of future taxable income include 1 ) future reversal of existing taxable temporary differences , 2 ) taxable income in carryback years if carryback is permitted , 3 ) future taxable income from future operations , and 4 ) tax planning strategies . the degree and subjectivity and judgment increases as the source of future taxable income becomes more inherently subjective . our assumptions , judgments and estimates relative to the realizability of a deferred tax asset take into account predictions of the amount and category of expected future taxable income . actual operating results and the underlying amount and category of income in future years could cause our current assumptions , judgments and estimates of recoverable net deferred taxes to be inaccurate . changes in any of the assumptions , judgments and estimates mentioned above related to the realizability of deferred tax assets , could materially affect our financial position and results of operations . 29 · we assess the recoverability of our one reporting unit 's carrying value of goodwill by performing a qualitative assessment and or a quantitative goodwill impairment test . at a minimum , we perform an annual assessment of possible goodwill impairment as of each december 31. management may perform an interim goodwill impairment assessment whenever events or circumstances make it more-likely-than-not that an impairment may have occurred , such as a significant adverse change in the business climate or a decision to sell or dispose of the reporting unit . if we begin with a qualitative assessment and are able to support the conclusion that it is not more-likely-than-not that the fair value of the reporting unit is less than its carrying value , we are not required to perform the quantitative goodwill impairment test . story_separator_special_tag consolidated domestic sales increased $ 9,214 , or 8.2 % , to $ 121,751 during the year ended december 31 , 2019 , compared to consolidated domestic sales of $ 112,537 during the year ended december 31 , 2018. the increase in domestic sales was attributable to an increase in the quantity of new and existing climb , mountain , and ski products sold during the year ended december 31 , 2019. these increases were partially offset by a decrease in the quantity of new and existing sport products sold during the period . consolidated international sales increased $ 8,082 , or 8.1 % , to $ 107,686 during the year ended december 31 , 2019 , compared to consolidated international sales of $ 99,604 during the year ended december 31 , 2018. the increase in international sales was attributable to the increase in the quantity of new and existing climb , mountain , and ski products sold during the year ended december 31 , 2019. these increases were partially offset by a decrease in the quantity of new and existing sport products sold during the period and a decrease in sales of $ 2,603 due to the strengthening of the u.s. dollar against foreign currencies during the year ended december 31 , 2019 compared to the prior period . 31 cost of goods sold consolidated cost of goods sold increased $ 10,967 , or 7.9 % , to $ 149,146 during the year ended december 31 , 2019 , compared to consolidated cost of goods sold of $ 138,179 during the year ended december 31 , 2018. the increase in cost of goods sold was attributable to an increase in the number of units sold . gross profit consolidated gross profit increased $ 6,329 , or 8.6 % , to $ 80,291 during the year ended december 31 , 2019 , compared to consolidated gross profit of $ 73,962 during the year ended december 31 , 2018. consolidated gross margin was 35.0 % during the year ended december 31 , 2019 , compared to a consolidated gross margin of 34.9 % during the year ended december 31 , 2018. consolidated gross margin during the year ended december 31 , 2019 , increased compared to the prior year due to a favorable product mix in higher margin products . gross margin during the year ended december 31 , 2018 included a decrease in gross margin of 0.5 % due to the sale of inventory that was recorded at its fair value in purchase accounting . selling , general and administrative consolidated selling , general , and administrative expenses increased $ 3,529 , or 5.4 % , to $ 68,680 during the year ended december 31 , 2019 , compared to consolidated selling , general and administrative expenses of $ 65,151 during the year ended december 31 , 2018. the increase in selling , general and administrative expenses was attributable to the company 's continued investments in the brand related activities of research and development , marketing , direct-to-consumer , and warehousing and logistics , focused on supporting its strategic initiatives around new product introductions , elevating brand awareness , and being easier to do business with . stock compensation also increased $ 297 during the year ended december 31 , 2019 compared to the prior year . restructuring charges consolidated restructuring expense decreased $ 124 , or 90.5 % , to $ 13 during the year ended december 31 , 2019 , compared to consolidated restructuring expense of $ 137 during the year ended december 31 , 2018. restructuring expenses incurred during the year ended december 31 , 2019 and 2018 , related to costs associated with the formal closure and liquidation of the company 's black diamond equipment manufacturing operations in zhuhai , china . transaction costs consolidated transaction expense decreased to $ 166 during the year ended december 31 , 2019 , compared to consolidated transaction costs of $ 503 during the year ended december 31 , 2018 , which consisted of expenses related to the company 's acquisition of sierra . interest expense , net consolidated interest expense , net increased $ 19 , or 1.4 % , to $ 1,358 during the year ended december 31 , 2019 , compared to consolidated interest expense , net , of $ 1,339 during the year ended december 31 , 2018. interest expense recognized during the year ended december 31 , 2019 was primarily associated with the average outstanding debt amounts during the period . interest expense recognized during the year ended december 31 , 2018 was primarily attributable to the write-off of previously capitalized origination costs and interest expense associated with the average outstanding debt amounts during the period . other , net consolidated other , net , decreased $ 266 , or 74.1 % , to expense of $ 93 during the year ended december 31 , 2019 , compared to consolidated other , net expense of $ 359 during the year ended december 31 , 2018. the decrease in other , net , was primarily attributable to a decrease in remeasurement losses recognized on the company 's foreign denominated accounts receivable and accounts payable and a decrease in gains on mark-to-market adjustments on non-hedged foreign currency contracts . during the year ended december 31 , 2018 , the expense included losses related to recognition of cumulative translation adjustments due to the substantial liquidation of a foreign entity .
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overview headquartered in salt lake city , utah , clarus , a company focused on the outdoor and consumer industries , is seeking opportunities to acquire and grow businesses that can generate attractive shareholder returns . the company has net operating tax loss carryforwards which it is seeking to redeploy to maximize shareholder value . clarus ' primary business is as a leading designer , developer , manufacturer and distributor of outdoor equipment and lifestyle products focused on the climb , ski , mountain , sport and skincare markets . the company 's products are principally sold under the black diamond® , sierra® , pieps® and skinourishment® brand names through outdoor specialty and online retailers , distributors and original equipment manufacturers throughout the u.s. and internationally . through our black diamond , pieps , and skinourishment brands , we offer a broad range of products including : high-performance , activity-based apparel ( such as shells , insulation , midlayers , pants and logowear ) ; rock-climbing footwear and equipment ( such as carabiners , protection devices , harnesses , belay devices , helmets , and ice-climbing gear ) ; technical backpacks and high-end day packs ; trekking poles ; headlamps and lanterns ; gloves and mittens ; and skincare and other sport-enhancing products . we also offer advanced skis , ski poles , ski skins , and snow safety products , including avalanche airbag systems , avalanche transceivers , shovels , and probes . through our sierra brand , we manufacture a wide range of high-performance bullets and ammunition for both rifles and pistols that are used for precision target shooting , hunting and military and law enforcement purposes . clarus corporation , incorporated in delaware in 1991 , acquired black diamond equipment , ltd. ( “ black diamond equipment ” ) in may 2010 and changed its name to black diamond , inc. in january 2011. in october 2012 , we acquired pieps holding gmbh and its subsidiaries ( collectively , “ pieps ” ) .
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the following table presents the fair value of derivative instruments included in the consolidated balance sheets at december 31 ( in millions ) : derivative liabilities balance sheet story_separator_special_tag the following is a discussion of kansas city southern 's results of operations , certain changes in its financial position , liquidity , capital structure and business developments for the periods covered by the consolidated financial statements included under item 8 of this form 10-k. this discussion should be read in conjunction with the included consolidated financial statements , the related notes , and other information included in this report . cautionary information the discussions set forth in this annual report on form 10-k may contain forward-looking statements within the meaning of section 27a of the securities act of 1933 , as amended , and section 21e of the securities exchange act of 1934 , as amended . in addition , management may make forward-looking statements orally or in other writings , including , but not limited to , in press releases , quarterly earnings calls , executive presentations , in the annual report to stockholders and in other filings with the securities and exchange commission . readers can usually identify these forward-looking statements by the use of such verbs as “ expects , ” “ anticipates , ” “ believes ” or similar verbs or conjugations of such verbs . these statements involve a number of risks and uncertainties . actual results could materially differ from those anticipated by such forward-looking statements . such differences could be caused by a number of factors or combination of factors including , but not limited to , the factors identified below and those discussed under item 1a of this form 10-k , “ risk factors. ” readers are strongly encouraged to consider these factors and the following factors when evaluating any forward-looking statements concerning the company : the outcome of claims and litigation , including those related to environmental contamination , personal injuries and property damage ; changes in legislation and regulations or revisions of controlling authority ; the adverse impact of any termination or revocation of kcsm 's concession by the mexican government ; united states , mexican and global economic , political and social conditions ; the effects of the north american free trade agreement , or nafta , on the level of trade among the united states , mexico and canada ; the level of trade between the united states and asia or mexico ; the effects of fluctuations in the peso-dollar exchange rate ; natural events such as severe weather , fire , floods , hurricanes , earthquakes or other disruptions to the company 's operating systems , structures and equipment or the ability of customers to produce or deliver their products ; the effects of adverse general economic conditions affecting customer demand and the industries and geographic areas that produce and consume the commodities kcs carries ; the dependence on the stability , availability and security of the information technology systems to operate its business ; the effect of demand for kcs 's services exceeding network capacity or traffic congestion on operating efficiencies and service reliability ; uncertainties regarding the litigation kcs faces and any future claims and litigation ; the impact of competition , including competition from other rail carriers , trucking companies and maritime shippers in the united states and mexico ; kcs 's reliance on agreements with other railroads and third parties to successfully implement its business strategy , operations and growth and expansion plans , including the strategy to convert customers from using trucking services to rail transportation services ; compliance with environmental regulations ; disruption in fuel supplies , changes in fuel prices and the company 's ability to recapture its costs of fuel from customers ; material adverse changes in economic and industry conditions , including the availability of short and long-term financing , both within the united states and mexico and globally ; market and regulatory responses to climate change ; 24 changes in labor costs and labor difficulties , including strikes and work stoppages affecting either operations or customers ' abilities to deliver goods for shipment ; kcs 's reliance on certain key suppliers of core rail equipment ; availability of qualified personnel ; and acts of terrorism , war or other acts of violence or crime or risk of such activities . forward-looking statements reflect the information only as of the date on which they are made . the company does not undertake any obligation to update any forward-looking statements to reflect future events , developments , or other information . if kcs does update one or more forward-looking statements , no inference should be drawn that additional updates will be made regarding that statement or any other forward-looking statements . corporate overview kansas city southern , a delaware corporation , is a transportation holding company that has railroad investments in the u.s. , mexico and panama . in the u.s. , the company serves the central and south central u.s. its international holdings serve northeastern and central mexico and the port cities of lazaro cardenas , tampico and veracruz , and a fifty percent interest in panama canal railway company provides ocean-to-ocean freight and passenger service along the panama canal . kcs 's north american rail holdings and strategic alliances are primary components of a nafta railway system , linking the commercial and industrial centers of the u.s. , canada and mexico . story_separator_special_tag mexico is transitioning to market-based fuel pricing , and the transition is expected to be complete by the end of 2017. the implementation of a 2016 fuel excise tax credit for the mexico railroad industry effectively moved the industry to market-based pricing in 2016. for the year ended december 31 , 2016 , the company recognized a $ 62.8 million credit available under changes in mexican law for the excise tax included in the price of fuel that is purchased and consumed in locomotives and certain work equipment in mexico . the mexican fuel excise tax credit is realized through the offset of the total 2016 mexico income tax liability and income tax withholding payment obligations of kcsm . recently enacted legislation extended the fuel excise tax credit to mexican railroads in 2017. equipment costs . equipment costs increased $ 0.6 million for the year ended december 31 , 2016 , compared to 2015 , due to higher car hire expense due to volume mix , partially offset by lower lease expense as a result of the purchase of equipment under existing operating leases and replacement equipment as certain operating leases expired . 30 depreciation and amortization . depreciation and amortization expense increased $ 20.4 million for the year ended december 31 , 2016 , compared to 2015 , due to a larger asset base . materials and other . materials and other expense was flat for the year ended december 31 , 2016 , compared to 2015 . lease termination costs . lease termination costs were $ 9.6 million for the year ended december 31 , 2015 , due to the early termination of certain operating leases and the related purchase of the equipment . the company did not incur lease termination costs for the year ended december 31 , 2016 . non-operating expenses equity in net earnings of affiliates . equity in net earnings from affiliates decreased $ 3.7 million for the year ended december 31 , 2016 , compared to 2015 , due to lower net earnings from the operations of pcrc and ftvm as a result of lower volumes . interest expense . interest expense increased $ 15.8 million for the year ended december 31 , 2016 , compared to 2015 , due to higher average debt balances and average interest rates as a result of the company 's issuance of debt during the third quarter of 2015 and second quarter of 2016. for the year ended december 31 , 2016 , the average debt balance ( including short-term borrowings ) was $ 2,492.7 million , compared to $ 2,257.8 million in 2015 . the average interest rate for the year ended december 31 , 2016 was 4.0 % , compared to 3.7 % in 2015 . debt retirement and exchange costs . the company did not incur debt retirement and exchange costs during 2016. for the year ended december 31 , 2015 , debt retirement and exchange costs were $ 7.6 million , related to costs that were payable to parties other than the debt holders as a result of the kcsr and kcsm senior notes exchanged for kcs senior notes . foreign exchange loss . for the years ended december 31 , 2016 and 2015 , foreign exchange loss was $ 72.0 million and $ 56.6 million , respectively . foreign exchange loss includes the re-measurement and settlement of net monetary assets denominated in mexican pesos and the loss on foreign currency derivative contracts . for the years ended december 31 , 2016 and 2015 , the re-measurement and settlement of net monetary assets denominated in mexican pesos resulted in a foreign exchange loss of $ 18.5 million and $ 9.4 million , respectively . the company enters into foreign currency derivative contracts to hedge its net exposure to fluctuations in the mexican cash tax obligation due to changes in the value of the mexican peso against the u.s. dollar . for the years ended december 31 , 2016 and 2015 , foreign exchange loss on foreign currency derivative contracts was $ 53.5 million and $ 47.2 million , respectively . other expense , net . other expense , net , decreased $ 2.7 million for the year ended december 31 , 2016 , compared to 2015 , due to lower miscellaneous expenses . income tax expense . income tax expense decreased $ 4.5 million for the year ended december 31 , 2016 , compared to 2015 , due to lower pre-tax income and a lower effective tax rate . the effective tax rate was 27.6 % and 27.8 % for the years ended december 31 , 2016 and 2015 , respectively . the decrease in the effective tax rate was primarily due to the more significant weakening of the mexican peso against the u.s. dollar in 2016 , as compared to 2015 . the weakening of the mexican peso during 2016 and 2015 decreased the company 's mexican cash tax obligation by $ 49.2 million and $ 46.4 million for the years ended december 31 , 2016 and 2015 , respectively . the company enters into foreign currency derivative contracts to hedge its net exposure to fluctuations in the mexican cash tax obligation due to changes in the value of the mexican peso against the u.s. dollar , and losses on these foreign currency derivative contracts are recorded in foreign exchange loss . further information on the components of the effective tax rates for the years ended december 31 , 2016 and 2015 , is presented in note 13 to the consolidated financial statements in item 8 . 31 year ended december 31 , 2015 , compared with the year ended december 31 , 2014 the following summarizes kcs 's consolidated income statement components ( in millions ) : replace_table_token_8_th revenues the following summarizes revenues ( in millions ) , carload/unit statistics ( in thousands ) and revenue per carload/unit : replace_table_token_9_th revenues include both revenue for transportation services and fuel surcharges .
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executive summary 2016 financial overview revenues in 2016 decreased 3 % from 2015 , due to a 2 % decrease in revenue per carload/unit and carload/unit volumes . revenue per carload/unit decreased due to the weakening of the mexican peso against the u.s. dollar and lower fuel surcharge , partially offset by positive pricing impacts . energy revenue decreased by $ 49.6 million due to lower volumes in crude oil as a result of low crude oil spreads and increased pipeline capacity . volumes also decreased as the decline in new crude drilling operations in the u.s. has reduced the demand for frac sand . in addition , low natural gas prices and high coal inventory levels reduced the demand for utility coal in 2016. operating expenses decreased 6 % compared to 2015 , due to a $ 62.8 million mexican fuel excise tax credit recognized in 2016 , the weakening of the mexican peso against the u.s. dollar and lower fuel prices . expense reductions resulting from the weakening mexican peso and lower fuel prices largely offset the revenue reductions driven by these same macroeconomic factors . these expense reductions were partially offset by higher incentive compensation and increased depreciation expense . operating expenses as a percentage of revenues decreased to 64.9 % in 2016 from 66.8 % in 2015. in 2016 , the company invested $ 584.0 million in capital expenditures . in addition , the company purchased $ 26.6 million of equipment under existing operating leases or replacement equipment as certain operating leases expired , which was primarily funded with internally generated cash flows and short-term borrowings .
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the stock options and restricted stock awards granted vest 50 % immediately , 30 % on the one year anniversary of the grant date , 10 % shall vest on the two-year anniversary grant date , and story_separator_special_tag the following discussion of our financial condition and results of operations should be read in conjunction with the audited financial statements and notes thereto for the years ended december 31 , 2017 and december 31 , 2016 found in this annual report . in addition to historical information , the following discussion contains forward-looking statements that involve risks , uncertainties and assumptions . where possible , we have tried to identify these forward-looking statements by using words such as may , should , potential , continue , expects , anticipates , intends , plans , believes , estimates , and similar expressions . our actual results could differ materially from those anticipated by the forward-looking statements due to important factors and risks including , but not limited to , those set forth under risk factors in part i , item 1a of this report . company overview we are a biopharmaceutical company developing immunotherapies focused on activating a patient 's immune system against cancer through t-cell activation and expansion . our t-cell activation platform ( tcap ) , includes two variations for intradermal administration immune pan-antigen cytotoxic therapy ( impact ® ) and combination pan-antigen cytotoxic therapy ( compact ) . to further augment antigen experienced t-cell activation and expansion , we are also developing a novel t-cell co-stimulator ptx-35 for systemic administration . these programs are designed to harness the body 's natural antigen specific immune activation and tolerance mechanisms to reprogram immunity and provide a long-term , durable clinical effect . currently we are enrolling patients in our hs-110 combination immunotherapy trial , preparing ind submissions for hs-130 and ptx-35 programs , and providing pre-clinical , cmc development , and administrative support for these operations ; while constantly focusing on protecting and expanding our intellectual property in areas of strategic interest . 45 we continue to enroll patients in our phase 2 clinical trial for advanced non-small cell lung cancer ( nsclc ) , in combination with either bristol-myers squibb 's nivolumab ( opdivo ® ) or more recently , merck & co. , inc 's ( merck 's ) anti-pd1 checkpoint inhibitor , pembrolizumab ( keytruda ® ) . our other programs are in pre-clinical and cmc development with two ind filings anticipated during 2019. our t-cell activation platform ( tcap ) , includes a variation of two tcaps , impact ® and compact which are designed to activate and expand tumor antigen specific killer t-cells to destroy a patient 's cancer . by turning immunologically cold tumors hot , we believe our platform will become an essential component of the immuno-oncology cocktail to enhance the effectiveness and durability of checkpoint inhibitors and other cancer therapies , thereby improving outcomes for those patients less likely to benefit from checkpoint inhibitors alone . we believe the advantage of our approach is that our biologic agents deliver a broad range of tumor antigens that are unrecognized by the patient 's immune system prior to the malignant rise of the patient 's tumor . tcap combines these tumor associated antigens with a powerful , naturally occurring immune adjuvant , gp96 , to actively chaperone these antigens out of our non-replicating allogenic cell-based therapy into the local microenvironment of the skin . the treatment primes local natural immune recognition to activate t-cells to seek and destroy the cancer cells throughout the body . these tcap agents can be administered with a variety of immuno-modulators to enhance a patient 's immune response through ligand specific t-cell activation . unlike many other patient specific or autologous immunotherapy approaches , our drugs are fully-allogenic , off-the-shelf products which means that we can administer immediately without the extraction of blood or tumor tissue from each patient or the creation of an individualized treatment based on these patient materials . our tcap product candidates from our impact ® and compact platforms are produced from allogeneic cell lines expressing tumor-specific proteins common among cancers . because each patient receives the same treatment , we believe that our immunotherapy approach offers superior speed to initiation , logistical , manufacturing and importantly , cost benefits , compared to personalized precision medicine approaches . our impact ® platform is an allogenic cell-based , t-cell-stimulating platform that functions as an immune activator to stimulate and expand t-cells . the key component of this innovative immunotherapy platform is the dual functionality of the heat shock protein , gp96 . as a molecular chaperone , gp96 is typically found within the cell 's endoplasmic reticulum and facilitates the folding of newly synthesized proteins for functionalized tasks . but when a cell abnormally dies through necrosis or infection , gp96 is naturally released into the surrounding microenvironment . at this moment , gp96 becomes a danger associated molecular protein or damp , a molecular warning signal for localized innate activation of the immune system . in this context gp96 serves as a potent adjuvant , or immune stimulator , via toll-like receptor 4/2 ( tlr4 and tlr2 ) signaling which serves to activate apcs to specialized dendritic cells that upregulate t-cell costimulatory ligands , mhc and immune activating cytokine . it is among the most powerful adjuvants found in the body and uniquely shows exclusive specificity to cd8+ killer t-cells through cross-presentation of the gp96-chaperoned tumor associated peptide antigens directly to mhc class i molecules for direct activation and expansion of cd8+ t-cells . thus , gp96 plays a critical role in the mechanism of action for heat 's t-cell activating platform immuno-therapies ; mimicking necrotic cell death and activating a powerful , tumor antigen-specific t-cell immune response to attack the patient 's cancer cells . compact , our second tcap , is a dual-acting immunotherapy designed to deliver antigen driven t-cell activation and specific co-stimulation in a single product . story_separator_special_tag to date , we have primarily financed our operations with net proceeds from the sale of our securities including , our july 2013 initial public offering in which we received net proceeds of $ 24.3 million , our march 2015 public offering in which we received net proceeds of $ 11.1 million , our march 2016 public offering in which we received net proceeds of $ 6.1 million , an additional $ 3.9 million from the exercise of 386,343 warrants , our march 2017 public offering in which we received net proceeds of approximately $ 4.1 million , our november 2017 public offering in which we received net proceeds of approximately $ 2.4 million , our may 2018 public offering in which we received net proceeds of approximately $ 18.8 million and an additional $ 4.8 million from the exercise of warrants , and our november 2018 public offering in which we received net proceeds of approximately $ 12.7 million . in addition , we received $ 7.5 million from our debt facility , which has subsequently been paid back in full as of december 31 , 2016 and have received an aggregate of $ 9.3 million of net proceeds from sales of shares of our common stock through the at market issuance sales agreement ( the fbr sales agreement ) with fbr capital markets & co. through december 31 , 2017. as of december 31 , 2018 , we have received $ 8.3 million in grant funding from the cprit grant through pelican . on january 18 , 2018 , we entered into the h.c. wainwright sales agreement which replaced the fbr sales agreement and which has been subsequently terminated . to date , we received net proceeds of approximately $ 3.8 million from the sale of shares of our common stock through the h.c. wainwright sales agreement . as of december 31 , 2018 , we had an accumulated deficit of $ 84.6 million . we had net losses of $ 16.6 million and $ 12.4 million for the years ended december 31 , 2018 and 2017 , respectively . we expect to incur significant expenses and continued losses from operations for the foreseeable future . we expect our expenses to increase in connection with our ongoing activities , particularly as we continue the research and development and advance our clinical trials of , and seek marketing approval for , our product candidates and as we continue to fund the pelican matching funds required in order to access the cprit grant . in addition , if we obtain marketing approval for any of our product candidates , we expect to incur significant commercialization expenses related to product sales , marketing , manufacturing and distribution . although we currently have sufficient funds to complete our phase 2 clinical trials , as currently planned , and expect that we will have sufficient funds to fund our operations through mid-year 2020 , we will need to obtain substantial additional future funding in connection with our future planned clinical trials . adequate additional financing may not be available to us on acceptable terms , or at all . if we are unable to raise capital when needed or on attractive terms , we would be forced to delay , reduce or eliminate our research and development programs or any future commercialization efforts . to meet our capital needs , we are considering multiple alternatives , including , but not limited to , additional equity financings , which include sales of our common stock under at-the-market offerings , if available , debt financings , partnerships , collaborations and other funding transactions . this is based on our current estimates , and we could use our available capital resources sooner than we currently expect . we are continually evaluating various cost-saving measures in light of our cash requirements in order to focus our resources on our product candidates . we may take additional action to reduce our immediate cash expenditures , including re-visiting our headcount , offering vendors equity in lieu of the cash due to them and otherwise limiting our other research expenses , in order to focus our resources on our product candidates . we will need to generate significant revenues to achieve profitability , and we may never do so . critical accounting policies and significant judgments and estimates we believe that several accounting policies are important to understanding our historical and future performance . we refer to these policies as `` critical '' because these specific areas generally require us to make judgments and estimates about matters that are uncertain at the time we make the estimate , and different estimateswhich also would have been reasonablecould have been used , which would have resulted in different financial results . 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 u.s. gaap . the preparation of our consolidated financial statements 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 ongoing basis , we evaluate our estimates based on historical experience and make various assumptions , which management believes to be reasonable under the circumstances , which form the basis for judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . the notes to our audited consolidated financial statements contain a summary of our significant accounting policies . we consider the following accounting policies critical to the understanding of the results of our operations : · revenue ; · deferred revenue ; 48 · in-process r & d · goodwill impairment ; · income tax ; · contingent consideration ; · stock-based compensation ; · research and development costs , including clinical and regulatory cost ; and · recent accounting pronouncements .
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results of operations year ended december 31 , 2018 and 2017 revenues the cprit grant is subject to customary cprit funding conditions including a matching funds requirement where pelican will match $ 0.50 for every $ 1.00 from cprit . consequently , pelican is required to raise $ 7.6 million in matching funds over the three year project . as of december 31 , 2018 , cprit has provided $ 8.3 million of the total $ 15.2 million grant . the remaining $ 6.9 million is expected to become available in the third cprit fiscal year ( june 2018 through may 2019 ) . as of december 31 , 2018 , we have provided approximately $ 5.2 million in funding of which $ 4.1 million was used to satisfy pelican 's matching fund obligation under the first two years of the cprit grant and we have approximately $ 3.5 million remaining to provide for the third cprit fiscal year . upon commercialization of the product , the terms of the grant contract require pelican to pay tiered royalties in the low to mid-single digit percentages . such royalties reduce to less than one percent after a mid-single-digit multiple of the grant funds have been paid to cprit in royalties . we recognized grant revenue of approximately $ 5.8 million for the year ended december 31 , 2018 for qualified expenditures under the grant . we recognized $ 1.5 million grant revenue related to cprit during the year ended december 31 , 2017. as of december 31 , 2018 , we had short term deferred revenue of $ 1.0 million for proceeds received but for which the costs had not been incurred or the conditions of the award had not been met .
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statements that are not historical facts , without limitation , including statements that use terms such as “ anticipates , ” “ believes , ” “ expects , ” “ estimates , ” “ intends , ” “ may , ” “ plans , ” “ potential , ” “ projects , ” and “ will ” and that relate to our future revenues , expenditures and business trends ; future reduction of our self-perform at-risk construction exposure ; future accounting estimates ; future contractual performance obligations ; future conversions of backlog ; future capital allocation priorities including common stock repurchases , future trade receivables , future debt pay downs ; future post-retirement expenses ; future tax benefits and expenses ; future compliance with regulations ; future legal claims and insurance coverage ; future effectiveness of our disclosure and internal controls over financial reporting ; future costs savings ; the sale of management services from aecom and our business expectations after the sale is completed ; and other future economic and industry conditions , are forward-looking statements . in light of the risks and uncertainties inherent in all forward-looking statements , the inclusion of such statements in this annual report should not be considered as a representation by us or any other person that our objectives or plans will be achieved . although management believes that the assumptions underlying the forward-looking statements are reasonable , these assumptions and the forward-looking statements are subject to various factors , risks and uncertainties , many of which are beyond our control , including , but not limited to , our business is cyclical and vulnerable to economic downturns and client spending reductions ; government shutdowns ; long-term government contracts and subject to uncertainties related to government contract appropriations ; governmental agencies may modify , curtail or terminate our contracts ; government contracts are subject to audits and adjustments of contractual terms ; losses under fixed-price contracts ; limited control over operations run through our joint venture entities ; liability for misconduct by our employees or consultants ; failure to comply with laws or regulations applicable to our business ; maintaining adequate surety and financial capacity ; high leverage and potential inability to service our debt and guarantees ; exposure to brexit and tariffs ; exposure to political and economic risks in different countries ; currency exchange rate fluctuations ; retaining and recruiting key technical and management personnel ; legal claims ; inadequate insurance coverage ; environmental law compliance and inadequate nuclear indemnification ; unexpected adjustments and cancellations related to our backlog ; partners and third parties who may fail to satisfy their legal obligations ; managing pension costs ; aecom capital 's real estate development ; cybersecurity issues , it outages and data privacy ; uncertainties as to the timing and completion of the proposed sale of the company 's management services business ( “ the proposed sale ” ) or whether it will be completed ; risks associated with the impact or terms of the proposed sale ; risks associated with the benefits and costs of the proposed sale , including the risk that the expected benefits of the proposed sale or any contingent purchase price will not be realized within the expected time frame , in full or at all , and the risk that conditions to the proposed sale will not be satisfied and or that the proposed sale will not be completed within the expected time frame , on the expected terms or at all ; the risk that any consents or regulatory or other approvals required in connection with the proposed sale will not be received or obtained within the expected time frame , on the expected terms or at all ; the risk that the financing intended to fund the proposed sale may not be obtained ; the risk that costs of restructuring transactions and other costs incurred in connection with the proposed sale will exceed our estimates or otherwise adversely affect our business or operations ; the impact of the proposed sale on our businesses and the risk that consummating the proposed sale may be more difficult , time-consuming or costly than expected ; as well as other additional risks and factors discussed in this annual report on form 10-k and any subsequent reports we file with the sec . accordingly , actual results could differ materially from those contemplated by any forward-looking statement . all subsequent written and oral forward-looking statements concerning the company or other matters attributable to the company or any person acting on its behalf are expressly qualified in their entirety by the cautionary statements above . you are cautioned not to place undue reliance on these forward-looking statements , which speak only to the date they are made . the company is under no obligation ( and expressly disclaims any such obligation ) to update or revise any forward-looking statement that may be made from time to time , whether as a result of new information , future developments or otherwise . please review “ part i , item 1a—risk factors ” in this annual report for a discussion of the factors , risks and uncertainties that could affect our future results . 35 our fiscal year consists of 52 or 53 weeks , ending on the friday closest to september 30. for clarity of presentation , we present all periods as if the year ended on september 30. we refer to the fiscal year ended september 30 , 2018 as “ fiscal 2018 ” and the fiscal year ended september 30 , 2019 as “ fiscal 2019. ” overview we are a leading fully integrated firm positioned to design , build , finance and operate infrastructure assets for governments , businesses and organizations throughout the world . we provide planning , consulting , architectural and engineering design services to commercial and government clients worldwide in major end markets such as transportation , facilities , environmental , energy , water and government markets . story_separator_special_tag we can not determine if future climate change and greenhouse gas laws and policies , such as the united nations ' cop-21 paris agreement , will have a material impact on our business or our clients ' business ; however , we expect future environmental laws and policies could negatively impact demand for our services related to fossil fuel projects and positively impact demand for our services related to environmental , infrastructure , nuclear and alternative energy projects . on october 12 , 2019 , aecom entered into a purchase and sale agreement with an affiliate of american securities llc and lindsay goldberg llc to sell our management services business segment for a purchase price of $ 2.405 billion , subject to customary cash , debt and working capital adjustments . the transaction is expected to close in the second quarter of fiscal 2020. acquisitions the aggregate value of all consideration for our acquisitions consummated during the years ended september 30 , 2018 and 2017 was $ 5.6 million and $ 164.4 million , respectively . there were no acquisitions consummated during the year ended september 30 , 2019. all of our acquisitions have been accounted for as business combinations and the results of operations of the acquired companies have been included in our consolidated results since the dates of the acquisitions . 37 components of income and expense replace_table_token_7_th revenue we generate revenue primarily by providing planning , consulting , architectural and engineering design services to commercial and government clients around the world . our revenue consists of both services provided by our employees and pass-through fees from subcontractors and other direct costs . we generally recognize revenue over time as performance obligations are satisfied and control over promised goods or services are transferred to our customers . we generally measure progress to completion using an input measure of total costs incurred divided by total costs expected to be incurred . cost of revenue cost of revenue reflects the cost of our own personnel ( including fringe benefits and overhead expense ) associated with revenue . amortization expense of acquired intangible assets included in our cost of revenue is amortization of acquired intangible assets . we have ascribed value to identifiable intangible assets other than goodwill in our purchase price allocations for companies we have acquired . these assets include , but are not limited to , backlog and customer relationships . to the extent we ascribe value to identifiable intangible assets that have finite lives , we amortize those values over the estimated useful lives of the assets . such amortization expense , although non-cash in the period expensed , directly impacts our results of operations . it is difficult to predict with any precision the amount of expense we may record relating to acquired intangible assets . equity in earnings of joint ventures equity in earnings of joint ventures includes our portion of fees charged by our unconsolidated joint ventures to clients for services performed by us and other joint venture partners along with earnings we receive from our return on investments in unconsolidated joint ventures . general and administrative expenses general and administrative expenses include corporate expenses , including personnel , occupancy , and administrative expenses . 38 acquisition and integration expenses acquisition and integration expenses are comprised of transaction costs , professional fees , and personnel costs , including due diligence and integration activities , primarily related to business acquisitions . goodwill impairment see critical accounting policies and consolidated results below . income tax expense ( benefit ) as a global enterprise , income tax expense/ ( benefit ) and our effective tax rates can be affected by many factors , including changes in our worldwide mix of pre-tax losses/earnings , the effect of non-controlling interest in income of consolidated subsidiaries , the extent to which the earnings are indefinitely reinvested outside of the united states , our acquisition strategy , tax incentives and credits available to us , changes in judgment regarding the realizability of our deferred tax assets , changes in existing tax laws and our assessment of uncertain tax positions . our tax returns are routinely audited by the taxing authorities and settlements of issues raised in these audits can also sometimes affect our effective tax rate . geographic information for geographic financial information , please refer to note 4 and note 19 in the notes to our consolidated financial statements found elsewhere in the form 10-k. critical accounting policies our financial statements are presented in accordance with accounting principles generally accepted in the united states ( gaap ) . highlighted below are the accounting policies that management considers significant to understanding the operations of our business . revenue recognition our accounting policies establish principles for recognizing revenue upon the transfer of control of promised goods or services to customers . we generally recognize revenues over time as performance obligations are satisfied . we generally measure our progress to completion using an input measure of total costs incurred divided by total costs expected to be incurred . in the course of providing these services , we routinely subcontract for services and incur other direct cost on behalf of our clients . these costs are passed through to clients , and in accordance with accounting rules , are included in our revenue and cost of revenue . revenue recognition and profit is dependent upon a number of factors , including the accuracy of a variety of estimates made at the balance sheet date , such as engineering progress , material quantities , the achievement of milestones , penalty provisions , labor productivity and cost estimates . additionally , we are required to make estimates for the amount of consideration to be received , including bonuses , awards , incentive fees , claims , unpriced change orders , penalties and liquidated damages . variable consideration is included in the estimate of transaction price only to the extent that a significant reversal would not be probable .
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results of operations by reportable segment design and consulting services replace_table_token_10_th the following table presents the percentage relationship of statement of operations items to revenue : replace_table_token_11_th 47 revenue revenue for our dcs segment for the year ended september 30 , 2019 increased $ 45.1 million , or 0.5 % , to $ 8,268.2 million as compared to $ 8,223.1 million for the corresponding period last year . the increase in revenue for the year ended september 30 , 2019 was primarily attributable to an increase in the americas of $ 150 million , largely due to increased work performed on a residential housing storm disaster relief program and an increase in asia pacific ( apac ) of $ 40 million . these increases were partially offset by unfavorable impacts from foreign currency of $ 150 million . gross profit gross profit for our dcs segment for the year ended september 30 , 2019 increased $ 106.7 million , or 24.3 % , to $ 545.9 million as compared to $ 439.2 million for the corresponding period last year . as a percentage of revenue , gross profit increased to 6.6 % of revenue for the year ended september 30 , 2019 from 5.3 % in the corresponding period last year .
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as a result of many factors , including those factors set forth in the risk factors section of this annual report , our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . as used in this report , unless the context suggests otherwise , we , us , our , the company or tyme technologies refer to tyme technologies , inc , together with its subsidiaries . overview we are a clinical-stage biotechnology company developing novel cancer therapeutics that are intended to be effective across many tumor types while also maintaining low toxicity . our lead clinical program , sm-88 , is a first-in-class combination therapy based on dysfunctional metyrosine derivatives . we currently have two ongoing phase ii clinical trials in metastatic pancreatic cancer and biomarker-recurrent prostate cancer . previously , sm-88 has been used clinically in over 100 patients , primarily for the treatment of metastatic cancers . on october 27 , 2016 , our board of directors determined to change the fiscal year of the company from a year ending on december 31 of each year to a year ending on march 31 of each year . the company 's report covering the transition period from january 1 , 2016 through march 31 , 2016 was filed via transition report on form 10-qt . as a result of this change , we provided herein disclosures of our results , financial conditions and liquidity for ( i ) the year ended march 31 , 2018 compared to the year ended march 31 , 2017 ; ( ii ) the year ended march 31 , 2017 to the year ended december 31 , 2015 ; and ( iii ) the three months ended march 31 , 2016 compared to the three months ended march 31 , 2015. in october of 2016 , we raised $ 1.47 million through a private placement of 452,314 shares of our common stock . in march of 2017 , we raised $ 9.2 million in gross proceeds through a private placement of 3,588,620 shares of our common stock and 3,588,620 common stock purchase warrants ( each , a warrant ) . each warrant entitles its holder to purchase one share of common stock ( each , a warrant share ) at an exercise price of $ 3.00 per warrant share , subject to adjustment . in april of 2017 , we raised approximately $ 2,700,000 in gross proceeds through a private placement of 1,069,603 shares of our common stock and 1,069,603 warrants . on november 2 , 2017 , the company entered into an equity distribution agreement ( equity distribution agreement ) with canaccord genuity inc. ( canaccord ) , to commence an at-the-market offering ( the atm financing facility ) pursuant to which the company may , from time to time , sell shares of the company 's common stock , having an aggregate offering price up to $ 30,000,000 , through canaccord , as the company 's sales agent . in the year ended march 31 , 2018 , the company raised approximately $ 6,151,000 in gross proceeds through the atm financing facility via sale of 1,543,364 shares of our common stock and paid canaccord aggregate commissions of $ 184,559. in march 2018 , we raised approximately $ 21.89 million of net proceeds ( after underwriting discounts and commissions but before expenses ) through an underwritten registered public offering of 10,350,000 shares of our common stock . the offering was made pursuant to the company 's registration statement on form s-3 ( registration no . 333-211489 ) , which was declared effective by the u.s. securities and exchange commission on august 16 , 2017 , a base prospectus dated august 16 , 2017 and a prospectus supplement dated march 1 , 2018. critical accounting policies and recent accounting pronouncements while our significant accounting policies are more fully described in note 2 to the consolidated financial statements appearing elsewhere in this form 10-k , we believe the following accounting policies are critical to the preparation of our financial statements . 69 research and development expenses research and development costs are expensed as incurred and are primarily comprised of , but not limited to , external research and development expenses incurred under arrangements with third parties , such as contract research organizations ( cros ) , contract manufacturing organizations ( cmos ) and consultants that conduct clinical and preclinical studies , costs associated with preclinical and development activities , costs associated with regulatory operations , depreciation expense for assets used in research and development activities and employee related expenses , including salaries and benefits for research and development personnel . costs for certain development activities , such as clinical studies , are accrued , over the service period specified in the contract and recognized based on an evaluation of the progress to completion of specific tasks using data such as patient enrollment , clinical site activations or information provided to us by our vendors on their actual costs incurred . payments for these activities are based on the terms of the individual arrangements , which may differ from the patterns of costs incurred , and are reflected in the consolidated financial statements as prepaid or accrued expense . income taxes our income tax expense , deferred tax assets and liabilities , and liabilities for unrecognized tax benefits reflect management 's best estimate of current and future taxes to be paid . we are subject to federal income taxes in the united states , as well as in various u.s. state jurisdictions . significant judgments and estimates are required in the determination of the income tax expense . deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements , which will result in taxable or deductible amounts in the future . story_separator_special_tag based on the these factors , the company deemed it no longer appropriate to use the full contractual term for expected life , because these changes in the business indicate the likelihood that there will be exercise activity before completion of the full contractual term . the company considered other methods to estimate expected term other than the simplified method . however , as noted above , there is no historical exercise data to provide a reasonable basis upon which to estimate expected term due to the limited period of time its equity shares have been publicly traded and no other refined estimate of expected life that is appropriate . refer to note 2 to our consolidated financial statements for a discussion of recent accounting pronouncements . 71 story_separator_special_tag text-indent:8 % ; font-size:10pt ; font-family : times new roman '' > for the years ended march 31 , 2018 and 2017 , the company did not enter into debt financing arrangements , and as such did not incur any interest expense . other income other income for the year ended march 31 , 2018 was $ 390,385 , which represents a non-cash gain recorded on the remeasurement of a derivative liability due to the expiration of anti-dilution protection on warrants . certain holders of our outstanding securities that acquired our securities in march and april 2017 private placement transactions ( the 2017 private placement investors ) had limited anti-dilution protection that could have resulted in additional dilution to our stockholders . the anti-dilution protection expired without additional shares issued . the resulting change in the fair value of the derivative was recognized as other income for the relevant period . for the year ended march 31 , 2017 , the company did not recognize other income . income tax our effective tax rate for the years ended march 31 , 2018 and 2017 was zero percent . our tax rate in the current period was primarily affected by the reduction of our net deferred tax assets due to tax reform , which was offset by a valuation allowance and in the prior year was affected primarily by changes in state income taxes , which was offset by a valuation allowance . year ended march 31 , 2017 compared to year ended december 31 , 2015 net loss for the year ended march 31 , 2017 was $ 15,206,781 , compared to $ 11,726,818 for the year ended december 31 , 2015. the increase in the net loss for the year ended march 31 , 2017 , as compared to the net loss for the year ended december 31 , 2015 is due to increased operating costs and expenses in 2017 , as highlighted below . revenues and other income during the years ended march 31 , 2017 and december 31 , 2015 , we did not realize any revenues from operations . we do not anticipate recognizing any revenues until such time as one of our products has been approved for marketing by appropriate regulatory authorities or we enter into collaboration or licensing arrangement , none of which is anticipated to occur in the near future . 73 operating costs and expenses for the year ended march 31 , 2017 , operating costs and expenses totaled $ 15,206,781 , compared to $ 8,599,772 for the year ended december 31 , 2015 , representing an increase of $ 6,607,009. operating costs and expenses were comprised of the following : research and development expenses were $ 6,111,587 for the year ended march 31 , 2017 , compared to $ 3,823,966 for the year ended december 31 , 2015 , representing an increase of $ 2,287,621. all research and development expenditures have been incurred in respect of our lead drug candidate , sm-88 , and its technology platform . research and development activities primarily consist of the following : salary expense for research and development personnel was $ 923,816 for the year ended march 31 , 2017 , compared to $ 773,853 for the year ended december 31 , 2015 , representing a $ 149,963 increase between the comparable periods , primarily due to an increase in the number of employees . consulting and study expenses were $ 2,233,698 for the year ended march 31 , 2017 , compared to $ 1,969,617 for the year ended december 31 , 2015 , representing an increase of $ 264,081 between the comparable periods . these types of expenses are anticipated to vary between future accounting periods as we continue to develop our drug candidates and seek governmental approval of such drug candidates . stock based compensation , primarily related to stock options granted , was $ 2,629,073 for the year ended march 31 , 2017 , compared to $ 250,000 for the year ended december 31 , 2015 , representing a $ 2,379,073 increase between the periods , primarily due to option grants to research and development employees . general and administrative expenses were $ 9,095,194 for the year ended march 31 , 2017 , compared to $ 4,775,806 for the year ended december 31 , 2015 , representing an increase of $ 4,319,388 , primarily due to increased stock compensation expense . the general and administrative expenses include : stock based compensation , primarily related to stock options granted , was $ 5,095,813 for the year ended march 31 , 2017 , compared to $ 685,859 for the year ended december 31 , 2015 , representing a $ 4,409,954 increase between the periods , primarily due to option grants to management and board of director members . legal , professional services , accounting and auditing for the year ended march 31 , 2017 , was $ 2,413,703 , compared to $ 2,460,469 for the year ended december 31 , 2015 representing a decrease of $ 46,766. salary expense for non-research and development personnel was $ 978,179 for the year ended march 31 , 2017 , compared to $ 944,561 for the year ended december 31 , 2015 , representing a $ 33,618 increase between the comparable periods .
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results of operations year ended march 31 , 2018 compared to year ended march 31 , 2017 net loss for the year ended march 31 , 2018 was $ 18,969,493 , compared to $ 15,206,781 for the year ended march 31 , 2017. the increase in the net loss for the year ended march 31 , 2018 , as compared to the net loss for the year ended march 31 , 2017 is due to increased operating costs and expenses in 2018 , as highlighted below . revenues and other income during the years ended march 31 , 2018 and march 31 , 2017 , we did not realize any revenues from operations . we do not anticipate recognizing any revenues until such time as one of our products has been approved for marketing by appropriate regulatory authorities or we enter into collaboration or licensing arrangements , none of which is anticipated to occur in the near future . operating expenses for the year ended march 31 , 2018 , operating costs and expenses totaled $ 19,359,878 , compared to $ 15,206,781 for the year ended march 31 , 2017 , representing an increase of $ 4,153,097. operating costs and expenses were comprised of the following : research and development expenses were $ 8,839,661 for the year ended march 31 , 2018 , compared to $ 6,111,587 for the year ended march 31 , 2017 , representing an increase of $ 2,728,074. all research and development expenditures have been incurred in respect of our lead drug candidate , sm-88 , its technology platform , and related clinical trials . research and development activities primarily consist of the following : salary expense for research and development personnel was $ 1,160,559 for the year ended march 31 , 2018 , compared to $ 923,816 for the year ended march 31 , 2017 , representing a $ 236,743 increase between the comparable periods , primarily due to the addition of personnel in key management positions .
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insurance underwriting includes the following subsidiaries of the company : mendota insurance company ( `` mendota '' ) , mendakota insurance company ( `` mendakota '' ) , universal casualty company ( `` ucc '' ) , maison insurance company ( `` maison '' ) , kingsway amigo insurance company ( `` amigo '' ) and kingsway reinsurance corporation . throughout this 2013 annual report , the term `` insurance underwriting '' is used to refer to this segment . insurance underwriting actively conducts business in 16 states . in 2013 , production in the following states represented 85.7 % of the company 's gross premiums written : florida ( 22.2 % ) , illinois ( 14.7 % ) , texas ( 13.5 % ) , louisiana ( 11.1 % ) , california ( 9.8 % ) , colorado ( 7.7 % ) and nevada ( 6.7 % ) . insurance underwriting principally offers personal automobile insurance to drivers who do not meet the criteria for coverage by standard automobile insurers . for the year ended december 31 , 2013 , non-standard automobile insurance accounted for 84.1 % of the company 's gross premiums written . during the fourth quarter of 2012 , the company began taking steps to place all of amigo into voluntary run-off . on november 19 , 2012 , the florida office of insurance regulation ( “ oir ” ) approved amigo 's plan to withdraw from the business of offering commercial lines insurance in florida . on january 30 , 2013 , the oir approved amigo 's plan to withdraw from the business of offering personal lines insurance in florida . in april 2013 , kingsway filed a comprehensive run-off plan with the oir , which outlines plans for amigo 's run-off . kingsway continues to manage amigo in a manner consistent with its filed run-off plan . insurance services includes the following subsidiaries of the company : assigned risk solutions ltd. ( `` ars '' ) , iws acquisition corporation ( `` iws '' ) and trinity warranty solutions llc ( `` trinity '' ) . during the first quarter of 2013 , northeast alliance insurance agency , llc , formerly included in insurance services , was merged into ars . throughout this 2013 annual report , the term `` insurance services '' is used to refer to this segment . ars is a licensed property and casualty agent , full service managing general agent and third-party administrator focused primarily on the assigned risk market . ars is licensed to administer business in 22 states but generates its revenues primarily by operating in the states of new york and new jersey . iws is a licensed motor vehicle service agreement company and is a provider of after-market vehicle protection services distributed by credit unions in 26 states to their members . trinity is a provider of warranty products and maintenance support to consumers and businesses in the heating , ventilation , air conditioning ( `` hvac '' ) and refrigeration industry . trinity distributes its warranty products through original equipment manufacturers , hvac distributors and commercial and residential contractors . trinity distributes its maintenance support direct through corporate owners of retail spaces throughout the united states . non u.s.-gaap financial measures throughout this 2013 annual report , we present our operations in the way we believe will be most meaningful , useful and transparent to anyone using this financial information to evaluate our performance . in addition to the u.s. gaap presentation of net loss , we show certain statutory reporting information and other non-u.s. gaap financial measures that we believe are relevant in managing our business and drawing comparisons to our peers . these measures are operating ( loss ) income , gross premiums written , net premiums written and underwriting ratios . following is a list of non-u.s. gaap measures found throughout this report with their definitions , relationships to u.s. gaap measures and explanations of their importance to our operations . operating ( loss ) income operating ( loss ) income represents one measure of the pretax profitability of our segments and is derived by subtracting direct segment expenses from direct segment revenues . revenues and expenses are presented in the consolidated statements of operations , but are not subtotaled by segment . however , this information is available in total and by segment in note 23 , `` segmented replace_table_token_36_th kingsway financial services inc. management 's discussion and analysis information , '' to the consolidated financial statements , regarding reportable segment information . the nearest comparable u.s. gaap measure is loss from continuing operations before income tax ( benefit ) expense which , in addition to operating ( loss ) income , includes net investment income , net realized gains , other-than-temporary impairment loss , other income , general and administrative expenses , restructuring expense , interest expense , amortization of intangible assets , contingent consideration expense , impairment of asset held for sale , loss on change in fair value of debt , ( loss ) gain on buy-back of debt , and equity in net income ( loss ) of investee . gross premiums written while net premiums earned is the related u.s. gaap measure used in the consolidated statements of operations , gross premiums written is the component of net premiums earned that measures insurance business produced before the impact of ceding reinsurance premiums , but without respect to when those premiums will be recognized as actual revenue . we use this measure as an overall gauge of gross business volume in insurance underwriting . net premiums written while net premiums earned is the related u.s. gaap measure used in the consolidated statements of operations , net premiums written is the component of net premiums earned that measures the difference between gross premiums written and the impact of ceding reinsurance premiums , but without respect to when those premiums will be recognized as actual revenue . we use this measure as an indication of retained or net business volume in insurance underwriting . story_separator_special_tag gains and losses realized on the disposition of investments are determined on the first-in first-out basis and credited or charged to the consolidated statements of operations . premium and discount on investments are amortized and accredited using the interest method and charged or credited to net investment income . the establishment of an other-than-temporary impairment on an investment requires a number of judgments and estimates . we perform a quarterly analysis of the individual investments to determine if declines in market value are other-than-temporary . the analysis includes some or all of the following procedures , as applicable : identifying all unrealized loss positions that have existed for at least six months ; identifying other circumstances which management believes may impact the recoverability of the unrealized loss positions ; obtaining a valuation analysis from third-party investment managers regarding the intrinsic value of these investments based on their knowledge and experience together with market-based valuation techniques ; reviewing the trading range of certain investments over the preceding calendar period ; assessing if declines in market value are other-than-temporary for debt instruments based on the investment grade credit ratings from third-party rating agencies ; assessing if declines in market value are other-than-temporary for any debt instrument with a non-investment grade credit rating based on the continuity of its debt service record ; determining the necessary provision for declines in market value that are considered other-than-temporary based on the analyses performed ; and assessing the company 's ability and intent to hold these investments at least until the investment impairment is recovered . the risks and uncertainties inherent in the assessment methodology used to determine declines in market value that are other-than-temporary include , but may not be limited to , the following : the opinions of professional investment managers could be incorrect ; the past trading patterns of individual investments may not reflect future valuation trends ; the credit ratings assigned by independent credit rating agencies may be incorrect due to unforeseen or unknown facts related to a company 's financial situation ; and the debt service pattern of non-investment grade instruments may not reflect future debt service capabilities and may not reflect a company 's unknown underlying financial problems . replace_table_token_38_th kingsway financial services inc. management 's discussion and analysis the company did not recognize any impairment related to its fixed maturities that was considered other-than-temporary for the years ended december 31 , 2013 and 2012 . as further discussed in the `` results of continuing operations '' section below , the company recorded a write-down for other-than-temporary impairment related to its investment in atlas financial holdings , inc. preferred stock of $ 1.8 million for the year ended december 31 , 2013 . the company recorded write-downs for other-than-temporary impairment related to investment in investee and other investments of $ 2.2 million and $ 0.5 million , respectively , for the year ended december 31 , 2012 . valuation of deferred income taxes the provision for income taxes is calculated based on the expected tax treatment of transactions recorded in our consolidated financial statements . in determining our provision for income taxes , we interpret tax legislation in a variety of jurisdictions and make assumptions about the expected timing of the reversal of deferred income tax assets and liabilities and the valuation of deferred income taxes . the ultimate realization of the deferred income tax asset balance is dependent upon the generation of future taxable income during the periods in which the company 's temporary differences reverse and become deductible . a valuation allowance is established when it is more likely than not that all or a portion of the deferred income tax asset balance will not be realized . in determining whether a valuation allowance is needed , management considers all available positive and negative evidence affecting specific deferred income tax asset balances , including the company 's past and anticipated future performance , the reversal of deferred income tax liabilities , and the availability of tax planning strategies . objective positive evidence is necessary to support a conclusion that a valuation allowance is not needed for all or a portion of a company 's deferred income tax asset balances when significant negative evidence exists . cumulative losses are the most compelling form of negative evidence considered by management in this determination . to the extent a valuation allowance is established in a period , an expense must be recorded within the income tax provision in the consolidated statements of operations . as of december 31 , 2013 , the company maintains a valuation allowance of $ 284.3 million , $ 279.0 million of which relates to its u.s. deferred income taxes . the largest component of the u.s. deferred income tax asset balance relates to tax loss carryforwards that have arisen as a result of the continued losses of the company 's u.s. operations . uncertainty over the company 's ability to utilize these losses over the short-term has led the company to record a valuation allowance . future events may result in the valuation allowance being adjusted , which could materially impact our financial position and results of operations . if sufficient positive evidence were to arise in the future indicating that all or a portion of the deferred income tax assets would meet the more likely than not standard , the valuation allowance would be reversed in the period that such a conclusion was reached . valuation of intangible assets intangible assets were initially recoded at their estimated fair values at the date of acquisition . intangible assets with definite useful lives consist of vehicle service agreements in-force ( `` vsa in-force '' ) , database , customer-related relationships and non-compete agreement . a discounted cash flow analysis was used to determine the fair value of the vsa in-force asset . the multi-period excess earnings method was used to determine the fair value of the customer-related intangible assets .
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results of continuing operations a reconciliation of total segment operating loss to net loss for the years ended december 31 , 2013 and 2012 is presented in table 1 below : table 1 segment ( loss ) income for the years ended december 31 , ( in millions of dollars ) replace_table_token_41_th loss from continuing operations , net loss and diluted loss per share for the year ended december 31 , 2013 , we incurred a loss from continuing operations of $ 43.3 million ( $ 3.07 per diluted share ) compared to $ 53.3 million ( $ 4.05 per diluted share ) for the year ended december 31 , 2012 . the loss from continuing operations for the year ended december 31 , 2013 is attributable to operating losses in insurance underwriting , corporate general expenses , interest expense , other-than-temporary impairment loss , impairment of asset held for sale and loss on the change in fair value of debt . the loss from continuing operations for the year ended december 31 , 2012 is due to operating losses in insurance underwriting , corporate general expenses , interest expense , other-than-temporary impairment loss , equity in net loss of investee and loss on the change in fair value of debt . for the year ended december 31 , 2013 , we incurred net loss of $ 36.1 million ( $ 2.56 per diluted share ) compared to $ 53.3 million ( $ 4.05 per diluted share ) for the year ended december 31 , 2012 . insurance underwriting for the year ended december 31 , 2013 , insurance underwriting gross premiums written were $ 144.7 million compared to $ 145.9 million for the year ended december 31 , 2012 , representing a 0.8 % decrease .
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in connection with the senior debenture private placement , in february 2017 , we also entered into agreements that resulted in ( i ) a reduction in the annual interest rate on the subordinated notes from 11.8 % to 7 % , ( ii ) an extension of the maturity date of the subordinated notes to may 2019 from may 2018 and ( iii ) our first quarter 2017 payment of $ 0.2 million of note principal and $ 0.3 million of accrued note interest . the transactions , and the accounting therefore , are described further in note 9. until july 2017 , when we repaid the senior debentures and the subordinated notes in full with the proceeds from the sale of hn in july 2017 , w e accreted interest on the debentures at an effective rate of 160.6 % per year and on the subordinated notes at 15.0 % per year . upon extinguishment in july 2017 , we recognized a loss on extinguishment of $ 6.6 million for the differences between ( i ) the $ 0.6 million carrying amount of the senior debentures and the $ 6.6 million face value paid and ( ii ) the $ 5.3 million carrying amount of the subordinated notes and the $ 6.0 million face value paid . in february 2017 , we used the net proceeds from the senior debenture private placement , discussed further in note 9 , to pay in full the outstanding senior revolving loan and the senior term loan . the note payable to the seller bears interest at 6.8 % and is due november 2019. we paid an installment on the note payable to the seller in january 2019. note 9. equity , share-based compensation , warrants and financing transactions in february 2017 , shareholders approved and we filed an amendment to our articles of incorporation increasing our authorized shares of common stock from 25,000,000 to 50,000,000. our board of directors , without further action or vote by holders of our common stock , has the right to establish the terms , preference , rights and restrictions and issue shares of preferred stock . we previously designated and issued six series of preferred stock of which no shares remain outstanding . in addition , we designated and issued a seventh series of preferred stock , 2,000 shares of series g in 2017 , of which 405 shares remain outstanding as of december 31 , 2018. the series g preferred stock is non-voting and may be converted into shares of our common stock at the holders ' election at any time , subject to certain beneficial ownership limitations , at a ratio of 1 preferred share for 948.9915 shares of common stock . the series g preferred stock is entitled to receive dividends if we pay dividends on our common stock , in which case the holders of series g preferred stock are entitled to receive the amount and form of dividends that they would have received if they held the common stock that is issuable upon conversion of the series g preferred stock . if we are liquidated or dissolved , the holders of series g preferred stock are entitled to receive , before any amounts are paid in respect of our common stock , an amount per share of series g preferred stock equal to $ 1,000 , plus any accrued but unpaid dividends thereon . 37 index ricebran technologies notes to consolidated financial statements series f preferred stock is no longer outstanding . the series f preferred stock was non-voting and could be converted into shares of our common stock at the holder 's election at any time , subject to certain beneficial ownership limitations , at a ratio of 1 preferred share for 666.66666 shares of common stock . the series f preferred stock was only entitled to receive dividends if we declared dividends , in which case the dividend was to be paid ( i ) first an amount equal to $ 0.01 per share of preferred stock and ( ii ) then to and in the same form as dividends paid on shares of our common stock . otherwise , the series f preferred stock had no liquidation or other preferences over our common stock . share-based compensation expenses related to stock options , stock and restricted stock units issued to employees and directors are included in selling , general and administrative expenses . the following table provides a detail of share-based compensation expense ( in thousands ) . replace_table_token_18_th share sequencing from june 2015 until march 2017 , the minority interest holders in nutra sa could elect to exchange units in nutra sa for shares of our common stock , the number of common stock and warrants issuable upon this election , was variable and indeterminate . for accounting purposes , we were not able to conclude that we had sufficient authorized and unissued shares to settle all contracts subject to the gaap derivative guidance during the period the minority interest holders had this right , which the right terminated march 31 , 2017. our adopted sequencing approach ( share sequencing ) was based on earliest issuance date , therefore , we were required to carry warrants issued between june 2015 and march 2017 , at fair value , as a derivative warrant liability , and preferred stock issued between june 2015 and march 2017 , in temporary equity . story_separator_special_tag we reclassified the affected warrants from derivative warrant liability to equity at an amount equal to the warrants ' fair value on march 31 , 2017 , and we reclassified the amounts related to story_separator_special_tag see note 4 of our notes to consolidated financial statements for a discussion of divestitures and discontinued operations . story_separator_special_tag principles generally accepted in the united states ( gaap ) . the preparation of the consolidated financial statements in conformity with gaap requires management to make estimates and assumptions that affect the reported amount of assets and liabilities , disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses . these estimates and assumptions are affected by the application of our accounting policies . our significant accounting policies are described in note 2 to our consolidated financial statements . critical accounting estimates are those that require application of management 's most difficult , subjective or complex judgments , often as a result of matters that are inherently uncertain and may change in subsequent periods . while we apply our judgment based on assumptions believed to be reasonable under the circumstances , actual results could vary from these assumptions . it is possible that materially different amounts would be reported using different assumptions . the following is a description of what we consider to be our most significant critical accounting policies . inventories - inventories are stated at the lower of cost or net realizable value , with cost determined by the first-in , first-out method . we employed a full absorption procedure using standard cost techniques for the majority of our operations in 2018 and 2017. the standards are customarily reviewed and adjusted so that they are materially consistent with actual purchase and production costs . provisions for potentially obsolete or slow-moving inventory are made based upon our analysis of inventory levels , historical obsolescence and future sales forecasts , while inventory determined to be obsolete is written off immediately . 19 index property and equipment – property and equipment are stated at cost less accumulated depreciation . depreciation is computed on the straight-line basis over the estimated useful lives of the assets . expenditures for maintenance and repairs are expensed as incurred while renewals and betterments are capitalized . gains or losses on the sale of property and equipment are reflected in net income ( loss ) . we review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable . an impairment loss is recognized when the undiscounted future cash flows estimated to be generated by the asset to be held and used are not sufficient to recover the unamortized balance of the asset . an impairment loss is recognized based on the difference between the carrying values and estimated fair value . the estimated fair value is determined based on either the discounted future cash flows or other appropriate fair value methods with the amount of any such deficiency charged to operations in the current year . estimates of future cash flows are based on many factors , including current operating results , expected market trends and competitive influences . assets to be disposed of by sale are reported at the lower of the carrying amount or fair value , less estimated costs to sell . goodwill – goodwill is recorded when the purchase price paid for an acquisition exceeds the estimated fair value of net identified tangible and intangible assets acquired . goodwill is tested for impairment at the reporting unit level on an annual basis in the fourth quarter and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying value . we may first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value . if it is concluded that this is the case , it is necessary to perform a quantitative two-step goodwill impairment test . otherwise , the two-step goodwill impairment test is not required . the quantitative two-step goodwill impairment review process compares the fair value of the reporting unit in which goodwill resides to its carrying value . multiple valuation techniques can be used to assess the fair value of the reporting unit . all of these techniques include the use of estimates and assumptions that are inherently uncertain . changes in these estimates and assumptions could materially affect the determination of fair value or goodwill impairment , or both . revenue recognition – we account for a contract with a customer when the written contract is committed , the rights of the parties , including payment terms , are identified , the contract has commercial substance and consideration is probable of collection . substantially all of our revenue is derived by fulfilling customer orders for the purchase of our products under contracts which contain a single performance obligation , to supply continually defined quantities of product at fixed prices . we account for shipping and handling activities that occur after the customer has obtained control of a good as a fulfillment cost rather than as an additional promised service . we recognize revenue at the point in time that control of the ordered product ( s ) is transferred to the customer , which is upon delivery to the customer , or its designee at our location , a customer location or other customer-designated delivery point . for substantially all of our contracts , control of the ordered product ( s ) transfers at our location . amounts invoiced to customers for shipping and handling are reported as revenues and the related costs incurred to deliver product to the customer are reported as cost of goods sold . amounts billed and due from our customers are classified as accounts receivables on our consolidated
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results of operations replace_table_token_0_th revenues increased $ 1.4 million , or 10.5 % , in 2018 compared to the prior year . animal feed product revenues increased 5.7 % . animal feed product growth was primarily due to increased buying from our existing customer base driven by the cooperation agreement entered into with kentucky equine research ( ker ) at the end of december 2015. food product revenues increased 14.3 % year over year , primarily due the addition of a new customer and increase in demands from existing customers along with the acquisition of golden ridge . gross profit percentage decreased 8.2 percentage points to 20.2 % in 2018 from 28.4 % in the prior year . the decrease in gross profit was primarily attributable to an approximately 16 % increase in raw bran prices , product mix and reduced plant utilization during 2018 compared to 2017. the decrease in plant utilization was primarily due to closures or production delays caused by the drum dryer capital expenditure project and plant improvements related to the sqf certification project at the dillon plant . additionally , our mermentau plant experienced a supply shortage which caused production to idle in the second quarter of 2018. due to the supply shortage , we shipped our animal feed orders from california which resulted in higher production and freight costs . we anticipate our ability to control the production schedule and quality of milled rice at golden ridge will reduce our risk of experiencing supply shortages in 2019. selling , general and administrative ( sg & a ) expenses were $ 11 . 2 million in 2018 , compared to $ 9.9 million in 2017 , an increase of $ 1 . 3 million , or 13 .2 % . salary , wages and benefit related expenses increased $ 0.7 million in 2018 , compared to the prior year .
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in june 2012 , in conjunction with the issuance of the $ 450.0 million senior notes maturing in fiscal 2022 , the company settled the treasury lock , locking in the effective yields on the related debt . upon settlement , the company received cash of $ 0.7 million , which represented the fair value of the swap agreement at the time of settlement . this amount is being amortized as an offset to interest expense over the 10-year term of the debt , and the unamortized balance is reflected story_separator_special_tag our discussion below of our results includes certain non-gaap financial measures that we believe provide important perspective with respect to underlying business trends . any non-gaap financial measure will be denoted as an adjusted measure and excludes expenses from our business transformation project , from withdrawals from multiemployer pension plans , restructuring charges , corporate-owned life insurance policies ( coli ) policies , recognized tax benefits and the impact of the 53 rd week in fiscal 2010. more information on the rationale for the use of these measures and reconciliations to gaap numbers can be found under “ non-gaap reconciliations. ” overview sysco distributes food and related products to restaurants , healthcare and educational facilities , lodging establishments and other foodservice customers . our operations are primarily located throughout the united states , canada and ireland and include broadline companies ( which include our custom-cut meat operations ) , sygma ( our chain restaurant distribution subsidiary ) , specialty produce companies , hotel supply operations , a company that distributes specialty imported products and a company that distributes to international customers . we consider our primary market to be the foodservice market in the united states and canada and estimate that we serve about 17.5 % of this approximately $ 225 billion annual market . according to industry sources , the foodservice , or food-away-from-home , market represents approximately 46 % of the total dollars spent on food purchases made at the consumer level in the united states . industry sources estimate the total foodservice market in the united states experienced a real sales decline of approximately 0.4 % in calendar year 2011 and 2.5 % in calendar year 2010. real sales declines do not include the impact of inflation or deflation . general economic conditions and consumer confidence can affect the frequency of purchases and amounts spent by consumers for food-away-from-home and , in turn , can impact our customers and our sales . we believe the current general economic conditions , including pressure on consumer disposable income , have contributed to a decline in the foodservice market . historically , we have grown at a faster rate than the overall industry and believe we have continued to grow our market share in this fragmented industry . highlights high levels of product costs and an uneven economic recovery contributed to a challenging business environment in fiscal 2012. our case volume growth has shown modest improvement in a low growth market environment . however , our earnings declined due to high levels of inflation and rising operating expenses , driven in part by our expenses related to our business transformation project . comparison of results from fiscal 2012 to fiscal 2011 : · sales increased 7.8 % to $ 42.4 billion primarily due to increased prices due to inflation and secondarily from case volume growth . · operating income decreased 2.1 % , or $ 40.9 million , to $ 1.9 billion , primarily driven by lower gross margins and increased operating expenses partially from increased expenses from payroll and our business transformation project . these expense increases were partially offset by increases in gross profit dollars . adjusted operating income increased 3.0 % , or $ 60.9 million . · net earnings decreased 2.6 % to $ 1.1 billion primarily due to the decline in operating income . adjusted net earnings increased 4.7 % , or $ 56.4 million . · basic and diluted earnings per share in fiscal 2012 were $ 1.91 and $ 1.90 , respectively . this represents a 2.6 % decrease from the comparable prior year period amount for basic earnings per share of $ 1.96 per share and a 3.1 % decrease from the comparable prior year period amount for diluted earnings per share of $ 1.96. adjusted diluted earnings per share were $ 2.13 in fiscal 2012 and $ 2.04 in fiscal 2011 , an increase of 4.4 % . see “ non-gaap reconciliations ” for an explanation of these non-gaap financial measures . trends and strategy trends general economic conditions and consumer confidence can affect the frequency of purchases and amounts spent by consumers for food-away-from-home and , in turn , can impact our customers and our sales . we believe the current general economic conditions , including pressure on consumer disposable income , have contributed to a slow rate of recovery in the foodservice market . according to industry sources , real sales for the total foodservice market in the united states are not expected to grow significantly over the next year . 16 we experienced prolonged levels of high product cost inflation during most of fiscal 2012 as compared to fiscal 2011. our product cost inflation reached a high of 7.3 % in the first quarter of fiscal 2012 and a low of 3.3 % in the fourth quarter of fiscal 2012. while we are generally able to pass on modest levels of inflation to our customers , we were unable to fully pass through these higher levels of product cost inflation with the same gross margin percentage without negatively impacting our customers ' business and therefore our business . in the summer months of 2012 , certain agricultural areas of the united states have experienced severe drought . the impact of this drought is uncertain and could result in volatile input costs . input costs could increase at any point in time for a large portion of the products that we sell for a prolonged period . story_separator_special_tag · develop and effectively integrate a comprehensive , enterprise-wide talent management process : our ability to drive results and grow our business is directly linked to having the best talent in the industry . we are committed to the continued enhancement of our talent management programs in terms of how we recruit , select , train and develop our associates throughout sysco as well as succession planning . our ultimate objective is to provide our associates with outstanding opportunities for professional growth and career development . business transformation project in fiscal 2009 , we commenced our business transformation project , which currently consists of three main components : · the design and deployment of an erp system to implement an integrated software system to support a majority of our business processes and further streamline our operations ; · a cost transformation initiative to lower our cost structure ; and · a product cost reduction initiative to use market data and customer insights to make changes to product pricing and product assortment issues . in fiscal 2012 , we continued to refine our erp system after implementing it at two pilot operating companies . the system has been deployed to three operating companies and we are targeting to convert 5 to 15 u.s. broadline operating companies in fiscal 2013. our next five conversions will be in texas and louisiana . we believe future conversions will be 15 to 25 u.s. broadline operating companies per year from fiscal 2014 to fiscal 2016. although we expect the investment in the erp system within our business transformation project to provide meaningful benefits to the company over the long-term , the costs will exceed the benefits during fiscal 2013. expenses related to the business transformation project were $ 193.1 million in fiscal 2012 or $ 0.21 per share , $ 102.6 million in fiscal 2011 or $ 0.11 per share and $ 81.1 million in fiscal 2010 or $ 0.09 per share . we anticipate that project expenses for fiscal 2013 will continue to significantly increase primarily due to the initiation of software amortization as the system was placed into service in august 2012. our costs will also increase from the ramp up of our shared services center , continuing costs for deployment of the software platform and information technology support costs . some of these increased costs will be partially offset by benefits obtained from the project , primarily in reduced headcount ; however the costs will exceed the benefits in fiscal 2013. our cost transformation initiative seeks to lower our cost structure by $ 300 million to $ 350 million annually by fiscal 2015. these include initiatives to increase our productivity in the warehouse and delivery activities including fleet management and maintenance activities . it also involves improving sales productivity and reducing general and administrative expenses , partially through aligning compensation and benefit plans . our product cost reduction initiative is designed to lower our total product costs by $ 250 million to $ 300 million annually by fiscal 2015. this initiative involves the use of market data and customer insights to make changes to product pricing and product assortment . we believe there are opportunities to more effectively provide the products that our customers want , to benefit from our purchasing power and to create mutually beneficial partnerships with our suppliers . we believe that procuring greater quantities with select vendors will result in reduced prices for our product purchases . we expect our expenses related to the business transformation project for fiscal 2013 to be approximately $ 300 million to $ 350 million net of benefits obtained from our shared services center . we expect our capital expenditures related to this project to be approximately $ 5 million to $ 20 million . in fiscal 2013 , we believe we can obtain approximately 25 % of the total expected annualized benefits of $ 550 million to $ 650 million . if we are successful in obtaining these benefits in fiscal 2013 , some of the trends noted above could be favorably impacted . 18 story_separator_special_tag style= '' margin:0pt ; line-height : normal ; text-indent:13.5pt ; text-align : justify ; text-justify : inter-ideograph ; font-family : times new roman ; font-size : 10pt '' > sysco 's product cost inflation was estimated as inflation of 5.5 % during fiscal 201 2 . based on our product sales mix for fiscal 201 2 , we were most impacted by higher levels of infla tion in the meat , canned and dry and frozen product categories in the range of 6 % to 8 % . our product cost inflation reached a high of 7.3 % in the first quarter of fiscal 2012 and a low of 3.3 % in the fourth quarter of fiscal 2012. while we are generally able to pass through modest levels of inflation to our customers , we were unable to fully pass through these higher levels of product cost inflation with the same gross margin in these product categories without negatively impacting our customers ' business and therefore our business . in the summer months of 2012 , certain agricultural areas of the united states have experienced severe drought . the impact of this drought is uncertain and could result in volatile input costs . input costs could increase at any point in time for a large portion of the products that we sell for a prolonged period . while we can not predict whether inflation will continue at these levels , prolonged periods of high inflation , either overall or in certain product categories , can have a negative impact on us and our customers , as high food costs can reduce consumer spending in the food-away-from-home market , and may negatively impact our sales , gross profit and earnings .
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results of operations the following table sets forth the components of our consolidated results of operations expressed as a percentage of sales for the periods indicated : replace_table_token_7_th the following table sets forth the change in the components of our consolidated results of operations expressed as a percentage increase or decrease over the prior year : replace_table_token_8_th sales 7.8 % 5.6 % replace_table_token_9_th replace_table_token_10_th ( 1 ) other expense ( income ) , net was income of $ 6.8 million in fiscal 2012 , income of $ 14.2 million in fiscal 2011 and expense of $ 0.8 million in fiscal 2010 . sales sales for fiscal 2012 were 7.8 % higher than fiscal 2011. sales for fiscal 2012 increased as a result of product cost inflation , and the resulting increase in selling prices , along with improving case volumes . changes in product cost , an internal measure of inflation , were approximately 5.5 % during fiscal 2012 . case volumes including acquisitions within the last 12 months improved approximately 3.0 % during fiscal 2012. case volumes excluding acquisitions within the last 12 months improved approximately 2.5 % during fiscal 2012. our case volumes represent our results from our broadline and sygma segments only . sales from acquisitions in the last 12 months favorably impacted sales by 0.7 % for fiscal 2012 . the changes in the exchange rates used to translate our foreign sales into u.s. dollars did not have a significant impact on sales when compared to fiscal 201 1 . sales for fiscal 2011 were 5.6 % higher than fiscal 2010. after adjusting for the estimated impact of the 53 rd week in fiscal 2010 , the adjusted increase in sales in fiscal 2011 would have been 7.7 % .
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management believes that the historic volatility of story_separator_special_tag the following information should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this form 10-k. in addition to historical information , this discussion and analysis contains forward-looking statements that involve risks , uncertainties , and assumptions , which could cause actual results to differ materially from management 's expectations . please see the “ cautionary statement regarding forward-looking statements ” section immediately preceding part i , item 1 of this form 10-k and the “ risk factors ” section in part i , item 1a of this form 10-k. overview we are a medical device company that develops , manufactures , markets and sells laser systems in dentistry and medicine and also markets , sells , and distributes dental imaging equipment , including cone beam digital x-rays and cad/cam intra-oral scanners , and in-office , chair-side milling machines and 3-d printers . our products advance the practice of dentistry and medicine for patients and health care professionals . our proprietary dental laser systems allow dentists , periodontists , endodontists , oral surgeons , and other dental specialists to perform a broad range of minimally invasive dental procedures , including cosmetic , restorative , and complex surgical applications . our laser systems are designed to provide clinically superior results for many types of dental procedures compared to those achieved with drills , scalpels , and other conventional instruments . we have clearance from the fda to market and sell our laser systems in the united states and also have the necessary registration to market and sell our laser systems in canada , the european union , and many other countries outside the u.s. additionally , our in-licensed imaging equipment and related products improve diagnoses , applications , and procedures in dentistry and medicine . we offer two categories of laser system products : waterlase ( all-tissue ) systems and diode ( soft-tissue ) systems . our flagship brand , the waterlase , uses a patented combination of water and laser energy to perform most procedures currently performed using drills , scalpels , and other traditional dental instruments for cutting soft and hard tissue . we also offer our diode laser systems to perform soft tissue , pain therapy , and cosmetic procedures , including teeth whitening . we have approximately 250 issued and 100 pending u.s. and international patents , the majority of which are related to waterlase technology . from 1998 through december 31 , 2014 , we sold approximately 27,600 laser systems in over 80 countries around the world . contained in this total are over 10,600 waterlase systems , including more than 6,600 waterlase md and iplus systems . the shareholder litigation brought by oracle to resolve the dispute over our corporate governance and the composition of our board , as well as the proxy contest and new litigation , brought by the former chairman and ceo in july 2014 , which litigation was subsequently dismissed , have significantly and pervasively impacted all aspects of our organization . the litigation disrupted our daily operations , disrupted relationships with vendors and weakened employee morale . in addition , the legal expenses and professional fees associated with the litigation caused working capital strains . externally in the marketplace , this litigation has impaired customer and investor perceptions of the company , which resulted in a loss of overall confidence and has impacted us through the fourth quarter of 2014. beginning in the second half of 2014 , we appointed new key personnel to management to lead our sales and marketing department , including a new vice president of worldwide sales and account management as well as a new senior vice president and chief marketing officer . furthermore , in the fourth quarter of 2014 , we enhanced our sales force domestically and internationally . we have also formed a new dental professional advisory board , made up of four founding members , who have made significant contributions to the specialties of periodontics , implantology , oral surgery , multi-stage restorative therapy , and peri-implantitis therapy . our goal is to refocus our energies on strengthening leadership , worldwide competitiveness and our professional customers and their patients . we completed two private placements in the latter half of 2014 totaling in net proceeds after offering expenses , of approximately $ 46.3 million . we used a portion of the proceeds to repay our lines of credit in july 2014. the remainder of the proceeds is being used for working capital and general corporate purposes . prior to these infusions of capital , the available borrowing capacity on our lines of credit with comerica bank and the net proceeds from the february 2014 equity transaction have been principal sources of liquidity during the first half of 2014. on april 10 , 2014 , we entered into a forbearance agreement that reduced our total aggregate available borrowings to $ 4.0 million . on may 5 , 2014 , june 3 , 2014 and july 9 , 2014 , we amended the forbearance agreement to extend the forbearance periods and paid fees associated with such amendments . on july 28 , 2014 , we paid in full all amounts due under the revolving lines of credit , including principal , accrued interest , and fees which totaled , in the aggregate , approximately $ 2.9 million , and the credit agreements were terminated . further discussion of the amendments is included in note 5 to the consolidated financial statements in part iv , item 15 of this annual report on form 10-k , which is incorporated herein by reference . 40 critical accounting policies the preparation of consolidated financial statements and related disclosures in conformity with accounting principles generally accepted in the united states requires us to make judgments , assumptions , and estimates that affect the amounts reported . the following is a summary of those accounting policies that we believe are necessary to understand and evaluate our reported financial results . revenue recognition . story_separator_special_tag we recognize the cost of sales incentives at the date at which the related revenue is recognized as a reduction in revenue , an increase in cost of revenue , or a selling expense , as applicable , or later , in the case of incentives offered after the initial sale has occurred . accounting for stock-based payments . we recognize compensation cost related to all stock-based payments based on the grant-date fair value using the black-scholes option valuation model , taking into consideration the probability of vesting and estimated forfeitures . valuation of accounts receivable . we maintain an allowance for uncollectible accounts receivable to estimate the risk of extending credit to customers . we evaluate our allowance for doubtful accounts based upon our knowledge of customers and their compliance with credit terms . the evaluation process includes a review of customers ' accounts on a regular basis which incorporates input from sales , service , and finance personnel . the review process evaluates all account balances with amounts outstanding 90 days from the due date and other specific amounts for which information obtained indicates that the balance may be uncollectible . the allowance for doubtful accounts is adjusted based on such evaluation , with a corresponding provision included in general and administrative expenses . account balances are charged off against the allowance when we believe it is probable the receivable will not be recovered . we do not have any off-balance-sheet credit exposure related to our customers . valuation of inventory . inventory is valued at the lower of cost , determined using the first-in , first-out method , or market . we periodically evaluate the carrying value of inventory and maintain an allowance for excess and obsolete inventory to adjust the carrying value as necessary to the lower of cost or market . we evaluate quantities on hand , physical condition and technical functionality , as these characteristics may be impacted by anticipated customer demand for current products and new product introductions . unfavorable changes in estimates of excess and obsolete inventory would result in an increase in cost of revenue and a decrease in gross profit . valuation of long-lived assets . property , plant , and equipment , and certain intangibles with finite lives are amortized over their estimated useful lives . useful lives are based on our estimate of the period that the assets will generate revenue or otherwise productively support our business goals . we monitor events and changes in circumstances that could indicate that the carrying balances of long-lived assets may exceed the undiscounted expected future cash flows from those assets . if such a condition were to exist , we would determine if an impairment loss should be recognized by comparing the carrying amount of the assets to their fair value . valuation of goodwill and other intangible assets . goodwill and other intangible assets with indefinite lives are not amortized but are evaluated for impairment annually or whenever events or changes in circumstances indicate that the asset might be impaired . we conducted our annual impairment analysis of our goodwill as of june 30 , 2014 and concluded there had been no impairment in goodwill . we closely monitor our stock price and market capitalization and perform such analysis when events or circumstances indicate that there may have been a change to the carrying value of those assets . warranty cost . we provide warranties against defects in materials and workmanship of our laser systems for specified periods of time . for the year ended december 31 , 2014 , waterlase and diode systems sold domestically are covered by our warranty for a period of two years . for the years ended december 31 , 2013 and 2012 , waterlase systems sold domestically were covered by our warranty for a period of one year while our diode systems warranty period was for two years from date of sale by us or the distributor to the end-user . for the year ended december 31 , 2014 , waterlase and diode systems sold internationally are covered by our warranty for a period of twenty-eight months from the date of sale to the international distributor . for the years ended december 31 , 2013 and 2012 , waterlase systems sold internationally were covered by our warranty for a period of sixteen months while our diode systems warranty period was up to twenty-eight months from the date of sale to the international distributor . estimated warranty expenses are recorded as an accrued liability with a corresponding provision to cost of revenue . this estimate is recognized concurrent with the recognition of revenue on the sale to the distributor or end-user . warranty expenses expected to be incurred after one year from the time of sale to the distributor are classified as a long-term warranty accrual . our overall accrual is based on our historical experience and our expectation of future conditions , taking into consideration the location and type of customer and the type of laser , which directly correlate to the materials and components under warranty , the duration of the warranty period , and the logistical costs to service the warranty . additional factors that may impact our warranty accrual include changes in the quality of materials , leadership and training of the production and services departments , knowledge of the lasers and workmanship , training of customers , and adherence to the warranty policies . additionally , an increase in warranty claims or in the costs associated with servicing those claims would likely result in an increase in the accrual and a decrease in gross profit . we offer extended warranties on certain imaging products . however , all imaging products are initially covered by the manufacturer 's warranties . 42 litigation and other contingencies . we regularly evaluate our exposure to threatened or pending litigation and other business contingencies .
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comparison of results of operations year ended december 31 , 2014 compared with year ended december 31 , 2013 net revenue . net revenue for the year ended december 31 , 2014 ( “ fiscal 2014 ” ) was $ 47.7 million , a decrease of $ 8.7 million , or 15 % , as compared with net revenue of $ 56.4 million for the year ended december 31 , 2013 ( “ fiscal 2013 ” ) . domestic revenues were $ 29.8 million , or 63 % of net revenue , for fiscal 2014 compared to $ 35.6 million , or 63 % of net revenue , for fiscal 2013. international revenues for fiscal 2014 were $ 17.8 million , or 37 % of net revenue compared to $ 20.8 million , or 37 % of net revenue for fiscal 2013. the decrease in period-over-period net revenue resulted from decreases in domestic and international laser system revenue , imaging systems revenue , and license fees and royalties revenue , partially offset by increases in consumables and other and services revenue . we believe that our results for fiscal 2014 were pervasively and negatively impacted by the significant distractions caused by our shareholder litigation and the related disruptions within both management and the marketplace , as well as a lack of sales management . since the second half of 2014 , our goal has been to refocus on strengthening our leadership , worldwide competitiveness and our professional customers and their patients . we have enhanced our management team with new key personnel and increased our sales force both domestically and internationally .
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meanwhile , minutes from the latest fed meeting revealed that members were open to a third round of quantitative easing as a backstop if economic growth should continue to falter . these developments led to sharp reversals across a broad range of markets during october , causing losses for the fund 's largely bearish portfolio . in currency markets , a sudden surge in eurozone optimism hurt the fund 's long u.s. dollar-short european currency positions . in addition , the bank of japan intervened to weaken the yen on the last trading day of the month , hurting the fund 's long positions . the fund was , however , able to profit from a rally in the australian dollar . in physical commodities , a rally in crude oil as well as in base metals caused losses for the fund 's short positions . however , the fund benefited from a rally in gold . the fund 's long fixed income exposures were negatively impacted by a rotation out of bonds into other sectors . during the month , the fund switched from a short to long net position in equities and generated a small profit in that sector as the s & p 500 index recorded its largest monthly percentage gain since 1991. november november saw a rapid waning of investor enthusiasm for the european sovereign debt rescue package announced in the prior month . attention turned to the possibility of an italian default and doubts arose as to the ability of the european financial stability facility to prevent a more widespread contagion . markets thus reversed from “ risk-on ” in october to “ risk-off ” in early november , with global equities falling , bonds rallying and high-yield currencies depreciating as investors grew less tolerant of risk . however , at month-end the federal reserve , in conjunction with european and asian central banks , intervened to provide a large liquidity injection into the financial system causing a sharp market rebound and yet another trend reversal in financial futures . physical commodity futures proved to be somewhat uncorrelated to other sectors in november , providing profitable trends for the fund . the fund finished the month down 0.06 % . gains were generated in the physical commodities , particularly through short positions in natural gas and nickel . however , these were offset by losses in financial futures markets . in equities , early month declines in the u.s. indices hurt the fund 's long positions . in foreign exchange markets , a long exposure to the high-yielding australian dollar caused losses as investors shifted into perceived safe-haven currencies in the first half of the month . lastly in interest rates , the month end credit easing by central banks went against the fund 's short eurodollar positions . december the european sovereign debt crisis continued to dominate headlines in december . a flight to safety by investors early in the month prompted the european central bank to cut its key policy interest rates by another 25 bps , following a similar move in november . in addition , the ecb provided european banks a record 489 billion in three-year loans to keep credit flowing in the region . the impact of this monetary easing was a further depreciation of the euro , while also sparking a rally in european bond markets , and a small month-end rebound in global equities . the fund posted a positive return of 1.09 % in december , profiting from its short currency positions in the euro and long positions in european fixed income instruments . equity sector returns were relatively flat for the month . in commodities , the fund benefited from short positions in natural gas , as mild weather and excess supply depressed prices further . however , downturns in oil and gold , where the fund was positioned long , led to offsetting losses . 2010 january the fund ended the month 2.57 % lower as losses from global equity indices , energy products , and metals offset profits from interest rate instruments , agricultural commodities and currencies . the fund 's most significant losses came from global equity indices . the sector reversed from an upward trend that began in march of 2009. the stock market experienced a sharp sell-off after investors reacted to the growing concern of weaker global economic growth and the u.s. administration 's announcement to limit speculative trading by banks . the reversal in equity prices went against the fund 's long positions , which generated losses . china announced it was taking steps to limit bank lending in order to moderate its own growth . the news pushed commodity prices lower , especially in energy and industrial metals . the lower prices went against the fund 's long positions in those sectors . interest rate instrument prices were higher this month , which helped recover some of the losses the sector generated in last month 's trading . february the fund posted positive gains in february of 0.58 % as profits from interest rate instruments and currencies outweighed losses from agricultural commodities and energies . the most significant gains came from short-term interest rate instrument prices , which trended higher following news of the greek debt crisis . this news also placed downward pressure on foreign currencies , especially the eu euro and british pound . the rise in interest rate instrument prices benefited the funds ' long positions in that sector , while falling european currencies generated profits for the fund 's short foreign currency positions . in agricultural commodities , declining prices went against the fund 's long positions , including sugar , corn and soybeans . story_separator_special_tag global equity prices continued to move higher in september which benefited the fund 's positions . both industrial and precious metals prices trended higher , generating profits for the fund 's long positions in gold , silver and copper . agricultural prices , especially cotton , soybeans and corn , continued to trend higher which added profits from the fund 's long positions . early in the month , interest rate instruments prices fell which generated early losses for the sector . however , prices rallied toward the end of the month after the fed 's comments on quantitative easing . the late rally in interest rate instruments benefited the fund 's long positions , but it was not enough to offset earlier losses . in the energy sector , the fund 's short positions in natural gas profited from a sustained downward trend , but a sharp rise in crude oil went against the fund 's short positions , resulting in a net loss for the sector . october the fund finished higher in october by 4.64 % with profits in four of the six major market sectors . the most significant gains came from long positions in global stock indices driven by upward trends in the dax , s & p 500 , russell 2000 and ftse 100. in currencies , the rise in the japanese yen , australian dollar , mexican peso and new zealand dollar were responsible for generating the most profits from that sector . the combination of rising chinese agricultural imports , lower inventories and a weaker u.s. dollar helped push agricultural commodity prices higher , which benefited the fund 's long positions . corn prices climbed to 2-year high , soybeans reached their highest price since july 2008 , and sugar prices hit a 30-year high . precious metals also trended higher , adding additional profits from that sector . november the fund finished lower in november by 4.19 % as losses from interest rate instruments , currencies and agriculturals offset gains in metals and equity indices . the most significant losses came from the fund 's long positions in interest rates , where price reversals caused by a rise in rates followed growing concerns over irish sovereign debt in europe and its threat to impact other eu nations including portugal and spain . in addition , there was a rise in short term u.s. interest rates that followed the federal reserve 's action of buying u.s. debt instruments in another round of quantitative easing . the net effect was that the fall in prices went against the fund 's widely held long positions . the irish debt crisis also pushed the euro lower relative to other foreign currencies , while the u.s. dollar reversed its downward direction . the sudden reversals in currencies went against the fund 's positions , generating additional losses for the fund . metals , including gold , silver and copper , continued higher this month , generating profits for the fund 's long positions . december fund finished higher in december by 5.91 % with most profits coming from the fund 's positions in foreign currencies . foreign currencies were profitable for the fund , driven by trends in international cross currencies resulting from a decline in the euro and british pound combined with rising australian dollar and japanese yen prices . strong upward trends in the metals markets also fueled profits for the fund 's long positions in copper , silver , gold and aluminum . in agricultural commodities rising prices in coffee , soybeans , corn and sugar each contributed additional profits . finally , there were some gains from the fund 's long positions in equity indices as equity prices continued to trend higher for the past two quarters . interest rate instrument prices went against the fund 's long positions which generated losses . off-balance sheet risk the term “ off-balance sheet risk ” refers to an unrecorded potential liability that , even though it does not appear on the balance sheet , may result in future obligation or loss . the fund trades in futures contracts and is therefore a party to financial instruments with elements of off-balance sheet market and credit risk . in entering into these contracts there exists a risk to the fund , market risk , that such contracts may be significantly influenced by market conditions , such as interest rate volatility , resulting in such contracts being less valuable . if the markets should move against all of the futures interests positions of the fund at the same time , and if the trading advisor was unable to offset futures interest positions of the fund , the fund could lose all of its assets and the limited partners would realize a 100 % loss . the general partner attempts to decrease market risk through maintenance of a margin-to-equity ratio that rarely exceeds 30 % . 15 in addition to subjecting the fund to market risk , upon entering into futures contracts there is a risk that the counterparty will not be able to meet its obligations to the fund . the counterparty for futures contracts traded in the u.s. and on most foreign exchanges is the clearinghouse associated with such exchange . in general , clearinghouses are backed by the corporate members of the clearinghouse who are required to share any financial burden resulting from the non-performance by one of their members and , as such , should significantly reduce this risk . in cases where the clearinghouse is not backed by the clearing members , like some foreign exchanges , it is normally backed by a consortium of banks or other financial institutions . the fund invests in u.s. treasury securities , u.s. and foreign government sponsored enterprise notes , commercial paper , corporate notes and certificates of deposit . should an issuing entity default on its obligation to the fund and such entity is not
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results of operations the returns for the fund for the years ended december 31 , 2011 and 2010 were ( 31.05 ) % and 7.74 % , respectively . past performance is not indicative of expected future financial condition or results of operations . further analysis of the trading gain and loss is provided below . 2011 january the fund finished 7.04 % lower this month as losses from foreign currencies , equity indices and metals offset profits from agricultural commodities , energy products and interest rate instruments . the most significant losses came from the fund 's positions in international currencies as several foreign exchange prices reversed direction in response to positive economic news in both the u.s. and europe . cross-currency trades in several markets , including the british pound/japanese yen , euro/australian dollar , and british pound/ australian dollar all reversed and moved against the fund 's positions during the month . in agricultural commodities , rising prices in cotton , corn and sugar contributed additional profits . in other sectors , results were mixed leading to flat performance in metals , interest rate instruments , energy products and equity indices . february the fund finished 0.83 % lower this month as losses from foreign currencies , interest rate instruments , equity indices and metals offset profits from agricultural commodities and energy products . the most significant losses came from the fund 's positions in international currencies as several foreign exchange prices reversed direction from previous trends in both europe and japan . the most significant profits came from the fund 's positions in energy as tensions in the middle east , and especially in libya , pushed oil prices higher benefiting the funds ' long positions in that sector . in agricultural commodities , rising prices in cotton , corn and sugar contributed additional profits . in other sectors , results were mixed leading to flat performance in metals , interest rate instruments and equity indices .
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the following table summarizes the allocation of the consideration to the fair value of the intangible assets acquired and net liabilities assumed on august 24 , 2012 , and reflects adjustments made through the measurement period to finalize the purchase price allocation ( table in millions ) : replace_table_token_22_th no story_separator_special_tag all dollar amounts expressed as numbers in this md & a ( except share and per share amounts ) are in millions . period-over-period changes are calculated based upon the respective underlying , non-rounded data . overview we are the leader in virtualization infrastructure solutions utilized by organizations to help transform the way they build , deliver and consume information technology ( “ it ” ) resources . we develop and market our product and service offerings within three main product groups , and we also seek to leverage synergies across these three product areas . sddc or software -defined data center end-user computing hybrid cloud computing we pioneered the development and application of virtualization technologies with x86 server-based computing , separating application software from the underlying hardware . the benefits to our customers include lower it costs and a more automated and resilient systems infrastructure capable of responding dynamically to variable business demands . our broad and proven suite of virtualization technologies are designed to establish secure and , reliable it environments and address a range of complex it challenges that include cost reduction , operational inefficiencies , access to cloud computing capacity , business continuity and corporate end-user computing device management . our solutions enable organizations to aggregate multiple servers , storage infrastructure and networks together into shared pools of capacity that can be allocated dynamically , securely and reliably to applications as needed . once created , these internal computing infrastructures , or “ clouds , ” can be dynamically extended by our customers to the public cloud environment . when linked , this results in a “ hybrid ” computing cloud of highly available internal and external computing resources that organizations can access on demand . our customers ' deployments range in size from a single virtualized server for small businesses to thousands of virtual machines for our fortune 1000 enterprise customers . we have articulated a vision for the software-defined data center ( “ sddc ” ) , where increasingly infrastructure is virtualized and delivered as a service , enabling control of the data center to be entirely automated by software . the sddc is designed to transform the data center into an on-demand service that addresses application requirements by abstracting , pooling , and automating the services that are required from the underlying hardware . sddc promises to dramatically simplify data center operations and lower costs . the vmware vcloud suite , which is our first integrated solution toward realizing the sddc vision and is based upon our vmware vsphere virtualization platform , was initially introduced in late 2012. the vmware vcloud suite addresses virtualization of not only cpu and memory , but also networks and associated security services . in addition , the vcloud suite delivers a new approach to management , leveraging policy-based automation . vmware vcloud suite is engineered for hybrid cloud computing so that it federates with other pools of infrastructure . we believe that our solutions enable organizations to realize significant operational and cost efficiencies as they transition their underlying legacy it infrastructure . we work closely with more than 1,200 technology partners , including leading server , microprocessor , storage , networking , software and security vendors . we have shared the economic opportunities surrounding virtualization with our partners by facilitating solution development through open application programming interface ( “ apis ” ) formats and protocols and providing access to our source code and technology . the endorsement and support of our partners further enhances the awareness , reputation and adoption of our virtualization solutions . we expect to grow our business by building long-term relationships with our customers , which includes continuing to sell our solutions through enterprise license agreements ( “ elas ” ) . elas are comprehensive volume license offerings offered both directly by us and through certain channel partners that provide for multi-year maintenance and support . under a typical ela , a portion of the revenues is attributed to the license revenues and the remainder is primarily attributed to software maintenance revenues . in addition , the initial maintenance and support period is typically longer for elas compared to our transactional business . we believe that elas facilitate our objective of building long-term relationships with our customers as they commit to our virtual infrastructure solutions in their data centers . elas comprised 35 % , 27 % and 26 % of our overall sales in 2013 , 2012 and 2011 , respectively , with the balance primarily represented by our non-ela , or transactional business . pivotal software , inc. ( “ pivotal ” , previously known as “ gopivotal , inc. ” ) during the year , we transferred certain assets and liabilities to pivotal in exchange for an ownership interest in pivotal of approximately 28 % as of december 31 , 2013 . in connection with this transaction , we transferred approximately 415 of our employees to pivotal during 2013. we also entered into an agreement with pivotal pursuant to which we are acting as the selling agent of the products and services we contributed to pivotal in exchange for a customary agency fee . we have also agreed to provide various transition services to pivotal , for which we are reimbursed for our costs . 42 beginning with the second quarter of 2013 , substantially all revenues and costs associated with our contribution to pivotal have been eliminated from our consolidated statements of income . while the contribution to pivotal has had a negative impact on our revenue growth rate compared to 2012 , our 2013 operating margin has been positively impacted due to the elimination of pivotal related costs from our consolidated statements of income . story_separator_special_tag physical and electronic delivery of our software products . story_separator_special_tag the total cash and non-cash charges for workforce reductions of $ 54 and costs primarily associated with asset impairments of $ 14 were recorded on the consolidated statements of income in 2013. although we expect that streamlining our operations will have a favorable impact on our business , our operating expenses are expected to continue to increase as a result of the investments we are making to support our key strategic initiatives . these investments include our continued effort to add resources . total headcount had a net increase of approximately 500 during 2013 , which is net of the reduction of employees that have or will transfer to pivotal , as well as the impact of our realignment activities . 46 other income ( expense ) , net other income , net of $ 28 in 2013 changed by $ 29 compared with other expense , net of $ 1 in 2012. other expense , net of $ 1 in 2012 changed by $ 48 compared with other income , net of $ 47 . the changes in 2013 compared with 2012 were primarily due to pre-tax gains of $ 44 recognized in 2013 , as a result of disposing of certain business activities under our business realignment plan . partially offsetting this gain was the recognition of an other-than-temporary impairment charge for a strategic investment in 2013. the changes in 2012 compared with 2011 were primarily due to a $ 56 gain recognized on the sale of our investment in terremark worldwide , inc. in 2011. income tax provision our effective income tax rate was 11.6 % , 16.5 % and 8.9 % for 2013 , 2012 and 2011 , respectively . the effective rate in 2013 was lower than 2012 primarily due to the retroactively enacted extension of the federal research credit through december 31 , 2013 which was passed by the united states congress during january 2013 , which decreased our effective rate for 2013 by 7 % . the effective tax rate in 2012 was higher than 2011 primarily due to the federal research credit , which expired at the end of 2011 and was unavailable in 2012. the rate was also negatively impacted by a greater proportion of earnings in the u.s. , which are taxed at a higher rate than our earnings in foreign jurisdictions . our rate of taxation in foreign jurisdictions is lower than the u.s. tax rate . our international income is primarily earned by our subsidiaries in ireland , where the statutory tax rate is 12.5 % . recent developments in non-us tax jurisdictions and unfavorable changes in non-us tax laws and regulations could have an adverse effect on our effective tax rate if earnings are lower than anticipated in countries where the statutory tax rates are lower than the us federal tax rate . all income earned abroad , except for previously taxed income for u.s. tax purposes , is considered indefinitely reinvested in our foreign operations and no provision for u.s. taxes has been provided with respect to such income . we have been included in the emc consolidated group for u.s. federal income tax purposes , and expect to continue to be included in such consolidated group for periods in which emc owns at least 80 % of the total voting power and value of our outstanding stock as calculated for u.s. federal income tax purposes . the percentage of voting power and value calculated for u.s. federal income tax purposes may differ from the percentage of outstanding shares beneficially owned by emc due to the greater voting power of our class b common stock as compared to our class a common stock and other factors . each member of a consolidated group during any part of a consolidated return year is jointly and severally liable for tax on the consolidated return of such year and for any subsequently determined deficiency thereon . should emc 's ownership fall below 80 % of the total voting power or value of our outstanding stock in any period , then we would no longer be included in the emc consolidated group for u.s. federal income tax purposes , and thus we would no longer be liable in the event that any income tax liability was incurred , but not discharged , by any other member of the emc consolidated group . additionally , our u.s. federal income tax would be reported separately from that of the emc consolidated group . although we file a consolidated federal tax return with emc , the income tax provision is calculated primarily as though we were a separate taxpayer . however , certain transactions that we and emc are parties to , are assessed using consolidated tax return rules . our effective tax rate in the periods presented is the result of the mix of income earned in various tax jurisdictions that apply a broad range of income tax rates . the rate at which the provision for income taxes is calculated differs from the u.s. federal statutory income tax rate primarily due to different tax rates in foreign jurisdictions where income is earned and considered to be indefinitely reinvested . our future effective tax rate may be affected by such factors as changes in tax laws , changes in our business , regulations , or rates , changing interpretation of existing laws or regulations , the impact of accounting for stock-based compensation , the impact of accounting for business combinations , changes in our international organization , shifts in the amount of income before tax earned in the u.s. as compared with other regions in the world , and changes in overall levels of income before tax . our relationship with emc as of december 31 , 2013 , emc owned 43,025,000 shares of class a common stock and all 300,000,000 shares of class b common stock , representing 79.7 % of our total outstanding shares of common stock and 97.2 % of the combined voting power of our outstanding common stock .
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results of operations revenues our revenues in the years ended 2013 , 2012 and 2011 were as follows : replace_table_token_4_th license revenues license revenues in 2013 and 2012 were up 9 % and 13 % , respectively . our revenue growth rate for both periods was due to overall increased global sales volumes in all major geographies , slightly offset by the disposition of certain business lines under our realignment plan and the contribution to pivotal . during 2013 , we expanded the sales of product suites , such as our vcloud suite , that integrate advanced management and automation features with our vsphere cloud infrastructure platform and which are primarily sold through elas . our growth in ela volume across all geographies contributed to our overall increase in license revenues during 2013 compared to 2012. the growth in our ela business is also attributing , in part , to lower growth rates of our non-ela or transactional business . our revenue growth rate was negatively impacted by the contribution to pivotal and the disposition of other net assets under our realignment plan . license revenues related to pivotal and all dispositions under our realignment plan were $ 18 in 2013 and $ 56 in 2012. services revenues in 2013 and 2012 , software maintenance revenues benefited from strong renewals , multi-year software maintenance contracts sold in previous periods , and additional maintenance contracts sold in conjunction with new software license sales . in each year presented , customers bought , on average , more than 24 months of support and maintenance with each new license purchased , which we believe illustrates our customers ' commitment to vmware as a core element of their data center architecture and hybrid cloud strategy . in 2013 and 2012 , professional services revenues increased as growth in our license sales and installed-base led to additional demand for our professional services .
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