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these statements are based on current expectations , estimates , forecasts and projections about the industry in which we operate and the beliefs and assumptions of our management . in some cases , forward-looking statements can be identified by the use of words such as “ believe , ” “ expect , ” “ may , ” “ estimate , ” “ continue , ” “ anticipate , ” “ intend , ” “ should , ” “ plan , ” “ predict , ” “ will , ” “ project , ” “ potential , ” or the negative thereof or other comparable terminology . in addition , any statements that refer to projections of our future financial performance , our anticipated growth and trends in our businesses and other characterizations of future events or circumstances are forward-looking statements . readers are cautioned that these forward-looking statements are only predictions and are subject to risks , uncertainties and assumptions that are difficult to predict , including those identified in the risk factors discussed in item 1a , in the discussion below , as well as in other sections of this annual report on form 10-k. therefore , actual results may differ materially and adversely from those expressed in any forward-looking statements . all forward-looking statements and reasons why results may differ included in this report are made as of the date hereof , and we assume no obligation to update these forward-looking statements or reasons why actual results might differ . overview we are a leading global provider of cloud and software platforms , systems and software for fiber- and copper-based network architectures and a pioneer in software defined access and cloud products focused on access networks and the subscriber . calix 's portfolio allows for a broad range of subscriber services to be provisioned and delivered over a single unified network . our access systems can deliver voice and data services , advanced broadband services , mobile broadband , as well as high-definition video and online gaming . our premises systems will allow csps to master the complexity of the smart home and business and offer new services to their device enabled subscribers . and , all of these platforms and systems can be monitored , analyzed , managed and supported by calix cloud . we market our cloud and software platforms , systems and services to csps globally through our direct sales force as well as a number of resellers . as of december 31 , 2017 , over 25 million ports of the calix portfolio have been deployed at a growing number of csps worldwide . our customers range from smaller , regional csps to some of the world 's largest csps . we have enabled over 1,400 customers to deploy gigabit passive optical network , active ethernet and point-to-point ethernet fiber access networks . our revenue increased to $ 510.4 million for 2017 from $ 458.8 million for 2016 and $ 407.5 million for 2015 . our revenue and continued revenue growth will depend on our ability to sell and license our cloud and software platforms , systems and services to existing customers and to attract new customers , particularly larger csps , globally . during 2017 , we continued to see growth in our services business to meet customer demand for turnkey solutions that include professional services together with the supply of equipment and materials , including projects that are funded by the fcc 's current caf program . specifically , during 2017 , we completed a significant turnkey network improvement project that we had commenced in 2015 and the vast majority of previously-awarded caf projects by the fourth quarter of 2017. revenue for such projects is generally recognized only when all project requirements are completed , which typically requires longer periods depending on the nature and scope of the project . similarly , some of the costs incurred by us for such projects , including labor and related costs , are deferred and recognized to cost of revenue when the associated revenue is recognized . revenue fluctuations result from many factors , including : increases or decreases in customer orders for our products and services , market or other factors that may delay or materially impact customer purchasing decisions , contractual terms with customers that result in delayed revenue recognition and varying budget cycles and seasonal buying patterns of our customers . more specifically , our customers tend to spend less in the first quarter as they are finalizing their annual budgets , and in certain regions , customers are also challenged by winter weather conditions that inhibit fiber deployment in outside infrastructure . our revenue is also dependent upon our customers ' timing of purchases and capital expenditure plans , including expenditure plans for turnkey solutions projects , which are generally non-recurring in nature . in particular , at the end of 2017 , we experienced significantly lower order volumes by our largest customer due to the timing of their recent acquisition , and we expect that this acquisition may continue to disrupt the customer 's normal expenditure plans , including continued delays and reduction in purchases of our products and services as it implements its transition activities and corporate strategies . the timing of recognition of deferred revenue may cause significant fluctuations in our revenue and operating results from period to period . cost of revenue is strongly correlated to revenue and tends to fluctuate due to all of the above factors that could impact revenue . factors that impacted our cost of revenue for 2017 , and that may impact cost of revenue in future periods , also include : changes in the mix of products delivered , customer location and regional mix , changes in product warranty and incurrence of retrofit costs , changes in the cost of our inventory and inventory write-downs . story_separator_special_tag we assess whether the sales price is fixed or determinable based on the payment terms and whether the sales price is subject to refund or adjustment . payment terms to customers can range from net 30 up to net 180 days . collectability is reasonably assured . we assess collectability based primarily on creditworthiness of customers and their payment histories . revenue from installation and training services is recognized as the services are completed . revenue from post-sales software support and extended warranty services are deferred and recognized ratably over the period during which the services are to be performed . in instances where substantive acceptance provisions are specified in the customer agreement , revenue is deferred until the acceptance criteria have been met . from time to time , we offer customers sales incentives , which include volume rebates and discounts . these amounts are estimated on a quarterly basis and recorded as a reduction of revenue . we enter into arrangements with certain of our customers who receive government supported loans and grants from the rus to finance capital spending . under the terms of a rus equipment contract that includes installation services , the customer does not take possession and control and title does not pass until formal acceptance is obtained from the customer . under this type of arrangement , we do not recognize revenue until we have received formal acceptance from the customer . for rus arrangements that do not involve installation services , we recognize revenue when all of the revenue recognition criteria as described above have been met . our products contain both software and non-software components that function together to deliver the products ' essential functionality . when we enter into sales arrangements that consist of multiple deliverables of our product and service offerings , we allocate the total consideration of the arrangement to each separable deliverable based on their relative selling price . we limit the amount allocable to delivered elements to the amount that is not contingent upon the delivery of additional items or meeting specified performance conditions , and we recognize revenue on each deliverable in accordance with our revenue policy . the determination of selling price for each deliverable is based on a selling price hierarchy , which is vendor-specific objective evidence , or vsoe , if available , third-party evidence , or tpe , if vsoe is not available , or estimated selling price , or esp , if neither vsoe nor tpe is available . vsoe of selling price is based on the price charged when the element is sold separately . in determining vsoe , we generally require that a substantial majority of the selling prices of an element fall within a narrow range when each element is sold separately . we have established vsoe for our training and post-sales software support services based on the normal pricing practices of these services when sold separately . tpe of selling price is established by evaluating whether there are similar competitor products or services that are sold in stand-alone sales transaction to similarly situated customers . generally , our marketing strategy differs from that of our peers and our offerings contain a significant level of customization and differentiation such that the comparable pricing of products with similar functionality can not be obtained . additionally , as we are unable to reliably determine what similar competitor products ' selling prices are on a stand-alone basis , we are not typically able to determine tpe . esp is established considering multiple factors including , but not limited to geographies market conditions , competitive landscape , internal costs , gross margin objectives , characteristics of targeted customers and pricing practices . the determination of esp is made through consultation with and formal approval by management , taking into consideration the go-to-market strategy . see “ recent accounting pronouncements not yet adopted – revenue from contracts with customers ” below . stock-based compensation stock-based awards are recorded at fair value as of the grant date and recognized to expense over the employee 's requisite service period ( generally the vesting period ) , which we have elected to amortize on a straight-line basis . we value restricted stock units , or rsus , and employee stock purchase right under nonqualified employee stock purchase plan , or nonqualified espp , at the closing market price of our common stock on the date of grant . stock-based compensation expense associated with performance restricted stock units , or prsus , with graded vesting features and which contain both a performance and a service condition is measured based on the closing market price of our common stock on the date of grant , and is recognized , net of forfeitures , as expense over the requisite service period using the graded vesting attribution method . compensation expense is only recognized if we have determined that it is probable that the performance condition will be met . we reassess the probability of vesting at each reporting period and adjusts compensation expense based on this probability assessment . stock-based compensation expense associated with performance-based stock options with graded vesting features and which contain both a performance and a service condition is measured based on fair value of stock option estimated at the grant date 40 using the black-scholes option valuation model , and is recognized , net of forfeitures , as expense over the requisite service period using the graded vesting attribution method . we estimate the fair value of stock options and employee stock purchase rights under our amended and restated employee stock purchase plan , or espp , at the grant date using the black-scholes option-pricing model .
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results of operations for years ended december 31 , 2017 , 2016 and 2015 revenue our revenue is comprised of the following : products – includes revenue from the sale of access and premises systems , platform software licenses and cloud-based software subscriptions . services – includes revenue from professional services , customer support , software and cloud-based maintenance , extended warranty subscriptions , training and managed services . the following table sets forth our revenue ( in thousands , except for percentages ) : replace_table_token_4_th 43 our revenue is principally derived in the united states . revenue generated in the united states represented approximately 89 % of our total revenue in 2017 , 91 % in 2016 and 88 % in 2015 . 2017 compared to 2016 : the increase in revenue during 2017 compared with 2016 resulted from an increase in services revenue by $ 58.3 million , or 193 % , primarily driven by the substantial completion of services associated with a significant turnkey network improvement project during the first quarter of 2017 and the completion of the vast majority of sites from previously-awarded caf projects by the fourth quarter of 2017 . our product revenue decreased by $ 6.7 million mainly due to lower shipments to one of our large tier 2 customers relative to the prior year period related to a significant turnkey network improvement project in 2016 , which was completed in the first half of 2017 . we expect our services revenue to decline in 2018 as the significant turnkey network improvement project completed in early 2017 for this customer is not expected to reoccur and we expect the overall volume of caf projects to be lower in 2018 relative to 2017. these decreases are expected to be partially offset by an increase in services revenue associated with sales of our platform solutions .
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stock-based compensation expense is determined based on the fair value of the award at the grant date , net of estimated forfeitures , and is adjusted each period to reflect story_separator_special_tag overview we are in the business of discovering , developing , manufacturing and commercializing medicines for serious diseases . we use precision medicine approaches with the goal of creating transformative medicines for patients in specialty markets . our business is focused on developing and commercializing therapies for the treatment of cystic fibrosis , or cf , and advancing our research and development programs in other indications , while maintaining our financial strength . our two marketed products are orkambi and kalydeco . in 2012 , we obtained approval for , and initiated commercial sales of , kalydeco ( ivacaftor ) , and in 2015 , we obtained approval for , and initiated commercial sales of orkabmi ( lumacaftor in combination with ivacaftor ) . kalydeco net product revenues have been increasing on an annual basis and orkambi net product revenues commenced in the united states in the second half of 2015. our total net product revenues increased by 105 % from $ 487.8 million in 2014 to $ 1.0 billion in 2015 , primarily due to orkambi net product revenues , which commenced in the third quarter of 2015 , and an increase in kalydeco net product revenues . in the fourth quarter of 2015 , our total net product revenues were $ 406.6 million , including $ 219.9 million in orkambi net product revenues and $ 180.7 million in kalydeco net product revenues . we expect our net income ( loss ) and total net product revenues in 2016 will be largely dependent on our orkambi net product revenues in the united states . cystic fibrosis orkambi orkambi ( lumacaftor in combination with ivacaftor ) was approved by the united states food and drug administration , or fda , in july 2015 and by the european commission in november 2015 , for the treatment of patients with cf twelve years of age and older who are homozygous for the f508del mutation in their cystic fibrosis transmembrane conductance regulator , or cftr , gene . we recognized our first net product revenues from orkambi in the second half of 2015. our future orkambi net product revenues in the united states will reflect the number of patients for whom treatment with orkambi is initiated , the proportion of initiated patients who remain on treatment , patient compliance with the recommended treatment regimen and the level of rebates , chargebacks , discounts and other adjustments to our orkambi gross product revenues . we believe that there currently are approximately 8,500 patients in the united states who are eligible for treatment with orkambi and that as of december 31 , 2015 more than 4,500 patients in the united states had started treatment with orkambi . following the approval in the european union in november 2015 , we have begun the country-by-country reimbursement approval process . we believe that there are approximately 12,000 patients with cf twelve years of age and older who are homozygous for the f508del mutation in europe . we recently completed the first of two phase 3 clinical trials evaluating orkambi for the treatment of patients with cf six to eleven years of age who are homozygous for the f508del mutation in their cftr gene . we believe that there are approximately 6,000 patients in the united states and european union within this patient population . kalydeco kalydeco ( ivacaftor ) was approved in 2012 in the united states and european union as a treatment for patients with cf six years of age and older who have the g551d mutation in their cftr gene . since 2012 , we have increased the number of patients who are being treated with kalydeco in the united states and non-u.s. markets by expanding the label for kalydeco to include patients with cf who have additional mutations in their cftr gene and to include patients in additional age demographics . we believe that there are approximately 4,000 patients in north america , europe and australia who are currently eligible for treatment with kalydeco . 50 cf development programs we have multiple development programs in the field of cf , including : vx-661 , a corrector compound that we are evaluating in a phase 3 development program in combination with ivacaftor in multiple cf patient populations who have at least one copy of the f508del mutation in their cftr gene ; vx-371 , an investigational epithelial sodium channel , or enac , inhibitor , that is being evaluated in a phase 2 development program and which we exclusively licensed from parion sciences , inc. in 2015 ; and vx-152 and vx-440 , two next-generation cftr corrector compounds that entered phase 1 clinical trials in the fourth quarter of 2015 and that we plan to evaluate as part of combination treatment regimens . research and development we are engaged in a number of other research and mid- and early-stage development programs , including in the areas of oncology , pain and neurology . oncology we are conducting two phase 1/2 clinical trials of vx-970 , a protein kinase inhibitor of ataxia telangiectasia and rad3-related , or atr , in combination with commonly used dna-damaging chemotherapies across a range of solid tumor types , including triple negative breast cancer and non-small cell lung cancer . we also are in phase 1 development of vx-803 , a second atr inhibitor , alone and in combination with chemotherapy . we recently initiated phase 1 clinical development of vx-984 , a third oncology drug candidate , alone and in combination with pegylated liposomal doxorubicin . pain we are developing vx-150 and vx-241 , two drug candidates for the treatment of pain . in the fourth quarter of 2015 , we initiated a phase 2 clinical trial to evaluate vx-150 in patients with symptomatic osteoarthritis of the knee . story_separator_special_tag initially , we expect that our ex-u.s. orkambi net product revenues will be primarily from germany due to the time it will take to complete the reimbursement discussions in other european countries following orkambi 's european approval in the fourth quarter of 2015. incivek net product revenues were $ 18.0 million , $ 24.1 million and $ 466.4 million in 2015 , 2014 and 2013. we have withdrawn incivek from the market . we may continue to recognize insignificant incivek revenues in 2016 as we adjust our incivek reserves for rebates , chargebacks and discounts . 54 royalty revenues our royalty revenues were $ 24.0 million , $ 40.9 million and $ 156.6 million in 2015 , 2014 and 2013 , respectively . since the beginning of 2014 , our royalty revenues have consisted of ( i ) revenues related to a cash payment we received in 2008 when we sold our rights to certain hiv royalties and ( ii ) revenues related to certain third-party royalties payable by our collaborators on sales of hiv drugs and telaprevir that also result in corresponding royalty expenses . in 2013 , we received significant royalties from janssen nv based on incivo ( telaprevir ) net product sales . our rights to receive royalties on incivo sales ended at the beginning of 2014 , and janssen nv currently has a fully-paid license to market incivo in its territories , subject to the continued payment of certain third-party royalties . collaborative revenues replace_table_token_7_th ( 1 ) 2015 includes $ 2.9 million of revenues related to variable interest entities consolidated for accounting purposes . our collaborative revenues have fluctuated significantly on an annual basis and may continue to fluctuate in the future . in 2015 , we did not have significant collaborative revenues . in 2014 , the majority of our collaborative revenues related to $ 35.0 million in payments we received from janssen inc. related to our outlicense of vx-787 . in 2013 , we recognized $ 203.4 million in janssen nv collaborative revenues , which were primarily attributable to a $ 152.0 million payment we received pursuant to our amendment to the janssen nv collaboration agreement . these collaborative revenues also included the acceleration of the remaining deferred revenues related to the up-front payment we received from janssen nv in 2006. operating costs and expenses replace_table_token_8_th cost of product revenues our cost of product revenues includes the cost of producing inventories that corresponded to product revenues for the reporting period , plus the third-party royalties payable on our net sales of our products . pursuant to our agreement with cystic fibrosis foundation therapeutics incorporated , or cfft , our tiered third-party royalties on sales of kalydeco and orkambi , calculated as a percentage of net sales , range from the single digits to the sub-teens . our cost of product revenues increased in 2015 as compared to 2014 due primarily to increased net product revenues . our cost of product revenues decreased in 2014 as compared to 2013 due primarily to decreased net product revenues and the charges incurred in 2013 for excess and obsolete incivek inventories . we expect our cost of product revenues to increase in 2016 as compared to 2015 due to increased net product revenues . 55 royalty expenses royalty expenses include third-party royalties payable upon net sales of telaprevir by our collaborators in their territories and expenses related to a subroyalty payable to a third party on net sales of an hiv protease inhibitor sold by glaxosmithkline . royalty expenses do not include royalties we pay to cfft on sales of kalydeco and orkambi , which instead are included in cost of product revenues . royalty expenses in 2015 decreased by $ 13.9 million , or 65 % , as compared to 2014 , primarily as a result of decreased incivo ( telaprevir ) sales by our collaborator janssen nv . our royalty expenses with respect to telaprevir and the hiv protease inhibitor are offset by corresponding royalty revenues . research and development expenses replace_table_token_9_th our research and development expenses include internal and external costs incurred for research and development of our drugs and drug candidates . we do not assign our internal costs , such as salary and benefits , stock-based compensation expense , laboratory supplies and other direct expenses and infrastructure costs , to individual drugs or drug candidates , because the employees within our research and development groups typically are deployed across multiple research and development programs . these internal costs are significantly greater than our external costs , such as the costs of services provided to us by clinical research organizations and other outsourced research , which we allocate by individual program . all research and development costs for our drugs and drug candidates are expensed as incurred . over the past three years , we have incurred $ 2.7 billion in research and development expenses associated with drug discovery and development . the successful development of our drug candidates is highly uncertain and subject to a number of risks . in addition , the duration of clinical trials may vary substantially according to the type , complexity and novelty of the drug candidate and the disease indication being targeted . the fda and comparable agencies in foreign countries impose substantial requirements on the introduction of therapeutic pharmaceutical products , typically requiring lengthy and detailed laboratory and clinical testing procedures , sampling activities and other costly and time-consuming procedures . data obtained from nonclinical and clinical activities at any step in the testing process may be adverse and lead to discontinuation or redirection of development activities . data obtained from these activities also are susceptible of varying interpretations , which could delay , limit or prevent regulatory approval . the duration and cost of discovery , nonclinical studies and clinical trials may vary significantly over the life of a project and are difficult to predict . therefore , accurate and meaningful estimates of the ultimate costs to bring our drug candidates to market are not available .
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results of operations replace_table_token_4_th net loss attributable to vertex comparison of net loss attributable to vertex 2015 vs. 2014 net loss attributable to vertex was $ 556.3 million in 2015 as compared to a net loss attributable to vertex of $ 738.6 million in 2014 . our revenues increased significantly in 2015 as compared to 2014 primarily due to orkambi net product revenues , which commenced in the third quarter of 2015 , and a $ 167.9 million increase in kalydeco net product revenues , partially offset by a $ 43.6 million decrease in our collaborative revenues . our operating costs and expenses increased in 2015 as compared to 2014 primarily due to increases in research and development expenses , sales , general and administrative expenses and cost of product revenues , partially offset by decreased restructuring expenses and royalty expenses . comparison of net loss attributable to vertex 2014 vs. 2013 net loss attributable to vertex was $ 738.6 million in 2014 as compared to a net loss attributable to vertex of $ 445.0 million in 2013 . our revenues decreased in 2014 as compared to 2013 due to a $ 442.3 million decrease in incivek net product revenues , a $ 166.1 million decrease in collaborative revenues and a $ 115.7 million decrease in royalty revenues , partially offset by a $ 92.5 million increase in kalydeco net product revenues . our operating costs and expenses decreased in 2014 as compared to 2013 primarily due to an intangible asset impairment charge related to vx-222 of $ 412.9 million recorded in 2013 and decreases in cost of product revenues , royalty expenses , research and development expenses and sales , general and administrative expenses . in 2014 , the $ 45.2 million loss reflected in other items , net was primarily due to interest expense associated with the leases for our corporate headquarters . in 2013 the $ 106.4
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we offer more than 48,000 skus , ranging from high-quality specialty foods and ingredients to basic ingredients and staples and center-of-the-plate proteins . we serve more than 30,000 customer locations , primarily located in our 15 geographic markets across the united states and canada , and the majority of our customers are independent restaurants and fine dining establishments . as a result of our acquisition of allen brothers , we also sell certain of our center-of-the-plate products directly to consumers . we believe several key differentiating factors of our business model have enabled us to execute our strategy consistently and profitably across our expanding customer base . these factors consist of a portfolio of distinctive and hard-to-find specialty food products , an extensive selection of center-of-the-plate proteins , a highly trained and motivated sales force , strong sourcing capabilities , a fully integrated warehouse management system , a highly sophisticated distribution and logistics platform and a focused , seasoned management team . in recent years , our sales to existing and new customers have increased through the continued growth in demand for specialty food products and center-of-the-plate products in general ; increased market share driven by our large percentage of sophisticated and experienced sales professionals , our high-quality customer service and our extensive breadth and depth of product offerings , including , as a result of our acquisitions of michael 's in august 2012 , allen brothers in december 2013 , del monte in april 2015 and fells point in august 2017 , meat , seafood and other center-of-the-plate products , and , as a result of our acquisition of qzina in may 2013 , gourmet chocolate , pastries and dessert ; the acquisition of other specialty food and center-of-the-plate distributors ; the expansion of our existing distribution centers ; our entry into new distribution centers , including the construction of a new distribution center in chicago ; and the import and sale of our proprietary brands . through these efforts , we believe that we have been able to expand our customer base , enhance and diversify our product selections , broaden our geographic penetration and increase our market share . we believe that as a result of these efforts , we have increased sales from $ 674 million in fiscal 2013 to $ 1.3 billion in fiscal 2017 . recent acquisitions on august 25 , 2017 , we acquired substantially all of the assets of fells point , a specialty protein manufacturer and distributor based in the metro baltimore and washington dc area . the aggregate purchase price for the transaction at acquisition date was approximately $ 33.0 million , including the impact of an initial net working capital adjustment which is subject to a post-closing working capital adjustment true up . approximately $ 29.7 million was paid in cash at closing and the remaining $ 3.3 million consisted of 185,442 shares of the company 's common stock . we are also required to pay additional contingent consideration , if earned , in the form of an earn-out amount which could total approximately $ 12.0 million . the payment of the earn-out liability is subject to the successful achievement of annual adjusted ebitda targets for the fells point business over a period of four years following closing . on june 27 , 2016 , we acquired substantially all of the assets of mt food , based in chicago , illinois . founded in the mid-1990 's , mt food is a wholesale distributor of dairy , produce , specialty and grocery items in the metro chicago area . the purchase price for the transaction was $ 21.5 million , of which , $ 21.0 million was paid in cash at closing with an additional $ 0.5 million payable eighteen months after the closing date . the aggregate purchase was paid through cash-on-hand and the proceeds from a draw down on its delayed draw term loan facility . during the second quarter of fiscal 2017 , we paid an earn-out of $ 0.5 million to the former owners . on april 6 , 2015 , we acquired substantially all the equity interests of del monte for an aggregate purchase price of approximately $ 184.1 million . founded in 1926 , del monte supplies high quality , usda inspected beef , pork , lamb , veal , poultry and seafood products to northern california . the funding of the acquisition consisted of the following : 35 $ 123.9 million in cash , which was funded with cash-on-hand , borrowings under the revolving credit facility portion of our senior secured credit facilities and the issuance of $ 25.0 million of additional senior secured notes that bear interest at 5.80 % per annum due on october 17 , 2020 ; approximately 1.1 million shares of our common stock ( valued at $ 22.17 per share ) ; $ 36.8 million in convertible subordinated notes issued to certain entities affiliated with del monte with a six-year maturity bearing interest at 2.50 % with a conversion price of $ 29.70 per share ; and $ 1.3 million offset received as an adjustment to the purchase price . in addition , we have agreed to pay additional contingent consideration in the form of an earn-out of up to $ 24.5 million upon the successful achievement of adjusted ebitda targets for the del monte entities and improvements in certain operating metrics for our existing protein business and the business of any protein companies subsequently acquired by the company over the six years following the closing . the fair value of the del monte earn-out liability was $ 0.6 million as of december 29 , 2017 . debt restructuring and repricing on june 22 , 2016 , we refinanced our debt structure by entering into a new senior secured term loan . we used the proceeds to pay off our revolving credit facility of $ 96.4 million , our previous term loan of $ 1.7 million and our senior secured notes of $ 125.0 million . story_separator_special_tag our gross profit and gross profit as a percentage of net sales , or gross profit margin , are driven principally by changes in volume and fluctuations in food and commodity prices and our ability to pass on any price increases to our customers in an inflationary environment and maintain or increase gross profit margin when our costs decline . our gross profit margin is also a function of the product mix of our net sales in any period . given our wide selection of product categories , as well as the continuous introduction of new products , we can experience shifts in product sales mix that have an impact on net sales and gross profit margins . this mix shift is most significantly impacted by the introduction of new categories of products in markets that we have more recently entered , impact of product mix from acquisitions , as well as the continued growth in item penetration on higher velocity items such as dairy products . key financial definitions net sales . net sales consist primarily of sales of specialty products , center-of-the-plate proteins and other food products to independently-owned restaurants and other high-end foodservice customers , which we report net of certain group discounts and customer sales incentives . net sales also include sales by our allen brothers subsidiary that are direct-to-consumers . cost of sales . cost of sales include the net purchase price paid for products sold , plus the cost of transportation necessary to bring the product to our distribution facilities . our cost of sales may not be comparable to other similar companies within our industry that include all costs related to their distribution network and protein processing costs in their costs of sales rather than as operating expenses . operating expenses . our operating expenses include warehousing , processing and distribution expenses ( which include salaries and wages , employee benefits , facility and distribution fleet rental costs and other expenses related to warehousing , processing and delivery ) and selling , general and administrative expenses ( which include selling , insurance , administrative , wage and benefit expenses , share-based compensation expense and changes in the fair value of our contingent earn-out liabilities ) . 37 interest expense . interest expense consists primarily of interest on our outstanding indebtedness and , as applicable , the amortization or write-off of deferred financing fees . story_separator_special_tag style= '' line-height:120 % ; font-size:10pt ; '' > gross profit gross profit increased approximately 12.1 % to $ 301.2 million for the fifty-three weeks ended december 30 , 2016 from $ 268.7 million for the fifty-two weeks ended december 25 , 2015 primarily due to the increased sales volumes discussed above . gross profit margin decreased approximately 42 basis points to 25.3 % in fiscal 2016 from 25.7 % in fiscal 2015. this decrease in gross profit margin related to the higher mix of protein sales in fiscal 2016 due to the acquisition of del monte in the second quarter of 2015 and the relative performance of del monte and allen brothers during the period . gross profit margins decreased approximately 34 basis points in the company 's specialty division and 23 basis points in the protein division compared to margins in the fifty-two weeks ended december 25 , 2015. operating expenses total operating expenses increased by approximately 11.2 % to $ 254.0 million for the fifty-three weeks ended december 30 , 2016 from $ 228.3 million for the fifty-two weeks ended december 25 , 2015. as a percentage of net sales , operating expenses decreased 52 basis points to 21.3 % for fiscal 2016 from 21.8 % for fiscal 2015. the increase in our operating expenses is largely attributable to the acquisitions of del monte and mt food which accounted for year-on-year increases of $ 12.2 million and $ 5.2 million , respectively , higher warehousing and distribution costs of $ 4.6 million and $ 3.4 million , respectively , due to increased sales levels , the impact of the 53rd week in fiscal 2016 of approximately $ 4.8 million and increased amortization expense of $ 2.0 million , partially offset by the reduction in the fair value of earn-out obligations of $ 10.0 million in 2016 . 39 operating income operating income increased approximately 16.9 % to $ 47.2 million for the fifty-three weeks ended december 30 , 2016 compared to $ 40.4 million for the fifty-two weeks ended december 25 , 2015. as a percentage of net sales , operating income was 4.0 % in fiscal 2016 compared to 3.9 % in fiscal 2015. the increase in operating income as a percentage of sales was driven primarily from the reduction in operating expenses as a percentage of sales discussed above . other expense total other expense increased $ 28.9 million to $ 41.6 million for the fiscal year ended december 30 , 2016 , from $ 12.7 million for the fiscal year ended december 25 , 2015. this increase was primarily due to the refinancing of the company 's debt on june 22 , 2016. as part of the refinancing , the company retired its previous revolving credit facility , term loan and senior secured notes . the company was required to pay the senior note holders make-whole payments totaling $ 21.1 million for the early retirement of these notes . in addition , the company wrote off deferred financing fees totaling $ 1.1 million relating to the senior secured notes , term loan , and revolving credit facility .
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results of operations the following table presents , for the periods indicated , certain income and expense items expressed as a percentage of net sales : replace_table_token_7_th fiscal year ended december 29 , 2017 compared to fiscal year ended december 30 , 2016 the fiscal year ended december 29 , 2017 consisted of 52 weeks as compared to the fiscal year ended december 30 , 2016 , which consisted of 53 weeks . net sales net sales for the fifty-two weeks ended december 29 , 2017 increased approximately 9.1 % to $ 1.30 billion from $ 1.19 billion for the fifty-three weeks ended december 30 , 2016 . organic growth contributed $ 86.9 million or 7.3 % to sales growth in the year . the remaining sales growth resulted from the acquisition of mt food on june 27 , 2016 , $ 23.2 million or 1.9 % , and the acquisition of fells point on august 25 , 2017 , $ 22.6 million or 1.9 % , partially offset by the 53rd week in fiscal 2016 , which contributed approximately $ 24.1 million , or 2.0 % , to net sales in fiscal 2016. internally calculated inflation was approximately 3.2 % for the fiscal year ended december 29 , 2017 , compared to internally calculated deflation for fiscal 2016 of approximately 1.2 % . gross profit gross profit increased approximately 9.3 % to $ 329.4 million for the fifty-two weeks ended december 29 , 2017 from $ 301.2 million for the fifty-three weeks ended december 30 , 2016 primarily due to the increased sales volumes discussed above . gross profit margin increased approximately 6 basis points to 25.3 % in fiscal 2017 from 25.3 % in fiscal 2016 .
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the company recorded expenses 70 einstein noah restaurant group , inc. and subsidiaries notes to consolidated financial story_separator_special_tag general we have a 52/53-week fiscal year ending on the tuesday closest to december 31. fiscal years 2010 and 2012 ended on december 28 , 2010 and january 1 , 2013 , respectively , and each contained 52 weeks . fiscal year 2011 contained 53 weeks and ended on january 3 , 2012. comparable store sales percentages presented for fiscal 2011 in this item 7 are calculated excluding the 53 rd week . overview we are the largest owner/operator , franchisor and licensor of bagel specialty restaurants in the united states . as a leading fast-casual restaurant chain , our restaurants specialize in high-quality foods for breakfast , lunch and afternoon snacks in a bakery-café atmosphere with a neighborhood emphasis . our product offerings include fresh bagels and other bakery items baked on-site , made-to-order breakfast and lunch sandwiches on a variety of bagels , breads or wraps , gourmet soups and salads , assorted pastries , premium coffees and an assortment of snacks . our manufacturing operations and network of independent distributors deliver high-quality ingredients to our restaurants . fiscal 2012 reflect our continued focus on execution of our key strategies and the in-depth review of strategic alternatives by our board of directors ( the board ) . this overview will first review 2012 highlights and trends and the results of the strategic alternatives review . lastly , we will provide a 2013 outlook . 2012 highlights and trends our results for 2012 reflect the continued soundness of our business model , the underlying strength of our brands and the talent and dedication of our employees . we continued to focus on our key strategies which are : drive comparable store sales growth ; manage corporate margins ; and accelerate unit growth . for 2012 , our system-wide comparable store sales were +1.0 % with seven consecutive quarters of positive system-wide comparable store sales . replace_table_token_8_th the primary reasons for this sequential improvement was strong growth in average check , a favorable menu mix shift , strength in catering sales and slightly lower customer discounts . this was partially offset by lower comparable transactions . our catering business , on a comparable store basis , grew by approximately 17 % which we attribute to our focus on our online ordering system , online search engine and online marketing . our catering business now makes up approximately 8 % of our comparable company-owned restaurant revenues . we have also seen strong growth in our blended beverage line of business . coffee and blended beverage sales now represent approximately 10 % of our menu mix and continue to grow . we believe that our sandwich business continues to benefit from the success of our bagel thin sandwich platform , paninis and our continued focus on healthy , low calorie food options . we targeted our marketing investments at coupons , directional billboards and digital online media . our margin as a percentage of restaurant revenues improved in our company-owned restaurants by 1.1 % primarily due to a 2.0 % drop in our prime costs ( combined costs of sales and total labor ) as a percentage of 25 company-owned restaurant revenues . our initiatives around food costs and labor , including waste management , made up 1.6 % of this improvement in food costs . partially offsetting the improvement in the management of our prime costs was an increase in marketing investment of 0.4 % as a percentage of company-owned restaurant revenues . our marketing investment in fiscal 2012 included product testing in certain markets , continued local store ( grass roots ) marketing and grand opening support . revenues from our manufacturing facility grew by $ 1.4 million , or 4.7 % , to $ 30.5 million as a result of additional export revenues . our commissary revenues declined by approximately $ 4.9 million in 2012 from 2011 as a result of the closure of our commissaries . to streamline our supply chain and to reduce our cost base , in march 2012 , we completed our plan to close our five food commissary facilities . related to this plan , we incurred approximately $ 0.7 and $ 0.5 million of restructuring expenses in 2011 and 2012 , respectively , including employee termination benefits and lease termination expenses . we realized cost savings of approximately $ 1.5 million from the closure of these facilities . for our manufacturing and commissaries segment as a whole , revenues declined by $ 3.4 million , or 10.1 % , while this segment 's profitability improved by $ 2.7 million , or 66 % . we made progress in balancing our unit portfolio toward our goal of having at least 50 % of our system-wide units being franchise and license units . the proportion of units opened in our franchise and license channels was approximately 72 % of total openings as we opened 40 franchise and license units in addition to 15 company-owned restaurant openings . in total , we opened 55 units . total net units increased in fiscal 2012 to 816 from 773 at the end of fiscal 2011. our recapitalization in 2012 , our board authorized a review of strategic alternatives to maximize value for all stockholders . this review was initiated in may and culminated in december with a recapitalization of the company , including the payment of a one-time special cash dividend of $ 4.00 per share of common stock on december 27 , 2012. the recapitalization included the amendment and restatement of the company 's existing senior credit facility , which consists of a term loan a and a revolver with a syndicate of banks ( facility ) . the amendment and restatement of the facility increased the company 's term loan a from $ 75 million to $ 100 million , increased the revolver availability from $ 50 million to $ 75 million , and extended the maturity date from december 20 , 2015 to december 6 , 2017. story_separator_special_tag not all of the aforementioned items defining adjusted ebitda occur in each reporting period , but have been included in our definitions of these terms based on historical activity . we have reconciled the non-gaap financial information to the nearest gaap measure on pages 30 , 35 , 36 and 43. we include in this report information on system-wide comparable store sales percentages . in fiscal 2011 , we modified the method by which we determine restaurants included in our comparable store sales percentages to include those restaurants in operation for a full six fiscal quarters . previously , comparable store sales percentages were based on restaurants that had been in operation for thirteen months . this methodology modification did not have a material impact on previously reported amounts , and therefore previously reported amount have not been restated . system-wide comparable store sales percentages refer to changes in sales of our restaurants , whether operated by the company or by franchisees and licensees , in operation for six fiscal quarters including those restaurants temporarily closed for an immaterial amount of time . some of the reasons restaurants may be temporarily closed include remodeling , relocations , road construction , rebuilding related to site-specific catastrophes and natural disasters . franchise and license comparable store sales percentages are based on sales of franchised and licensed restaurants , as reported by franchisees and licensees . management reviews the increase or decrease in comparable store sales to assess business trends . comparable store sales exclude permanently closed locations . when we intend to relocate a restaurant , we consider that restaurant to be temporarily closed for up to twelve months after it ceases operations . if a suitable relocation site has not been identified by the end of twelve months , we consider the restaurant to be permanently closed . until that time , we include the restaurant in our open store count , but exclude its sales from our comparable store sales . as of january 1 , 2013 , there are seven stores that we intend to relocate , and are thus considered to be temporarily closed . we use company-owned store sales , franchise and license sales and the resulting system-wide sales information internally in connection with restaurant development decisions , planning , and budgeting analyses . we believe system-wide comparable store sales information is useful in assessing consumer acceptance of our brands ; facilitates an understanding of our financial performance and the overall direction and trends of sales and operating income ; helps us appreciate the effectiveness of our advertising and marketing initiatives ; and provides information that is relevant for comparison within the industry . comparable store sales percentages are non-gaap financial measures , which should not be considered in isolation or as a substitute for other measures of performance prepared in accordance with gaap , and may not be equivalent to comparable store sales as defined or used by other companies . we do not record franchise or license restaurant sales as revenues . however , royalty revenues are calculated based on a percentage of franchise and license restaurant sales , as reported by the franchisees or licensees . 28 results of operations for fiscal 2012 as compared to fiscal 2011 story_separator_special_tag already opened . based upon the development agreements , we expect the remaining 102 new restaurants will open on various dates through 2021. thus far in fiscal 2013 , we have opened three licensed units and two franchised units , including the entry into montana , our 40 th state where we have operations . corporate support replace_table_token_14_th * * not meaningful our total general and administrative expenses increased $ 2.8 million , or 7.6 % , primarily due to an increase of $ 3.0 million in variable incentive compensation . our performance incentive compensation increased from fiscal 2011 as we reached a higher bonus threshold in fiscal 2012 than we did in fiscal 2011. we expect general and administrative expenses for fiscal 2013 to be approximately $ 11.0 million per quarter . depreciation and amortization expenses increased $ 0.4 million , or 2.3 % . the increase is due to approximately $ 24.0 million in capital asset expenditures since fiscal 2011. these additions included the construction and outfitting of 15 new company-owned stores , the relocation of 6 stores , the implementation of new pos systems and the replacement of older equipment . based on our current planned purchases of capital assets , our existing base of assets and our projections for new purchases of fixed assets , we believe depreciation expense for fiscal 2013 will be in the range of $ 20.0 million to $ 22.0 million . 33 pre-opening expenses , which include rent , wages , marketing , food and other restaurant operating costs , increased $ 0.9 million due to eleven more store openings in fiscal 2012. we opened fifteen company-owned stores in fiscal 2012 compared to four company-owned stores in fiscal 2011. we incurred an additional $ 0.5 million of restructuring expenses in fiscal 2012 related to our plan to close our five commissaries . all of our commissaries were closed by the end of the first quarter 2012. restructuring expenses in fiscal 2011 included charges related to the initiation of our plan to close our commissaries and the completion of our plan to restructure the organization to align with our franchise and license growth model . on may 3 , 2012 , we announced that our board authorized a review of strategic alternatives , including a possible business combination or sale of the company , to maximize value for all stockholders . on december 6 , 2012 , we announced that our board had completed its review and elected to recapitalize the company by amending our existing credit facility and declared a one-time special cash dividend of $ 4.00 per share payable to holders of record of the company 's common stock as of the close of business on december 17 , 2012. the payment date of the dividend was december 27 , 2012. we expensed $ 3.7
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financial highlights system-wide comparable store sales increased +1.0 % . total revenues increased $ 3.4 million , or 0.8 % , which was driven by an increase in company-owned restaurant revenue of $ 6.1 million and franchise and license related revenue of $ 0.9 million , partially offset by a decline in manufacturing and commissary revenue . the extra 53 rd week in fiscal 2011 contributed an additional $ 7.3 million of revenue . excluding the extra week in fiscal 2011 , total revenues increased 2.6 % in 2012 , with revenue growth offset by the closure of our commissaries . manufacturing and commissary revenue decreased $ 3.5 million due to the closure of our commissaries and one less week in fiscal 2012. a decrease in commissary revenue of $ 4.9 million was partially offset by a 4.7 % increase in manufacturing revenue of $ 1.4 million . we attribute this increase in manufacturing revenue to higher export sales . the extra 53 rd week in fiscal 2011 contributed an additional $ 0.5 million of revenue . franchise and license related revenues grew 8.3 % , or $ 0.9 million , and was driven by an increase in comparable store sales of +1.3 % and unit growth . the extra 53 rd week in fiscal 2011 contributed an additional $ 0.1 million of revenue . cost of goods sold decreased 180 basis points as a percentage of company-owned restaurant sales as a result of our cost savings initiatives and the leveraged impact of price increases . net income decreased 3.5 % primarily due to the extra 53 rd week in fiscal 2011 and the above mentioned strategic alternative review process , partially offset by our cost saving initiatives .
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the company expects this stock compensation balance to be amortized as follows : $ 296.5 story_separator_special_tag the following discussion contains forward-looking statements , including , without limitation , our expectations and statements regarding our outlook and future revenues , expenses , results of operations , liquidity , plans , strategies and objectives of management and any assumptions underlying any of the foregoing . our actual results may differ significantly from those projected in the forward-looking statements . factors that might cause future actual results to differ materially from our recent results or those projected in the forward-looking statements include , but are not limited to , those discussed in the section titled of this annual report on form 10-k risk factors. except as required by law , we assume no obligation to update the forward-looking statements or our risk factors for any reason . overview we are a leading provider of enterprise cloud computing and social enterprise solutions , and are dedicated to helping customers transform themselves into social enterprises . social enterprises leverage social , mobile and open technologies to place their customers and employees at the center of their business and to engage and collaborate with them in new and powerful ways . our technologies are targeted at businesses of all sizes and industries worldwide . we were founded in february 1999 and began offering our enterprise customer relationship management ( crm ) application service in february 2000. since then , we have augmented our crm service with new editions , services and enhanced features . over the last few years , we have both developed and acquired several mobile , social and open technologies to help our customers become social enterprises . we introduced our force.com platform to customers and developers so they can build complementary applications to extend beyond crm . we launched our appexchange directory of enterprise cloud computing applications and services that are integrated with our flagship crm product and in most cases have been developed on our force.com platform by third parties . we introduced chatter , a collaboration application for the enterprise to connect and share information securely and in real-time . recently we enabled companies to invite their customers to collaborate with chatter in private groups on this corporate social network . our salesforce data.com ( data.com ) offering , which provides some contacts from jigsaw data corporation ( jigsaw ) , provides the most complete source of accurate business data and seamlessly integrates with our crm products . we also expanded our platform offering via the acquisition of heroku , inc. ( heroku ) an application development platform and the launch of database.com , the world 's first enterprise cloud database . we acquired radian6 technologies , inc. ( radian6 ) to help companies monitor and engage with their customers via social media . our objective is to help companies put customers at the center of their businesses and transform themselves into social enterprises by leveraging our applications and platforms . key elements of our strategy include : strengthening our existing sales and service cloud applications and extending into new functional areas within the social enterprise ; leading the industry transformation to the social enterprise ; pursuing new customers and new territories aggressively ; deepening relationships with our existing customer base ; encouraging the development of third-party applications on our cloud computing platforms . we believe the factors that will influence our ability to achieve our objectives include our prospective customers ' willingness to migrate to enterprise cloud computing services ; the performance and security of our service ; our ability to continue to release , and gain customer acceptance of , new and improved features ; our ability to successfully integrate acquired businesses and technologies ; successful customer adoption and utilization of our service ; acceptance of our service in markets where we have few customers ; the emergence of 33 additional competitors in our market and improved product offerings by existing and new competitors ; the location of new data centers ; third-party developers ' willingness to develop applications on our platforms ; and general economic conditions which could affect our customers ' ability and willingness to purchase our services , delay the customers ' purchasing decision or affect renewal rates . to address these factors , we will need to , among other things , continue to add substantial numbers of paying subscriptions , upgrade our customers to fully featured versions such as our unlimited edition or arrangements such as a social enterprise license agreement , provide high quality technical support to our customers and encourage the development of third-party applications on our platforms . our plans to invest for future growth include the continuation of the expansion of our data center capacity . we also plan to continue to hire additional personnel , particularly in direct sales , other customer-related areas and research and development . as part of our growth plans , we intend to continue to focus on retaining customers at the time of renewal . additionally , we plan to : expand our domestic and international selling and marketing activities ; continue to develop our brands ; add additional distribution channels ; increase our research and development activities to upgrade and extend our service offerings ; develop new services and technologies and integrate acquired technologies ; and add to our global infrastructure to support our growth . we also regularly evaluate acquisitions or investment opportunities in complementary businesses , joint ventures , services and technologies , and intellectual property rights in an effort to expand our service offerings . we expect to continue to make such investments and acquisitions in the future . as such , we plan to reinvest a significant portion of our incremental revenue in fiscal 2013 to grow our business and continue our leadership role in the cloud computing industry . during fiscal 2012 , we acquired several businesses and technologies to strengthen and extend our service offerings . story_separator_special_tag in the first quarter of fiscal 2012 , we adopted this new accounting guidance on a prospective basis . we applied the new accounting guidance to those multiple-deliverable arrangements entered into or materially modified on or after february 1 , 2011 which is the beginning of our fiscal year . 35 seasonal nature of deferred revenue and accounts receivable deferred revenue primarily consists of billings to customers for our subscription service . over 90 percent of the value of our billings to customers is for our subscription and support service . we generally invoice our customers in either quarterly or annual cycles . there is a disproportionate weighting towards annual billings in the fourth quarter , primarily as a result of large enterprise account buying patterns . currently , there is greater operational discipline around annual invoicing , for both new business and renewals . occasionally , we bill customers for their multi-year contract on a single invoice which results in an increase in noncurrent deferred revenue . our fourth quarter has historically been our strongest quarter for new business and renewals . the year on year compounding effect of this seasonality in both billing patterns and overall new and renewal business causes the value of invoices that we generate in the fourth quarter for both new business and renewals to increase as a proportion of our total annual billings . accordingly , the sequential quarterly changes in accounts receivable and the related deferred revenue during the first three quarters of our fiscal year are not necessarily indicative of the billing activity that occurs in the fourth quarter as displayed below : replace_table_token_6_th unbilled deferred revenue the deferred revenue balance on our consolidated balance sheet does not represent the total contract value of annual or multi-year , non-cancelable subscription agreements . unbilled deferred revenue was over $ 2.2 billion as of january 31 , 2012 and over $ 1.5 billion as of january 31 , 2011. unbilled deferred revenue represents future billings under our subscription agreements that have not been invoiced and , accordingly , are not recorded in deferred revenue . we expect that the amount of unbilled deferred revenue will change from quarter to quarter for several reasons , including the specific timing and duration of large customer subscription agreements , varying billing cycles of subscription agreements , the specific timing of customer renewals , foreign currency fluctuations , the timing of when unbilled deferred revenue is to be recognized as revenue , and changes in customer financial circumstances . for multi-year subscription agreements billed annually , the associated unbilled deferred revenue is typically high at the beginning of the contract period , zero just prior to renewal , and increases if the agreement is renewed . low unbilled deferred revenue attributable to a particular subscription agreement is often associated with an impending renewal and may not be an indicator of the likelihood of renewal or future revenue from such customer . accordingly , we expect that the amount of aggregate unbilled deferred revenue will change from year-to-year depending in part upon the number and dollar amount of subscription agreements at particular stages in their renewal cycle . such fluctuations are not a reliable indicator of future revenues . 36 cost of revenues and operating expenses cost of revenues . cost of subscription and support revenues primarily consists of expenses related to hosting our service and providing support , the costs of data center capacity , depreciation or operating lease expense associated with computer equipment and software , allocated overhead and amortization expense associated with capitalized software related to our services and acquired developed technologies . we allocate overhead such as rent and occupancy charges based on headcount . employee benefit costs and taxes are allocated based upon a percentage of total compensation expense . as such , general overhead expenses are reflected in each cost of revenue and operating expense category . cost of professional services and other revenues consists primarily of employee-related costs associated with these services , including stock-based expenses , the cost of subcontractors and allocated overhead . the cost of providing professional services is significantly higher as a percentage of the related revenue than for our enterprise cloud computing subscription service due to the direct labor costs and costs of subcontractors . we intend to continue to invest additional resources in our enterprise cloud computing services . for example , we plan to open additional data centers and expand our current data centers in the future . additionally , as we acquire new businesses and technologies , the amortization expense associated with this activity will be included in cost of revenues . the timing of these additional expenses will affect our cost of revenues , both in terms of absolute dollars and as a percentage of revenues , in the affected periods . research and development . research and development expenses consist primarily of salaries and related expenses , including stock-based expenses , the costs of our development and test data center and allocated overhead . we continue to focus our research and development efforts on adding new features and services , integrating acquired technologies , increasing the functionality and enhancing the ease of use of our enterprise cloud computing services . our proprietary , scalable and secure multi-tenant architecture enables us to provide all of our customers with a service based on a single version of our application . as a result , we do not have to maintain multiple versions , which enables us to have relatively lower research and development expenses as compared to traditional enterprise software companies . we expect that in the future , research and development expenses will increase in absolute dollars as we improve and extend our service offerings , develop new technologies and integrate acquired businesses and technologies . marketing and sales . marketing and sales expenses are our largest cost and consist primarily of salaries and related expenses , including stock-based expenses , for our sales and marketing staff , including commissions , payments to partners , marketing programs and allocated overhead .
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results of operations the following tables set forth selected data for each of the periods indicated ( in thousands ) . replace_table_token_7_th as of january 31 , 2012 2011 balance sheet data : cash , cash equivalents and marketable securities $ 1,447,174 $ 1,407,557 deferred revenue , current and noncurrent 1,380,295 934,941 42 revenues by geography were as follows : replace_table_token_8_th cost of revenues and marketing and sales expenses include the following amounts related to amortization of purchased intangibles from business combinations : replace_table_token_9_th cost of revenues and operating expenses include the following amounts related to stock-based awards : replace_table_token_10_th 43 the following tables set forth selected consolidated statements of operations data for each of the periods indicated as a percentage of total revenues : replace_table_token_11_th replace_table_token_12_th 44 fiscal years ended january 31 , 2012 and 2011 revenues . replace_table_token_13_th total revenues were $ 2.3 billion for fiscal 2012 , compared to $ 1.7 billion during the same period a year ago , an increase of $ 609.4 million , or 37 percent . subscription and support revenues were $ 2.1 billion , or 94 percent of total revenues , for fiscal 2012 , compared to $ 1.6 billion , or 94 percent of total revenues , during the same period a year ago . the increase in subscription and support revenues was due primarily to new customers , upgrades and additional subscriptions from existing customers and improved renewal rates as compared to a year ago . the price per user per month for our three primary offerings , professional edition , enterprise edition and unlimited edition , in fiscal 2012 has generally remained consistent relative to fiscal 2011. professional services and other revenues were $ 140.3 million , or six percent of total revenues , for fiscal 2012 , compared to $ 106.0 million , or six percent of total revenues , for the same period a year ago .
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we are a contrarian , value-oriented investment manager in private equity , credit and real estate with significant distressed expertise and a flexible mandate in the majority of our funds which enables our funds to invest opportunistically across a company 's capital structure . we raise , invest and manage funds on behalf of some of the world 's most prominent pension , endowment and sovereign wealth funds as well as other institutional and individual investors . apollo is led by our managing partners , leon black , joshua harris and marc rowan , who have worked together for 30 years and lead a team of 986 employees , including 376 investment professionals , as of december 31 , 2016 . apollo conducts its business primarily in the united states and substantially all of its revenues are generated domestically . these businesses are conducted through the following three reportable segments : ( i ) private equity —primarily invests in control equity and related debt instruments , convertible securities and distressed debt instruments ; ( ii ) credit —primarily invests in non-control corporate and structured debt instruments including performing , stressed and distressed instruments across the capital structure ; and ( iii ) real estate —primarily invests in real estate equity for the acquisition and recapitalization of real estate assets , portfolios , platforms and operating companies , and real estate debt including first mortgage and mezzanine loans , preferred equity and commercial mortgage backed securities . these business segments are differentiated based on the varying investment strategies . the performance is measured by management on an unconsolidated basis because management makes operating decisions and assesses the performance of each of apollo 's business segments based on financial and operating metrics and data that exclude the effects of consolidation of any of the managed funds . our financial results vary since carried interest , which generally constitutes a large portion of the income we receive from the funds that we manage , as well as the transaction and advisory fees that we receive , can vary significantly from quarter to quarter and year to year . as a result , we emphasize long-term financial growth and profitability to manage our business . in addition , the growth in our fee-generating aum during the last year has primarily been in our credit segment . the average management fee rate for these new credit products is at market rates for such products and in certain cases is below our historical rates . also , due to the complexity of these new product offerings , the company has incurred and will continue to incur additional costs associated with managing these products . to date , these additional costs have been offset by realized economies of scale and ongoing cost management . as of december 31 , 2016 , we had total aum of $ 191.7 billion across all of our businesses . more than 90 % of our total aum was in funds with a contractual life at inception of seven years or more , and 45 % of such aum was in permanent - 79 - capital vehicles . on december 31 , 2013 , fund viii held a final closing raising a total of $ 17.5 billion in third-party capital and approximately $ 880 million of additional capital from apollo and affiliated investors , and as of december 31 , 2016 , fund viii had $ 8.3 billion of uncalled commitments remaining . additionally , fund vii held a final closing in december 2008 , raising a total of $ 14.7 billion , and as of december 31 , 2016 , fund vii had $ 2.3 billion of uncalled commitments remaining . we have consistently produced attractive long-term investment returns in our traditional private equity funds , generating a 39 % gross irr and a 25 % net irr on a compound annual basis from inception through december 31 , 2016 . apollo 's private equity fund appreciation was 13.5 % for the year ended december 31 , 2016 . for our credit segment , total gross and net returns , excluding assets managed by athene asset management that are not directly invested in apollo funds and investment vehicles or sub-advised by apollo , were 11.2 % and 9.9 % , respectively , for the year ended december 31 , 2016 . for our real estate segment , total combined gross and net returns for u.s. re fund i and u.s. re fund ii including co-investment capital were 16.1 % and 12.8 % , respectively , for the year ended december 31 , 2016 . for further detail related to fund performance metrics across all of our businesses , see “ —the historical investment performance of our funds. ” holding company structure the diagram below depicts our current organizational structure : note : the organizational structure chart above depicts a simplified version of the apollo structure . it does not include all legal entities in the structure . ownership percentages are as of february 8 , 2017 . ( 1 ) the strategic investors hold 16.43 % of the class a shares outstanding and 7.63 % of the economic interests in the apollo operating group . the class a shares held by investors other than the strategic investors represent 42.06 % of the total voting power of our shares entitled to vote and 38.85 % of the economic interests in the apollo operating group . class a shares held by the strategic investors do not have voting rights . however , such class a shares will become entitled to vote upon transfers by a strategic investor in accordance with the agreements entered into in connection with the investments made by the strategic investors . ( 2 ) our managing partners own brh holdings gp , ltd. , which in turn holds our only outstanding class b share . the class b share represents 57.94 % of the total voting power of our shares entitled to vote but no economic interest in apollo global management , - 80 - llc . story_separator_special_tag apollo believes that these attributes have contributed to the success of its private equity funds investing in buyouts and credit opportunities during both expansionary and recessionary economic periods . in general , institutional investors continue to allocate capital towards alternative investment managers for more attractive risk-adjusted returns in a low interest rate environment , and we believe the business environment remains generally accommodative to launch new products and pursue attractive strategic growth opportunities . as such , apollo had $ 6.6 billion and $ 34.8 billion of capital inflows during the fourth quarter of 2016 and full year ended december 31 , 2016 , respectively . while apollo continues to attract capital inflows , it also continues to generate realizations for fund investors . apollo returned $ 1.7 billion and $ 5.4 billion of capital and realized gains to the investors in the funds it manages during the fourth quarter of 2016 full year ended december 31 , 2016 , respectively . managing business performance we believe that the presentation of economic income , or ei , supplements a reader 's understanding of the economic operating performance of each of our segments . economic income ei has certain limitations in that it does not take into account certain items included under u.s. gaap . ei represents segment income before income tax provision excluding transaction-related charges arising from the 2007 private placement and any acquisitions . transaction-related charges include equity-based compensation charges , the amortization of intangible assets , contingent consideration and certain other charges associated with acquisitions . in addition , segment data excludes non-cash revenue and expense related to equity awards granted by unconsolidated related parties to employees of the company , compensation and administrative related expense reimbursements from unconsolidated related parties , as well as the assets , liabilities and operating results of the funds and vies that are included in the consolidated financial statements . we believe the exclusion of the non-cash charges related to the 2007 reorganization for equity-based compensation provides investors with a meaningful indication of our performance because these charges relate to the equity portion of our capital structure and not our core operating performance . economic net income represents ei adjusted to reflect income tax provision on ei that has been calculated assuming that all income is allocated to apollo global management , llc , which would occur following an exchange of all aog units for class a shares of apollo global management , llc . the economic assumptions and methodologies that impact the implied income tax provision are similar to those methodologies and certain assumptions used in calculating the income tax provision for apollo 's consolidated statements of operations under u.s. gaap . we believe that ei is helpful for an understanding of our business and that investors should review the same supplemental financial measure that management uses to analyze our segment performance . this measure supplements and should be considered in addition to and not in lieu of the results of operations discussed below in “ —overview of results of operations ” that have been prepared in accordance with u.s. gaap . see note 16 to the consolidated financial statements for more details regarding management 's consideration of ei . ei may not be comparable to similarly titled measures used by other companies and is not a measure of performance calculated in accordance with u.s. gaap . we use ei as a measure of operating performance , not as a measure of liquidity . ei should not be considered in isolation or as a substitute for net income or other income data prepared in accordance with u.s. gaap . the use of ei without consideration of related u.s. gaap measures is not adequate due to the adjustments described above . management compensates for these limitations by using ei as a supplemental measure to u.s. gaap results , to provide a more complete understanding of our performance as management measures it . a reconciliation of ei to its most directly comparable u.s. gaap measure of income before income tax provision can be found in the notes to our consolidated financial statements . economic income for the years ended december 31 , 2015 and 2014 includes a recast of salary , bonus and benefits due to management 's change in allocation methodology among the segments during the year ended december 31 , 2016. all prior periods have been recast to conform to the current presentation . the impact to the combined segments total economic income for all periods presented was zero . the impact of this change to ei for each segment for the years ended december 31 , 2015 and 2014 is reflected in note 16 to the consolidated financial statements . - 82 - fee related earnings fee related earnings ( “ fre ” ) is derived from our segment reported results and refers to a component of ei that is used as a supplemental measure to assess whether revenues that we believe are generally more stable and predictable in nature , primarily consisting of management fees , are sufficient to cover associated operating expenses and generate profits . fre is the sum across all segments of ( i ) management fees , ( ii ) advisory and transaction fees , ( iii ) carried interest income earned from a publicly traded business development company we manage and ( iv ) other income , net excluding gains ( losses ) arising from the reversal of a portion of the tax receivable agreement liability , less ( y ) salary , bonus and benefits , excluding equity-based compensation and ( z ) other associated operating expenses . distributable earnings distributable earnings ( “ de ” ) , as well as de after taxes and related payables are derived from our segment reported results , and are supplemental non-u.s. gaap measures to assess performance and the amount of earnings available for distribution to class a shareholders , holders of rsus that participate in distributions and holders of aog units .
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summary of distributable earnings the following table is a reconciliation of distributable earnings per share of common and equivalents ( 1 ) to net distribution per share of common and equivalent for the years ended december 31 , 2016 , 2015 and 2014 . replace_table_token_36_th ( 1 ) common and equivalents refers to class a shares outstanding and rsus that participate in distributions . ( 2 ) represents the estimated current corporate , local and non-u.s. taxes as well as the payable under apollo 's tax receivable agreement . ( 3 ) distributable earnings before certain payables represents distributable earnings before the deduction for the estimated current corporate taxes and the payable under apollo 's tax receivable agreement . ( 4 ) per share calculations are based on end of period distributable earnings shares outstanding , which consist of total class a shares outstanding and rsus that participate in distributions ( collectively referred to as “ common & equivalents ” ) . ( 5 ) retained capital is withheld pro-rata from common and equivalent holders and aog unitholders . - 116 - summary of non-u.s. gaap measures the table below sets forth a reconciliation of net income attributable apollo global management , llc to our non-u.s. gaap performance measures for the years ended december 31 , 2016 , 2015 and 2014 : replace_table_token_37_th ( 1 ) excludes carried interest income from a publicly traded business development company we manage . ( 2 ) includes equity-based compensation related to rsus ( excluding rsus granted in connection with the 2007 private placement ) , share options and restricted share awards . ( 3 ) includes a reserve of $ 45 million accrued during the year ended december 31 , 2015 in connection with an sec regulatory matter principally concerning the acceleration of fees from fund portfolio companies .
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the upholstery fabrics segment sources , manufacturers and sells fabrics primarily to residential and commercial furniture manufacturers . we evaluate the operating performance of our segments based upon income from operations before certain unallocated corporate expenses , and other non-recurring items . cost of sales in both segments include costs to manufacture or source our products , including costs such as raw material and finished good purchases , direct and indirect labor , overhead and incoming freight charges . unallocated corporate expenses primarily represent compensation and benefits for certain executive officers , all costs related to being a public company , and other miscellaneous expenses . story_separator_special_tag 0px ; width : 100 % ; border-top-width : 0px ; border-bottom-width : 0px ; height : 2px ; color : # 000000 ; clear : both ; border-left-width : 0px '' / > 2017 compared with 2016 segment analysis mattress fabrics segment replace_table_token_9_th our mattress fabrics segment reported year-over-year improvement in net sales , in spite of disruptions within the mattress industry and a soft retail sales environment . our focus on design and innovation continues to remain our top priority and has allowed us to provide a favorable product mix of mattress fabrics and cut and sew covers across most price points and style trends . our mattress cover business , known as class , has continued to perform well . the growth in class has allowed us to develop new products with existing customers and reach new customers and additional market segments , especially the growing internet bed in a box space . our scalable and flexible manufacturing platform supports our focus on design and innovation , and we have made significant capital investments to improve our operating efficiencies and overall capacity . industry disruptions and demand trends have caused some short-term uncertainty in the mattress fabrics industry . some of these disruptions involve major customers of our mattress fabrics business , including changes to the distribution channels of at least one significant customer . as a result , we have indications from a customer that there will be reductions in orders from them , but at the same time , we have indications from other large customers that our levels of business with them is expected to increase . the structure of our supply arrangements and contracts with major customers is such that it is difficult to make predictions with certainty , and this is further complicated by the just in time ( jit ) order and delivery model used in the bedding industry . nonetheless , we are cautiously optimistic that we will not experience a significant negative impact on our mattress fabrics business related to these issues . while industry disruptions and demand issues in the bedding industry may affect sales trends in the short term , we believe that challenges with certain customers will at least be partially offset by increased sales and opportunities with others . 27 gross profit and operating income overall our mattress fabric gross profit and operating income increased in fiscal 2017 compared to fiscal 2016. the increase in this segment 's operating income primarily reflects lower raw material costs and benefits of our capital investments . additionally , operating income for mattress fabrics was negatively affected by sg & a expenses relating to higher inventory warehousing costs , design and sales expenses , and non- recurring plant facility consolidation charges ( approximately $ 560,000 for fiscal 2017 ) associated with the expansion projects located in north carolina noted below . in addition to the industry disruptions and demand trends discussed above , this segment 's operating income will continue to be affected during the first quarter of fiscal 2018 by non-recurring plant consolidation charges associated with the expansion projects located in north carolina . capital projects during fiscal 2017 , we continued to make substantial capital investments and significant changes within our multi-country production facilities that are designed to enhance our operations and improve product delivery performance . below is a summary of our capital projects : · our building expansion projects in north carolina , including a new distribution center and knitted fabric plant consolidation , were substantially complete as of the fourth quarter of fiscal 2017 . · we expect to have all of the associated equipment relocated and new installations finalized by the end of the first quarter of fiscal 2018 . · we completed expansion of our canadian operations in the fourth quarter of fiscal 2017 , with additional finishing equipment and a new distribution center that will allow us to ship directly to our customers in canada . · we are moving our class production platform to a new location in july 2017 that offers a more efficient and streamlined production flow and access to a larger labor pool . additionally , this facility will include expanded showroom and production development space . joint venture effective january 1 , 2017 , culp international holdings , ltd. ( culp ) , a wholly-owned subsidiary of culp , inc. , entered into a joint venture agreement , pursuant to which culp owns fifty percent of class international holdings , ltd ( clih ) . clih will produce cut and sewn mattress covers , and its operations will be located in a modern industrial park in northeastern haiti , which borders the dominican republic . clih is currently expected to commence production in the second quarter of fiscal 2018 and will complement our mattress fabric operations with a mirrored platform that will enhance our ability to meet customer demand while adding a lower cost operation to our platform . during fiscal 2017 , clih incurred a $ 46,000 net loss that pertained to start-up operating expenses in the fourth quarter . our equity in this net loss was $ 23,000 , which represents the company 's fifty percent ownership in clih . story_separator_special_tag other expense other expense for fiscal 2017 was comparable to fiscal 2016. income taxes effective income tax rate we recorded income tax expense of $ 7.3 million , or 24.7 % of income before income tax expense , in fiscal 2017 compared with income tax expense of $ 11.0 million , or 39.3 % of income before income tax expense , in fiscal 2016. the following schedule summarizes the principal differences between income tax expense at the federal income tax rate and the effective income tax rate reflected in the consolidated financial statements : replace_table_token_15_th in accordance with asc topic 740 , we evaluate our deferred income taxes to determine if a valuation allowance is required . asc topic 740 requires that companies assess whether a valuation allowance should be established based on the consideration of all available evidence using a “ more likely than not ” standard with significant weight being given to evidence that can be objectively verified . since the company operates in multiple jurisdictions , we assess the need for a valuation allowance on a jurisdiction- by-jurisdiction basis , taking into account the effects of local tax law . refer to note 9 located in the notes to the consolidated financial statements for disclosures regarding our assessments of our recorded valuation allowance as of april 30 , 2017 and may 1 , 2016 , respectively . deferred income taxes – undistributed earnings from foreign subsidiaries in accordance with asc topic 740 , we assess whether the undistributed earnings from our foreign subsidiaries will be reinvested indefinitely or eventually distributed to our u.s. parent company . asc topic 740 requires that a deferred tax liability should be recorded for undistributed earnings from foreign subsidiaries that will not be reinvested indefinitely . also , we assess the recognition of u.s. foreign income tax credits associated with foreign withholding and income tax payments and whether it is more- likely-than-not that our foreign income tax credits will not be realized . if it is determined that any foreign income tax credits need to be recognized or it is more-likely-than-not our foreign income tax credits will not be realized , an adjustment to our provision for income taxes will be recognized at that time . 32 refer to note 9 located in the notes to the consolidated financial statements for disclosures regarding our assessments of our recorded deferred income tax liability balances associated with our undistributed earnings from our foreign subsidiaries as of april 30 , 2017 and may 1 , 2016 , respectively . uncertainty in income taxes our gross unrecognized income tax benefit of $ 12.2 million at april 30 , 2017 , relates to tax positions for which significant change is reasonably possible within the next year . this amount primarily relates to double taxation under applicable income tax treaties with foreign tax jurisdictions . united states federal and state income tax returns filed by us remain subject to examination for income tax years 2005 and subsequent due to loss carryforwards . canadian federal and provincial ( quebec ) returns filed by us remain subject to examination for income tax years 2013 and subsequent . income tax returns associated with our operations located in china are subject to examination for income tax year 2012 and subsequent . currently , the internal revenue service is examining our u.s. federal income tax returns for fiscal years 2014 through 2016 , and no adjustments have been proposed at this time . we currently expect this examination to be completed during fiscal 2018. during the third quarter of fiscal 2017 , revenue quebec commenced an examination of our canadian provincial ( quebec ) income tax returns for fiscal years 2013 through 2015 , and no adjustments have been proposed at this time . we currently expect this examination to be completed during fiscal 2018. in accordance with asc topic 740 , an unrecognized income tax benefit for an uncertain income tax position can be recognized in the first interim period if the more-likely-than-not recognition threshold is met by the reporting period , or is effectively settled through examination , negotiation , or litigation , or the statute of limitations for the relevant taxing authority to examine and challenge the tax position has expired . if it is determined that any of the above conditions occur regarding our uncertain income tax positions , an adjustment to our unrecognized income tax benefit will be recorded at that time . during the fiscal 2017 , we recognized an income tax benefit of $ 3.4 million for the reversal of an uncertain income tax position associated with certain foreign jurisdictions in which the statute of limitations expired . accordingly , of this $ 3.4 million income tax benefit , $ 2.1 million and $ 1.3 million were treated as discrete events in which the full income tax effects of these adjustments were recorded in the third and fourth quarters , respectively . income taxes paid we reported income tax expense of $ 7.3 million and $ 11.0 million in fiscal 2017 and 2016 , respectively . currently , we are not paying income taxes in the united states as we have an estimated $ 9.0 million in operating loss carryforwards at april 30 , 2017. however , we did have income tax payments of $ 5.5 million in fiscal 2017 and $ 6.7 million in fiscal 2016. our income tax payments are associated with our subsidiaries located in china and canada . 33 2016 compared with 2015 segment analysis mattress fabrics segment replace_table_token_16_th net sales our steady sales growth for fiscal 2016 outperformed overall industry trends . our focus on design and innovation allowed us to create a diversified product mix of products from mattress fabrics to finished cover . as a result , we achieved significant progress in our mattress cover business during fiscal 2016 compared to the same period a year earlier . this has allowed us to reach new customers and additional market segments , especially the internet bedding space .
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executive summary results of operations replace_table_token_7_th net sales overall , our net sales were slightly lower in fiscal 2017 compared to a year ago , with mattress fabric net sales increasing 2.4 % and upholstery fabric net sales decreasing 6.1 % . the decrease in upholstery fabric net sales was primarily due to the soft retail environment for residential furniture that persisted for most of fiscal 2017 . 24 income before income taxes despite the decrease in net sales noted above , income before income taxes increased 6.4 % compared to the same period a year ago . this was primarily due to the improvement in profitability from our mattress fabrics segment , due to lower raw material costs and the benefits of our capital investments , partially offset by higher sg & a expenses . income taxes we recorded income tax expense of $ 7.3 million , or 24.7 % of income before income tax expense , in fiscal 2017 , compared with income tax expense of $ 11.0 million , or 39.3 % of income before income tax expense , in fiscal 2016. this decrease primarily represents an income tax benefit of $ 3.4 million for the reversal of an uncertain income tax position associated with foreign jurisdictions in which the statute of limitations expired . see the segment analysis section located in the results of operations for further details .
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for the current year and prior year , the company incurred interest expense of $ 576,000 and $ 241,000 , respectively . jr term loan on april 3 , 2014 , the company entered into a $ 9 million five year term loan with bhi ( the “ jr term loan ” ) . the jr term loan is secured by all of the assets of jr licensing and a guarantee from xcel secured by a pledge of xcel 's membership interest in jr licensing and by a guarantee from im brands , secured by a pledge of all of im brands ' assets . the jr term loan was amended on december 22 , 2014 , in connection with entering into the h term loan ( as defined below ) and the h halston brands acquisition , and further amended on february 19 , story_separator_special_tag the following discussion and analysis should be read together with our consolidated financial statements and the notes thereto , included elsewhere in this annual report on form 10-k. this discussion summarizes the significant factors affecting our consolidated operating results , financial condition and liquidity and cash flows for the year ended december 31 , 2014. except for historical information , the matters discussed in this management 's discussion and analysis of financial condition and results of operations are forward-looking statements that involve risks and uncertainties and are based upon judgments concerning factors that are beyond our control . summary of critical accounting policies the preparation of consolidated financial statements in conformity with accounting principles generally accepted in the u.s. requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period . critical accounting policies are those that are the most important to the portrayal of our financial condition and results of operations , and that require our most difficult , subjective and complex judgments as a result of the need to make estimates about the effect of matters that are inherently uncertain . while our significant accounting policies are described in more detail in the notes to our financial statements , our most critical accounting policies , discussed below , pertain to revenue recognition , trademarks , goodwill and other intangible assets , stock-based compensation , fair value of contingent obligations and income taxes . in applying such policies , we must use some amounts that are based upon our informed judgments and best estimates . estimates , by their nature , are based upon judgments and available information . the estimates that we make are based upon historical factors , current circumstances and the experience and judgment of management . we evaluate our assumptions and estimates on an ongoing basis . revenue recognition in connection with our licensing model , revenue is generated from licenses and is based on reported sales of licensed products bearing our trademarks , at royalty rates specified in the license agreements . these agreements are also subject to contractual minimum levels . design and service fees are recorded and recognized in accordance with the terms and conditions of each service contract , including the company meeting its obligations and providing the relevant services under each contract . guaranteed minimum royalty payments are recognized on a straight-line basis over the term of each contract year , as defined , in each license agreement . royalties exceeding the guaranteed minimum royalty payments are recognized as income during the period corresponding to the licensee 's sales . advanced royalty payments are recorded as deferred revenue at the time payment is received and recognized as revenue as earned . we recognized revenue from our retail store upon sale of our products to retail consumers , net of estimated returns . trademarks , goodwill and other intangible assets the company follows financial accounting standards board ( “ fasb ” ) accounting standard codification ( “ asc ” ) , asc topic 350 , “ intangibles - goodwill and other ” . under this standard , goodwill and indefinite lived assets are not amortized . the company 's definite lived intangible assets are amortized over their estimated useful lives . under this standard , the company annually has the option to first assess qualitatively whether it is more likely than not that there is an impairment . the company completed its annual quantitative analysis of its indefinite-lived trademarks , other intangibles and goodwill at december 31 , 2014 and determined that no further analysis or impairment charges were required . stock-based compensation the company accounts for stock-based compensation in accordance with asc topic 718 , “ compensation - stock compensation , ” by recognizing the fair value of stock-based compensation as an operating expense in the company 's consolidated statements of operations . the fair value of the company 's stock option awards are estimated using the black-scholes option pricing model and restricted stock awards are valued at the fair value of the company 's stock at the time of grant . the black-scholes option pricing model requires the input of highly subjective assumptions and elections including expected stock price volatility and the estimated life of each award . compensation cost for restricted stock is measured using the fair value of the company 's common stock at the date the common stock is granted . the fair value of stock-based awards is amortized over the service period of the awards . stock-based compensation that relates to contract performance is amortized over the term of the corresponding contract . for stock-based awards that vest based on performance conditions ( e.g . achievement of certain milestones ) , expense is recognized when it is probable that the condition will be met . in addition , the calculation of compensation costs requires that the company estimate the number of awards that will be forfeited during the vesting period . story_separator_special_tag this was primarily due to the net $ 0.05 million decrease attributable to lower interest rates in the company 's term debt , partially offset by higher term debt principal balances from financing a portion of the ripka brand acquisition , and a decrease of $ 0.19 million in the current year of interest expense and finance charges from the amortization of debt discounts and deferred finance costs compared with the prior year . provision for income taxes the effective income tax rate for the current year was approximately ( 183.52 % ) , resulting in a $ 0.10 million income tax benefit . the effective income tax rate for the prior year was ( 361.20 % ) which resulted in a $ 1.32 million income tax benefit . during the current year , the company recorded a $ 0.6 million gain on the reduction of contingent obligations related to the acquisition of the isaac mizrahi business . this gain is not subject to tax and was treated as a discrete item . during the prior year , the company recorded a $ 5.12 million gain on the reduction of contingent obligations related to the acquisition of the isaac mizrahi business . this gain is not subject to tax and was treated as a discrete item . additionally , there was an increase in the state income tax rate which was booked to deferred income tax expense and treated as a discrete item during the prior year . discontinued operations the loss from discontinued operations , net , is attributable to the net loss related to our retail operations , as a result of our decision to discontinue our retail stores and focus on e-commerce , which will be a component of our licensing business . the current year loss from discontinued operations , net of $ 1.08 million mainly represents compensation expense , other general and administrative expenses and wind down costs associated with the closing of our retail stores , inclusive of inventory write-downs and impairment of property and equipment , offset by an income tax benefit of $ 0.70 million . the prior year loss from discontinued operations , net of $ 0.16 million mainly represents compensation expense and other general and administrative expenses , offset by the gross margin recognized by the retail stores and an income tax benefit of $ 0.08 million . adjusted earnings before interest depreciation and amortization ( “ ebitda ” ) adjusted ebitda for the current year increased approximately $ 2.86 million to $ 7.01 million from $ 4.15 million for the prior year . adjusted ebitda should not be considered in isolation or as alternatives to net income or any other measure of financial performance calculated and presented in accordance with gaap . given that adjusted ebitda is a financial measure not deemed to be in accordance with gaap and is susceptible to varying calculations , our adjusted ebitda may not be comparable to similarly titled measures of other companies , including companies in our industry , because other companies may calculate adjusted ebitda in a different manner than we calculate these measures . in evaluating adjusted ebitda , you should be aware that in the future we may or may not incur expenses similar to some of the adjustments in this presentation . our presentation of adjusted ebitda does not imply that our future results will be unaffected by these expenses or any unusual or non-recurring items . when evaluating our performance , you should consider adjusted ebitda alongside other financial performance measures , including our net income and other gaap results , and not rely on any single financial measure . the following table is a reconciliation of net ( loss ) income ( our most directly comparable financial measure presented in accordance with gaap ) to adjusted ebitda : replace_table_token_3_th 32 liquidity and capital resources liquidity our principal capital requirements have been to fund working capital needs , and to a lesser extent , capital expenditures . on april 3 , 2014 , we paid $ 12.4 million of cash for the acquisition of the ripka brand , which includes $ 9.0 million of jr term loan proceeds . on december 22 , 2014 , we paid $ 18.5 million of cash for the acquisition of the h halston brands , which includes $ 10.0 million of h term loan proceeds . at december 31 , 2014 and 2013 , our unrestricted cash and cash equivalents were $ 8.53 million and $ 7.46 million , respectively . on december 22 , 2014 , we issued to six accredited investors an aggregate of 1,086,667 shares of our common stock at a purchase price of $ 9.00 per share or gross proceeds of $ 9,780,000 in a private offering . we expect that existing cash and operating cash flows will be adequate to meet our operating needs , debt service obligations and capital expenditure needs , including the debt service under our term loan facilities for the twelve months subsequent to december 31 , 2014. we are dependent on our licensees for most of our revenues , and there is no assurance that the licensees will perform as projected . we do not require significant capital expenditures . we launched an e-commerce platform in may 2014 , for which we incurred $ 0.02 million of capital expenditures in each of the current year and prior year . the company 's contingent obligations ( see note 7 in the consolidated financial statements ) are payable in stock and or cash , at the company 's discretion . payment of these obligations in stock would not affect the company 's liquidity . the im seller note ( see note 7 in the consolidated financial statements ) is payable in cash up to $ 1.5 million beginning in 2015 , of which $ 1.0 million of the cash payment is subject to bank of hapoalim b.m . 's ( “ bhi ” ) approval .
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summary of operating results the consolidated financial statements and related notes included elsewhere in this form 10-k are as of , or for the year ended december 31 , 2014 ( the “ current year ” ) , and the year ended december 31 , 2013 ( the “ prior year ” ) . the company had income from continuing operations of $ 0.04 million for the current year , compared to income from continuing operations of $ 1.69 million for the prior year . net income from continuing operations for the current year and prior year include certain non-cash components as described in the following paragraph and detailed later in this section . the company had a net loss of $ 1.03 million for the current year , compared to net income of $ 1.53 million for the prior year . the company had adjusted ebitda of $ 7.01 million for the current year , compared to adjusted ebitda of $ 4.15 million for the prior year . adjusted ebitda is a non-gaap unaudited term , which we define as net income before interest expense and other financing costs ( including gain ( loss ) on extinguishment of debt ) , income taxes , other state and local franchise taxes , depreciation and amortization , non-cash compensation , other non-cash income ( expenses ) and loss on discontinued operations of our retail business . management uses adjusted ebitda as a measure of operating performance to assist in comparing performance from period to period on a consistent basis and to identify business trends relating to the company 's results of operations . adjusted ebitda is also useful because it provides supplemental information to assist investors in evaluating the company 's financial results . see - `` adjusted ebitda '' for our definition of the term and for a reconciliation of net income ( loss ) to adjusted ebitda , presented later in this section .
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note 4 - other current assets replace_table_token_12_th f- 16 biomx inc. ( formerly chardan healthcare acquisition corp ) notes to consolidated financial statements ( usd in thousands , except share and per share data ) note 5 - story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our 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 . our actual results may differ materially from those discussed in any forward-looking statement because of various factors , including those described in the sections titled “ cautionary statement regarding forward-looking statements ” and “ risk factors ” in this annual report . the business combination was treated as a “ reverse merger ” in accordance with generally accepted accounting principles in the united states , or us gaap . for accounting purposes , biomx ltd. was considered to have acquired chardan healthcare acquisition corp. , or chac . therefore , for accounting purposes , the business combination was treated as the equivalent of a capital transaction in which biomx ltd. issued stock for the net assets of chac . the net assets of chac were stated at historical cost , with no goodwill or other intangible assets recorded . the post-acquisition financial statements of the company show the consolidated balances and transactions of the company and biomx ltd. as well as comparative financial information of biomx ltd. ( the acquirer for accounting purposes ) . we are a clinical stage microbiome product discovery company developing products using both natural and engineered phage technologies designed to target and destroy specific harmful bacteria that affect the appearance of skin , as well as harmful bacteria in associated with chronic diseases , such as ibd , psc , liver disease , cf , atopic dermatitis and crc . bacteriophages or phage are bacterial , species-specific , strain-limited viruses that infect , amplify and lyse the target bacteria and are considered inert to mammalian cells . viruses that target bacteria and are considered inert to mammalian cells . by utilizing proprietary combinations of naturally occurring phage and by creating novel phage using synthetic biology , we develop phage-based therapies intended to address large-market and orphan diseases . since biomx ltd. 's inception in 2015 , and since the business combination , we have devoted substantially all our resources to organizing and staffing our company , raising capital , acquiring rights to or discovering product candidates , developing our technology platforms , securing related intellectual property rights , and conducting discovery , research and development activities for our product candidates . we do not have any products approved for sale , most of our products are still in the preclinical development stage , and we have not generated any revenue from product sales . as we move our product candidates from preclinical to clinical stage , we expect our expenses to increase . to date , we have funded our operations with proceeds from sales of common stock and preferred shares . through december 31 , 2020 , we had received gross proceeds of approximately $ 120 million from sales of our securities . to date , we received approximately $ 384 thousand from our collaboration agreements and recorded a reduction from research and development expenses of $ 327 thousand since 2015 through the year ended december 31 , 2020. since biomx ltd. 's inception in 2015 , and since the business combination , we have incurred significant operating losses . our ability to generate revenue from product sales sufficient to achieve profitability will depend on the successful development of , the receipt of regulatory approval for , and eventual commercialization of one or more of our product candidates . our net losses were approximately $ 30.1 million and $ 20.6 million for the years ended december 31 , 2020 and 2019 , respectively . as of december 31 , 2020 , we had an accumulated deficit of $ 72.3 million and expect that for the foreseeable future we will continue to incur significant expenses as we advance our product candidates from discovery through preclinical development and clinical trials and seek regulatory approval of our product candidates . in addition , if we obtain regulatory approval for any of our product candidates , we expect to incur significant commercialization expenses related to product manufacturing , marketing , sales and distribution . we may also incur expenses in connection with in-licensing or acquiring additional product candidates . because of the numerous risks and uncertainties associated with product development , we are unable to predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability . even if we are able to generate product sales , we may not become profitable . if we fail to become profitable or are unable to sustain profitability on a continuing basis , we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations . we may implement cost reduction strategies , which may include amending , delaying , limiting , reducing or terminating one or more of our programs or ongoing or planned clinical trials of our product candidates . on december 31 , 2020 , we had cash and cash equivalents and short-term deposits of $ 57.1 million . story_separator_special_tag in the future we will likely require or desire additional funds to support our operating expenses and capital requirements or for other purposes , such as acquisitions , and may seek to raise such additional funds through public or private equity or debt financings or collaborative agreements or from other sources , as we are doing now with the sale agreement . however , the covid-19 pandemic continues to rapidly evolve and has already resulted in a significant disruption of global financial markets . if the disruption persists and deepens , we could experience an inability to access additional capital , which could in the future negatively affect our capacity to support our operating expenses and capital requirements or to make investments for other purposes , such as acquisitions . we have no commitments to obtain such additional financing and can not assure you that additional financing will be available at all or , if available , that such financing would be obtainable on terms favorable to us and would not be dilutive . our future liquidity and cash requirements will depend on numerous factors , including the introduction of new products as well as the ability to continue to maintain controls over our operating expenditures . 86 cash flows the following table summarizes our cash flows for each of the periods presented : replace_table_token_3_th operating activities during the year ended december 31 , 2020 , operating activities used $ 24.4 million of net cash , primarily due to a net loss of $ 30.1 million and by net cash used by changes in our operating assets and liabilities of $ 0.5 million and non-cash charges of $ 5.2 million . non-cash charges for the year ended december 31 , 2020 mainly consisted of stock-based compensation expenses of $ 2.9 million and depreciation of $ 2.2 million , partially offset by revaluation of contingent liabilities expenses of $ 0.1 million . net changes in our operating assets and liabilities for the year ended december 31 , 2020 consisted primarily of an increase in liabilities relating to operating leases of $ 1.4 million , and an increase in other account payables of $ 1.4 million , partially offset by an increase of $ 1.5 million in other receivables and a decrease in trade account payables of $ 0.8 million . during the year ended december 31 , 2019 , operating activities used $ 17.6 million of net cash , primarily due to a net loss of $ 20.6 million , net cash used by changes in our operating assets and liabilities of $ 2 million and non-cash charges of $ 0.9 million . non-cash charges for the year ended december 31 , 2019 mainly consisted of stock-based compensation expenses of $ 0.9 million and depreciation of $ 0.3 million , partially offset by non-cash revaluation of contingent liabilities expenses of $ 0.3 million . net changes in our operating assets and liabilities for the year ended december 31 , 2019 consisted primarily of an increase in trade account payables of $ 3 million , an increase in other account payables of $ 0.8 million and an increase in operating lease liability of $ 0.1 million , offset by an increase of $ 1.8 million in other receivables . investing activities during the year ended december 31 , 2020 , investing activities used net cash of $ 10.9 million , mainly consisting of investment in short-term deposits of $ 9.9 million and purchases of property and equipment of $ 1.0 million , primarily laboratory equipment and leasehold improvements . during the year ended december 31 , 2019 , investing activities provided net cash provided of $ 19.7 million , mainly consisting of maturities of investments in short-term deposits of $ 21.0 million partially offset by purchase of property and equipment of $ 1.3 million , primarily laboratory equipment and leasehold improvements . we have invested , and plan to continue to invest , our existing cash in short-term investments in accordance with our investment policy . these investments may include money market funds and investment securities consisting of u.s. treasury notes , and high quality , marketable debt instruments of corporations and government sponsored enterprises . we use foreign exchange contracts ( mainly option and forward contracts ) to hedge balance sheet items from currency exposure . these foreign exchange contracts are not designated as hedging instruments for accounting purposes . in connection with these foreign exchange contracts , we recognize gains or losses that offset the revaluation of the balance sheet items also recorded under financial expenses , net . as of december 31 , 2020 , we had outstanding foreign exchange contracts in the amount of approximately $ 1.5 million . as of december 31 , 2019 , we had no outstanding foreign exchange contracts . financing activities during the year ended december 31 , 2020 , financing activities provided net cash provided of $ 0.1 million , consisting of $ 0.075 million due to the business combination , $ 0.1 million from issuance of common stock and $ 0.3 million from exercise of stock options . during the year ended december 31 , 2019 , financing activities provided net cash of $ 61.6 million , consisting of $ 59.7 million due to the recapitalization transaction , $ 1.8 million from issuance of shares and $ 0.1 million from exercise of stock options . 87 government grants and related royalties the government of israel , through the iia , encourages research and development projects by providing grants . we may receive grants from the iia at the rates that range from 20 % to 50 % of the research and development expenses , as prescribed by the research committee of the iia . through december 31 , 2020 , we had received an aggregate of $ 2.7 million in the form of grants from the iia .
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results of operations comparison of the years ended december 31 , 2020 and 2019 the following table summarizes our consolidated results of operations for the years ended december 31 , 2020 and 2019 : replace_table_token_2_th 85 r & d expenses , net ( net of grants received from the iia and consideration from research collaborations ) were $ 21.0 million for the year ended december 31 , 2020 , compared to $ 13.5 million for the year ended december 31 , 2019. the increase of $ 7.5 million , or 55 % , in the year ended december 31 , 2020 compared to the prior year , is primarily due to the following : ● an increase of $ 4.1 million in stock-based compensation and salaries and related expenses , mainly due to the growth in the number of employees ; ● an increase of $ 1.9 million due to manufacturing of materials for clinical trials of bx001 , bx002 and bx003 , the company 's product candidates for acne-prone skin , ibd and ibd/psc , respectively ; and ● an increase of $ 1.5 million in amortization expenses . the company received grants from the iia totaling $ 0.5 million and $ 0.3 million for the years ended december 31 , 2020 and december 31 , 2019 , respectively .
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, as rights agent ( incorporated by reference to exhibit 4.1 to the company 's form 8-k filed on march 13 , 2013 ( story_separator_special_tag the following discussion is intended to analyze major elements of our consolidated financial statements and provide insight into important areas of management 's focus . this section should be read in conjunction with the consolidated financial statements and the accompanying notes included elsewhere in this annual report . 29 statements in the following discussion may include forward-looking statements . these forward-looking statements involve risks and uncertainties . see “ item 1a . risk factors , ” for additional discussion of these factors and risks . business overview led by the unprecedented strength of our fluids division , operating results for the year ended december 31 , 2013 , reflected growth in consolidated revenues compared to the prior year , despite significant challenges and uncertainties in several of our key markets . the growth of the fluids division 's onshore water management business , the increased sales of its manufactured products , and the strong demand for clear brine fluids ( cbfs ) in the u.s. gulf of mexico together resulted in record revenues and profitability for this division . our compressco segment also reflected record revenues , as the reduction in activity by its principal customer in mexico was more than offset by the growth of its u.s. unconventional compression services applications revenue and from growth in other foreign markets . our offshore services segment continues to take the strategic measures necessary to successfully operate in a challenging u.s. gulf of mexico market and in anticipation of the decreasing work to be performed for our maritech segment going forward . as a result of continuing cost reduction efforts and other steps taken , our offshore services segment generated increased profitability compared to the prior year , despite decreased revenues . the decreased revenues and profitability of our production testing segment reflect the reduction in mexico activity , the suspension of activity in south texas by a significant u.s. customer , and increased competitive pressure in several key north american markets . the pretax profitability of our core businesses was offset by significant losses by our maritech segment , due to excess decommissioning costs expensed by maritech during 2013 , including costs for additional remediation work incurred and anticipated to be required on certain wells that had been previously plugged . we are committed to the continuing growth of our core businesses , and we fund our growth primarily from the cash flows provided by our operating activities as well as from borrowings under our revolving credit facilities . capital expenditures during 2013 totaled approximately $ 101.4 million , primarily for the expansion of our fleet of operating equipment for our fluids and production enhancement division businesses . in addition , in january 2014 , we purchased the assets and operations of wit water transfer , llc ( doing business as td water transfer ) , a water management service provider operating primarily in south texas , in exchange for $ 15.0 million in cash paid at closing plus additional contingent consideration . also in january 2014 , we purchased the remaining 50 % ownership interest of a saudi arabian limited liability company , ahmad albinali & tetra arabia company ltd. ( tetra arabia ) through which we provide completion fluids and services as well as production testing and offshore rig cooling services . the purchase price consisted of $ 15.0 million in cash paid at closing with an additional $ 10.2 million scheduled to be paid in july 2014. as a result of the purchase of the remaining ownership , tetra arabia , which generated approximately $ 36.1 million of revenues during 2013 , will become a consolidated subsidiary beginning in 2014. these acquisition transactions are expected to further strengthen the u.s. operations of our fluids segment as well as the eastern hemisphere operations of both our fluids and production testing segments . as of february 28 , 2014 , we have approximately $ 210.4 million available under our revolving credit facility to fund future strategic growth , and compressco partners has an additional $ 36.8 million available under its revolving credit facility . strategic efforts , including the company-wide cost reduction efforts initiated during late 2012 and the first half of 2013 , have resulted in improved operating results and cash flow generation for each of our core businesses . ongoing efforts to streamline and improve invoicing and collection processes have also improved our operating cash flow . primarily as a result of these efforts , consolidated cash flows provided from operating activities during 2013 increased by $ 32.0 million , or 181.0 % , compared to the prior year . the improvements in operating cash flow levels have enabled us to fund a large portion of our overall growth , while we also continue to aggressively pursue the extinguishment of maritech 's remaining decommissioning liabilities . during 2013 , we expended approximately $ 114.1 million on maritech decommissioning and abandonment efforts , and , as of december 31 , 2013 , maritech 's remaining decommissioning liabilities have been reduced to approximately $ 43.3 million . the majority of the remaining decommissioning and abandonment work is scheduled to be completed in 2014. the expected future decrease in the level of operating cash expended for this work is anticipated to result in a significant increase in operating cash flows . future demand for our products and services depends primarily on activity in the oil and natural gas exploration and production industry , particularly including the level of expenditures for the exploration and production of oil and natural gas reserves and for the plugging and decommissioning of abandoned offshore oil and natural gas properties . the growth of certain of our businesses may become hampered by the future pricing levels 30 of crude oil and natural gas . story_separator_special_tag we expect that the remaining decommissioning and abandonment work to be performed for maritech will decrease beginning in 2014 , and , thereafter , the offshore services segment is focused on replacing this work with work for third party customers . the sales of substantially all of maritech 's oil and gas producing properties during 2011 and 2012 have essentially removed us from the oil and gas exploration and production business . maritech 's revenues are minimal and are expected to continue to be minimal going forward . maritech 's current operations primarily consist of the ongoing plugging , abandonment , and decommissioning associated with its remaining offshore wells , facilities , and production platforms . we expect to complete the majority of this remaining work during 2014. critical accounting policies and estimates this discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements . we prepared these financial statements in conformity with united states generally accepted accounting principles . in preparing our consolidated financial statements , we make assumptions , estimates , and judgments that affect the amounts reported . we base these estimates on historical experience , available information , and various other assumptions that we believe are reasonable . we periodically evaluate these estimates and judgments , including those related to potential impairments of long-lived assets ( including goodwill ) , the collectability of accounts receivable , and the current cost of future abandonment and decommissioning obligations . “ note b – summary of significant accounting policies ” to the consolidated financial statements contains the accounting policies governing each of these matters . the fair values of portions of our total assets and liabilities are measured using significant unobservable inputs . the combination of these factors forms the basis for our judgments made about the carrying values of assets and liabilities that are not readily apparent from other sources . these judgments and estimates may change as new events occur , as new information is acquired , and as changes in our operating environment are encountered . actual results are likely to differ from our current estimates , and those differences may be material . the following critical accounting policies reflect the most significant judgments and estimates used in the preparation of our financial statements . impairment of long-lived assets the determination of impairment of long-lived assets is conducted periodically whenever indicators of impairment are present . if such indicators are present , the determination of the amount of impairment is based on our judgments as to the future operating cash flows to be generated from these assets throughout their estimated useful lives . if an impairment of a long-lived asset is warranted , we estimate the fair value of the asset based on a present value of these cash flows or the value that could be realized from disposing of the asset in a transaction between market participants . the oil and gas industry is cyclical , and our estimates of the amount of future cash flows , the period over which these estimated future cash flows will be generated , as well as the fair value of an impaired asset , are imprecise . our failure to accurately estimate these future operating cash flows or fair values could result in certain long-lived assets being overstated , which could result in impairment charges in periods subsequent to the time in which the impairment indicators were first present . alternatively , if our estimates of future operating cash flows or fair values are understated , impairments might be recognized unnecessarily or in excess of the appropriate amounts . during 2013 , we recorded long-lived asset impairments of $ 9.6 million . during periods of economic uncertainty , the likelihood of additional material impairments of long-lived assets is higher due to the possibility of decreased demand for our products and services . impairment of goodwill the impairment of goodwill is also assessed whenever impairment indicators are present , but not less than once annually . the annual assessment for goodwill impairment begins with a qualitative assessment of whether it is “ more likely than not ” that the fair value of each reporting unit is less than its carrying value . this qualitative assessment requires the evaluation , based on the weight of evidence , of the significance of all identified events and circumstances for each reporting unit . based on this qualitative assessment , we determined that it was not “ more 32 likely than not ” that the fair values of any of our reporting units were less than their carrying values as of december 31 , 2013. if the qualitative analysis indicates that it is “ more likely than not ” that a reporting unit 's fair value is less than its carrying value , the resulting goodwill impairment test would consist of a two-step accounting test performed on a reporting unit basis . if the carrying amount of the reporting unit exceeds its estimated fair value , an impairment loss is calculated by comparing the carrying amount of the reporting unit 's goodwill to our estimated implied fair value of that goodwill . our estimates of reporting unit fair value , if required , are based on a combination of an income and market approach . these estimates are imprecise and are subject to our estimates of the future cash flows of each business and our judgment as to how these estimated cash flows translate into each business ' estimated fair value . these estimates and judgments are affected by numerous factors , including the general economic environment at the time of our assessment , which affects our overall market capitalization . if we overestimate the fair value of our reporting units , the balance of our goodwill asset may be overstated . alternatively , if our estimated reporting unit fair values are understated , impairments might be recognized unnecessarily or in excess of the appropriate amounts .
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results of operations the following data should be read in conjunction with the consolidated financial statements and the associated notes contained elsewhere in this report . 2013 compared to 2012 consolidated comparisons replace_table_token_9_th consolidated revenues during 2013 increased compared to 2012 due to increased revenues of our fluids and compressco segments . growth of the fluids division 's onshore water management business , increased sales of its manufactured products , and strong demand for clear brine fluids ( cbfs ) in the u.s. gulf of mexico resulted in record revenues for this division . our compressco segment also reflected record revenues , as the reduction in activity by its principal customer in mexico was more than offset by the growth of its u.s. unconventional compression services applications revenue and from growth in other international markets . these increased consolidated revenues were negatively affected by our offshore services segment as well as our production testing segment . our offshore services segment reported decreased revenues for the current year compared to the prior year due to a reduction in heavy lift and cutting services activity . this business was also adversely affected by weather delays during the second and third quarters of 2013 as well as by continuing market challenges in the u.s. gulf of mexico . our production testing segment revenues also decreased , reflecting the reduction in mexico activity , the suspension of activity by a significant u.s. customer , and increased competitive pressure in several key north american markets . consolidated gross profit decreased , despite the increased profitability of our fluids and offshore services segments , as our maritech and production testing segments reported decreases . maritech recorded increased excess decommissioning costs during 2013 as compared to 2012. consolidated general and administrative expenses during 2013 remained consistent with 2012 levels .
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we operate in five product segments , mosfets , diodes , optoelectronic components , resistors & inductors , and capacitors . since 1985 , we have pursued a business strategy of growth through focused research and development and acquisitions . through this strategy , we have grown to become one of the world 's largest manufacturers of discrete semiconductors and passive components . we expect to continue our strategy of acquisitions while also maintaining a prudent capital structure . we are focused on enhancing stockholder value and improving earnings per share . in addition to our growth plan , we also have opportunistically repurchased our stock . in 2014 , our board of directors instituted a quarterly dividend payment program and declared the first cash dividend in the history of vishay . in december 2015 , we amended our credit facility to increase our ability to repurchase shares of stock or pay cash dividends . although we have no current plans , we will continue to evaluate attractive stock repurchase opportunities . on may 2 , 2016 , our board of directors approved a stock repurchase plan , authorizing us to repurchase , in the aggregate , up to $ 100 million of our outstanding common stock . the stock repurchase plan will expire on may 2 , 2017. the stock repurchase plan does not obligate us to acquire any particular amount of common stock , and it may be terminated or suspended at the company 's direction in accordance with the plan . the company repurchased 1,752,454 shares of stock for $ 23.2 million since the inception of the plan . we will continue to evaluate attractive stock repurchase opportunities . as part of the amendment and restatement of the revolving credit facility in december 2015 , we completed an evaluation of our anticipated domestic cash needs over the next several years and our most efficient use of liquidity , with consideration of the amount of cash that can be repatriated to the u.s. efficiently with lesser withholding taxes in foreign jurisdictions . as a result of that evaluation , during the fourth quarter of 2015 , we recognized income tax expense of $ 164.0 million , including u.s. federal and state income taxes , incremental foreign income taxes , and withholding taxes payable to foreign jurisdictions , on $ 300 million of foreign earnings which we expect to repatriate to the u.s. over the next several years . we repatriated $ 46 million to the u.s. in 2016 pursuant to this plan . our business and operating results have been and will continue to be impacted by worldwide economic conditions . our revenues are dependent on end markets that are impacted by consumer and industrial demand , and our operating results can be adversely affected by reduced demand in those global markets . for several years , we implemented aggressive cost reduction programs . we continue to monitor the current economic environment and its potential effects on our customers and the end markets that we serve . additionally , we continue to closely monitor our costs , inventory , and capital resources to respond to changing conditions and to ensure we have the management , business processes , and resources to meet our future needs . in the first fiscal quarter of 2016 , we substantially completed the implementation of targeted cost reduction programs that began in the fourth fiscal quarter of 2013. the cost reduction programs initiated in 2015 continue as planned . as a result of a review of recent financial results and outlook for our mosfets segment following the recent completion of production transfers , we determined to implement further cost reductions for the mosfets segment . in november 2016 , we announced an extension of the mosfets enhanced competitiveness program . our cost reduction programs are more fully described in note 4 to the consolidated financial statements and in `` cost management '' below . see additional information regarding our competitive strengths and key challenges as disclosed in part 1. we recorded non-cash intangible asset impairment charges of $ 1.6 million and $ 57.6 million in 2016 and 2015 , respectively , and a non-cash goodwill impairment charge of $ 5.4 million in 2015. the goodwill and intangible assets impairment tests are more fully described in note 3 to the consolidated financial statements . on august 12 , 2015 , a major explosion occurred in the port of tianjin , china . we own and operate a diodes manufacturing facility in tianjin near the port . the shockwave of the explosion resulted in some damage to the facility and caused a temporary shutdown . as more fully described in note 8 to the consolidated financial statements , we recorded a loss of $ 5.4 million related to this incident in 2015. the temporary shutdown adversely impacted revenues and margins of our diodes segment ( and total vishay ) for the year ended december 31 , 2015. we received insurance payments totaling $ 13.4 million and recognized a gain of $ 8.8 million related to this incident and the insurance proceeds received in 2016. in december 2016 , we completed the termination and settlement of our qualified u.s. pension plan . the settlement resulted in a non-cash pre-tax charge of $ 79.3 million to recognize the unrecognized actuarial items related to the pension plan recorded in accumulated other comprehensive income . the pension plan termination and settlement is more fully described in note 11 to the consolidated financial statements . we utilize several financial metrics , including net revenues , gross profit margin , segment operating income , end-of-period backlog , book-to-bill ratio , inventory turnover , change in average selling prices , net cash and short-term investments ( debt ) , and free cash generation to evaluate the performance and assess the future direction of our business . ( see further discussion in `` financial metrics '' and `` financial condition , liquidity , and capital resources . '' story_separator_special_tag if demand falls below customers ' forecasts , or if customers do not control their inventory effectively , they may cancel or reschedule the shipments that are included in our backlog , in many instances without the payment of any penalty . therefore , the backlog is not necessarily indicative of the results to be expected for future periods . an important indicator of demand in our industry is the book-to-bill ratio , which is the ratio of the amount of product ordered during a period as compared with the product that we ship during that period . a book-to-bill ratio that is greater than one indicates that our backlog is building and that we are likely to see increasing revenues in future periods . conversely , a book-to-bill ratio that is less than one is an indicator of declining demand and may foretell declining revenues . we focus on our inventory turnover as a measure of how well we are managing our inventory . we define inventory turnover for a financial reporting period as our costs of products sold for the four fiscal quarters ending on the last day of the reporting period divided by our average inventory ( computed using each fiscal quarter-end balance ) for this same period . a higher level of inventory turnover reflects more efficient use of our capital . pricing in our industry can be volatile . using our and publicly available data , we analyze trends and changes in average selling prices to evaluate likely future pricing . the erosion of average selling prices of established products is typical for semiconductor products . we attempt to offset this deterioration with ongoing cost reduction activities and new product introductions . our specialty passive components are more resistant to average selling price erosion . all pricing is subject to governing market conditions . 33 the quarter-to-quarter trends in these financial metrics can also be an important indicator of the likely direction of our business . the following table shows net revenues , gross profit margin , operating margin , end-of-period backlog , book-to-bill ratio , inventory turnover , and changes in asp for our business as a whole during the five fiscal quarters beginning with the fourth fiscal quarter of 2015 through the fourth fiscal quarter of 2016 ( dollars in thousands ) : replace_table_token_7_th _ ( 1 ) operating margin for the fourth fiscal quarter of 2015 and the first , second , third , and fourth fiscal quarters of 2016 includes $ 9.8 million , $ 6.5 million , $ 4.5 million , $ 1.2 million and $ 7.1 million , respectively , of restructuring and severance expenses ( see note 4 to our consolidated financial statements ) . operating margin for the fourth fiscal quarter of 2016 includes $ 79.3 million of pension settlement charges ( see note 11 to our consolidated financial statements ) . operating margin for the third fiscal quarter of 2016 includes $ 1.6 million of intangible asset impairment charges ( see note 3 to our consolidated financial statements ) . see `` financial metrics by segment '' below for net revenues , book-to-bill ratio , and gross profit margin broken out by segment . revenues for the fourth fiscal quarter of 2016 decreased versus the third fiscal quarter of 2016 , partially due to currency effects . order levels recovered in 2016 and sustained a high level throughout the year . the continued strong order level increased the backlog and book-to-bill ratio . our average selling prices continue to decline primarily due to our commodity semiconductor products and the effects of growing our resistors & inductors business in asia . gross profit margin decreased versus the prior fiscal quarter , but increased versus the fourth fiscal quarter of 2015. the fluctuations are primarily volume-driven with decreasing average selling prices burdening each period . gross profit margins for the periods prior to the second fiscal quarter of 2016 were negatively impacted by additional depreciation associated with our mosfets cost reduction program . the book-to-bill ratio increased to 1.11 in the fourth fiscal quarter of 2016 from 1.04 in the third fiscal quarter of 2016. the book-to-bill ratios for distributors and original equipment manufacturers ( `` oem '' ) were 1.16 and 1.04 , respectively , versus ratios of 1.10 and 0.98 , respectively , during the third fiscal quarter of 2016 . 34 financial metrics by segment the following table shows net revenues , book-to-bill ratio , gross profit margin , and segment operating margin broken out by segment for the five fiscal quarters beginning with the fourth fiscal quarter of 2015 through the fourth fiscal quarter of 2016 ( dollars in thousands ) : replace_table_token_8_th 35 acquisition activity as part of our growth strategy , we seek to expand through targeted acquisitions of other manufacturers of electronic components that have established positions in major markets , reputations for product quality and reliability , and product lines with which we have substantial marketing and technical expertise . this includes exploring opportunities to acquire targets to gain market share , penetrate different geographic markets , enhance new product development , round out our existing product lines , or grow our high margin niche market businesses . acquisitions of passive components businesses would likely be made to strengthen and broaden our position as a specialty product supplier ; acquisitions of discrete semiconductor businesses would be made to increase market share and to generate synergies . to limit our financial exposure , we have implemented a policy not to pursue acquisitions if our post-acquisition debt would exceed 2.5x our pro forma earnings before interest , taxes , depreciation , and amortization ( `` ebitda '' ) . for these purposes , we calculate pro forma ebitda as the adjusted ebitda of vishay and the target for vishay 's four preceding fiscal quarters , with a pro forma adjustment for savings which management estimates would have been achieved had the target been acquired by vishay at the beginning of the four fiscal quarter period .
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results of operations statement of operations ' captions as a percentage of net revenues and the effective tax rates were as follows : replace_table_token_10_th net revenues net revenues were as follows ( dollars in thousands ) : replace_table_token_11_th changes in net revenues were attributable to the following : replace_table_token_12_th we experienced a broad increase in demand for our products in 2016 compared to 2015. our 2016 and 2015 net revenue results were negatively impacted by foreign currency effects compared to 2014. we deduct , from the sales that we record to distributors , allowances for future credits that we expect to provide for returns , scrapped product , and price adjustments under various programs made available to the distributors . we make deductions corresponding to particular sales in the period in which the sales are made , although the corresponding credits may not be issued until future periods . we estimate the deductions based on sales levels to distributors , inventory levels at the distributors , current and projected market trends and conditions , recent and historical activity under the relevant programs , changes in program policies , and open requests for credits . we recorded deductions from gross sales under our distributor incentive programs of $ 86.9 million , $ 83.1 million , and $ 89.6 million , for the years ended december 31 , 2016 , 2015 , and 2014 , respectively , or , as a percentage of gross sales , 3.6 % , 3.5 % , and 3.5 % , respectively . actual credits issued under the programs for the years ended december 31 , 2016 , 2015 , and 2014 were approximately $ 85.3 million , $ 84.0 million , and $ 87.9 million , respectively . increases and decreases in these incentives are largely attributable to the then-current business climate .
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73 level 2 pricing inputs , other than unadjusted quoted prices in active markets included in level 1 , are either directly or indirectly observable as of the reporting date . level 2 includes those financial instruments that are valued using models or other valuation methodologies . these models are primarily industry-standard models that consider various assumptions , including quoted forward prices for commodities , time value , volatility factors and current market and contractual prices for story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this annual report on form 10-k. the following discussion contains forward-looking statements that reflect our future plans , estimates , beliefs and expected performance . we caution that assumptions , expectations , projections , intentions , or beliefs about future events may , and often do , vary from actual results and the differences can be material . some of the key factors which could cause actual results to vary from our expectations include changes in oil and natural gas prices , the timing of planned capital expenditures , availability of acquisitions , uncertainties in estimating proved reserves and forecasting production results , operational factors affecting the commencement or maintenance of producing wells , the condition of the capital markets generally , as well as our ability to access them , the proximity to and capacity of transportation facilities , and uncertainties regarding environmental regulations or litigation and other legal or regulatory developments affecting our business , as well as those factors discussed below and elsewhere in this annual report on form 10-k , all of which are difficult to predict . in light of these risks , uncertainties and assumptions , the forward-looking events discussed may not occur . see cautionary note regarding forward-looking statements. overview we are an independent exploration and production company focused on the acquisition and development of unconventional oil and natural gas resources primarily in the montana and north dakota regions of the williston basin . since our inception , we have acquired properties that provide current production and significant upside potential through further development . our drilling activity is primarily directed toward projects that we believe can provide us with repeatable successes in the bakken and three forks formations . we also operate a marketing business , opm , that is complementary to our primary development and production activities , and a well services business , ows , which is a separate reportable business segment . the revenues and expenses related to work performed by opm and ows for opna 's working interests are eliminated in consolidation and , therefore , do not directly contribute to our consolidated results of operations . our use of capital for development and acquisitions allows us to direct our capital resources to what we believe to be the most attractive opportunities as market conditions evolve . we have historically acquired properties that we believe will meet or exceed our rate of return criteria . for acquisitions of properties with additional development , exploitation and exploration potential , we have focused on acquiring properties that we expect to operate so that we can control the timing and implementation of capital spending . in some instances , we have acquired non-operated property interests at what we believe to be attractive rates of return either because they provided a foothold in a new area of interest or complemented our existing operations . we intend to continue to acquire both operated and non-operated properties to the extent we believe they meet our return objectives . in addition , our willingness to acquire non-operated properties in new areas provides us with geophysical and geologic data that may lead to further acquisitions in the same area , whether on an operated or non-operated basis . we built our williston basin leasehold acreage position in our west williston , east nesson and sanish project areas through acquisitions and development activities . these acquisitions and development activities were financed with a combination of capital from private and public investors , borrowings under our revolving credit facility , cash flows provided by operating activities and proceeds from our senior unsecured notes . our 2012 , 2011 and 2010 activities included development and exploration drilling in each of our primary project areas . our current activities are focused on evaluating and developing our asset base , optimizing our acreage positions and evaluating potential acquisitions . based on the reserve reports prepared by our independent reserve engineers , we had 143.3 mmboe of estimated net proved reserves with a pv-10 of $ 3,244.3 million and a standardized measure of $ 2,259.9 million at december 31 , 2012 , 78.7 mmboe of estimated net proved reserves with a pv-10 of $ 1,903.7 million and a standardized measure of $ 1,319.5 million at december 31 , 2011 and 39.8 mmboe of estimated net proved reserves with a pv-10 of $ 697.8 million and a standardized measure of $ 485.7 million at december 31 , 2010. our estimated net proved reserves and related future net revenues , pv-10 and standardized measure were determined using index prices for oil and natural gas , without giving effect to derivative transactions , and were held constant throughout the life of the properties . the unweighted arithmetic average first-day-of-the-month prices for the prior twelve months were $ 94.68/bbl for oil and $ 2.75/mmbtu for natural gas , $ 96.23/bbl for oil and $ 4.12/mmbtu for natural gas , and $ 79.40/bbl for oil and $ 4.38/mmbtu for natural gas for the years ended december 31 , 2012 , 2011 and 2010 , respectively . these prices were adjusted by lease for quality , transportation fees , geographical differentials , marketing bonuses or deductions and other factors affecting the price received at the wellhead . story_separator_special_tag these cost increases were partially offset by salt water disposal activity and lower operating costs related to improved weather conditions as compared to the first half of 2011. the unit operating costs decreased from $ 8.36 for the year ended december 31 , 2011 to $ 6.68 for the year ended december 31 , 2012 , primarily due to our increase in production of 110 % outpacing our overall net increase in costs of 68 % . well services operating expenses . the $ 11.8 million in well services operating expenses represents third-party working interests ' share of fracturing service costs incurred by ows for fracturing jobs completed in 2012. there were no well services operating expenses in 2011 because ows did not commence fracturing activity until the first quarter of 2012 . 48 marketing , transportation and gathering expenses . marketing , transportation and gathering expenses includes all of our marketing , transportation and gathering for our oil production as well as bulk oil purchase costs . the $ 7.9 million increase period over period , or $ 0.79 increase per boe , is primarily attributable to increased oil transportation costs related to opm , which did not commence operations until late in the third quarter of 2011 , combined with a $ 1.4 million cost for bulk oil purchases made by opm in the first quarter of 2012 , partially offset by a $ 0.7 million non-cash valuation adjustment on our oil pipeline imbalances . excluding this pipeline imbalance adjustment and bulk oil purchase costs , our marketing , transportation and gathering expenses on a per boe basis would have been $ 1.04 for the year ended december 31 , 2012. production taxes . our production taxes for the years ended december 31 , 2012 and 2011 were 9.4 % and 10.2 % , respectively , as a percentage of oil and natural gas sales . the 2012 production tax rate was lower than the 2011 production tax rate because of the increased weighting of oil revenues in montana , which has lower incentivized production tax rates on certain new wells for the first twelve months of production . depreciation , depletion and amortization ( dd & a ) . dd & a expense increased $ 131.8 million to $ 206.7 million for the year ended december 31 , 2012 compared to the year ended december 31 , 2011. the increase in dd & a expense for the year ended december 31 , 2012 was primarily a result of our production increases from our 2012 well completions . the dd & a rate for the year ended december 31 , 2012 was $ 25.14 per boe compared to $ 19.16 per boe for the year ended december 31 , 2011. the higher dd & a rate was a result of increased well costs in 2012 , which outpaced the increase in associated reserves . the increased well costs were a result of increases in service costs in the williston basin during 2011 and the first half of 2012 and the addition of infrastructure assets , primarily our salt water disposal systems . impairment of oil and gas properties . no impairment of proved oil and natural gas properties was recorded for the years ended december 31 , 2012 and 2011. during the years ended december 31 , 2012 and 2011 , we recorded non-cash impairment charges of $ 3.6 million each year for unproved properties due to leases that expired during the period and periodic assessments of unproved properties . as of december 31 , 2012 , we recorded a $ 1.8 million impairment charge related to acreage expiring in 2013 as a result of a periodic assessment because there were no plans to drill or extend the leases prior to their expiration . in determining the amount of non-cash impairment charges for such periods , we considered the application of the factors described under critical accounting policies and estimatesimpairment of proved properties and critical accounting policies and estimatesimpairment of unproved properties. general and administrative . our general and administrative expenses increased $ 27.8 million for the year ended december 31 , 2012 from $ 29.4 million for the year ended december 31 , 2011. of this increase , approximately $ 20.3 million was due to the impact of our organizational growth on employee compensation and $ 6.7 million was due to the amortization of our restricted stock awards and performance share units ( psus ) . as of december 31 , 2012 , we had 281 full-time employees compared to 146 full-time employees as of december 31 , 2011. derivatives . as a result of our derivative activities , we incurred a $ 6.5 million net cash settlement gain for the year ended december 31 , 2012 and a $ 3.8 million net cash settlement loss for the year ended december 31 , 2011. in addition , as a result of forward oil price changes , we recognized non-cash unrealized mark-to-market derivative gains of $ 27.6 million and $ 5.4 million during the years ended december 31 , 2012 and 2011 , respectively . interest expense . interest expense increased $ 40.5 million to $ 70.1 million for the year ended december 31 , 2012 compared to the year ended december 31 , 2011. the increase was due to the interest related to our senior unsecured notes issued in february and november 2011 and july 2012. for the years ended december 31 , 2012 and 2011 , we incurred no borrowings under our revolving credit facility . we capitalized $ 3.3 million and $ 3.1 million of interest costs for the years ended december 31 , 2012 and 2011 , respectively , which will be amortized over the life of the related assets . income tax expense . income tax expense for the years ended december 31 , 2012 and 2011 was recorded at 37.6 % and 37.1 % of pre-tax net income , respectively .
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2012 highlights we completed and placed on production 117 gross ( 95.8 net ) operated bakken and three forks wells during 2012 , and increased average daily production by 110 % to 22,469 boe per day from 10,724 boe per day in 2011. we increased estimated net proved oil and natural gas reserves at december 31 , 2012 to 143.3 mmboe , an 82 % increase over year-end 2011 estimated net proved reserves . approximately 89 % of estimated net proved reserves at year-end 2012 consisted of oil and 49 % were classified as proved developed . 45 we grew our leasehold position to 335,383 total net acres in the williston basin , primarily targeting the bakken and three forks formations , and increased our operated drill blocks by 37 through acreage additions and trades during 2012. in addition , we have increased our acreage that is held-by-production to 264,595 net acres as of december 31 , 2012. as of december 31 , 2012 , we had nine operated rigs running . in 2012 , ows began providing well services to opna , and we had three fracturing services crews , including ows , working full time as of december 31 , 2012. in 2012 , opm became the first purchaser for the majority of our operated oil volumes and provided downstream gathering , transportation and marketing services to opna . in 2012 , we began selling a significant amount of our crude oil production from our west williston project area through gathering systems connected to multiple pipeline and rail facilities . these gathering systems , which originate at the wellhead , reduce the need to transport barrels by truck from the wellhead . as of december 31 , 2012 , we flowed approximately 60 % of our gross operated oil production through these gathering systems .
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notes receivable include both installment loans purchased by the company as well as transferred loans that have not met story_separator_special_tag the following discussion and analysis of the consolidated financial condition and results of operations should be read in conjunction with the consolidated financial statements and notes thereto included in this annual report on form 10-k. story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > 36 sun communities , inc. supplemental measures in addition to the results reported in accordance with generally accepted accounting principles in the u.s. ( `` gaap '' ) , we have provided information regarding noi in the following tables . noi is derived from revenues minus property operating and maintenance expenses and real estate taxes . we use noi as the primary basis to evaluate the performance of our operations . a reconciliation of noi to net income attributable to sun communities , inc. common stockholders is included in “ results of operations ” below . we believe that noi is helpful to investors and analysts as a measure of operating performance because it is an indicator of the return on property investment and provides a method of comparing property performance over time . we use noi as a key management tool when evaluating performance and growth of particular properties and or groups of properties . the principal limitation of noi is that it excludes depreciation , amortization , interest expense , and non-property specific expenses such as general and administrative expenses , all of which are significant costs , and therefore , noi is a measure of the operating performance of our properties rather than of the company overall . we believe that these costs included in net income often have no effect on the market value of our property and therefore limit its use as a performance measure . in addition , such expenses are often incurred at a parent company level and therefore are not necessarily linked to the performance of a real estate asset . noi should not be considered a substitute for the reported results prepared in accordance with gaap . noi should not be considered as an alternative to net income as an indicator of our financial performance , or to cash flows as a measure of liquidity ; nor is it indicative of funds available for our cash needs , including our ability to make cash distributions . noi , as determined and presented by us , may not be comparable to related or similarly titled measures reported by other companies . we also provide information regarding funds from operations ( “ ffo ” ) . we consider ffo an appropriate supplemental measure of the financial and operational performance of an equity reit . under the national association of real estate investment trusts ( “ nareit ” ) definition , ffo represents net income ( loss ) ( computed in accordance with gaap ) , excluding extraordinary items ( as defined under gaap ) , and gain ( loss ) on sales of depreciable property , plus real estate related depreciation and amortization ( excluding amortization of financing costs ) , and after adjustments for unconsolidated partnerships and joint ventures . management also uses ffo excluding certain items , a non-gaap financial measure , which excludes certain gain and loss items that management considers unrelated to the operational and financial performance of our core business . we believe that this provides investors with another financial measure of our operating performance that is more comparable when evaluating period over period results . a discussion of ffo , ffo excluding certain items , a reconciliation of ffo to net income , and ffo to ffo excluding certain items are included in the presentation of ffo in our “ results of operations '' below . 37 sun communities , inc. results of operations we report operating results under two segments : real property operations and home sales and rentals . the real property operations segment owns , operates , and develops mh communities and rv communities throughout the u.s. and is in the business of acquiring , operating , and expanding mh and rv communities . the home sales and rentals segment offers manufactured home sales and leasing services to tenants and prospective tenants of our communities . we evaluate segment operating performance based on noi and gross profit . comparison of the years ended december 31 , 2015 and 2014 real property operations – total portfolio the following tables reflect certain financial and other information for our total portfolio as of and for the years ended december 31 , 2015 and 2014 : replace_table_token_16_th replace_table_token_17_th ( 1 ) occupied sites and occupancy % include mh and annual rv sites , and exclude transient rv sites , which are included in total developed sites . ( 2 ) monthly base rent pertains to annual rv sites and excludes transient rv sites . the 44.3 % growth in real property noi consists of $ 87.8 million from newly acquired properties and $ 18.4 million from our same site properties as detailed below , which is offset by a $ 3.1 million reduction for disposed properties . 38 sun communities , inc. real property operations – same site a key management tool used when evaluating performance and growth of our properties is a comparison of same site communities . same site communities consist of properties owned and operated throughout 2015 and 2014. the same site data may change from time-to-time depending on acquisitions , dispositions , management discretion , significant transactions , or unique situations . the same site data in this form 10-k includes all properties which we have owned and operated continuously since january 1 , 2014. in order to evaluate the growth of the same site communities , management has classified certain items differently than our gaap statements . the reclassification difference between our gaap statements and our same site portfolio is the reclassification of water and sewer revenues from income from real property to utilities . story_separator_special_tag real property general and administrative expenses increased during the year ended december 31 , 2015 , by $ 8.5 million , from the year ended december 31 , 2014 , primarily due to increased expenses related to salaries , wages and related taxes of $ 3.5 million as a result of our acquisitions and increased headcount year over year , increased deferred compensation of $ 2.2 million , increased training , travel , and office expenses of $ 0.9 million , increased expenses for software support and maintenance , director fees , and regulatory fees of $ 0.7 million , increased consulting costs of $ 0.5 million , increased corporate insurance of $ 0.4 million , and increased other miscellaneous expenses of $ 0.3 million . home sales and rentals general and administrative expenses increased during the year ended december 31 , 2015 , by $ 3.8 million , from the year ended december 31 , 2014 , primarily due to increased expenses related to salaries , wages , and related taxes of $ 2.5 million , increased commissions on home sales of $ 1.0 million , and increased advertising expenses of $ 0.3 million . depreciation and amortization expenses increased during the year ended december 31 , 2015 , by $ 43.9 million , from the year ended december 31 , 2014 , primarily a result of additional depreciation and amortization of $ 33.3 million primarily related to our newly acquired properties ( see note 2 in our consolidated financial statements ) , an additional $ 4.6 million related to depreciation on investment property for use in our rental program , an additional $ 1.6 million related to depreciation on investment property for our vacation rental property , and an additional $ 4.4 million related to the amortization of in-place leases and promotions . asset impairment charge of $ 0.8 million during the year ended december 31 , 2014 , was a result of an impairment loss recorded on a long-lived asset for our mh and rv community in la feria , texas during 2014. we did not recognize any impairment charge during the year ended december 31 , 2015 . 42 sun communities , inc. interest expense on debt , including interest on mandatorily redeemable preferred op units , increased during the year ended december 31 , 2015 , by $ 33.9 million , from the year ended december 31 , 2014 , primarily as a result of a $ 25.2 million increase in mortgage interest due to the acquisition of the all and berger properties , increased interest on miscellaneous other long-term debt of $ 15.6 million , increased interest expense associated with our secured borrowing arrangements of $ 1.5 million , and increased other interest expenses of $ 0.5 million primarily related to deferred financing costs . the increases in interest expense were partially offset by $ 8.9 million of mark to market adjustments on assumed debt . gain on disposition of properties , net increased during the year ended december 31 , 2015 , by $ 107.7 million to $ 125.4 million from $ 17.7 million for the year ended december 31 , 2014 , primarily as a result of the sale of 20 properties during the year ended december 31 , 2015 , compared to the sale of 10 properties during the year ended december 31 , 2014 ( see note 2 in our consolidated financial statements ) . gain on settlement of $ 4.5 million in 2014 is the result of a settlement reached with the selling entities of 10 rv communities that we acquired in february 2013. the settlement was related to various warranties , representations , and indemnities included in the agreements under which we acquired the rv communities , including a covenant made by the sellers related to the 2012 revenue of the acquired properties . no such gain was recorded in 2015. distributions from affiliate increased during the year ended december 31 , 2015 , by $ 6.3 million , from the year ended december 31 , 2014 , as we received a $ 7.5 million distribution from origen in 2015 as part of its dissolution . preferred stock redemption costs increased during the year ended december 31 , 2015 , by $ 4.3 million , from the year ended december 31 , 2014 , as a result of a repurchase agreement with certain holders of the company 's series a-4 preferred stock ( see note 9 in our consolidated financial statements ) . 43 sun communities , inc. comparison of the years ended december 31 , 2014 and 2013 real property operations – total portfolio the following tables reflect certain financial and other information for our total portfolio as of and for the years ended december 31 , 2014 and 2013 : replace_table_token_23_th replace_table_token_24_th ( 1 ) occupied sites and occupancy % include mh and annual rv sites and excludes transient rv sites , which are included in total developed sites . ( 2 ) monthly base rent pertains to annual rv sites and excludes transient rv sites . the 14.4 % growth in real property noi was primarily due to $ 14.5 million from newly acquired properties and $ 14.8 million from same site properties as detailed below . 44 sun communities , inc. real property operations – same site the same site information in this comparison of the years ended december 31 , 2014 and 2013 includes all properties which we have owned and operated continuously since january 1 , 2013. replace_table_token_25_th replace_table_token_26_th ( 1 ) occupied sites and occupancy % include mh and annual rv sites , and excludes transient rv sites . ( 2 ) occupancy % includes mh and annual/seasonal rv sites , and excludes recently completed but vacant expansion sites and transient rv sites . ( 3 ) occupancy % for 2014 has been adjusted to reflect incremental growth year over year from filled expansion sites and the conversion of transient rv sites to annual / seasonal rv sites .
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executive summary 2015 accomplishments : completed acquisitions of 34 mh communities and 4 rv communities , which included the final purchase of communities from the $ 1.3 billion all transaction . closed on the disposition of 17 mh communities , and 3 mh and rv combined communities for $ 224.5 million in gross proceeds . achieved same site net operating income ( `` noi '' ) ( 3 ) growth of 9.1 % . closed an underwritten registered public offering for 3.7 million shares of common stock with net proceeds of approximately $ 233.1 million after deducting offering related expenses . gained 1,905 revenue producing sites , a new single year record . sold 2,483 homes , a new single year record , and an increase of 26 % . property operations : occupancy in our properties as well as our ability to increase rental rates directly affects revenues . our revenue streams are predominantly derived from customers renting our sites on a long-term basis . our same site properties continue to achieve revenue and occupancy increases which drive continued noi ( 3 ) growth . home sales are at their historical high , and we expect to continue to increase the number of homes sold in our communities . replace_table_token_13_th ( 1 ) occupancy % includes mh and annual rv sites , and exclude transient rv sites . ( 2 ) occupancy % excludes recently completed but vacant expansion sites . ( 3 ) refer to supplemental measures within this item , for information regarding the presentation of the noi financial measure and funds from operations excluding certain items financial measure .
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the 2017 tax act includes a number of changes to existing u.s. tax laws that impact the company , most notably a reduction of the u.s. corporate income tax rate from 34 % to 21 % for tax years beginning after december 31 , 2017. the 2017 tax act also provides for a one-time transition tax on certain foreign earnings , the acceleration of depreciation for certain assets placed into service after september 27 , 2017 and other prospective changes beginning in 2018 , including repeal of the domestic manufacturing deduction , acceleration of tax revenue recognition , capitalization of research and development expenditures , additional limitations on executive compensation and limitations on the deductibility of interest . the company recognized the income tax effects of the 2017 tax act in its 2017 financial statements in accordance with staff accounting bulletin no . 118 , which provides sec staff guidance for the application of asc topic 740 , income taxes , during the reporting period in which the 2017 tax act was signed into law . as such , the company 's financial results reflect the income tax effects of the 2017 tax act for which the accounting under asc topic 740 is complete , and provisional amounts for those specific income tax effects of the 2017 tax act for which the accounting under asc topic 740 is incomplete but a reasonable estimate could be determined . the company did not identify items for which the income tax effects of the 2017 tax act have not been completed and a reasonable estimate could not be determined as of december 31 , 2017. f-14 odonate therapeutics , inc. notes to financial statements the difference between the provision for income taxes and income taxes computed using the u.s. federal income tax rate effective is as follows ( in thousands ) : replace_table_token_16_th deferred income tax assets arising from differences between accounting for financial statement purposes and tax purposes , less valuation allowance are as follows ( in thousands ) : december 31 , 2017 deferred tax assets : accrued expenses $ 945 depreciation and amortization 786 capitalized research and development 306 total gross deferred tax assets 2,037 less valuation allowance ( 2,037 ) total deferred tax assets $ - as of both december 31 , 2017 and the conversion , the company established a full valuation allowance against its federal and state deferred tax assets due to the uncertainty surrounding the realization of such assets . as of december 31 , 2017 , the company had both federal and state net operating loss carryforwards of approximately $ 3.4 million . the federal and state net operating loss carryforwards begin to expire in 2037 , unless utilized . as of december 31 , 2017 , the company also has federal and state research and development credit carryforwards of approximately $ 0.2 million and $ 0.1 million , respectively . the federal research and development credit carryforwards will begin to expire in 2037 , unless utilized . the state research and development credit carryforwards will carry forward indefinitely , unless utilized . pursuant to section 382 and 383 of the internal revenue code ( “ irc ” ) , utilization of the company 's federal net operating loss carryforwards and research credits may be subject to annual limitations in the event of any significant future changes in its ownership structure . these annual limitations may result in the expiration of net operating loss carryforwards and research and development credit carryforwards prior to utilization . the company has not completed an irc section 382 and 383 analysis regarding the limitation of net operating loss and research and development credit carryforwards . as of december 31 , 2017 and 2016 the company had no unrecognized tax benefits . the company does not anticipate there will be a significant change in unrecognized tax benefits within the next 12 months . the company had no accrual for interest or penalties on the balance sheets as of december 31 , 2017 and 2016 and has not recognized interest or penalties in the statements of operations for the years ended december 31 , 2017 and 2016. f-15 odonate therapeutics , inc. notes to financial statements the company is subject to taxation in the u.s. and various state jurisdictions . the company 's tax returns for the tax years 2014 through 2016 are open and are subject to examination by federal and sta te taxing authorities . if such examinations result in adjustments to the income or expense amounts , the amounts allocated to the llc members could be adjusted accordingly . the company is not currently undergoing a tax audit in any federal or state jurisdic tion . 8. license agreement in 2013 , the company licensed rights to tesetaxel in all major markets from daiichi sankyo company , limited ( “ daiichi sankyo ” ) , the original inventor of the product . under the daiichi sankyo license agreement , the company is obligated to use commercially reasonable efforts to develop and commercialize tesetaxel in the following countries : france , germany , italy , spain , the united kingdom and the u.s. the company is required to make aggregate future milestone payments of up to $ 31.0 million , contingent on attainment of certain regulatory milestones . additionally , the company will pay daiichi sankyo story_separator_special_tag f financial condition and results of operations you should read the following discussion and analysis of our financial condition and results of operations together with our audited financial statements and the related notes and other financial information included elsewhere in this annual report on form 10-k. some of the information contained in this discussion and analysis or set forth elsewhere in this annualreport on form 10-k , including information with respect to our plans and strategy for our business , include forward-looking statements that involve risks and uncertainties . story_separator_special_tag story_separator_special_tag be required to delay , limit , reduce or terminate our product development or future commercialization efforts or grant rights to develop and market our product candidate even if we would otherwise prefer to develop and market such product candidate ourselves . contractual obligations and commitments we enter into contracts in the normal course of business with cros , contract development and manufacturing organizations and other service providers and vendors . these contracts generally provide for termination on notice and , therefore , are cancelable contracts and not included in the table of contractual obligations and commitments . in 2013 , we licensed rights to tesetaxel in all major markets from daiichi sankyo company , limited ( “ daiichi sankyo ” ) , the original inventor of the product . under the daiichi sankyo license agreement , we are obligated to use commercially reasonable efforts to develop and commercialize tesetaxel in the following countries : france , germany , italy , spain , the united kingdom and the u.s. we are required to make aggregate future milestone payments of up to $ 31.0 million , contingent on attainment of certain regulatory milestones . additionally , we will pay daiichi sankyo a tiered royalty that ranges from the low to high single digits , depending on annual net sales of tesetaxel . 70 a summary of our contractual obligations and commitments as of december 31 , 2017 is set forth below ( in thousands ) : payments due by period less than 1 year 1 to 3 years 3 to 5 years more than 5 years total amounts committed milestone payments ( 1 ) - - - - $ 31,000 ( 1 ) represents potential aggregate future milestone payment amounts to daiichi sankyo . the actual amount and timing of these payments are uncertain , as the payments are contingent on future events . off-balance sheet arrangements during the periods presented , we did not have , nor do we currently have , any off-balance sheet arrangements as defined under the rules of the sec . jumpstart our business startups act we are an emerging growth company , as defined in the jumpstart our business startups act of 2012 ( “ jobs act ” ) . under this act , emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the jobs act until such time as those standards apply to private companies . we have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and , therefore , will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies . however , we also intend to rely on other exemptions provided by the jobs act , including without limitation , not being required to comply with the auditor attestation requirements of section 404 ( b ) of the sarbanes-oxley act of 2002 , as amended . critical accounting policies and significant judgments and estimates our management 's discussion and analysis of financial condition and results of operations is based on our financial statements , which have been prepared in accordance with generally accepted accounting principles in the u.s. ( “ gaap ” ) . the preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements , as well as the reported expenses during the reporting periods . these items are monitored and analyzed by us for changes in facts and circumstances , and material changes in these estimates could occur in the future . we base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . changes in estimates are reflected in reported results for the period in which they become known . actual results may differ materially from these estimates under different assumptions or conditions . while our significant accounting policies are more fully described in the notes to our audited financial statements elsewhere in this annual report on form 10-k , we believe that the following accounting policies related to accrued expenses and equity-based compensation are most critical to understanding and evaluating our reported financial results . accrued expense s as part of the process of preparing our financial statements , we are required to estimate our accrued expenses . this process involves reviewing open contracts and purchase orders , communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost . the majority of our service providers invoice us monthly in arrears for services performed or when contractual milestones are met . we make estimates of our accrued expenses 71 as of each balance sheet date in our financial statements based on facts and circumstances known to us at that time . we periodically confirm the accuracy of our estimates with the service providers and mak e adjustments if necessary . examples of estimated accrued expenses include costs associated with conducting our development and regulatory activities , including fees paid to third-party professional consultants and service providers , and costs to develop a nd manufacture clinical study materials . we base our accrued expenses on our estimates of the services received and efforts expended pursuant to our contractual arrangements .
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results of operations the following table summarizes our results of operations for each of the periods set forth below : replace_table_token_3_th research and development expense the following table summarizes our research and development expense for each of the periods set forth below : replace_table_token_4_th 68 research and development expense was $ 27.9 million and $ 2.6 million for the years ended december 31 , 2017 and 2016 , respectively . the increase of $ 25.3 million was primarily due to increased activities in connection with our tesetaxel clinical development program , including the initiation of contes sa , resulting in increased clinical development costs of $ 16.9 million , increased personnel and related costs of $ 5.7 million and increased equity-based compensation expense of $ 2.6 million . general and administrative expense the following table summarizes our general and administrative expense for each of the periods set forth below : replace_table_token_5_th general and administrative expense was $ 4.9 million and $ 0.5 million for the years ended december 31 , 2017 and 2016 , respectively . the increase of $ 4.4 million was due to increased administrative support costs in connection with our tesetaxel clinical development program , including increased personnel , professional and other general administrative costs of $ 3.8 million and increased equity-based compensation expense of $ 0.6 million . liquidity and capital resources as of december 31 , 2017 and 2016 , we had cash in the amount of $ 198.1 million and $ 2.6 million , respectively . we believe that our existing cash as of december 31 , 2017 will be sufficient to meet our anticipated cash requirements through at least one year from the date this annual report on form 10-k is filed with the sec . we have incurred losses in each year since our inception . our net loss was $ 32.7 million and $ 3.1 million for the years ended december 31 , 2017 and 2016 , respectively .
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the discussion also provides information about the financial results of the segments of our business to provide a better understanding of how those segments and their results affect our financial condition and results of operations as a whole . this discussion should be read in conjunction with our consolidated financial statements , including the notes thereto , and the information discussed in item 1a — risk factors . “ safe harbor ” statement under the private securities litigation reform act of 1995 this report contains statements not purely historical and which may be considered forward-looking statements within the meaning of section 27a of the securities act , and section 21e of the securities exchange act of 1934 , as amended ( the “ exchange act ” ) , including statements regarding our expectations , hopes , beliefs , intentions or strategies regarding the future . these forward looking statements may include , but are not limited to : our expectations regarding financial condition or results of operations in future periods ; our future sources of , and needs for , liquidity and capital resources ; our expectations regarding economic and business conditions ; our expectations regarding potential legislative and regulatory changes impacting the level of reimbursement received from the medicare and state medicaid programs ; our expectations regarding the size and growth of the market for our products and services ; our business strategies and our ability to grow our business ; the implementation or interpretation of current or future regulations and legislation , particularly governmental oversight of our business ; our ability to maintain contracts and relationships with our customers ; sales and marketing efforts ; status of material contractual arrangements , including the negotiation or re-negotiation of such arrangements ; future capital expenditures ; our high level of indebtedness ; our ability to make principal payments on our debt and satisfy the other covenants contained in our senior secured credit facility and other debt agreements ; our ability to hire and retain key employees ; our ability to successfully execute our succession plans ; our ability to execute the recommendations of our strategic assessment and consultations ; our ability to consummate the pharmacy services asset sale ; and other risks and uncertainties described from time to time in our filings with the sec . investors are cautioned that any such forward-looking statements are not guarantees of future performance , involve risks and uncertainties and that actual results may differ materially from those possible results discussed in the forward-looking statements as a result of various factors . this report contains information regarding important factors that could cause such differences . these factors include , among other things : risks associated with increased government regulation related to the health care and insurance industries in general , and more specifically , home health providers , pharmacy benefit management and specialty pharmaceutical distribution organizations ; our expectation regarding the interim and ultimate outcome of commercial disputes , including litigation ; unfavorable economic and market conditions ; reductions in federal and state reimbursement for our products and services ; delays or suspensions of federal and state payments for services provided ; efforts to reduce healthcare costs and alter health care financing ; effects of the patient protection and affordable care act , or ppaca , and the health care and education reconciliation act of 2010 , which amended ppaca , and the related accountable care organizations ; existence of complex laws and regulations relating to our business ; achieving financial covenants under our credit facility ; 40 availability of financing sources ; declines and other changes in revenue due to the expiration of short-term contracts ; network lock-outs and decisions to in-source by health insurers including lockouts with respect to acquired entities ; unforeseen contract terminations ; difficulties in the implementation and conversion of our new pharmacy systems ; increases or other changes in the company 's acquisition cost for its products ; increased competition from competitors having greater financial , technical , reimbursement , marketing and other resources could have the effect of reducing prices and margins ; the level of our indebtedness may limit our ability to execute our business strategy and increase the risk of default under our debt obligations , introduction of new drugs can cause prescribers to adopt therapies for existing patients that are less profitable to us ; and changes in industry pricing benchmarks could have the effect of reducing prices and margins . you should not place undue reliance on such forward-looking statements as they speak only as of the date they are made . except as required by law , we assume no obligation to publicly update or revise any forward-looking statement even if experience or future changes make it clear that any projected results expressed or implied therein will not be realized . business overview we are a leading national provider of pharmacy and home health services that partners with patients , physicians , hospitals , healthcare payors and pharmaceutical manufacturers to provide clinical management solutions and the delivery of cost-effective access to prescription medications and home health services . our services are designed to improve clinical outcomes to patients with chronic and acute healthcare conditions while controlling overall healthcare costs . as of december 31 , 2011 , we had a total of 110 locations in 29 states plus the district of columbia , including 30 community pharmacy locations , 32 home nursing locations , three mail service facilities and 45 home infusion locations , including two contract affiliated infusion pharmacies . our platform provides nationwide service capabilities and the ability to deliver clinical management services that offer patients a high-touch , community-based and home-based care environment . our core services are provided in coordination with , and under the direction of , a patient 's physician . our home health professionals , including pharmacists , nurses , respiratory therapists and physical therapists , work with the physician to develop a plan of care suited to our patient 's specific needs . story_separator_special_tag the operations subject to the pharmacy services asset sale represent a significant portion of the net asset value and revenue in the pharmacy services segment and less than half of the segment adjusted ebitda of that segment . the proposed transaction would include the sale of 30 community pharmacy locations and certain asset of three traditional and specialty mail service operations , which constitute all of our operations in the community pharmacy and mail order lines of business . the carrying value of the net assets subject to the pharmacy services asset sale was approximately $ 58.8 million at december 31 , 2011. assuming the pharmacy services asset sale is consummated , we intend to explore strategic alternatives to maximize stockholder value going forward , including deploying the proceeds of the pharmacy services asset sale and our other assets in seeking business acquisition opportunities . options that we may consider include reducing the revolving credit facility , redeeming a portion of the unsecured notes and reinvesting certain proceeds in the infusion/home health services segment , subject to the terms of our revolving credit facility and the indenture governing our the senior unsecured notes . if we consummate the pharmacy services asset sale discussed above , we expect to undertake a further strategic assessment of our business and operations in order to align our corporate structure with our remaining business operations . as part of these efforts , we may incur significant charges such as the write-down of certain long−lived assets , employee severance , other restructuring type charges , potential cash bonus payments and potential accelerated payments of certain of our contractual obligations , which may impact our future consolidated financial statements . 42 the operating results of the traditional and specialty pharmacy mail operations and community pharmacies for the years ended december 31 , 2011 , 2010 and 2009 are summarized below ( in thousands ) : replace_table_token_5_th regulatory matters update approximately 22 % of revenue for the year ended december 31 , 2011 was derived directly from medicare , state medicaid programs or other government payors . also , we provide services to beneficiaries of medicare , medicaid and other government-sponsored healthcare programs through managed care entities . medicare part d , for example , is administered through managed care entities . in the normal course of business , the company and our customers are subject to legislative and regulatory changes impacting the level of reimbursement received from the medicare and state medicaid programs . state medicaid programs in 2011 , increased medicaid spending , combined with slow state revenue growth , led many states to institute measures aimed at controlling spending growth . spending cuts have taken many forms including reducing eligibility and benefits , eliminating certain types of services , and provider reimbursement reductions . in addition , some states are moving beneficiaries to managed care programs in an effort to reduce costs . no single state medicaid program represents greater than 2 % of our consolidated revenue for the year ended december 31 , 2011 and no individual state medicaid reimbursement reduction to us as a provider is expected to have a material effect on our consolidated financial statements . we are continually assessing the impact of the state medicaid reimbursement cuts as states propose , finalize and implement various cost-saving measures . we did incur a 4.25 % reimbursement cut in 2011 from tenncare , the state of tennessee medicaid program , for certain home health services , and we will incur a second 4.25 % tenncare rate cut in the infusion/home health services segment effective january 1 , 2012. we also incurred a 2 % reimbursement cut from the new york medicaid program in 2011. changes to medi-cal , the state of california 's medicaid program , were approved by the centers for medicare and medicaid services ( “ cms ” ) in october , 2011. these changes generally reduce rates by approximately 10 % , with many of the reductions retroactive to june 1 , 2011. the impact of these changes can not be predicted with certainty because they are the subject of a number of lawsuits . preliminary injunctions have been issued that temporarily block the state from implementing the rate reductions , but we can not predict whether the court will ultimately determine to issue permanent injunctions . other states have announced plans to cut reimbursements in 2012 but none have been finalized . given the reimbursement pressures , we continue to improve operational efficiencies and reduce costs to mitigate the impact on results of operations where possible . in some cases , reimbursement rate reductions may result in negative operating results , and we would likely exit some or all services where rate reductions result in unacceptable returns to our shareholders . medicare federal efforts to reduce medicare spending are expected to continue in 2012. congress first passed the patient protection and affordable care act ( `` ppaca '' ) , and the health care and education reconciliation act of 2010 , which amended ppaca . in august 2011 , congress passed a deficit reduction agreement that created a super committee that was tasked with proposing legislation by november 23 , 2011. because the super committee did not act , automatic medicare cuts will go into effect . it is not possible to estimate at this time how such cuts would affect our results of operations , but we do expect reimbursement pressures to continue . thus far , we have been impacted by cms rule revisions which reduced reimbursement rates applicable to the home health division of our business . in november 2010 , the cms issued a final rule to update and revise medicare home health rates for calendar year 2011. the final rule decreased the reimbursement base rate for 2011 by 5.22 % .
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results of operations the following discussion is based on the consolidated financial statements of the company . it compares our annual results of operations with the prior year results of operations . year ended december 31 , 2011 vs. december 31 , 2010 replace_table_token_7_th revenue . revenue for the year ended december 31 , 2011 was $ 1.8 billion compared to revenue of $ 1.6 billion for the year ended december 31 , 2010. infusion/home health services segment revenue for the year ended december 31 , 2011 was $ 451.0 million , compared to revenue of $ 377.2 million for the same period in 2010 , an increase of $ 73.8 million , or 19.6 % . product revenue increased $ 60.7 million , or 19.5 % , as a result of incremental first quarter revenue contributed by the legacy critical homecare solutions , inc. ( “ chs ” ) business , which was acquired march 25 , 2010. service revenue increased $ 13.1 million , or 20.1 % , as a result of incremental revenue contributed by the chs acquisition . this increase was partially offset by a $ 2.3 million revenue reduction resulting from a 5 % decrease in medicare home health rates for the calendar year 2011 and tenncare 's 4.25 % decrease in reimbursement rates as of july 1 , 2011. excluding first quarter incremental revenue associated with the acquired chs business , our infusion/home health services segment revenue increased $ 10.5 million , or 2.8 % , over the prior period as a result of overall volume growth . pharmacy services segment revenue for the year ended december 31 , 2011 was $ 1.4 billion compared to revenue of $ 1.3 billion for the same period in 2010 , an increase of $ 105.6 million , or 8.4 % .
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for purposes of presentation , we have indicated our accounting fiscal year as ending on march 31. overview we are a leading global designer , manufacturer , and marketer of integrated communications and collaboration solutions that span headsets , open sip desktop phones , audio and video conferencing , cloud management and analytics software solutions , and services . our major product categories are enterprise headsets , which includes corded and cordless communication headsets ; consumer headsets , which includes bluetooth and corded products for mobile device applications , personal computer ( `` pc '' ) and gaming ; voice , video , and content sharing solutions , which includes open sip desktop phones , conference room phones , and video endpoints , including cameras , speakers and microphones . all of our solutions are designed to work in a wide range of unified communications & collaboration ( `` uc & c '' ) , unified communication as a service ( `` ucaas '' ) , and video as a service ( `` vaas '' ) environments . our realpresence collaboration solutions range from infrastructure to endpoints and allow people to connect and collaborate globally and naturally . in addition , we have comprehensive support services including support on our solutions and hardware devices , as well as professional , hosted , and managed services . on july 2 , 2018 , we completed our acquisition ( the “ acquisition ” ) of all of the issued and outstanding shares of capital stock of polycom , inc. ( “ polycom ” ) for approximately $ 2.2 billion in stock and cash . as a result , on that date we also became a leading global provider of open , standards-based unified communications & collaboration ( `` uc & c '' ) endpoints for voice , video , and content sharing , and a comprehensive line of support and services for the workplace under the polycom brand . our consolidated financial results for fiscal year 2019 , includes the financial results of polycom from july 2 , 2018. for more information regarding the acquisition , refer to note 4 , acquisition , of the accompanying notes to the consolidated financial statements . total net revenues ( in millions ) compared to the prior year , net revenues increased 95.4 % to $ 1.7 billion . the increase in net revenues was primarily related to the acquisition . as a result of purchase accounting , a total of $ 84.8 million of deferred revenue that otherwise would have been recognized in fiscal year 2019 was excluded from annual net revenues of approximately $ 1.7 billion . 38 the table below summarizes net revenues for the fiscal years ended march 31 , 2018 , and 2019 by product categories : replace_table_token_3_th 1 voice and video product net revenues presented net of fair value adjustments to deferred revenue of $ 7.9 million . 2 services net revenues presented net of fair value adjustments to deferred revenue of $ 76.9 million . operating income ( loss ) ( in millions ) operating profit decreased ( 188.5 ) % from the prior year to $ ( 109.3 ) million or ( 6.5 ) % of net revenues , driven primarily by $ 160.2 million of amortization of purchased intangibles , $ 68.7 million of acquisition and integration expenses , and $ 30.4 million inventory fair value adjustment . our strategic initiatives are primarily focused on driving long-term growth through our end-to-end portfolio of audio and video endpoints , including headsets , desktop phones , conference room phones , and video collaboration solutions . the acquisition positions us well as a global leader in communications and collaboration endpoints and by targeting the faster-growing market segments , such as the huddle room segment for video collaboration , we believe will drive long-term revenue growth . within the market for our enterprise headsets , we anticipate the key driver of growth over the next few years will be the continued adoption of uc & c solutions . we believe enterprises are increasing their adoption of uc & c systems to reduce costs , improve collaboration , and migrate to more capable and flexible technology . we expect the growth of uc & c solutions will increase overall headset adoption in enterprise environments , and we believe most of the growth in our enterprise headsets product category over the next three years will come from headsets designed for uc & c . revenues from our consumer headsets are seasonal and typically strongest in our third fiscal quarter , which includes the holiday shopping season . other factors that directly impact performance in the product category include product life cycles ( including the introduction and pace of adoption of new technology ) , market acceptance of new product introductions , consumer preferences and the competitive retail environment , changes in consumer confidence and other macroeconomic factors . in addition , the timing or non-recurrence of retailer product placements can cause volatility in quarter-to-quarter results . 39 we remain cautious about the macroeconomic environment , based on uncertainty around trade and fiscal policy in the u.s. and broader economic uncertainty in many parts of europe and asia pacific , which makes it difficult for us to gauge the economic impacts on our future business . we continue to monitor our expenditures and prioritize expenditures that further our strategic long-term growth opportunities . story_separator_special_tag style= '' line-height:120 % ; text-align : justify ; font-size:10pt ; '' > the increase in selling , general , and administrative expenses in fiscal year 2018 compared to fiscal year 2017 was due primarily to the recognition of third-party fees related to the polycom transaction and increases in legal fees related to our litigation with gn netcom . these increases were partially offset by lower compensation expenses driven by reduced funding of our variable compensation plans , executive transition costs recognized in prior period as well as cost savings from cost control initiatives and prior period restructuring actions . story_separator_special_tag financial condition operating cash flow ( in millions ) investing cash flow ( in millions ) financing cash flow ( in millions ) we use cash provided by operating activities as our primary source of liquidity . we expect that cash provided by operating activities will fluctuate in future periods as a result of a number of factors , including fluctuations in our revenues , the timing of product shipments during the quarter , accounts receivable collections , inventory and supply chain management , and the timing and amount of tax and other payments . operating activities compared to fiscal year 2018 , net cash provided by operating activities during fiscal year 2019 decreased primarily as a result of cash paid for acquisition and integration costs , restructuring activities , interest payments on long-term debt , and tax payments . the decrease was partially offset by higher cash collections from customers as a result of increased revenue . compared to fiscal year 2017 , net cash provided by operating activities during fiscal year 2018 decreased primarily as a result of lower net income after adjusting for non-cash items and higher payouts in the first quarter of fiscal year 2018 related to fiscal year 2017 variable compensation than payouts during the prior year period , due to better achievements against corporate targets in fiscal year 2017. investing activities net cash used for investing activities during fiscal year 2019 increased from the prior fiscal year primarily due to the acquisition which closed on july 2 , 2018. refer to note 4 , acquisition . this decrease was partially offset by the proceeds from the sales and maturities of investments . we anticipate our capital expenditures in fiscal year 2020 will be approximately $ 40 million to $ 50 million , pertaining to costs associated with new information technology ( `` it '' ) investments , capital investment in our manufacturing capabilities , including tooling for new products , and facilities upgrades . 45 net cash used for investing activities during fiscal year 2018 decreased from the prior fiscal year due to an increase in proceeds from the sales and maturities of debt securities , net of new investment purchases . this increase was partially offset by lower capital expenditures . we will continue to evaluate new business opportunities and new markets ; as a result , our future growth within the existing business or new opportunities and markets may dictate the need for additional facilities and capital expenditures to support that growth . financing activities net cash provided by financing during fiscal year 2019 increased from the prior fiscal year as a result of the proceeds received from the term loan facility which were partially offset by repayment of long-term debt , dividend payments , and repurchases of common stock during the fiscal year . net cash used for financing activities during fiscal year 2018 increased from the prior fiscal year primarily due to an increase in cash used for common stock repurchases driven by a lower average stock price which was partially offset by higher net proceeds from stock-based compensation plans . liquidity and capital resources our primary sources of liquidity as of march 31 , 2019 , consisted of cash , cash equivalents , and short-term investments , cash we expect to generate from operations , and a $ 100 million revolving credit facility . at march 31 , 2019 , we had working capital of $ 252.9 million , including $ 215.8 million of cash , cash equivalents , and short-term investments , compared to working capital of $ 774.2 million , including $ 660.0 million of cash , cash equivalents , and short-term investments at march 31 , 2018 . the decrease in working capital at march 31 , 2019 compared to march 31 , 2018 resulted from the impact of the acquisition during the fiscal year . our cash and cash equivalents as of march 31 , 2019 consist of bank deposits with third party financial institutions . cash balances are held throughout the world , including substantial amounts held outside of the u.s. as of march 31 , 2019 , of our $ 215.8 million of cash , cash equivalents , and short-term investments , $ 66.4 million was held domestically while $ 149.5 million was held by foreign subsidiaries , and approximately 69 % was based in usd-denominated instruments . during the quarter ended june 30 , 2018 , we sold most of our short-term investments to generate cash used to fund the acquisition which was finalized on july 2 , 2018. as of march 31 , 2019 , our remaining investments were composed of mutual funds . on july 2 , 2018 , we completed the acquisition of all of the issued and outstanding shares of capital stock of polycom . the acquisition was consummated in accordance with the terms and conditions of the previously announced purchase agreement , dated march 28 , 2018 , among the company , triangle and polycom . at the closing of the acquisition , plantronics acquired polycom for approximately $ 2.2 billion with the total consideration consisting of ( 1 ) 6.4 million shares of our common stock ( the `` stock consideration '' ) , resulting in triangle , which was polycom 's sole shareholder , owning approximately 16.0 % of plantronics following the acquisition and ( 2 ) $ 1.7 billion in cash ( the `` cash consideration '' ) . the consideration paid at closing was also subject to working capital , tax and other adjustments . we financed the cash consideration by using available cash-on-hand and funds drawn from our new term loan facility which is described further below . portions of the stock consideration and the cash consideration were each deposited into separate escrow accounts to secure certain indemnification obligations of triangle pursuant to the purchase agreement . in connection with the acquisition , we entered into a credit agreement with wells fargo bank , national association , as administrative agent , and the lenders party thereto ( the “ credit agreement ” ) .
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results of operations the following graphs display net revenues by product category for fiscal years 2017 , 2018 , and 2019 : net revenues ( in millions ) revenue by product category ( percent ) * these product categories were created as a result of the acquisition completed on july 2 , 2018 , refer to note 4 acquisition . net revenues increased in fiscal year 2019 compared to the prior fiscal year primarily due to the acquisition as well as higher revenues within both our enterprise headset and consumer headset product categories . the growth in our enterprise headset category was driven by uc & c product revenues while the growth in our consumer headset category was driven by gaming and stereo product revenues . the impact to net revenues resulting from changes in foreign exchange rates was not material in fiscal year 2019. net revenues decreased in fiscal year 2018 compared to the prior fiscal year primarily due to lower revenues within our consumer headsets product category which was partially offset by increases in our enterprise headsets product revenues driven by uc & c revenues . fiscal year 2018 net revenues were also favorably impacted by fluctuations in exchange rates which resulted in an increase of approximately $ 9 million in net revenues ( net of the effects of hedging ) . 40 the following graphs display net revenues by domestic and international split , as well as by percentage of total net revenue by major geographic region : geographic information ( in millions ) revenue by region ( percent ) as a percentage of total net revenues , u.s. net revenues decreased in fiscal year 2019 from fiscal year 2018 due primarily to the acquisition , which increased our presence in the asia pacific region .
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we account for these contracts 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 on november 14 , 2013 , our board of directors approved a resolution to change mcbc 's fiscal year from a 52 / 53 week fiscal year to a calendar year . as such , our 2013 fiscal year end was extended from december 28 , 2013 , to december 31 , 2013 , with subsequent fiscal years beginning on january 1 and ending on december 31 of each year . beginning january 1 , 2014 , quarterly results reflect the three month periods ending march 31 , june 30 , september 30 and december 31. this change aligned our fiscal year and interim reporting periods with our central europe business and millercoors , which were already following a monthly fiscal reporting calendar . unless otherwise indicated , ( a ) all $ amounts are in u.s. dollars ( `` usd '' ) , ( b ) comparisons are to comparable prior periods , and ( c ) 2014 refers to the 12 months ended december 31 , 2014 , 2013 refers to the period from december 30 , 2012 through december 31 , 2013 , and 2012 refers to the 52 weeks ended on december 29 , 2012 . the impact of the three additional days in fiscal year 2013 is immaterial to the consolidated financial statements . use of non-gaap measures in addition to financial measures presented on the basis of accounting principles generally accepted in the united states of america ( `` u.s. gaap '' ) , we also present pretax and after-tax `` underlying income , '' `` underlying income per diluted share , '' `` underlying effective tax rate , '' and `` underlying free cash flow , '' which are non-gaap measures and should be viewed as supplements to ( not substitutes for ) our results of operations presented under u.s. gaap . we also present underlying earnings before interest , taxes , depreciation and amortization ( `` underlying ebitda '' ) as a non-gaap measure . our management uses underlying income , underlying income per diluted share , underlying ebitda , underlying effective tax rate and underlying free cash flow as measures of operating performance to assist in comparing performance from period to period on a consistent basis ; as a measure for planning and forecasting overall expectations and for evaluating actual results against such expectations ; in communications with the board of directors , stockholders , analysts and investors concerning our financial performance ; as useful comparisons to the performance of our competitors ; and as metrics of certain management incentive compensation calculations . we believe that underlying income , underlying income per diluted share , underlying ebitda , underlying effective tax rate and underlying free cash flow performance are used by and are useful to investors and other users of our financial statements in evaluating our operating performance because they provide an additional tool to evaluate our performance without regard to special and non-core items , which can vary substantially from company to company depending upon accounting methods and book value of assets and capital structure . we have provided reconciliations of all non-gaap measures to their nearest u.s. gaap measure and have consistently applied the adjustments within our reconciliations in arriving at each non-gaap measure . these adjustments consist of special items from our u.s. gaap financial statements ( see part ii-item 8 financial statements and supplementary data , note 1 , `` basis of presentation and summary of significant accounting policies '' of the notes to the consolidated financial statements ( `` notes '' ) for additional disclosure ) as well as other non-core items , such as acquisition and integration related costs , unrealized mark-to-market gains and losses , and gains and losses on sales of non-operating assets , included in our u.s. gaap results that warrant adjustment to arrive at non-gaap results . we consider these items to be necessary adjustments for purposes of evaluating our ongoing business performance and are often considered non-recurring . such adjustments are subjective and involve significant management judgment . in addition to the non-gaap measures noted above , we have certain operational measures , such as sales-to-wholesalers ( “ stws ” ) and sales-to-retailers ( “ strs ” ) , which we believe are useful metrics to management and investors in evaluating our operations . stw is a metric that we use in our u.s. 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 canada and u.s. businesses 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 . executive summary we are one of the world 's largest brewers and have a diverse portfolio of owned and partner brands , including core brands carling , coors light , molson canadian and staropramen , as well as craft and specialty beers such as blue moon , cobra , creemore springs and doom bar . story_separator_special_tag in the u.s. , millercoors grew net sales per hectoliter and increased the percent of sales in above premium , while working to restore growth to coors light and miller lite . in the fourth quarter of 2014 , miller lite increased sales to retail for the first time since 2007 , benefiting from a redesign based on the brand 's authenticity and heritage . in 2014 , the above premium segment continued to grow with higher-margin brands like redd 's , blue moon and leinenkugel 's summer shandy . our 2014 equity income in millercoors increased 4.2 % to $ 561.8 million , while underlying equity income in millercoors increased 2.8 % to $ 562.4 million compared to 2013 , primarily driven by higher net pricing , favorable brand mix and cost savings , partially offset by commodity and brewery inflation and lower fixed cost absorption . in our europe segment , although consumer demand remained weak , our business delivered higher net sales and underlying pretax earnings . additionally , despite the weak economy and significant flooding in some of our highest share markets , we maintained market share across the region versus the prior year on the strength of our core brands , above-premium portfolio and innovation . in addition to the core brand performances mentioned below , our craft and above-premium brands performed well , with cobra , coors light , doom bar and staropramen outside the czech republic leading the growth . in 2014 we reported a loss from continuing operations before income taxes of $ 111.9 million , versus income from continuing operations of $ 34.3 million in 2013 . the decrease from 2013 is attributable to an impairment charge of $ 360.0 million recognized in 2014 related to indefinite-lived intangible brand assets compared to an impairment charge of $ 150.9 million in 2013. underlying income of $ 242.7 million increased by 13.8 % , compared to $ 213.3 million in 2013 , due to higher net sales , as well as lower supply chain costs and lower general and administrative expenses , partially offset by the negative impact of a mix shift toward higher-cost products and packages and increased marketing investments . in our mci segment , we drove significant growth in terms of volume , net sales and gross profit in 2014 , despite the continuing challenges in ukraine and russia . our 2014 loss from continuing operations before income taxes increased by 12.7 % to $ 13.3 million , driven by a gain classified as specials items recognized on the sale of our mc si'hai joint venture in china during the fourth quarter of 2013 , along with an increase in marketing investment behind our brands versus 2013. we reduced our underlying pretax loss by 17.9 % versus 2013 , as a result of strong top-line growth and cost control . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > in the fourth quarter of 2012 , the serbian government increased statutory corporate income tax rates from 10 % to 15 % , effective january 1 , 2013. as a result of the impact of the rate change on differences between the book basis and tax basis of intangible and other assets purchased in the acquisition , we increased our deferred tax liability by , and recognized income tax expense of , $ 38.3 million . ( 7 ) the effect of noncontrolling interest on the adjustments used to arrive at underlying income , a non-gaap measure , is calculated based on our ownership percentage of our subsidiaries from which each adjustment arises . this adjustment relates to the goodwill impairment charge in our mc si'hai joint venture , for which we subsequently sold our ownership interest in 2013 . ( 8 ) the effect of taxes on the adjustments used to arrive at underlying net income , a non-gaap measure , is calculated based on applying the underlying full-year effective tax rate to underlying earnings , excluding special and non-core items . the effect of taxes on special and non-core items is calculated based on the statutory tax rate applicable to the item being adjusted for in the jurisdiction from which each adjustment arises . additionally , the adjustment for 2014 includes an income tax benefit of $ 16.2 million recognized in the first quarter of 2014 related to the release of an 34 income tax reserve recorded in conjunction with the initial purchase accounting for the acquisition and is related to the settlement of certain local country regulatory matters associated with pre-acquisition periods . the following table highlights summarized components of our consolidated statements of operations for the years ended december 31 , 2014 , december 31 , 2013 , and december 29 , 2012 , and provides a reconciliation of `` underlying ebitda '' , a non-gaap measure , to its nearest u.s. gaap measure . see part ii-item 8 financial statements and supplementary data , “ consolidated statements of operations ” for additional details of our u.s. gaap results . replace_table_token_14_th n/m = not meaningful ( 1 ) includes adjustments to non-gaap underlying income within the table above related to special and non-core items . ( 2 ) represents adjustments to remove amounts related to interest , depreciation and amortization included in the adjustments to non-gaap underlying income above , as these items are added back as adjustments to net income attributable to mcbc from continuing operations . ( 3 ) adjustments to our equity income from millercoors , which include our proportionate share of millercoors ' interest , income tax , depreciation and amortization , special items , and amortization of the difference between the mcbc contributed cost basis and proportionate share of the underlying equity in net assets of millercoors . worldwide beer volume worldwide beer volume ( including adjacencies , such as cider ) is composed of our financial volume , royalty volume and proportionate share of equity investment str . financial volume represents owned beer brands sold to unrelated external customers within our geographical markets , net of returns and allowances .
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core brand highlights : carling , the number one beer brand in the u.k. and the largest brand in our europe segment , declined slightly in terms of volume in the year , primarily due to the after-effects of some aggressive world cup competitor pricing during the second and third quarters of 2014. coors light global volume ( including our proportional percentage of millercoors ' coors light volumes ) increased 1.9 % versus 2013. coors light grew volume more than 20 % in the u.k. , where it is now our second largest brand , and it is growing even faster in our latin american markets . due to continued competitive and industry pressures , coors light declined in canada and the u.s. molson canadian in canada decreased slightly in terms of volume and market share in 2014 , but held share in its segment and had stronger 2014 activations , as well as strong net sales per hectoliter growth . staropramen volume decreased overall in 2014 versus 2013 , mainly driven by overall industry declines and challenges in czech republic , staropramen 's primary market , as well as declines in our international markets of russia and ukraine , as a result of political and economic instability . despite severe flooding in central europe this year , above premium staropramen ( outside of czech republic ) grew volume and share in the region and achieved growth in certain international markets . 32 the following table highlights summarized components of our consolidated statements of operations for the years ended december 31 , 2014 , december 31 , 2013 , and december 29 , 2012 , and provides a reconciliation of `` underlying income '' , a non-gaap measure , to its nearest u.s. gaap measure . see part ii-item 8 financial statements and supplementary data , “ consolidated statements of operations ” for additional details of our u.s. gaap results .
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story_separator_special_tag the following discussion and analysis should be read in conjunction with the audited consolidated financial statements and unaudited consolidated interim financial statements , together in each case with the related notes , included elsewhere in this report . this discussion and analysis contains , in addition to historical information , forward-looking statements that include risks and uncertainties . our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors , including those set forth under the heading risk factors and elsewhere in this report . overview we are a korea-based designer and manufacturer of analog and mixed-signal semiconductor products for consumer , computing , communication , industrial , automotive and iot applications . we provide technology platforms for analog , mixed-signal , power , high voltage , non-volatile memory , and rf applications . we have a proven record with a 30-year operating history , large portfolio of 2,198 registered novel patents and 166 pending novel patent applications and extensive engineering and manufacturing process expertise . we had previously reported our results of operations under one operating segment . during the second quarter of 2015 , organizational changes were made to ( i ) realign our businesses and organizational structure and ( ii ) streamline and consolidate certain business processes to achieve greater operating efficiencies . in furtherance of these objectives , we combined our display solutions and power solutions business lines into a new segment called standard products group . beginning in the second quarter of 2015 , we report our financial results in two operating segments : semiconductor manufacturing services and standard products group . all prior period amounts related to the segment change have been retrospectively reclassified to conform to the new presentation . beginning in the third quarter of 2015 , we changed the name of our semiconductor manufacturing services segment to foundry services group . we believe that this new name provides greater clarity on the identity of this segment . there is no change to the composition of this reportable segment from what we previously reported for the semiconductor manufacturing services segment . our foundry services group provides specialty analog and mixed-signal foundry services mainly for fabless and idm semiconductor companies that primarily serve consumer , computing , communication , industrial , automotive and iot applications . our standard products group includes our display solutions and power solutions business lines . our display solutions products provide flat panel display solutions to major suppliers of large and small flat panel displays and include our sensor products for mobile applications , industrial applications and home appliances . our power solutions products include discrete and integrated circuit solutions for power management in consumer , computing , communication and industrial applications . our wide variety of analog and mixed-signal semiconductor products and manufacturing services combined with our mature technology platform allow us to address multiple high-growth end markets and to rapidly develop and introduce new products and services in response to market demands . our design center and substantial manufacturing operations in korea place us at the core of the global electronics device supply chain . we believe this enables us to quickly and efficiently respond to our customers ' needs and allows us to better serve and capture additional demand from existing and new customers . to maintain and increase our profitability , we must accurately forecast trends in demand for electronics devices that incorporate semiconductor products we produce . we must understand our customers ' needs as well as the likely end market trends and demand in the markets they serve . we must balance the likely manufacturing utilization demand of our product businesses and foundry business to optimize our capacity utilization . we must also invest in relevant research and development activities and manufacturing capacity and purchase necessary materials on a timely basis to meet our customers ' demand while maintaining our target margins and cash flow . 47 the semiconductor markets in which we participate are highly competitive . the prices of our products tend to decrease regularly over their useful lives , and such price decreases can be significant as new generations of products are introduced by us or our competitors . we strive to offset the impact of declining selling prices for existing products through cost reductions and the introduction of new products that command selling prices above the average selling price of our existing products . in addition , we seek to manage our inventories and manufacturing capacity so as to mitigate the risk of losses from product obsolescence . demand for our products and services is driven by overall demand for consumer , computing , communication , industrial , automotive and iot products and can be adversely affected by periods of weak consumer and enterprise spending or by market share losses by our customers . in order to mitigate the impact of market volatility on our business , we are diversifying our portfolio of products , customers , and target applications . we also expect that new competitors will emerge in these markets that may place increased pressure on the pricing for our products and services . while we believe we are well positioned competitively to compete in these markets and against these new competitors as a result of our long operating history , existing manufacturing capacity and our korea-based operations , if we are not effective in competing in these markets our operating results may be adversely affected . within our foundry services group , net sales are driven by customers ' decisions on which manufacturing services provider to use for a particular product . most of our foundry services group customers are fabless , while some are idm customers . a customer will often have more than one supplier of manufacturing services . story_separator_special_tag we paid approximately $ 8 million for severance benefits , which are required by law and had already been fully accrued in our financial statements , in a lump sum during the second quarter of 2016. beginning in may 2016 , we also began to pay a portion of the $ 4.2 million in aggregate other termination benefits under the program , which are being paid in equal monthly installments over twelve months . we recorded the $ 4.2 million charge related to the full amount of these other termination benefits payable under the program during the second quarter of 2016. as of december 21 , 2016 , we entered into a purchase and sale agreement to sell a building located in cheongju , south korea . the building has historically been used to house the 6-inch fab and became vacant upon the closure of the fabrication facility . as of december 31 , 2015 , the building was fully impaired . we received proceeds of $ 18.2 million , including a $ 1.7 million value-added tax , for the sale of the building on december 26 , 2016. we are obligated to perform certain removal construction work that is expected to be completed by the end of march 2017. accordingly , we recorded $ 18.2 million as restricted cash in our consolidated balance sheets as of december 31 , 2016 . 49 restatement in january 2014 , our audit committee commenced an independent investigation that resulted in the restatement of certain financial statements for prior periods . as a result of the restatement , we have incurred substantial external accounting , legal and other related costs associated with the restatement and certain litigation and other regulatory investigations and actions related thereto . we incurred restatement related costs of $ 7.0 million , primarily attributable to certain litigation , for the year ended december 31 , 2016 , compared to $ 12.4 million and $ 40.9 million for the years ended december 31 , 2015 and 2014 , respectively . on december 10 , 2015 , we entered into a memorandum of understanding with the plaintiffs ' representatives to settle the class action litigation , as defined and detailed in item 3. legal proceedings in this report , for an aggregate settlement payment of $ 23.5 million . this settlement payment was fully funded by insurance proceeds that were received in the first quarter of 2016 and disbursed from the escrow account , previously recorded as restricted cash , in the third quarter of 2016. on january 22 , 2016 , we entered into a stipulation of settlement with the plaintiffs in the shareholder derivative actions , as described in item 3. legal proceedings in this report , for an aggregate payment of $ 3.0 million from our insurance proceeds that were received in the first quarter of 2016 and recorded in the escrow account . in october 2016 , the court approved the settlement of the shareholder derivative actions for $ 3.0 million , which included $ 0.75 million awarded to plaintiffs ' counsel . upon the expiration of the appeals period , $ 2.25 million was disbursed from the escrow account , previously recorded as restricted cash , in december 2016. the remaining restricted cash related to insurance proceeds of $ 3.1 million was also released in december 2016. segments we report our financial results in two operating segments : foundry services group and standard products group . we identified these segments based on how we allocate resources and assess our performance . foundry services group : our foundry services group provides specialty analog and mixed-signal foundry services to fabless semiconductor companies and idms that serve consumer , computing , communication , industrial , automotive and iot applications . we manufacture wafers based on our customers ' product designs . we do not market these products directly to end customers but rather supply manufactured wafers and products to our customers to market to their end customers . we offer approximately 466 process flows to our foundry services customers . we also often partner with key customers to jointly develop or customize specialized processes that enable our customers to improve their products and allow us to develop unique manufacturing expertise . our foundry services target customers who require differentiated , specialty analog and mixed-signal process technologies such as high voltage complementary metal-oxide-semiconductor ( cmos ) , non-volatile memory or bipolar-cmos-dmos ( bcd ) . these customers typically serve the consumer , computing , communication , industrial , automotive and iot applications . our foundry services group business represented 39.8 % , 45.9 % and 51.6 % of our net sales for the fiscal years ended december 31 , 2016 , 2015 and 2014 , respectively . gross profit from our foundry services group business was $ 69.4 million , $ 66.2 million and $ 75.7 million for the fiscal years ended december 31 , 2016 , 2015 and 2014 , respectively . standard products group : our standard products group includes our display solutions and power solutions business lines . our display solutions products include source and gate drivers and timing controllers that cover a wide range of flat panel displays used in ultra high definition ( uhd ) , high definition ( hd ) , light emitting diode ( led ) , 3d and oled televisions and displays , notebooks and mobile communications and entertainment devices . our display solutions products support the industry 's most advanced display technologies , such as active matrix organic light emitting diodes ( amoleds ) , and low temperature polysilicons ( ltps ) , as well as high-volume display technologies such as thin film transistors ( tft ) . since 2007 , we have designed and manufactured amoled display driver ic products . our current portfolio of amoled solutions address a wide range of resolutions ranging from hd to wide quad high 50 definition ( wqhd ) for applications including smartphones , tvs , and other mobile devices .
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results by segment replace_table_token_9_th 60 net sales net sales were $ 688.0 million for the year ended december 31 , 2016 , a $ 54.3 million , or 8.6 % , increase compared to $ 633.7 million for the year ended december 31 , 2015. this increase was primarily attributable to an increase in revenue related to mobile amoled display products from our standard products group , which was offset in part by a net decrease in revenue from our foundry services group as described below . foundry services group . net sales from our foundry services group segment were $ 274.0 million for the year ended december 31 , 2016 , a $ 16.8 million , or 5.8 % , decrease compared to net sales of $ 290.8 million for the year ended december 31 , 2015. the decrease was primarily attributable to a net decline in sales due to the closure of our 6-inch fab in february 2016 and a decrease caused by reduced levels of demand of our foundry services from certain customers serving the high-end and mid-range smartphone markets . these decreases were partially offset by an increase in sales of certain products from new global power management ic foundry customers and an increase in sales of certain products from fingerprint ic and micro controller unit customers . standard products group . net sales from our standard products group segment were $ 413.4 million for the year ended december 31 , 2016 , a $ 71.1 million , or 20.8 % , increase compared to $ 342.3 million for the year ended december 31 , 2015. this substantial increase was primarily due to a significant increase in revenue related to our display solutions business line , partially offset by decrease in revenue related to our power solutions business line as described below .
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impact of the global economic developments although our net revenue and earnings per share both increased in fiscal 2011 , we believe that the credit market crisis , slow economic recovery in the united states , and other challenges affecting global economic conditions placed significant limitations on our financial performance during fiscal 2011 . sales in the united states and some european countries were most impacted as a result of the soft global economy and the global credit crisis in the financial market and certain european countries , while sales in asia were only minimally impacted by global economic developments and grew during the period . we believe that limited access to credit , conservative purchasing patterns and delays or cancellation of it infrastructure plans in the face of continued uncertainty regarding the global economy , may continue to negatively impact overall demand for networking solutions , including ethernet equipment . we have taken and plan to continue to take other steps to manage our business in the current economic environment . for example , we have managed from time to time our contingent work force , scheduled shutdown weeks , reduced travel and other discretionary spending , realigned our product portfolio and organization to grow revenue and operating income , and controlled all hiring activities . increasing demand for bandwidth we believe that the continued increase in demand for bandwidth will over time drive future demand for high performance ethernet solutions . wide-spread adoption of electronic communications in all aspects of our lives , proliferation of next generation converged mobile devices and deployment of triple-play services to residences and businesses alike , continues to generate demand for greater network performance across broader geographic locations . in parallel to these transformational forces within society and the community at large , the accelerating adoption of internet and intranet “ cloud ” solutions within business enterprises is enabling organizations to offer greater business scalability to improve efficiency and through more effective operations , improve profitability . in order to realize the benefits of these developments , customers require additional bandwidth and high performance from their network infrastructure at affordable prices . we are seeing the initial indications that the ethernet segment of the networking equipment market will return to growth as enterprise , data center and carrier customers continue to recognize the performance and operating cost benefits of ethernet technology . expanding product portfolio we believe that continued success in our marketplace is dependent upon a variety of factors that includes , but is not limited to , our ability to design , develop and distribute new and enhanced products employing leading-edge technology . during fiscal 2011 , we further extended our ethernet product portfolio through the addition of the summit x460 for gigabit aggregation with port density and high-performance stacking technology and next release of the extremexos modular operating system , release 12.5.1. in the next fiscal year , we expect to offer the blackdiamond bd-x , a highly-scalable core switch for it and cloud data centers , the summit x670 for data center top-of-rack deployments , the e4g cell site router family for mobile backhaul , and a revamp of our ridgeline network management platform industry developments the market for network infrastructure equipment is highly competitive and dominated by a few large companies . the current economic climate has further driven consolidation of vendors within the ethernet networking market and with vendors from adjacent markets , including storage , security , wireless and voice applications . we believe that the underpinning technology for all of these adjacent markets is ethernet . as a result , independent ethernet switch vendors are being acquired or merged with larger , adjacent market vendors to enable them to deliver complete and broad solutions . as an independent ethernet switch vendor , we must provide products that , when combined with the products of our large strategic partners , create compelling solutions for end user customers . our approach is to focus on the intelligence and automation layer that spans our hardware products and that facilitates end-to-end solutions , as opposed to positioning extreme networks as a low-cost-vendor 27 with point products . lower overall market growth has also created an environment of declining margins due to increased competition between the remaining vendors in this space . during the last year , overall ethernet port counts have grown , while industry revenues have decreased , signaling a decline in average selling price . our lifecycle product and operational cost reduction efforts are therefore even more critical for margin preservation . realignment of corporate strategies in fiscal 2011 , we commenced a strategy to focus on growing revenue in specific market verticals and on improving operational effectiveness . in the second half of fiscal 2011 , we took the following actions - standardized our product chipsets to improve engineering productivity and reduce time to market for new products , reduced worldwide employee headcount by 139 , announced the end of sale some of the products in our metro ethernet product line , and commenced initial products shipments from our hong kong distribution center . we recognized a charge of $ 6.4 million in the third quarter of fiscal 2011 , which comprises of $ 1.0 million restructuring charge for cash severance and $ 5.4 million for the write-down of assets and test equipment and exit costs related to the end of sale products . we recognized an additional $ 3.2 million restructuring charge for cash severance in the fourth quarter of fiscal 2011. we anticipate recognizing another $ 0.3 million in early fiscal 2012 related to the transition of certain employees impacted by the headcount reduction . in addition , as a measure of progress , we are currently reporting on a quarterly basis the total percentage of revenue from our target vertical markets using a 4 quarter historical rolling average . story_separator_special_tag general and administrative expenses decreased in fiscal 2010 as compared to fiscal 2009 primarily due to lower professional fees of $ 2.9 million and lower salaries and benefits expense of $ 1.4 million due to lower headcount , offset by an increase in share-based compensation expense of $ 0.9 million . restructuring charge , net of reversal during fiscal 2011 , 2010 and 2009 , we recorded restructuring charges of $ 3.8 million , $ 4.2 million , and $ 2.2 million , respectively . in fiscal 2011 , we commenced a strategy to focus on growing revenue in specific market verticals and on improving operational effectiveness . as part of the strategy , we reduced headcount by 139 and incurred total restructuring charges of $ 4.2 million , of which $ 1.0 million and $ 3.2 million were recognized in the third and fourth quarter of fiscal 2011 , respectively . we anticipate recognizing another $ 0.3 million in early fiscal 2012 related to the transition of certain employees impacted by the headcount reduction . during the fourth quarter of fiscal 2011 , the lease term for the excess leased facilities ended . we recognized a restructuring reversal of $ 0.4 million related to the true up of operating and rent expenses . charges in fiscal 2010 were : $ 4.6 million related to a restructuring of the organization from a business unit organization to a functional organization . in connection with the restructuring , we had a reduction in force ( `` rif '' ) and terminated 8 % of our workforce . total termination benefits were $ 4.1 million . the rif was executed and completed in the second quarter of fiscal 2010. in addition , we eliminated certain redundant engineering projects in conjunction with the reorganization . we incurred $ 0.5 million related to the discontinued engineering projects . $ 0.2 million increase in facilities operating expenses related to one of our restructured facilities . $ 0.5 million reversal of restructuring expense due to higher projected sublease receipt from a sublease renewal arrangement . $ 0.1 million reversal of restructuring expense related to the settlement of employment termination benefits incurred in the third fiscal quarter of 2009. charges in fiscal 2009 were : $ 0.8 million related to our termination of 1 % of our workforce , exiting a leased facility where the terminated employees worked and the write-off of impaired assets as part of our strategic plan . this restructuring was completed by the end of the third quarter of fiscal 2009 . $ 1.9 million related to a rif of a further 5 % of our workforce to reduce operating costs and realign our organization in the current competitive operating environment . the rif was executed in the third quarter of fiscal 2009 and was completed by the end of the fourth quarter of fiscal 2009. these charges were offset by a reversal of $ 0.5 million of restructuring expense due to higher than projected sublease receipt from a sublease renewal arrangement . litigation settlement on october 20 , 2010 , we settled a lawsuit related to certain real property leases it entered into in june 2000. total settlement award was $ 5.0 million , of which $ 3.8 million was paid in the second quarter of fiscal 2011 , $ 0.3 million was paid in the third quarter of fiscal 2011 , and $ 0.2 million was paid in the fourth quarter of fiscal 2011. certain payments have become delinquent from one of the defendants , and we expect the remaining amounts will be paid in fiscal 2012. on april 8 2011 , we filed a stipulation of settlement in the consolidated shareholder derivative actions entitled in re extreme networks , inc. , shareholder derivative litigation . as part of the settlement , and if the settlement is ultimately accepted by the court , we have agreed to pay the plaintiff 's counsel for their service in the action in the amount of $ 3.5 million , of which $ 2.7 million will be reimbursed to us by our directors and officer insurer . we recorded a $ 3.5 million payable and $ 2.7 million receivable on the balance sheet in the second quarter of fiscal 2011. in addition , we recorded a net expense of $ 0.8 million in the consolidated statement of operations for fiscal 2011 under litigation settlement . on july 15 , 2011 , a final order and judgment was made in the shareholder derivative lawsuit , whereby we agreed to pay a settlement of $ 3.5 million to the plaintiffs which was paid on july 27 , 2011. on august 24 , 2011 , we were reimbursed $ 2.7 million from our directors and officers insurer . interest income 32 interest income was $ 1.3 million in fiscal 2011 , $ 1.5 million in fiscal 2010 and $ 3.4 million in fiscal 2009 , representing a decrease of $ 0.2 million in fiscal 2011 from fiscal 2010 , and a decrease of $ 1.9 million in fiscal 2010 from fiscal 2009 . the decrease in interest income in fiscal 2011 from fiscal 2010 was due to a decrease in the average interest yield from 1.6 % in fiscal 2010 to 1.2 % in fiscal 2011. the decrease in interest income in fiscal 2010 from fiscal 2009 was due to a decrease in average funds available for investment and a decline in average interest yield from 2.4 % in fiscal 2009 to 1.6 % in fiscal 2010. interest expense interest expense was $ 0.1 million for each fiscal year 2011 , 2010 and 2009 . interest expense in fiscal 2011 and fiscal 2010 were primarily related to interest amortization of technology agreements .
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results of operations fiscal 2011 had 53 weeks , compared with 52 weeks in fiscal 2010 and fiscal 2009 , and we believe that this extra week may have had a positive impact on our sales . however , we are not able to quantify the effect of the slightly longer year on our operating results . our operations and financial performance have been affected by the economic factors described above , and during fiscal 2011 , we achieved the following results : net revenue of $ 334.4 million , an increase of 8 % over fiscal 2010 net revenue of $ 309.4 million . product revenue of $ 274.4 million , an increase of 10 % from fiscal 2010 product revenue of $ 249.0 million . service revenue of $ 60.0 million , in-line with fiscal 2010 service revenue of $ 60.3 million total gross margin was 53.8 % of net revenue in fiscal 2011 ( including share-based compensation expense of $ 0.7 million ) , compared to 57.1 % in fiscal 2010 ( including share-based compensation expense of $ 1.0 million ) . net income was $ 2.7 million in fiscal 2011 ( including share-based compensation expense of $ 5.2 million , restructuring charge of $ 3.8 million and litigation settlement of $ 4.2 million ) , an increase from net income of $ 0.2 million in fiscal 2010 ( including share-based compensation expense of $ 6.2 million and restructuring charge of $ 4.2 million and litigation settlement of $ 1.0 million ) . cash flow provided by operating activities was $ 16.8 million , compared to cash flow provided by operating activities of $ 10.9 million in fiscal 2010 , an increase of $ 5.8 million . cash and cash equivalents , short-term investments and marketable securities were $ 147.0 million as of july 3 , 2011 , an increase of $ 11.6 million , primarily due to cash provided by operating activities .
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a valuation allowance is applied against any net deferred tax asset if , based on the available evidence , it is more likely than not that some or all of the deferred tax assets will not be realized . financial transaction expenses issuance costs incurred to complete the company 's convertible senior subordinated note offerings and story_separator_special_tag overview we are in the business of discovering , developing , manufacturing and commercializing small molecule drugs for the treatment of serious diseases . our two products are incivek ( telaprevir ) , which is approved in the united states and canada for the treatment of adults with genotype 1 hepatitis c virus , or hcv , infection , and kalydeco ( ivacaftor ) , which is approved in the united states for the treatment of patients six years of age or older with cystic fibrosis , or cf , who have a specific genetic mutation that is referred to as the g551d mutation . we began marketing incivek in the united states in may 2011. our collaborator , janssen pharmaceutica , n.v. , or janssen , began marketing telaprevir in its territories under the brand name incivo in september 2011. our collaborator , mitsubishi tanabe pharma corporation , or mitsubishi tanabe , obtained marketing approval for telaprevir from the japanese ministry of health , labor and welfare in september 2011. we began marketing kalydeco in the united states in january 2012 , and we expect to obtain approval to market ivacaftor in the european union later in 2012. we generated earnings as a cashflow positive company in the second half of 2011 after experiencing significant losses in 2009 , 2010 and the first half of 2011. in the second half of 2011 , we had net income attributable to us of $ 379.7 million and our cash , cash equivalents and marketable securities increased by $ 375.4 million . we recognized net product revenues on sales of incivek of $ 419.6 million and $ 456.8 million , respectively , in the third and fourth quarters of 2011. we began recognizing royalty revenues from commercial sales of incivo by janssen in september 2011 , and we will begin to recognize revenues from sales of kalydeco in the first quarter of 2012. in order to maintain profitability and continue our strategic investment in research and development activities , we will need to continue to generate significant revenues in future periods . we have ongoing clinical programs involving drug candidates intended for the treatment of hcv infection , cf , rheumatoid arthritis , epilepsy and influenza . our hcv clinical programs are focused on developing all-oral , interferon-free combinations of hcv drugs and drug candidates that have the potential to further improve treatment options available to patients with hcv infection . in our cf program , we are investigating the use of ivacaftor as a monotherapy in additional populations of patients with cf and combinations of ivacaftor and our other cf drug candidates , with the goal of expanding the group of patients with cf who can benefit from our medicines . we believe that our longer-term success will depend on our ability to continue to generate and develop innovative compounds for the treatment of serious diseases . as a result , we expect to continue investing in research programs directed toward the identification of new drug candidates and to develop and commercialize selected drug candidates that emerge from those programs , alone or with third-party collaborators . commercialization and competition we believe that by focusing on serious diseases and innovative drugs that have the potential to provide significant advantages over existing therapies , we can increase the likelihood that our drug candidates , if approved , will be commercially successful . our marketing efforts for incivek in the united states have focused on establishing an effective sales force and managed markets organization to promote incivek to health care providers and payors ; implementing appropriate marketing , distribution and pricing strategies ; and maintaining appropriate and sustained levels of incivek inventory . we believe that initial sales of incivek have confirmed its commercially competitive profile , and to date a significant group of patients with genotype 1 hcv infection have sought treatment with an incivek-based treatment regimen . we and janssen are competing with merck & co. , inc. 's victrelis ( boceprevir ) , another hcv protease inhibitor that was approved for sale in the united 58 states and europe in 2011. in the united states , we believe over 25,000 patients were treated with incivek in 2011. we believe that sales of incivek will be subject to some seasonal fluctuations as , for example , historically fewer patients have started treatment for hcv infection during late november and december than during other periods of the year . however , the sales of drugs that obtain initial market acceptance may decline for a variety of reasons , including increased competition from currently approved competitive drugs , the introduction of new competitive drugs , adverse information regarding the safety characteristics or efficacy of the drug or significant new information regarding potential future treatment regimens that are being evaluated in clinical trials . we , along with a number of competitors , are pursuing development programs involving all-oral combinations of hcv drugs and drug candidates with the goal of developing improved treatment regimens for hcv infection that could render the current treatments , which include the administration of pegylated-interferon , or peg-ifn , by injection , noncompetive . in particular , each of bristol-myers squibb company and gilead sciences , inc. is actively pursuing all-oral treatment regimens for hcv infection that would include an hcv nucleotide analogue and bristol-myers squibb and medivir ab are evaluating a combination of an hcv protease inhibitor and an hcv ns5a inhibitor . to date , potential all-oral treatment regimens have been evaluated in phase 2 clinical trials involving relatively small numbers of patients . story_separator_special_tag regulatory compliance our marketing of pharmaceutical products , which began in may 2011 , is subject to extensive and complex laws and regulations . we have a corporate compliance program designed to actively identify , prevent and mitigate risk through the implementation of compliance policies and systems and the promotion of a culture of compliance . among other laws , regulations and standards , we are subject to various federal and state laws pertaining to health care fraud and abuse , including anti-kickback and false claims statutes , and laws prohibiting the promotion of drugs for unapproved , or off-label , uses . anti-kickback laws make it illegal for a prescription drug manufacturer to solicit , offer , receive or pay any remuneration in exchange for , or to induce , the referral of business , including the purchase or prescription of a particular drug . false claims laws prohibit anyone from presenting for payment to third-party payors , including medicare and medicaid , claims for reimbursed drugs or services that are false or fraudulent , claims for items or services not provided as claimed or claims for medically unnecessary items or services . we expect to continue to devote substantial resources to maintain , administer and expand these compliance programs globally . 60 story_separator_special_tag style= '' padding:0pt ; position : relative ; width:62 % ; margin-left:10 % ; '' > replace_table_token_14_th our research and development expenses include internal and external costs incurred for research and development of our drugs and drug candidates . we do not assign our internal costs , such as salary and benefits , stock-based compensation expense , laboratory supplies and infrastructure costs , to individual drugs or drug candidates , because the employees within our research and development groups typically are deployed across multiple research and development programs . these internal costs are significantly greater than our external costs , such as the costs of services provided to us by clinical 63 research organizations and other outsourced research , which we do allocate by individual program . all research and development costs for our drugs and drug candidates are expensed as incurred . to date , we have incurred in excess of $ 4.7 billion in research and development expenses associated with drug discovery and development . the successful development of our drug candidates is highly uncertain and subject to a number of risks . in addition , the duration of clinical trials may vary substantially according to the type , complexity and novelty of the drug candidate and the disease indication being targeted . the fda and comparable agencies in foreign countries impose substantial requirements on the introduction of therapeutic pharmaceutical products , typically requiring lengthy and detailed laboratory and clinical testing procedures , sampling activities and other costly and time-consuming procedures . data obtained from nonclinical and clinical activities at any step in the testing process may be adverse and lead to discontinuation or redirection of development activities . data obtained from these activities also are susceptible to varying interpretations , which could delay , limit or prevent regulatory approval . the duration and cost of discovery , nonclinical studies and clinical trials may vary significantly over the life of a project and are difficult to predict . therefore , accurate and meaningful estimates of the ultimate costs to bring our drug candidates to market are not available . over the three year period ended december 31 , 2011 , costs related to telaprevir have represented the largest portion of our development costs . we expect to continue to incur development costs related to the conduct of additional clinical trials to support potential supplemental applications for telaprevir and ivacaftor . our drug candidates are still in early and mid-stage clinical development and , as a result , any estimates regarding development and regulatory timelines for these drug candidates are highly subjective and subject to change . we can not make a meaningful estimate when , if ever , these drug candidates , including vx-222 and those we in-licensed from alios biopharma , inc. , or alios , will generate revenues and cash flows . research expenses replace_table_token_15_th over the past three years we have maintained a substantial investment in research activities resulting in a 15 % increase in research expenses in 2011 as compared to 2010 and a 9 % increase in research expenses in 2010 as compared to 2009. we expect to continue to invest in our research programs in an effort to identify additional drug candidates . 64 development expenses replace_table_token_16_th our total development expenses have been affected by the variable level of drug supply costs , which include costs of raw materials and work in process that are incurred before we begin capitalizing inventories for a drug candidate and costs of manufacturing services that we provided our collaborators through our third-party manufacturing network . with the approval of incivek and kalydeco , we expect drug supply costs to decrease significantly in 2012 because we began capitalizing telaprevir drug supply costs in 2011 and expect to capitalize ivacaftor drug supply costs in 2012. our development expenses , excluding our drug supply costs , increased by $ 74.4 million , or 19 % , in , 2011 as compared to 2010 and by $ 27.8 million , or 8 % , in 2010 compared to 2009 , principally due to increases in headcount and the expansion of our development efforts as we completed the registration program for telaprevir and ivacaftor , prepared the regulatory filings needed to obtain approval for these products and continued the development of our other drug candidates . we expect our development expenses to increase in 2012 as compared to 2011 because of additional clinical trials we expect to conduct to evaluate all-oral treatment regimens for hcv infection , kalydeco , both as monotherapy and in combination with vx-809 and vx-661 , vx-509 , vx-765 and vx-787 , and post-marketing commitment clinical trials of incivek .
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results of operations replace_table_token_10_th net income ( loss ) attributable to vertex in 2011 , we had net income attributable to vertex of $ 29.6 million . our increased revenues in 2011 as compared to 2010 were the result of $ 950.9 million of incivek net product revenues and $ 318.5 million in collaborative milestone revenues for which there were no comparable revenues in 2010. our increased revenues were partially offset by increased operating costs and expenses in 2011 as compared to 2010. the $ 457.4 million increase in operating costs and expenses in 2011 as compared to 2010 was principally attributable to a $ 212.9 million increase in sales , general and administrative expenses , a $ 63.6 million increase in cost of product revenues and a $ 105.8 million impairment charge that we incurred in the third quarter of 2011 for vx-759 , a back-up non-nucleoside hcv polymerase inhibitor . the increased net loss in 2010 as compared to 2009 was the result of significant increases in our costs and expenses , partially offset by an increase in our revenues . the increase in our operating costs and expenses during 2010 as compared to 2009 was primarily due to increased expenses for our commercial organization and increased investment in commercial supplies of telaprevir . our operating costs and expenses in 2011 , 2010 and 2009 included $ 118.2 million , $ 91.1 million and $ 86.7 million , respectively , of stock-based compensation expense .
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factors that could cause or contribute to these differences include those discussed below and elsewhere in this annual report on form 10-k , particularly in “ risk factors. ” overview we are one of the largest providers of hydraulic fracturing services in north america . our services enhance hydrocarbon flow from oil and natural gas wells drilled by exploration and production companies in shale and other unconventional resource formations . we have 1.7 million total hydraulic horsepower across 34 fleets , with 19 fleets active and one fleet under construction and awaiting final assembly as of december 31 , 2018. our customers include leading exploration and production companies that extract oil and natural gas resources in north america . we operate in five of the most active major basins in the united states : the permian basin , the scoop/stack formation , the marcellus/utica shale , the eagle ford shale and the haynesville shale . substantially all of our business activities support our well completion services . story_separator_special_tag style= '' margin:0pt 0pt 12pt ; text-indent:36pt ; font-family : times new roman , times , serif ; font-weight : bold ; font-style : italic ; font-size : 10pt ; '' > other significant developments in 2018 · in february 2018 , we completed an ipo of 22.4 million shares of common stock of which 18.1 million shares were sold by the company . the company received net proceeds from the offering of $ 303.0 million , and we used the net proceeds from the offering for general corporate purposes , primarily debt repayments . · in february 2018 , we entered into a $ 250 million asset-based revolving credit facility to increase our available liquidity . results of operations revenue the company contracts with its customers to perform hydraulic fracturing services and wireline services on one or more oil or natural gas wells . under these arrangements , we satisfy our performance obligations as services are rendered , which is generally upon the completion of a fracturing stage . we typically complete one or more stages per day . the price for our services typically includes an equipment charge and , if applicable , product charges for proppant , chemicals and other products actually consumed during the course of providing our services . the following table includes certain operating statistics that affect our revenue : replace_table_token_5_th ( 1 ) active fleets is the average number of fleets operating during the period . we had 19 , 27 and 17 active fleets at december 31 , 2018 , 2017 and 2016 , respectively . ( 2 ) total fleets is the total number of fleets owned during the period . in 2018 , we had one fleet under construction and awaiting final assembly . total revenue in 2018 increased by $ 77.2 million from 2017. this increase was primarily due to higher average pricing for our services in 2018 compared to 2017. pricing for our services increased in each quarter of 2017 and the first quarter of 2018 , but decreased for the remaining quarters of 2018. the increased average pricing of our services during 36 2018 was partially offset by an increase in the portion of customers who provided their own proppant and a decrease in the cost of materials used in the fracturing process during 2018. the average number of active fleets operating during all of 2018 increased slightly from 2017. the number of fracturing stages completed per average active fleet in 2018 decreased by 5 % from 2017. this decrease was primarily due to a high level of utilization in the second and early third quarters of 2017 , which was driven by a significant shortage of active hydraulic fracturing equipment in the market . at december 31 , 2018 , we evaluated all of our idle fleets and concluded that each of these fleets is available to return to service after our maintenance personnel make any necessary repairs and confirm that the equipment is in operating condition . the decrease in revenue from related parties in 2018 was due to a decrease in services performed for chesapeake . total revenue in 2017 increased by $ 933.9 million from 2016. this increase was primarily due to an increase in the number of stages completed and an increase in the prices for our services in 2017 , both of which were driven by increased customer demand . the number of active fleets operating during 2017 increased by an average of 7.7 fleets from 2016 , due to increased customer demand . the number of fracturing stages completed per average active fleet in 2017 increased by 28 % from 2016. this increase was due to higher levels of utilization in 2017 as we recovered from the 2016 industry downturn . the increase in revenue from related parties in 2017 was due to an increase in the services performed for chesapeake . costs of revenue the primary costs involved in conducting our hydraulic fracturing services are costs for materials used in the fracturing process and costs to operate , maintain , and repair our fracturing equipment . costs related to the materials used in the fracturing process typically include costs for sand and other proppants , costs for chemicals added to the fracturing fluid , and freight costs to transport these materials to the well location . costs to operate our fracturing equipment primarily consist of labor and fuel costs . while we exclude certain amounts of depreciation and amortization from our costs of revenue line item , we have included the amounts of depreciation that specifically relate to our revenue generating assets in our discussion below to provide further information regarding the total costs of generating our revenues . costs of revenue as a percentage of total revenue is as follows : replace_table_token_6_th total costs of revenue in 2018 increased by $ 23.7 million from 2017. this increase was primarily due to an increase in our costs of revenue , excluding depreciation . costs of revenue , excluding depreciation , in 2018 increased by $ 23.4 million from 2017. story_separator_special_tag while we have successfully worked with our vendors to minimize charges related to these purchase commitments in the past , if we do not meet the minimum purchase commitments in the future and we are unable to adjust or avoid our contracted amounts , we may incur additional supply commitment charges in future periods . impairment of assets : during 2016 , we recorded asset impairments of $ 7.0 million related to service equipment and real property that we no longer use and identified to sell . lease abandonment charges : during 2016 , we vacated certain leased facilities to consolidate our operations . in 2017 and 2016 , we recognized expense of $ 0.6 million and $ 2.0 million , respectively , in connection with these actions . employee severance costs : during 2016 , we incurred employee severance costs of $ 0.8 million in connection with our corporate and operating restructuring initiatives . at december 31 , 2016 , we had paid substantially all severance payments owed to former employees . loss on disposal of assets , net during 2017 and 2016 , we sold a number of surplus pieces of property and equipment . in 2017 , we received $ 4.1 million of proceeds and recognized a $ 1.4 million net gain on the sale of these assets . in 2016 , we received $ 23.5 39 million of proceeds and recognized a $ 1.3 million net loss on the sale of these assets . in february 2016 , we sold substantially all of our remaining sand transportation equipment and related inventory . we received $ 8.0 million of proceeds and recognized a $ 0.3 million gain on this sale . gain on insurance recoveries in january 2017 , a fire destroyed certain equipment in one of our fleets . these assets were insured at values greater than their carrying values . we received $ 4.2 million of insurance recovery proceeds for these assets , which exceeded their carrying values by $ 2.9 million . in january 2016 , a fire at one of our job sites in oklahoma destroyed substantially all of the equipment in one of our fleets . these assets were insured at values greater than their carrying values . we received $ 19.0 million of insurance recovery proceeds for these assets , which exceeded their carrying values by $ 15.1 million . interest expense , net interest expense , net of interest income , in 2018 decreased by $ 37.4 million from 2017. this decrease was primarily due to a lower average debt balance in 2018 , after the repayment of $ 622.1 million of aggregate principal amount of long-term debt . interest expense , net of interest income , in 2017 decreased by $ 0.8 million from 2016. this decrease was primarily due to a lower average long-term debt balance , which was partially offset by higher average interest rates in 2017 for our senior floating rate notes due june 2020. gain ( loss ) on extinguishment of debt , net in 2018 , we repaid $ 310.0 million of aggregate principal amount of term loan . we recognized a loss on debt extinguishment of $ 2.7 million . in 2018 , we repaid all $ 290.0 million remaining principal amount of our floating rate senior notes due in 2020 using cash on hand and proceeds received from our ipo . we recognized a loss on this debt extinguishment of $ 8.3 million . in 2018 , we repurchased $ 22.1 million of aggregate principal amount of 2022 senior notes in the qualified institutional market . we recognized a gain on debt extinguishment of $ 1.2 million . in 2017 , we repaid $ 60.0 million of aggregate principal amount of our senior floating rate notes due june 2020. we recognized a loss on debt extinguishment of $ 1.8 million . in 2017 , we also repurchased $ 17.3 million of aggregate principal amount of senior notes due may 2022 in the qualified institutional market . we recognized a gain on debt extinguishment of $ 0.4 million . in the third quarter of 2016 , we completed a tender offer and subsequent purchases in the qualified institutional market for a portion of our long-term debt in which we repurchased $ 90.7 million of aggregate principal amount of long-term debt and recorded a gain on debt extinguishment of $ 52.3 million . income tax expense income tax expense was $ 2.0 million and $ 1.6 million in 2018 and 2017 , respectively . these amounts consisted of state margin taxes accounted for as income taxes and income taxes for states that limit the deduction of net operating loss carryforwards . in 2012 , we recorded a valuation allowance to reduce our net deferred tax assets to zero . we continue to provide a valuation allowance against all deferred tax assets in excess of our deferred tax liabilities . as a result , we did not record any u.s. federal or other state income tax expense or benefit related to our income or losses in 2018 , 2017 or 2016. see note 11 — “ income taxes ” in notes to our consolidated financial statements included elsewhere in this annual report on form 10-k for more information regarding our income taxes and valuation allowance . 40 liquidity and capital resources sources of liquidity at december 31 , 2018 , we had $ 177.8 million of cash and cash equivalents . as of february 28 , 2019 , we had $ 106.1 million available for borrowings under our revolving credit facility . we believe that our cash and cash equivalents , cash provided by operations , and the availability under our revolving credit facility will be sufficient to fund our operations and capital expenditures for at least the next 12 months . in february 2018 , we entered into a $ 250 million asset-based revolving credit facility .
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summary financial results · total revenue for 2018 was $ 1,543.3 million , which represented an increase of $ 77.2 million from 2017 . · net income for 2018 was $ 258.4 million , which represented an increase of $ 57.7 million from 2017 . · adjusted ebitda for 2018 was $ 419.3 million , which represented an increase of $ 46.6 million from 2017 . · cash provided by operating activities for 2018 was $ 384.8 million , which represented an increase of $ 204.8 million from 2017 . · total principal amount of long-term debt was $ 507.9 million at december 31 , 2018 , which represented a decrease of $ 622.1 million from december 31 , 2017. industry trends and business outlook our business depends on the willingness of e & p companies to make expenditures to explore for , develop , and produce oil and natural gas in the united states . the willingness of e & p companies to undertake these activities is predominantly influenced by current and expected future prices for oil and natural gas . a widely watched indicator of e & p companies ' aggregate activity levels is the drilling rig count , or rig count . the active horizontal rig count is a subset of the total rig count and is the most strongly correlated with the aggregate industry demand for hydraulic fracturing services . the average horizontal rig count was approximately 900 , 735 , and 400 in 2018 , 2017 and 2016 , respectively , according to a report by baker hughes , a ge company . the horizontal rig count was 945 at the end of 2018 , which was its highest level since the first quarter of 2015. over this period , drilling rigs have become more efficient and are drilling more wells per rig .
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the wood products segment operated well and posted its highest level of earnings in nearly a decade . results for our real estate segment were strong and it continues to be a stable earnings contributor based on steady demand for our hbu and rural recreational properties . according to industry forecasts , total demand for north american lumber is anticipated to increase an additional 4 billion board feet , or approximately 7 % , from 2013 levels . the majority of the growth is expected in the new home construction market segment as the u.s. housing market continues its gradual recovery . factors such as home price increases , the cost of new mortgages , the mortgage approval process and the availability of desirable building lots will continue to play into the pace of the housing recovery . participation by first-time homebuyers has been low to this point in the recovery by historical standards , and would provide an additional boost to demand . we anticipate southern pine sawlog prices will remain flat in 2014. factors influencing our results of operations and cash flows the operating results of our resource , wood products and real estate business segments have been and will continue to be influenced by a variety of factors , including the cyclical nature of the forest products industry , changes in timber prices and in harvest levels from our timberlands , competition , timberland valuations , demand for our non-strategic timberland for higher and better use purposes , the efficiency and level of capacity utilization of our wood products manufacturing operations , changes in our principal expenses such as log costs , asset dispositions or acquisitions , and other factors . see part i - item 1. business for additional information . story_separator_special_tag style= '' font-family : inherit ; font-size:8pt ; '' > 32 / potlatch corporation business segment results comparing 2012 with 2011 resource segment replace_table_token_11_th resource revenues decreased in 2012 from 2011 due to our planned harvest deferral , primarily in arkansas , partially offset by higher sales prices , primarily in idaho , due to improving market conditions . the decline in total harvest volume accounted for a negative $ 31.2 million revenue variance , which was partially offset by a positive pricing variance of $ 12.3 million . in our northern region , sawlog volume decreased , while sawlog prices increased as a result of strengthening demand for cedar and mixed sawlogs , partially offset by a change in product mix that contained less cedar . northern pulpwood volume decreased as a result of reduced pulpwood production in idaho in 2012 due to lower prices , and pulp and paper mill curtailments and closures in the lake states in 2012. pulpwood prices increased in 2012 over 2011 due to very low prices in the first half of 2011. in our southern region , sawlog volume and prices decreased . southern pulpwood volume decreased due to the harvest deferral in 2012 , combined with increased production of pulpwood in 2011 resulting from pine plantation thinnings and favorable weather conditions in the latter part of 2011. pulpwood prices increased due to stronger demand that resulted from decreased pine availability , and a shift in product mix to higher-priced hardwoods . 2013 form 10-k / 33 expenses for the segment decreased $ 8.9 million , or 5 % , in 2012 from 2011 , primarily due to decreased logging and hauling costs and lower depletion expense as a result of the reduced harvest volume , partially offset by higher per-unit logging and hauling expenses , increased forest management costs due to catching up on deferred road maintenance , pre-commercial thinning and replanting , and increased commercial thinning . wood products segment replace_table_token_12_th wood products revenues increased due to improved market conditions , as both lumber prices and volumes increased in 2012 over 2011. expenses for the segment increased $ 19.6 million , or 7 % . the cost of logs consumed , customer freight , and wages and benefits all increased as a result of increased production and operating hours . we recognized a $ 0.9 million charge to income related to our lumber hedge in 2012 compared to a benefit of $ 4.5 million in 2011. real estate segment replace_table_token_13_th revenues decreased $ 11.8 million , expenses decreased $ 8.5 million and operating income decreased $ 3.3 million in 2012 compared to 2011 , all primarily due to the sale of fewer acres of land in 2012. liquidity and capital resources overview at december 31 , 2013 , our financial position included long-term debt of $ 320.1 million , compared to $ 357.6 million at december 31 , 2012 , due to the redemption in 2013 of $ 36.7 million of revenue bonds before their stated maturity dates . the ratio of long-term debt to stockholders ' equity was 1.6 to 1 and 2.6 to 1 at december 31 , 2013 and 2012 , respectively . we increased our quarterly cash distributions in the fourth quarter of 2013 to $ 0.35 per share from $ 0.31 per share . cash and short-term investments totaled $ 57.8 million at december 31 , 2013. the available borrowing capacity under our credit agreement is $ 248.1 million . we have no scheduled debt maturities until december 2015 . 34 / potlatch corporation net cash from operations net cash provided from operating activities was : $ 90.3 million in 2013 , $ 80.0 million in 2012 and $ 77.4 million in 2011. year ended december 31 , 2013 compared to year ended december 31 , 2012 net cash from operating activities in 2013 increased $ 10.3 million from 2012 : cash received from customers increased $ 36.4 million , primarily due to increased sales and cash received by resource and wood products , partially offset by decreased sales and cash received from our real estate segment . story_separator_special_tag the timberland coverage ratio is the value of our timberlands divided by our total funded indebtedness , which consists of our long-term debt , including current installments on long-term debt , plus the total amount outstanding under the letter of credit subfacility . the leverage ratio is our total funded indebtedness divided by our twelve months ended ebitdda , both as computed in the other covenant calculations above . term loans in december 2012 , we entered into a $ 12 million term loan to fund two timberland acquisitions . the term loan consists of two $ 6 million tranches , with rates of 2.95 % on the 2017 maturity and 3.70 % on the 2020 maturity . the term loan contains the same covenants and restrictions as those in our unsecured credit agreement . senior notes in 2009 , we sold $ 150 million aggregate principal amount of 7.5 % senior notes . the terms of the notes limit our ability and the ability of any subsidiary guarantors to borrow money , pay dividends , redeem or repurchase capital stock , enter into sale and leaseback transactions , and create liens . with respect to the limitation on dividends and the repurchase of our capital stock , these restricted payments are permitted as follows : we may use 100 % of our funds available for distribution , or fad , for the period january 1 , 2010 through the end of the quarter preceding the payment date , less cumulative restricted payments previously made from fad during that period , to make restricted payments . our cumulative fad less our dividends paid was $ 55.7 million at december 31 , 2013. if our cumulative fad , less cumulative restricted payments previously made from fad , is insufficient to cover a restricted payment , then we are permitted to make payments from a basket amount , which was approximately $ 90.1 million at december 31 , 2013 . 36 / potlatch corporation if our cumulative fad less our aggregate restricted payments made from fad is insufficient to cover a restricted payment and we have depleted the basket , we may still make a restricted payment , so long as , after giving effect to the payment , our ratio of indebtedness to earnings before interest , taxes , depreciation , depletion , amortization and basis of real estate sold , or ebitdda , from continuing operations for the preceding four full fiscal quarters does not exceed 4.25 to 1.00. fad , as defined in the indenture governing the senior notes , is earnings from continuing operations , plus depreciation , depletion and amortization , plus basis of real estate sold , and minus capital expenditures . for purposes of this definition , capital expenditures exclude all expenditures relating to direct or indirect timberland purchases in excess of $ 5 million . future cash requirements based on our outlook for 2014 and taking into account planned harvest activities , we expect to fund a majority of our 2014 annual cash distributions using the cash flows from our reit-qualifying timberland operations and from cash and short-term investments on hand at december 31 , 2013. the rules with which we must comply to maintain our status as a reit limit our ability to use dividends from potlatch trs for the payment of stockholder distributions . in particular , at least 75 % of our gross income for each taxable year as a reit must be derived from sales of our standing timber and other types of real estate income . no more than 25 % of our gross income may consist of dividends from potlatch trs and other non-qualifying types of income . this requirement may limit our ability to receive dividends from potlatch trs and may impact our ability to fund distributions to stockholders using cash flows from potlatch trs . credit ratings the major debt rating agencies routinely evaluate our debt and our access to capital , and our cost of borrowing can increase or decrease depending on our credit rating . in april 2013 , moody 's upgraded our debt rating to investment grade 'baa3 ' from 'ba1 ' , with a stable outlook . in april 2013 , standard & poor 's upgraded our corporate credit and senior unsecured ratings to 'bb+ ' from 'bb ' , and in december 2013 affirmed our 'bb+ ' rating , with a stable outlook . contractual obligations the following table summarizes our contractual obligations as of december 31 , 2013 : replace_table_token_14_th 1 see note 10 : debt in the notes to consolidated financial statements . 2 amounts presented for interest payments assume that all long-term debt outstanding as of december 31 , 2013 will remain outstanding until maturity . 3 see note 15 : commitments and contingencies in the notes to consolidated financial statements . 4 purchase obligations include agreements to purchase goods or services that are enforceable and legally binding on the company and that specify all significant terms , including : fixed or minimum quantities to be purchased ; fixed , minimum or variable price provisions ; and the approximate timing of the transaction . purchase obligations exclude arrangements that the company can cancel without penalty . 5 other obligations includes current liabilities , as well as qualified pension contributions , supplemental pension payments and payments for other postretirement employee benefit obligations . see note 11 : accounts payable and accrued liabilities and note 14 : savings plans , pension plans and other postretirement employee benefits in the notes to consolidated financial statements for additional detail . 2013 form 10-k / 37 off-balance sheet arrangements we currently are not a party to off-balance sheet arrangements that would require disclosure under this section .
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results of operations as of december 31 , 2013 , our business is organized into three reporting segments : resource , wood products and real estate . sales between segments are recorded as intersegment revenues based on prevailing market prices . because of the role of the resource segment in supplying our wood products segment with a portion of its wood fiber needs , intersegment revenues can represent a significant portion of the resource segment 's total revenues . our other segments generally do not generate intersegment revenues . in the period-to-period discussions of our consolidated results of operations , our revenues are reported after elimination of intersegment revenues . in the discussions by business segments , each segment 's revenues are presented before elimination of intersegment revenues . 28 / potlatch corporation consolidated results comparing 2013 with 2012 the following table sets forth year-to-year changes in items included in our consolidated statements of income for the years ended december 31 , 2013 and 2012 . replace_table_token_6_th revenues . revenues increased in 2013 over 2012 from the resource segment , primarily from higher log prices in idaho , and the wood products segment , due to higher prices for manufactured wood products , partially offset by decreased revenues from our real estate segment due to fewer acres sold in 2013. a more detailed discussion of revenues follows in the operating results by business segments . cost of goods sold . cost of goods sold increased in 2013 over 2012 , primarily due to higher log costs in wood products and and higher logging and hauling costs and depletion expense in our resource segment as a result of higher harvest volumes . environmental remediation charge . in 2013 , we recorded pre-tax charges of $ 3.5 million to reflect increased remediation costs associated with liabilities related to our avery landing site in idaho . physical clean-up activities at the site were completed in 2013. asset impairment charge .
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this discussion and analysis should be read in conjunction with the consolidated financial statements and other financial schedules included in this annual report . the financial condition and results of operations presented are not indicative of future performance . story_separator_special_tag operating income , the direction and rate of increase or decrease will often indicate the overall performance of the corporation . the following table shows a summary analysis of nii on a fully taxable equivalent ( fte ) basis . for analytical purposes and throughout this discussion , yields , rates , and measurements such as nii , net interest spread , and net yield on interest earning assets , are presented on an fte basis . this differs from the nii reflected on the corporation 's consolidated statements of income , where the nii is simply the interest earned on loans and securities less the interest paid on deposits and borrowings . by calculating the nii on an fte basis , the added benefit of having tax-free loans and securities is factored in to more accurately represent what the corporation earns through the nii . the fte adjustment shows the benefit these loans and securities bring in a dollar amount because the corporation does not pay tax on the income they generate . as a result , the fte nii shown in both tables below will exceed the nii reported on the consolidated statements of income . the amount of fte adjustment totaled $ 2,343,000 for 2017 , $ 2,151,000 for 2016 , and $ 1,859,000 for 2015 . 33 enb financial corp management 's discussion and analysis net interest income ( dollars in thousands ) replace_table_token_8_th nii is the difference between interest income earned on assets and interest expense incurred on liabilities . accordingly , two factors affect nii : · the rates charged on interest earning assets and paid on interest bearing liabilities · the average balance of interest earning assets and interest bearing liabilities the federal funds rate , the prime rate , the shape of the u.s. treasury curve , and other wholesale funding curves , all affect nii . the federal reserve controls the federal funds rate , which is one of a number of tools available to the federal reserve to conduct monetary policy . the federal funds rate , and guidance on when the rate might be changed , is often the focal point of discussion regarding the direction of interest rates . until december 16 , 2015 , the federal funds rate had not changed since december 16 , 2008. on december 16 , 2015 , the federal funds rate was increased 25 basis points to 0.50 % , from 0.25 % . then again , on december 14 , 2016 , the federal funds rate was increased another 25 basis points to 0.75 % . the federal funds rate was increased by 25 basis points three additional times during 2017 on march 15 , june 14 , and december 13 , 2017 , taking the rate to 1.50 % by december 31 , 2017. prior to december of 2015 , the period of seven years with extremely low and unchanged overnight rates was the lowest and longest in u.s. history . the impact was a lower net interest margin to the corporation and generally across the financial industry . the increases since december of 2015 resulted in higher short-term u.s. treasury rates , but not significantly higher long-term u.s. treasury rates , resulting in a flattening of the yield curve . it was only during the fourth quarter of 2016 that long-term rates saw an increase , but then with three more federal reserve rate increases in 2017 , the yield curve saw further flattening . long-term rates like the ten-year u.s. treasury were 210 basis points under the 4.50 % prime rate as of december 31 , 2017. long-term treasury rates did see some increases in the very beginning of 2018 likely leading up to fed action as early as march 2018 , which would further increase short-term rates . management anticipates at least two 0.25 % federal reserve rate increases in 2018. a third 0.25 % federal reserve rate increase could be possible mirroring what was experienced in 2017. it remains to be seen whether mid and long-term u.s. treasury rates will also increase to the same degree that the federal reserve will likely move the overnight federal funds rate . if they do not , the yield curve would flatten further making it harder for the corporation to increase asset yield . the prime rate is generally used by commercial banks to extend variable rate loans to business and commercial customers . for many years , the prime rate has been set at 300 basis points , or 3.00 % higher , than the federal funds rate and typically moves when the federal funds rate changes . as such , the prime rate increased from 3.25 % to 3.50 % on december 16 , 2015 , from 3.50 % to 3.75 % on december 14 , 2016 , and ultimately to 4.50 % after three rate movements in 2017 , march , june , and december . the corporation 's prime-based loans generally reprice a day after the federal reserve rate movement . as a result of the federal reserve rate increases , the corporation 's nii on a tax equivalent basis began to increase in 2017 with the corporation 's margin increasing to 3.46 % for the year , compared to 3.12 % in 2016. the corporation 's nii for 2017 increased substantially over 2016 , by $ 4,891,000 , or 19.3 % , with the margin increasing to 3.46 % . however , there was non-recurring security amortization of $ 1,681,000 recorded in 2016 , which had a negative impact on nii and margin . story_separator_special_tag the corporation was able to refinance some borrowings at lower rates in 2016 but lower-priced borrowings matured in 2017 with no ability to refinance at lower rates , so the yield on borrowings increased slightly during 2017 and will likely continue to do so moving into 2018. management currently anticipates that the overnight interest rate and prime rate will remain at the current levels until march of 2018 with the possibility of a 0.25 % rate increase at that time . it is likely that mid and long-term u.s. treasury rates will increase slowly throughout the first quarter of 2018 as the market anticipates an additional federal reserve rate movement . this would allow management to achieve higher earnings on new higher yielding securities and allow for the ability to price new loans at higher market rates . however , it is also possible that even after a federal reserve rate increase , the yield curve could flatten , making it more difficult for management to lend out or reinvest at higher interest rates out further on the yield curve . additionally , any additional federal reserve rate increases would have a greater effect on the repricing of the corporation 's liabilities as the cost of money 35 enb financial corp management 's discussion and analysis increases and more marketplace competition returns . management anticipates that more deposit rate increases will need to be made to remain competitive in the market while maturing borrowings would also likely reprice to higher rates . the following table provides an analysis of year-to-year changes in net interest income by distinguishing what changes were a result of average balance increases or decreases and what changes were a result of interest rate increases or decreases . rate/volume analysis of changes in net interest income ( taxable equivalent basis , dollars in thousands ) replace_table_token_9_th in 2017 , the corporation 's nii on an fte basis increased by $ 5,082,000 , an 18.5 % increase over 2016. total interest income on an fte basis for 2017 increased $ 4,967,000 , or 16.3 % , from 2016 , while interest expense decreased $ 115,000 , or 3.8 % , from 2016 to 2017. the fte interest income from the securities portfolio increased by $ 2,934,000 , or 39.9 % , while loan interest income increased $ 1,750,000 , or 7.7 % . during 2017 , additional loan volume added $ 1,140,000 to net interest income , and higher yields primarily due to the multiple prime rate increases throughout the year caused a $ 610,000 increase , resulting in a net increase of $ 1,750,000. higher balances in the securities portfolio caused an increase of $ 799,000 in net interest income , while higher yields on securities caused a $ 2,135,000 increase , resulting in a net increase of $ 2,934,000. the corporation recorded non-recurring accelerated amortization on u.s. sub-agency securities during 2016 in the amount of $ 1,681,000 , which was responsible for the lower yields on securities in 2016. the average balance of interest bearing liabilities increased by 3.3 % during 2017 , driven by the growth in deposit balances . the shift between time deposit balances and demand and savings accounts resulted in a more favorable net interest income . lower balances of higher cost deposits contributed to savings of $ 94,000 on deposit costs while lower interest rates on all deposit groups caused $ 44,000 of savings , resulting in total savings of $ 138,000 . 36 enb financial corp management 's discussion and analysis out of all the corporation 's deposit types , interest-bearing demand deposits reprice the most rapidly , as nearly all accounts are immediately affected by rate changes . the corporation increased demand deposit interest expense by $ 51,000 due to higher rates and by $ 20,000 due to higher balances . time deposit balances decreased resulting in a $ 126,000 reduction to expense , and time deposits repricing to lower interest rates reduced interest expense by an additional $ 94,000 , causing a net reduction of $ 220,000 in time deposit interest expense . even with the low rate environment , the corporation was successful in increasing balances of other deposit types . as 2017 progressed and interest rates remained low , the corporation was able to continue to reprice time deposits maturing at lower interest rates thereby reducing the cost of these funds . the average balance of outstanding borrowings decreased by $ 3.8 million , or 5.1 % , from december 31 , 2016 , to december 31 , 2017. the decrease in total borrowings decreased interest expense by $ 46,000. the increase in interest rates increased interest expense by $ 69,000 , as long-term borrowings at lower rates matured and were replaced with new advances at slightly higher rates . the aggregate of these amounts was an increase in interest expense of $ 23,000 related to total borrowings . the following table shows a more detailed analysis of net interest income on an fte basis shown with all the major elements of the corporation 's balance sheet , which consists of interest earning and non-interest earning assets and interest bearing and non-interest bearing liabilities . additionally , the analysis provides the net interest spread and the net yield on interest earning assets . the net interest spread is the difference between the yield on interest earning assets and the interest rate paid on interest bearing liabilities . the net interest spread has the deficiency of not giving credit for the non-interest bearing funds and capital used to fund a portion of the total interest earning assets . for this reason , management emphasizes the net yield on interest earning assets , also referred to as the net interest margin ( nim ) . the nim is calculated by dividing net interest income on an fte basis into total average interest earning assets . the nim is generally the benchmark used by analysts to measure how efficiently a bank generates nii .
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results of operations overview the corporation recorded net income of $ 6,344,000 for the year ended december 31 , 2017 , a 16.0 % decrease from the $ 7,553,000 earned during the same period in 2016. the 2016 net income was 9.3 % higher than the 2015 net income of $ 6,910,000. earnings per share , basic and diluted , were $ 2.23 in 2017 , compared to $ 2.65 in 2016 , and $ 2.42 in 2015. the decrease in the corporation 's 2017 earnings was caused primarily by a deferred tax asset devaluation of $ 1.1 million as a result of a lower corporate tax rate . the tax cuts and jobs act lowered the corporate tax rate from 34 % to 21 % , which is expected to lower the corporation 's provision for federal income taxes in future years . however , the corporation was required to write down the value of its net deferred tax assets by $ 1.1 million as of december 31 , 2017. net interest income accounts for nearly 75 % of the gross income stream of the corporation . net interest income increased by $ 4.9 million , or 19.3 % , compared to an increase of $ 2.2 million , or 9.5 % in 2016. during 2016 , there was non-recurring security amortization recorded in the amount of $ 1.7 million as a result of accelerated amortization on bonds issued by two u.s. sub-agencies . cobank and agribank , sub-agencies of the federal farm credit bureau , a primary u.s. government sponsored enterprise , exercised an unusual regulatory call feature to call bonds at par two years and three years respectively , prior to their maturity dates . the corporation owned both cobank and agribank agency high coupon instruments at high premium prices , which exposed the bonds to accelerated amortization given a shorter call date .
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a more complete description of our business is included in `` item 1. business , '' in part i of this form 10-k. the following discussion and analysis should be read in conjunction with the audited financial statements included in `` item 8. financial statements and supplementary data '' in this form10-k. we based the discussion and analysis that follows on financial data we derived from the financial statements prepared in accordance with gaap and on certain other financial data that we prepared using non-gaap components . for a reconciliation of these non-gaap components to the most comparable gaap components , see “ non-gaap financial measures ” at the end of this item . discussion of operating results the following table shows a summary of our reporting segments and consolidated financial results for years ended december 31 ( in millions , except per share data and percentages ) : replace_table_token_8_th 27 2014 summary net income was $ 205.0 million , or $ 4.48 per diluted share , for 2014 compared to $ 169.3 million , or $ 3.59 per diluted share , for 2013 , and $ 137.3 million , or $ 2.88 per diluted share , for 2012 . results in 2013 and 2012 included benefits from tax adjustments and other items of $ 4.5 million and $ 3.5 million ( see `` non-gaap financial measures '' at the end of this item for further details ) . excluding the impact of these items , net income increased $ 40.2 million , or 24.4 % , in 2014 compared to 2013 and $ 31.0 million , or 23.2 % , in 2013 compared to 2012. at rail north america , higher lease rates and more cars on lease , including additional boxcars acquired in 2014 , drove an increase in segment profit in 2014. at rail international , segment profit in 2014 declined due to the absence of income from gatx 's interest in a joint venture that was sold during the third quarter of 2013. in addition , higher maintenance expense and higher depreciation expense were partially offset by higher lease revenue . at asc , segment profit was slightly lower in 2014 due to weather delays early in the year and increased maintenance expense . at portfolio management , lower asset remarketing income and lower aggregate operating income from ocean-going marine operations resulted in a decrease in segment profit in 2014. however , continued strong operating results at the rolls-royce partners finance ( `` rrpf '' ) affiliates helped offset this decrease . total investment volume was $ 1,030.5 million in 2014 , compared to $ 859.6 million in 2013 and $ 770.0 million in 2012 . 2015 outlook overall , we are optimistic about the year ahead . we will continue to benefit from the diversity of our fleet , the rate and term structure of rail north america 's lease portfolio , the strength of our committed cash flows , and the attractive investments made in recent years . we expect rail north america 's segment profit to increase , primarily driven by the cumulative effect of the renewal of expiring leases at higher lease rates across many car types and the full-year impact from the boxcar fleet acquired in march 2014 , which should more than offset increased maintenance expense . uncertainty in the energy-related markets may affect pricing and utilization for the portion of our fleet subject to leases expiring in 2015. in addition , regulations for tank cars in flammable liquid service should be finalized in the coming months in both the united states and canada , which will likely impact our business . however , we can not predict the potential costs or timing of pending regulatory changes at this time . we expect modest improvement in rail international 's segment profit in 2015 , as we continue to invest in new railcars in 2015. we expect an increase in asc 's segment profit , resulting from anticipated stable customer demand and a more normal start to the shipping season in 2015. we believe portfolio management 's segment profit in 2015 will be comparable to 2014 as we expect the rrpf affiliates and the inland marine assets to have another solid year . 28 segment operations segment profit is an internal performance measure used by the chief executive officer to assess the performance of each segment in a given period . segment profit includes all revenues , pretax earnings from affiliates , and net gains on asset dispositions that are attributable to the segments , as well as expenses that management believes are directly associated with the financing , maintenance , and operation of the revenue earning assets . segment profit excludes selling , general and administrative expenses , income taxes , and certain other amounts not allocated to the segments . these amounts are included in other . we allocate debt balances and related interest expense to each segment based upon a predetermined fixed recourse leverage level expressed as a ratio of recourse debt ( including off-balance-sheet debt ) to equity . the leverage levels are 5:1 for rail north america , 2:1 for rail international , 1.5:1 for asc , and 3:1 for portfolio management . we believe that by using this leverage and interest expense allocation methodology , each operating segment 's financial performance reflects appropriate risk-adjusted borrowing costs . rail north america segment summary at the end of the first quarter of 2014 , we acquired more than 18,500 boxcars from general electric railcar services corporation for approximately $ 340 million ( the `` boxcar fleet '' ) . at december 31 , 2014 , rail north america 's wholly owned fleet consisted of approximately 126,000 cars , including approximately19,000 boxcars . fleet utilization , excluding boxcars , was 99.2 % at the end of 2014 , compared to 98.5 % at the end of 2013 , and 97.9 % at the end of 2012. fleet utilization for boxcars was 92.7 % at the end of 2014 compared to 78.8 % upon acquisition of the boxcar fleet . story_separator_special_tag other income ( expense ) in 2014 , net gain on asset dispositions increased $ 4.6 million , primarily due to higher gains on cars sold , partially offset by lower scrapping gains . net interest expense decreased $ 7.6 million , driven by lower average rates and the impact of prepayments of higher cost debt more than offsetting a higher average debt balance . other expense decreased $ 2.6 million , primarily due to higher penalties associated with the early repayment of debt and costs associated with early buyout option leases in 2013 compared to 2014. share of affiliates ' earnings decreased $ 2.4 million , primarily due to higher gains at our southern capital affiliate in 2013. in 2013 , net gain on asset dispositions increased $ 9.1 million , primarily due to sales of approximately 1,700 more railcars . in 2012 , net gain on asset dispositions included an $ 11.1 million fee on the early termination of a residual value guarantee . net interest expense increased $ 4.1 million due to higher debt balances in 2013. other expense increased $ 4.7 million , primarily due to termination costs associated with the early buyout of an operating lease and the prepayment of certain secured debt issuances . share of affiliates ' earnings increased $ 3.8 million , primarily due to gains on dispositions of railcars from our southern capital affiliate . investment volume during 2014 , investment volume was $ 810.6 million compared to $ 502.4 million in 2013 , and $ 465.9 million in 2012 . investments in 2014 included the purchase of the boxcar fleet of approximately 18,500 boxcars for approximately $ 340 million and approximately 3,570 additional railcars , compared to 4,520 railcars in 2013 , and 4,470 railcars in 2012 . 33 north american rail regulatory matters on july 23 , 2014 , the pipeline and hazardous materials safety administration of the us department of transportation ( “ phmsa ” ) issued a notice of proposed rulemaking ( the “ nprm ” ) intended to improve the safety of trains that transport large volumes of flammable liquids , primarily crude and ethanol . in addition to proposed rail operating requirements and standards for the classification of mined gases and liquids , the nprm proposed new design standards for tank cars operating in “ high hazard flammable trains ” ( “ hhft ” ) , which are trains that include 20 or more carloads of any type of flammable liquid . under the proposed rules , newly built tank cars for use in hhft service would have to comply with the new standards beginning on october 1 , 2015. the nprm requested public comments on three different options for the new tank car standards , which vary primarily based on differences in tank thickness , braking systems , and design of top fitting protection . the nprm also proposed standards for modifications to existing tank cars in hhft service intended to ensure that their performance meets the same standards applicable to newly built cars . under the nprm , existing tank cars in hhft service would have to be modified or removed from that service between october , 2017 , and october , 2020 , depending on the type of commodity carried by such cars . the nprm was published in the federal register on august 1 , 2014 , and the public comment period expired on september 30 , 2014. gatx participated in the rulemaking process through the railway supply institute , a rail industry trade association which submitted comments on the nprm . while we can not predict the content of the final rules , the us department of transportation is projecting that final rules will be issued in the second quarter of 2015. on july 2 , 2014 , transport canada ( `` tc '' ) adopted regulations requiring that newly built tank cars ordered on or after july 15 , 2014 , and used to transport certain dangerous goods , including all types of crude oil and ethanol , comply with the design standards voluntarily adopted by the rail industry in 2011. in addition , on july 18 , 2014 , tc announced it is conducting a review that may result in further changes to the design standards for newly built cars used to transport flammable liquids in canada , as well as standards and schedule for modifying existing cars used in such service . in this regard , tc announced that it intends to coordinate with phmsa to establish standards for the entire north american fleet of tank cars in flammable liquids service . tc is expected to issue its final rule during the first half of 2015. we are currently assessing the changes to tank car design standards proposed by phmsa and tc and evaluating their potential impact on our tank car fleet in flammable liquids service . we have a fleet of more than 126,000 railcars in north america , including approximately 13,600 tank cars currently used to transport flammable liquids , of which approximately 4,900 are moving crude oil and ethanol . we will continue to be an active participant in the rulemaking process and the promulgation of final rules by phmsa and tc . until phmsa and tc release final rules establishing the new tank car standards , we will be unable to assess how any new regulations that phmsa and tc may ultimately adopt will impact gatx or what changes may be required to our tank cars in flammable liquids service , including the number of cars that could be repurposed or retired and the scope and cost of any retrofit program . rail international segment summary weak economic conditions in europe during 2014 made it challenging to place certain newly built railcars on lease . this has led to accelerated replacement and scrapping of older cars in the fleet .
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segment summary portfolio management focuses on maximizing the value of its existing portfolio of wholly owned and managed assets , including identifying opportunities to remarket certain assets . portfolio management also seeks to maximize value from its joint ventures . portfolio management 's segment profit is significantly impacted by the contribution of the rolls-royce & partners finance companies . the rolls-royce & partners finance companies ( collectively the “ rrpf affiliates ” ) are a collection of fourteen 50 % owned domestic and foreign joint ventures with rolls-royce plc ( or affiliates thereof , collectively “ rolls-royce ” ) , a leading manufacturer of commercial aircraft jet engines . segment profit included earnings from the rrpf affiliates of $ 55.9 million for 2014 , $ 52.6 million for 2013 , and $ 44.8 million for 2012 . the rrpf affiliates had 433 aircraft engines at the end of 2014 compared to 403 at the end of 2013 . 39 in 2014 , we sold our investments in the intermodal investment fund v and intermodal investment fund vii affiliates . as a result of these sales , we received aggregate cash proceeds of $ 18.3 million . in 2013 , we dissolved our singco and somargas marine affiliates , with each partner taking direct ownership of five liquefied gas carrying vessels ( the `` norgas vessels '' ) with an aggregate value of $ 151.8 million , and recognized a pretax gain of $ 2.5 million , which is reflected in share of affiliates ' earnings . in connection with the dissolution , we paid $ 101.3 million , primarily to satisfy our share of the affiliates ' external debt . the vessels continue to operate in a vessel pooling arrangement managed by our former partner . in 2012 , our gas compression equipment leasing affiliate , enerven compression , llc , sold substantially all of its assets .
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factors that could cause or contribute to these differences include those discussed below and elsewhere in this form 10-k , particularly in special note regarding forward-looking statements and risk factors. overview we are the world 's leading provider of social game services with 240 million average maus in over 175 countries . we have launched the most successful social games in the industry in each of the last three years and generated over $ 1.85 billion in cumulative revenue and over $ 2.35 billion in cumulative bookings since our inception in 2007. our games are accessible on facebook , other social networks and mobile platforms to players worldwide , wherever and whenever they want . all of our games are free to play , and we generate revenue through the in-game sale of virtual goods and advertising . we are a pioneer and innovator of social games and a leader in making play a core activity on the internet . we believe our leadership position in social games is the result of our significant investment in our people , content , brand , technology and infrastructure . highlights in our history include : in april 2007 , we began operations and by the end of 2008 had launched several games , including zynga poker in july 2007 and mafia wars in june 2008 on multiple platforms , including facebook and myspace . in addition , in june 2008 , we acquired the yoville game in order to expand our game portfolio . as of december 31 , 2008 , we had 157 employees . in june 2009 , we launched farmville , which quickly became the most popular social game on facebook . in the second half of 2009 , we launched several other games , including café world in september 2009. in the fourth quarter of 2009 , we achieved $ 144.6 million in bookings . as of december 31 , 2009 , we had 576 employees . in 2010 , we saw continued growth from existing games and new game launches . we launched frontierville in june 2010 and cityville in december 2010. during 2010 , in order to enhance our product portfolio and game development capabilities around the world , we acquired several companies , including newtoy , inc. , the creator of the mobile game words with friends . in the fourth quarter of 2010 , we achieved $ 243.5 million in bookings . as of december 31 , 2010 , we had 1,483 employees . in 2010 , we entered into an addendum with facebook that modified facebook 's standard terms and conditions for game developers as they apply to us and that govern the promotion , distribution and operation of our games on facebook . in july 2010 , we began migrating to facebook credits , and by april 2011 , we had migrated all of our games on facebook to facebook credits . in the first quarter of 2011 , we released farmville english countryside , an expansion of farmville . we also launched words with friends on the google android platform in the first quarter . in the second quarter of 2011 , we launched empires & allies , our first strategy combat game , and hanging with friends , a mobile game that was developed in our zynga with friends studio . in the third quarter of 2011 , we launched indiana jones tm adventure world and released words with friends on facebook and achieved $ 287.7 million in bookings . as of september 30 , 2011 , we had 2,789 employees . in the fourth quarter of 2011 , we launched castleville and achieved $ 306.5 million in bookings . as of december 31 , 2011 , we had 2,846 employees . 33 in 2011 , our revenue and bookings were $ 1.14 billion and $ 1.16 billion , respectively , which represented increases from 2010 of $ 542.6 million and $ 316.6 million , respectively . consistent with our free-to-play business model , compared to all players who play our games in any period , only a small portion are payers . because the opportunity for social interactions increases as the number of players increases , we believe that maintaining and growing our overall number of players , including the number of players who may not purchase virtual goods , is important to the success of our business . as a result , we believe that the number of players who choose to purchase virtual goods will continue to constitute a small portion of our overall players as our business grows . the games that constitute our top three games vary over time but historically the top three revenue-generating games in any period contributed the majority of our revenue . our top three games accounted for 57 % , 78 % and 83 % of our online game revenue in 2011 , 2010 and 2009 , respectively . the reduction in percentage of online game revenue related to our top three games occurred throughout these periods as new games were launched and we recognized revenue from these games . we made significant investments in 2011 to drive long-term growth . we continue to invest in game development , creating both new games and new features and content in existing games designed to engage our players . we are also investing in other key areas of our business , including international market development , mobile games and our technology infrastructure . in 2012 , we expect to make capital expenditures of up to $ 160 million as we invest in network infrastructure to support our expected growth and to continue to improve the player experience . how we generate revenue we operate our games as live services that allow players to play for free . we generate revenue primarily from the in-game sale of virtual goods and advertising . online game . we provide our players with the opportunity to purchase virtual goods that enhance their game-playing experience . story_separator_special_tag an individual who plays more than one of our games in a given 30-day period would be counted as a single muu . however , because we can not always distinguish unique individuals playing across multiple platforms , an individual who plays any of our games on two different platforms ( e.g. , web and mobile ) in a given 30-day period may be counted as two muus in the event that we do not have data that allows us to de-duplicate the player . because many of our players play more 35 than one game in a given 30-day period , muus are always lower than maus in any given time period . average muus for a particular period is the average of the muus at each month-end during that period . we use muu as a measure of total audience reach across our network of games . mups . we define mups as the number of unique players who made a payment at least once during the applicable month through a payment method for which we can quantify the number of unique payers , including mobile payers . mups does not include payers who use certain smaller web-based payment methods for which we can not quantify the number of unique payers . if a player made a payment in our games on two separate platforms ( e.g . facebook and google+ ) in a period , the player would be counted as two unique payers in that period . monthly unique payers are presented as a quarterly average of the three months in the applicable quarter . average bookings per user ( abpu ) . we define abpu as ( i ) our total bookings in a given period , divided by ( ii ) the number of days in that period , divided by , ( iii ) the average daus during the period . we believe that abpu provides useful information to investors and others in understanding and evaluating our results in the same manner as our management and board of directors . we use abpu as a measure of overall monetization across all of our players through the sale of virtual goods and advertising . our business model for social games is designed so that , as there are more players that play our games , social interactions increase and the more valuable the games and our business becomes . all engaged players of our games help drive our bookings and , consequently , both online game revenue and advertising revenue . virtual goods are purchased by players who are socializing with , competing against or collaborating with other players , most of whom do not buy virtual goods . accordingly , we primarily focus on bookings , daus and abpu , which together we believe best reflect the economic value of all of our players . replace_table_token_6_th n/a means data is not available . our user metrics are impacted by several factors that cause them to fluctuate on a quarterly basis . beginning in early 2010 , facebook changed its policies for application developers regarding use of its communication channels . these changes limited the level of communication among users about applications on the facebook platform , which we believe contributed to a decline in our number of players throughout 2010. in addition , beginning with the third quarter of 2010 , our bookings and revenue growth rates were negatively impacted due to our adoption of facebook credits as the primary payment method on facebook . we account for facebook credits net of amounts retained by facebook . our daus , maus and muus all increased in the three months ended march 31 , 2011 , primarily due to the launch of cityville in december 2010 , the addition of new content to existing games and the launch of several mobile initiatives . in the third and fourth quarters of 2011 , daus declined compared to the first two quarters of the year , mainly due to a decline in players of our more mature games . however , during that six-month same period we saw an increase in maus and abpu as we continued to expand our reach as a result of new game launches and improve our monetization as a result of both new game launches and increased bookings from advertising . future growth in audience and engagement will depend on our ability to retain current players , attract new players , launch new games and expand into new markets and distribution platforms . 36 our operating metrics may not correlate directly to quarterly bookings or revenue trends in the short term . for instance , revenue has grown every quarter since our inception , including in quarters where dau , mau and muu did not grow . other metrics although certain mobile payer data for the third and fourth quarters of 2011 became available to us in the fourth quarter of 2011 , the table below shows quarterly unique payers excluding mobile payers in all periods presented in order to present a payer metric that excludes mobile payer data for all periods . the following table presents certain bookings and estimated quarterly unique payer data for the last eight quarters : replace_table_token_7_th ( 1 ) quarterly unique payer bookings represents the amount of bookings that we received through payment methods for which we can quantify the number of unique payers and excludes mobile payers for all periods presented . also excluded are bookings from advertising , and certain smaller web-based payment methods . ( 2 ) quarterly unique payers represents the aggregate number of unique players who made a payment at least once during the quarter through a payment method for which we can quantify the number of unique payers . it does not include payers who use mobile platforms and payers who use certain smaller web-based payment methods . if a player made a payment in our games on two separate platforms ( e.g .
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results of operations the following table sets forth our results of operations for the periods presented as a percentage of revenue for those periods . replace_table_token_9_th revenue replace_table_token_10_th 2011 compared to 2010. total revenue increased $ 542.6 million in 2011 , as a result of growth in both online game and advertising revenue . bookings increased by $ 316.6 million from 2010 to 2011. abpu increased from $ 0.041 to $ 0.055 , reflecting improved overall monetization of our players , while daus increased from 56 million to 57 million . despite the increase in revenue the adoption of facebook credits as our primary in-game payment method beginning in the third quarter of 2010 negatively impacted online game revenue in 2011 due to the fact that we record revenue net of amounts retained by facebook . online game revenue increased $ 491.0 million in 2011. farmville , frontierville and cityville accounted for $ 118.7 million , $ 137.4 million and $ 139.1 million of the increase , respectively . farmville was launched in june 2009 , and the increase in revenue reflects an increase in bookings from new content , as well as the recognition of revenue derived from deferred revenue built up over a longer period of time . the increase in revenue from frontierville and cityville was the result of the launch of these games in june 2010 and december 2010 , respectively , and , with respect to frontierville , a change in the estimated weighted-average life used to recognize revenue from durable virtual goods , which resulted in a $ 18.2 million increase in revenue from frontierville in 2011. all other games accounted for the remaining net increase of $ 95.8 million . international revenue as a percentage of total revenue accounted for 36 % and 33 % in 2011 and 2010 , respectively .
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in evaluating whether these conditions have been met , we consider clinical trial results for the underlying product candidate , results from meetings with regulatory authorities , and the compilation of the regulatory application . if we are aware of any material risks or contingencies outside of the standard regulatory review and approval process story_separator_special_tag ( amounts in millions , except percentages and per share data ) in addition to historical information , this report contains forward-looking statements that involve risks and uncertainties which may cause our actual results to differ materially from plans and results discussed in forward-looking statements . we encourage you to review the risks and uncertainties , discussed in the section entitled item 1a “ risk factors ” , and the “ note regarding forward-looking statements ” , included at the beginning of this annual report on form 10-k. the risks and uncertainties can cause actual results to differ significantly from those forecast in forward-looking statements or implied in historical results and trends . the following discussion should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this annual report on form 10-k. overview alexion is a global biopharmaceutical company focused on serving patients and families affected by rare diseases through the innovation , development and commercialization of life-changing therapies . we are the global leader in complement inhibition and have developed and commercialize the only two approved complement inhibitors to treat patients with paroxysmal nocturnal hemoglobinuria ( pnh ) , as well as the first and only approved complement inhibitor to treat atypical hemolytic uremic syndrome ( ahus ) and anti-acetylcholine receptor ( achr ) antibody-positive generalized myasthenia gravis ( gmg ) . in addition , alexion has two highly innovative enzyme replacement therapies for patients with life-threatening and ultra-rare metabolic disorders , hypophosphatasia ( hpp ) and lysosomal acid lipase deficiency ( lal-d ) . as the leader in complement biology for over 20 years , alexion focuses its research efforts on novel molecules and targets in the complement cascade , and its development efforts on the core therapeutic areas of hematology , nephrology , neurology , and metabolic disorders . recent developments in the fourth quarter 2018 , we completed the acquisition of syntimmune , inc. ( syntimmune ) , a clinical-stage biotechnology company developing an antibody therapy targeting the neonatal fc receptor ( fcrn ) . the lead candidate from this acquisition , alxn1830 ( synt001 ) , is a monoclonal antibody that inhibits the interaction of fcrn with immunoglobulin g ( igg ) and igg immune complexes , and is being studied in phase 1b/2a trials for the treatment of igg-mediated autoimmune diseases . under the terms of the agreement , alexion acquired syntimmune for an upfront payment of $ 400.0 , with the potential for additional milestone-dependent payments of up to $ 800.0 , for a total value of up to $ 1,200.0. in december 2018 ultomiris was approved by the fda as a new treatment option for adult patients living with paroxysmal nocturnal hemoglobinuria ( pnh ) . ultomiris is the first and only long-acting c5 inhibitor that provides immediate and complete inhibition for eight weeks . in january 2019 , we submitted our filings to the fda and the eu for marketing clearance for soliris as a potential treatment of nmosd . on january 21 , 2019 , the opposition division of the european patent office determined , following multi-party opposition proceedings , to revoke our european patent no . 2359834 , which relates to the formulation of soliris . subject to our review of the final written decision of the european patent office , we currently expect that we will appeal this decision . while any appeal is pending at the european patent office , the claims in the originally granted patent remain in force . in january 2019 , we announced the results of the phase iii study with ultomiris ( alxn1210 ) meeting its primary objective in complement inhibitor-naïve patients with ahus . in the initial 26 week treatment period in this study , 53.6 percent of patients demonstrated complete thrombotic microangiopathy ( tma ) response . in january 2019 , we entered into a collaboration agreement with caelum biosciences ( caelum ) to develop cael101 for light chain ( al ) amyloidosis . under the terms of the agreement , we acquired a minority equity interest in caelum and an exclusive option to acquire the remaining equity in the company based on phase ii data , for pre-negotiated economics . we made an upfront payment of $ 30.0 and could be required to pay up to an additional $ 30.0 in contingent milestone-dependent option fees . the collaboration also provides for potential additional payments , in the event alexion exercises the acquisition option , for up to $ 500.0 , which includes an upfront option exercise payment and potential regulatory and commercial milestone payments . 61 critical accounting policies and the use of estimates the significant accounting policies and basis of preparation of our consolidated financial statements are described in note 1 , “ business overview and summary of significant accounting policies ” of the consolidated financial statements included in this annual report on form 10-k. under accounting principles generally accepted in the u.s. , we are required to make estimates , judgments and assumptions that affect the reported amounts of assets , liabilities , revenues , expenses and disclosure of contingent assets and liabilities in our financial statements . actual results could differ from those estimates and such differences may be material . we believe the judgments , estimates and assumptions associated with the following critical accounting policies have the greatest potential impact on our consolidated financial statements : revenue recognition ; contingent liabilities ; inventories ; share-based compensation ; valuation of goodwill , acquired intangible assets and in-process research and development ( ipr & d ) ; valuation of contingent consideration ; and income taxes . story_separator_special_tag actual amounts of consideration ultimately received or refunded may differ from our estimates , and such difference may be material . if actual results in the future vary from our estimates , we adjust these estimates , which would affect net product sales and earnings in the period such variances become known , and such variances may be material . variability in the transaction price for our products pursuant to our contracts with customers primarily arises from the following : discounts and rebates : we offer discounts and rebates to certain distributors and customers under our arrangements . in many cases , these amounts are fixed at the time of sale and the transaction price is reduced accordingly . we also provide for rebates under certain governmental programs , including medicaid in the u.s. and other programs outside the u.s. , which are payable based on actual claim data . we estimate these rebates based on an analysis of historical claim patterns and estimates of customer mix to determine which sales will be subject to rebates and the amount of such rebates . we update our estimates and assumptions each period and record any necessary adjustments , which may have an impact on revenue in the period in which the adjustment is made ( and such impact may be material ) . generally , the length of time between product sale and the processing and reporting of the rebates is three to six months . volume-based arrangements : we have entered into volume-based arrangements with governments in certain countries and other customers in which reimbursement is limited to a contractual amount . under this type of arrangement , amounts billed in excess of the contractual limitation are repaid to the customer as a rebate . we estimate incremental discounts resulting from these contractual limitations , based on forecasted sales during the limitation period , and we apply the discount percentage to product shipments as a reduction of revenue . our calculations related to these arrangements require estimation of sales during the limitation period , and adjustments in these estimates may have a material impact in the period in which these estimates change . we have provided balances and activity in the rebates payable account for the years ended december 31 , 2018 , 2017 and 2016 as follows : replace_table_token_3_th current provisions relating to sales in the current year increased by $ 41.6 in 2018 compared to 2017 and $ 79.2 in 2017 compared to 2016 . the increase in 2018 was primarily due to increased unit volumes in the u.s. which were subject to rebates as well as increases in rebate rates in the u.s. on certain product sales . the increase in 2017 was attributable to increased unit volumes in the u.s. and europe , which were subject to rebates , as well as to increases in rebate rates in certain geographical regions and on certain product sales as compared to the prior year . distribution & other fees : we pay distribution and other fees to certain customers in connection with the sales of our products . we record distribution and other 63 fees paid to our customers as a reduction of revenue , unless the payment is for a distinct good or service from the customer and we can reasonably estimate the fair value of the goods or services received . if both conditions are met , we record the consideration paid to the customer as an operating expense . these costs are typically known at the time of sale , resulting in minimal adjustments subsequent to the period of sale . product returns : our contracts with customers generally provide for returns only if the product is damaged or defective upon delivery . we assess our sales transactions and arrangements with customers and monitor inventory within our sales channels to determine whether a provision for returns is warranted and a resulting adjustment to the transaction price is necessary . this assessment is based on historical experience and assumptions as of the date of sale and changes in these estimates could have an impact in the period in which the change occurs ( and such impact may be material ) . because of factors such as the price of our products , the limited number of patients , the short period from product sale to patient infusion and limited contractual return rights , our customers often carry limited inventory . the amount of variable consideration included in the transaction price is constrained by the amount that is probable will not result in a significant reversal of revenue . we consider our experience with similar transactions and expectations regarding the contract in estimating the amount of variable consideration to which we expect to be entitled , and determining whether the estimated variable consideration should be constrained . we do not have any material constraints on the variable consideration included within the transaction price of our current revenue arrangements . we continue to monitor economic conditions , including volatility associated with international economies and the associated impacts on the financial markets and our business . for additional information related to our concentration of credit risk associated with certain international accounts receivable balances , refer to the “ financial condition , liquidity and capital resources ” and “ quantitative and qualitative disclosures about market risk ” sections below . contingent liabilities we are currently involved in various claims and legal proceedings . on a quarterly basis , we review the status of each significant matter and assess its potential financial exposure . if the potential loss from any claim , asserted or unasserted , or legal proceeding is considered probable and the amount can be reasonably estimated , we accrue a liability for the estimated loss . because of uncertainties related to claims and litigation , accruals are based on our best estimates based on available information .
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results of operations the following table sets forth consolidated statements of operations data for the periods indicated . this information has been derived from the consolidated financial statements included elsewhere in this annual report on form 10-k. replace_table_token_4_th 69 comparison of the years ended december 31 , 2018 , 2017 , and 2016 net product sales net product sales by product and significant geographic region are as follows : replace_table_token_5_th * * percentages not meaningful net product sales ( consolidated ) united states asia pacific europe rest of world soliris net product sales united states asia pacific europe rest of world 70 strensiq net product sales united states asia pacific europe rest of world kanuma net product sales united states asia pacific europe rest of world the components of the increase in net product sales for december 31 , 2018 as compared to 2017 are as follows : the increase in net product sales for fiscal year 2018 , as compared to fiscal year 2017 , was primarily due to an increase in unit volumes of 20.1 % . this increase in unit volumes is primarily due to increased global demand for soliris therapy , including sales to patients with gmg , which received regulatory approval in the second half of 2017. additional unit volume increases were due to increased sales of strensiq and kanuma during 2018 as a result of our continuing efforts to identify and reach more patients with hpp and lal-d globally .
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” executive overview general american water works company , inc. ( herein referred to as “ american water ” or the “ company ” ) is the largest investor-owned united states water and wastewater utility company , as measured both by operating revenues and population served . our approximately 6,400 employees provide drinking water , wastewater and other water related services to an estimated 15 million people 33 in 47 states and in one canadian province . our primary business involves the ownership of water and wastewater utilities that provide water and wastewater services to residential , commercial , industrial and other customers . our regulated businesses that provide these services are generally subject to economic regulation by state regulatory agencies in the states in which they operate . the federal government and the states also regulate environmental , health and safety and water quality matters . our regulated businesses provide services in 16 states and serve approximately 3.2 million customers based on the number of active service connections to our water and wastewater networks . we report the results of these businesses in our regulated businesses segment . we also provide services that are not subject to economic regulation by state regulatory agencies . we report the results of these businesses in our market-based operations segment . in 2014 , we continued the execution of our strategic goals . our commitment to growth through investment in our regulated infrastructure and expansion of our regulated customer base and our market-based operations , combined with operational excellence led to continued improvement in regulated operating efficiency , improved performance of our market-based operations , and enabled us to provide increased value to our customers and investors . during the year , we focused on growth , addressed regulatory lag , made more efficient use of capital and improved our regulated operation and maintenance ( “ o & m ” ) efficiency ratio . 2014 financial results for the year ended december 31 , 2014 , we continued to increase net income , while making significant capital investment in our infrastructure and implementing operational efficiency improvements to keep customer rates affordable . highlights of our 2014 operating results compared to 2013 and 2012 include : replace_table_token_7_th continuing operations income from continuing operations included 4 cents per diluted share of costs resulting from the freedom industries chemical spill in west virginia in 2014 and included 14 cents per diluted share in 2013 related to a tender offer . earnings from continuing operations , adjusted for these two items , increased 10 % , or 22 cents per share , mainly due to favorable operating results from our regulated businesses segment due to higher revenues and lower operating expenses , partially offset by higher depreciation expenses . also contributing to the overall increase in income from continuing operations was lower interest expense in 2014 compared to the same period in 2013. discontinued operations in the fourth quarter of 2014 , we sold our terratec line of business , which was part of our market-based operations segment . the loss from discontinued operations , net of tax reflected in the 2014 financial results includes the loss on the sale , an income tax valuation allowance and the 2014 operating results of the entity prior to the sale . also , as part of our portfolio optimization initiative , the sales of our regulated subsidiaries in arizona , new mexico and ohio were completed during 2012. discontinued operations include the gain/loss on sale , as well as the operating results of these subsidiaries . see “ consolidated results of operations and variances ” and “ segment results ” below for further detailed discussion of the consolidated results of operations , as well as our business segments . all financial information in this management 's discussion and analysis of financial condition and results of operations ( “ md & a ” ) reflects continuing operations , unless otherwise noted . see note 3 to consolidated financial statements for further details on our discontinued operations . making efficient use of capital we invested approximately $ 1 billion and $ 950 million in company-funded capital improvements in 2014 and 2013 , respectively . these capital investments are needed on an ongoing basis to comply with existing and new regulations , renew aging treatment and network assets , provide capacity for new growth and ensure system reliability , security and quality of service . the need for continuous investment presents a challenge as we work to balance investment needs with customer affordability . in addition , the potential for regulatory lag , or the delay in recovering operating expenses may impact the level of our capital investments . 34 expanding markets and developing new offerings during 2014 , our regulated businesses completed the purchase of five regulated water systems , five regulated wastewater systems and three regulated water and wastewater systems . these acquisitions added approximately 2,100 water customers and 2,400 wastewater customers to our regulated operations . during 2014 , our military services group within our market-based operations segment was awarded two u.s. military contracts . in january 2014 , it was awarded a contract for operation and maintenance of the water and wastewater systems at hill air force base in utah . in august 2014 , the military services group was awarded a contract for operation and maintenance of the water and wastewater systems at picatinny arsenal in new jersey . during 2014 , our homeowners services group ( `` hos '' ) began offering its water and sewer line protection programs in eight new states . additionally , orlando utilities commission ( `` ouc '' ) awarded hos a contract to be ouc 's exclusive provider of service line protection programs . this contract enables hos to market its water line , sewer line , in-home plumbing , interior electric , surge , commercial water line and commercial sewer line protection programs to ouc 's 234,000 customers . in 2014 , hos also launched its interior electric program and continued to develop new products and services to better meet customer needs . story_separator_special_tag the company and wvawc believe that wvawc has responded appropriately to , and has no responsibility for , the freedom industries chemical spill , and the company , wvawc and other company affiliates have valid , meritorious defenses to the lawsuits . nevertheless , an adverse outcome in one or more of the lawsuits could have a material adverse effect on our financial condition , results of operations , cash flows , liquidity and reputation . moreover , wvawc and the company are unable to predict the outcome of the ongoing government investigations or any legislative initiatives that might affect water utility operations . 2015 and beyond our future results are anchored on five central themes with customers at the center of all we do . these five central themes are : customers · our focus continues to concentrate on our customers by achieving customer satisfaction and service quality targets . in addition , we will continue to balance our infrastructure investment needs with the affordability impact on customer bills . safety · our focus continues on driving safety in everything that we do . our safety focus includes safety of employees , customers and the public . we have made safety a core value of our company . people · our focus on employees and our culture is paramount to our success going forward . we intend to focus on ensuring we have strong relationships with our union represented employees , effective training and development and diversity of our workforce . growth · we expect to invest $ 6 billion over the next five years , with $ 1.2 billion in 2015 , as follows : § capital investment to improve infrastructure in our regulated businesses of $ 5.2 billion , with $ 1.1 billion expected in 2015 . § growth from acquisitions in our regulated businesses to expand our water and wastewater customer base of $ 540 million . § growth in our market-based businesses from new core growth , expanded markets and new offerings , and evaluate potential opportunities to assist the shale industry in the delivery of water to support their processes . we have estimated strategic capital of $ 230 million . technology & operational efficiency · continued commitment to operational efficiency , technology innovation and environmental stewardship . we intend to continue to modernize our infrastructure and focus on operational efficiencies , while bolstering a culture of continuous improvement . we have set a goal to achieve an o & m efficiency ratio equal to or below 34 % by 2020. in regards to 37 environmental sustainability , we are committed to maximizing our protection of the environment , reducing our carbon and waste footprints and water lost through leakage . we are committed to operating our business responsibly and managing our operating and capital costs in a manner that benefits our customers and produces value for our shareholders . we are committed to an ongoing strategy that leverages processes and technology innovation to make ourselves more effective and efficient . 38 consolidated results of operations the following table sets forth our consolidated statement of operations data for the years ended december 31 , 2014 , 2013 and 2012 : replace_table_token_9_th ( a ) amounts may not sum due to rounding . 39 comparison of consolidated results of operations for the years ended december 31 , 2014 and 2013 operating revenues . consolidated operating revenues for the year ended december 31 , 2014 increased $ 132.4 million , or 4.6 % , compared to the same period in 2013. this increase is the result of higher revenues in our regulated businesses of $ 80.4 million , which was mainly attributable to rate increases , incremental revenues from surcharges and balancing accounts and acquisitions partially offset by reduced consumption in 2014. also contributing to the higher revenue was a $ 52.1 million increase in our market-based operations segment . the primary drivers were incremental revenue from contract growth in hos , and for our military contracts , price redeterminations and increased construction project activity with the largest increase due to the fort polk wastewater treatment plant project awarded in late 2013. for further information see the respective “ operating revenues ” discussions within the “ segment results. ” operation and maintenance . consolidated operation and maintenance expense for the year ended december 31 , 2014 increased $ 60.8 million , or 4.7 % , compared to 2013. the increase is primarily due to an increase in our market-based operations segment of $ 48.8 million principally as a result of incremental costs related to the increased activity under our military contracts , corresponding with the increased revenue . also , our regulated businesses ' costs increased by $ 6.1 million principally due to increased production costs , uncollectible expense , maintenance expenses and costs associated with the freedom industries chemical spill in west virginia partially offset by lower employee-related costs . for further information see the respective “ operation and maintenance ” discussions within the “ segment results. ” depreciation and amortization . depreciation and amortization expense increased by $ 17.4 million , or 4.3 % , for the year ended december 31 , 2014 compared to the same period in the prior year as a result of additional utility plant placed in service , including our customer information and enterprise asset management systems that were placed into service during the second and fourth quarters of 2013. other income ( expenses ) . other expenses decreased by $ 47.6 million , or 14.0 % , for the year ended december 31 , 2014 compared to the same period in the prior year .
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segment results of operations we have two operating segments , which are also our reportable segments : the regulated businesses and the market-based operations . these segments are determined based on how we assess performance and allocate resources . we evaluate the performance of our segments and allocated resources based on several factors , with the primary measure being income from continuing operations before income taxes . regulated businesses segment the following table summarizes certain financial information for our regulated businesses for the periods indicated : replace_table_token_10_th 41 operating revenues . our primary business involves the ownership of water and wastewater utilities that provide services to residential , commercial , industrial and other customers . this business is subject to state regulation and our results of operations can be impacted significantly by rates authorized by the state regulatory commissions in the states in which we operate . the table below details additional annualized revenues awarded , including step increases and assuming a constant volume , resulting from rate authorizations granted in 2014 , 2013 and 2012 : replace_table_token_11_th ( 1 ) on december 19 , 2013 , a rate case settlement was approved with an effective date of january 1 , 2014. this rate increase combined , in part , wastewater and water rates . ( 2 ) final order was received on october 25 , 2013. the increase approximated the interim rates , net of the reserve that had been recorded since july 27 , 2013 . ( 3 ) second and final step increases from the 2012 rate case became effective on april 1 , 2013 and april 1 , 2014 , respectively . ( 4 ) final order issued on september 26 , 2013 by the west virginia public service commission . new rates were put into effect october 11 , 2013 .
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” overview we are a maryland corporation formed in april 2013. we became a public company on november 19 , 2013 when ashford trust , a nyse-listed reit , completed the spin-off of our company through the distribution of our outstanding common stock to the ashford trust stockholders . we invest primarily in high revenue per available room ( “ revpar ” ) , luxury hotels and resorts . high revpar , for purposes of our investment strategy , means revpar of at least twice the then-current u.s. national average revpar for all hotels as determined by smith travel research . two times the u.s. national average was $ 172 for the year ended december 31 , 2018 . we have elected to be taxed as a reit under the internal revenue code beginning with our short taxable year ended december 31 , 2013. we conduct our business and own substantially all of our assets through our operating partnership , braemar op . we operate in the direct hotel investment segment of the hotel lodging industry . as of march 6 , 2019 , we owned interests in thirteen hotel properties in six states , the district of columbia and st. thomas , u.s. virgin islands with 3,719 total rooms , or 3,484 net rooms , excluding those attributable to our joint venture partner . the hotel properties in our current portfolio are predominantly located in u.s. urban markets and resort locations with favorable growth characteristics resulting from multiple demand generators . we own eleven of our hotel properties directly , and the remaining two hotel properties through an investment in a majority-owned consolidated entity . we are advised by ashford llc , a subsidiary of ashford inc. , through an advisory agreement . all of the hotel properties in our portfolio are currently asset-managed by ashford llc . we do not have any employees . all of the services that might be provided by employees are provided to us by ashford llc . on april 23 , 2018 , in connection with our name change , we entered into the fifth amended and restated advisory agreement with ashford llc ( as amended , the “ fifth amended and restated advisory agreement ” ) . the fifth amended and restated advisory agreement amends the prior amended and restated advisory agreement only to reflect the name change and does not amend or otherwise alter the rights of any of the parties thereto . in january 2019 , we entered into the enhanced return funding program and amendment no . 1 to the fifth amended and restated advisory agreement . see note 24 to our consolidated financial statements . pursuant to the termination provisions of the fifth amended and restated advisory agreement , as amended on january 15 , 2019 , the revenues and expenses used to calculate net earnings ( as defined ) for the twelve months ended december 31 , 2018 , are as follows ( in thousands ) : revenues $ 28,229 expenses 10,240 net earnings $ 17,989 additional developments on march 28 , 2018 , the company made a $ 2.0 million investment in openkey , which is controlled and consolidated by ashford inc. , for an 8.2 % ownership interest , which investment was approved by our related party transactions committee or the independent members of our board of directors . openkey is a hospitality focused mobile key platform that provides a universal smart phone app for keyless entry into hotel guestrooms . on april 4 , 2018 , the company acquired a 100 % interest in the 266 -room ritz-carlton , sarasota in sarasota , florida for $ 171.4 million and a 22 -acre plot of vacant land for $ 9.7 million . concurrent with the completion of the acquisition , we completed the financing of a $ 100.0 million mortgage loan . this mortgage loan provides for a floating interest rate of libor + 2.65 % . the mortgage loan is interest only until july 1 , 2021 and then amortizes 1 % annually for the remaining term . the stated maturity is april 2023 . 79 on may 23 , 2018 , the company refinanced 2 mortgage loans totaling $ 357.6 million with a new $ 435.0 million mortgage loan with a two -year initial term and five one -year extension options subject to the satisfaction of certain conditions . as a result of the refinance the tampa renaissance became unencumbered . the new mortgage loan is interest only and bears interest at a rate of libor + 2.16 % . the loan is secured by 4 hotels : seattle marriott waterfront , san francisco courtyard downtown , philadelphia courtyard downtown and sofitel chicago magnificent mile . on june 1 , 2018 , the company completed the sale of the 293-room tampa renaissance in tampa , florida hotel for $ 68.0 million . the sale resulted in a gain of $ 15.7 million for the year ended december 31 , 2018 and is included in “ gain ( loss ) on sale of hotel properties ” in our consolidated statements of operations . the closing of the sale completed a reverse 1031 exchange that was initiated to acquire the ritz-carlton , sarasota . on november 13 , 2018 , we issued 1.6 million shares of our 8.25 % series d cumulative preferred stock . the net proceeds from the offering after discounts and offering expenses were approximately $ 37.9 million . the series d cumulative preferred stock ranks senior to all classes or series of the company 's common stock and future junior securities , on a parity with each series of the company 's outstanding preferred stock ( the series b cumulative convertible preferred stock ) and with any future parity securities and junior to future senior securities and to all of the company 's existing and future indebtedness , with respect to the payment of dividends and the distribution of amounts upon liquidation , dissolution or winding up of the company 's affairs . story_separator_special_tag we also use these metrics to evaluate the hotels in our portfolio and potential acquisitions to determine each hotel 's contribution to cash flow and its potential to provide attractive long-term total returns . these key indicators include : occupancy-occupancy means the total number of hotel rooms sold in a given period divided by the total number of rooms available . occupancy measures the utilization of our hotels ' available capacity . we use occupancy to measure demand at a specific hotel or group of hotels in a given period . adr-adr means average daily rate and is calculated by dividing total hotel rooms revenues by total number of rooms sold in a given period . adr measures average room price attained by a hotel and adr trends provide useful information concerning the pricing environment and the nature of the customer base of a hotel or group of hotels . we use adr to assess the pricing levels that we are able to generate . revpar-revpar means revenue per available room and is calculated by multiplying adr by the average daily occupancy . revpar is one of the commonly used measures within the hotel industry to evaluate hotel operations . revpar does not include revenues from food and beverage sales or parking , telephone or other non-rooms revenues generated by the property . although revpar does not include these ancillary revenues , it is generally considered the leading indicator of core revenues for many hotels . we also use revpar to compare the results of our hotels between periods and to analyze results of our comparable hotels ( comparable hotels represent hotels we have owned for the entire period ) . revpar improvements attributable to increases in occupancy are generally accompanied by increases in most categories of variable operating costs . revpar improvements attributable to increases in adr are generally accompanied by increases in limited categories of operating costs , such as management fees and franchise fees . revpar changes that are primarily driven by changes in occupancy have different implications for overall revenues and profitability than changes that are driven primarily by changes in adr . for example , an increase in occupancy at a hotel would lead to additional variable operating costs ( including housekeeping services , utilities and room supplies ) and could also result in increased other operating department revenue and expense . changes in adr typically have a greater impact on operating margins and profitability as they do not have a substantial effect on variable operating costs . occupancy , adr and revpar are commonly used measures within the lodging industry to evaluate operating performance . revpar is an important statistic for monitoring operating performance at the individual hotel level and across our entire business . we evaluate individual hotel revpar performance on an absolute basis with comparisons to budget and prior periods , as well as on a regional and company-wide basis . adr and revpar include only rooms revenue . rooms revenue comprised approximately 66 % of our total hotel revenue for the year ended december 31 , 2018 and is dictated by demand ( as measured by occupancy ) , pricing ( as measured by adr ) and our available supply of hotel rooms . we also use ffo , affo , ebitdare , adjusted ebitdare and hotel ebitda as measures of the operating performance of our business . see “ non-gaap financial measures. ” principal factors affecting our results of operations the principal factors affecting our operating results include overall demand for hotel rooms compared to the supply of available hotel rooms , and the ability of our third-party management companies to increase or maintain revenues while controlling expenses . demand . the demand for lodging , including business travel , is directly correlated to the overall economy ; as gdp increases , lodging demand typically increases . historically , periods of declining demand are followed by extended periods of relatively strong demand , which typically occurs during the growth phase of the lodging cycle . following the recession that commenced in 2008 , the lodging industry has experienced improvement in fundamentals , including demand , which has continued through 2018 . we believe that industry fundamentals continue to show growth albeit at a slower pace . 81 supply . the development of new hotels is driven largely by construction costs , the availability of financing and expected performance of existing hotels . short-term supply is also expected to be below long-term averages . while the industry is expected to have supply growth below historical averages , we may experience supply growth , in certain markets , in excess of national averages that may negatively impact performance . we expect that our adr , occupancy and revpar performance will be impacted by macroeconomic factors such as national and local employment growth , personal income and corporate earnings , gdp , consumer confidence , office vacancy rates and business relocation decisions , airport and other business and leisure travel , new hotel construction , the pricing strategies of competitors and currency fluctuations . in addition , our adr , occupancy and revpar performance are dependent on the continued success of the marriott , hilton and sofitel brands . revenue . substantially all of our revenue is derived from the operation of hotels . specifically , our revenue is comprised of : rooms revenue-occupancy and adr are the major drivers of rooms revenue . rooms revenue accounts for the substantial majority of our total revenue . food and beverage revenue-occupancy and the type of customer staying at the hotel are the major drivers of food and beverage revenue ( i.e. , group business typically generates more food and beverage business through catering functions when compared to transient business , which may or may not utilize the hotel 's food and beverage outlets or meeting and banquet facilities ) . other hotel revenue-occupancy and the nature of the property are the main drivers of other ancillary revenue , such as telecommunications , parking and leasing services . hotel operating expenses .
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results of operations year ended december 31 , 2018 compared to year ended december 31 , 2017 the following table summarizes the changes in key line items from our consolidated statements of operations for the years ended december 31 , 2018 and 2017 ( in thousands except percentages ) : replace_table_token_32_th 83 all hotel properties owned during the years ended december 31 , 2018 and 2017 have been included in our results of operations during the respective periods in which they were owned . based on when a hotel property was acquired or disposed of , operating results for certain hotel properties are not comparable for the years ended december 31 , 2018 and 2017. the hotel properties listed below are not comparable hotel properties for the periods indicated and all other hotel properties are considered comparable hotel properties . the following acquisitions and dispositions affect reporting comparability related to our consolidated financial statements : replace_table_token_33_th ( 1 ) the operating results of these hotel properties have been included in our results of operations as of their acquisition dates . the following table illustrates the key performance indicators of our hotel properties for the periods indicated : replace_table_token_34_th the following table illustrates the key performance indicators of the nine comparable hotel properties that were included for the entire years ended december 31 , 2018 and 2017 : replace_table_token_35_th net income ( loss ) attributable to the company . net income attributable to the company decreased $ 21.7 million , to $ 1.3 million for the year ended december 31 , 2018 ( “ 2018 ” ) compared to $ 23.0 million for the year ended december 31 , 2017 ( “ 2017 ” ) as a result of the factors discussed below . rooms revenue . rooms revenue from our hotel properties de creased $ 3.2 million , or 1.1 % to $ 282.8 million during 2018 compared to 2017 .
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the company has been involved in all aspects of commercial real estate development , management and ownership for over 60 years and has been a publicly-traded reit since 1994. the company owns or has interests in 278 properties ( collectively , the “ properties ” ) , primarily class a office and office/flex buildings , totaling approximately 31.7 million square feet , leased to over 2,000 tenants . the properties are located primarily in suburban markets of the northeast , some with adjacent , company-controlled developable land sites able to accommodate up to 12.3 million square feet of additional commercial space . the company 's historical strategy has been to focus its operations , acquisition and development of office properties in high-barrier-to-entry markets and sub-markets where it believes it is , or can become , a significant and preferred owner and operator . the company intends to aggressively pursue multi-family residential investments in its core northeast markets , both through acquisitions and developments , with the goal of materially expanding its holdings in the multi-family sector . this strategy may include , over time , the repositioning of a portion of its portfolio from office properties to multi-family properties . as an owner of real estate , almost all of the company 's earnings and cash flow is derived from rental revenue received pursuant to leased space at the properties . key factors that affect the company 's business and financial results include the following : · the general economic climate ; · the occupancy rates of the properties ; · rental rates on new or renewed leases ; · tenant improvement and leasing costs incurred to obtain and retain tenants ; · the extent of early lease terminations ; · operating expenses ; · cost of capital ; and · the extent of acquisitions , development and sales of real estate . any negative effects of the above key factors could potentially cause a deterioration in the company 's revenue and or earnings . such negative effects could include : ( 1 ) failure to renew or execute new leases as current leases expire ; ( 2 ) failure to renew or execute new leases with rental terms at or above the terms of in-place leases ; and ( 3 ) tenant defaults . a failure to renew or execute new leases as current leases expire or to execute new leases with rental terms at or above the terms of in-place leases may be affected by several factors such as : ( 1 ) the local economic climate , which may be adversely impacted by business layoffs or downsizing , industry slowdowns , changing demographics and other factors ; and ( 2 ) local real estate conditions , such as oversupply of the company 's product types or competition within the market . the company 's core office markets continue to be weak . the percentage leased in the company 's consolidated portfolio of stabilized operating commercial properties was 87.2 percent at december 31 , 2012 as compared to 88.3 percent at december 31 , 2011 and 89.1 percent at december 31 , 2010. percentage leased includes all leases in effect as of the period end date , some of which have commencement dates in the future and leases that expire at the period end date . leases that expired as of december 31 , 2012 , 2011 and 2010 aggregate 378,901 , 193,213 and 187,058 square feet , respectively , or 1.2 , 0.6 and 0.6 percentage of the net rentable square footage , respectively . rental rates ( including escalations ) on the company 's space that was renewed ( based on first rents payable ) during the year ended december 31 , 2012 ( on 2,221,503 square feet of renewals ) decreased an average of 2.4 percent compared to rates that were in effect under the prior leases , as compared to a 3.3 percent decrease in 2011 ( on 2,592,017 square feet of renewals ) and an 8.6 percent decrease in 2010 ( on 2,637,338 square feet of renewals ) . estimated lease costs for the renewed leases in 2012 averaged $ 2.06 per square foot per year for a weighted average lease term of 4.0 years , estimated lease costs for the renewed leases in 2011 averaged $ 2.85 per square foot per year for a weighted average lease term of 4.3 years and estimated lease costs for the renewed leases in 2010 averaged $ 2.69 per square foot per year for a weighted average lease term of 4.8 years . the company believes that commercial vacancy rates may continue to increase and rental rates may continue to decline in some of its markets through 2013 and possibly beyond . as of december 31 , 2012 , leases which comprise approximately 10.0 percent of the company 's annualized base rent are scheduled to expire during the year ended december 31 , 2013. with the decline of rental rates in the company 's markets over the past few years , as leases expire in 2013 , assuming no further changes in current market rental rates , the company expects that the rental rates it is likely to achieve on new leases will generally be lower than the rates currently being paid , thereby resulting in less revenue from the same space . as a result of the above factors , the company 's future earnings and cash flow may continue to be negatively impacted by current market conditions . 47 the company expects that the impact of the current state of the economy , including high unemployment will continue to have a negative effect on the fundamentals of its business , including lower occupancy , reduced effective rents , and increases in defaults and past due accounts . these conditions would negatively affect the company 's future net income and cash flows and could have a material adverse effect on the company 's financial condition . story_separator_special_tag at december 31 , 2012 , in light of recent discussions to dispose of its interest , the company determined that certain rights to participate in a future development venture , which related to a mixed use development project in east rutherford , new jersey , were not expected to be recovered from estimated net proceeds from its eventual disposition . accordingly , the company recorded an impairment charge of $ 6.3 million , to reduce the carrying value from $ 11.9 million to the estimated recoverable amount of $ 5.6 million at december 31 , 2012. these rights are included in deferred charges , goodwill and other assets , as of december 31 , 2012. the company also recorded an impairment charge on another rental property investment of $ 0.5 million related to an office property in newark , new jersey . the company 's office property located at 9200 edmonston road in greenbelt , maryland , aggregating 38,690 square feet , is collateral for a mortgage loan scheduled to mature on may 1 , 2013 with a balance of $ 4.3 million at december 31 , 2012. at december 31 , 2012 , the company estimated that the carrying value of the property may not be recoverable over its anticipated holding period . in order to reduce the carrying value of the property to its estimated fair market value , the company recorded an impairment charge of $ 3.0 million at december 31 , 2012. also at december 31 , 2012 , as a result of management 's current intentions regarding a potential disposition , the company estimated that the carrying value of the company 's two office properties located at 16 and 18 sentry parkway west in blue bell , pennsylvania , aggregating 188,103 square feet , may not be recoverable over their anticipated holding periods . in order to reduce the carrying value of the two properties to their estimated fair market values , the company recorded an impairment charge of $ 8.4 million at december 31 , 2012 . 49 critical accounting policies and estimates the financial statements have been prepared in conformity with generally accepted accounting principles . the preparation of the financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements , and the reported amounts of revenues and expenses during the reported period . these estimates and assumptions are based on management 's historical experience that are believed to be reasonable at the time . however , because future events and their effects can not be determined with certainty , the determination of estimates requires the exercise of judgment . the company 's critical accounting policies are those which require assumptions to be made about matters that are highly uncertain . different estimates could have a material effect on the company 's financial results . judgments and uncertainties affecting the application of these policies and estimates may result in materially different amounts being reported under different conditions and circumstances . rental property : rental properties are stated at cost less accumulated depreciation and amortization . costs directly related to the acquisition , development and construction of rental properties are capitalized . pursuant to the company 's adoption of asc 805 , business combinations , effective january 1 , 2009 , acquisition-related costs are expensed as incurred . capitalized development and construction costs include pre-construction costs essential to the development of the property , development and construction costs , interest , property taxes , insurance , salaries and other project costs incurred during the period of development . interest capitalized by the company for the years ended december 31 , 2012 , 2011 and 2010 was $ 4.3 million , $ 1.1 million and $ 1.9 million , respectively . ordinary repairs and maintenance are expensed as incurred ; major replacements and betterments , which improve or extend the life of the asset , are capitalized and depreciated over their estimated useful lives . fully-depreciated assets are removed from the accounts . the company considers a construction project as substantially completed and held available for occupancy upon the completion of tenant improvements , but no later than one year from cessation of major construction activity ( as distinguished from activities such as routine maintenance and cleanup ) . if portions of a rental project are substantially completed and occupied by tenants , or held available for occupancy , and other portions have not yet reached that stage , the substantially completed portions are accounted for as a separate project . the company allocates costs incurred between the portions under construction and the portions substantially completed and held available for occupancy , primarily based on a percentage of the relative square footage of each portion , and capitalizes only those costs associated with the portion under construction . properties are depreciated using the straight-line method over the estimated useful lives of the assets . the estimated useful lives are as follows : leasehold interests remaining lease term buildings and improvements 5 to 40 years tenant improvements the shorter of the term of the related lease or useful life furniture , fixtures and equipment 5 to 10 years upon acquisition of rental property , the company estimates the fair value of acquired tangible assets , consisting of land , building and improvements , and identified intangible assets and liabilities assumed , generally consisting of the fair value of ( i ) above and below market leases , ( ii ) in-place leases and ( iii ) tenant relationships . the company allocates the purchase price to the assets acquired and liabilities assumed based on their fair values . the company records goodwill or a gain on bargain purchase ( if any ) if the net assets acquired/liabilities assumed exceed the purchase consideration of a transaction .
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results from operations the following comparisons for the year ended december 31 , 2012 ( “ 2012 ” ) , as compared to the year ended december 31 , 2011 ( “ 2011 ” ) , and for 2011 as compared to the year ended december 31 , 2010 ( “ 2010 ” ) , make reference to the following : ( i ) the effect of the “ same-store properties , ” which represent all in-service properties owned by the company at december 31 , 2010 , ( for the 2012 versus 2011 comparison ) and which represent all in-service properties owned by the company at december 31 , 2009 , ( for the 2011 versus 2010 comparison ) , excluding properties sold or held for sale through december 31 , 2012 ; ( ii ) the effect of the roseland assets and roseland business ( collectively , “ roseland ” ) ( for the 2012 versus 2011 comparison ) and ( iii ) the effect of the “ acquired properties , ” which represent all properties acquired by the company or commencing initial operation from january 1 , 2010 through december 31 , 2011 ( for the 2011 versus 2010 comparison ) .
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operating in a number of sectors , including construction , transportation , agriculture , energy , oil and gas , mining , and forestry , the company 's selling channels include : ritchie bros. auctioneers , the world 's largest industrial auctioneer offers live auction events with online bidding ; ironplanet , an online marketplace with featured weekly auctions and providing the exclusive ironclad assurance® equipment condition certification ; marketplace-e , a controlled marketplace offering multiple price and timing options ; mascus , a leading european online equipment listing service ; and ritchie bros. private treaty , offering privately negotiated sales . the company 's suite of multichannel sales solutions also includes rb asset solutions , a complete end-to-end asset management and disposition system . ritchie bros. also offers sector-specific solutions including govplanet , truckplanet , and kruse energy auctioneers , plus equipment financing and leasing through ritchie bros. financial services . on may 31 , 2017 , we acquired ironplanet holdings , inc. ( “ ironplanet ” ) , a leading online marketplace for heavy equipment and other durable assets for $ 776.5 million ( the “ acquisition ” ) . ironplanet 's complementary used equipment brand solutions , together with marketplace-e , our online marketplace that supports reserved pricing , provide different value propositions to equipment owners and allow us to meet the needs and preferences of a wide spectrum of equipment sellers and buyers . upon the consummation of the acquisition on may 31 , 2017 , we formed an alliance with caterpillar inc. ( “ caterpillar ” ) , pursuant to a strategic alliance and remarketing agreement ( the “ alliance ” ) . under the alliance , we became caterpillar 's preferred global partner for live on site and online auctions for used caterpillar equipment . through our unreserved live on site auctions , online marketplaces , and private brokerage services , we sell a broad range of used and unused equipment , including earthmoving equipment , truck trailers , government surplus , oil and gas equipment and other industrial assets . construction and heavy machinery comprise the majority of the equipment sold through our multiple brand solutions . customers selling equipment through our sales channels include end-users ( such as construction companies ) , equipment dealers , original equipment manufacturers , and other equipment owners ( such as rental companies and government bodies ) . our customers participate in a variety of sectors , including heavy construction , transportation , agriculture , energy , and mining . overview the following discussion and analysis summarizes significant factors affecting our consolidated operating results and financial condition for the years ended december 31 , 2018 , 2017 , and 2016. this discussion and analysis should be read in conjunction with the “ cautionary note regarding forward-looking statements ” , “ part ii , item 6 : selected financial data ” , and the consolidated financial statements and the notes thereto included in “ part ii , item 8. financial statements and supplementary data ” presented in this annual report on form 10-k. this discussion and analysis contains forward-looking statements that involve risks and uncertainties . our actual results could differ materially from those expressed or implied in any forward-looking statements due to various factors , including those set forth under “ part i , item 1a : risk factors ” in this annual report on form 10-k. the date of this discussion is as of february 28 , 2019. we prepare our consolidated financial statements in accordance with u.s. generally accepted accounting principles ( “ us gaap ” ) . except for gtv , which is a measure of operational performance and not a measure of financial performance , liquidity , or revenue , the amounts discussed below are based on our consolidated financial statements . unless indicated otherwise , all tabular dollar amounts , including related footnotes , presented below are expressed in thousands of united states ( “ u.s. ” ) dollars . in the accompanying analysis of financial information , we sometimes use information derived from consolidated financial data but not presented in our financial statements prepared in accordance with us gaap . certain of these data are considered “ non-gaap financial measures ” under the sec rules . the definitions and reasons we use these non-gaap financial measures and the reconciliations to their most directly comparable us gaap financial measures are included either with the first use thereof or in the non-gaap measures section within the md & a . non-gaap financial measures referred to in this report are labeled as “ non-gaap measure ” or designated as such with an asterisk ( * ) . ritchie bros. 30 story_separator_special_tag commission being recognized as revenue , while revenue of inventory sales will result in the gross transaction value of the equipment sold being recorded as revenue with the related cost recognized in cost of inventory sold . as a result , a change in the revenue mix between service revenues and revenue from inventory sales can have a significant impact on revenue growth percentages . throughout this discussion , we disclose sales of inventory revenue as a percent of total revenues to provide more information regarding our revenue mix . in each of 2018 and 2017 , 36 % of our total revenue was comprised of revenue from inventory sales , compared to 51 % in 2016. cost of inventory sold as a percent of operating expense can also fluctuate significantly due to changes in the revenue mix . revenues increased $ 198.8 million , or 20 % , in 2018 compared to 2017 primarily due to incremental volume from the acquisition . fiscal 2018 included 12 full months of acquisition volume versus seven months of post-acquisition activity in fiscal 2017. the increase was also due to partial fee harmonization and higher revenues from inventory sales . as part of our ironplanet integration activities , we partially harmonized our fees between on site and online auctions . story_separator_special_tag this increase in sg & a expenses from 2016 to 2017 was partially offset by a decrease in share unit expense . foreign exchange rates had an unfavourable impact on sg & a expenses in 2017. foreign exchange ( gain ) loss we conduct global operations in many different currencies , with our presentation currency being the u.s. dollar . in 2018 , approximately 50 % of our revenues and 53 % of our operating expenses were denominated in currencies other than the u.s. dollar , compared to 44 % and 53 % , respectively , in 2017 and 48 % and 58 % , respectively , in 2016. we recognized $ 0.2 million of transactional foreign exchange gains in 2018 , $ 2.6 million of losses in 2017 , and $ 1.4 million of losses in 2016. foreign exchange losses and gains are primarily the result of settlement of non-functional currency-denominated monetary assets and liabilities . ritchie bros. 35 u.s. dollar exchange rate comparison the following table presents the variance in select foreign exchange rates over the comparative reporting periods : replace_table_token_7_th acquisition-related costs acquisition-related costs consist of operating expenses directly incurred as part of a business combination , due diligence and integration planning – including those related to the acquisition – and continuing employment costs that are recognized separately from our business combinations . business combination , due diligence , and integration operating expenses include advisory , legal , accounting , valuation , and other professional or consulting fees , and travel and securities filing fees . acquisition-related costs in 2018 totalled $ 5.1 million and primarily included costs incurred for severance and retention . labour reductions subsequent to the acquisition were part of our cost control measures to eliminate duplicative positions , planned as part of our synergy targets . this compares to $ 38.3 million of acquisition related expenses for 2017 , of which $ 34.7 million was associated with the acquisition . ironplanet acquisition-related costs for 2017 included costs incurred for acquisition and finance structure advisory fees , legal fees related to the regulatory approval process and closing of the transaction , stock option compensation expenses resulting from accelerated vesting of options assumed as part of the acquisition , severance and retention costs that followed the acquisition in the resulting corporate reorganization , and various integration costs . impairment loss there were no impairment losses in 2018 , compared to 2017 where we recognized an $ 8.9 million impairment loss on certain technology assets . operating income 2018 performance operating income increased $ 77.7 million , or 72 % , in 2018 compared to 2017. this was driven by higher total revenues combined with lower acquisition-related costs , as well as an impairment loss in the prior year . foreign exchange rates did not have a significant impact on operating income in 2018. adjusted operating income ( non-gaap measure ) increased $ 52.9 million , or 40 % , to $ 186.7 million in 2018 compared to $ 133.8 million in 2017. primarily for the same reasons noted above , operating income margin , which is our operating income divided by revenues , increased 470 bps to 15.8 % in 2018 compared to 11.1 % in 2017. agency proceeds adjusted operating income rate ( non-gaap measure ) increased 370 bps to 25.6 % in 2018 from 21.9 % in 2017 . 2017 performance operating income decreased $ 28.3 million , or 21 % , in 2017 compared to 2016. this decrease was primarily due to the higher sg & a expenses , acquisition-related costs , costs of services , and d & a expenses . these increases were partially offset by the revenue increase and lower impairment loss over the same comparative period . foreign exchange rates did not have a significant impact on operating income in 2017. adjusted operating income ( non-gaap measure ) decreased $ 30.2 million , or 18 % , to $ 133.8 million in 2017 compared to $ 164.0 million in 2016. primarily for the same reasons noted above , operating income margin , which is our operating income divided by revenues , decreased 90 bps to 11.1 % in 2017 compared to 12.0 % in 2016. agency proceeds adjusted operating income rate ( non-gaap measure ) decreased 700 bps to 21.9 % in 2017 from 28.9 % in 2016. ritchie bros. 36 interest expense interest expense increased $ 6.2 million , or 16 % , in 2018 compared to 2017. this increase was primarily due to : · a full year of indebtedness incurred to finance the acquisition compared to seven months in 2017 ; · the acceleration of the accretion of deferred debt issue costs resulting from the reduction of our syndicated credit facility and voluntary repayment of term loans during 2018 ; and · an increase in variable short-term interest over the comparative period . the increase was partially offset by the reduction in interest expense resulting from our $ 80.0 million voluntary prepayment of the term loan in 2018. as at december 31 , 2018 , our long-term debt was $ 711.3 million compared to $ 812.9 million as at december 31 , 2017. interest expense increased $ 32.7 million , or 588 % , in 2017 compared to 2016. this increase was primarily due to indebtedness to finance the acquisition . other income other income increased $ 3.6 million , or 44 % , in 2018 compared to 2017. this was primarily due to gain on the sale of an equity accounted for investment .
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performance highlights net income attributable to stockholders of $ 121.5 million increased 62 % compared to $ 75.0 million in 2017. diluted earnings per share ( “ eps ” ) attributable to stockholders increased 61 % to $ 1.11 versus $ 0.69 in 2017 , while diluted adjusted eps attributable to stockholders ( non-gaap measure ) increased 33 % to $ 1.08 from $ 0.81 in 2017. other key highlights included : consolidated results : · total revenues of $ 1.17 billion increased 20 % from $ 971.2 million in 2017 . · agency proceeds ( non-gaap measure ) of $ 729.1 million increased 19 % from $ 610.5 million in 2017 . · cash provided by operating activities of $ 144.3 million for the year ended december 31 , 2018. a & m segment results : · gtv of $ 4.96 billion , up 11 % compared to $ 4.47 billion in 2017 . · a & m revenues of $ 1.05 billion increased 20 % compared to $ 870.8 million in 2017 . · a & m agency proceeds ( non-gaap measure ) of $ 672.2 million increased 19 % from $ 564.3 million in 2017 . · a & m revenue rate of 21.1 % increased 160 bps from 19.5 % in 2017 , and a & m agency proceeds rate ( non-gaap measure ) of 13.5 % increased 90 bps from 12.6 % in 2017. other services segment results : · other services revenue of $ 123.5 million increased 23 % compared to $ 100.4 million in 2017. operational highlights in 2018 , our operational focus was on strengthening sales execution and driving incremental network effects through our foundational core customer solutions and completing the ironplanet integration . some notable highlights were : · in 2018 , used equipment availability continued to be challenged with high demand for equipment and end users holding equipment longer ; driving historic high utilization rates .
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we attract and retain experienced professionals by fostering a culture of entrepreneurial , long-term thinking . we provide our private , institutional and corporate clients quality , personalized service , with the theory that if we place clients ' needs first , both our clients and our company will prosper . our unwavering client and employee focus have earned us a reputation as one of the leading brokerage and investment banking firms off wall street . we have grown our business both organically and through opportunistic acquisitions . we plan to maintain our focus on revenue growth with a continued appreciation for the development of quality client relationships . within our private client business , our efforts will be focused on recruiting experienced financial advisors with established client relationships . within our capital markets business , our focus continues to be on providing quality client management and product diversification . in executing our growth strategy , we will continue to seek out opportunities that allow us to take advantage of the consolidation among middle-market firms , whereby allowing us to increase market share in our private client and institutional group businesses . stifel financial corp. ( the parent ) , through its wholly owned subsidiaries , principally stifel , nicolaus & company , incorporated ( stifel nicolaus ) , stifel bank & trust ( stifel bank ) , stifel nicolaus europe limited ( snel ) , century securities associates , inc. ( csa ) , and stifel nicolaus canada , inc. ( sn canada ) , is principally engaged in retail brokerage ; securities trading ; investment banking ; investment advisory ; retail , consumer , and commercial banking ; and related financial services . we have offices throughout the united states , two canadian cities , and three european cities . our major geographic area of concentration is the midwest and mid-atlantic regions , with a growing presence in the northeast , southeast and western united states . our principal customers are individual investors , corporations , municipalities , and institutions . we plan to maintain our focus on revenue growth with a continued focus on developing quality relationships with our clients . within our private client business , our efforts will be focused on recruiting experienced financial advisors with established client relationships . within our institutional group business , our focus continues to be on providing quality client management and product diversification . in executing our growth strategy , we take advantage of the consolidation among middle market firms , which we believe provides us opportunities in our global wealth management and institutional group businesses . our ability to attract and retain highly skilled and productive employees is critical to the success of our business . accordingly , compensation and benefits comprise the largest component of our expenses , and our performance is dependent upon our ability to attract , develop and retain highly skilled employees who are motivated and committed to providing the highest quality of service and guidance to our clients . results for the year ended december 31 , 2012 for the year ended december 31 , 2012 , our net revenues increased 13.8 % to a record $ 1.61 billion compared to $ 1.42 billion in 2011 , which represents our seventeenth consecutive annual increase in net revenues . net income increased 64.7 % to $ 138.6 million for the year ended december 31 , 2012 , compared to $ 84.1 million in 2011 . 32 our revenue growth was primarily attributable to higher investment banking revenues as a result of strong public finance activity and improved m & a revenues ; increased principal transactions revenues as a result of strong fixed income trading volumes and tightening credit spreads ; gains recognized on our investment in knight capital group , inc. ; growth in asset management and service fees as a result of an increase in investment advisory revenues ; and increased net interest revenues as a result of the growth of net interest-earning assets at stifel bank . the increase in revenue growth was offset by a decline in commission revenues . the results for the year ended december 31 , 2011 include litigation-related expenses associated with the civil lawsuit and related regulatory investigation in connection with the ongoing matter with five southeastern wisconsin school districts and certain merger-related expenses . external factors impacting our business performance in the financial services industry in which we operate is highly correlated to the overall strength of economic conditions and financial market activity . overall market conditions are a product of many factors , which are beyond our control and mostly unpredictable . these factors may affect the financial decisions made by investors , including their level of participation in the financial markets . in turn , these decisions may affect our business results . with respect to financial market activity , our profitability is sensitive to a variety of factors , including the demand for investment banking services as reflected by the number and size of equity and debt financings and merger and acquisition transactions , the volatility of the equity and fixed income markets , the level and shape of various yield curves , the volume and value of trading in securities , and the value of our customers ' assets under management . the municipal underwriting market is challenging as state and local governments reduce their debt levels . investors are showing a lack of demand for longer-dated municipals and are reluctant to take on credit or liquidity risks . investor confidence has been dampened by continued uncertainty surrounding the u.s. fiscal and debt ceiling , the debt concerns in europe , and sluggish employment growth . our overall financial results continue to be highly and directly correlated to the direction and activity levels of the united states equity and fixed income markets . story_separator_special_tag the average interest-earning assets of stifel bank increased to $ 2.9 billion during the year ended december 31 , 2012 compared to $ 1.9 billion in 2011 at weighted average interest rates of 2.60 % and 2.94 % , respectively . for the year ended december 31 , 2012 , interest expense increased 31.7 % to $ 33.4 million from $ 25.3 million in 2011. the increase is primarily attributable to the interest expense associated with our $ 325.0 million senior notes , offset by a reduction in interest expense on $ 47.5 million of our debentures to stifel financial capital trusts whose interest rates switched from fixed rate of 6.8 % per year to a floating rate equal to the three-month libor plus 1.85 % per annum during 2012 . 38 year ended december 31 , 2011 compared with year ended december 31 , 2010 net interest income for the year ended december 31 , 2011 , net interest income increased to $ 64.1 million from $ 52.1 million in 2010. for the year ended december 31 , 2011 , interest revenue increased 37.0 % to $ 89.5 million from $ 65.3 million in 2010 , principally as a result of an $ 21.8 million increase in interest revenue generated from the interest-earning assets of stifel bank and a $ 2.1 million increase in interest revenue from customer margin borrowing . the average interest-earning assets of stifel bank increased to $ 1.9 billion during the year ended december 31 , 2011 compared to $ 1.3 billion in 2010 at weighted average interest rates of 2.94 % and 2.72 % , respectively . the average margin balances of stifel nicolaus increased to $ 456.2 million during the year ended december 31 , 2011 compared to $ 385.0 million in 2010 at weighted average interest rates of 4.09 % and 4.29 % , respectively . for the year ended december 31 , 2011 , interest expense increased 91.9 % to $ 25.3 million from $ 13.2 million in 2010. the increase is primarily attributable to an increase in interest expense on interest-bearing liabilities of stifel bank and increased interest expense paid on borrowings from our unsecured line of credit during the year ended december 31 , 2011 , offset by a reduction in interest expense on the $ 35.0 million cumulative trust preferred security offered by stifel financial capital trust ii whose interest rate switched from a fixed rate of 6.38 % per year to a floating rate equal to the three-month london interbank offered rate ( libor ) plus 1.70 % on an annual basis beginning on september 30 , 2010. see net interest income table above for more details . for a further discussion of interest expense see net interest income stifel bank below . non-interest expenses the following table presents consolidated non-interest expenses for the periods indicated ( in thousands , except percentages ) : replace_table_token_8_th year ended december 31 , 2012 compared with year ended december 31 , 2011 except as noted in the following discussion of variances , the underlying reasons for the increase in non-interest expenses can be attributed principally to our continued expansion and increased administrative overhead to support the growth in our segments . compensation and benefits compensation and benefits expenses , which are the largest component of our expenses , include salaries , bonuses , transition pay , benefits , amortization of stock-based compensation , employment taxes and other employee-related costs . a significant portion of compensation expense is comprised of production-based variable compensation , including discretionary bonuses , which fluctuates in proportion to the level of business activity , increasing with higher revenues and operating profits . other compensation costs , including base salaries , stock-based compensation amortization , and benefits , are more fixed in nature . for the year ended december 31 , 2012 , compensation and benefits expense increased 13.7 % , or $ 123.5 million , to $ 1.02 billion from $ 900.4 million in 2011 the increase in compensation and benefits expense is primarily attributable to the following : 1 ) increased variable compensation as a result of increased revenue production and profitability ; 2 ) increased fixed compensation for the additional administrative support staff ; 3 ) additional incentive compensation associated with our investment in knight capital group , inc. ; and 4 ) an increase in deferred compensation expense as a result of the acceleration of the vesting period for unit grants awarded to newly retirement-eligible employees during the first quarter of 2012 . 39 compensation and benefits expense as a percentage of net revenues was 63.5 % for the year ended december 31 , 2012 compared to 63.6 % for the year ended december 31 , 2011. for the year ended december 31 , 2012 , transition pay , principally in the form of upfront notes , signing bonuses and retention awards in connection with our continuing expansion efforts , was $ 80.9 million ( 5.0 % of net revenues ) , compared to $ 70.9 million ( 5.0 % of net revenues ) in 2011. the upfront notes are amortized over a five to ten year period . occupancy and equipment rental for the year ended december 31 , 2012 , occupancy and equipment rental expense increased 6.8 % to $ 130.2 million from $ 121.9 million during the year ended december 31 , 2011. the increase is primarily due to the increase in rent and depreciation expense due primarily to an increase in office locations . as of december 31 , 2012 , we have 340 locations compared to 320 at december 31 , 2011. communications and office supplies communications expense includes costs for telecommunication and data transmission , primarily for obtaining third-party market data information . for the year ended december 31 , 2012 , communications and office supplies expense increased 7.1 % to $ 80.9 million from $ 75.6 million in 2011. the increase is primarily attributable to increased telecommunications costs as a result of the growth of the business .
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results of operations the following table presents consolidated financial information for the periods indicated ( in thousands , except percentages ) : replace_table_token_5_th * percentage not meaningful . 34 net revenues the following table presents consolidated net revenues for the periods indicated ( in thousands , except percentages ) : replace_table_token_6_th year ended december 31 , 2012 compared with year ended december 31 , 2011 except as noted in the following discussion of variances , the underlying reasons for the increase in net revenues can be attributed principally to the increased number of private client group offices and financial advisors in our global wealth management segment and the increased number of revenue producers in our institutional group segment . the increase in net revenues for the year ended december 31 , 2012 is attributable to the previously mentioned factors . commissions commission revenues are primarily generated from agency transactions in otc and listed equity securities , insurance products and options . in addition , commission revenues also include distribution fees for promoting and distributing mutual funds . for the year ended december 31 , 2012 , commission revenues decreased 8.6 % to $ 513.0 million from $ 561.1 million in 2011. the decrease in commission revenues is primarily attributable to a decrease in otc transactions from the comparable period in 2011. principal transactions for the year ended december 31 , 2012 , principal transactions revenues increased 19.0 % to $ 408.5 million from $ 343.2 million in 2011. the increase in principal transactions revenues is primarily attributable to improved fixed income institutional brokerage revenues as a result of strong trading volumes and improved credit spreads .
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our lead product candidate , ser-109 , is designed to prevent further recurrences of clostridium difficile , or c. difficile , infection , or cdi , a debilitating infection of the colon , by treating the dysbiosis of the colonic microbiome and , if approved by the u.s. food and drug administration , or fda , could be a first-in-field oral microbiome drug . using our microbiome therapeutics platform , we are developing additional product candidates to treat diseases where the microbiome is implicated , including ser-262 , a synthetic product candidate , to prevent an initial recurrence of primary cdi , ser-287 to treat inflammatory bowel disease , or ibd , including ulcerative colitis , or uc , ser-301 , a synthetic ibd candidate , and ser-155 , a synthetic product candidate , to prevent mortality following allogeneic hematopoietic stem cell transplantation , or allo-hsct , due to infections and graft-versus-host disease , or gvhd . we are also using our microbiome therapeutics platform to conduct research on metabolic diseases , such as non-alcoholic steatohepatitis ( nash ) ; inflammatory diseases , such as crohn 's disease ; rare liver disorders such as primary sclerosing cholangitis ( psc ) ; and immuno-oncology treatments . since our inception in october 2010 , we have devoted substantially all of our resources to developing ser-109 , ser-287 and ser-262 , researching our pre-clinical candidates ser-155 and ser-301 , building our intellectual property portfolio , developing our supply chain , business planning , raising capital and providing general and administrative support for these operations . on july 1 , 2015 , we completed an initial public offering , or ipo , of our common stock , and issued and sold 8.5 million shares of common stock at a public offering price of $ 18.00 per share , resulting in net proceeds of approximately $ 139.3 million after deducting underwriting discounts and commissions and offering expenses . upon the listing of our common stock on the nasdaq global select market , or nasdaq , on june 26 , 2015 , all outstanding shares of our convertible preferred stock automatically converted into 22.9 million shares of our common stock . the shares issued upon closing of the ipo included 1.1 million shares of our common stock , pursuant to the underwriters ' full exercise of their option to purchase additional shares of common stock . all of our product candidates other than ser-109 , ser-262 and ser-287 are still in pre-clinical or research development . our ability to generate product revenue sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of one or more of our product candidates . since our inception , we have incurred significant operating losses . our net loss was $ 91.6 million for the year ended december 31 , 2016. as of december 31 , 2016 , we had an accumulated deficit of $ 174.2 million . on july 29 , 2016 , we announced the interim 8-week results from our ser-109 phase 2 clinical study , a randomized , double-blind , placebo controlled phase 2 clinical study conducted in 89 subjects to evaluate the safety , tolerability and efficacy of ser-109 in adults with recurrent cdi . in that study , 44 % of subjects ( 26 of 59 ) who received ser-109 experienced a recurrence at the 8 week endpoint compared to 53 % of subjects ( 16 of 30 ) who received placebo , a result that was not statically significant . ser-109 was generally safe and well-tolerated in our phase 1b/2 clinical study and in the phase 2 clinical study . the most common adverse events for ser-109 and placebo , respectively , were diarrhea ( 25 % vs. 14 % ) , abdominal pain ( 22 % vs. 14 % ) , flatulence ( 12 % vs. 3 % ) , and nausea ( 10 % vs. 10 % ) . no drug-related serious adverse events were observed . in order to understand the difference in outcome between phase 1b/2 and phase 2 clinical studies , we conducted an analysis of the available clinical , microbiome and chemistry , manufacturing and control data . this root-cause investigation looked at the clinical trial population , study conduct , and diagnostic testing used for study inclusion and endpoint analysis , assessed clinical specimens for genomic and metabolomic biomarkers that might give insight into ser-109 efficacy and potency , reviewed manufacturing procedures and processes , performed retrospective analysis using high-resolution whole metagenomics sequencing of phase 1b/2 clinical study stool samples , and reviewed analytical methods , that may have differed between phase 1b/2 and phase 2 clinical studies . we have now identified specific factors that we believe contributed to the phase 2 clinical study results , including issues related to both the accurate diagnosis of c. difficile recurrent infection , and potential suboptimal dosing of certain subjects in the trial . the ser-109 analyses were recently shared with the fda . based on feedback received from the fda , we plan to initiate a new phase 2 ser-109 clinical study in approximately 320 patients with multiply recurrent c. difficile infection . study participants will be randomized 1:1 between ser-109 and placebo . diagnosis of c. difficile infection for both study entry and for endpoint analysis will be confirmed by c. difficile cytotoxin assay , compared to the first phase 2 , where most patients were diagnosed by pcr . patients in the ser-109 arm will receive a total ser-109 dose , administered over three days , approximately 10-fold higher than the dose used in the prior phase 2 study . the new study will evaluate patients for 24 weeks and the primary endpoint will compare the c. difficile recurrence rate in subjects who receive ser-109 verses placebo at up to eight weeks after dosing . story_separator_special_tag research and development expenses research and development expenses consist primarily of costs incurred for our research activities , including our discovery efforts , and the development of our product candidates , which include : expenses incurred under agreements with third parties , including contract research organizations , or cros , that conduct research , pre-clinical activities and clinical trials on our behalf as well as contract manufacturing organizations that manufacture drug products for use in our pre-clinical and clinical trials ; salaries , benefits and other related costs , including stock-based compensation expense , for personnel in our research and development functions ; costs of outside consultants , including their fees , stock-based compensation and related travel expenses ; the cost of laboratory supplies and acquiring , developing and manufacturing pre-clinical study and clinical trial materials ; costs related to compliance with regulatory requirements ; and facility-related expenses , which include direct depreciation costs and allocated expenses for rent and maintenance of facilities and other operating costs . we expense research and development costs as incurred . we recognize external development costs based on an evaluation of the progress to completion of specific tasks using information provided to us by our vendors and our clinical investigative sites . payments for these activities are based on the terms of the individual agreements , which may differ from the pattern of costs incurred , and are reflected in our financial statements as prepaid or accrued research and development expenses . all costs associated with the license agreement are recorded in research and development expense in the consolidated statements of operations and comprehensive loss . our primary focus of research and development since inception has been on our microbiome therapeutics platform and the subsequent development of ser-109 , ser-262 , ser-287 , ser-301 and ser-155 . our direct research and development expenses are tracked on a program-by-program basis and consist primarily of external costs , such as fees paid to investigators , consultants and cros in connection with our pre-clinical studies and clinical trials and regulatory fees . we do not allocate employee-related costs and other indirect costs to specific research and development programs because these costs are deployed across multiple product programs under development and , as such , are classified as costs of our microbiome therapeutics platform research , along with external costs directly related to our microbiome therapeutics platform . the table below summarizes our research and development expenses incurred on our platform and by product development program . replace_table_token_5_th 70 research and development activities are central to our business model . product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development , primarily due to the increased size and duration of later-stage clinical trials . we expect that our research and development expenses will continue to increase in the foreseeable future as we advance the clinical development of ser-287 and ser-262 , continue to discover and develop additional product candidates , including ser-155 and ser-301 , and pursue later stages of clinical development of our product candidates . general and administrative expenses general and administrative expenses consist primarily of salaries and other related costs , including stock-based compensation , for personnel in our executive , finance , corporate and business development and administrative functions . general and administrative expenses also include legal fees relating to patent and corporate matters ; professional fees for accounting , auditing , tax and consulting services ; insurance costs ; travel expenses ; and facility-related expenses , which include direct depreciation costs and allocated expenses for rent and maintenance of facilities and other operating costs . we anticipate that our general and administrative expenses may increase in the future if we increase our headcount to support the expected growth in our research and development activities and the potential commercialization of our product candidates . we also may incur increased expenses associated with being a public company , including increased costs of accounting , audit , legal , regulatory and tax-related services associated with maintaining compliance with exchange listing and sec requirements , director and officer insurance costs and investor and public relations costs . other income ( expense ) , net interest income interest income consists of interest earned on our cash , cash equivalents and investments . interest expense interest expense consists of amortization of purchased premiums and discounts associated with our investments . during the years ended december 31 , 2015 and 2014 , interest expense consisted of interest at the stated rate on borrowings under our loan and security agreement , amortization of deferred financing costs and interest expense related to the accretion of debt discount associated with ( 1 ) the fair value of preferred stock warrant we issued in connection with the loan and security agreement and ( 2 ) a final payment due at maturity . there was no such interest expense recorded for these items in 2016 as we held no preferred stock warrants or debt during the year ended december 31 , 2016. revaluation of preferred stock warrant liability revaluation of preferred stock warrant liability consists of the net gain or loss associated with the change in the fair value of our preferred stock warrant liability . in connection with the loan and security agreement , we issued a warrant for the purchase of our series a-2 convertible preferred stock , which we believe is a financial instrument that may have required a transfer of assets because of the redemption feature of the underlying stock . therefore , we classified this warrant as a liability that we re-measured to fair value at each reporting period , and we recorded the changes in the fair value as a component of other income ( expense ) , net . upon the listing of our common stock on the nasdaq on june 26 , 2015 , the preferred stock warrant became a warrant to purchase common stock .
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results of operations comparison of the years ended december 31 , 2016 and 2015 revenue total revenue was $ 21.8 million for the year ended december 31 , 2016. of this $ 21.8 million , $ 10.0 million was received from nhs associated with the initiation of the phase 1b study for ser-262 in cdi which is a substantive development milestone under the license agreement . we recognized revenue associated with substantive milestones in accordance with fasb asc topic 605-28 , revenue recognition-milestone method . the $ 10.0 million was recognized in full as related party collaboration revenue during the year ended december 31 , 2016. the remaining $ 11.8 million relates to the recognition of the $ 120.0 million upfront payment from nhs over the estimated performance period of 10 years . we had no revenue for the year ended december 31 , 2015. the following table summarizes our results of operations for the years ended december 31 , 2016 and 2015 : replace_table_token_8_th research and development expenses replace_table_token_9_th 75 research and development expenses were $ 82.0 million for the year ended december 31 , 2016 , compared to $ 38.1 million for the year ended december 31 , 2015. the increase of $ 43.9 million was due primarily to the following : an increase of $ 26.0 million in research expenses related to our microbiome therapeutics platform , due primarily to higher payroll and consultant costs of $ 16.0 million , which included an increase in stock-based compensation expense of $ 3.0 million due primarily to an increase in research and development employee headcount of 26 individuals , an increase in facilities and depreciation costs of $ 7.0 million due primarily to the buildout of new laboratory and manufacturing space in cambridge , massachusetts , an increase in license costs of $ 1.3 million , an increase in laboratory consumables and supplies of $ 1.2 million , and an
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” in addition to historical consolidated financial information , the following discussion contains forward-looking statements that reflect the company 's plans , estimates , or beliefs . actual results could differ materially from those discussed in the forward-looking statements . factors that could cause or contribute to these differences include those discussed below and elsewhere in this annual report , including , without limitation , those described in the sections titled “ cautionary note regarding forward looking statements ” and part i , item 1a “ risk factors ” of this annual report . overview we provide high-pressure , hydraulic fracturing services in unconventional oil and natural gas basins . both our conventional and clean fleets hydraulic fracturing fleets are among the most reliable and highest performing fleets in the industry , with the capability to meet the most demanding pressure and pump rate requirements in the industry . we operate in many of the active shale and unconventional oil and natural gas basins of the united states and our clients benefit from the performance and reliability of our equipment and personnel . specifically , all of our fleets operate on a 24-hour basis and have the ability to withstand the high utilization rates that result in more efficient operations . our senior management team has extensive industry experience providing pressure pumping services to exploration and production companies across north america . we were originally formed in march 2016 as a special purpose acquisition company under the name matlin & partners acquisition corporation for the purpose of effecting a merger , capital stock exchange , asset acquisition , stock purchase , reorganization , or similar business combination involving one or more businesses . on november 9 , 2018 , we completed the transaction with usws holdings . as part of the transaction , we changed our name from matlin & partners acquisition corporation to u.s. well services , inc. following the completion of the transaction , substantially all of our assets and operations are held and conducted by usws holdings and its subsidiaries , including u.s. well services , llc , and our only assets are equity interests in usws holdings . we own a majority of the economic and voting interests of usws holdings and are the sole manager of usws holdings . how the company generates revenue we generate revenue by providing hydraulic fracturing services to our customers . we own and operate a fleet of hydraulic fracturing units to perform these services . we have written contractual arrangements with our customers . under these contracts , we charge our customers base monthly rates , adjusted for activity and provision of materials such as proppant and chemicals or we charge a per stage amount based on the nature of the stage including well pressure , sand and chemical volumes and transportation . our costs of conducting business the principal costs involved in conducting our hydraulic fracturing services are materials , transportation , labor and maintenance costs . a large portion of our costs are variable , based on the number and requirements of hydraulic fracturing jobs . we manage our fixed costs , other than depreciation and amortization , based on factors including industry conditions and the expected demand for our services . materials include the cost of sand delivered to the basin of operations , chemicals , and other consumables used in our operations . these costs vary based on the quantity and quality of sand and chemicals utilized when providing hydraulic fracturing services . transportation represents the costs to transport materials and equipment from receipt points to customer locations . labor costs include payroll and benefits related to our field crews and other employees . a majority of our employees are paid on an hourly basis . maintenance costs include preventative and other repair costs that do not require the replacement of major components of our hydraulic fracturing fleets . maintenance and 36 repair costs are expensed as incurred . the following table presents our cost of services for the years ended december 31 , 2018 , 2017 and 2016 : replace_table_token_3_th how we evaluate our operations we use a variety of financial and operating metrics to evaluate and analyze the performance of our business , including ebitda and adjusted ebitda . we view ebitda and adjusted ebitda as important indicators of performance . we define ebitda as earnings before interest , income taxes , depreciation and amortization . we define adjusted ebitda as ebitda excluding the following : loss on disposal of assets ; share-based compensation ; impairments , and other items that management believes to be nonrecurring in nature . for a reconciliation of ebitda and adjusted ebitda to net income ( loss ) , the most directly comparable gaap measure , see section entitled “ item 6. selected historical financial data – non – gaap financial measures. ” 37 story_separator_special_tag . loss on disposal of assets was $ 10.8 million , $ 12.0 million and $ 0.2 million for the year ended december 31 , 2018 , the period of february 2 through december 31 , 2017 and the period of january 1 through february 1 , 2017 , respectively , which is primarily driven by differences in operating conditions of our hydraulic fracturing equipment such as wellbore pressure and rate of barrels pumped per minute , that impact the timing of disposals and amount of gain or loss recognized . 39 interest expense , net . interest expense , net , was $ 32 . 6 million , $ 23 . 0 million and $ 4 . 1 million for the year ended december 3 1 , 2018 , the period of february 2 through december 3 1 , 2017 and the period of january 1 through february 1 , 2017 , respectively . monthly interest expense decreased from the period of january 1 through february 1 , 2017 to the period of february 2 through december 3 1 , 2017 due to the reduction of debt resulting from the restructuring . story_separator_special_tag 41 liquidity and capital resources our primary sources of liquidity and capital resources are cash on the balance sheet , cash flow generated from operating activities , borrowings under bank credit agreements and availability under our revolving credit facility . we believe that our current cash position , cash generated through operations , and our financing arrangements will be sufficient to satisfy the anticipated cash requirements associated with our existing operations for at least the next twelve months . replace_table_token_6_th net cash provided by ( used in ) operating activities . net cash provided by ( used in ) operating activities primarily represents the results of operations exclusive of non-cash expenses , including depreciation , amortization , interest , impairment losses , gains and losses on disposal of assets , and share-based compensation , and the impact of changes in operating assets and liabilities . net cash provided by operating activities was $ 83.0 million for the year ended december 31 , 2018 , an increase of $ 38.5 million from the prior corresponding period . the primary driver of the increase in cash provided by operating activities was an increase in revenue , as drilling activity in our markets and demand for our services increased . net cash used in investing activities . net cash used in investing activities primarily relates to the purchase of property and equipment , partially offset by insurance proceeds to replace damaged equipment . net cash used in investing activities was $ 139.6 million for the year ended december 31 , 2018 , $ 53.6 million of which related to maintaining and supporting the hydraulic fracturing equipment and $ 86.0 million of which related to growth . the investment spend for the year ended december 31 , 2018 relates to the addition of one hydraulic fracturing fleet that we placed into service in the fourth quarter of 2018 , payments for new hydraulic fracturing fleets to be placed in service in 2019 , and maintaining and supporting the hydraulic fracturing equipment . net cash provided by financing activities . net cash provided by financing activities primarily relates to proceeds from our revolving credit facility , long-term debt , notes payable , and the issuance of class a common stock in connection with the transaction , offset by repayments of amounts under equipment financing arrangements , notes payable , revolver , long-term debt , and principal payments under the finance lease obligations . net cash provided by financing activities was $ 79.7 million for the year ended december 31 , 2018. during this period , we received proceeds of $ 56.0 million from our revolving credit facility , $ 40.0 million from long-term debt , $ 7.3 million from notes payable , and in connection with the transaction , net proceeds of $ 243.9 million from issuance of class a common stock . we also repaid $ 49.8 million of debt under our revolving credit facility , $ 4.2 million of debt under notes payable , $ 23.0 million of debt under equipment financing arrangements , $ 9.6 million of principal under finance lease obligations , and $ 163.9 million of term loan debt to related parties during this period . capital expenditures . our business requires continual investments to upgrade or enhance existing property and equipment and to ensure compliance with safety and environmental regulations . capital expenditures primarily relate to maintenance capital expenditures and growth capital expenditures . maintenance capital expenditures include expenditures needed to maintain and to support our current operations . growth capital expenditures include expenditures to generate incremental distributable cash flow . capital expenditures for growth initiatives are discretionary . we classify maintenance capital expenditures as expenditures required to maintain or supplement existing hydraulic fracturing fleets . we budget maintenance capital expenditures based on historical run rates and current maintenance schedules . growth capital expenditures relate to adding additional hydraulic fracturing fleets and are based on quotes obtained from equipment manufacturers and our estimate for the timing of placing orders , disbursing funds and receiving the equipment . 42 we continuously evaluate our capital expenditures and the amount we ultimately spend will depend on a number of factors , including expected industry activity levels and company initiatives . we intend to fund the majority of our capital expenditures , contractual obligations and working capital needs with cash on hand , cash generated from operations and other financing sources . debt agreements first lien credit agreement on december 14 , 2018 , our subsidiary , u.s. well services , llc , entered into a third amendment ( the “ amendment ” ) to that certain amended and restated senior secured credit agreement , dated february 2 , 2017 by and among u.s. well services , llc , as borrower , usws holdings and the company as guarantors , and a syndicate of lenders ( the “ first lien lenders ” ) and u.s. bank national association , as administrative and collateral agent ( as amended , the “ first lien credit agreement ” ) . the amendment , among other things , extended the maturity date from february 2 , 2020 to may 31 , 2020 and permits the borrower to incur the debt under the second lien term loan ( as defined below ) . the amendment was accounted for as debt modification , resulting in debt issue costs write-off of $ 0.4 million . the first lien credit agreement has a borrowing capacity of $ 65.0 million . borrowings under the first lien credit agreement bear interest at a per annum rate equal to libor plus 6 % . the first lien credit agreement contains various covenants , including , but not limited to , limitations on the incurrence of indebtedness , permitted investments , liens on assets , making distributions , transactions with affiliates , merger , consolidations , dispositions of assets and other provisions customary in similar types of arrangements .
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results of operations our historical financial information is not directly comparable between periods due to the effects of the restructuring on february 2 , 2017. for purposes of the revenues , cost of services , and selling , general and administrative expenses discussions , we compared the year ended december 31 , 2018 to the combined predecessor period of january 1 to february 1 , 2017 and successor period of february 2 to december 31 , 2017 ( “ combined year ended december 31 , 2017 ” ) . similarly , for the same categories , we compared the combined year ended december 31 , 2017 to the year ended december 31 , 2016. we believe this presentation assists readers in understanding and assessing the trends and significant changes in its results of operations and provides a more meaningful method of comparison across categories . the restructuring on february 2 , 2017 affected our debt and the carrying value of our assets , which affected the comparability of our depreciation and amortization , loss on disposal of assets and interest expense between the predecessor and successor periods . we therefore compared these categories for each predecessor and successor period separately . see note 4 to our audited financial statements included in “ item 8. financial statements and supplementary data ” for further discussion on the restructuring . replace_table_token_4_th 38 revenues . revenues increased by $ 1 49 . 4 million , or 29 . 9 % , to $ 64 8 . 8 million for the year ended december 3 1 , 2018 from $ 499.4 million for the combined year ended december 3 1 , 2017. of this increase , $ 7 6 . 0 million was primarily due to a 14 . 3 % increase in average revenue per hydraulic fracturing fleet in service . additionally , $ 73 . 4 million of this increase was due to the average number of hydraulic fracturing fleets in service increasing from 8 .
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( vflp ) and vf clean energy , inc. ( vfce ) . on june 6 , 2017 , vff entered into a shareholders ' agreement in respect of the operation and governance of pure sunfarms corp. ( pure sunfarms ) in which pursuant to the settlement agreement dated as of march 2 , 2020 ( the settlement agreement ) entered into with emerald health therapeutics inc. ( emerald ) , vff currently owns a 57.4 % interest ( at december 31 , 2019 owned 53.5 % interest ) . on february 27 , 2019 , vff entered into a joint venture agreement in respect of the operation and governance of village fields hemp usa llc ( vfh ) in which vff owns a 65 % interest . on may 21 , 2019 , the company entered into a joint venture agreement in respect of arkansas valley green and gold hemp ( avggh ) . avggh is 60 % owned by vff , 35 % owned by arkansas valley hemp , llc ( av hemp ) and 5 % owned by vfh . our operating segments jv cannabis segment the company 's joint venture , pure sunfarms is a licensed producer and supplier of cannabis products to be sold to other licensed providers and provincial governments across canada and internationally . pure sunfarms-branded dried cannabis products are sold directly to private retailers and provincial/territorial wholesalers . produce segment we are marketers and distributors of premium-quality , greenhouse-grown tomatoes , bell peppers and cucumbers in north america . these premium products are grown in sophisticated , highly intensive agricultural greenhouse facilities located in british columbia and texas . the company also markets and distributes premium tomatoes , peppers and cucumbers produced under exclusive arrangements with other greenhouse producers . the company primarily markets and distributes under its village farms ® brand name to retail supermarkets and dedicated fresh food distribution companies throughout the united states and canada . energy segment through its subsidiary vfce , owns and operates a 7.0-megawatt power plant from landfill gas that generates electricity and provides thermal heat , in colder months , to one of the company 's adjacent british columbia greenhouse facilities and sells electricity to the british columbia hydro and power authority ( bc hydro ) . presentation of financial results our consolidated results of operations ( prior to net income ) for each of the three years ended december 31 , 2019 , 2018 and 2017 presented below reflect the operations of our consolidated wholly- owned subsidiaries , which as of december 31 , 2019 , does not include our pure sunfarms , vfh and avggh joint ventures . the equity in earnings from those joint ventures is reflected in our net income for each of the three years ended december 31 , 2019 , 2018 and 2017 presented below . for information regarding the results of operations from our joint ventures , see reconciliation of gaap results to proportionate results below . 40 results of operations consolidated financial performance ( in thousands of u.s. dollars , except per share amounts ) replace_table_token_5_th ( 1 ) adjusted ebitda is not a recognized earnings measure and does not have a standardized meaning prescribed by gaap . therefore , adjusted ebitda may not be comparable to similar measures presented by other issuers . see non-gaap measures for a definition and reconciliation of adjusted ebitda to net income ( loss ) , the nearest comparable measurement under gaap . management believes that adjusted ebitda is a useful supplemental measure in evaluating the performance of the company . adjusted ebitda includes the company 's majority non-controlling interest in pure sunfarms , 65 % interest in vfh and 60 % interest in avggh . a summary of sales by product group in our greenhouse produce business , follows : replace_table_token_6_th we caution you that our results of operations for the three years ended december 31 , 2019 may not be indicative of our future performance , particularly in light of the ongoing and developing covid-19 pandemic . we are currently unable to assess the ultimate impact of the covid-19 pandemic on our business and our results of operations for future periods . jv cannabis business ( 1 ) for the year ended december 31 , 2019 compared to the year ended december 31 , 2018 . sales our majority non-controlling share of sales of pure sunfarms for the year ended december 31 , 2019 was $ 37,000 from $ 1,845 for the year ended december 31 , 2018. total pure sunfarms sales consisted of close to 25,675 kilograms of flower and trim during the year ended december 31 , 2019 , at an average sales price of approximately $ 2.25 per gram ( cad $ 2.92 per gram ) . included in the sales is the amount from the settlement with emerald . during 2019 8 % of sold grams went directly to retail , 82 % was sold wholesalers as flower and 10 % to wholesales as trim . cost of goods our majority non-controlling share of cost of sales of pure sunfarms for the year ended december 31 , 2019 was $ 9,009 from $ 576 for the year ended december 31 , 2018 ( based on total grams sold of close to 24,600 kilograms ) , or approximately $ 0.59 per gram ( cad $ 0.78 per gram ) . 41 selling , general and administrative expense our majority non-controlling share of selling , general and administrative expenses of pure sunfarms for the year ended december 31 , 2019 was $ 4,568 from $ 1,349 for the year ended december 31 , 2018 the increase is mostly related to increases in sales and marketing cost as well as health canada regulatory fees . story_separator_special_tag this non-revolving variable rate term loan has a maturity date of may 1 , 2021 and a balance of $ 31,306 as at december 31 , 2019 ( december 31 , 2018 $ 34,385 ) . the outstanding balance is repayable by way of monthly installments of principal and interest based on an amortization period of 15 years , with the balance and any accrued interest to be paid in full on may 1 , 2021. as at december 31 , 2019 , borrowings under the fcc loan were subject to an interest rate of 6.391 % ( december 31 , 2018 7.082 % ) , which is determined based on our debt to ebitda ratio and the applicable libor rate . our company is also party to a variable rate line of credit agreement with bmo that has a maturity date of may 31 , 2021 ( the operating loan and together with the fcc loan , the credit facilities ) . the operating loan is subject to margin requirements stipulated by the bank based on produce sales . as at december 31 , 2019 , $ 2,000 was drawn on the operating loan ( december 31 , 2018 $ 2,000 ) , which is available to a maximum of c $ 13,000 , less outstanding letters of credit of us $ 150 and c $ 38. as security for the fcc loan , the company has provided promissory notes , a first mortgage on the vff-owned greenhouse properties ( excluding the delta 3 and delta 2 greenhouse facilities ) and general security agreements over its assets . in addition , the company has provided full recourse guarantees and has granted security therein . the carrying value of the assets and securities pledged as collateral as at december 31 , 2019 was $ 146,377 ( december 31 , 2018 $ 101,263 ) . as security for the operating loan , the company has provided promissory notes and a first priority security interest over its accounts receivable and inventory . in addition , the company has granted full recourse guarantees and security therein . the carrying value of the assets pledged as collateral as at december 31 , 2019 was $ 24,915 ( december 31 , 2018 - $ 36,248 ) . 45 the borrowings are subject to certain positive and negative covenants , which include debt coverage ratios . as at december 31 , 2019 , the company received a waiver for its annual debt service coverage and debt to ebitda covenants under its term loan for the year ended december 31 , 2019 and was in compliance with all of its other credit facility covenants under its credit facilities . accrued interest payable on the credit facilities and loans as at december 31 , 2019 was $ 162 ( december 31 , 2018 $ 184 ) and these amounts are included in accrued liabilities in the consolidated statements of financial position . on february 13 , 2019 , the joint venture entered into a credit agreement with bmo , as agent and lead lender , and fcc , as lender , in respect of a c $ 20,000 secured non-revolver term loan ( the psf credit facility ) . at december 31 , 2019 the outstanding amount on the loan was c $ 19,000. the psf credit facility , which matures on february 7 , 2022 , is secured by the delta 3 greenhouse facility and contains customary financial and restrictive covenants . the company is not a party to the psf credit facility but has guaranteed up to c $ 10 in connection with the psf credit facility . the company closed equity offerings on october 22 , 2019 and march 24 , 2020. the october 22 , 2019 public offering raised c $ 26,934 ( net proceeds ) through the issuance of 3,059,000 common shares at a price of c $ 9.40 per common share . the march 24 , 2020 public offering raised c $ 10,711 ( net proceeds ) through the issuance of 3,593,750 common shares at a price of c $ 3.20 per common share . summary of cash flows replace_table_token_7_th operating activities for the year ended december 31 , 2019 , cash flows from operating activities before changes in non-cash working capital , totalled ( $ 19,902 ) ( 2018 $ 1,527 ) . the decrease in cash flows from operating activities is due to a decrease in sales and an increase in cost of sales for the year ended december 31 , 2019. investing activities for the year ended december 31 , 2019 , cash flow from investing activities consisted of ( $ 14,507 ) in note to joint venture , ( $ 2,287 ) in capital expenditures and ( $ 96 ) investment in our joint ventures ( 2018 $ 10,462 in note to joint venture and $ 3,093 in net capital expenditures ) . the joint venture notes made for the year ended december 31 , 2019 was $ 13,323 to vf hemp and $ 1,184 to avggh and for the year ended december 31 , 2018 $ 10,873 to pure sunfarms . financing activities for the year ended december 31 , 2019 , the cash provided by financing activities primarily consisted of the issuance of common shares of $ 34,226 , proceeds from the exercise of share options and warrants of $ 674 , debt payments of , net ( $ 3,423 ) , and payments on capital lease obligations of ( $ 90 ) ( 2018 proceeds from the issuance of common shares of $ 23,492 , proceeds from the exercise of share options of $ 283 , offset by net term debt payments of ( $ 706 ) , and payments on capital lease obligations of ( $ 71 ) ) .
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consolidated results year ended december 31 , 2019 compared to year ended december 31 , 2018 sales sales for the year ended december 31 , 2019 decreased ( $ 5,432 ) , or ( 4 % ) , to $ 144,568 compared to $ 150,000 for the year ended december 31 , 2018. the decrease in sales is primarily due to a decrease in our own production revenues of ( $ 9,348 ) partially offset by an increase in supply partner revenues of $ 5,191. the decrease in our own production revenues of ( $ 9,348 ) or ( 12 % ) is primarily due to a decrease of ( 8 % ) in our product volume . the decrease in our own production volume is primarily due to a clean-out in one of our facilities ( which did not occur in the last three years ) and ongoing plant disease pressure at our texas facilities . the net price for all tomato pounds sold decreased ( 1.4 % ) for the year ended december 31 , 2019 compared to the year ended december 31 , 2018 due to a decrease in the average selling price of the commodity items ; beefsteak and tovs as compared to 2018. the decrease in net price in the commodity item prices was due to the continual push by retailers to lower prices .
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factors that might cause such a difference include , but are not limited to : ( 1 ) the success , impact , and timing of the implementation of peoples ' business strategies , including the successful integration of recently completed acquisitions and the expansion of consumer lending activity ; ( 2 ) peoples ' ability to integrate the midwest bancshares , inc. ( `` midwest '' ) , ohio heritage bancorp , inc. ( `` ohio heritage '' ) and north akron savings bank ( `` north akron '' ) acquisitions and any future acquisitions , including the pending merger of nb & t into peoples , may be unsuccessful , or may be more difficult , time-consuming or costly than expected ; ( 3 ) the ability of peoples and nb & t to obtain their respective shareholders ' approval of the merger may be unsuccessful ; ( 4 ) peoples may issue equity securities in connection with future acquisitions , which could cause ownership and economic dilution to peoples ' current shareholders ; ( 5 ) local , regional , national and international economic conditions and the impact they may have on peoples and its customers , and peoples ' assessment of the impact , which may be different than anticipated ; ( 6 ) competitive pressures among financial institutions or from non-financial institutions may increase significantly , including product and pricing pressures , third-party relationships and revenues , and peoples ' ability to attract , develop and retain qualified professionals ; ( 7 ) changes in the interest rate environment due to economic conditions and or the fiscal policies of the u.s. government and federal reserve board , which may adversely impact interest rates , interest margins and interest rate sensitivity ; ( 8 ) changes in prepayment speeds , loan originations , levels of non-performing assets , delinquent loans and charge-offs , which may be less favorable than expected and adversely impact the amount of interest income generated ; ( 9 ) adverse changes in the economic conditions and or activities , including , but not limited to , impacts from the implementation of the budget control act of 2011 and the american taxpayer relief act of 2012 , as well as continued economic uncertainty in the u.s. , the european union , and other areas , which could decrease sales volumes and increase loan delinquencies and defaults ; ( 10 ) legislative or regulatory changes or actions , including in particular the dodd-frank wall street reform and consumer protection act of 2010 and the regulations promulgated and to be promulgated thereunder by the office of the comptroller of the currency , the federal reserve board and the consumer financial protection bureau , which may subject peoples , its subsidiaries , or one or more acquired companies to a variety of new and more stringent legal and regulatory requirements which adversely affect their respective businesses ; ( 11 ) deterioration in the credit quality of peoples ' loan portfolio , which may adversely impact the provision for loan losses ; ( 12 ) changes in accounting standards , policies , estimates or procedures which may adversely affect peoples ' reported financial condition or results of operations ; ( 13 ) peoples ' assumptions and estimates used in applying critical accounting policies , which may prove unreliable , inaccurate or not predictive of actual results ; ( 14 ) adverse changes in the conditions and trends in the financial markets , including political developments , which may adversely affect the fair value of securities within peoples ' investment portfolio , the interest rate 28 sensitivity of peoples ' consolidated balance sheet , and the income generated by peoples ' trust and investment activities ; ( 15 ) peoples ' ability to receive dividends from its subsidiaries ; ( 16 ) peoples ' ability to maintain required capital levels and adequate sources of funding and liquidity ; ( 17 ) the impact of new minimum capital thresholds established as a part of the implementation of basel iii ; ( 18 ) the impact of larger or similar sized financial institutions encountering problems , which may adversely affect the banking industry and or peoples ' business generation and retention , funding and liquidity ; ( 19 ) the costs and effects of regulatory and legal developments , including the outcome of potential regulatory or other governmental inquiries and legal proceedings and results of regulatory examinations ; ( 20 ) peoples ' ability to secure confidential information through the use of computer systems and telecommunications networks , including those of peoples ' third-party vendors and other service providers , may prove inadequate , which could adversely affect customer confidence in peoples and or result in peoples incurring a financial loss ; ( 21 ) the overall adequacy of peoples ' risk management program ; ( 22 ) the impact on peoples ' businesses , as well as on the risks described above , of various domestic or international military or terrorist activities or conflicts ; and ( 23 ) other risk factors relating to the banking , insurance and investments industry or peoples as detailed from time to time in peoples ' reports filed with the sec , including those risk factors included in the disclosure under `` item 1a . risk factors '' of this form 10-k. all forward-looking statements speak only as of the filing date of this form 10-k and are expressly qualified in their entirety by the cautionary statements . although management believes the expectations in these forward-looking statements are based on reasonable assumptions within the bounds of management 's knowledge of peoples ' business and operations , it is possible that actual results may differ materially from these projections . additionally , peoples undertakes no obligation to update these forward-looking statements to reflect events or circumstances after the filing date of this form 10-k or to reflect the occurrence of unanticipated events except as may be required by applicable legal requirements . story_separator_special_tag ◦ as described in note 11 of the notes to the consolidated financial statements , peoples incurred settlement charges of $ 1.4 million during 2014 due to the aggregate amount of lump-sum distributions to participants in peoples ' defined benefit pension plan exceeding the threshold for recognizing such charges during the period . settlement charges of $ 270,000 and $ 835,000 were recognized during 2013 and 2012 , respectively . ◦ on september 17 , 2012 , peoples introduced its new brand as part of a company-wide brand revitalization . the brand is peoples ' promise , which is a guarantee of satisfaction and quality . peoples incurred costs throughout 2013 associated with the brand revitalization , including marketing due to advertisements , and depreciation expense for new assets related to the $ 5 million branch renovation project . ◦ peoples ' net interest income and net interest margin are impacted by changes in market interest rates based upon actions taken by the federal reserve board either directly or through its open market committee . these actions include changing the target federal funds rate ( the interest rate at which banks lend money to each other ) , discount rate ( the interest rate charged to banks for money borrowed from the federal reserve bank ) and longer-term market interest rates ( primarily u.s. treasury securities ) . longer-term market interest rates also are affected by the demand for u.s. treasury securities . the resulting changes in the yield curve slope have a direct impact on reinvestment rates for peoples ' earning assets . ◦ the federal reserve board has maintained its target federal funds rate at a historically low level of 0 % to 0.25 % since december 2008 and has maintained the discount rate at 0.75 % since december 2010. the federal reserve board has indicated the possibility that these short-term rates could start to be raised as early as 2015 . ◦ from late 2008 until year-end 2014 , the federal reserve board took various actions to lower longer-term market interest rates as a means of stimulating the economy – a policy commonly referred to as “ quantitative easing ” . these actions included the buying and selling of mortgage-backed and other debt securities through its open market operations . in december 2013 , the federal reserve board announced plans to taper its quantitative easing efforts . 30 as a result , the slope of the u.s. treasury yield curve has fluctuated significantly . substantial flattening occurred in late 2008 , in mid-2010 and early third quarter of 2011 through 2012 , while moderate steepening occurred in the second half of 2009 , late 2010 and mid-2013 . the curve has remained relatively steep since mid-2013 , primarily as a reaction to the federal reserve board 's announcement of a reduction in monthly asset purchases and generally improving economic conditions . the curve flattened gradually throughout 2014 , primarily in response to the slowing global economy , geopolitical uncertainty and lower yields on sovereign debt throughout the world . the impact of these transactions , where material , is discussed in the applicable sections of this management 's discussion and analysis of financial condition and results of operations . critical accounting policies the accounting and reporting policies of peoples conform to us gaap and to general practices within the financial services industry . a summary of significant accounting policies is contained in note 1 of the notes to the consolidated financial statements . while all of these policies are important to understanding the consolidated financial statements , certain accounting policies require management to exercise judgment and make estimates or assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes . these estimates and assumptions are based on information available as of the date of the consolidated financial statements ; accordingly , as this information changes , the consolidated financial statements could reflect different estimates or assumptions . management has identified the accounting policies described below as those that , due to the judgments , estimates and assumptions inherent in the policies , are critical to an understanding of peoples ' consolidated financial statements and management 's discussion and analysis of financial condition and results of operations . income recognition interest income on loans and investment securities is recognized by methods that result in level rates of return on principal amounts outstanding , including yield adjustments resulting from the amortization of loan costs and premiums on investment securities and accretion of loan fees and discounts on investment securities . since mortgage-backed securities comprise a sizable portion of peoples ' investment portfolio , a significant increase in principal payments on those securities could impact interest income due to the corresponding acceleration of premium amortization or discount accretion . peoples discontinues the accrual of interest on a loan when conditions cause management to believe collection of all or any portion of the loan 's contractual interest is doubtful . such conditions may include the borrower being 90 days or more past due on any contractual payments or current information regarding the borrower 's financial condition and repayment ability . all unpaid accrued interest deemed uncollectable is reversed , which would reduce peoples ' net interest income . interest received on nonaccrual loans is included in income only if principal recovery is reasonably assured . allowance for loan losses in general , determining the amount of the allowance for loan losses requires significant judgment and the use of estimates by management . peoples maintains an allowance for loan losses based on a quarterly analysis of the loan portfolio and estimation of the losses that are probable of occurrence within the loan portfolio .
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executive summary net income for the year ended december 31 , 2014 was $ 16.7 million , compared to $ 17.6 million in 2013 and $ 20.4 million in 2012 , representing earnings per diluted common share of $ 1.35 , $ 1.63 and $ 1.92 , respectively . the decrease in earnings during 2014 was primarily driven by acquisition-related costs of $ 5.1 million and pension settlement charges of $ 1.4 million . earnings in 2013 were impacted by additional operating costs associated with various strategic investments to grow revenue and a lower recovery of loan losses . in 2014 , peoples had a provision for loan losses of $ 0.3 million due to its checking account overdrafts program , while asset quality trends remained favorable and recoveries exceeded charge-offs . peoples recorded recoveries of loan losses of $ 4.4 million for 2013 and $ 4.7 million for 2012. peoples recorded net recoveries of $ 0.5 million for 2014 , compared to net recoveries of $ 3.7 million for 2013 and net charge-offs of $ 1.2 million for 2012. these recoveries or provisions represented amounts needed , in management 's opinion , to maintain the appropriateness of the allowance for loan losses . net interest income grew 25 % to $ 69.5 million in 2014 compared to $ 55.4 million in 2013 , mostly due to higher loan balances in connection with recent acquisitions and organic loan growth . net interest margin was 3.45 % in 2014 , higher than the 3.23 % in 2013 and 3.36 % in 2012 . the increase in 2014 was due to accretion income from acquisitions completed , loan growth , change in asset mix and a reduction in funding costs .
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our actual results and timing of events may differ materially from those anticipated in these forward-looking statements as a result of many factors , including those discussed under “ risk factors ” and elsewhere in this report . please see “ cautionary information regarding forward-looking statements ” at the beginning of this form 10-k for additional information you should consider regarding forward-looking statements . we undertake no obligation to revise or update any forward-looking statements to reflect any event or circumstance that arises after the date of this report , or to conform such statements to actual results or changes in our expectations . overview we are a global ear , nose and throat ( “ ent ” ) medical technology leader dedicated to transforming patient care . our u.s. food and drug administration ( “ fda ” ) approved steroid releasing products are designed to provide mechanical spacing and deliver targeted therapy ( mometasone furoate ) to the site of disease . these products include our propel ® family of products ( propel ® , propel ® mini and propel ® contour ) and the sinuva ® ( mometasone furoate ) sinus implant . the propel family of products are used in adult patients to reduce inflammation and maintain patency following sinus surgery primarily in hospitals and ambulatory surgery centers ( “ asc ” ) and has increasing applications in the physician office setting of care in conjunction with balloon dilation and following post-surgical debridement . sinuva is a physician administered drug , designed to be used in the physician office setting of care to treat adult patients who have had ethmoid sinus surgery yet suffer from recurrent sinus obstruction due to polyps . in october 2020 , we acquired fiagon ag medical technologies ( “ fiagon ” ) , a global leader of electromagnetic surgical navigation solutions with an expansive portfolio of ent product offerings , including the vensure sinus dilation platform ( “ vensure ” ) and cube surgical navigation system and instrumentation ( “ cube ” ) , that complement our propel and sinuva sinus implants across all settings of care and extend our geographic reach . the propel family of products are combination products regulated as devices approved under a premarket approval ( “ pma ” ) and sinuva is a combination product regulated as a drug that was approved under a new drug application ( “ nda ” ) . the vensure products received 510 ( k ) clearance in august 2020. cube and vensure are both regulated as medical devices . while our primary commercial focus is the u.s. market , both propel and propel mini received ce markings , permitting them to be marketed in europe . our commercialization strategy will consider several factors including regulatory requirements , reimbursement coverage for our products , and key opinion leader support . our initial focus is on germany and the united kingdom , where we are working to build our capabilities and develop the market . going forward , we will continue to assess our capability to penetrate additional markets in europe , the asia pacific and japan . our propel family of steroid releasing implants are clinically proven to improve outcomes for chronic sinusitis patients following sinus surgery . propel implants mechanically prop open the sinuses and release mometasone furoate , an advanced corticosteroid with anti-inflammatory properties , directly into the sinus lining , and then dissolve over time . propel 's safety and effectiveness is supported by level 1a clinical evidence from multiple clinical trials , which demonstrates that propel implants reduce inflammation and scarring after surgery , thereby reducing the need for postoperative oral steroids and repeat surgical interventions . approximately 399,000 patients have been treated with propel products to-date . propel is a self-expanding implant designed to conform to and hold open the surgically enlarged sinus while gradually releasing an anti-inflammatory steroid over a period of approximately 30 days and is absorbed into the body over a period of approximately six weeks . propel mini is a smaller version of propel and is approved for use in both the ethmoid and frontal sinuses . propel mini is used preferentially by physicians compared with propel when treating smaller anatomies or following less extensive procedures . propel contour is designed to facilitate treatment of the frontal and maxillary sinus ostia , or openings , of the dependent sinuses in procedures performed in both the operating room and in the office setting of care . propel contour 's lower profile , hourglass shape and malleable delivery system are designed for use in the narrow and difficult to access sinus ostia . sinuva , when placed during a routine physician office visit , expands into the sinus cavity and delivers an anti-inflammatory steroid directly to the site of polyp disease for approximately 90 days . 46 our propel family of products are used primarily in the operating room of a hospital or ambulatory surgery center . these providers receive a facility fee for the sinus surgery procedure which is intended to pay for supplies used in this procedure , including the propel family of products . sinuva is a physician administered drug , used almost exclusively in the physician office setting . vensure provides for complementary us e with propel contour for dilation and localized drug delivery . cube navigation supports surgery and balloon dilation in all settings of care . we applied to the centers for medicare & medicaid services ( “ cms ” ) for a product-specific j code for sinuva , and in july 2019 , cms announced their final decision to establish a new j code described as “ j7401 mometasone furoate sinus implant , 10 micrograms. ” this new j code became effective on october 1 , 2019. cms also made a final decision to eliminate the s1090 code , which was previously assigned to propel , because they view it as duplicative to j7401 . subsequently , cms approved sinuva for transitional pass-through payment status for reimbursement under the hospital outpatient prospective payment system ( “ opps ” ) and asc payment system . story_separator_special_tag revenue from sinuva is recognized net of estimated product sales discounts , rebates , returns and other allowances as a reduction of revenue in the same period the related revenue is recognized . we will adjust these estimates if actual allowances vary from our estimates , which would affect revenue in the period such variances become known . our revenue is almost entirely derived from within the united states and no single customer accounted for more than 10 % of our revenue during the years ended december 31 , 2020 , 2019 and 2018. cost of sales and gross profit we manufacture our propel family of products and sinuva in our facility in menlo park , california . cube navigation equipment and instruments are manufactured in hennigsdorf , germany , and vensure sinus dilation balloons are procured from a third-party manufacturer . cost of sales consists primarily of manufacturing overhead costs , material costs , direct labor and other direct costs such as shipping costs . a significant portion of our cost of sales currently consists of manufacturing overhead costs . these overhead costs include compensation , including stock-based compensation and other operating expenses associated with the cost of quality assurance , material procurement , inventory control , facilities , information technology , equipment and operations supervision and manufacturing and warehouse management . once the disruption from the covid-19 pandemic subsides , we expect cost of sales to increase in absolute dollars again primarily as , and to the extent , our revenue grows , or we make additional improvements in our manufacturing capabilities . our gross margin has been and will continue to be affected by a variety of factors , including manufacturing costs and average selling prices . toward the end of the first quarter and throughout the second quarter of 2020 , manufacturing costs were negatively impacted by the mandatory shelter-in-place order in effect in san mateo county , california , which prevented us from using our manufacturing facility , as well as our decision to suspend production until the third quarter of 2020. production resumed during the third quarter of 2020 , but below normal capacity . idle facility costs are charged to cost of goods sold in the period incurred . manufacturing cost will change as our production volume and product mix changes . the per unit allocation of our manufacturing overhead costs may increase and our gross margin may decline as , and to the extent , production volume decreases . selling , general and administrative expenses selling , general and administrative , or sg & a , expenses consist primarily of compensation for personnel , including stock-based compensation , related to selling , marketing , finance , market access , reimbursement , business development , legal and human resource functions as well as costs related to any post-market studies . additional sg & a expenses include commissions , training , travel expenses , promotional activities , conferences , trade shows , professional services fees , audit compliance expenses , insurance costs and general corporate expenses including allocated facilities and information technology expenses . research and development expenses research and development , or r & d , expenses consist primarily of compensation for personnel , including stock-based compensation , related to product development , regulatory affairs , clinical and medical affairs , and allocated facilities and information technology expenses . r & d expenses also may include expenses for clinical studies related to clinical trial design , site reimbursement , data management , travel expenses and the cost of manufacturing products for clinical trials . finally , r & d expenses also include expenses related to the development of products and technologies such as consulting services and supplies . 48 interest expense interest expense consists primarily of the interest expense , accretion expense of debt discounts and purchase obligations , and amortization of debt issuance costs associated with our convertible notes , and imputed interest on deferred payments for the acquisition of fiagon . other income ( expense ) , net other income ( expense ) , net consists primarily of interest earned on our cash and cash equivalents , changes in the fair value of embedded derivatives , and the effects of foreign exchange , including changes in the fair value of foreign currency forward contracts . provision for income tax benefit provision for income tax benefit consists of an estimate of federal , state and foreign income taxes based on enacted federal , state and foreign tax rates , as adjusted for allowable credits , deductions , uncertain tax positions , changes in deferred tax assets and liabilities and changes in tax law . due to the level of historical losses , we maintain a valuation allowance against u.s. federal and state deferred tax assets as we have concluded it is more likely than not that these deferred tax assets will not be realized . story_separator_special_tag roman ' , sans-serif ; font-size:10pt ; font-weight:400 ; line-height:120 % '' > sg & a expenses decreased by $ 9.9 million , or 9 % , to $ 98.6 million during the year ended december 31 , 2020 , compared to $ 108.5 million during the year ended december 31 , 2019. the decrease in sg & a expenses was primarily due to decreases in headcount and related expenses as a result of cost reduction measures initiated in the first quarter of 2020 , in addition to lower sales commissions from reduced sales , partially offset by transaction costs associated with the acquisition and integration of fiagon o f $ 4.0 million , whic h consisted largely of professional fees . our spending in the first quarter of 2020 reflected normal business activities while certain spending decreased in the second and third quarter of 2020 as a result of a reduction in demand and the impact of the cost reduction measures put in place in the first quarter of 2020. we expect cost control measures to remain in place until the current crisis subsides .
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results of operations replace_table_token_1_th comparison of years ended december 31 , 2020 and 2019 revenue replace_table_token_2_th revenue decreased by $ 28.6 million , or 26 % , to $ 80.6 million during the year ended december 31 , 2020 , compared to $ 109.1 million during the year ended december 31 , 2019. the decrease in revenue was due to a 29 % decline in propel sales , partially offset by a 19 % increase in sinuva sales . lower propel revenue resulted from a 31 % d ecrease in unit sales , 49 slightly offset by a 2 % in crease in average selling price . the decrease in unit sales for propel was driven by a reduction in demand due to the impact of the covid-19 pandemic . the increase in sinuva sales was attributable to a 13 % increase in unit sales during the year ended december 31 , 2020 as well as a 5 % inc rease in net revenue per unit from the year ended december 31 , 2019. the increase in unit sales for sinuva during the year ended december 31 , 2020 was due to the improvement in reimbursement , continued adoption of the technology , and the ongoing shift of procedures from hospitals and asc to the physician office setting of care . sinuva sales also benefited from the expansion of our market access infrastructure and the addition and expansion of our distributor relationships during the year ended december 31 , 2020. furthermore , revenue for the year ended december 31 , 2020 also included $ 0.9 million from sales from the initiation of sales from the acquired products , the cube navigation equipment and instruments and vensure sinus dilation balloons during the fourth quarter .
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these options were granted in 2008 and 2009 at exercise prices of $ 0.81 and $ 1.30 . 13. stockholders ' equity preferred stock the company is authorized to issue 5,000,000 shares of preferred stock class a with a par value of one dollar ( $ 1.00 ) per share ; 5,000,000 shares of preferred stock class b with a par value of one dollar ( $ 1.00 ) per share ; and 5,000,000 shares of preferred stock class c with a par value of one dollar ( $ 1.00 ) per share . the company has one class of preferred stock outstanding : class b convertible preferred stock ( class b stock ) . the class b stock has five series : series i , series ii , series iii , series iv , and series v. the class b stock has been allocated among series i , ii , iii , iv , and v in the amounts of 98,500 ; 171,200 ; 129,245 ; 342,500 ; and 40,000 shares , respectively as of december 31 , 2016. the remaining 4,218,555 authorized shares have not been assigned a series . f- 20 series i class b stock there were 98,500 shares of $ 1 par value series i class b stock outstanding at december 31 , 2016 and 2015. holders of series i class b stock are entitled to receive a cumulative annual dividend of $ 0.50 per share , payable quarterly if declared by the board of directors . the company paid dividends of $ 49,250 ; $ 62,516 ; and $ 38,814 in 2016 , 2015 , and 2014 , respectively . at december 31 , 2016 , no dividends were in arrears . series i class b stock is redeemable after three years from the date of issuance at the option of the company at a price of $ 7.50 per share , plus all unpaid dividends . each share of series i class b stock may , at the option of the stockholder , be converted to one share of common stock after three years from the date of issuance or in the event the company files an initial registration statement under the securities act of 1933. no shares of series i class b stock were converted into common stock in 2016 or 2015. in the event of voluntary or involuntary dissolution , liquidation , or winding up of the company , holders of series i class b stock then outstanding are entitled to $ 6.25 per share , plus all unpaid dividends prior to any distributions to holders of series ii class b stock , series iii class b stock , series iv class b stock , series v class b stock , or common stock . series ii class b stock there were 171,200 shares of $ 1 par value series ii class b stock outstanding at december 31 , 2016 and 2015. holders of series ii class b stock are entitled to receive a cumulative annual dividend of $ 1.00 per share , payable quarterly if declared by the board of directors . holders of series ii class b stock generally have no voting rights until dividends are in arrears and unpaid for twelve consecutive quarters . in such case , the holders of series ii class b stock have the right to elect one-third of the board of directors of the company . the company paid dividends of $ 171,200 ; $ 221,026 ; and $ 134,025 in 2016 , 2015 , and 2014 , respectively . at december 31 , 2016 , no dividends were in arrears . series ii class b stock is redeemable after three years from the date of issuance at the option of the company at a price of $ 15.00 per share plus all unpaid dividends . each share of series ii class b stock may , at the option of the stockholder , be converted to one share of common stock after three years from the date of issuance or in the event the company files an initial registration statement under the securities act of 1933. pursuant to these terms , 5,000 shares of series ii class b stock were converted into common stock in 2015. no shares were converted in 2016. in the event of voluntary or involuntary dissolution , liquidation , or winding up of the company , holders of series ii class b stock then outstanding are entitled to $ 12.50 per share , plus all unpaid dividends , after distribution obligations to holders of series i class b stock have been satisfied and prior to any distributions to holders of series iii class b stock , series iv class b stock , series v class b stock , or common stock . series iii class b stock there were 129,245 story_separator_special_tag forward-looking statement warning certain statements included by reference in this filing containing the words could , may , believes , anticipates , intends , expects , and similar such words constitute forward-looking statements within the meaning of the private securities litigation reform act . any forward-looking statements involve known and unknown risks , uncertainties , and other factors that may cause our actual results , performance , or achievements to be materially different from any future results , performance , or achievements expressed or implied by such forward-looking statements . story_separator_special_tag thomas j. shaw exercised a portion of such right on january 12 , 2017 , buying two million shares at market price for an aggregate purchase price of $ 1.78 million . in april 2016 , mr. shaw exercised an option for one million shares for an aggregate exercise price of $ 810,000. we exchanged 728 thousand shares of our common stock for 200 thousand shares of our series iv class b convertible preferred stock as of november 30 , 2015 pursuant to an agreement with a shareholder . such shareholder agreed to waive all unpaid dividends in arrears associated with the tendered preferred stock , equaling $ 3.1 million . future dividend requirements of $ 200 thousand per year are avoided as a result of this transaction . product purchases from our chinese manufacturers have enabled us to increase manufacturing capacity with little capital outlay and have provided a competitive manufacturing cost . in 2016 , our primary chinese manufacturer produced approximately 86.3 % of our vanishpoint ® syringes . in the event that we become unable to purchase products from our chinese manufacturers , we would need to find an alternate manufacturer for the blood collection set , iv catheter , patient safe ® syringe , 0.5ml insulin syringe , 0.5ml autodisable syringe , and 2ml , 5ml , and 10ml syringes and we would increase domestic production for the 1ml and 3ml syringes . in 1995 , we entered into a license agreement with thomas j. shaw for the exclusive right to manufacture , market , and distribute products utilizing automated retraction technology . this technology is the subject of various patents and patent applications owned by mr. shaw . the license agreement generally provides for quarterly payments of a 5 % royalty fee on gross sales . with increased volumes , our manufacturing unit costs have generally tended to decline . factors that could affect our unit costs include increases in costs by third party manufacturers , changing production volumes , costs of petroleum products , and transportation costs . increases in such costs may not be recoverable through price increases of our products . 17 story_separator_special_tag /font > earnings per share were positively affected by our acquisition of 200,000 shares of iv class b convertible preferred stock . under the guidelines of asc 260-10-s99-2 , effect on the calculation of earnings per share for the redemption or induced conversion of preferred stock , we reflected the gain on extinguishment of this preferred stock in net income per common stockholder used to calculate earnings per share . cash flow from operations was a negative $ 3.3 million for 2015 due primarily to the loss from operations and changes in working capital , namely increased inventories and other current assets , mitigated by a decrease in accounts receivable and an increase in accounts payable . liquidity and capital resources at the present time , management does not intend to publicly raise equity capital . due to the funds received from prior litigation , we have sufficient cash reserves and intend to rely on operations , cash reserves , and debt financing , when available , as the primary ongoing sources of cash . our ability to obtain additional funds through loans is uncertain . we can not predict any recovery of damages in our litigation against bd at this time . the ultimate outcome of this suit could have a material effect on our financial condition . historical sources of liquidity we have historically funded operations primarily from the proceeds from revenues , private placements , litigation settlements , and loans . internal sources of liquidity margins and market access to routinely achieve positive or break even quarters , we need increased access to hospital markets which has been difficult to obtain . we will continue to attempt to gain access to the market through our sales efforts , innovative technology , the introduction of new products , and , when necessary , litigation . we continue to focus on methods of upgrading our manufacturing capability and efficiency in order to reduce costs . fluctuations in the cost and availability of raw materials and inventory and our ability to maintain favorable manufacturing arrangements and relationships could result in the need to manufacture all ( as opposed to 21.6 % ) of our products in the u.s. this could temporarily increase unit costs as we ramp up domestic production . the mix of domestic and international sales affects the average sales price of our products . generally , the higher the ratio of domestic sales to international sales , the higher the average sales price will be . typically , large international sales of vanishpoint ® products are shipped directly from china to the customer . purchases of product manufactured in china usually decrease the average cost of manufacture for all units . the number of units produced by us versus manufactured in china can have a significant effect on the carrying costs of inventory as well as cost of sales . we will continue to evaluate the appropriate mix of products manufactured domestically and those manufactured in china to achieve economic benefits as well as to maintain our domestic manufacturing capability . 19 fluctuations in the cost of oil ( since our products are petroleum based ) and transportation and the volume of units purchased from our chinese manufacturers may have an impact on the unit costs of our product . increases in such costs may not be recoverable through price increases of our products . reductions in oil prices may not quickly affect petroleum product prices . seasonality historically , unit sales have increased during the flu season . cash requirements due to funds received from prior litigation , we have sufficient cash reserves and intend to rely on operations , cash reserves , and debt financing , when available , as the primary ongoing sources of cash . we have taken steps to decrease our
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results of operations the following discussion contains trend information and other forward-looking statements that involve a number of risks and uncertainties . our actual future results could differ materially from our historical results of operations and those discussed in the forward-looking statements . all period references are to our fiscal years ended december 2016 , 2015 , or 2014. dollar amounts have been rounded for ease of reading . comparison of year ended december 31 , 2016 and year ended december 31 , 2015 domestic sales accounted for 88.2 % and 77.9 % of the revenues in 2016 and 2015 , respectively . domestic revenues increased 14.2 % principally due to sales of our 1 ml syringe and easypoint ® needles . domestic unit sales increased 15.6 % . domestic unit sales were 83.3 % of total unit sales for 2016. international revenues decreased from $ 6.5 million in 2015 to $ 3.5 million in 2016 , primarily due to fluctuation in the timing of orders . overall unit sales decreased 7.0 % . our international orders may be subject to significant fluctuation over time . such orders may fluctuate due to health initiatives at various times as well as economic conditions . cost of manufactured product increased $ 448 thousand principally due to higher manufacturing costs . royalty expense increased $ 50 thousand due to increased gross sales . gross profit margins decreased from 35.8 % in 2015 to 34.7 % in 2016. operating expenses increased 0.6 % from the prior year due to an impairment charge of $ 456 thousand , stock option expense , consulting costs , and 401 ( k ) plan matching expense . the impairment charge of $ 456 thousand was related to patient safe ® assembly equipment . these expenses were largely offset by decreases in the medical device excise tax of $ 360 thousand , severance pay , professional fees , and bonus pay .
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( f ) inventories : we state inventories at the lower of story_separator_special_tag business outlook we are pleased to deliver strong sales growth for the year , including growth in both our delta group and salt life group segments . our gross margins expanded sequentially through the year , and we leveraged our growth to deliver solid profitability for our shareholders . our investments in new manufacturing technologies , speed-to-market distribution strategies , and additional sales channels continue to generate growth opportunities across our businesses and differentiate us from competitors . we see a variety of strategic growth opportunities across our business , and our team remains focused on the initiatives we have in place to take advantage of them . in addition to the accelerating momentum in our dtg2go and salt life businesses , we will launch a full-service , vertical distributor model in our activewear business in 2020. this will include a broad offering of nationally recognized branded products comprised of polos , outerwear , headwear and accessories . we believe this additional go-to-market strategy can become a game-changer for us and for our shareholders as it grows over time . through meaningful investments in manufacturing capacity , proprietary fulfillment systems , and new facilities , along with two strategic acquisitions , dtg2go has risen as the industry leader in the digital print space . dtg2go is the only digital print supplier in the world providing customers a seamless fulfillment solution integrated with a vertical manufacturing platform offering a reliable supply of high quality fashion and core basic garments . we continued to expand our unique positioning with the addition of two new facilities , strategically integrating dtg2go 's state-of-the-art digital print and fulfillment platform with delta apparel 's blank garment distribution network . this model has significantly improved our speed-to-market and elevated our customer service levels with one-day shipping to over half of all u.s. consumers , including the key new york city and dallas metropolitan markets . these facilities are now operating and accepting orders in time for the important holiday selling season . with six fewer days of holiday selling between thanksgiving and christmas , dtg2go 's key tenet of speed combined with our multi-facility distribution strategy should further differentiate our positioning in the marketplace . we are happy with the new polyester printing technology and see a tremendous opportunity to capitalize on demand for personalized decorated polyester garments , adding another layer of growth for our fully integrated direct-to-garment apparel printing solution . entering fiscal year 2020 with strong business momentum , coupled with the significant increase in our capacity and value added positioning , we see a clear path to reach our goals of 20 % compounded sales growth with healthy double-digit operating margins in our dtg2go business . market conditions in our core activewear business are solid , with demand for our higher-margin fashion basics products and with our western hemisphere manufacturing platform continuing to accelerate . we have experienced rapid expansion of our fashion basics line , particularly delta platinum , over the last several years with growth expected to continue in 2020 across multiple sales channels . we remain focused on building internal manufacturing capacity to satisfy the activewear demand and better service customers with speed of delivery . the vast majority of our new product development continues to be focused on fashion basics , adding product diversification and expanding offerings across color and silhouettes . in january 2020 , we will launch a full-service , vertical distributor model in our activewear business , which will provide our customers with a broader range of product offerings of nationally recognized branded products . our diversified sales channels coupled with cross-selling opportunities involving the dtg2go and soffe decoration platforms , should continue to drive new business along with valuable customer diversification . our funtees business recently began shipping to several new direct-to-retail customers and expects that business to continue to grow . we have been growing and diversifying our customer base at funtees with brands and retailers who are interested in full-service supply chain management and technology , along with our manufacturing platform , which is compliant , flexible in the products and retail-ready services it can provide and , importantly , close to the united states market with nationwide distribution coverage . overall , we anticipate more growth at activewear as we further leverage our internal manufacturing capacity and broad distribution network . we were pleased to see two consecutive quarters of year-over-year top and bottom-line improvement from our soffe brand . we have continuously refined the core soffe product line to meet customer demand , while strategically developing new products such as channel-specific graphic tee programs . soffe 's business-to-business ( `` b2b '' ) and business-to-consumer ( `` b2c '' ) ecommerce performance has been strong with double-digit net sales growth . this , coupled with the increased integration with our activewear sales platform , has created momentum in this business to grow in the future . across our national and regional customer footprint , salt life has enjoyed strong growth in fiscal year 2019 , and we enter the new fiscal year with solid momentum as salt life grows geographically with our larger accounts . following the conversion of our www.saltlife.com ecommerce site to a new platform in the third quarter of fiscal year 2019 , we have experienced strong site traffic and conversion with notable strength in mobile . we are very pleased with the site enhancements ahead of the holiday selling season , which includes improved speed , site navigation and frictionless check out , all features we expect will drive continued strong performance . additional product categories remain an important pillar of growth for salt life for our wholesale partners , as well as our branded direct-to-consumer channels . the higher priced performance line continues to be well received across channels . the expansion of additional product lines , such as women shoes and accessories , are facilitating more opportunities to drive incremental floor space including point-of-sale displays and shop-in-shops . story_separator_special_tag future liquidity and capital resources see note 8 – long-term debt to the consolidated financial statements for discussion of our various financing arrangements , including the terms of our revolving u.s. credit facility . based on our current expectations , we believe that our credit facility should be sufficient to satisfy our foreseeable working capital needs , and that the cash flow generated by our operations and funds available under our credit facility should be sufficient to service our debt payment requirements , to satisfy our day-to-day working capital needs and to fund our planned capital expenditures . any material deterioration in our results of operations , however , may result in our loss of the ability to borrow under our revolving credit facility and to issue letters of credit to suppliers , or may cause the borrowing availability under our facility to be insufficient for our needs . availability under our credit facility is primarily a function of the levels of our accounts receivable and inventory , as well as the uses of cash in our operations . a significant deterioration in our accounts receivable or inventory levels could restrict our ability to borrow additional funds or service our indebtedness . moreover , our credit facility includes a financial covenant that if the availability under our credit facility falls below the amounts specified in our credit agreement , our fixed charge coverage ratio ( “ fccr ” ) ( as defined in our credit agreement ) for the preceding 12-month period must not be less than 1.1 to 1.0. although our availability at september 28 , 2019 , was above the minimum thresholds specified in our credit agreement , a significant deterioration in our business could cause our availability to fall below such thresholds , thereby requiring us to maintain the minimum fccr specified in our credit agreement . as of september 28 , 2019 , our fccr was above the minimum threshold specified in our credit agreement . derivative instruments from time to time , we may purchase cotton option contracts to economically hedge the risk related to market fluctuations in the cost of cotton used in our operations . we do not receive hedge accounting treatment for these derivatives . as such , the realized gains and losses associated with them were recorded within cost of goods sold on the consolidated statement of operations . there were no material option agreements that were outstanding at september 28 , 2019 . 18 we may use derivatives , including cotton option contracts , to manage our exposure to movements in commodity prices . we do not designate our options as hedge instruments upon inception . accordingly , we mark to market changes in the fair market value of the options in cost of sales in the consolidated statements of operations . there were no raw material option agreements outstanding at september 28 , 2019 or september 29 , 2018. changes in the derivatives ' fair values are deferred and are recorded as a component of accumulated other comprehensive income ( “ aoci ” ) , net of income taxes , until the underlying transaction is recorded . when the hedged item affects income , gains or losses are reclassified from aoci to the consolidated statements of operations as interest income/expense . any ineffectiveness in our hedging relationships is recognized immediately in the consolidated statement of operations . the changes in fair value of the interest rate swap agreements resulted in aoci loss , net of taxes , of $ 1.1 million for fiscal year 2019 , and an aoci gain , net of taxes , of $ 0.2 million for fiscal year 2018. off-balance sheet arrangements as of september 28 , 2019 , we did not have any off-balance sheet arrangements that were material to our financial condition , results of operations or cash flows as defined by item 303 ( a ) ( 4 ) of regulation s-k promulgated by the sec other than the letters of credit , operating leases , and purchase obligations . we have disclosed operating lease commitments in note 10—leases , and letters of credit and purchase obligations in note 15—commitments and contingencies . dividends and purchases of our own shares pursuant to the terms of our credit facility , we are allowed to make cash dividends and stock repurchases if ( i ) as of the date of the payment or repurchase and after giving effect to the payment or repurchase , we have availability on that date of not less than 15 % of the lesser of the borrowing base or the commitment , and average availability for the 30-day period immediately preceding that date of not less than 15 % of the lesser of the borrowing base or the commitment ; and ( ii ) the aggregate amount of dividends and stock repurchases after may 10 , 2016 , does not exceed $ 10 million plus 50 % of our cumulative net income ( as defined in the amended credit agreement ) from the first day of the third quarter of fiscal year 2016 to the date of determination . at september 28 , 2019 , and september 29 , 2018 , t here was $ 16.1 mi llion and $ 14.7 million , respectively , of retained earnings free of restrictions to make cash dividends or stock repurchases . our board of directors did not declare , nor were any dividends paid , during fiscal years 2019 and 2018. any future cash dividend payments will depend upon our earnings , financial condition , capital requirements , compliance with loan covenants and other relevant factors . as of september 28 , 2019 , our board of directors had authorized management to use up to $ 60.0 million to repurchase stock in open market transactions under our stock repurchase program . during fiscal years 2019 and 2018 , we purchased 141,501 shares and 463,974 shares , respectively , of our common stock for a total cost of $ 2.7 million and $ 9.0 million , respectively .
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results of operations our financial results have been presented on a generally accepted accounting principles ( `` gaap '' ) basis and , in certain limited instances , we have presented our financial results on a gaap and non-gaap ( “ adjusted ” ) basis , which is further described and reconciled in the sections entitled “ non-gaap financial measures. ” net sales for fiscal year 2019 were $ 431.7 million , up 9.2 % from $ 395.5 million in the prior year . net sales growth was achieved in both the delta group and salt life group segments . our direct-to-consumer and business-to-business ecommerce and retail sales continued to repr esent a larger portion of consolidated revenue , constituting 8.1 % of t otal net sales for the 2019 fiscal year compared to 7.6 % of net sales in the prior year . delta group segment net sales of $ 389.1 million in fiscal year 2019 increased 9.3 % over prior year results of $ 356.0 million . this sales growth was primarily driven by organic sales growth in our dtg2go digital print and fulfillment business in addition to its acquisition of silk screen ink , ltd. d/b/a digital print service ( `` ssi '' ) in october 2018. the segment also experienced sales growth in delta activewear due to continued product expansions offered to catalog customers as well as growth in new sales channels , such as direct-to-retail customers . salt life group segment net sales of $ 42.7 million in fiscal year 2019 increased 8.1 % over prior year results of $ 39.4 million in the prior year . this sales growth was attributable to growth across multiple sales channels , including wholesale , national retailers , direct-to-consumer channels , and salt life lager beer sales .
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overview potential reit conversion on june 5 , 2012 , we announced that our board of directors , following a thorough analysis of alternatives and careful consideration of the topic , and after the unanimous recommendation of the special committee , unanimously approved a plan for imi to pursue the conversion plan . if we are able to convert to , and qualify as , a reit , we will generally be permitted to deduct from u.s. federal income taxes dividends paid to our stockholders . the income represented by such dividends would not be subject to u.s. federal taxation at the entity level but would be taxed , if at all , only at the stockholder level . nevertheless , the income of our u.s. taxable reit subsidiaries ( `` trs '' ) , which will hold our u.s. operations that may not be reit-compliant , will be subject , as applicable , to u.s. federal and state corporate income tax , and we will continue to be subject to foreign income taxes in non-u.s. jurisdictions in which we hold assets or conduct operations , regardless of whether held or conducted through qualified reit subsidiaries ( `` qrs '' ) or trs . we will also be subject to a separate corporate income tax on any gains recognized during a specified period ( generally , 10 years ) following the reit conversion that are attributable to `` built-in '' gains with respect to the assets that we own on the date we convert to a reit . our ability to qualify as a reit will depend upon our continuing compliance with various requirements following our conversion to a reit , including requirements related to the nature of our assets , the sources of our income and the distributions to our stockholders . if we fail to qualify as a reit , we will be subject to u.s. federal income tax at regular corporate rates . even if we qualify for taxation as a reit , we may be subject to some federal , state , local and foreign taxes on our income and property . in particular , while state income tax regimes often parallel the u.s. federal income tax regime for reits described above , many states do not completely follow u.s. federal rules and some may not follow them at all . we currently estimate the incremental operating and capital expenditures associated with the conversion plan through 2014 to be approximately $ 150.0 million to $ 200.0 million . of these amounts , approximately $ 47.0 million was incurred in 2012 , including approximately $ 12.5 million of capital expenditures . if the conversion plan is successful , we also expect to incur an additional $ 10.0 million to $ 15.0 million in annual reit compliance costs in future years . discontinued operations in august 2010 , we divested the domain name management product line of our digital business ( the `` domain name product line '' ) . on june 2 , 2011 , we completed the sale ( the `` digital sale '' ) of our online backup and recovery , digital archiving and ediscovery solutions businesses of our digital business ( the `` digital business '' ) to autonomy corporation plc , a corporation formed under the laws of england and wales ( `` autonomy '' ) , pursuant to a purchase and sale agreement dated as of may 15 , 2011 among imi , certain subsidiaries of imi and autonomy ( the `` digital sale agreement '' ) . additionally , on october 3 , 2011 , we sold our records management operations in new zealand . also , on april 27 , 2012 , we sold our records management operations in italy . the financial position , operating results and cash flows of the domain name product line , the digital business , our new 32 zealand operations and our italian operations , including the gain on the sale of the domain name product line , the digital business and our new zealand operations and the loss on the sale of the italian operations , for all periods presented , have been reported as discontinued operations for financial reporting purposes . see note 14 to notes to consolidated financial statements . general our revenues consist of storage rental revenues as well as service revenues . storage rental revenues , which are considered a key driver of financial performance for the storage and information management services industry , consist primarily of recurring periodic rental charges related to the storage of materials or data ( generally on a per unit basis ) that are typically retained by customers for many years . service revenues include charges for related core service activities and a wide array of complementary products and services . included in core service revenues are : ( 1 ) the handling of records , including the addition of new records , temporary removal of records from storage , refiling of removed records and the destruction of records ; ( 2 ) courier operations , consisting primarily of the pickup and delivery of records upon customer request ; ( 3 ) secure shredding of sensitive documents ; and ( 4 ) other recurring services , including document management solutions ( `` dms '' ) , which relate to physical and digital records , and recurring project revenues . our core service revenue growth has been negatively impacted by declining activity rates as stored records are becoming less active . the amount of information available to customers through the internet or their own information systems has been steadily increasing in recent years . as a result , while customers continue to store their records with us , they are less likely than they have been in the past to retrieve records for research purposes thereby reducing their core service activity levels . story_separator_special_tag we use multiples of current or projected adjusted oibda in conjunction with our discounted cash flow models to determine our overall enterprise valuation and to evaluate acquisition targets . we believe adjusted oibda and adjusted oibda margin provide our current and potential investors with relevant and useful information regarding our ability to generate cash flow to support business investment . these measures are an integral part of the internal reporting system we use to assess and evaluate the operating performance of our business . adjusted oibda does not include certain items that we believe are not indicative of our core operating results , specifically : ( 1 ) ( gain ) loss on disposal/write-down of property , plant and equipment , net ; ( 2 ) intangible impairments ; ( 3 ) reit costs ; ( 4 ) other expense ( income ) , net ; ( 5 ) income ( loss ) from discontinued operations , net of tax ; ( 6 ) gain ( loss ) on sale of discontinued operations , net of tax and ( 7 ) net income ( loss ) attributable to noncontrolling interests . adjusted oibda also does not include interest expense , net and the provision ( benefit ) for income taxes . these expenses are associated with our capitalization and tax structures , which we do not consider when evaluating the operating profitability of our core operations . finally , adjusted oibda does not include depreciation and amortization expenses , in order to eliminate the impact of capital investments , which we evaluate by comparing capital expenditures to incremental revenue generated and as a percentage of total revenues . adjusted oibda and adjusted oibda margin should be considered in addition to , but not as a substitute for , other measures of financial performance reported in accordance with accounting principles generally accepted in the unites states of america ( `` gaap '' ) , such as operating or net income ( loss ) or cash flows from operating activities from continuing operations ( as determined in accordance with gaap ) . 35 reconciliation of adjusted oibda to operating income , income from continuing operations and net income ( loss ) ( in thousands ) : replace_table_token_11_th ( 1 ) includes costs associated with our 2011 proxy contest , the work of the special committee and the proposed reit conversion ( `` reit costs '' ) . adjusted earnings per share from continuing operations ( `` adjusted eps '' ) adjusted eps is defined as reported earnings per share from continuing operations excluding : ( 1 ) ( gain ) loss on disposal/write-down of property , plant and equipment , net ; ( 2 ) intangible impairments ; ( 3 ) reit costs ; ( 4 ) other expense ( income ) , net ; and ( 5 ) the tax impact of reconciling items and discrete tax items . we do not believe these excluded items to be indicative of our ongoing operating results , and they are not considered when we are forecasting our future results . we believe adjusted eps is of value to our current and potential investors when comparing our results from past , present and future periods . 36 reconciliation of adjusted epsfully diluted from continuing operations to reported epsfully diluted from continuing operations : replace_table_token_12_th critical accounting policies 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 gaap . the preparation of these financial statements requires us to make estimates , judgments and assumptions that affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosure of contingent assets and liabilities at the date of the financial statements and for the period then ended . on an ongoing basis , we evaluate the estimates used . we base our estimates on historical experience , actuarial estimates , current conditions and various other assumptions that we believe to be reasonable under the circumstances . these estimates form the basis for making judgments about the carrying values of assets and liabilities and are not readily apparent from other sources . actual results may differ from these estimates . our critical accounting policies include the following , which are listed in no particular order : revenue recognition our revenues consist of storage rental revenues as well as service revenues and are reflected net of sales and value added taxes . storage rental revenues , which are considered a key driver of financial performance for the storage and information management services industry , consist primarily of recurring periodic rental charges related to the storage of materials or data ( generally on a per unit basis ) . service revenues include charges for related core service activities and a wide array of complementary products and services . included in core service revenues are : ( 1 ) the handling of records , including the addition of new records , temporary removal of records from storage , refiling of removed records and the destruction of records ; ( 2 ) courier operations , consisting primarily of the pickup and delivery of records upon customer request ; ( 3 ) secure shredding of sensitive documents ; and ( 4 ) other recurring services , including dms , which relate to physical and digital records , and recurring project revenues . our complementary services revenues include special project work , customer termination and permanent withdrawal fees , data restoration projects , fulfillment services , consulting services , technology services and product sales ( including specially designed storage containers and related supplies ) . our secure shredding revenues include the sale of recycled paper ( included in complementary services revenues ) , the price of which can fluctuate from period to period , adding to the volatility and reducing the predictability of that revenue stream .
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results of operations comparison of year ended december 31 , 2012 to year ended december 31 , 2011 and comparison of year ended december 31 , 2011 to year ended december 31 , 2010 ( in thousands ) : replace_table_token_13_th replace_table_token_14_th ( 1 ) a $ 49.0 million non-cash goodwill impairment charge related to our continental western europe reporting unit in the year ended december 31 , 2011 was recorded . $ 46.5 million of the charge is included in our continuing results of operations ( included in operating expenses in 2011 ) . $ 2.5 million of the charge was allocated to our italian operations and is included in loss from discontinued operations in 2011. see notes 2.g . and 14 to notes to consolidated financial statements . ( 2 ) see `` non-gaap measuresadjusted operating income before depreciation , amortization , intangible impairments and reit costs ( 'adjusted oibda ' ) '' in this annual report for the 43 definition , reconciliation and a discussion of why we believe these measures provide relevant and useful information to our current and potential investors . ( 3 ) a $ 283.8 million non-cash goodwill impairment charge related to our former worldwide digital business reporting unit in the year ended december 31 , 2010 was recorded . we allocated $ 85.9 million of the charge to our retained technology escrow services business , included in our continuing results of operations ( included in operating expenses in 2010 ) . we allocated the remaining $ 197.9 million of the charge to the digital business ( included in loss from discontinued operations in 2010 ) . see notes 2.g . and 14 to notes to consolidated financial statements . revenue replace_table_token_15_th replace_table_token_16_th ( 1 ) constant currency growth rates are calculated by translating the 2011 results at the 2012 average exchange rates and the 2010 results at the 2011 average exchange rates .
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future lease payments aggregate $ 132,274 as at february 28 , 2017 and include the following future amounts payable : year ended february 2018 $ 113,378 february 2019 18,896 total $ 132,274 f-19 note 9 – geographic information as of february 28 , 2017 , and february 29 , 2016 , the company had two reportable diverse geographical concentrations , the united states and canada . information related to these operating segments , net of eliminations , consists of the following for the periods below : replace_table_token_15_th replace_table_token_16_th replace_table_token_17_th replace_table_token_18_th f-20 note 10 – subsequent events employment agreement d. jennifer rhee on march 17 , 2017 , we entered into an employment agreement ( the “ rhee employment agreement ” ) with an effective date of april 3 , 2017 with d. jennifer rhee , our chief financial officer . pursuant to the rhee employment agreement , ms. rhee receives an annual base salary of $ 300,000 for her first two years of employment . the rhee employment agreement also requires that ms. rhee participate in our employee benefit programs and provide for other customary benefits . subject to approval of our board of directors , ms. rhee may receive a warrant to purchase up to 400,000 shares of our common stock , which warrant vests quarterly , in equal amounts , over 24 months beginning on april 3 , 2017 and a warrant to purchase up to 150,000 shares of our common stock that will vest when certain milestones are achieved . the term of such warrants would be subject to the determination of our board of directors . in the event there is a “ change of control ” ( as such term is defined in the rhee employment agreement ) , the warrants , if issued , shall immediately vest . issuance of common shares on may 4 , 2017 , the board of directors approved the issuance and sale of 1,123,266 shares of the corporation 's common stock , par value $ .0001 per share at an offering price of $ 5.25 per share , for gross proceeds of $ 5,897,188 . as of the filing date , the company had received total proceeds which will be used for working capital and general corporate purposes principally . the shares issued to investors were not registered under the securities act of 1933 , as amended ( the “ act ” ) , in reliance upon the private offering safe harbor provision of rule 506 of regulation d. the following table sets forth the condensed consolidated balance sheet of the company as of february 28 , 2017 on an as reported basis and on an unaudited pro forma basis , after giving effect to the sale of the shares : replace_table_token_19_th the company performed an evaluation of subsequent events through the date of filing of these financial statements with the sec , noting no other items requiring disclosure . f-21 item 9. changes in and disagreements with accountants on financial disclosure none . item 9a . controls and procedures disclosure controls and procedures under the supervision and with the participation of our management , including our chief executive officer and the chief financial officer , we are responsible for conducting an evaluation of the effectiveness of the design and operation of our internal controls and procedures , as defined in rules 13a-15 ( e ) and 15d-15 ( e ) under the exchange act , as of the end of the fiscal year covered by this report . disclosure controls and procedures means that the material information required to be included in our sec reports is recorded , processed , summarized and reported within the time periods specified in sec rules and forms relating to our company , including any consolidating subsidiaries , and was made known to us by others within those entities , particularly during the period when this report was being prepared . based on this evaluation , our principal executive officer and principal financial officer concluded as of the evaluation date that our disclosure controls and procedures were effective as of february 28 , 2017. management 's annual report story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and related notes included elsewhere in this report . our business develops technology and processes to promote the regeneration and reuse of materials to sustain a circular economy . currently , the focus of our business is on the depolymerizing waste pet plastics and converting them into valuable chemicals , ready to be reintroduced into the manufacturing of virgin pet plastic . our proprietary technology breaks down pet into its base chemicals , pta and meg , at a recovery rate of over 90 % and under normal atmospheric pressure and at room temperature . depolymerization presents two unique advantages in recycling resin-based products : ( i ) the ability to return a recovered resin to virgin-resin-like quality , and ( ii ) the potential to recover a valuable feedstock from products that are economically challenging to recycle . when plastic is mechanically recycled , even small levels of contamination can compromise the performance of the resin . however , because depolymerization breaks down plastics into monomer form , all contamination is removed . our unique depolymerization process can be applied to all sorts of post-consumer pet , including degraded , colored or heavily contaminated pet that is not currently recyclable . we are a development-stage company and have never generated any revenues . our depolymerization technology must be scaled-up before we can commercialize the technology and generate any revenues . we intend to sell depolymerized loop-branded pet resin to sustainably focused customers . during january 2016 , we announced the successful completion of a pilot plant facility in montreal , canada with a production capacity of 2.5 metric tons per day of high purity pta and meg . 13 plan of story_separator_special_tag future lease payments aggregate $ 132,274 as at february 28 , 2017 and include the following future amounts payable : year ended february 2018 $ 113,378 february 2019 18,896 total $ 132,274 f-19 note 9 – geographic information as of february 28 , 2017 , and february 29 , 2016 , the company had two reportable diverse geographical concentrations , the united states and canada . information related to these operating segments , net of eliminations , consists of the following for the periods below : replace_table_token_15_th replace_table_token_16_th replace_table_token_17_th replace_table_token_18_th f-20 note 10 – subsequent events employment agreement d. jennifer rhee on march 17 , 2017 , we entered into an employment agreement ( the “ rhee employment agreement ” ) with an effective date of april 3 , 2017 with d. jennifer rhee , our chief financial officer . pursuant to the rhee employment agreement , ms. rhee receives an annual base salary of $ 300,000 for her first two years of employment . the rhee employment agreement also requires that ms. rhee participate in our employee benefit programs and provide for other customary benefits . subject to approval of our board of directors , ms. rhee may receive a warrant to purchase up to 400,000 shares of our common stock , which warrant vests quarterly , in equal amounts , over 24 months beginning on april 3 , 2017 and a warrant to purchase up to 150,000 shares of our common stock that will vest when certain milestones are achieved . the term of such warrants would be subject to the determination of our board of directors . in the event there is a “ change of control ” ( as such term is defined in the rhee employment agreement ) , the warrants , if issued , shall immediately vest . issuance of common shares on may 4 , 2017 , the board of directors approved the issuance and sale of 1,123,266 shares of the corporation 's common stock , par value $ .0001 per share at an offering price of $ 5.25 per share , for gross proceeds of $ 5,897,188 . as of the filing date , the company had received total proceeds which will be used for working capital and general corporate purposes principally . the shares issued to investors were not registered under the securities act of 1933 , as amended ( the “ act ” ) , in reliance upon the private offering safe harbor provision of rule 506 of regulation d. the following table sets forth the condensed consolidated balance sheet of the company as of february 28 , 2017 on an as reported basis and on an unaudited pro forma basis , after giving effect to the sale of the shares : replace_table_token_19_th the company performed an evaluation of subsequent events through the date of filing of these financial statements with the sec , noting no other items requiring disclosure . f-21 item 9. changes in and disagreements with accountants on financial disclosure none . item 9a . controls and procedures disclosure controls and procedures under the supervision and with the participation of our management , including our chief executive officer and the chief financial officer , we are responsible for conducting an evaluation of the effectiveness of the design and operation of our internal controls and procedures , as defined in rules 13a-15 ( e ) and 15d-15 ( e ) under the exchange act , as of the end of the fiscal year covered by this report . disclosure controls and procedures means that the material information required to be included in our sec reports is recorded , processed , summarized and reported within the time periods specified in sec rules and forms relating to our company , including any consolidating subsidiaries , and was made known to us by others within those entities , particularly during the period when this report was being prepared . based on this evaluation , our principal executive officer and principal financial officer concluded as of the evaluation date that our disclosure controls and procedures were effective as of february 28 , 2017. management 's annual report story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and related notes included elsewhere in this report . our business develops technology and processes to promote the regeneration and reuse of materials to sustain a circular economy . currently , the focus of our business is on the depolymerizing waste pet plastics and converting them into valuable chemicals , ready to be reintroduced into the manufacturing of virgin pet plastic . our proprietary technology breaks down pet into its base chemicals , pta and meg , at a recovery rate of over 90 % and under normal atmospheric pressure and at room temperature . depolymerization presents two unique advantages in recycling resin-based products : ( i ) the ability to return a recovered resin to virgin-resin-like quality , and ( ii ) the potential to recover a valuable feedstock from products that are economically challenging to recycle . when plastic is mechanically recycled , even small levels of contamination can compromise the performance of the resin . however , because depolymerization breaks down plastics into monomer form , all contamination is removed . our unique depolymerization process can be applied to all sorts of post-consumer pet , including degraded , colored or heavily contaminated pet that is not currently recyclable . we are a development-stage company and have never generated any revenues . our depolymerization technology must be scaled-up before we can commercialize the technology and generate any revenues . we intend to sell depolymerized loop-branded pet resin to sustainably focused customers . during january 2016 , we announced the successful completion of a pilot plant facility in montreal , canada with a production capacity of 2.5 metric tons per day of high purity pta and meg . 13 plan of
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results of operations for the years ended february 28 , 2017 and february 29 , 2016 we recorded no revenues for the years ended february 28 , 2017 and february 29 , 2016. we realized a net loss from operations of $ 8.8 million for the 12 months ended february 28 , 2017 compared to a net loss of $ 1.7 million for the year ended february 29 , 2016. this increase in net loss from operations is mainly due to a $ 5.5 million charge for the year ended february 28 , 2017 relating to the fair value of 1,000,000 shares of common stock issuable to the majority stockholder for services . the remaining increase in expenses of $ 1.6 million can be attributed to the following items : · an increase in payroll and salaries cost of $ 0.4 million mainly because the payroll expense for the period ended february 29 , 2016 does not reflect a full year of salaries expense as employees were hired throughout the year . actual head count increased by only 1 from february 29 , 2016 to february 28 , 2017 . · an increase of $ 0.7 million in research and development expenses , net of research and development tax credits received in the year of $ 150,426 . · an increase of $ 0.2 million in depreciation and amortization charges arising from an increase in equipment purchases for the pilot plant . · the remaining $ 0.3 million increase is an overall increase among other operating expenses as employees and activity increased . activity in the past year focused on the build out of the pilot plant , continued testing and improvement of our depolymerization process as well as testing of various feedstocks used in the depolymerization process . on the commercial side , we have undertaken various marketing initiatives to raise awareness of the loop depolymerization process .
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55 5. earnings per share the following is a reconciliation between basic and diluted weighted average shares outstanding : replace_table_token_16_th * in fiscal 2020 , there were 1.9 million potentially story_separator_special_tag this section of this form 10-k generally discusses fiscal 2020 and fiscal 2019 and year-to-year comparisons between 2020 and 2019. discussions of fiscal 2018 and year-to-year comparisons between fiscal 2019 and fiscal 2018 that are not included in this form 10-k can be found in “ management 's discussion and analysis of financial condition and results of operations ” in part ii . item 7 of our annual report on form 10-k for the fiscal year ended february 1 , 2020. executive overview and key performance indicators we are a leading global specialty retailer offering high-quality , on-trend clothing , accessories and personal care products at affordable prices under our american eagle® and aerie® brands . in the fourth quarter of fiscal 2020 , we revised our reportable segment structure and have two reportable segments , american eagle and aerie . our chief operating decision maker ( defined as our ceo ) analyzes segment results and allocates resources based on adjusted operating income ( loss ) . see note 15 . “ segment reporting , ” of the notes to the consolidated financial statements included herein for additional information . our management evaluates the following items , which are considered key performance indicators , in assessing our performance : comparable sales — comparable sales and comparable sales changes provide a measure of sales growth for stores and channels open at least one year over the comparable prior year period . in light of store closures and related disruptions from covid-19 , we have not disclosed comparable sales for fiscal 2020 , as fiscal 2020 is not comparable with prior periods . a store is included in comparable sales in its thirteenth month of operation . when stores have a gross square footage increase of 25 % or greater due to a remodel , they are removed from the comparable sales base , but are included in total sales . these stores are returned to the comparable sales base in the thirteenth month following the remodel . sales from company-owned stores , as well as sales from aeo direct , are included in total comparable sales . sales from licensed stores are not included in comparable sales . individual american eagle and aerie brand comparable sales disclosures represent sales from stores and aeo direct . aeo direct sales are included in the individual american eagle and aerie brand comparable sales metric for the following reasons : our approach to customer engagement is “ omni-channel , ” which provides a seamless customer experience through both traditional and non-traditional channels , including four wall store locations , web , mobile/tablet devices and apps , social networks , email , in-store displays and kiosks . additionally , we fulfill online orders at stores through our buy online , ship from store capability , maximizing store inventory exposure to digital traffic and accept digital returns in stores ; and shopping behavior has continued to evolve across multiple channels that work in tandem to meet customer needs . management believes that presenting a brand level performance metric that includes all channels ( i.e. , stores and aeo direct ) to be the most appropriate given customer behavior . our management considers comparable sales to be an important indicator of our current performance , and investors may find it useful as such . comparable sales results are important to achieve leveraging of our costs , including store payroll , store supplies , rent , etc . comparable sales also have a direct impact on our total net revenue , cash , and working capital . omni-channel sales performance — our management utilizes the following quality of sales metrics in evaluating our omni-channel sales performance : comparable sales , average unit retail price , total transactions , units per transaction , and consolidated comparable traffic . we include these metrics within this md & a when we believe they enhance the understanding of the matter being discussed . investors may find them useful as such . each of these metrics is defined as follows ( except comparable sales , which is defined separately above ) : average unit retail price represents the selling price of our goods . it is the cumulative net sales divided by the net units sold for a period of time . total transactions represents the count of customer transactions over a period of time ( inclusive of company-owned stores and aeo direct , unless specified otherwise ) . units per transaction represents the number of units sold divided by total transactions over a period of time ( inclusive of company-owned stores and aeo direct , unless specified otherwise ) . 27 consolidated comparable traffic represents visits to our company-owned stores , limited to those stores that qualify to be included in comparable sales as defined above , including aeo direct , over a period of time . gross profit — gross profit measures whether we are optimizing the profitability of our sales . gross profit is the difference between total net revenue and cost of sales . cost of sales consists of merchandise costs , including design , sourcing , importing , and inbound freight costs , as well as markdowns , shrinkage and certain promotional costs ( collectively “ merchandise costs ” ) and buying , occupancy and warehousing costs . design costs consist of compensation , rent , depreciation , travel , supplies , and samples . buying , occupancy and warehousing costs consist of : compensation , employee benefit expenses and travel for our buyers and certain senior merchandising executives ; rent and utilities related to our stores , corporate headquarters , distribution centers and other office space ; freight from our distribution centers to the stores ; compensation and supplies for our distribution centers , including purchasing , receiving and inspection costs ; and shipping and handling costs related to our e-commerce operations . story_separator_special_tag we are monitoring the ongoing developments as the covid-19 vaccines are being distributed and administered , and will take further actions that are in the best interests of our associates and customers , as needed . for further information about the risks associated with the covid-19 pandemic , see “ risk factors ” in part i , item 1a of this form 10-k. critical accounting policies and estimates our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the united states ( “ gaap ” ) , which require us to make estimates and assumptions that may affect the reported financial condition and results of operations should actual results differ from these estimates and assumptions . we base our estimates and assumptions on the best available information and believe them to be reasonable for the circumstances . we believe that of our significant accounting policies , the following involve a higher degree of judgment and complexity . refer to note 2 to the consolidated financial statements for a complete discussion of our significant accounting policies . management has reviewed these critical accounting policies and estimates with the audit committee of our board of directors . revenue recognition . in accordance with accounting standard codification ( “ asc ” ) topic 606 , revenue from contracts with customers ( “ asc 606 ” ) , we record revenue for store sales upon the purchase of merchandise by customers . the company 's e-commerce operation records revenue upon the estimated customer receipt date of the merchandise . shipping and handling revenues are included in total net revenue . sales tax collected from customers is excluded from revenue and is included as part of accrued income and other taxes on the company 's consolidated balance sheets . revenue is recorded net of estimated and actual sales returns and deductions for coupon redemptions and other promotions . the company records the impact of adjustments to its sales return reserve quarterly within total net revenue and cost of sales . the sales return reserve reflects an estimate of sales returns based on projected merchandise returns determined using historical average return percentages . revenue is not recorded on the issuance of gift cards . a current liability is recorded upon issuance , and revenue is recognized when the gift card is redeemed for merchandise . additionally , the company recognizes revenue on unredeemed gift cards based on an estimate of the amounts that will not be redeemed ( “ gift card breakage ” ) , determined through historical redemption trends . gift card breakage revenue is recognized in proportion to actual gift card redemptions as a component of total net revenue . 29 the company recognizes royalty revenue generated from its license or franchise agreements based upon a percentage of merchandise sales by the licensee/franchisee . this revenue is recorded as a component of total net revenue when earned . merchandise inventory . merchandise inventory is valued at the lower of average cost or net realizable value , utilizing the retail method . average cost includes merchandise design and sourcing costs and related expenses . the company records merchandise receipts when control of the merchandise has transferred to the company . we review our inventory in order to identify slow-moving merchandise and generally use markdowns to clear merchandise . additionally , we estimate a markdown reserve for future planned markdowns related to current inventory . if inventory exceeds customer demand for reasons of style , seasonal adaptation , changes in customer preference , lack of consumer acceptance of fashion items , competition , or if it is determined that the inventory in stock will not sell at its currently ticketed price , additional markdowns may be necessary . these markdowns may have a material adverse impact on earnings , depending on the extent and amount of inventory affected . we estimate an inventory shrinkage reserve for anticipated losses for the period between the last physical count and the balance sheet date . the estimate for the shrinkage reserve is calculated based on historical percentages and can be affected by changes in merchandise mix and changes in actual shrinkage trends . we do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to calculate our inventory shrinkage reserve . however , if actual physical inventory losses differ significantly from our estimate , our operating results could be adversely affected . during fiscal 2020 , the company focused on inventory optimization , which remains an ongoing priority . asset impairment . in accordance with asc 360 , property , plant , and equipment ( “ asc 360 ” ) , we evaluate the value of leasehold improvements , store fixtures , and operating lease right-of-use assets associated with retail stores . we evaluate long-lived assets for impairment at the individual retail store level , which is the lowest level at which individual cash flows can be identified . impairment losses are recorded on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the projected undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts . when events such as these occur , the impaired assets are adjusted to their estimated fair value and an impairment loss is recorded separately as a component of operating ( loss ) income . our impairment loss calculations require management to make assumptions and to apply judgment to estimate future cash flows and asset fair values . the significant assumption used in our projected undiscounted cash flows analyses is revenue growth rates . additionally , significant assumptions utilized in our fair value analyses include the aforementioned assumption , as well as market participant real estate assumptions and discount rate . we do not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions we use to calculate long-lived asset impairment losses .
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results of operations overview our business is affected by the pattern of seasonality common to most retail apparel businesses . additionally , during fiscal 2020 , our consolidated results of operations were materially impacted by the effects of covid-19 . fiscal 2020 represented a challenging year ; however , revenue strengthened as stores successfully reopened , the digital channel continued to accelerate , and aerie posted strong growth . operational disciplines , inventory optimization and reduced spending resulted in sequential improvement in operating earnings and positive cash flow , fortifying our financial position , ending the fiscal year with $ 850.5 million in cash and cash equivalents . the results for the current and prior periods are not necessarily indicative of future financial results . the following table shows , for the periods indicated , the percentage relationship to total net revenue of the listed items included in our consolidated statements of operations . replace_table_token_5_th 31 non-gaap information this results of operations section contains net income per diluted share presented on a non-gaap basis , which is a non-gaap financial measure ( “ non-gaap ” or “ adjusted ” ) , comprised of earnings per share information excluding certain items . this financial measure is not based on any standardized methodology prescribed by u.s. generally accepted accounting principles ( “ gaap ” ) and is not necessarily comparable to similar measures presented by other companies .
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this annual report on form 10-k and certain information incorporated herein by reference contain forward-looking statements within the safe harbor provisions of the private securities litigation reform act of 1995. all statements contained in this annual report on form 10-k , other than statements that are purely historical , are forward-looking statements and are based upon management 's present expectations , objectives , anticipations , plans , hopes , beliefs , intentions or strategies regarding the future . we use words such as anticipate , estimate , plan , project , continuing , ongoing , expect , believe , intend , may , will , should , could , and similar expressions to identify forwardlooking statements . forward-looking statements in this annual report on form 10-k include , without limitation : ( 1 ) projections of revenue , earnings , capital structure and other financial items , ( 2 ) statements of our plans and objectives , 26 ( 3 ) statements regarding the capabilities and capacities of our business operations , ( 4 ) statements of expected future economic performance and ( 5 ) assumptions underlying statements regarding us or our business . it is important to note that our actual results could differ materially from those included in such forward-looking statements due to a variety of factors including : ( 1 ) substantial deterioration in economic conditions , especially in the united states and europe ; ( 2 ) our customers ' diminished liquidity and credit availability ; ( 3 ) difficulties in implementing new systems , integrating acquired businesses , managing anticipated growth , and responding to technological change ; ( 4 ) our ability to negotiate extensions of our credit agreements and to obtain additional debt or equity financing when needed ; ( 5 ) the cyclical nature of the markets we operate in ; ( 6 ) increases in interest rates ; ( 7 ) government spending ; ( 8 ) fluctuations in the construction industry , and capital expenditures in the oil and gas industry ; ( 9 ) the performance of our competitors ; ( 10 ) shortages in supplies and raw materials or the increase in costs of materials ; ( 11 ) our level of indebtedness and our ability to meet financial covenants required by our debt agreements ; ( 12 ) product liability claims , intellectual property claims , and other liabilities ; ( 13 ) the volatility of our stock price ; ( 14 ) future sales of our common stock ; ( 15 ) the willingness of our stockholders and directors to approve mergers , acquisitions , and other business transactions ; ( 16 ) currency transaction ( foreign exchange ) risks and the risk related to forward currency contracts ; ( 17 ) certain provisions of the michigan business corporation act and the company 's articles of incorporation , as amended , amended and restated bylaws , and the company 's preferred stock purchase rights may discourage or prevent a change in control of the company ; and ( 18 ) a substantial portion of our revenues are attributed to a limited number of customers which may decrease or cease purchasing any time ; ( 19 ) a disruption or breach in our technology systems ; and ( 20 ) other risks described in the section entitled risk factors and elsewhere in our annual report on form 10-k. the risks , described in our annual report on form 10-k , are not the only risks facing our company . additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business , financial condition or operating results . we do not undertake , and expressly disclaim , any obligation to update this forward-looking information , except as required under applicable law . overview the company is a leading provider of engineered lifting solutions . the company operates in three business segments : the lifting equipment segment , the asv segment and the equipment distribution segment . lifting equipment segment the company is a leading provider of engineered lifting solutions . the company designs , manufactures and distributes a diverse group of products that serve different functions and are used in a variety of industries . through its manitex , inc. subsidiary it markets a comprehensive line of boom trucks , truck cranes and sign cranes . manitex 's boom trucks and crane products are primarily used for industrial projects , energy exploration and infrastructure development , including , roads , bridges and commercial construction . its badger equipment company ( badger ) subsidiary is a manufacturer of specialized rough terrain cranes and material handling products . badger primarily serves the needs of the construction , municipality , and railroad industries . manitex liftking ulc ( manitex liftking or liftking ) sells a complete line of rough terrain forklifts , a line of stand-up electric forklifts , cushioned tired forklifts with lifting capacities from 18 thousand to 40 thousand pounds , and special mission oriented vehicles , as well as other specialized carriers , heavy material handling transporters and steel mill equipment . manitex liftking 's rough terrain forklifts are used in both commercial and military applications . specialty mission oriented vehicles and specialized carriers are designed and built to meet the company 's unique customer needs and requirements . the company 's specialized lifting equipment has met the particular needs of customers in various industries that include utility , ship building and steel mill industries . 27 manitex load king , inc. ( load king ) manufactures specialized custom trailers and hauling systems typically used for transporting heavy equipment . load king trailers serve niche markets in the commercial construction , railroad , military and equipment rental industries through a dealer network . story_separator_special_tag the company 's sales depend in part upon its customers ' replacement or repair cycles . adverse economic conditions , including a decrease in commodity prices , may cause customers to forego or postpone new purchases in favor of repairing existing machinery . additionally , our manitex liftking subsidiary revenues are impacted by the timing of orders received for military forklifts and residential housing starts . cvs revenues are impacted in part by the timing of contract awards related to major port projects . gross profit varies from period to period . factors that affect gross profit include product mix , production levels and cost of raw materials . margins tend to increase when production is skewed towards larger capacity cranes , special mission oriented vehicles , specialized carriers and heavy material transporters . 29 the following table sets forth certain financial data for the three years ended december 31 , 2014 , 2013 and 2012 : story_separator_special_tag year ended december 31 , 2013 of $ 10.2 million . year ended december 31 , 2013 compared to year ended december 31 , 2012 financial results include the results for sabre and valla from their respective dates of acquisition which are august 19 , 2013 and november 30 , 2013 , respectively . net income for the year ended december 31 , 2013 , net income was $ 10.2 million , which consists of revenue of $ 245.1 million , cost of sales of $ 198.6 million , research and development costs of $ 2.9 million , sg & a costs of $ 26.0 million , interest expense of $ 2.9 million , foreign currency transaction loss of $ 0.1 million , other expense of $ 0.1 million and income tax expense of $ 4.3 million . for the year ended december 31 , 2012 , net income was $ 8.1 million , which consists of revenue of $ 205.2 million , cost of sales of $ 164.8 million , research and development costs of $ 2.5 million , sg & a costs of $ 23.5 million , interest expense of $ 2.5 million , foreign currency transaction loss of $ 0.1 million and income tax expense of $ 3.8 million . net revenue and gross profit for the year ended december 31 , 2013 , net revenue and gross profit were $ 245.1 million and $ 46.5 million , respectively . gross profit as a percent of sales was 19.0 % for the year ended december 31 , 2013. for the year ended december 31 , 2012 net revenue and gross profit were $ 205.2 million and $ 40.5 million , respectively . gross profit as a percent of sales was 19.7 % for the year ended december 31 , 2012. the revenue increase between 2012 and 2013 was approximately 19.4 % of which 14.2 % is attributed to an increase in revenues from crane products , 5.1 % is attributed to an increase in revenues from container handling equipment products , 3.5 % is attributed to sales from companies acquired in 2013 , partially offset by a decrease of other products which had the effect of decreasing revenues 3.4 % . the increase in crane product revenues is principally attributed to an increase in production capacity which allowed the company to reduce its backlog and to more aggressively market cranes with lower lifting capacity . the increase in revenues from the sale of container handling equipment is attributed to an increase in sales to markets outside europe , which has historically been the largest market for this equipment and is attributed to shipments of tractors to south africa during the first part of the year and an increase in sales to latin america in the second half of the year . the sale of the tractors was related to a large tender order that was awarded to cvs in 2012. the increase in latin american revenues is a benefit from obtaining new dealers in latin america in 2013. the decrease in other products revenues is attributed to the timing of military orders and a decrease in special trailer revenues . gross profit as a percent of net revenues decreased 0.7 % to 19.0 % for the year ended december 31 , 2013 from 19.7 % for the comparable 2012 period . the slight decrease in margin percent is principally attributed to product mix , including the favorable impact of increased sales of crane products which generally have higher margins which was more than offset by an increase in chassis sales which are sold with only a nominal market up and the 32 effect that the decrease in parts sales as a percent of total revenues . part sales , which have significantly higher margins , decreased from 16 % to 15 % of total revenues from 2012 to 2013. a decrease in volumes for military and special trailer also contributed to the decrease in the gross margin percent . research and development research and development for the year ended december 31 , 2013 was $ 2.9 million compared to $ 2.5 million for the comparable period in 2012. the increase in research and development expense reflects our continued commitment to develop and introduce new products that gives the company a competitive advantage . selling , general and administrative expense selling , general and administrative expense for the year ended december 31 , 2013 was $ 26.0 million compared to $ 23.5 million for the comparable period in 2012. selling general and administrative expense as a percent of revenue for year ended december 31 , 2013 was 10.6 % a decrease of 0.9 % from the 11.5 % for the comparable period in 2012. the increase in selling , general and administrative expense is $ 2.5 million of which approximately $ 1.0 million are either selling , general and administrative expenses at companies acquired in 2013 or costs directly associated with the acquisitions . excluding the impact of acquisitions , selling , general and administrative expenses increased by approximately $ 1.5 million .
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results of consolidated operations manitex international , inc. ( thousands of dollars , except share data ) replace_table_token_7_th year ended december 31 , 2014 compared to year ended december 31 , 2013 the above results include the results for companies acquired from their respective effective dates of acquisition : august 19 , 2013 for sabre , november 30 , 2013 for valla , december 16 , 2014 for lift ventures and december 20 , 2014 for asv . net income for the year ended december 31 , 2014 , net income was $ 7.0 million , which consists of revenue of $ 264.1 million , cost of sales of $ 215.8 million , research and development costs of $ 2.6 million , sg & a costs of $ 31.8 million , interest expense of $ 3.1 million , foreign currency transaction loss of $ 0.1 million and income tax expense of $ 3.7 million . for the year ended december 31 , 2013 , net income was $ 10.2 million , which consists of revenue of $ 245.1 million , cost of sales of $ 198.6 million , research and development costs of $ 2.9 million , sg & a costs of $ 26.0 million , interest expense of $ 2.9 million , foreign currency transaction loss of $ 0.1 million , other expense of $ 0.1 million and income tax expense of $ 4.3 million . net revenue and gross profit for the year ended december 31 , 2014 , net revenue and gross profit were $ 264.1 million and $ 48.3 million , respectively . gross profit as a percent of sales was 18.3 % for the year ended 30 december 31 , 2014. for the year ended december 31 , 2013 net revenue and gross profit were $ 245.1 million and $ 46.5 million , respectively . gross profit as a percent of sales was 19.0 % for the year ended december 31 , 2013 .
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our discussion and analysis of financial condition and results of operations is divided by each of our segments along with corporate costs and other costs not specifically identifiable to a segment . for a reconciliation of segment operating income to consolidated operating income , see note 12 to the consolidated financial statements . references herein to fiscal years are to the twelve-month periods that end in february of the relevant calendar year . for example , the twelve-month period ended february 28 , 2019 is referred to as “ fiscal 2019 ” or “ fiscal year 2019. ” recently adopted accounting standards on march 1 , 2018 , we adopted accounting standards update ( `` asu '' ) no . 2014-09 , revenue from contracts with customers ( topic 606 ) and the related amendments ( `` asc 606 '' ) using the modified retrospective method applied to those contracts which were not completed as of february 28 , 2018. results for operating periods beginning on or after march 1 , 2018 are presented under asc 606 , while prior period amounts have not been adjusted and continue to be reported in accordance with the accounting standards in effect for those periods . see note 1 to the consolidated financial statements for more information on the impact of our adoption of asc 606 . 15 during the fourth quarter of fiscal 2019 , effective march 1 , 2018 , we adopted asu 2016-02 , leases ( topic 842 ) using a modified retrospective approach as of the period of adoption . periods prior to the adoption continue to be presented under legacy guidance and there was no cumulative effect adjustment to beginning retained earnings on the march 1 , 2018 adoption date . on the date of adoption , we recorded operating lease right of use assets of $ 42.1 million and lease liabilities of $ 42.8 million to reflect our portfolio of operating leases , which were previously unrecorded under legacy accounting guidance . however , the adoption did not have any impact on our consolidated statements of income or cash flows . we have elected the package of practical expedients permitted under the transition guidance within the new standard , which among several other items , allows the company to carry-forward the historical lease classification from legacy guidance for leases that existed on the date of adoption . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > for fiscal 2019 , we recorded other income , net of $ 1.0 million as compared to other expense , net of $ 3.5 million in fiscal 2018 . the increase resulted primarily from a downward revision to estimated losses on the impairment of a non-trade note receivable , which was initially recognized in fiscal 2018 upon the bankruptcy declaration of the note debtor . the bankruptcy proceedings progressed better than anticipated and the company received amounts in excess of its initial loss estimates for the outstanding note , which originated from a non-compete litigation settlement with a competitor in a prior fiscal year . this increase in other income , net was partially offset by higher foreign exchange losses that were realized during fiscal 2019 as a result of unfavorable movements in exchange rates . 17 provision for ( benefit from ) income taxes the provision for ( benefit from ) income taxes reflected an effective tax rate of 18.7 % for fiscal 2019 and ( 46.2 ) % for fiscal 2018 . the increase in the effective rate was due primarily to the tax cuts and jobs act of 2017 ( the “ u.s . tax act ” ) , which resulted in a provisional benefit for fiscal 2018 related to the remeasurement of deferred taxes at a lower corporate rate that was offset by a one-time mandatory transition tax on undistributed earnings of foreign affiliates the u.s. tax act requires complex computations to be performed that were not previously required by u.s. tax law , significant judgments to be made in interpretation of the provisions of the u.s. tax act , significant estimates in calculations , and the preparation and analysis of information not previously relevant . the u.s. treasury department , the irs , and other standard-setting bodies will continue to interpret or issue guidance on how provisions of the u.s. tax act will be applied or otherwise administered . as future guidance is issued , we may make adjustments to amounts that we have previously recorded that may materially impact our financial statements in the period in which the adjustments are made . during the fourth quarter of fiscal 2019 , the company completed its assessment of the tax act under sab 118 , resulting in additional benefit of $ 1.1 million resulting from revised estimates of the mandatory deemed repatriation of foreign earnings , foreign tax credits , and bonus depreciation elections based on the finalization of our 2017 us federal income tax return . the change in bonus depreciation elections and other temporary return to provisions items resulted in $ 0.8 million benefit related to the finalization of the remeasurement of deferred tax assets and liabilities . the finalization of foreign earnings and profits and foreign tax credits resulted in a $ 0.3 million benefit . westinghouse electric company bankruptcy case we had existing contracts with subsidiaries of westinghouse electric company ( “ wec ” ) . wec and the relevant subsidiaries ( the `` debtors '' ) filed relief under chapter 11 of the bankruptcy code on march 29 , 2017 in the united states bankruptcy court for the southern district of new york , jointly administered as in re westinghouse electric company , et al. , case no . 17-10751 ( the `` bankruptcy case '' ) . the company has been collecting on post-petition amounts due and owed . on february 22 , 2018 , the united states bankruptcy court for the southern district of new york approved the debtors ' modified first amended disclosure statement for the joint chapter 11 plan of reorganization . story_separator_special_tag as of february 28 , 2018 , we had gross outstanding debt of $ 301.3 million compared to $ 272.3 million at the end of fiscal 2017. azz 's debt to equity ratio was 0.53 to 1 at the end of fiscal 2018 compared to 0.51 to 1 at the end of fiscal 2017 . other ( income ) expense , net for fiscal 2018 , a total of $ 3.5 million in expense was recorded to other ( income ) expense , net , which was primarily attributable to the impairment of the non-trade note receivable described above upon the bankruptcy declaration of the note debtor . for fiscal 2017 , we recorded $ 1.1 million of income to other ( income ) expense , net , which was primarily attributable to a reimbursement of legal fees of $ 0.6 million from a lawsuit in fiscal 2016 and net foreign exchange gains . provision for ( benefit from ) income taxes the provision for ( benefit from ) income taxes reflected an effective tax rate of ( 46.2 ) % for fiscal 2018 and 28.2 % for fiscal 2017. the decrease in the effective rate was due primarily to the u.s. tax cuts and jobs act of 2017 , which resulted in a provisional benefit related to the remeasurement of deferred taxes at a lower corporate rate that was offset by a one-time mandatory transition tax on undistributed earnings of foreign affiliates . 20 liquidity and capital resources we have historically met our cash needs through a combination of cash flows from operating activities along with bank and bond market debt . our cash requirements are generally for operating activities , cash dividend payments , capital improvements , debt repayment and acquisitions . we believe that our cash position , cash flows from operating activities and our expectation of continuing availability to draw upon our credit facilities are sufficient to meet our cash flow needs for the foreseeable future . cash flows the following table summarizes our cash flows by category for the periods presented ( in thousands ) : replace_table_token_10_th net cash provided by operating activities for fiscal 2019 was $ 114.7 million compared to $ 78.9 million for fiscal 2018 . the increase in cash provided by operating activities for fiscal 2019 as compared to fiscal 2018 is primarily attributable to the increase in net income and positive impacts from changes in working capital . the increase was also attributable to a decline in non-cash tax benefit accruals which were recorded in fiscal 2018 resulting from the remeasurement of deferred tax liabilities due to the decrease of u.s. corporate tax rates as part of the tax cuts and jobs act of 2017. this decline in non-cash tax benefit accruals was partially offset by lower non-cash impairment charges in fiscal 2019 as compared to fiscal 2018. net cash used in investing activities for fiscal 2019 was $ 32.1 million as compared to $ 73.9 million for fiscal 2018 . the decline in cash used during fiscal 2019 was primarily attributable to decreased acquisition activity and lower capital expenditures . the breakdown of capital spending by segment for fiscal 2019 , 2018 and 2017 can be found in note 12 to the consolidated financial statements . net cash used in financing activities for fiscal 2019 was $ 78.0 million compared to net cash provided by financing activities of $ 3.8 million for fiscal 2018 . the increase in cash used for financing activities during fiscal 2019 was primarily attributable to significantly increased net repayments of borrowings under our revolving credit facility , partially offset by lower principal payments under our other long-term debt agreements . financing and capital 2017 revolving credit facility on march 27 , 2013 , the company entered into a credit agreement ( the “ credit agreement ” ) with bank of america and other lenders . the credit agreement provided for a $ 75.0 million term facility and a $ 225.0 million revolving credit facility that included a $ 75.0 million “ accordion ” feature . the credit agreement is used to provide for working capital needs , capital improvements , dividends , future acquisitions and letter of credit needs . on march 21 , 2017 , the company executed the amended and restated credit agreement ( the “ 2017 credit agreement ” ) with bank of america and other lenders . the 2017 credit agreement amended the credit agreement by the following : ( i ) extending the maturity date until march 21 , 2022 , ( ii ) providing for a senior revolving credit facility in a principal amount of up to $ 450 million , with an additional $ 150 million accordion , ( iii ) including a $ 75 million sublimit for the issuance of standby and commercial letters of credit , ( iv ) including a $ 30 million sublimit for swing line loans , ( v ) restricting indebtedness incurred in respect of capital leases , synthetic lease obligations and purchase money obligations not to exceed $ 20 million , ( vi ) restricting investments in any foreign subsidiaries not to exceed $ 50 million in the aggregate , and ( vii ) including various financial covenants and certain restricted payments relating to dividends and share repurchases as specifically set forth in the 2017 credit agreement . the balance due on the $ 75.0 million term facility under the previous credit agreement was paid in full as a result of the execution of the 2017 credit agreement . the financial covenants , as defined in the 2017 credit agreement , require the company to maintain on a consolidated basis a leverage ratio not to exceed 3.25:1.0 and an interest coverage ratio of at least 3.00:1.0. the 2017 credit agreement will be used to finance working capital needs , capital improvements , dividends , future acquisitions , letter of credit needs and share repurchases .
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results of operations for the fiscal year ended february 28 , 2019 , we recorded net sales of $ 927.1 million compared to the prior year 's net sales of $ 810.4 million . of the total net sales for fiscal 2019 , approximately 52.5 % of our net sales were generated from the energy segment and approximately 47.5 % were generated from the metal coatings segment . net income for fiscal 2019 was $ 51.2 million compared to $ 45.2 million for fiscal 2018 . net income as a percentage of net sales was 5.5 % for fiscal 2019 as compared to 5.6 % for fiscal 2018 . earnings per share increased by 13.3 % to $ 1.96 per share for fiscal 2019 compared to $ 1.73 per share for fiscal 2018 , on a diluted basis . year ended february 28 , 2019 compared with year ended february 28 , 2018 backlog we ended fiscal 2019 with a backlog of $ 332.9 million , an increase of $ 67.5 million or 25.4 % compared to fiscal 2018 . the company 's backlog as of year end pertains solely to the energy segment 's operations . the book to revenue ratio increased in fiscal 2019 as compared to fiscal 2018 . the book to revenue ratio was 1.07 to 1 for fiscal 2019 and 0.92 to 1 for fiscal 2018 . the following table reflects bookings and revenues for fiscal 2019 and 2018 . backlog table ( in thousands ) replace_table_token_4_th net sales our total net sales for fiscal 2019 increased by $ 116.7 million , or 14.4 % , as compared to fiscal 2018 . the following table reflects the breakdown of revenue by segment ( in thousands ) : replace_table_token_5_th our energy segment recorded net sales for fiscal 2019 of $ 486.8 million , an increase of 15.6 % compared to fiscal 2018 net sales of $ 421.0 million .
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this accounting standard update will be effective for our fiscal year beginning on october 1 , 2014. we are story_separator_special_tag you should read the following discussion of our financial condition and results of operations in conjunction with the financial statements and the notes thereto included in financial statements and supplementary data under item 8 within this annual 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 annual report , particularly in risk factors under item ia . business overview emcore corporation and its subsidiaries ( referred to herein as the “ company ” , “ we ” , “ our ” , or “ emcore ” ) offers a broad portfolio of compound semiconductor-based products for the broadband , fiber optics , satellite , and solar power markets . we were established in 1984 as a new jersey corporation and we have two reporting segments : fiber optics and photovoltaics . emcore 's fiber optics business segment provides optical components , subsystems and systems for high-speed telecommunications , cable television ( catv ) , wireless and fiber-to-the-premise ( fttp ) networks , as well as products for satellite communications , video transport and specialty photonics technologies for defense and homeland security applications . our solar photovoltaics business segment provides products for space power applications including high-efficiency multi-junction solar cells , covered interconnect cells ( cics ) and complete satellite solar panels , and terrestrial applications , including high-efficiency gaas solar cells for concentrating photovoltaic ( cpv ) power systems . in addition to organic growth and development of our existing fiber optics and photovoltaics segments , we intend to pursue other strategies to enhance shareholder value , which may include acquisitions , investments in joint ventures , partnerships , and other strategic alternatives , such as dispositions , reorganizations , recapitalizations or other similar transactions . accordingly , the strategy committee of the board and our management may from time to time be engaged in evaluating potential , and entering into definitive agreements with respect to , such transactions and other strategic alternatives . recent developments strategy committee of the board of directors the company 's board of directors recently created a strategy committee of the board of directors , which is charged with evaluating strategic opportunities for the company that may enhance shareholder value . the strategy committee may from time to time consider strategic opportunities , such as acquisitions , dispositions and joint ventures , and may engage financial and other advisors to assist it in doing so . there can be no assurance that the strategy committee will identify strategic opportunities that the company will determine to pursue , or that the consideration of any such opportunity would result in the completion of a strategic transaction . our headquarters and principal executive offices are located at 10420 research road , se , albuquerque , new mexico , 87123 , and our main telephone number is ( 505 ) 332-5000. for specific information about us , our products , or the markets we serve , please visit our website at http : //www.emcore.com . the information contained in or linked to our website is not a part of , nor incorporated by reference into , this quarterly report on form 10-k or a part of any other report or filing with the securities and exchange commission ( sec ) . suncore joint venture in june 2013 , we entered into an agreement to transfer our 40 % registered ownership interest in suncore to san'an for a purchase price of $ 4.8 million . the carrying value of our registered ownership interest in suncore was $ 0 as of june 30 , 2013 . upon completion of the share transfer in september 2013 , the company recognized $ 3.3 million of deferred revenue from suncore included in the financial statements as of june 30 , 2013 , as well as the resulting gain of $ 4.8 million on our registered ownership interest . see note 17 - suncore joint venture in the notes to the consolidated financial statements for more information regarding suncore . 42 impact from thailand flood in october 2011 , flood waters severely impacted the inventory and production operations of our primary contract manufacturer in thailand . the impacted areas included certain product lines for the telecom and cable television ( catv ) market segments . this had a significant impact on our operations and our ability to meet customer demand for certain of our fiber optics products . our photovoltaics segment was not affected by the thailand floods . since that announcement , we have developed and implemented a plan to rebuild the impacted production lines at other locations , including an alternate facility of our contract manufacturer in thailand , as well as our own manufacturing facilities in the united states and china . our production line for itlas ( integrable tunable laser assemblies ) for 40 and 100 gb/s ( gigabit per second ) coherent telecom applications has been up and running since april 2012 at our contract manufacturer in thailand . production line qualification has been completed and most customers have successfully completed full-line audits and started taking shipments in april 2012. as of september 2012 , our itla line was operating at pre-flood capacity production levels . the catv laser module and transmitter production lines at our manufacturing facility in china reached pre-flood capacity production levels as of september 2012. see note 11 - impact from thailand flood in the notes to the consolidated financial statements for additional disclosures related to the impact of the thailand flood on our operations . story_separator_special_tag goodwill represents the excess of the purchase price of an acquired business over the fair value of the identifiable assets acquired and liabilities assumed . as required by asc 350 , intangibles - goodwill and other , we evaluate our goodwill for impairment on an annual basis , or whenever events or changes in circumstances indicate whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount . pursuant to asc 350 , circumstances that could trigger an interim impairment test include but are not limited to : macroeconomic conditions such as a deterioration in general economic conditions , limitations on accessing capital , fluctuations in foreign exchange rates , or other developments in equity and credit markets ; industry and market considerations such as a deterioration in the environment in which an entity operates , an increased competitive environment , a decline in market-dependent multiples or metrics ( considered in both absolute terms and relative to peers ) , a change in the market for an entity 's products or services , or a regulatory or political development ; cost factors such as increases in raw materials , labor , or other costs that have a negative effect on earnings and cash flows ; overall financial performance such as negative or declining cash flows or a decline in actual or planned revenue or earnings compared with actual and projected results of relevant prior periods ; other relevant entity-specific events such as changes in management , key personnel , strategy , or customers ; contemplation of bankruptcy ; or litigation ; events affecting a reporting unit such as a change in the composition or carrying amount of its net assets , a more-likely-than-not expectation of selling or disposing all , or a portion , of a reporting unit , the testing for recoverability of a significant asset group within a reporting unit , or recognition of a goodwill impairment loss in the financial statements of a subsidiary that is a component of a reporting unit ; and , if applicable , a sustained decrease in share price ( considered in both absolute terms and relative to peers ) . 44 in performing goodwill impairment testing , we are able to review qualitative factors in accordance with asu 2011-08 to determine if it is more likely than not that the fair value is less than the carrying value . if it is assessed that the fair value is more likely than not less than the carrying value , we then determine the fair value of each reporting unit using a weighted combination of a market-based approach and a discounted cash flow ( dcf ) approach . the market-based approach relies on values based on market multiples derived from comparable public companies . in applying the dcf approach , management forecasts cash flows over the remaining useful life of its primary asset using assumptions of current economic conditions and future expectations of earnings . this analysis requires the exercise of significant judgment , including judgments about appropriate discount rates based on the assessment of risks inherent in the amount and timing of projected future cash flows . the derived discount rate may fluctuate from period to period as it is based on external market conditions . all of these assumptions are critical to the estimate and can change from period to period . updates to these assumptions in future periods , particularly changes in discount rates , could result in different results of goodwill impairment tests . see note 8 - goodwill in the notes to the consolidated financial statements for additional disclosures related to our goodwill . valuation of long-lived assets long-lived assets consist primarily of property , plant , and equipment and intangible assets . because most of our long-lived assets are subject to amortization , we review these assets for impairment in accordance with the provisions of asc 360 , property , plant , and equipment . we review long-lived assets for impairment whenever events or changes in circumstances indicate that its carrying amount may not be recoverable . our impairment testing of long-lived assets consists of determining whether the carrying amount of the long-lived asset ( asset group ) is recoverable , in other words , whether the sum of the future undiscounted cash flows expected to result from the use and eventual disposition of the asset ( asset group ) exceeds its carrying amount . the determination of the existence of impairment involves judgments that are subjective in nature and may require the use of estimates in forecasting future results and cash flows related to an asset or group of assets . in making this determination , we use certain assumptions , including estimates of future cash flows expected to be generated by these assets , which are based on additional assumptions such as asset utilization , the length of service that assets will be used in our operations , and estimated salvage values . see note 7 - property , plant , and equipment , net and note 9 - intangible assets in the notes to the consolidated financial statements for additional disclosures related to our long-lived assets . revenue recognition revenue is recognized upon shipment , provided persuasive evidence of a contract exists , the price is fixed , the product meets our customer 's specifications , title and ownership have transferred to the customer , and there is reasonable assurance of collection of the sales proceeds . the majority of our products have shipping terms that are free on board or free carrier alongside ( fca ) shipping point , which means that we fulfill our delivery obligation when the goods are handed over to the freight carrier at our shipping dock . this means the buyer typically bears all costs and risks of loss or damage to the goods from that point . in certain cases , we ship our products cost insurance and freight .
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comparison of financial results : revenue : replace_table_token_6_th fiber optics revenue : our fiber optics reporting segment provides optical components , subsystems , and systems for high-speed telecommunications , cable television ( catv ) , and fiber-to-the-premise ( fttp ) networks , as well as products for satellite communications , video transport , and specialty photonics technologies for defense and homeland security applications . our fiber optics segment is broken out into two distinct product lines : broadband products , which includes cable television products , fiber-to-the-premises products , satellite communication products , video transport products , and defense and homeland security products ; and , digital products , which include telecom optical products . broadband product revenue : for the fiscal year ended september 30 , 2013 , revenue from broadband products increased 2 % from the prior year which was primarily driven by increased unit shipments of our catv-related products primarily due to the impact of the thailand flood in 2011 that adversely impacted our revenues in 2012. sales of our catv products , which include our quadrature amplitude modulation ( qam ) transmitters and receivers , represent the second largest percentage of our total fiber optics-related revenue . for the fiscal year ended september 30 , 2012 , revenue from broadband products decreased 27 % from the prior year which was primarily driven by decreased unit shipments of our catv-related products due to the impact of the thailand flood . digital product revenue : for the fiscal year ended september 30 , 2013 , revenue from digital products decreased 1 % from the prior year which was primarily due to the sale of our enterprise digital product lines in 2012. our telecom optical-related product line , which includes tunable xfp , and integrated tunable laser assemblies ( itlas ) , represent the largest percentage of our total fiber optics-related revenue . fiscal 2012 revenue from digital products decreased 32 % from the prior year which was primarily due to the impact of the thailand flood on the telecom product lines .
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introduced in 1962 , our tops brand is widely recognized as a strong retail supermarket brand name in our markets supported by strong customer loyalty and attractive supermarket locations . we are headquartered in williamsville , new york and have approximately 12,500 associates . on january 29 , 2010 , we completed the acquisition of substantially all assets and certain liabilities of penn traffic and its subsidiaries , including penn traffic 's 79 retail supermarkets , in exchange for cash consideration of $ 85.0 million . twenty-four of the acquired supermarkets were closed or sold during 2010. in august 2010 , the ftc issued a proposed order that required us to sell seven of the retained supermarkets . on june 30 , 2011 , the ftc approved a modified final order requiring the sale of the seven supermarkets and the retention of a divestiture trustee to market the supermarkets subject to the final order . also on june 30 , 2011 , the ftc approved our application to sell three of these supermarkets to hometown markets . the sale of these supermarkets closed during july and august 2011. on september 27 , 2011 , as the divestiture trustee was unable to identify a potential buyer for three of the remaining supermarkets subject to the final order , control of these supermarkets reverted to us . we continue to operate two of these supermarkets , while the third supermarket was closed on october 15 , 2011. also on september 27 , 2011 , the ftc approved a 90-day extension for the divestiture trustee to market the remaining supermarket subject to the final order . during november 2011 , a petition was filed by the divestiture trustee with the ftc for approval of a proposed divestiture of this remaining supermarket . this petition was approved by the ftc during january 2012. the sale of the supermarket closed on january 30 , 2012. basis of presentation we operate on a 52/53 week fiscal year ending on the saturday closest to december 31. our fiscal years include 13 four-week reporting periods , with an additional week in the thirteenth reporting period for 53-week fiscal years . our first quarter of each fiscal year includes four reporting periods , while the remaining quarters include three reporting periods . the period from january 2 , 2011 to december 31 , 2011 ( fiscal 2011 ) included 52 weeks . the period from january 3 , 2010 to january 1 , 2011 ( fiscal 2010 ) included 52 weeks . the period from december 28 , 2008 to january 2 , 2010 ( fiscal 2009 ) included 53 weeks . recent events affecting our results of operations and the comparability of reported results of operations acquisition of penn traffic on january 29 , 2010 , we completed the penn traffic acquisition , including penn traffic 's 79 retail supermarkets . we have currently retained 50 of the acquired supermarkets . three supermarkets were sold during late july and early august 2011 , one supermarket was closed in october 2011 , and one supermarket was sold in january 2012. the remaining 24 supermarkets were closed or sold during 2010. net sales and operating loss for these 24 supermarkets were $ 33.9 million and $ 2.8 million , respectively , during fiscal 2010. also included in our results during fiscal 2010 were integration costs of $ 23.3 million and one-time legal and professional fees related to the penn traffic acquisition of $ 5.3 million . additionally , we incurred $ 0.7 million and $ 2.1 million of legal expenses associated with the ftc 's review of the acquired supermarkets during fiscal 2011 and fiscal 2010 , respectively . additional depreciation and amortization of $ 0.7 million was incurred during fiscal 2011 , as compared to fiscal 2010 , associated with acquired property , equipment and intangible assets as a result of operating the acquired supermarkets for four additional weeks during fiscal 2011 . - 15 - the excess of net assets acquired over the purchase price of $ 15.7 million has been recognized as a bargain purchase in the consolidated statement of operations for fiscal 2010. this bargain purchase was attributable to the distressed status of penn traffic due to poor historical operating results , which led to its november 2009 bankruptcy filing . results of operations fiscal 2011 compared with fiscal 2010 summary the results of operations during fiscal 2011 when compared with fiscal 2010 were primarily impacted by a 1.4 % increase in same store sales , the additional four weeks of operating results for the acquired and retained penn traffic supermarkets during fiscal 2011 , as well as one-time acquisition and integration costs of $ 28.6 million associated with the penn traffic acquisition incurred during fiscal 2010. net sales the following table includes a comparison of the components of our net sales for fiscal 2011 and fiscal 2010 . ( dollars in thousands ) replace_table_token_4_th inside sales increased during fiscal 2011 compared with fiscal 2010 due to a 1.4 % increase in same store sales , the operation of the acquired and retained penn traffic supermarkets for four additional weeks , as well as incremental inside sales associated with new stores opened since 2010. these factors were partially offset by the impact of the sale or closure of 28 of the acquired penn traffic supermarkets . gasoline sales increased during fiscal 2011 compared with fiscal 2010 due to a 27.0 % increase in the retail price per gallon . additionally , the number of gallons sold increased 7.2 % , primarily due to the addition of seven new fuel stations since april 2010. gross profit the following table includes a comparison of cost of goods sold , distribution costs and gross profit for fiscal 2011 and fiscal 2010 . story_separator_special_tag loss on debt extinguishment on january 29 , 2010 , we entered into a $ 25.0 million bridge loan and an $ 11.0 million term loan , and capitalized related financing costs . as both the bridge loan and term loan were repaid in full on february 12 , 2010 with the proceeds from the issuance of the additional $ 75.0 million of senior notes , unamortized costs of $ 0.7 and $ 0.3 million , respectively , were recorded as a loss on debt extinguishment in our consolidated statement of operations for fiscal 2010. interest expense , net the $ 0.5 million increase in interest expense during fiscal 2011 compared with fiscal 2010 was primarily attributable to incremental interest expense related to the $ 75.0 million senior notes issued on february 12 , 2010 that were outstanding for all of fiscal 2011. income tax ( expense ) benefit the income tax expense during fiscal 2011 primarily reflects our income before income taxes , the benefit of federal tax credits , and the reversal of valuation allowance against net deferred tax assets . the overall effective tax rate was 18.2 % . the effective tax rate would have been 38.0 % without the impact of federal tax credits and adjustments to the valuation allowance . the income tax benefit during fiscal 2010 was primarily attributable to the reversal of $ 10.3 million of the valuation allowance established during fiscal 2009. the reversal of the valuation allowance was the result of recording a deferred tax liability that resulted from the bargain purchase associated with the penn traffic acquisition . the timing of taxable income resulting from the amortization of the gain for tax purposes provides sufficient future taxable income to support the future deductibility of the company 's deferred tax assets . the overall effective rate for fiscal 2010 was 25.0 % . the effective tax rate would have been 39.9 % without the impact of adjustments to the valuation allowance , the bargain purchase , and discrete charges . net income ( loss ) our net income ( loss ) improved to net income of $ 5.8 million during fiscal 2011 compared with net loss of $ 27.0 million during fiscal 2010 . - 18 - fiscal 2010 compared with fiscal 2009 story_separator_special_tag costs of $ 0.7 and $ 0.3 million , respectively , were recorded as a loss on debt extinguishment in our consolidated statement of operations for fiscal 2010. in connection with prepayments of $ 20.0 million related to our previous first lien credit agreement during fiscal 2009 , $ 0.8 million of additional debt was forgiven . this amount , net of the write-off of $ 0.3 million of unamortized deferred financing costs , was recorded as a gain on debt extinguishment in our consolidated statement of operations for fiscal 2009. effective october 9 , 2009 , we issued $ 275.0 million of senior notes and simultaneously entered into the $ 70.0 million revolving abl facility . the proceeds from the senior notes and the abl facility were used , in part , to retire the outstanding balances related to our previous first lien credit agreement and warehouse mortgage . in connection with these retirements , we wrote off unamortized deferred financing costs of $ 7.0 million and incurred additional costs of $ 0.3 million , which were recorded as a loss on debt extinguishment in our consolidated statement of operations for fiscal 2009. interest expense , net the $ 13.2 million increase in interest expense during fiscal 2010 compared with fiscal 2009 reflects an $ 18.7 million increase in interest on our outstanding indebtedness as a result of our october 2009 and february 2010 financing activities , as well as an increase of $ 1.3 million attributable to deferred financing fees and bond discount amortization ( net of premium amortization ) . these factors were partially offset by a $ 6.6 million decrease in interest expense related to our interest rate swap that was settled in october 2009. income tax benefit ( expense ) the change from the income tax expense of $ 5.4 million in fiscal 2009 to the income tax benefit of $ 9.0 million in fiscal 2010 is primarily attributable to the higher pre-tax loss in fiscal 2010 , combined with the non-taxability of the bargain purchase related to the penn traffic acquisition . additionally , we established a $ 13.9 million valuation allowance during fiscal 2009 related to our deferred tax assets , compared to an additional valuation allowance of $ 11.9 million during fiscal 2010. the resulting effective tax rate for fiscal 2010 was 25.0 % compared to an effective tax rate for fiscal 2009 of ( 26.5 ) % . deferred income tax assets or liabilities reflect temporary differences between amounts of assets and liabilities , including net operating loss carryforwards , for financial and tax reporting . such amounts are adjusted as appropriate to reflect changes in the tax rates expected to be in effect when the temporary differences reverse . a valuation allowance is established for any deferred income tax asset for which realization is uncertain . based on an assessment of the available positive and negative evidence , including our historical results for the preceding three years , we determined that there are uncertainties relating to our ability to utilize the net deferred tax assets . in recognition of these uncertainties , we have provided a valuation allowance of $ 13.9 million on the net deferred income tax assets as of january 2 , 2010 , representing a charge to income tax expense during fiscal 2009. during fiscal 2010 , we established an additional valuation allowance of $ 11.9 million , with an offsetting charge to income tax expense . if we were to determine that we could realize our deferred tax assets in the future in excess of their net recorded amount , we would make an adjustment to the valuation allowance .
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summary the results of operations during fiscal 2010 when compared with fiscal 2009 were impacted primarily by the penn traffic acquisition . fifty-five supermarkets acquired in the penn traffic acquisition had been retained and operated through the end of fiscal 2010. net sales the following table includes a comparison of the components of our net sales for fiscal 2010 and fiscal 2009 . ( dollars in thousands ) replace_table_token_7_th inside sales increased 33.4 % in fiscal 2010 compared with fiscal 2009 , primarily due to net sales of $ 560.8 million related to new supermarkets , including the acquired penn traffic supermarkets . excluding the 53 rd week in fiscal 2009 , same store sales increased 0.1 % . net sales for the 24 acquired supermarkets that were closed , sold or liquidated during fiscal 2010 were $ 33.9 million during fiscal 2010. gasoline sales increased 29.1 % in fiscal 2010 compared with fiscal 2009 due to an 18.9 % increase in the retail price per gallon . the number of gallons sold increased 8.6 % , primarily due to the addition of four new fuel stations during fiscal 2010 , and a full-year of operation for three fuel stations added during fiscal 2009. gross profit the following table includes a comparison of cost of goods sold , distribution costs and gross profit for fiscal 2010 and fiscal 2009 . ( dollars in thousands ) replace_table_token_8_th as a percentage of net sales , cost of goods sold , distribution costs and gross profit remained consistent for fiscal 2010 compared with fiscal 2009 . - 19 - operating expenses the following table includes a comparison of operating expenses for fiscal 2010 and fiscal 2009 .
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restructuring and exit costs . restructuring and exit costs consist primarily of the costs of future obligations related to closed units , severance and other restructuring charges for terminated employees , and are included as a component of operating ( gains ) , losses and other charges , net in our consolidated statements of income . f - 9 note 2. summary of significant accounting policies ( continued ) discounted liabilities for future lease costs and the fair value of related subleases of closed units are recorded when the units are closed . all other costs related to closed units are expensed as incurred . in assessing the discounted liabilities for future costs of obligations related to closed units , we make assumptions regarding amounts of future subleases . if these assumptions or their related story_separator_special_tag the following discussion should be read in conjunction with “ selected financial data , ” and our consolidated financial statements and the notes thereto . overview denny 's corporation is one of america 's largest family-style restaurant chains . our fiscal year ends on the wednesday in december closest to december 31 of each year . as a result , a fifty-third week is added to a fiscal year every five or six years . 2011 , 2010 and 2009 each included 52 weeks of operations . our revenues are derived primarily from two sources : the sale of food and beverages at our company-owned restaurants and the collection of royalties and fees from restaurants operated by our franchisees under the denny 's name . sales and customer traffic at both company-operated and franchised restaurants are affected by the success of our marketing campaigns , new product introductions and customer service , as well as external factors including competition , economic conditions affecting consumer spending and changes in guest tastes and preferences . sales at company-owned restaurants and royalty income from franchise restaurants are also impacted by the opening of new restaurants , the closing of existing restaurants and the sale of company restaurants to franchisees . our operating costs are exposed to volatility in two main areas : product costs and payroll and benefit costs . many of the products sold in our restaurants are affected by commodity pricing and are , therefore , subject to price volatility . this volatility is caused by factors that are fundamentally outside of our control and are often unpredictable . in general , we purchase food products based on market prices or we set firm prices in purchase agreements with our vendors . our ability to lock in prices on certain key commodities is imperative to control food costs in an environment in which many commodity prices are on the rise . in addition , our continued success with menu management helps us to maintain favorable product costs . our $ 2 $ 4 $ 6 $ 8 value menu ® , along with other promotional activities , are generally focused on menu items with lower food costs that still provide a compelling value to our customers . the volatility of payroll and benefit costs results primarily from changes in wage rates and increases in labor related expenses , such as medical benefit costs and workers ' compensation costs . a number of our employees are paid the minimum wage . accordingly , substantial increases in the minimum wage increase our labor costs . additionally , changes in guest counts and investments in store-level labor impact payroll and benefit costs as a percentage of sales . 14 our focus on the following initiatives has had a significant impact on our financial performance during 2011 and over the past several years : franchise growth initiative during 2011 , we continued our franchise growth initiative a strategic initiative to increase franchise restaurant development through the sale of certain geographic clusters of company restaurants to both current and new franchisees . in 2011 , as a result of our fgi , we sold 30 restaurant operations to franchisees . as of december 28 , 2011 , we have sold 344 company restaurants since our fgi program began in early 2007. fulfilling the unit growth expectations of this program , certain franchisees that purchased company restaurants over the past several years also signed development agreements to build additional new franchise restaurants . in addition to these franchise development agreements , we have been negotiating development agreements outside of our fgi program . the positive impact of these development programs is evident in the increasing number of franchise restaurant openings over the past several years . through our various development efforts , we have negotiated development agreements for 217 new domestic restaurants , 108 of which have opened . the majority of the units in the pipeline are expected to open over the next five years . while the majority of the units scheduled under these agreements are on track , from time to time some of our franchisees ' ability to grow and meet their development commitments is hampered by the economy and the difficult lending environment . conversion of flying j travel center restaurants during the prior year , denny 's was selected as the full-service restaurant operator of choice for pilot travel centers llc . also , during the prior year , pilot merged with flying j travel centers . now named pilot flying j , the company is north america 's largest retail operator of travel centers . we began converting former flying j restaurant operations to denny 's in july 2010 and , as of december 28 , 2011 , had converted 123 sites , 23 of which now operate as company restaurants and 100 of which now operate as franchise restaurants , thus completing the flying j conversions . specifically , our focus on these growth initiatives has impacted our financial performance as follows : · company restaurant sales have decreased from $ 488.9 million in 2009 to $ 411.6 million in 2011 , primarily as a result of the sale of restaurants to franchisees . story_separator_special_tag 17 2011 compared with 2010 unit activity replace_table_token_9_th of the 62 units opened and relocated during the year ended december 28 , 2011 , eight company-owned units and 15 franchise units represent conversions and openings of restaurants at pilot flying j travel centers . of the 141 units opened and relocated during the year ended december 29 , 2010 , 21 company-owned and 79 franchise units represent conversions and openings of restaurants at pilot flying j travel centers . company restaurant operations during the year ended december 28 , 2011 , we realized a 0.8 % increase in same-store sales , comprised of a 0.6 % increase in guest check average and a 0.2 % increase in guest counts . company restaurant sales decreased $ 12.3 million , or 2.9 % , primarily resulting from a ten equivalent unit decrease in company-owned restaurants , partially offset by the increase in same-store sales for the year . the decrease in equivalent units resulted from the sale of company-owned restaurants to franchisees . total costs of company restaurant sales as a percentage of company restaurant sales increased to 86.9 % from 86.3 % . product costs increased to 24.7 % from 23.9 % primarily due to the impact of increased commodity costs . payroll and benefits costs remained flat at 40.7 % as improved scheduling of restaurant staff was offset by unfavorable workers ' compensation claims development and higher incentive compensation . occupancy costs increased slightly to 6.7 % from 6.6 % . other operating expenses were comprised of the following amounts and percentages of company restaurant sales : replace_table_token_10_th marketing decreased 0.2 percentage points primarily as a result of additional corporate investment in media in the prior year period . franchise operations franchise and license revenue and costs of franchise and license revenue were comprised of the following amounts and percentages of franchise and license revenue for the periods indicated : replace_table_token_11_th 18 royalties increased by $ 6.2 million , or 8.5 % , primarily resulting from the effects of a 98 equivalent unit increase in franchised and licensed units , as compared to the prior year , and a 0.7 % increase in same-store sales . the increase in equivalent units primarily resulted from the conversion of restaurants at pilot flying j travel centers during 2010 and 2011. initial fees decreased by $ 3.5 million , or 52.4 % . the decrease in initial fees resulted from the higher number of restaurants opened by franchisees during the prior year period . the decrease in occupancy revenue of $ 0.3 million , or 0.6 % , is primarily the result of lease expirations and terminations where the franchisees obtained their own leases with the landlords and we are no longer party to the leases . costs of franchise and license revenue decreased by $ 2.6 million , or 5.6 % . the decrease in occupancy costs of $ 0.8 million , or 2.2 % , is primarily the result of lease expirations and terminations as described above . other direct costs decreased by $ 1.9 million , or 14.8 % , primarily resulting from lower opening and training costs related to the higher number of openings by franchisees in the prior year period and the franchise-related costs associated with our super bowl promotion in the prior year , partially offset by a $ 0.5 million franchisee settlement . as a result , costs of franchise and license revenue as a percentage of franchise and license revenue decreased to 35.0 % for the year ended december 28 , 2011 from 37.7 % for the year ended december 29 , 2010. other operating costs and expenses other operating costs and expenses such as general and administrative expenses and depreciation and amortization expense relate to both company and franchise operations . general and administrative expenses were comprised of the following : replace_table_token_12_th the $ 1.4 million increase in share-based compensation expense is primarily due to the issuance of employment inducement awards to certain employees and reductions in the prior year related to forfeitures . other general and administrative expenses decreased $ 1.6 million . this decrease is primarily the result of $ 2.0 million in proxy contest costs incurred during 2010 and a decrease in deferred compensation . these decreases were partially offset by an increase in performance-based compensation and an increase in headcount , including executive positions that were vacant in the prior year period . depreciation and amortization was comprised of the following : replace_table_token_13_th the overall decrease in depreciation and amortization expense was primarily due to the sale of company-owned restaurants to franchisees during 2010 and 2011. operating ( gains ) , losses and other charges , net were comprised of the following : replace_table_token_14_th during the year ended december 28 , 2011 , we recognized gains of $ 3.2 million , primarily resulting from the sale of 30 restaurant operations to nine franchisees , the sale of real estate and the recognition of deferred gains related to a restaurant sold to a franchisee during a prior period . during the year ended december 29 , 2010 , we recognized gains of $ 9.5 million , primarily resulting from the sale of real estate to franchisees and the sale of 24 restaurant operations to 14 franchisees . restructuring charges and exit costs were comprised of the following : replace_table_token_15_th 19 severance and other restructuring charges for the year ended december 29 , 2010 included $ 2.3 million related to the departure of the company 's former chief executive officer . impairment charges of $ 4.1 million for the year ended december 28 , 2011 resulted primarily from the impairment of assets of three underperforming units and two units identified as assets held for sale . impairment charges for the year ended december 29 , 2010 generally related to underperforming or closed restaurants as well as restaurants and real estate identified as held for sale during the period .
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summary of cash flows our primary sources of liquidity and capital resources are cash generated from operations , borrowings under our credit facility ( as described below ) and , in recent years , cash proceeds from the sale of restaurant operations to franchisees and sales of surplus properties , to the extent allowed by our credit facility . principal uses of cash are operating expenses , capital expenditures , debt repayments and , recently , the repurchase of shares of our common stock . the following table presents a summary of our sources and uses of cash and cash equivalents for the periods indicated : replace_table_token_25_th we believe that our estimated cash flows from operations for 2012 , combined with our capacity for additional borrowings under our credit facility , will enable us to meet our anticipated cash requirements and fund capital expenditures over the next twelve months . net cash flows used in investing activities were $ 7.7 million for the year ended december 28 , 2011. these cash flows include capital expenditures of $ 16.1 million and trademark purchases of $ 1.6 million , partially offset by $ 8.6 million in proceeds from asset sales and $ 1.3 million of notes receivable collections . our principal capital requirements have been largely associated with the following : replace_table_token_26_th 23 the new construction expenditures for 2010 and 2011 primarily resulted from the conversion of restaurants at pilot flying j travel centers . we generally expect our capital requirements to trend downward as we reduce our company-owned restaurant portfolio and remain selective in our new restaurant investments . in fiscal year 2012 , capital expenditures are expected to be approximately $ 15-16 million , comprised primarily of costs related to facilities and new construction . the trademark purchases of $ 1.6 million resulted from securing ownership of the registered rights in the denny 's name and logo in china .
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depreciation and amortization expense was $ 98.6 million , $ 66.6 million and $ 65.0 million in 2012 , 2011 and 2010 , respectively . amortization of assets under capital leases is included in depreciation and amortization expense . we evaluate the recoverability of our property , plant and equipment whenever events or substantive changes in circumstances indicate that the carrying amount of an asset group may not be recoverable . recoverability is measured by a comparison of the carrying amount of an asset group to estimated undiscounted future cash flows expected to be generated by the asset group . if the total of the expected future undiscounted cash flows were less than the carrying amount of the asset group , we would recognize an impairment charge for the difference between the estimated fair value and the carrying value of the asset group . intangible assets indefinite-lived intangibles goodwill and tradenames are evaluated for impairment annually or more frequently when events or changes in circumstances indicate that story_separator_special_tag reference is made to part i , item 1 note about forward looking statements and item 1a risk factors which describes important factors that could cause actual results to differ from expectations and non-historical information contained herein . in addition , the following management 's discussion and analysis ( md & a ) is intended to help the reader understand the results of operations and financial condition of consolidated communications holdings , inc. ( consolidated , the company , we or our ) . md & a should be read in conjunction with our audited consolidated financial statements and accompanying notes to the consolidated financial statements ( notes ) as of and for each of the three years in the period ended december 31 , 2012 included elsewhere in this annual report on form 10-k. throughout md & a , we refer to measures that are not a measure of financial performance in accordance with united states generally accepted accounting principles ( us gaap or gaap ) . we believe the use of these non-gaap measures on a consolidated and segment basis provides the reader with additional information that is useful in understanding our operating results and trends . these measures should be viewed in addition to , rather than as a substitute for , those measures prepared in accordance with gaap . see the non-gaap measures section below for a more detailed discussion on the use and calculation of these measures . significant recent development on july 2 , 2012 , we completed the merger with surewest communications ( surewest ) , which resulted in the acquisition of 100 % of all the outstanding shares of surewest for $ 23.00 per share in a cash and stock transaction . the acquisition of surewest provides additional diversification of the company 's revenues and cash flows both geographically and by service type , which offers a platform for future growth and is expected to generate operational and capital cost synergies . surewest provides a wide range of telecommunications , digital video , internet , data and other facilities-based communications services in northern california , primarily in the greater sacramento region , and in the greater kansas city , kansas and missouri areas . for the year ended december 31 , 2011 , surewest reported $ 248.1 million in total operating revenues . for the six months ended june 30 , 2012 , surewest generated $ 127.9 million in operating revenues . the total purchase price of $ 550.8 million consisted of cash and assumed debt of $ 402.4 million and 9,965,983 shares of the company 's common stock valued at the company 's opening stock price on july 2 , 2012 of $ 14.89 , which totaled $ 148.4 million . the cash portion of the merger consideration and the funds required to repay surewest outstanding debt was financed with the sale of $ 300.0 million in aggregate principal amount of 10.875 % senior notes due 2020 ( senior notes ) . the company also used cash on hand and approximately $ 35.0 million in borrowings from its revolving credit facility . because the acquisition closed on july 2 , 2012 , the company 's financial information does not include any of the results of operations from surewest prior to the acquisition date . the financial results of surewest are included in the telephone operations segment as of the date of the acquisition . overview we are an established telecommunications services company providing a wide range of services to residential and business customers in illinois , texas , pennsylvania , california , kansas and missouri . we offer a wide range of telecommunications services , including local and long-distance service , high-speed broadband internet access , video services , digital telephone service ( voip ) , custom calling features , private line services , carrier grade access services , network capacity services over our regional fiber optic networks , directory publishing and competitive local exchange carrier ( clec ) services . we also operate two non-core complementary businesses , prison services and equipment sales . we classify our operations into two reportable business segments : telephone operations and other operations . telephone operations segment our telephone operations segment generated approximately 94 % of our consolidated operating revenues during 2012 , primarily from subscriptions to our voice , video and data services ( broadband services ) to residential and business customers . revenues in the telephone operations segment increased $ 129.5 million during 2012 compared to 2011 , primarily from the surewest acquisition and growth in data , video and internet connections . we expect our broadband service revenues to continue to grow as consumer and business demands for data based services increase . we market our services to residential and business customers , either individually or as a bundled package . our triple play bundle includes our voice , video and data services . story_separator_special_tag although we will continue to seek legal recourse to the state 's decision , our business plans and projections assume that our contract with the state of illinois will end during 2013. as a result , in 2012 as part of our annual impairment test , we recognized an impairment charge of $ 2.9 million on our goodwill and tradenames associated with the other operations reporting units . non-operating items other income and expense , net interest expense , net of interest income , increased $ 23.2 million during 2012 compared to 2011. in february 2012 , we entered into a temporary $ 350.0 million senior unsecured bridge loan facility ( bridge facility ) to fund the surewest acquisition . during 2012 we incurred $ 4.2 million of amortization related to the financing costs and $ 1.5 million of interest related to ticking fees associated with the bridge facility . in may 2012 , we finalized the financing for the surewest acquisition and entered into a senior note offering ( senior notes ) , effectively replacing our bridge facility . interest expense in 2012 included $ 19.2 million of interest expense related to the senior notes . in december 2012 , we entered into a second amendment and incremental facility agreement ( the second amendment ) to amend our term loan facility . under the terms of the second amendment , we issued incremental term loans in the aggregate amount of $ 515.0 million and used the proceeds in part to pay off the outstanding term loan debt that was due to mature december 31 , 2014. as a result , we incurred a loss on the extinguishment of debt of $ 4.5 million related to the repayment of our outstanding term loan . investment income increased by $ 2.8 million during 2012 compared to 2011 primarily due to higher earnings from our wireless partnership interests . 40 income taxes income taxes decreased $ 13.4 million in 2012 compared to 2011. our effective rate was 18.9 % for 2012 compared to 35.5 % for 2011. the acquisition of surewest on july 2 , 2012 resulted in changes to our unitary state filings and correspondingly our state deferred income taxes . these changes resulted in a net decrease of $ 1.1 million to our net state deferred tax liabilities and a corresponding decrease to our state tax . in addition , we incurred non-deductible transaction costs in relation to the acquisition that resulted in an increase to our tax provision of $ 0.8 million . 2011 versus 2010 segment results of operations telephone operations replace_table_token_11_th telephone operations operating revenue local calling services local calling services revenue decreased $ 6.8 million in 2011 compared to 2010 primarily due to a 4 % decline in local access lines . the number of local access lines in service directly affects the recurring revenue we generate from end users and continues to be impacted by the industry-wide decline in access lines . we expect to continue to experience modest erosion in access lines due to market forces and through our own competing voip product . network access services network access services revenue decreased $ 1.2 million in 2011 compared to 2010 primarily due to a decline in switched access minutes of use as a result of the decline in access lines . these decreases were partially offset by higher special access revenue . subsidies subsidy revenues decreased $ 3.3 million in 2011 compared to 2010 primarily as a result of a reduction in the amount of federal interstate high cost fund support we received , and to a lesser extent , a decrease in federal interstate common line revenue . long-distance services long-distance services revenue decreased $ 2.1 million in 2011 compared to 2010 primarily due to the decline in access lines as described above and the shift in customers moving to unlimited long-distance plans . video , data and internet services video , data and internet revenue increased $ 6.9 million in 2011 compared to 2010. the increase in revenue was due to the continued growth in data and video connections , which increased 7 % and 18 % , respectively , as of december 31 , 2011 compared to 2010 . 41 other services other services revenue decreased $ 0.5 million during 2011 compared to 2010. the decrease in other services revenue was primarily due to a decline in directory publishing revenues , which was offset in part by an increase in transport services . telephone operations operating expenses cost of services and products cost of services and products decreased $ 2.1 million during 2011 compared to 2010 as higher costs associated with video programming were offset by declines in network access costs , pension expense and labor costs due to a reduction in headcount . selling , general and administrative costs selling , general and administrative costs decreased $ 5.0 million during 2011 compared to 2010 primarily due to a decrease in employee labor and benefit expenses . in 2011 , we completed a reorganization that resulted in a reduction in headcount and cost reductions gained through the implementation of operational efficiencies . the decrease in selling , general and administrative costs was also due to lower pension and bad debt expenses as well as a decrease in rent expense due the renegotiated terms on our leases . debt refinancing costs in 2011 , we amended our credit agreement and incurred fees of $ 2.6 million , which were recognized as a financing cost during 2011. depreciation and amortization depreciation and amortization expense increased $ 1.6 million during 2011 compared to 2010 primarily due to an increase in lease expense related to our buildings . other operations replace_table_token_12_th other operations operating revenue other operations revenue decreased $ 2.1 million in 2011 compared to 2010. in 2010 , we sold our cmr and operator services business units , which accounted for $ 4.9 of the annual decline in revenues .
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results of operations the following tables reflect our financial results on a consolidated basis and key operating statistics as of and for the years ended december 31 , 2012 , 2011 and 2010. financial data replace_table_token_7_th ( 1 ) a non-gaap measure . see the non-gaap measures section below for additional information and reconciliation 36 to the most directly comparable gaap measure . key operating statistics replace_table_token_8_th ( 1 ) voice connections include voice lines outside the incumbent local exchange carrier ( ilec ) service areas and voice-over-ip inside the ilec service areas . ( 2 ) these connections include both residential and business ( excluding surewest business metrics ) for services both inside and outside the ilec service areas . consolidated overview the comparability of our consolidated results of operations and key operating statistics was impacted by the surewest acquisition , which closed on july 2 , 2012 , as described above . surewest 's results are included in our consolidated financial statements as of the date of the acquisition . we also incurred transaction costs directly related to the surewest acquisition in 2012. during 2012 , we incurred $ 20.8 million in expense related to the acquisition , which included change-in-control payments to former members of the surewest management team of $ 9.4 million of which $ 8.6 million were accrued for at december 31 , 2012 and are expected to be paid during the six months ended june 30 , 2013. we also incurred additional interest costs of $ 24.9 million , which included $ 19.2 million of interest incurred on the senior notes obtained for the surewest acquisition , $ 4.2 million of amortization of fees related to securing the bridge loan commitment to finance the surewest acquisition , and $ 1.5 million of interest related to ticking fees associated with the bridge loan financing . consolidated operating revenue increased $ 129.2 million during 2012 due to the surewest acquisition .
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as of june 30 , 2017 , the company-owned , franchised or held ownership interests in 9,008 locations worldwide . the company 's locations consist of 8,919 company-owned and franchised salons and 89 locations in which we maintain a non-controlling ownership interest of less than 100 % . each of the company 's salon concepts generally offer similar salon products and services and serve the mass market . see discussion within part i , item 1. story_separator_special_tag 90 basis point increase in cost of service as a percent of service revenues during fiscal year 2016 was primarily due to minimum wage increases , unfavorable stylist productivity , higher health insurance costs and mix shifts to more costly color services , partly offset by mix improvement from closing underperforming salons . the 50 basis point increase in cost of service as a percent of service revenues during fiscal year 2015 was primarily due to state minimum wage increases , higher field incentives as the company anniversaries an incentive-lite year and the lapping of a prior year rebate , partly offset by improved stylist productivity and a decrease in healthcare costs . cost of product the 40 basis point decrease in cost of product as a percent of product revenues during fiscal year 2017 was primarily from the closure of salons with higher product costs as a percent of product revenues and favorable shrink rates versus the prior year . the 20 basis point increase in cost of product as a percent of product revenues during fiscal year 2016 was primarily from increased promotions , partly offset by the closure of salons with higher product costs as a percent of product revenues . the 60 basis point decrease in cost of product as a percent of product revenues during fiscal year 2015 was primarily the result of improved salon-level inventory management and compliance , closure of salons with higher product costs as a percent of product revenues and lapping of an inventory write-down in the prior year . these were partly offset by increased promotional activity and lapping of vendor rebates in the prior year . site operating expenses site operating expenses decreased $ 14.5 million during fiscal year 2017 primarily due to store closures , mainly within our north american value and premium segments , lower self-insurance costs and cost savings associated with salon telecom costs . site operating expenses decreased $ 9.5 million during fiscal year 2016 primarily due to store closures , mainly within our north american value and premium segments , cost savings associated with salon telecom costs , reduced marketing expenses , lower self-insurance costs and foreign currency , partly offset by the lapping of a sales and use tax refund in the prior year . site operating expenses decreased $ 11.0 million during fiscal year 2015 primarily due to store closures , mainly within our north american value and premium segments , lower self-insurance reserves , reduced marketing expenses , a sales and use tax refund and cost savings . general and administrative general and administrative expense ( g & a ) declined $ 3.5 million during fiscal year 2017 . this decrease was primarily driven by lower incentive compensation and cost savings , partly offset by severance related to the termination of former executive officers including the company 's chief executive officer and higher professional fees . g & a declined $ 8.0 million during fiscal year 2016. this decrease was primarily driven by reduced incentive compensation , cost savings , a gain on life insurance proceeds and foreign currency , partly offset by planned strategic investments in technical education , higher legal fees and financing arrangement modification fees . g & a increased $ 13.3 million during fiscal year 2015. this increase was primarily driven by higher incentive compensation levels as the company anniversaries an incentive-lite year , planned strategic investments in asset protection and 29 human resource initiatives and the lapping of a favorable deferred compensation adjustment within our corporate segment . these items were partly offset by cost savings and reduced legal and professional fees . rent rent expense decreased by $ 18.0 million during fiscal year 2017 primarily due to salon closures , primarily within our north american value and premium segments and foreign currency fluctuations , partly offset by rent inflation and lease termination fees . rent expense decreased by $ 11.9 million during fiscal year 2016 primarily due to salon closures , primarily within our north american value and premium segments and foreign currency fluctuations , partly offset by rent inflation . rent expense decreased by $ 13.1 million during fiscal year 2015 primarily due to salon closures , primarily within our north american value and premium segments and foreign currency fluctuations , partly offset by rent inflation . depreciation and amortization depreciation and amortization expense ( d & a ) decreased $ 1.1 million during fiscal year 2017 , primarily driven by lower depreciation expense on a reduced salon base , partly offset by increased fixed asset impairment charges . d & a decreased $ 15.4 million during fiscal year 2016 , primarily driven by lower depreciation expense on a reduced salon base and reduced fixed asset impairment charges . d & a decreased $ 16.9 million during fiscal year 2015 , primarily driven by lower depreciation expense on a reduced salon base and reduced fixed asset impairment charges . story_separator_special_tag partly offsetting the decrease was the same-store sales increase of 1.3 % and revenue growth from construction ( net of relocations ) of 57 salons during fiscal year 2016. the same-store sales increase was due to a 3.8 % increase in average ticket price , partly offset by a 2.5 % decrease in same-store guest visits . north american value salon revenues decreased $ 30.5 million in fiscal year 2015 primarily due to the closure of 192 salons and the sale of 77 company-owned salons ( net of buybacks ) to franchisees . partly offsetting the decrease was revenue growth from construction ( net of relocations ) of 76 salons during fiscal year 2015 and the same-store sales increase of 0.3 % . the same-store sales increase was due to a 1.8 % increase in average ticket price , partly offset by a 1.5 % decrease in same-store guest visits . north american value salon operating income north american value salon operating income decreased $ 12.6 million during fiscal year 2017 primarily due to minimum wage increases , unfavorable stylist productivity , same-store sales declines and a one-time inventory expense related to salon tools , partly offset by the closure of underperforming salons . north american value salon operating income increased $ 3.9 million during fiscal year 2016 primarily due to the closure of underperforming salons , same-store sales increases , cost savings associated with salon telecom and utilities costs and reduced marketing expenses , partly offset by minimum wage increases and unfavorable stylist productivity . north american value salon operating income increased $ 3.9 million during fiscal year 2015 primarily due to the closure of underperforming salons , lower self-insurance costs , reduced fixed asset impairment charges , reduced marketing expenses , same-store sales increases and a sales and use tax refund , partly offset by minimum wage increases . north american franchise salons replace_table_token_16_th north american franchise salon revenues north american franchise salon revenues decreased $ 0.4 million during fiscal year 2017 due to a $ 0.9 million decrease in franchise product sales , partly offset by a $ 0.5 million increase in royalties and fees . the increase in royalties and fees was primarily due to mix of franchisees opening salons in fiscal year 2017 , which shifted to existing franchisees , who pay lower fees for opening additional salons and lapping franchise termination revenue , mostly offset by higher royalties . during fiscal year 2017 , franchisees constructed ( net of relocations ) and closed 138 and 93 franchise-owned salons , respectively , during fiscal year 2017 and purchased ( net of company buybacks ) 92 salons from the company during the same period . north american franchise salon revenues increased $ 4.5 million during fiscal year 2016 due to a $ 1.7 million increase in franchise product sales and a $ 2.9 million increase in royalties and fees . both of these increases are due to increased franchised locations as during fiscal year 2016 , franchisees constructed ( net of relocations ) and closed 170 and 56 franchise-owned salons , respectively , and purchased ( net of company buybacks ) 58 salons from the company during the same period . in addition , the higher royalties are due to positive same-store sales by the franchisees . north american franchise salon revenues increased $ 3.8 million during fiscal year 2015 due to a $ 0.1 million increase in franchise product sales and a $ 3.8 million increase in royalties and fees . the increase in royalties is due to an increase in franchised locations and positive same-store sales by the franchisees during the fiscal year 2015. franchisees constructed ( net of relocations ) and closed 140 and 72 franchise-owned salons , respectively , during fiscal year 2015 and purchased ( net of company buybacks ) 77 salons from the company during the same period . the higher franchise fees are also due to the increase in franchised locations . 32 north american franchise salon operating income north american franchise salon operating income increased $ 0.3 million during fiscal year 2017 primarily due to the lower bad debt expense and higher margins on product sales due to mix , partly offset by higher incentive costs . north american franchise salon operating income increased $ 3.5 million during fiscal year 2016 primarily due to the increased number of franchised locations and same-store sales increases at franchised locations . north american franchise salon operating income increased $ 0.9 million during fiscal year 2015 primarily due to the increased number of franchised locations and same-store sales increases at franchised locations . north american franchise cash generated from re-franchised salons during fiscal year 2017 , 2016 and 2015 , north american franchise salons generated $ 2.3 , $ 1.7 and $ 3.0 million , respectively , of cash from re-franchising salons ( the sale of company-owned salons to franchisees ) . north american premium salons replace_table_token_17_th north american premium salon revenues decreases in north american premium salon revenues were driven by the following : replace_table_token_18_th north american premium revenues decreased $ 41.9 million during fiscal year 2017 primarily due to the closure of 135 salons and the same-store sales decrease of 5.9 % . the same-store sales decrease was due to a 9.6 % decrease in same-store guest visits , partly offset by a 3.7 % increase in average ticket price . north american premium revenues decreased $ 26.2 million during fiscal year 2016 primarily due to the closure of 67 salons and the same-store sales decrease of 3.8 % . the same-store sales decrease of 3.8 % was due to a 6.5 % decrease in same-store guest visits , partly offset by a 2.7 % increase in average ticket price . north american premium revenues decreased $ 24.3 million during fiscal year 2015 primarily due to the closure of 55 salons and the same-store sales decrease of 3.0 % . the same-store sales decrease was due to a 5.2 % decrease in same-store guest visits , partly offset by a 2.2 % increase in average ticket price .
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results of operations beginning in the fourth quarter of fiscal year 2017 , the company redefined its operating segments to reflect how the chief operating decision maker evaluates the business as a result of the increased focus on the franchise business . discontinued operations are discussed at the end of this section . 25 consolidated results of operations the following table sets forth , for the periods indicated , certain information derived from our consolidated statement of operations . the percentages are computed as a percent of total revenues , except as otherwise indicated . replace_table_token_10_th ( 1 ) cost of service is computed as a percent of service revenues . cost of product is computed as a percent of product revenues . ( 2 ) excludes depreciation and amortization expense . ( 3 ) computed as a percent of income ( loss ) from continuing operations before income taxes and equity in loss of affiliated companies . the income taxes basis point change is noted as not applicable ( n/a ) as the discussion below is related to the effective income tax rate . 26 consolidated revenues consolidated revenues primarily include revenues of company-owned salons , product and equipment sales to franchisees and franchise royalties and fees . the following tables summarize revenues and same-store sales by concept , as well as the reasons for the percentage change : replace_table_token_11_th _ ( 1 ) same-store sales are calculated on a daily basis as the total change in sales for company-owned locations which were open on a specific day of the week during the current period and the corresponding prior period . quarterly and fiscal year same-store sales are the sum of the same-store sales computed on a daily basis . locations relocated within a one mile radius are included in same-store sales as they are considered to have been open in the prior period . international same-store sales are calculated in local currencies to remove foreign currency fluctuations from the calculation .
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we broaden our product portfolio through distribution agreements with international manufacturers , and most of the products we distribute are imported . our distribution offerings are mostly equipment used in the operating room , the intensive care unit ( “ icu ” ) and the emergency room . besides distributing medical devices , we also design , develop and market our own proprietary products and medical components . because we do not run any manufacturing facilities , we contract some of the medical components to outside manufacturers in china . most of our proprietary products require light assembly by us before distribution . we sell our products primarily through distributors , but we also make direct sales to hospitals , clinics , government health bureaus and individuals . we continue to further our market reach by introducing newer and more advanced product lines that address different end-user needs . macro-economic factors and business trends in 2011 , the chinese ministry of science and technology announced a medical technology development policy under the “ 12th five-year plan , ” proposing to transfer business focus to the development of new drugs , medical equipment and advanced traditional chinese medicine , and to the development of the emerging industries of biomedicine . the plan focuses on researching and developing the medium- and high-level diagnostic and curative medical devices which are in high demand and widely used , actively promoting the development of cost-effective medical devices for use in primary health care institutions , enhancing the stability and reliability of medical services and products and researching and developing supplementary medical equipment which can be easily operated for family and self-healthcare . under the 12th five-year plan , china will proactively promote the reform of healthcare infrastructure system and offer safe , effective , convenient and low-cost medical services to its residents . as a result , management anticipates growth in the chinese pharmaceutical market . current medical device purchases by individuals in china are much lower than they are in europe and the u.s. it is estimated that twenty percent of individual expenditures on home medical care in china are for medical devices , compared to 50 % of such expenditures in europe and the u.s. as china 's population continues to age , management expects a rapid increase in demand for medical devices , and , as a result , growth in china 's medical device industry . it is the initial stage of rapid growth of china 's home medical equipment market . as residents ' living standards and consumption structure change , the demand for healthcare services and self-care will substantially increase , creating growth opportunities for participants in the market . in summary , as a vital component of china 's current health system reform , the medical device industry has been incorporated into the national strategic development plan . in 2013 , we anticipate new opportunities , combined with favorable government policies , will position us for continued growth . new opportunities in our business chinese government programs are aimed at rebuilding and renovating urban health centers , and building hospitals and medical centers in rural areas . the government is setting up the goal of having one up-to-standard hospital in every county , one government-run medical center in every township and one clinic in every administrative village . major portion of the domestic large-scale medical equipment procurement is government centralized procurement . for example , china development bank launched the “ supporting health infrastructure in rural areas ” program with a $ 690 million budget in the three years from 2011 through 2013 . 15 fortune magazine predicted homecare medical equipment to be ranked first among the fastest-growing industries in the 21st century . in western countries with mature and large health care markets , home medical equipment accounts for 40 % of the entire medical device output . however , in china because of the limited health insurance coverage and level of treatment in the public health systems , residents tend to be more aware of their health and wellness and to seek treatment at home before resorting to public health systems . thus , management expects that homecare medical equipment could become as abundant as home appliances . in addition , the un estimates that the chinese population over the age of 60 will increase from 167 million in 2010 to 440 million in 2050 ; hence , the aging population and increasing incidence of respiratory disorders are expected to drive additional growth in respiratory homecare products in the chinese marketplace . in 2011 , the shanghai government launched its medical insurance program to subsidize its citizens on homecare oxygen tanks . we anticipate beijing and other cities will be pushing for similar legislation . accordingly , in 2011 we partnered with two other companies to provide homecare oxygen tank services in beijing . based on the data shown above , both from a market and a government perspective , we are leveraging our broad sales network in order to introduce additional products from leading international brands into the chinese market and participating in government healthcare projects . at the same time , we will also increase our investment in r & d , continue marketing penetration for our proprietary products , expand coverage for home oxygen therapy service and focus on broadening international markets . we believe that the favorable market conditions will support growth in sales and that our market expansion strategy will benefit our business growth in the future . growth strategy we plan to build our brand name domestically as both a distributor and a trusted partner by leveraging our relationships with healthcare professionals , agents and other downstream distributors , maintaining and expanding our customer base , and promoting steady business growth . we plan to broaden the portfolio of products we distribute for other companies by cooperating with more internationally recognized medical equipment manufacturers . we also intend to take advantage of our well-established distribution network to grow sales revenues . story_separator_special_tag our total operating costs and expenses slightly decreased both as a percentage of our total revenues and in absolute amount for the year ended december 31 , 2012 compared to the same period in 2011 , primarily due to the decrease in spending in the homecare and oxygen therapy clients and international market development . further , our research and development investments and efforts in maintaining capital market relationships contributed to our operating expenses . the following table sets forth the components of our costs and expenses both in u.s. dollar amounts ( in thousands ) and as a percentage of total revenues for the years indicated . 17 replace_table_token_1_th cost of revenues cost of revenues primarily includes finished goods , parts for assembly , wages , handling charges , and other expenses associated with the assembly and distribution of product . general and administrative expenses general and administrative expenses consist primarily of salaries and benefits and related costs for our administrative personnel and management , fees and expenses of our outside advisers , including legal , audit and valuation expenses , expenses associated with our administrative offices and the depreciation of equipment used for administrative purposes . we expect that our general and administrative expenses will increase , both on an absolute basis and as a percentage of revenue , as we hire additional personnel and incur costs related to the anticipated growth of our business . in addition , we expect to continue to incur significant general and administrative expenses as a public company . selling expenses selling expenses consist primarily of compensation and benefits for our sales and marketing staff , expenses for promotional , advertising , travel and entertainment activities , lease payments for our sales offices , and depreciation expenses related to equipment used for sales and marketing activities . going forward , we expect our selling expenses to increase , both on an absolute basis and as a percentage of revenue , as we increase our efforts to promote our products , especially our new respiratory and oxygen homecare products . story_separator_special_tag style= '' page-break-before : always ; margin-top : 6pt ; margin-bottom : 12pt '' > liquidity and capital resources cash flows and working capital as of december 31 , 2012 , we had $ 3,505,330 in cash and cash equivalents . as a result of decreased cash flow associated with intellectual property investment , partially offset by increased cash flow from operating activities , net cash decreased from $ 3,694,486 at december 31 , 2011. we believe that our currently available working capital of $ 28,852,500 , including cash , should be adequate to meet our anticipated cash needs and sustain our current operations for at least 12 months . to the extent we engage in acquisitions in the future , we may need to rely on a variety of sources of funding , including but not limited to operating cash , and debt and or equity financing . operating activities net cash provided by operating activities was $ 1,704,876 for the year ended december 31 , 2012 as compared to $ 3,161,752 used in operating activities for the same period in 2011. the reasons for this change are mainly as follows : ( i ) accounts receivable decreased by $ 344,341 in 2012 , compared with an increase of $ 3,797,045 in 2011. the aggregate decrease in accounts receivable from the beginning of 2011 through the end of 2012 of $ 4,141,386 is attributable to better aging management , which reduced accounts receivable amounts . ( ii ) prepayments and other current assets increased by $ 1,730,704 in 2012 , while in 2011 , it increased by $ 1,413,176. the aggregate increase of $ 3,143,880 in prepayments and other current assets from the beginning of 2011 through the end of 2012 is due to the company 's decision to lock in supply costs by prepaying certain amounts in order to avoid increases in raw material prices . ( iii ) other receivables increased by $ 1,617,781 in 2012 , while in 2011 , other receivables decreased by $ 642,287. this increase of $ 2,260,068 in other receivables from the beginning of 2011 through the end of 2012 represents contract and contract bid deposits to participate in large contracts , which typically have a longer turnover than smaller contracts due to increased completion time . ( iv ) inventories decreased by $ 931,844 in 2012 , while in the 2011 , inventories decreased by $ 842,052. the aggregate decrease in inventories of $ 1,773,896 from the beginning of 2011 through the end of 2012 is mainly because the company improved its inventory management by better matching production cycles with customer orders . investing activities net cash used in investing activities for the year ended december 31 , 2012 was $ 2,726,507 , compared to $ 155,419 for the same period of 2011. the cash used in investing activities in each year was mainly attributable to capital expenditures for the purchase of new equipment . the increase in 2012 was mainly because the company completed software copyright registrations for which it had previously invested in research and development . financing activities we received $ 2.4 million in proceeds from a short-term bank loan in 2012 , which was fully paid during the year , as compared to $ 1.5 million in 2011. contractual obligations and commercial commitments the following table sets forth our contractual obligations as of december 31 , 2012 : replace_table_token_2_th the leased properties are principally located in the prc , and we use such properties for administration and warehouse facilities . the leases are renewable subject to negotiation . short-term borrowings represent short-term loans from two banks , which are due in may 2013 and march 2014 . 20 capital expenditures we made capital expenditures of approximately $ 2.73 million and $ 0.15 million in 2012 and 2011 , respectively , representing 12.73 % and 0.69 % of our total revenues , respectively . our capital expenditures were used to purchase machinery for our assembly line and obtain software copyrights .
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results of operations we believe that period-to-period comparisons of operating results should not be relied upon as indicative of future performance . fiscal year ended december 31 , 2012 compared to fiscal year ended december 31 , 2011. revenues our total revenues decreased by 1.24 % from $ 21.64 million for the fiscal year ended december 31 , 2011 to $ 21.37 million for the fiscal year ended december 31 , 2012. in 2012 , we continuously developed our sales channels for traditional medical devices sales . at the same time , we also began to adjust our operating strategy to expand into government procurement projects and the burgeoning respiratory and oxygen homecare market . management believes revenues have decreased slightly in traditional device sales due to an increasingly challenging market and new competitors . further , our government procurement efforts and homecare business are still at a relatively early stage . as a result , our overall revenues are slightly lower than in 2011 . 18 cost of revenues our cost of revenues decreased by 3.23 % from $ 13.70 million for the fiscal year ended december 31 , 2011 to $ 13.25 million for the fiscal year ended december 31 , 2012. o ur efforts to manage our inventory and costs allowed us to decrease our cost of revenues slightly more quickly than our decrease in revenues . gross profit our gross profit increased from $ 7.94 million in 2011 to $ 8.12 million in 2012 , and our gross margin increased slightly from 36.70 % in 2011 to 37.98 % in 2012. management believes the shift in the company 's revenue mix away from traditional device sales resulted in increases in gross margin and net income .
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the stock price volatility is determined from the historical stock prices of the peer group using the vesting period . the contractual term is equivalent to the vesting period . in may 2008 , shareholders approved the 2008 ltip , which was amended in may 2010 and may 2012 to increase the number of new shares of common stock available for awards . at december 31 , 2013 , the corporation had 10.2 million shares that remain available for issuance under the 2008 ltip , as amended , out of the total of 29 million shares of common stock authorized for issuance under the 2008 ltip , as amended . 14. foreign currency foreign currency gains ( losses ) before income taxes recorded in other , net in the statement of consolidated income amounted to a loss of $ 54 million in 2013 , a gain of $ 37 million in 2012 and a loss of $ 29 million in 2011 , all story_separator_special_tag overview hess corporation ( the corporation or hess ) is a global exploration and production ( e & p ) company that develops , produces , purchases , transports and sells crude oil and natural gas . prior to 2013 , the corporation also operated a marketing and refining ( m & r ) segment , which it began to divest during the year . the m & r businesses manufacture refined petroleum products and purchase , market , store and trade refined products , natural gas and electricity , as well as operate retail gas stations , most of which have convenience stores . in the first quarter of 2013 , the corporation announced several initiatives to continue its transformation into a more focused pure play e & p company that is expected to deliver compound average production growth of 5 % to 8 % through 2017 , from its 2012 pro forma production of 289,000 barrels of oil equivalent per day ( boepd ) . the transformation plan included fully exiting the corporation 's m & r businesses , including its terminal , retail , energy marketing and energy trading operations , as well as the permanent shutdown of refining operations at its port reading facility , thus completing its exit from all refining operations . hovensa l.l.c . ( hovensa ) , a 50/50 joint venture between the corporation 's subsidiary , hess oil virgin islands corp. ( hovic ) , and a subsidiary of petroleos de venezuela s.a. ( pdvsa ) , had previously shut down its united states ( u.s. ) virgin islands refinery in january 2012 and continued operating solely as an oil storage terminal . hovic and its partner have also commenced a sales process for hovensa . the transformation plan also committed to the sale of mature e & p assets in indonesia and thailand and the pursuit of monetizing bakken midstream assets by 2015. as part of its transformation during 2012 and 2013 , the corporation sold mature or lower margin assets in azerbaijan , indonesia , norway , russia , the united kingdom ( uk ) north sea , and certain interests onshore in the u.s. in the fourth quarter of 2013 , the corporation sold its energy marketing business and its terminal network . in 2014 , the corporation plans to divest its remaining downstream businesses , including its retail marketing business and energy trading joint venture , plus its e & p assets in thailand . the corporation has also reached an agreement to sell dry gas acreage in the utica shale play in the u.s. other actions announced by the corporation in march 2013 included repaying debt , establishing a cash cushion and returning capital to shareholders . by year-end 2013 , approximately $ 2.4 billion of short-term debt had been repaid . in addition , commencing in the third quarter of 2013 , the corporation increased its quarterly dividend 150 % to $ 0.25 per common share and commenced share repurchases under its authorized $ 4 billion share repurchase program . through december 31 , 2013 , hess had purchased approximately 19.3 million common shares at a cost of approximately $ 1.54 billion . net income was $ 5,052 million in 2013 compared with $ 2,025 million in 2012 and $ 1,703 million in 2011. diluted earnings per share were $ 14.82 in 2013 compared with $ 5.95 in 2012 and $ 5.01 in 2011. excluding items affecting comparability , net income was $ 1,892 million in 2013 , $ 1,998 million in 2012 , and $ 1,984 million in 2011. see the table of items affecting comparability of earnings between periods on page 24. exploration and production the corporation 's total proved reserves were 1,437 million barrels of oil equivalent ( boe ) at december 31 , 2013 compared with 1,553 million boe at december 31 , 2012 and 1,573 million boe at december 31 , 2011. proved reserves related to assets sold in 2013 totaled 139 million boe . pro forma year-end reserves , which exclude assets in indonesia and thailand classified as held for sale at december 31 , 2013 , were 1,362 million boe . e & p earnings were $ 4,303 million in 2013 , $ 2,212 million in 2012 and $ 2,675 million in 2011. excluding items affecting comparability of earnings between periods on page 28 , e & p net income was $ 2,192 million , $ 2,256 million and $ 2,431 million for 2013 , 2012 and 2011 , respectively . story_separator_special_tag a three well appraisal drilling program has been scheduled in the second half of 2014. in the third quarter , the corporation spud its first exploration well on the shakrok block in the kurdistan region of iraq ( hess 80 % ) and plans to begin drilling an exploration well on the dinarta block in the first half of 2014. during 2013 , the e & p segment sold its assets in azerbaijan and russia as well as its interests in the natuna a field , offshore indonesia , the beryl fields in the uk north sea and certain interests onshore in the u.s. , for total proceeds of approximately $ 4.5 billion . asset sales reduced production by approximately 60,000 boepd in 2013 compared to 2012. in january 2014 , the corporation announced it had reached agreement to sell approximately 74,000 acres of its 100 % interest in the utica shale for $ 924 million . approximately two-thirds of these proceeds are expected at the end of the first quarter of 2014 , with the balance to be received in the third quarter of 2014 . 22 downstream businesses the downstream businesses reported income of $ 1,189 million in 2013 and $ 231 million in 2012 and a loss of $ 584 million in 2011. excluding items affecting comparability of earnings between periods on page 31 , the downstream businesses generated income of $ 116 million in 2013 and $ 160 million in 2012 and a loss of $ 59 million in 2011. the downstream businesses comprise the corporation 's retail , energy marketing , terminal , energy trading and refining operations , together with its interests in two power plant joint ventures . by year-end all of these businesses were either divested by the corporation or the divestiture processes remained on-going . liquidity and capital and exploratory expenditures net cash provided by operating activities was $ 4,870 million in 2013 , $ 5,660 million in 2012 and $ 4,984 million in 2011. at december 31 , 2013 , cash and cash equivalents totaled $ 1,814 million , up from $ 642 million at december 31 , 2012. total debt was $ 5,798 million at december 31 , 2013 and $ 8,111 million at december 31 , 2012. the corporation 's debt to capitalization ratio at december 31 , 2013 was 19.0 % compared with 27.7 % at the end of 2012. capital and exploratory expenditures were as follows : replace_table_token_15_th * includes capital expenditures related to discontinued operations of $ 33 million , $ 52 million and $ 65 million in 2013 , 2012 and 2011 , respectively . the corporation anticipates investing approximately $ 5.8 billion in e & p capital and exploratory expenditures in 2014 and approximately $ 350 million for retail marketing , primarily for the acquisition of its partner 's share of the wilcohess joint venture which closed in january 2014. story_separator_special_tag bittern and schiehallion fields in the uk north sea , which were sold in the second half of 2012 , were producing at an aggregate net rate of approximately 12,000 boepd at the time of sale . the beryl fields , also in the uk north sea , which were producing at an aggregate net rate of approximately 10,000 boepd at the time of sale , were sold in the first quarter of 2013 , and the corporation 's russian subsidiary , which was producing approximately 50,000 boepd at the time of sale , was sold in april 2013. crude oil production in 2012 was lower than 2011 , primarily due to the downtime at the valhall field in 26 norway , during the second half of 2012. natural gas production was lower in 2012 compared with 2011 , primarily due to the sale of the snohvit field , offshore norway , in january 2012 , downtime at the valhall field and natural decline at the beryl fields in the uk north sea . africa : crude oil production in africa was lower in 2013 compared to 2012 , primarily due to the shutdown of the es sider terminal in libya in the third quarter of 2013 , following civil unrest in the country . in addition , offshore equatorial guinea production was lower due to decline at the okume complex , partially offset by new production from the ceiba field . crude oil production increased in 2012 compared with 2011 mainly due to the resumption of production in libya , partly offset by lower production in equatorial guinea due to downtime and natural field decline . asia and other : crude oil production was lower in 2013 compared to 2012 , mainly due to the sale in march 2013 of the corporation 's interest in the azeri-chirag-guneshli ( acg ) fields in azerbaijan . the assets were producing at a net rate of approximately 6,000 boepd at the time of sale . natural gas production was lower in 2013 compared to 2012 , mainly due to lower production entitlement at the joint development area of malaysia/thailand ( jda ) together with lower production at the pangkah field in indonesia following the facility 's shutdown for planned maintenance in the second quarter of 2013. natural gas production in 2012 was higher than 2011 , primarily due to new wells at the pangkah field in indonesia and a full year 's contribution from the gajah baru complex at the natuna a field in indonesia , which commenced production in the fourth quarter of 2011. sales volumes : the corporation 's worldwide sales volumes were as follows : replace_table_token_21_th * reflects natural gas production converted on the basis of relative energy content ( six mcf equals one barrel ) . barrel of oil equivalence does not necessarily result in price equivalence as the equivalent price of natural gas on a barrel of oil equivalent basis has been substantially lower than the corresponding price for crude oil over the recent past .
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consolidated results of operations the after-tax income ( loss ) by major operating activity is summarized below : replace_table_token_16_th 23 the following table summarizes , on an after-tax basis , items of income ( expense ) that are included in net income and affect comparability between periods . the items in the table below are explained on pages 28 through 31. replace_table_token_17_th in the following discussion and elsewhere in this report , the financial effects of certain transactions are disclosed on an after-tax basis . management reviews segment earnings on an after-tax basis and uses after-tax amounts in its review of variances in segment earnings . management believes that after-tax amounts are a preferable method of explaining variances in earnings , since they show the entire effect of a transaction rather than only the pre-tax amount . after-tax amounts are determined by applying the income tax rate in each tax jurisdiction to pre-tax amounts . comparison of results exploration and production following is a summarized income statement of the corporation 's e & p operations : replace_table_token_18_th excluding the e & p items affecting comparability of earnings between periods in the table on page 28 , the changes in e & p earnings are primarily attributable to changes in selling prices , production and sales volumes , cost of products sold , cash operating costs , depreciation , depletion and amortization , exploration expenses and income taxes , as discussed below . selling prices : average crude oil realized selling prices were 13 % higher in 2013 compared to 2012 due to a combination of hedging losses realized in 2012 , the second quarter 2013 sale of the corporation 's subsidiary in russia which had significantly lower crude oil prices , and slightly higher average west texas intermediary ( wti ) benchmark prices in 2013. average crude oil realized selling prices were 3 % lower in 2012 compared with 2011 , primarily due to lower average wti benchmark prices .
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interest expense on related party notes was $ 334,000 , $ 588,000 , and $ 1.2 million , for fiscal years 2013 , 2012 , and story_separator_special_tag the following discussion of egain 's financial condition and results of operations should be read together with the consolidated financial statements and related notes in this annual report on form 10-k. this discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties . these risks and uncertainties may cause actual results to differ materially from those discussed in the forward-looking statements . overview egain was incorporated in delaware in september 1997. we are a leading provider of cloud-based and on-site customer engagement solutions . for over a decade , our solutions have helped improve customer experience , grow sales , and optimize service processes across the web , social , and phone channels . hundreds of global enterprises rely on us to transform fragmented sales engagement and customer service operations into unified customer engagement hubs . in fiscal year 2013 , we recorded annual revenue of $ 58.9 million and income from operations of $ 1.2 million , compared to annual revenue of $ 43.4 million and loss from operations of $ 2.0 million in fiscal year 2012. the year-over-year increase in total revenue was primarily driven by the increase of 70 % in subscription revenue as our business has shifted more toward a cloud delivery model . subscription and support revenue was $ 32.3 million in fiscal year 2013 , an increase of 37 % from fiscal year 2012. professional services revenue was $ 13.8 million in fiscal year 2013 , an increase of 58 % from fiscal year 2012. cash provided by operations was $ 10.0 million for fiscal year 2013 , compared to cash provided by operations of $ 1.0 million for fiscal year 2012. based upon the strong increase in the demand for our products and services we continued to increase our investment in sales and marketing and expand our distribution capability during fiscal year 2013. if the demand continues for our products and services , we intend to continue to increase our sales and marketing investments and the expansion of distribution capability in fiscal year 2014. in addition , we intend to make further investments in product development and technology to enhance our current products and services , develop new products and services and further advance our solution offerings . we believe that existing capital resources will enable us to maintain current and planned operations for the next 12 months . due to fluctuations in our business , we believe that period-to-period comparisons of our revenue and operating results may not be meaningful and should not be relied upon as indications of future performance , but we anticipate an increase in revenue in fiscal year 2014. unbilled deferred revenue unbilled deferred revenue represents business that is contracted but not yet invoiced or collected and offbalance-sheet and , accordingly , is not recorded in deferred revenue . as such , the deferred revenue balance on our consolidated balance sheet does not represent the total contract value of annual or multi-year , non-cancelable subscription agreements . as of june 30 , 2013 , unbilled deferred revenue increased to $ 24.8 million , up from approximately $ 20.7 million as of june 30 , 2012. critical accounting policies and estimates management 's discussion and analysis of financial condition and results of operations discusses our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period . on an on-going basis , management evaluates its estimates and judgments , including those related to revenue recognition , allowance for doubtful accounts , goodwill , deferred tax valuation allowance and accrued liabilities , long-lived assets and stock-based compensation . management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . voluntary change in accounting policy for sales commissions on july 1 , 2012 , we made a voluntary change to our accounting policy for sales commissions related to new cloud contracts with customers , from recording an expense when incurred to deferral and amortization of the sales commission in proportion to the revenue recognized over the term of the contract . we believe this method is preferable because commission charges ( that are direct and incremental ) are so closely related to the revenue from the contracts that they should be deferred and charged to expense over the same period that the related revenue is recognized . furthermore , it is our belief that most industry peers have adopted a similar commission expense policy . as a result , we believe this change should improve the comparability of our consolidated financial statements to our industry peers and provide better matching of our revenue and expenses . 25 revenue recognition we enter into arrangements to deliver multiple products or services ( multiple-elements ) . we apply software revenue recognition rules and multiple-elements arrangement revenue guidance . significant management judgments and estimates are made and used to determine the revenue recognized in any accounting period . material differences may result in changes to the amount and timing of our revenue for any period if different conditions were to prevail . we present revenue net of taxes collected from customers and remitted to governmental authorities . story_separator_special_tag we consider the applicability of asc 985-605 , on a contract-by-contract basis . in cloud-based agreements , where the customer does not have the contractual right to take possession of the software , the revenue is recognized on a monthly basis over the term of the contract . invoiced amounts are recorded in accounts receivable and in deferred revenue or revenue , depending on whether the revenue recognition criteria have been met . we consider a software element to exist when we determine that the customer has the contractual right to take possession of our software at any time during the cloud period without significant penalty and can feasibly run the software on its own hardware or enter into another arrangement with a third party to host the software . additionally , we have established vsoe for the cloud and maintenance and support elements of perpetual license sales , based on the prices charged when sold separately and substantive renewal terms . accordingly , when a software element exists in a cloud services arrangement , license revenue for the perpetual software license element is determined using the residual method and is recognized upon delivery . revenue for the cloud and maintenance and support elements is recognized ratably over the contractual time period . professional services are recognized as described below under professional services revenue. if vsoe of fair value can not be established for the undelivered elements of an agreement , the entire amount of revenue from the arrangement is recognized ratably over the period that these elements are delivered . term license revenue term license revenue includes arrangements where our customers receive license rights to use our software along with bundled maintenance and support services for the term of the contract . the majority of our contracts provide customers with the right to use one or more products up to a specific license capacity . certain of our license agreements stipulate that customers can exceed pre-determined base capacity levels , in which case additional fees are specified in the license agreement . term license revenue is recognized ratably over the term of the license contract . maintenance and support revenue maintenance and support revenue consists of customers purchasing maintenance and support for our on-premise software . we use vsoe of fair value for maintenance and support to account for the arrangement using the residual method , regardless of any separate prices stated within the contract for each element . maintenance and support revenue is recognized ratably over the term of the maintenance contract , which is typically one year . maintenance and support is renewable by the customer on an annual basis . maintenance and support rates , including subsequent renewal rates , are typically established based upon a specified percentage of net license fees as set forth in the arrangement . license revenue license revenue includes perpetual license rights sold to customers to use our software in conjunction with related maintenance and support services if an acceptance period is required , revenue is recognized upon the earlier of customer acceptance or the expiration of the acceptance period . in software arrangements that include rights to multiple software products and or services , we use the residual method under which revenue is allocated to the undelivered elements based on vsoe of the fair value of such undelivered elements . the residual amount of revenue is allocated to the delivered elements and recognized as revenue , assuming all other criteria for revenue recognition have been met . such undelivered elements in these arrangements typically consist of software maintenance and support , implementation and consulting services and in some cases cloud services . we periodically sell to resellers . license sales to resellers as a percentage of total revenue were approximately 6 % , 2 % and 5 % in fiscal years 2013 , 2012 and 2011 , respectively . revenue from sales to resellers is generally recognized upon delivery to the reseller 27 dependent on the facts and circumstances of the transaction . these include items such as our understanding of the reseller 's plans to sell the software , existence of return provisions , price protection or other allowances , the reseller 's financial status and our past experience with the reseller . historically sales to resellers have not included any return provisions , price protections or other allowances . professional services revenue included in professional services revenue is revenue derived from system implementation , consulting and training . for license transactions , the majority of our consulting and implementation services qualify for separate accounting . we use vsoe of fair value for the services to account for the arrangement using the residual method , regardless of any separate prices stated within the contract for each element . our consulting and implementation service contracts are bid either on a fixed-fee basis or on a time-and-materials basis . substantially all of our contracts are on a time-and-materials basis . for time-and-materials contracts , where the services are not essential to the functionality , we recognize revenue as services are performed . if the services are essential to functionality , then both the product license revenue and the service revenue are recognized under the percentage of completion method . for a fixed-fee contract , we recognize revenue based upon the costs and efforts to complete the services in accordance with the percentage of completion method , provided we are able to estimate such cost and efforts . we recognize the services revenue ratably over the estimated life of the customer cloud relationship once cloud services have gone live or are system ready for cloud , consulting , and implementation services that do not qualify for separate accounting . we currently estimate the life of the customer cloud relationship to be approximately 28 months , based on the average life of all cloud customer relationships . training revenue that meets the criteria to be accounted for separately is recognized when training is provided .
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results of operations the following table sets forth certain items reflected in our consolidated statements of operations expressed as a percent of total revenue for the periods indicated . replace_table_token_4_th revenue total revenue , which consists of subscription and support , license and professional services revenue , was $ 58.9 million , $ 43.4 million , and $ 44.1 million , in fiscal years 2013 , 2012 , and 2011 , respectively . in fiscal year 2013 , total revenue increased 36 % , or $ 15.5 million , from the prior year . our international sales accounted for approximately 40 % of total revenue in fiscal year 2013 , a decrease from 44 % of total revenue in fiscal year 2012. the impact of the foreign exchange fluctuation between the u.s. dollar , the euro and british pound in total revenue was minimal in both fiscal year 2013 and 2012. there was one customer that accounted for 18 % of total revenue in fiscal year 2013 and two different customers that accounted for 10 % and 22 % of total revenue in fiscal years 2012 and 2011 , respectively . we are continuing to see increased interest in our customer engagement solutions but a general unpredictability remains in the length of our current sales cycles , the timing of revenue recognition on more complex license transactions , and seasonal buying patterns . this unpredictability has increased due to the global economic and business condition and the currency exchange rate fluctuations of the british pound and euro in relation to the u.s. dollar . also , because we offer a hybrid delivery model , the mix of new cloud and license transactions in a quarter could affect our revenue in a particular quarter . we are continuing to see the perpetual license business shift toward a cloud delivery model .
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mscc was formed in march 2007 to operate as an internally managed business development company ( `` bdc '' ) under the investment company act of 1940 , as amended ( the `` 1940 act '' ) . mscc wholly owns several investment funds , including main street mezzanine fund , lp ( `` msmf '' ) and main street capital ii , lp ( `` msc ii '' and , together with msmf , the `` funds '' ) , and each of their general partners . the funds are each licensed as a small business investment company ( `` sbic '' ) by the united states small business administration ( `` sba '' ) . because mscc is internally managed , all of the executive officers and other employees are employed by mscc . therefore , mscc does not pay any external investment advisory fees , but instead directly incurs the operating costs associated with employing investment and portfolio management professionals . msc adviser i , llc ( the `` external investment manager '' ) was formed in november 2013 as a wholly owned subsidiary of mscc to provide investment management and other services to parties other than mscc and its subsidiaries or their portfolio companies ( `` external parties '' ) and receive fee income for such services . mscc has been granted no-action relief by the securities and exchange commission ( `` sec '' ) to allow the external investment manager to register as a registered investment adviser ( `` ria '' ) under investment advisers act of 1940 , as amended ( the `` advisers act '' ) . since the external investment manager conducts all of its investment management activities for external parties , it is accounted for as a portfolio investment of mscc and is not included as a consolidated subsidiary of mscc in mscc 's consolidated financial statements . mscc has elected to be treated for u.s. federal income tax purposes as a regulated investment company ( `` ric '' ) under subchapter m of the internal revenue code of 1986 , as amended ( the `` code '' ) . as a result , mscc generally will not pay corporate-level u.s. federal income taxes on any net ordinary income or capital gains that it distributes to its stockholders . mscc has certain direct and indirect wholly owned subsidiaries that have elected to be taxable entities ( the `` taxable subsidiaries '' ) . the primary purpose of the taxable subsidiaries is to permit mscc to hold equity investments in portfolio companies which are `` pass-through '' entities for tax purposes . the external investment manager and main street capital partners , llc , ( `` mscp '' ) are also direct wholly owned 55 subsidiaries that have elected to be taxable entities . the taxable subsidiaries , mscp and the external investment manager are each taxed at their normal corporate tax rates based on their taxable income . unless otherwise noted or the context otherwise indicates , the terms `` we , '' `` us , '' `` our '' and `` main street '' refer to mscc and its consolidated subsidiaries , which include the funds and the taxable subsidiaries and , beginning april 1 , 2013 , mscp . overview our principal investment objective is to maximize our portfolio 's total return by generating current income from our debt investments and capital appreciation from our equity and equity related investments , including warrants , convertible securities and other rights to acquire equity securities in a portfolio company . our lmm companies generally have annual revenues between $ 10 million and $ 150 million , and our lmm portfolio investments generally range in size from $ 5 million to $ 50 million . our middle market investments are made in businesses that are generally larger in size than our lmm portfolio companies , with annual revenues typically between $ 150 million and $ 1.5 billion , and our middle market investments generally range in size from $ 3 million to $ 15 million . our private loan ( `` private loan '' ) portfolio investments are primarily debt securities which have been originated through strategic relationships with other investment funds on a collaborative basis . private loan investments are typically similar in size , structure , terms and conditions to investments we hold in our lmm portfolio and middle market portfolio . we seek to fill the financing gap for lmm businesses , which , historically , have had more limited access to financing from commercial banks and other traditional sources . the underserved nature of the lmm creates the opportunity for us to meet the financing needs of lmm companies while also negotiating favorable transaction terms and equity participations . our ability to invest across a company 's capital structure , from secured loans to equity securities , allows us to offer portfolio companies a comprehensive suite of financing options , or a `` one stop '' financing solution . providing customized , `` one stop '' financing solutions is important to lmm portfolio companies . we generally seek to partner directly with entrepreneurs , management teams and business owners in making our investments . our lmm portfolio debt investments are generally secured by a first lien on the assets of the portfolio company and typically have a term of between five and seven years from the original investment date . we believe that our lmm investment strategy has limited correlation to the broader debt and equity markets . our middle market portfolio investments primarily consist of direct investments in or secondary purchases of interest bearing debt securities in privately held companies that are generally larger in size than the companies included in our lmm portfolio . our middle market portfolio debt investments are generally secured by either a first or second priority lien on the assets of the portfolio company and typically have an expected duration of between three and seven years from the original investment date . story_separator_special_tag as previously discussed , the external investment manager is a wholly owned subsidiary that is treated as a portfolio investment . as of december 31 , 2015 , there was no cost basis in this investment and the investment had a fair value of $ 27.3 million , which comprised 1.5 % of our investment portfolio at fair value . as of december 31 , 2014 , there was no cost basis in this investment and the investment had a fair value of $ 15.6 million , which comprised 1.0 % of our investment portfolio at fair value . our portfolio investments are generally made through mscc and the funds . mscc and the funds share the same investment strategies and criteria , although they are subject to different regulatory regimes . an investor 's return in mscc will depend , in part , on the funds ' investment returns as they are wholly owned subsidiaries of mscc . the level of new portfolio investment activity will fluctuate from period to period based upon our view of the current economic fundamentals , our ability to identify new investment opportunities that meet our investment criteria , and our ability to consummate the identified opportunities . the level of new investment activity , and associated interest and fee income , will directly impact future investment income . in addition , the level of dividends paid by portfolio companies and the portion of our portfolio debt investments on non-accrual status will directly impact future investment income . while we intend to grow our portfolio and our investment income over the long term , our growth and our operating results may be more limited during 58 depressed economic periods . however , we intend to appropriately manage our cost structure and liquidity position based on applicable economic conditions and our investment outlook . the level of realized gains or losses and unrealized appreciation or depreciation on our investments will also fluctuate depending upon portfolio activity , economic conditions and the performance of our individual portfolio companies . the changes in realized gains and losses and unrealized appreciation or depreciation could have a material impact on our operating results . because we are internally managed , we do not pay any external investment advisory fees , but instead directly incur the operating costs associated with employing investment and portfolio management professionals . we believe that our internally managed structure provides us with a beneficial operating expense structure when compared to other publicly traded and privately held investment firms which are externally managed , and our internally managed structure allows us the opportunity to leverage our non-interest operating expenses as we grow our investment portfolio . for both of the years ended december 31 , 2015 and 2014 , the ratio of our total operating expenses , excluding interest expense , as a percentage of our quarterly average total assets was 1.4 % . the total investment return on our shares of common stock for the years ended december 31 , 2015 and 2014 was 8.49 % and ( 3.09 % ) , respectively . total investment return is based on the purchase of our stock at the current market price on the first day and a sale at the current market price on the last day of each period reported and assumes reinvestment of dividends at prices obtained by our dividend reinvestment plan during the period . the return does not reflect any sales load that may be paid by an investor . during may 2012 , we entered into an investment sub-advisory agreement with hms adviser , lp ( `` hms adviser '' ) , which is the investment advisor to hms income , a non-publicly traded bdc whose registration statement on form n-2 was declared effective by the sec in june 2012 , to provide certain investment advisory services to hms adviser . in december 2013 , after obtaining required no-action relief from the sec to allow us to own a registered investment adviser , we assigned the sub-advisory agreement to the external investment manager since the fees received from such arrangement could otherwise have negative consequences on our ability to meet the source of income requirement necessary for us to maintain our ric tax treatment . under the investment sub-advisory agreement , the external investment manager is entitled to 50 % of the base management fee and the incentive fees earned by hms adviser under its advisory agreement with hms income . based upon several fee waiver agreements with hms income and hms adviser , the external investment manager did not begin accruing the base management fee and incentive fees , if any , until january 1 , 2014. beginning january 1 , 2015 , the external investment manager conditionally agreed to waive a limited amount of the base management fee and incentive fees otherwise earned during the year ended december 31 , 2015. during the years ended december 31 , 2015 and 2014 , the external investment manager earned $ 7.8 million and $ 2.8 million , respectively , of management fees ( net of fees waived , if any ) under the sub-advisory agreement with hms adviser . during april 2014 , we received an exemptive order from the sec permitting co-investments by us and hms income in certain negotiated transactions where co-investing would otherwise be prohibited under the 1940 act . we have made , and in the future intend to continue to make , such co-investments with hms income in accordance with the conditions of the order . the order requires , among other things , that we and the external investment manager consider whether each such investment opportunity is appropriate for hms income and , if it is appropriate , to propose an allocation of the investment opportunity between us and hms income . because the external investment manager may receive performance-based fee compensation from hms income , this may provide it an incentive to allocate opportunities to hms income instead of us .
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discussion and analysis of results of operations comparison of years ended december 31 , 2015 and 2014 replace_table_token_14_th 65 replace_table_token_15_th ( a ) distributable net investment income is net investment income as determined in accordance with u.s. gaap , excluding the impact of share based compensation expense which is non cash in nature . we believe presenting distributable net investment income and related per share amounts is useful and appropriate supplemental disclosure of information for analyzing our financial performance since share based compensation does not require settlement in cash . however , distributable net investment income is a non u.s. gaap measure and should not be considered as a replacement to net investment income and other earnings measures presented in accordance with u.s. gaap . instead , distributable net investment income should be reviewed only in connection with such u.s. gaap measures in analyzing our financial performance . a reconciliation of net investment income in accordance with u.s. gaap to distributable net investment income is presented in the table above . investment income for the year ended december 31 , 2015 , total investment income was $ 164.6 million , a 17 % increase over the $ 140.8 million of total investment income for the corresponding period of 2014. this comparable period increase was principally attributable to ( i ) a $ 21.0 million net increase in interest income primarily related to higher average levels of portfolio debt investments , ( ii ) a $ 0.7 million net increase in fee income and ( iii ) a $ 2.0 million net increase in dividend income from investment portfolio equity investments .
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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 strategies for our business , statements regarding the industry outlook , our expectations regarding the future performance of our business , and the other non-historical statements contained herein are forward-looking statements . see “ cautionary note regarding forward-looking statements. ” you should also review item 1a — “ risk factors ” for a discussion of important factors that could cause actual results to differ materially from the results described herein or implied by such forward-looking statements . general overview of fiscal year 2020 revenues for the year ended december 31 , 2020 , our total revenues decreased by 5.5 % ( from $ 746.0 million to $ 705.3 million ) over the previous year driven by lower revenues in the product segment . for the year ended december 31 , 2020 , electricity segment revenues were $ 541.4 million , compared to $ 540.3 million for the year ended december 31 , 2019 , an increase of 0.2 % . product segment revenues for the year ended december 31 , 2020 were $ 148.1 million , compared to $ 191.0 million for the year ended december 31 , 2019 , a decrease of 22.5 % . energy storage segment revenues for the year ended december 31 , 2020 were $ 15.8 million , compared to $ 14.7 million for the year ended december 31 , 2019 an increase of 7.6 % . 78 during the years ended december 31 , 2020 and 2019 , our consolidated power plants generated 6,043,993 mwh and 6,238,272 mwh , respectively , decreased of 3.1 % . the average prices during the years ended december 31 , 2020 and 2019 were $ 89.6 and $ 86.6 per mwh , respectively . for the year ended december 31 , 2020 , our electricity segment generated 76.8 % of our total revenues ( 72.4 % in 2019 ) , while our product segment generated 21.0 % of our total revenues ( 25.6 % in 2019 ) , and our energy storage segment generated 2.2 % of our total revenues ( 2.0 % in 2019 ) . for the year ended december 31 , 2020 , approximately 98.2 % of our electricity segment revenues were from ppas with fixed energy rates which are not affected by fluctuations in energy commodity prices . we have variable price ppas in california and hawaii , which provide for payments based on the local utilities ' avoided cost , which is the incremental cost that the power purchaser avoids by not having to generate such electrical energy itself or purchase it from others , as follows : ● the energy rates under the ppas in california for each heber 2 power plant in the heber complex and the g2 power plant in the mammoth complex , a total of between 30 to 40 mw , change primarily based on fluctuations in natural gas prices . ● the prices paid for electricity pursuant to the 25 mw ppa for the puna complex in hawaii change primarily as a result of variations in the price of oil as well as other commodities . in 2019 , we signed a new ppa related to puna with fixed prices , increased capacity and extended the term until 2052. to comply with obligations under their respective ppas , certain of our project subsidiaries are structured as special purpose , bankruptcy remote entities and their assets and liabilities are ring-fenced . such assets are not generally available to pay our debt , other than debt at the respective project subsidiary level . however , these project subsidiaries are allowed to pay dividends and make distributions of cash flows generated by their assets to us , subject in some cases to restrictions in debt instruments , as described below . electricity segment revenues are also subject to seasonal variations and are affected by higher-than-average ambient temperatures , as described below under “ seasonality ” . revenues attributable to our product segment are based on the sale of equipment , epc contracts and the provision of various services to our customers . product segment revenues may vary from period to period because of the timing of our receipt of purchase orders and the progress of our equipment manufacturing and execution of the relevant project . revenues attributable to our energy storage segment are generated by several grid-connected bess facilities that we own and operate from selling energy , capacity and or ancillary services in merchant markets like pjm interconnect , iso new england , the ercot and caiso . the revenues fluctuate over time since a large portion of such revenues are generated in the merchant markets where price volatility is inherent . our management assesses the performance of our operating segments differently . in the case of our electricity segment , when making decisions about potential acquisitions or the development of new projects , management typically focuses on the internal rate of return of the relevant investment , technical and geological matters and other business considerations . management evaluates our operating power plants based on revenues , expenses , and ebitda , and our projects that are under development based on costs attributable to each such project . management evaluates the performance of our product segment based on the timely delivery of our products , performance quality of our products , revenues and costs actually incurred to complete customer orders compared to the costs originally budgeted for such orders . we evaluate energy storage segment performance similar to the electricity segment with respect to projects that we own and operate and similar to the product segment when we provide services to third parties . 79 recent developments the most significant recent developments for our company and business during 2019 and 2020 to date are described below . story_separator_special_tag ormat 's board of directors has appointed mr. blachar as the company 's chief executive officer and mr. assaf ginzburg as the chief financial officer . in january 2020 , we signed two similar ppas with silicon valley clean energy ( `` svce '' ) and monterey bay community power ( `` mbcp '' ) . under the ppas , svce and mbcp will each purchase 7 mw ( for a total of 14 mw ) of power generated by the expected 30 mw casa diablo-iv ( `` cd4 '' ) geothermal project located in mammoth lakes , california that is under construction . the ppas are for a term of 10 years and have a fixed mwh price , which includes energy , capacity , environmental attributes , and all other ancillary benefits . the remaining 16 mw of generating capacity will be sold under an additional ppa with scppa , which was signed in early 2019. the cd4 power plant is expected to be on-line in q1 2022 , and will be the first geothermal power plant built within the caiso balancing authority in the last 30 years and will be the first in ormat 's portfolio that will sell its output to a community choice aggregator . covid 19 update in march 2020 , the world health organization declared the outbreak of the novel coronavirus ( `` covid-19 '' ) a pandemic . the company implemented significant measures both to comply with government requirements and to preserve the health and safety of its employees . these measures include working remotely where possible and operating separate shifts in its power plants , manufacturing facilities and other locations while trying to continue operations as close to full capacity in all locations . during the year and subsequently , the company 's power plants , manufacturing facility and storage facilities have been operating at close to full capacity and there has been no material impact on our operations as a result of these measures . with respect to our employees , we have not laid-off or furloughed any employees due to the covid-19 and continued to pay full salaries . we experienced the following impacts on our segment operations : in our electricity segment , almost all of our revenues in 2020 were generated under long term contracts and the majority have a fixed energy rate . as a result , despite logistical and other challenges , we experienced limited impact of covid-19 on our electricity segment . nevertheless , we received two notices declaring a force majeure event in kenya from kplc and in honduras from enee , both had an immaterial impact on our revenues and removed . in addition , we experienced a higher rate of curtailments during the first half of 2020 by kplc in the olkaria complex that was reduced in the second half of 2020. the impact of the curtailments is limited because of the structure of the ppa which secures the vast majority of our revenues with fixed capacity payments and is unrelated to the electricity actually generated ( in 2019 and 2020 , capacity payments represented 70.1 % and 74.4 % of our revenues , respectively ) . enee has initiated discussions with several ipps , including ormat , on potential changes in their existing ppas . however , our platanares geothermal power plant has one of the lowest rates of renewable energy in the country , and we expect this fact to have positive implications for our discussions with enee . in addition , our future growth in the electricity segment is and would be adversely impacted by delays we are experiencing in receiving the required development and construction permits , as well as by the implications of global and local restrictions on our ability to procure raw materials and ship to our products . furthermore , our future growth in the electricity segment might be adversely impacted by a lack of funding for projects , a decrease in demand for electricity , delays in permitting and the implications of global and local restrictions on our ability to procure raw material and ship our products . our product segment revenues are generated from sales of products and services pursuant to contracts , under which we have a right to payment for any product that was produced for the customer . recognition of revenue under these contracts is impacted by delays in the progress of the third-party projects into which our products and services are incorporated . we experienced delays and significant cost increases in one of the projects in the product segment that adversely impacted our results of operations during 2020. we had a product backlog of $ 33.4 million as of february 24 , 2020 , which includes revenues for the period between january 1 , 2021 and february 24 , 2020 , compared to $ 141.9 million as of february 25 , 2020. we believe that the decline in backlog resulted mainly from the impact of covid-19 and the unwillingness of potential customers to enter into new commitments at this time . nevertheless , for the reasons set out above , restrictions on travel and because our customers are deferring their decision to purchase , we expect that 2021 product segment revenues will be significantly lower than revenues of 2020 . 81 our energy storage segment generates revenues mainly from participating in the energy and ancillary services markets , run by regional transmission operators and independent system operators in the various markets where our assets operate . therefore , the revenues these assets generate is directly impacted by the prevailing market prices for energy and or ancillary services . in addition , we experience delays in the permitting for new projects in all segments that may create penalties and cause a delay in those projects . despite our efforts to provide insight into the performance of our business and the trends affecting it , as of the date of this filing , significant uncertainty exists concerning the magnitude of the impact and duration of the covid-19 pandemic .
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results of operations our historical operating results in dollars and as a percentage of total revenues are presented below . replace_table_token_14_th 90 results as a percentage of revenues replace_table_token_15_th 91 comparison of the year ended december 31 , 2020 and the year ended december 31 , 2019 total revenues replace_table_token_16_th total revenues for the year ended december 31 , 2020 were $ 705.3 million , compared to $ 746.0 million for the year ended december 31 , 2019 , which represented a 5 % decrease from the prior year period . this decrease was attributable to a $ 42.9 million or 22 % decrease in our product segment revenues compared to the corresponding period in 2019 , as discussed below . the decrease was partially offset by a slight increase in our electricity segment revenues and energy storage segment revenues . electricity segment revenues attributable to our electricity segment for the year ended december 31 , 2020 were $ 541.4 million , compared to $ 540.3 million for the year ended december 31 , 2019 , representing a 0.2 % increase from the prior period . power generation in our power plants decreased by 3.1 % from 6,238,272 mwh for the year ended december 31 , 2019 to 6,043,993 mwh in the year ended december 31 , 2020 , due to the lower generation at some of our power plants , including our oreg facilities and olkaria complex that were impacted by lower demand due to covid-19 . however , revenues remained unchanged due to higher average energy rate per mwh of our entire portfolio . product segment revenues attributable to our product segment for the year ended december 31 , 2020 were $ 148.1 million , compared to $ 191.0 million for the year ended december 31 , 2019 , representing a 22.5 % decrease from the prior period .
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recent developments atm offering in may 2020 the company entered into an at the market issuance agreement ( the “ atm agreement ” ) with b. riley fbr , inc. , relating to the sale of our class a common stock and series a preferred stock . in accordance with the terms of the atm agreement , we may offer and sell , from time to time , shares of class a common stock and shares of series a preferred stock having an aggregate offering price of up to $ 11,564,076. during the year ended december 31 , 2020 , we sold an aggregate of 48,741 shares of class a common stock and 300,360 shares of series a preferred stock , for net proceeds to us of $ 7,635,228 , after payment of $ 236,146 in commissions to b. riley fbr , inc. 9.50 % notes due 2025 on july 17 , 2020 , the company completed an underwritten public offering of $ 21,000,000 aggregate principal amount of its 9.50 % notes due 2025 ( the “ july notes ” ) , pursuant to an underwriting agreement , dated as of july 13 , 2020 , between the company and ladenburg thalmann & co. inc. , as representative of the underwriters . on august 5 , 2020 , the company sold an additional $ 1,100,000 of july notes pursuant to the partial exercise of the overallotment option . the july notes were offered and sold pursuant to a prospectus , dated july 13 , 2020 , which is part of the company 's registration statement on form s-1 ( registration no . 333-239198 ) declared effective by the securities and exchange commission on july 10 , 2020. ladenburg thalmann and national securities corporation acted as joint bookrunning managers of the offering , and benchmark company and northland capital markets acted as lead managers of the offering . the july notes were issued under a base indenture and a supplemental indenture , each dated as of july 17 , 2020 ( the “ base indenture ” and “ supplemental indenture , ” respectively , and together , the “ indenture ” ) between the company and u.s. bank national association , as trustee ( the “ trustee ” ) . the notes bear interest from july 17 , 2020 at the rate of 9.50 % per annum , payable every march 31 , june 30 , september 30 , and december 31 , and at maturity , beginning september 30 , 2020. the notes mature on july 31 , 2025 . the sale of the july notes resulted in net proceeds of approximately $ 20,995,000 after deducting underwriting discounts and commissions of approximately $ 1,105,000. the company used approximately $ 13.3 million of the net proceeds from the offering to repay the entirety of the outstanding principal and unpaid accrued interest under that certain amended and restated loan and security agreement dated august 22 , 2019 , between the company and its wholly-owned subsidiary screen media ventures , llc , as co-borrowers , certain of their direct and indirect subsidiaries as guarantors , and patriot bank n.a. , as lender ( “ loan agreement ” ) . on december 22 , 2020 , the company completed an underwritten public offering of $ 9,387,750 aggregate principal amount of 9.50 % notes due 2025 ( the “ december notes ” ) . pursuant to an underwriting agreement , dated as of december 17 , 2020 , between the company and ladenburg thalmann & co. inc. , as representative of the underwriters . on december 29 , 2020 , the company sold an additional $ 1,408,150 of december notes pursuant to the underwriters ' partial exercise of the overallotment option . the december notes were offered pursuant to a prospectus , dated december 17 , 2020 , which is part of the company 's registration statement on form s-1 ( registration no . 333-251202 ) , declared effective by the securities and exchange commission ( “ sec ” ) on december 17 , 2020 , and the company 's registration statement on form s-1mef ( registration no . 333-251504 ) as filed with the sec on december 18 , 2020 , which became effective upon filing in accordance with rule 462 ( b ) under the securities act of 1933 , as amended . the december notes are a further issuance of , rank equally in right of payment with , and form a single series for all purposes under the indenture with the july notes . 33 the sale of the december notes were sold at a 2.0 % original issuance discount to the stated principal of $ 25.00 per note , or a public offering price of $ 24.50 per note . the december notes generated gross proceeds to the company of $ 10,579,982 and net proceeds to the company of approximately $ 9,990,983 after deducting underwriting discounts and commissions of approximately $ 588,999 . payment in full of patriot bank loan agreement on july 17 , 2020 , the company used approximately $ 13.3 million of the proceeds from the sale of the july notes to repay in full its outstanding obligations under the loan agreement . pursuant to the loan agreement , patriot bank , n.a . previously provided a senior secured term loan facility to the borrowers , consisting of a term loan in an original principal amount of $ 16.0 million ( “ term note ” ) . the loan agreement and term note were terminated on july 17 , 2020 , in connection with the company 's discharge of indebtedness . story_separator_special_tag further , the company entered into a film acquisition advance agreement with great point media limited in august 2020 , which bears interest at 10 % per annum compounded monthly on the amount outstanding . acquisition related costs for the years ended december 31 , 2020 and 2019 aggregate acquisition-related costs , including legal , accounting and investment advisory fees totaled $ 0.1 and $ 4.0 million , respectively . the $ 3.9 million decrease in acquisition related costs is primarily related to costs incurred in 2019 related to the crackle acquisition while in the current year we had no such acquisition . other non-operating income , net for the years ended december 31 , 2020 and 2019 other non-operating income was $ 6.3 million and $ 0.1 million , respectively . other non-operating income is primarily comprised of $ 5.4 million in extinguished liabilities as part of a settlement agreement with a technology platform vendor which discontinued operations prior to the completion of the contractual service period and $ 1.5 million related to the extinguishment of acquisition related liabilities . other income was offset by other non-operating expenses related to a partner settlement and realized and unrealized losses on marketable securities . provision for income taxes the company 's benefit from , or provision for income taxes , consists of federal and state taxes in amounts necessary to align our tax provision to the effective tax rate . for the years ended december 31 , 2020 and 2019 , we reported income tax expenses of approximately $ 0.1 million and $ 0.6 million , respectively , consisting of state taxes currently payable in 2020 and federal and state taxes currently payable and deferred in 2019. the effective tax rate for the years ended december 31 , 2020 and 2019 was 1 % and 3 % , respectively . the effective rate for the years ended december 31 , 2020 and 2019 were significantly impacted by temporary and permanent differences as described below . temporary timing differences consist primarily of net programming costs and film library acquisition costs that were , for current year additions , amortized over the straight line basis as permitted under the internal revenue code as well as prior year released usa produced shows having been deducted for tax purposes in the period incurred ( under internal revenue code section 168 ( k ) ) as contrasted to the capitalization and amortization for financial reporting purposes under the guidance of asc 926 — entertainment — films . we also incurred impairment losses that were charged to operations on the financial statements on some of those assets but are not currently deductible for tax purposes . additionally , the company amortized , for tax purposes , intangible assets under section 197 of the internal revenue code , the amounts of 38 which differ substantially from charges on related assets that are either not amortized in the consolidated financial statements or amortized at different rates . permanent differences consist primarily of amortization for financial reporting purposes of film library properties that were acquired in a transaction in 2018 wherein the tax cost basis as well as the method and rate of amortization are , for tax purposes , governed by the rules of section 197 of the internal revenue code . affiliate resources and obligations css license agreement we have a trademark and intellectual property license agreement with css , which we refer to as the ‘ ‘ css license agreement . '' under the terms of the css license agreement , we have been granted a perpetual , exclusive , worldwide license to produce and distribute video content using the chicken soup for the soul b rand and related content , such as stories published in the chicken soup for the soul books . we pay css an incremental recurring license fee equal to 4 % of our net revenue for each calendar quarter , and a marketing fee of 1 % of our net revenue for the years ended december 31 , 2020 and 2019 , we recorded $ 3.3 million and $ 2.8 million , respectively , of license fee expense under this agreement . we believe that the terms and conditions of the css license agreement , which provides us with the rights to use the trademark and intellectual property in connection with our video content , are more favorable to us than any similar agreement we could have negotiated with an independent third party . css management agreement we have a management services agreement , the ‘ ‘ css management agreement '' , in which we pay css a management fee equal to 5 % of our net revenue . under the terms of the css management agreement , we are provided with the broad operational expertise of css and its subsidiaries and personnel , including the services of our chairman and chief executive officer , mr. rouhana , our vice chairman and chief strategy officer , mr. seaton , our senior brand advisor and director , ms. newmark , and our chief financial officer , mr. mitchell . the css management agreement also provides for services , such as accounting , legal , marketing , management , data access and back-office systems , and provides us with office space and equipment usage . on august 1 , 2019 , we entered into an amendment to the css management agreement which removed our obligation to pay sales commissions to css in connection with sponsorships for our video content or other revenue generating transactions arranged by css or its affiliates . on march 15 , 2021 , we entered into a further amendment to the css management agreement which clarified that the term of the css management agreement is five years , with automatic one-year renewals unless affirmatively terminated by one of the parties . for the years ended december 31 , 2020 and 2019 , we recorded $ 3.3 million and $ 2.8 million , respectively , of management fee expense under this agreement .
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financial results of operations : revenue the following table presents net revenue line items for the years ended december 31 , 2020 and 2019 and the year-over-year dollar and percentage changes for those line items : replace_table_token_1_th our net revenue increased by $ 11.0 million for the year ended december 31 , 2020 compared to 2019. this increase in net revenue was primarily due to the $ 21.4 million increase in distribution and production revenue , offset by a $ 9.9 million decrease in online networks revenue , as further described below . online network revenue our online networks revenue decreased by $ 9.9 million for the year ended december 31 , 2020 compared to 2019. the decrease of $ 9.9 million was primarily due to a $ 10.9 million decrease in advertisement representation revenue comprised of a $ 15.6 million decrease in revenues due to the discontinued operations of one advertisement representation partner offset by increases of $ 4.7 million in other advertisement representation partner revenues . additionally , a $ 1.6 million net combined decrease in various other online networks revenues , offset by a $ 2.6 million increase in our crackle direct revenue primarily due to operating crackle for 12 months in 2020 as compared to 7.5 months in 2019 .
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principles of consolidation the consolidated story_separator_special_tag see part i , `` forward-looking statements '' for our cautionary statement regarding forward-looking information . this discussion and analysis is based on , should be read together with , and is qualified in its entirety by , the consolidated financial statements and notes thereto included in item 15 ( a ) 1 of this form 10-k , beginning at page f-1 . it also should be read in conjunction with the disclosure under “ forward-looking statements ” in part 1 of this form 10-k. when this report uses the words “ we , ” “ us , ” “ our , ” “ tejon , ” “ trc , ” and the “ company , ” they refer to tejon ranch co. and its subsidiaries , unless the context otherwise requires . references herein to fiscal year refer to our fiscal years ended or ending december 31. overview our business we are a diversified real estate development and agribusiness company committed to responsibly using our land and resources to meet the housing , employment , and lifestyle needs of californians and to create value for our shareholders . in support of these objectives , we have been investing in land planning and entitlement activities for new industrial and residential land developments and in infrastructure improvements within our active industrial development . our prime asset is approximately 270,000 acres of contiguous , largely undeveloped land that , at its most southerly border , is 60 miles north of los angeles and , at its most northerly border , is 15 miles east of bakersfield . our business model is designed to create value through the entitlement and development of land for commercial/industrial and resort/residential uses while at the same time protecting significant portions of our land for conservation purposes . we operate our business near one of the country 's largest population centers , which is expected to continue to grow well into the future . we currently operate in five reporting segments : commercial/industrial real estate development ; resort/residential real estate development ; mineral resources ; farming ; and ranch operations . our commercial/industrial real estate segment generates revenues from building , land lease activities , and land and building sales . the primary commercial/industrial development is trcc . the resort/residential real estate development segment is actively involved in the land entitlement and development process internally and through a joint venture . within our resort/residential segment , the three active mixed-use master plan developments are mv , centennial , and grapevine . our mineral resources segment generates revenues from oil and gas royalty leases , rock and aggregate mining leases , a lease with national cement and sales of water . the farming segment produces revenues from the sale of wine grapes , almonds , and pistachios . lastly , the ranch operation segment consists of game management revenues and ancillary land uses such as grazing leases and filming . financial highlights for 2020 , net loss attributable to common stockholders was $ 747,000 compared to net income attributed to common stockholders of $ 10,580,000 in 2019. our commercial/industrial segment greatly influenced our 2020 operating results . over the comparative period , commercial/industrial segment revenues and results from our commercial joint ventures declined $ 7,256,000 and $ 12,071,000 , respectively . the decline is primarily attributed to the fact that in 2019 , there were several major real estate asset contributions and sales made by the company to its joint ventures , as described below , that did not occur in 2020. from a joint venture operations standpoint , our share of ta/petro operating results declined $ 3,088,000 after experiencing the effects of california 's stay-at-home orders and other social distancing initiatives . those factors resulted in lower fuel volumes that led to lower fuel margins . additionally , ta/petro had closed down its full service restaurants for most of the year as capacity limitations made operating economically unfeasible . our farming segment saw a $ 5,465,000 decline in revenues as a result of lower pistachio bonuses , pistachio yields , and a decline in almond pricing . declines in revenues were partially offset by lower commercial expense , as a result of reduced cost of sales of $ 5,839,000 and income taxes of $ 3,151,000. additionally , the company benefited from recognizing a gain on sale of building and land of $ 1,331,000 along with experiencing a $ 1,934,000 reduction in other expense primarily associated with the disposal of a wine grape vineyard in 2019. for 2019 , net income attributable to common stockholders was $ 10,580,000 compared to net income attributed to common stockholders of $ 4,255,000 in 2018. over the comparative period , commercial/industrial segment revenues and results from our commercial joint ventures improved $ 7,822,000 and $ 12,741,000 , respectively . improvements in commercial revenues were attributed to land and building contributions to two joint ventures , while our joint ventures improved because of improved fuel and non-fuel margins within our ta/petro joint venture along with recognizing a substantial gain stemming from the sale 38 of the building and land previously held by our five west parcel joint venture . these improvements were offset by reduced mineral resources revenues of $ 4,604,000 resulting from a lack of water sales opportunities due to the wet 2019 winter rain season , an increase in commercial/industrial expenses of $ 6,715,000 as a result of land and building costs associated with the joint venture contributions discussed earlier , and a $ 1,765,000 increase in other losses associated with the abandonment of a wine grape vineyard that will no longer be farmed and pension related expenses . during 2021 , we will continue to invest funds towards litigation defense , permits , and maps for our master plan mixed-use developments and for master project infrastructure and vertical development within our active commercial and industrial development . securing entitlements for our land is a long , arduous process that can take several years and involves litigation . story_separator_special_tag at the time farm crops are harvested , contracted , and delivered to buyers and revenues can be estimated , revenues are recognized and any related inventoried costs are expensed , which traditionally occurs during the third and fourth quarters of each year . it is not unusual for portions of our almond or pistachio crop to be sold in the year following the harvest . orchard ( almond and pistachio ) revenues are based upon the contract settlement price or estimated selling price , whereas vineyard revenues are typically recognized at the contracted selling price . estimated prices for orchard crops are based upon the quoted estimate of what the final market price may be by marketers and handlers of the orchard crops . these market price estimates are updated through the crop payment cycle as new information is received as to the final settlement price for the crop sold . these estimates are adjusted to actual upon receipt of final payment for the crop . this method of recognizing revenues on the sale of orchard crops is a standard practice within the agribusiness community . actual final crop selling prices are not determined for several months following the close of our fiscal year due to supply and demand fluctuations within the orchard crop markets . adjustments for differences between original estimates and actual revenues received are recorded during the period in which such amounts become known . impairment of long-lived assets – we evaluate our property and equipment and development projects for impairment on an ongoing basis . our evaluation for impairment involves an initial assessment of each real estate development to determine whether events or changes in circumstances exist that may indicate that the carrying amounts of a real estate development are no longer recoverable . possible indications of impairment may include events or changes in circumstances affecting the entitlement process , government regulation , litigation , geographical demand for new housing , and market conditions related to pricing of new homes . when events or changes in circumstances indicate that the carrying value of assets contained in our financial statements may not be recoverable . we make significant assumptions to evaluate each real estate development for possible indications of impairment . these assumptions include the identification of appropriate and comparable market prices , the consideration of changes to legal factors or the business climate , and assumptions surrounding continued positive cash flows and development costs . considering that the planned development communities will be in a location that does not currently have many comparable homes , the company must make assumptions surrounding the expected ability to sell the real estate assets at a price that is in excess of current accumulated costs . we use our internal forecasts and business plans to estimate future prices , absorption , production , and costs . we develop our forecasts based on recent sales data , historical absorption and production data , input from marketing consultants , as well as discussions with commercial real estate brokers and potential purchasers of our farming products . the impairment calculation compares the carrying value of the asset to the asset 's estimated future cash flows ( undiscounted ) . if the estimated future cash flows are less than the carrying value of the asset , we calculate an impairment loss . the impairment loss calculation compares the carrying value of the asset to the asset 's estimated fair value , which may be based on estimated future cash flows ( discounted ) . we recognize an impairment loss equal to the amount by which the asset 's carrying value exceeds the asset 's estimated fair value . if we recognize an impairment loss , the adjusted carrying amount of the asset will be its new cost basis . for a depreciable long-lived asset , the new cost basis will be depreciated ( amortized ) over the remaining useful life of that asset . restoration of a previously recognized impairment loss is prohibited . if actual results are not consistent with our assumptions and judgments used in estimating future cash flows and asset fair values , we may be exposed to impairment losses that could be material to our results of operations . at this time , there are no assets within any of our reporting segments that we believe are at risk of being impaired due to market conditions nor have we identified any impairment indicators . we believe that the accounting estimate related to asset impairment is a critical accounting estimate because it is very susceptible to change from period to period ; it requires management to make assumptions about future prices , production , and costs , and the potential impact of a loss from impairment could be material to our earnings . management 's assumptions regarding future cash flows from real estate developments and farming operations have fluctuated in the past due to changes in prices , absorption , production and costs and are expected to continue to do so in the future as market conditions change . 40 capitalization of costs - the company capitalizes direct construction and development costs , including predevelopment costs , interest , property taxes , insurance , and indirect project costs that are clearly associated with the acquisition , development , or construction of a project . costs currently capitalized that in the future would be related to any abandoned development opportunities will be written off if we determine such costs do not provide any future benefits . should development activity decrease , a portion of interest , property taxes , and insurance costs would no longer be eligible for capitalization , and would be expensed as incurred .
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2020 operational highlights : revenues from ranch operations increased $ 83,000 , or 2 % , from $ 3,609,000 in 2019 to $ 3,692,000 in 2020 , which is primarily attributed to an increase in guided hunts of $ 121,000. ranch operations expenses decreased $ 420,000 , or 8 % , to $ 4,896,000 in 2020 from $ 5,316,000 in 2019. the decrease is primarily attributed to reduced payroll and overhead expenses of $ 332,000 as a result of the company 's right sizing efforts . this segment also had notable decreases in fuel costs and fees of $ 56,000 and $ 60,000 , respectively . 2019 operational highlights : revenues from ranch operations decreased $ 82,000 , or 2 % , from $ 3,691,000 in 2018 to $ 3,609,000 in 2019. the decrease is primarily attributed to reduced membership revenues of $ 143,000 , partially offset by an increase in grazing lease revenues of $ 69,000. ranch operations expenses decreased $ 135,000 , or 2 % , to $ 5,316,000 in 2019 from $ 5,451,000 in 2018. the decrease was mainly attributed to reduced payroll expense of $ 183,000 , partially offset by an increase in repair and maintenance expense of $ 49,000. other income total other income increased $ 2,910,000 , or 497 % , from a loss of $ 585,000 in 2019 to income of $ 2,325,000 in 2020. in 2019 , the company recognized asset abandonment costs of $ 1,604,000 , that was primarily related to a wine grape vineyard consisting of 313 acres . there were no similar abandonment costs recorded in 2020. also in 2020 , the company sold building and land that was previously operated by a fast food tenant to its joint venture , petro travel plaza llc .
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this discussion contains forward-looking statements that involve known and unknown risks and uncertainties , including those set forth in part i , item 1a of this form 10-k , risk factors . overview molina healthcare , inc. provides quality health care to people receiving government assistance . we offer cost-effective medicaid-related solutions to meet the health care needs of low-income families and individuals , and to assist government agencies in their administration of the medicaid program . we have three reportable segments . these segments include our health plans and molina medicaid solutions segments , which comprise the vast majority of our operations , and our other segment . as of december 31 , 2015 , we changed our reporting structure as a result of the pathways acquisition in november 2015 , which is reported in other . our health plans segment consists of health plans in 11 states and the commonwealth of puerto rico , and includes our direct delivery business . as of december 31 , 2015 , these health plans served over 3.5 million members eligible for medicaid , medicare , and other government-sponsored health care programs for low-income families and individuals . additionally , we serve health insurance marketplace members , most of whom receive government premium subsidies . the health plans are operated by our respective wholly owned subsidiaries in those states , each of which is licensed as a health maintenance organization ( hmo ) . our direct delivery business consists primarily of the operation of primary care clinics in several states in which we operate . our molina medicaid solutions segment provides business processing and information technology development and administrative services to medicaid agencies in idaho , louisiana , maine , new jersey , west virginia , and the u.s. virgin islands , and drug rebate administration services in florida . our other segment includes other businesses , such as our pathways behavioral health and social services provider , that do not meet the quantitative thresholds for a reportable segment as defined by u.s. generally accepted accounting principles ( gaap ) , as well as corporate amounts not allocated to other reportable segments . refer to part ii , item 8 of this form 10-k , notes to consolidated financial statements , note 2 , `` significant accounting policies , '' for a comprehensive description of our health plans and molina medicaid solutions revenues and costs , and how we recognize them.we report revenue and costs attributable to pathways as service revenue and cost of service revenue , respectively . beginning in 2013 , after our medicaid contract with the state of missouri expired , we have reported the results relating to the missouri health plan as discontinued operations for all periods presented . the following discussion and analysis , with the exception of cash flow information , is presented in the context of continuing operations unless otherwise noted . story_separator_special_tag style= '' font-family : inherit ; font-size:9pt ; '' > ( 2 ) see reconciliation of non-gaap financial measures to u.s. gaap below . ( 3 ) effective january 1 , 2016 , we will no longer exclude amortization of convertible notes and lease financing obligations from our presentation of adjusted net income and adjusted net income per share . we made this change because various capital transactions that we completed in 2015 reduced our relative reliance on convertible notes and lease financing as sources of capital . we believe that this change will enhance the comparability of these non-gaap measures with the corresponding non-gaap measures used by our competitors . ( 4 ) medical care ratio represents medical care costs as a percentage of premium revenue ; premium tax ratio represents premium tax expenses as a percentage of premium revenue plus premium tax revenue . ( 5 ) service revenue ratio represents cost of service revenue as a percentage of service revenue . ( 6 ) computed as a percentage of total revenue . 43 the following tables set forth our health plans segment membership as of the dates indicated : replace_table_token_7_th _ ( 1 ) our puerto rico health plan began serving members effective april 1 , 2015 . ( 2 ) our south carolina health plan began serving members under the state of south carolina 's new full-risk medicaid managed care program effective january 1 , 2014 . ( 3 ) chip stands for children 's health insurance program . ( 4 ) medicaid expansion membership phased in , and the marketplace became available for consumers to access coverage , beginning january 1 , 2014 . ( 5 ) mmp members who receive both medicaid and medicare coverage from molina healthcare . non-gaap financial measures we use the following non-gaap financial measures as supplemental metrics in evaluating our financial performance , making financing and business decisions , and forecasting and planning for future periods . for these reasons , management believes such measures are useful supplemental measures to investors in comparing our performance and the performance of other companies in the health care industry . these non-gaap financial measures should be considered as supplements to , and not substitutes for or superior to , gaap measures . the first of these non-gaap measures is earnings before interest , taxes , depreciation and amortization , or ebitda . the following table reconciles net income , which we believe to be the most comparable gaap measure , to ebitda . the increases in ebitda for both 2015 over 2014 , and 2014 over 2013 , were due primarily to increased net income and income taxes . the increases for both of these items are described below in results of operations , in the components of net income . 44 replace_table_token_8_th the second of these non-gaap measures is adjusted net income and adjusted net income per diluted share , continuing operations . the following tables reconcile net income and net income per diluted share from continuing operations , which we believe to be the most comparable gaap measures , to adjusted net income and adjusted net income per diluted share , continuing operations . story_separator_special_tag the following table provides the details of consolidated medical care costs by category for the periods indicated ( dollars in millions except pmpm amounts ) : replace_table_token_12_th financial performance by program . the following table presents the components of premium revenue and medical care costs by program . replace_table_token_13_th _ ( 1 ) year ended december 31 , 2014 and 2013 data not presented due to lack of comparability . ( 2 ) a member month is defined as the aggregate of each month 's ending membership for the period presented . ( 3 ) `` mcr '' represents medical costs as a percentage of premium revenue . 47 financial performance by state health plan . the following tables summarize member months , premium revenue , medical care costs , medical care ratio , and medical margin by state health plan for the periods indicated ( pmpm amounts are in whole dollars ; member months and other dollar amounts are in millions ) : replace_table_token_14_th replace_table_token_15_th 48 replace_table_token_16_th ( 1 ) our puerto rico health plan began serving members effective april 1 , 2015. our south carolina health plan began serving members under the state of south carolina 's new full-risk medicaid managed care program effective january 1 , 2014 . ( 2 ) `` other '' medical care costs include primarily medically related administrative costs of the parent company , and direct delivery costs . individual health plan analysis 2015 compared with 2014 california . premium revenue grew $ 677 million , or 44 % , in 2015 compared with 2014 , the result of higher membership . overall , enrollment on a member-month basis increased 31 % in 2015 compared with 2014 . increased premium revenue was also driven by a 15 % increase in premium revenue pmpm , which was the result of the higher relative premium revenue pmpm among those programs experiencing enrollment growth ( medicaid expansion and mmp ) ; and the addition of long-term care benefits to some of the california health plan 's medicaid membership . the medical care ratio increased to 87.6 % in 2015 , from 83.3 % in 2014 . during 2014 , the plan benefited from the recognition of approximately $ 23 million in premium revenue and medical margin that related to 2013 , as a result of certain programmatic changes implemented by the state of california . absent this benefit , the medical care ratio of the california plan would have been 84.6 % in 2014. florida . premium revenue grew to $ 1,199 million in 2015 , from $ 439 million in 2014 , due to increased marketplace membership . the medical care ratio decreased to 90.2 % in 2015 , from 95.5 % in 2014 , due to the lower medical care ratio of the marketplace membership more than offsetting an increase in the medical care ratio for the medicaid program . illinois . premium revenue grew to $ 397 million in 2015 , from $ 153 million in 2014 , due to significant membership growth in late 2014. the medical care ratio increased to 92.3 % in 2015 , from 91.7 % in 2014 . michigan . premium revenue grew $ 286 million , or 37 % , in 2015 compared with 2014 , due to increased medicaid expansion membership and the startup of the mmp program . the medical care ratio of 84.6 % for 2015 was unchanged from 2014 . new mexico . premium revenue grew $ 161 million , or 15 % , in 2015 compared with 2014 , due to substantial increases in membership in all medicaid programs . the medical care ratio decreased to 89.4 % in 2015 , from 92.6 % in 2014 , due to improved profitability for the abd and medicaid expansion programs . ohio . premium revenue grew $ 481 million , or 31 % , in 2015 compared with 2014 , due to growth in membership within the medicaid expansion , and mmp programs . the medical care ratio decreased to 84.4 % in 2015 , from 86.0 % in 2014 , due to lower medical care ratios in these newer programs , as well as abd . puerto rico . the puerto rico health plan began serving members on april 1 , 2015 , and finished the year with a medical care ratio of 89.1 % . see further discussion below , under financial condition , regarding the commonwealth of puerto rico . 49 south carolina . the medical care ratio decreased to 79.8 % in 2015 , from 84.7 % in 2014 . we believe that medical care ratios below 80 % are not sustainable over time , and that the performance of the south carolina health plan in 2014 is more representative of its likely long-term performance than are its financial results for 2015 . texas . premium revenue grew $ 643 million , or 49 % , in 2015 compared with 2014 , primarily due to the addition of abd members receiving nursing facility benefits effective march 1 , 2015 , and the start-up of the texas mmp program on that date . the medical care ratio increased to 92.3 % in 2015 , from 90.8 % in 2014 , primarily as a result of lower percentage margins on premiums to support nursing home services . as previously disclosed , we are unable to recognize certain quality related revenue in texas because we do not have historical information , clear definitions , and clarity around minimum standards . utah . the medical care ratio of the utah health plan decreased to 90.6 % in 2015 , from 92.2 % in 2014 , primarily due to improved financial performance of the plan 's medicare program . washington . premium revenue grew $ 297 million , or 23 % , in 2015 when compared with 2014 , primarily due to growth in medicaid expansion membership .
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fiscal year 2015 financial highlights earnings per diluted share nearly doubled in 2015 when compared with 2014 , while net income more than doubled . substantial increases in revenue , along with improved operating efficiency , were responsible for our improved performance . our after-tax margin increased to 1.0 % in 2015 from 0.6 % in 2014. strong enrollment growth across all of our programs , combined with a 5 % increase in premium revenue per member , generated over $ 4 billion , or 47 % , more premium revenue in 2015 compared with 2014 . medical care costs as a percentage of premium revenue ( the `` medical care ratio '' ) decreased to 89.1 % in 2015 , from 89.5 % in 2014 . general and administrative expenses as a percentage of revenue ( the `` general and administrative expense ratio '' ) increased slightly to 8.1 % in 2015 , versus 7.9 % in 2014 , primarily as a result of dramatic growth in our marketplace membership . excluding marketplace broker and exchange fees from both years , the general and administrative expense ratio decreased to 7.5 % in 2015 from 7.9 % in 2014. debt and equity financing transactions generated net cash of $ 1,062 million . 40 market updates—health plans medicare-medicaid plans . to coordinate care for those who qualify to receive both medicare and medicaid services ( the `` dual eligible '' ) , and to deliver services to these individuals in a more financially efficient manner , some states have undertaken demonstration programs to integrate medicare and medicaid services for dual eligible individuals . the health plans participating in such demonstrations are referred to as medicare-medicaid plans ( mmps ) . we operate mmps in six states .
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in may 2018 , the company issued and sold 1,293,750 shares of common stock , $ 0.01 par value per share , to various investors in a registered offering story_separator_special_tag results of operations . the following discussion and analysis of our financial condition and results of operations , our expectations regarding the future 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 risks , uncertainties and other factors including those described in “ item 1a . risk factors ” of this annual report on form 10-k. our actual results may differ materially from those contained in any forward-looking statements . you should read the following discussion together with our audited consolidated financial statements and related notes thereto and other financial information included in this annual report on form 10-k. our financial information may not be indicative of our future performance . overview we are a leading national provider of professional temporary staffing services and have completed a series of acquisitions including the acquisition of bg personnel , lp and b g staff services inc. in june 2010 , and substantially all of the assets of jna staffing , inc. in december 2010 , extrinsic , llc in december 2011 , american partners , inc. in december 2012 , instaff in june 2013 , d & w in march 2015 , vts in october 2015 , zycron in april 2017 and smart in september 2017. we operate within three industry segments : real estate , professional , and light industrial . we provide services to client partners primarily within the united states of america . we operate through 75 branch offices and 19 on-site locations located across 27 states . the real estate segment provides office and maintenance field talent to various apartment communities and commercial buildings , in 24 states , via property management companies responsible for the apartment communities ' and commercial buildings ' day-to-day operations . the professional segment provides skilled field talent on a nationwide basis for information technology ( `` it '' ) and finance and accounting client partner projects . the light industrial segment provides field talent primarily to logistics , distribution , and call center client partners needing a flexible workforce in illinois , wisconsin , new mexico , texas , tennessee and mississippi . 23 story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; font-style : italic ; font-weight : bold ; '' > light industrial gross profit : light industrial gross profit in creased approximately $ 1.4 million ( 13.5 % ) from a n in crease of 6.3 % in the average spread . selling , general and administrative expenses : selling , general and administrative expenses in creased approximately $ 2.9 million ( 6.6 % ) related to a n in crease in real estate of $ 2.5 million from growth , including $ 0.1 million of new office expansion , and a n in crease in professional of $ 1.0 million from zycron and $ 2.4 million from smart offset by a $ 0.8 million de crease in the remaining professional segment , and a n in crease in light industrial of $ 0.4 million from in creased revenues . share-based compensation in creased $ 0.6 million from the issuance of restricted stock , a stock option cancellation agreement ( the `` option cancellation agreement '' ) with the company 's former president and chief executive officer , and options granted . also , other various costs associated with our revenue growth including in creased headcount , commissions and bonuses . these in creases were offset by a de crease of $ 3.5 million in contingent consideration adjustments related to the 2017 zycron and smart acquisitions . depreciation and amortization : depreciation and amortization charges de creased approximately $ 1.2 million ( 19.8 % ) . the de crease in depreciation and amortization is primarily due to professional segment fully amortized intangible assets related to the 2012 american partners acquisition of $ 1.7 million that was partially offset by an in crease in the professional segment intangible assets acquired in the 2017 zycron and smart acquisitions of $ 0.6 million . interest expense , net : interest expense , net de creased $ 0.4 million primarily due to the de crease in the interest of $ 0.6 million related to the amortization of contingent consideration discounts from the 2015 vts acquisition which was offset by the in crease of $ 0.2 million in amortization of the deferred financing fees related to the amended credit agreement ( as defined below ) . income taxes : income tax expense de creased approximately $ 4.8 million primarily due to the rate change impact of the 2017 tax cuts and jobs act ( `` tcja '' ) , the option cancellation agreement , and share-based compensation exercises that are deductible for tax purposes , which resulted in a de crease in the effective rate , offset by higher pre-tax income of $ 6.9 million . non-gaap same day revenues : same day revenues are defined as a fifty-three week fiscal year ended december 31 , 2017 ( fiscal 2017 ) revenues less five revenue days . the fiscal 2017 revenues of $ 272.6 million would be less $ 5.7 million for five revenue days resulting in same day revenues of $ 266.9 million . same day revenues increased $ 20.0 million ( 7 % ) to $ 286.9 million in fiscal 2018. same day revenues and gaap revenues were equal for fiscal 2018 . 26 non-gaap same day gross profit : same day gross profit is defined as a fifty-three week fiscal year ended december 31 , 2017 ( fiscal 2017 ) gross profit less five gross profit days . the fiscal 2017 gross profit of $ 68.4 million would be less $ 1.4 million for five gross profit days resulting in same day gross profit of $ 67.0 million . same day gross profit increased $ 9.6 million ( 14 % ) to $ 76.6 million in fiscal 2018. story_separator_special_tag the fiscal 2017 gross profit of $ 68.4 million would be less $ 1.4 million for five gross profit days resulting in same day gross profit of $ 67.0 million . same day gross profit increased $ 6.9 million ( 11 % ) from $ 60.1 million in fiscal 2016. same day gross profit and gaap gross profit were equal for fiscal 2016 . 28 liquidity and capital resources our working capital requirements are primarily driven by field talent payments , tax payments and client partner accounts receivable receipts . since receipts from client partners lag payments to field talent , working capital requirements increase substantially in periods of growth . our primary sources of liquidity are cash generated from operations and borrowings under our credit agreement ( the “ amended credit agreement ” ) with texas capital bank , national association ( “ tcb ” ) as amended and restated that provides for a revolving credit facility maturing april 3 , 2022 ( the “ revolving facility ” ) . our primary uses of cash are payments to field talent , team members , related payroll liabilities , operating expenses , capital expenditures , cash interest , cash taxes , dividends and contingent consideration and debt payments . we believe that the cash generated from operations , together with the borrowing availability under our revolving facility , will be sufficient to meet our normal working capital needs for at least the next twelve months , including investments made , and expenses incurred , in connection with opening new branches throughout the next year . our ability to continue to fund these items may be affected by general economic , competitive and other factors , many of which are outside of our control . if our future cash flow from operations and other capital resources are insufficient to fund our liquidity needs , we may be forced to obtain additional debt or equity capital or refinance all or a portion of our debt . while we believe we have sufficient liquidity and capital resources to meet our current operating requirements and expansion plans , we may elect to pursue additional growth opportunities within the next year that could require additional debt or equity financing . if we are unable to secure additional financing at favorable terms in order to pursue such additional growth opportunities , our ability to pursue such opportunities could be materially adversely affected . the company has an effective form s-3 shelf registration statement allowing for the offer and sale of up to approximately $ 13 million of common stock . there is no guarantee that we will be able to consummate any offering on terms we consider acceptable or at all . a summary of our operating , investing and financing activities are shown in the following table : replace_table_token_14_th operating activities cash provided by operating activities consists of net income adjusted for non-cash items , including depreciation and amortization , share-based compensation expense , interest expense on contingent consideration payable , and the effect of working capital changes . the primary drivers of cash inflows and outflows are accounts receivable and accrued payroll and expenses . during fiscal 2018 , net cash provided by operating activities was $ 18.4 million , a n in crease of $ 0.4 million compared with $ 18.1 million for fiscal 2017 . this in crease is primarily attributable to higher net income , which was partially offset by a decrease in contingent consideration adjustments , the timing of payments on operating assets and liabilities , amortization expense , and net deferred tax assets . during fiscal 2017 , net cash provided by operating activities was $ 18.1 million , a n in crease of $ 8.5 million compared with $ 9.5 million for fiscal 2016 . this in crease is primarily attributable to the re-measurement of the net deferred tax assets as a result of the tcja , timing of payments on accounts receivables and accrued payroll and expenses . investing activities cash used in investing activities consists primarily of cash paid for businesses acquired and capital expenditures . 29 in fiscal 2018 , we made capital expenditures of $ 0.9 million mainly related to furniture and fixtures and computer equipment purchased in the ordinary course of business . in fiscal 2017 , we paid $ 18.5 million in connection with the zycron acquisition , $ 6.0 million in connection with the smart acquisition and we made capital expenditures of $ 1.1 million mainly related to computer equipment and software purchased in the ordinary course of business . in fiscal 2016 , we made capital expenditures of $ 0.9 million mainly related to computer equipment purchased in the ordinary course of business . financing activities cash flows from financing activities consisted principally of borrowings and payments under our amended credit agreement , payment of dividends and contingent consideration paid . for fiscal 2018 , we paid down $ 13.8 million in principal payments on the term loan described below , paid $ 10.9 million in cash dividends on our common stock , we reduced our revolving line of credit by $ 10.7 million , we paid $ 3.3 million related to option cancellation agreement , and we paid $ 1.0 million of contingent consideration related to the 2015 vts and 2017 zycron acquisitions . we received net proceeds from the issuance of common stock of $ 22.2 million and used the net proceeds to reduce outstanding indebtedness under our revolving facility and term loan with tcb and to cancel outstanding options pursuant to the option cancellation agreement , as noted above . for fiscal 2017 , we received proceeds from the issuance of the $ 25.0 million term loan mainly to fund the zycron acquisition .
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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 revenues , and have been derived from our consolidated financial statements . replace_table_token_7_th fifty-two week fiscal year ended december 30 , 2018 ( fiscal 2018 ) compared with fifty-three week fiscal year ended december 31 , 2017 ( fiscal 2017 ) the fiscal 2017 consolidated statement of operations includes 39 weeks of zycron operations and 15 weeks of smart operations . 24 revenues : replace_table_token_8_th real estate revenues : real estate revenues in creased approximately $ 15.1 million ( 21.0 % ) due to our continued geographic expansion plan and continued growth in existing offices . revenue from branches outside of texas accounted for approximately $ 12.6 million of the in crease . the in crease was due to a 14.0 % in crease in billed hours and a 5.3 % in crease in average bill rate . revenue from existing offices accounted for approximately $ 14.2 million of the in crease and revenue from new offices provided approximately $ 0.9 million . revenues from the commercial buildings group contributed $ 2.7 million of the increases and revenues from the apartment group contributed $ 12.4 million . professional revenues : professional revenues de creased approximately $ 7.3 million ( 5.8 % ) . the it group de creased $ 9.6 million . this de crease was offset by a n in crease in the finance and accounting group of $ 2.2 million even with their decrease of $ 6.0 million in revenues from a single client partner .
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words such as “ may , ” “ will , ” “ could , ” “ would , ” “ should , ” “ anticipate , ” “ predict , ” “ potential , ” “ continue , ” “ expect , ” “ intend , ” “ plans , ” “ projects , ” “ believes , ” “ estimates , ” “ confident ” and similar expressions are used to identify these forward-looking statements . these uncertainties and factors could cause core molding technologies ' actual results to differ materially from those matters expressed in or implied by such forward-looking statements . core molding technologies believes that the following factors , among others , could affect its future performance and cause actual results to differ materially from those expressed or implied by forward-looking statements made in this annual report on form 10-k : business conditions in the plastics , transportation , marine and commercial product industries ( including slowdown in demand for truck production ) ; federal and state regulations ( including engine emission regulations ) ; general economic , social , regulatory ( including foreign trade policy ) and political environments in the countries in which core molding technologies operates ; safety and security conditions in mexico ; dependence upon certain major customers as the primary source of core molding technologies ' sales revenues ; efforts of core molding technologies to expand its customer base ; the ability to develop new and innovative products and to diversify markets , materials and processes and increase operational enhancements ; the actions of competitors , customers , and suppliers ; failure of core molding technologies ' suppliers to perform their obligations ; the availability of raw materials ; inflationary pressures ; new technologies ; regulatory matters ; labor relations ; the loss or inability of core molding technologies to attract and retain key personnel ; the company 's ability to successfully identify , evaluate and manage potential acquisitions and to benefit from and properly integrate any completed acquisitions ; federal , state and local environmental laws and regulations ; the availability of capital ; the ability of core molding technologies to provide on-time delivery to customers , which may require additional shipping expenses to ensure on-time delivery or otherwise result in late fees ; risk of cancellation or rescheduling of orders ; management 's decision to pursue new products or businesses which involve additional costs , risks or capital expenditures ; inadequate insurance coverage to protect against potential hazards ; equipment and machinery failure ; product liability and warranty claims ; and other risks identified from time to time in core molding technologies ' other public documents on file with the securities and exchange commission , including those described in item 1a of this annual report on form 10-k. overview core molding technologies is a manufacturer of sheet molding compound ( `` smc '' ) and molder of fiberglass reinforced plastics . the company specializes in large-format moldings and offers a wide range of fiberglass processes , including compression molding of smc , glass mat thermoplastics ( `` gmt '' ) , bulk molding compounds ( `` bmc '' ) and direct long-fiber thermoplastics ( `` d-lft '' ) ; spray-up , hand lay-up , and resin transfer molding ( `` rtm '' ) . additionally , the company offers reaction injection molding ( `` rim '' ) , utilizing dicyclopentadiene technology . core molding technologies serves a wide variety of markets , including the medium and heavy-duty truck , marine , automotive , agriculture , construction and other commercial products . product sales to medium and heavy-duty truck markets accounted for 68 % , 78 % and 83 % of the company 's sales for the year ended december 31 , 2016 , 2015 and 2014 , respectively . the demand for core molding technologies ' products is affected by economic conditions in the united states , mexico , and canada . core molding technologies ' manufacturing operations have a significant fixed cost component . accordingly , during periods of changing demand , the profitability of core molding technologies ' operations may change proportionately more than revenues from operations . in 1996 , core molding technologies acquired substantially all of the assets and assumed certain liabilities of columbus plastics , a wholly owned operating unit of navistar 's truck manufacturing division since its formation in late 1980. columbus plastics , located in columbus , ohio , was a compounder and compression molder of smc . in 1998 , core molding technologies began operations at its second facility in gaffney , south carolina , and in 2001 , core molding technologies added a production facility in matamoros , mexico by acquiring certain assets of airshield corporation . as a result of this acquisition , core molding technologies expanded its fiberglass molding capabilities to include the spray up , hand-lay-up open mold processes and rtm closed molding . in 2004 , core molding technologies acquired substantially all the operating assets of keystone restyling products , inc. , a privately held manufacturer and distributor of fiberglass reinforced products for the automotive-aftermarket industry . in 2005 , core molding technologies acquired certain assets of the cincinnati fiberglass division of diversified glass , inc. , a batavia , ohio-based , privately held manufacturer and distributor of fiberglass reinforced plastic components supplied primarily to the heavy-duty truck market . in 2009 , the company completed construction of a new production facility in matamoros , mexico that 22 replaced its leased facility . in march 2015 , the company acquired substantially all of the assets of cpi binani , inc. , a wholly owned subsidiary of binani industries limited , located in winona , minnesota ( `` cpi '' ) , which expanded the company 's process capabilities to include d-lft and diversified the customer base . core molding technologies recorded net income in 2016 of $ 7,411,000 , or $ 0.97 per basic and diluted share , compared with net income of $ 12,050,000 , or $ 1.59 per basic and $ 1.58 per diluted share in 2015 . story_separator_special_tag liquidity and capital resources the company 's primary sources of funds have been cash generated from operating activities and borrowings from third parties . primary cash requirements are for operating expenses , capital expenditures and acquisition . on december 9 , 2008 , the company and its wholly owned subsidiary , corecomposites de mexico , s. de r.l . de c.v. , entered into a credit agreement , as amended from time to time ( the `` credit agreement '' ) , with a lender to provide various financing facilities . under this credit agreement , as amended most recently with the eleventh amendment on june 21 , 2016 , the company received certain loans , subject to the terms and conditions stated in the agreement , which included ( 1 ) a $ 12,000,000 capex loan ; ( 2 ) an $ 8,000,000 mexican loan ; ( 3 ) an $ 18,000,000 variable rate revolving line of credit ; ( 4 ) a term loan in an original amount of $ 15,500,000 ; and ( 5 ) a letter of credit commitment of up to $ 250,000 , of which $ 155,000 has been issued . the credit agreement is secured by a guarantee of each u.s. subsidiary of the company , and by a lien on substantially all of the present and future assets of the company and its u.s. subsidiaries , except that only 65 % of the stock issued by corecomposites de mexico , s. de r.l . de c.v. has been pledged . cash provided by operating activities totaled $ 26,069,000 for the year ended december 31 , 2016 . net income of $ 7,411,000 positively impacted operating cash flows . non-cash deductions of depreciation and amortization included in net income amounted to $ 6,283,000 . changes in working capital increased cash provided by operating activities by $ 11,413,000 . changes in working capital primarily relate to decreases in accounts receivable and inventory , partially offset by decreases in accounts payable and accrued and other liabilities . cash used in investing activities totaled $ 2,863,000 for the year ended december 31 , 2016 , all of which related to new programs , equipment improvements and capacity expansion at the company 's production facilities . the company anticipates spending approximately $ 9,000,000 during 2017 on property , plant and equipment purchases for all of the company 's operations . the company anticipates using available cash and cash from operations to finance this capital investment . at december 31 , 2016 , purchase commitments for capital expenditures in progress were approximately $ 616,000 . cash used in financing activities totaled $ 3,864,000 for the year ended december 31 , 2016 . scheduled repayments of principal on the company 's capex and term loans totaled $ 3,714,000. additionally , purchases of treasury stock to satisfy employee tax withholding requirements on vested restricted stock reduced cash flow from financing activities by $ 134,000 . at december 31 , 2016 , the company had cash on hand of $ 28,285,000 and an available revolving line of credit of $ 18,000,000. management believes that cash on hand , cash flow from operating activities and available borrowings under the revolving line of credit will be sufficient to meet the company 's current liquidity needs . if a material adverse change in the financial position of the company should occur , or if actual sales or expenses are substantially different than what has been forecasted , the company 's liquidity and ability to obtain further financing to fund future operating and capital requirements could be negatively impacted . the company is required to meet certain financial covenants included in the credit agreement with respect to leverage ratios , fixed charge ratios , capital expenditures as well as other customary affirmative and negative covenants . as of december 31 , 2016 , the company was in compliance with its financial covenants . management regularly evaluates the company 's ability to effectively meet its debt covenants . based on the company 's forecast , which is primarily based on industry analysts ' estimates of heavy and medium-duty truck production volumes , as well as other assumptions and customer provided forecasts , management believes that the company will be able to maintain compliance with its financial covenants for the next 12 months . 25 on november 14 , 2014 the company filed a universal shelf registration statement on form s-3 ( the “ registration statement ” ) with the sec in accordance with the securities act of 1933 , as amended , which became effective on november 25 , 2014. the registration statement registered common stock , preferred stock , debt securities , warrants , depositary shares , rights , units and any combination of the foregoing , for a maximum aggregate offering price of up to $ 50 million , which may be sold from time to time . the terms of any securities offered under the registration statement and intended use of proceeds will be established at the times of the offerings and will be described in prospectus supplements filed with the sec at the times of the offerings . the registration statement has a three year term . contractual obligations and off-balance sheet transactions the company has the following minimum commitments under contractual obligations , including purchase obligations , as defined by the sec . a “ purchase obligation ” is defined as an agreement to purchase goods or services that is enforceable and legally binding on the company and that specifies all significant terms , including : fixed or minimum quantities to be purchased ; fixed , minimum , or variable price provisions ; and the approximate timing of the transaction . other long-term liabilities are defined as long-term liabilities that are reflected on the company 's balance sheet under accounting principles generally accepted in the united states . based on this definition , the table below includes only those contracts which include fixed or minimum obligations . it does not include normal purchases , which are made in the ordinary course of business .
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results of operations 2016 compared with 2015 net sales for 2016 totaled $ 174,882,000 , representing a 12 % decrease from the $ 199,068,000 reported for 2015 . included in total sales were tooling project sales of $ 28,258,000 for 2016 and $ 9,965,000 for 2015 . tooling project sales result primarily from customer approval and acceptance of molds and assembly equipment specific to their products as well as other non-production services . these sales are sporadic in nature and fluctuate in regard to scope and related revenue on a period-to-period basis . total product sales for 2016 , excluding tooling project sales , totaled $ 146,624,000 , representing a 22 % decrease from the $ 189,103,000 reported for 2015 . in 2016 , product sales were negatively impacted by lower demand from customers in the heavy truck market , partially offset by a full year of sales from cpi , which was acquired in march 2015 , and other new business starting production in 2016. sales to volvo in 2016 totaled $ 49,970,000 , compared to $ 55,125,000 reported for 2015 . included in total sales are tooling sales of $ 20,450,000 and $ 1,600,000 for 2016 and 2015 , respectively . product sales to volvo decreased by 45 % in 2016 as compared to 2015 , primarily due to a change in demand . sales to navistar in 2016 totaled $ 41,750,000 , compared to $ 56,415,000 reported for 2015 . included in total sales are tooling sales of $ 1,994,000 and $ 6,246,000 for 2016 and 2015 , respectively . product sales to navistar decreased 21 % in 2016 as compared to 2015 , primarily due to a change in demand , partially offset by new business awards . sales to paccar in 2016 totaled $ 27,716,000 , compared to $ 34,430,000 reported for 2015 .
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future period . dollar amounts in tables are stated in thousands , except for per share amounts . nature of operations live oak bancshares , inc. ( “ lob ” and , collectively with its subsidiaries including live oak banking company , the “ company ” ) is a bank holding company headquartered in wilmington , north carolina incorporated under the laws of north carolina in december 2008. the company conducts business operations primarily through its commercial bank subsidiary , live oak banking company ( the “ bank ” ) . the bank was established in may 2008 as a north carolina-chartered commercial bank . the bank specializes in providing lending services to small businesses nationwide in targeted industries . the bank identifies and seeks to grow within selected industry sectors , or verticals , by leveraging expertise within those industries . a significant portion of the loans originated by the bank are guaranteed by the small business administration ( “ sba ” ) under the 7 ( a ) program . in 2010 , the bank formed live oak number one , inc. , a wholly-owned subsidiary , to hold properties foreclosed on by the bank . in addition to the bank , the company owns live oak grove , llc , opened in september 2015 for the purpose of providing company employees and business visitors an on-site restaurant location , government loan solutions , inc. ( “ gls ” ) , a management and technology consulting firm that specializes in the settlement , accounting , and securitization processes for government guaranteed loans , including loans originated under the sba 7 ( a ) loan program and usda-guaranteed loans , and 504 fund advisors , llc ( “ 504fa ” ) , which was formed to serve as the investment advisor to the 504 fund , a closed-end mutual fund organized to invest in sba section 504 loans . the company generates revenue primarily from the sale of sba-guaranteed loans and net interest income . income from the sale of loans is comprised of loan servicing revenue and revaluation and net gains on sales of loans . offsetting these revenues are the cost of funding sources , provision for loan losses , any costs related to foreclosed assets and other operating costs such as salaries and employee benefits , travel , professional services , advertising and marketing and tax expense . conversion from s corporation to c corporation effective august 3 , 2014 , the company terminated its status as an “ electing small business corporation , ” or s corporation , under subchapter s of the internal revenue code of 1986 , or the code , and became a c corporation under the code for income tax purposes . as a result of the conversion to a c corporation , the company recorded a net deferred tax liability of $ 3.3 million on the balance sheet . upon recognition of the deferred tax liability the company also recorded an offsetting adjustment to income tax expense of $ 3.3 million , which decreased after-tax earnings and shareholders ' equity by the same amount . story_separator_special_tag prepayment speeds , and prevailing market conditions . as the current market improves or deteriorates , the value of the existing servicing asset responds accordingly . noninterest expense increased approximately $ 14.4 million , or 35.7 % , compared to the year ended december 31 , 2013 , primarily as the result of increasing personnel and infrastructure to support growth in the loan portfolio . for the year ended december 31 , 2014 , the allowance for loan loss provision expense increased $ 3.7 million , or 425.5 % , compared to the year ended december 31 , 2013 , due to a change in the methodology in the reserve for impaired loans and a $ 62.6 million increase in total loans held for investment . 32 net interest income and margin net interest income represents the difference between the income that the company earns on interest-earning assets and the cost of interest-bearing liabilities . the company 's net interest income depends upon the volume of interest-earning assets and interest-bearing liabilities and the interest rates that the company earns or pays on them . net interest income is affected by changes in the amount and mix of interest-earning assets and interest-bearing liabilities , referred to as “ volume changes. ” it is also affected by changes in yields earned on interest-earning assets and rates paid on interest-bearing deposits and other borrowed funds , referred to as “ rate changes. ” as a bank without a branch network , the bank gathers deposits over the internet and in the community in which it is headquartered . due to the nature of a branchless bank and the relatively low overhead required for deposit gathering , the rates the bank offers are generally above the industry average . years ended december 31 , 2015 vs. 2014 for 2015 , net interest income increased $ 10.9 million , or 73.9 % , to $ 25.6 million compared to $ 14.7 million in 2014 due to favorable volume and interest rate factors . average interest earning assets rose by $ 301.0 million , or 62.2 % , to $ 784.7 million for 2015 compared to $ 483.7 million for 2014 , while the yield on average interest earning assets increased by fourteen basis points to 4.39 % . the cost of funds on interest bearing liabilities for 2015 decreased slightly by four basis points to 1.19 % , and the average balance in interest bearing liabilities increased by $ 269.5 million , or 56.9 % during the same period . story_separator_special_tag net charge-offs were $ 798 thousand for 2015 , compared to net charge-offs of $ 1.1 million for 2014. in addition , at december 31 , 2015 , nonperforming loans not guaranteed by the sba totaled $ 2.0 million , which was 0.7 % of the held-for-investment loan portfolio compared to $ 3.1 million , or 1.5 % , of loans held for investment at december 31 , 2014 . 35 years ended december 31 , 2014 vs. 2013 for the year ended december 31 , 2014 , the provision for loan losses was $ 2.8 million , an increase of $ 3.7 million , or 425.5 % , compared to the same period in 2013. the higher provision for loan losses in 2014 was primarily the result of an increase in reserves on impaired loans of $ 1.1 million , coupled with loan loss provisions totaling approximately $ 1.7 million in response to substantial loan growth and increases in qualitative reserves , partially mitigated by declining loss ratios . much of the loan growth occurred within new lending verticals with higher loss factors due to the company 's lack of historical experience in those industries . net loan charge-offs were $ 1.1 million for the fiscal year ended december 31 , 2014 , compared to $ 1.9 million for fiscal year 2013 , equating to 0.28 % and 0.66 % of average loans for the respective periods . in addition , at december 31 , 2014 , nonperforming loans not guaranteed by the sba totaled $ 3.1 million , which was 1.5 % of the held-for-investment loan portfolio compared to $ 1.7 million , or 1.2 % , of loans held for investment at december 31 , 2013. noninterest income noninterest income principally represents income from the sale of sba-guaranteed loans . this income is comprised of loan servicing revenue and revaluation and net gains on sales of loans . revenue from the sale of loans depends upon volume and rates of underlying loans as well as cost and availability of funds in the secondary markets prevailing in the period between loan funding and closing of sale . in addition , the loan servicing revaluation is significantly impacted by changes in market rates and other underlying assumptions such as prepayment speeds and default rates . other less common elements of noninterest income include nonrecurring gains and losses on investments . the following table shows the components of noninterest income and the dollar and percentage changes for the periods presented . replace_table_token_7_th 36 years ended december 31 , 2015 vs. 2014 for 2015 , noninterest income increased by $ 24.3 million , or 40.4 % , compared to 2014. increases in the serviced loan portfolio and the volume of loans sold in the secondary market , the core components of the company 's business , contributed $ 20.7 million to noninterest income growth , including $ 3.3 million of increased servicing revenue and $ 17.4 million of increased net gains on sale of loans . other factors contributing to the increase in noninterest income were a $ 3.8 million one-time gain arising in the first quarter of 2015 related to the sale of the investment in ncino combined with an increase of $ 2.2 million due to minimal equity method investments in non-consolidated affiliates during 2015 compared to $ 2.2 million in losses on such investments in 2014 , and an increase of $ 1.3 million in fees earned for monitoring higher levels of multi-advance loans in 2015. offsetting increases in noninterest income were larger downward adjustments in the valuation of servicing rights of $ 4.0 million during 2015 compared to the same period in 2014. the tables below reflect loan production , sales of guaranteed loans and the aggregate balance in guaranteed loans sold . these components are key drivers of the company 's recurring noninterest income . replace_table_token_8_th replace_table_token_9_th ( 1 ) this represents the outstanding principal balance of guaranteed loans serviced , as of the last day of the applicable period , which have been sold into the secondary market . changes in various components of noninterest income are discussed in more detail below . loan servicing revenue : while portions of the loans that the bank originates are sold and generate premium revenue , servicing rights for all loans that the bank originates , including loans sold , are retained by the bank . in exchange for continuing to service loans that are sold , the bank receives fee income represented in loan servicing revenue equivalent to one percent of the outstanding balance of the loans sold . in addition , the cost of servicing sold loans is approximately 0.40 % of the balance of the loans sold , which is included in the loan servicing revaluation computations . unrecognized servicing revenue is reflected in a servicing asset recorded on the balance sheet . revenues associated with the servicing of loans are recognized over the expected life of the loan through the income statement , and the servicing asset is reduced as this revenue is recognized . for the year ended december 31 , 2015 , loan servicing revenue increased $ 3.3 million , or 25.4 % , compared to the year ended december 31 , 2014 , as a result of an increase in the average outstanding balance of guaranteed loans sold . at december 31 , 2015 , the outstanding balance of guaranteed loans sold in the secondary market was $ 1.78 billion , with a weighted average servicing fee rate of 1.07 % . at december 31 , 2014 , the outstanding balance of guaranteed loans sold was $ 1.30 billion , with a weighted average servicing fee rate of 1.11 % . prior to january 2010 , the company sold loans for servicing in excess of 1.0 % . as loans sold for servicing fee rates in excess of 1.0 % prior to fiscal year 2010 amortize , the company expects that the weighted average servicing fee rate will approach and stabilize at approximately 1.0 % .
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executive summary following is a summary of the company 's financial highlights and events for 2015 : during 2015 , the company entered into four new verticals bringing the total of industries served at year-end to eleven . it also developed and began providing loans in a pilot program through elending . elending is a highly efficient technology-based platform for smaller , less complex business loans of up to $ 350,000. the initiative was publicly launched in february 2016. loan production increased to $ 1.16 billion for 2015 , a 36.6 % increase over 2014. guaranteed loan sales increased by $ 207.0 million , or 47.7 % , to $ 640.9 million in 2015. loans held for investment increased by $ 76.0 million , or 37.3 % , to $ 280.0 million at the end of 2015 . 30 asset quality continued to improve as nonperforming unguaranteed loans declined by $ 1.1 million , or 35.1 % , to $ 2.0 million at the end of 2015 from $ 3.1 million at the end of 2014. core recurring revenues consisting of net interest income , servicing revenue and gains on sale of loans increased to $ 109.1 million , a 40.7 % increase over 2014. adjusted pre-tax net income , which excludes non-recurring income and expenses , improved $ 8.5 million over 2014 , or 38.5 % to $ 30.6 million . reported net income on a comparable basis increased by 105.3 % over 2014 to $ 20.6 million . return on average assets increased to 2.26 % for 2015 from 1.77 % for 2014. on july 23 , 2015 , the company closed on its initial public offering issuing 5,500,000 shares of voting common stock , no par value , at $ 17.00 per share , in exchange for total proceeds of $ 87.2 million , net of issue costs . consequently , total shareholders ' equity rose significantly to $ 199.5 million at december 31 , 2015 from $ 91.8
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the company records share-based compensation cost as an administrative expense . the company applied the alternative transition method in calculating its pool of excess tax benefits available to absorb future tax deficiencies . see note 13 . forward sales commitments - the company periodically uses forward sale agreements with a major gold bullion bank to sell a portion of the expected amount of scrap gold and silver jewelry , which is typically broken or of low retail value , produced in the normal course of business from its liquidation of story_separator_special_tag general the company is a leading operator of retail-based pawn and consumer finance stores in the united states and mexico . the company 's primary business is the operation of pawn stores , which engage in retail sales , the purchase of secondhand goods as well as offer consumer finance services products . the company 's pawn stores generate significant retail sales from the merchandise acquired through collateral forfeitures and over-the-counter purchases from customers . the company 's pawn stores are also a convenient source for small consumer loans to help customers meet their short-term cash needs . personal property such as consumer electronics , jewelry , power tools , sporting goods and musical instruments are pledged as collateral for the loans . in addition , some of the company 's pawn stores offer consumer loans or credit services products . the company 's strategy is to focus on growing its retail-based pawn operations in the united states and mexico through new store openings and acquisition opportunities as they arise . the company operates a small number of stand-alone consumer finance stores in texas and mexico . these stores provide consumer financial services products including credit services , consumer loans and check cashing . the product mix in these stores varies by market . the company considers the consumer loan and credit services products generated through these locations to be non-core , non-growth revenue streams . pawn operations accounted for approximately 93 % of the company 's consolidated revenue from continuing operations during fiscal 2013 . the company 's pawn revenue is derived primarily from merchandise sales of forfeited pawn collateral and used goods purchased directly from the general public . the company accrues pawn loan fee revenue on a constant-yield basis over the life of the pawn loan for all pawns that the company deems collection to be probable based on historical pawn redemption statistics . if a pawn loan is not repaid prior to the expiration of the loan term , including any automatic extension period , if applicable , the property is forfeited to the company and transferred to inventory at a value equal to the principal amount of the loan , exclusive of accrued interest . consumer loan and credit services revenue , which was approximately 7 % of consolidated revenue from continuing operations for fiscal 2013 , is derived primarily from credit services fees . the company recognizes service fee income on consumer loans and credit services transactions on a constant-yield basis over the life of the loan or credit extension , which is generally 180 days or less . the net defaults on consumer loans and credit services transactions and changes in the valuation reserve are charged to the consumer loan credit loss provision . the credit loss provision associated with the cso program and consumer loans are based primarily upon historical credit loss experience , with consideration given to recent credit loss trends , delinquency rates , economic conditions and management 's expectations of future credit losses . for an additional discussion of the credit loss provision and related allowances and accruals , see “ -results of continuing operations. ” stores included in the same-store revenue calculations are those stores that were opened prior to the beginning of the prior-year comparative fiscal period and remained open through the end of the measurement period . also included are stores that were relocated during the year within a specified distance serving the same market , where there is not a significant change in store size and where there is not a significant overlap or gap in timing between the opening of the new store and the closing of the existing store . unless otherwise stated , non-retail sales of scrap jewelry are included in same-store revenue calculations . operating expenses consist of all items directly related to the operation of the company 's stores , including salaries and related payroll costs , rent , utilities , equipment , advertising , property taxes , licenses , supplies and security . administrative expenses consist of items relating to the operation of the corporate offices , including the compensation and benefit costs of corporate management , 36 area supervisors and other operations management personnel , collection operations and personnel , accounting and administrative costs , information technology costs , liability and casualty insurance , outside legal and accounting fees and stockholder-related expenses . the following table details selected operating metrics regarding the company 's loan products , inventories and store locations ( 1 ) : replace_table_token_7_th ( 1 ) inventory and loan amounts for stores in mexico are based on translating the mexican peso to the u.s. dollar at the exchange rate as of each year end . the exchange rates used for december 31 , 2013 , 2012 , and 2011 were 13.1 to 1 , 13.0 to 1 , and 14.0 to 1 , respectively . see “ -non-gaap financial information-constant currency results ” below . ( 2 ) amounts shown represent the gross amount owed by customers before allowances . active cso program extensions of credit outstanding from the independent third-party lender are not included on the company 's balance sheet . ( 3 ) amounts shown represent the gross amount owed by customers before allowances . excludes title loan amounts . story_separator_special_tag under the cso program , letters of credit issued by the company to the independent lender constitute a guarantee for which the company is required to recognize , at the inception of the guarantee , a liability for the fair value of the obligation undertaken by issuing the letters of credit . the independent lender may present the letter of credit to the company for payment if the customer fails to repay the full amount of the extension of credit and accrued interest after the due date of the extension of credit . each letter of credit expires approximately 30 days after the due date of the extension of credit . the company 's maximum loss exposure under all of the outstanding letters of credit issued on behalf of its customers to the independent lender as of december 31 , 2013 , was $ 13,992,000 . according to the letter of credit , if the borrower defaults on the extension of credit , the company will pay the independent lender the principal , accrued interest , insufficient funds fee , and late fees , all of which the company records in the consumer loan and credit services loss provision . the company is entitled to seek recovery directly from its customers for amounts it pays the independent lender in performing under the letters of credit . the company records the estimated fair value of the liability under the letters of credit as a component of accrued liabilities . an allowance is provided for losses on active consumer loans and service fees receivable based upon expected default rates , net of estimated future recoveries of previously defaulted consumer loans and service fees receivable . the company considers consumer loans to be in default if they are not repaid on the due date and writes off the principal amount and service fees receivable as of the default date , leaving only active advances in the reported balance . net defaults and changes in the consumer loan allowance are charged to the consumer loan loss provision . 39 inventories - inventories represent merchandise acquired from forfeited pawns and merchandise purchased directly from the general public . inventories from forfeited pawns are recorded at the amount of the pawn principal on the unredeemed goods , exclusive of accrued interest . inventories purchased directly from customers are recorded at cost . the cost of inventories is determined on the specific identification method . inventories are stated at the lower of cost or market ; accordingly , inventory valuation allowances are established , if necessary , when inventory carrying values are in excess of estimated selling prices , net of direct costs of disposal . management has evaluated inventories and determined that a valuation allowance is not necessary . goodwill - goodwill represents the excess of the purchase price over the fair value of the net assets acquired in each business combination . the company performs its goodwill impairment assessment annually as of december 31 , and between annual assessments if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount . the company 's reporting units , which are tested for impairment , are u.s. pawn operations , u.s. consumer loan operations and mexico operations . the company assesses goodwill for impairment at a reporting unit level by first assessing a range of qualitative factors , including , but not limited to , macroeconomic conditions , industry conditions , the competitive environment , changes in the market for the company 's products and services , regulatory and political developments , entity specific factors such as strategy and changes in key personnel , and overall financial performance . if , after completing this assessment , it is determined that it is more likely than not that the fair value of a reporting unit is less than its carrying value , the company proceeds to the two-step impairment testing methodology . foreign currency transactions - the company has significant operations in mexico , where the functional currency for the company 's mexican subsidiaries is the mexican peso . accordingly , the assets and liabilities of these subsidiaries are translated into u.s. dollars at the exchange rate in effect at each balance sheet date , and the resulting adjustments are accumulated in other comprehensive income ( loss ) as a separate component of stockholders ' equity . revenue and expenses are translated at the average exchange rates occurring during the year-to-date period . prior to translation , any u.s. dollar-denominated transactions of the mexican-based subsidiaries are remeasured into mexican pesos using current rates of exchange for monetary assets and liabilities and historical rates of exchange for non-monetary assets and liabilities . gains and losses from remeasurement of dollar-denominated monetary assets and liabilities in mexico are included in store operating expenses . the company 's management reviews and analyzes certain operating results , in mexico , on a constant currency basis because the company believes this better represents the company 's underlying business trends . amounts presented on a constant currency basis are denoted as such . see “ non-gaap financial information ” for additional discussion of constant currency operating results . 40 story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; font-style : italic ; text-decoration : underline ; '' > consumer lending operations service fees from consumer loans and credit services transactions for fiscal 2013 decreased 10 % , compared to fiscal 2012 . the majority of the payday loan revenues are generated in the company 's stand-alone stores in texas , which experienced a revenue decline of 14 % during fiscal 2013 . the company attributes the decrease , in part , to increased regulation and competition in the texas markets coupled with store closings . payday loan-related products comprised 7 % of total revenue during fiscal 2013 . the company 's consumer loan and credit services loss provision was 26 % of consumer loan and credit services fee revenue during fiscal 2013 and fiscal 2012 .
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results of continuing operations twelve months ended december 31 , 2013 , compared to twelve months ended december 31 , 2012 . the following table details the components of the company 's revenue for the fiscal year ended december 31 , 2013 , as compared to the fiscal year ended december 31 , 2012 ( in thousands ) . constant currency results exclude the effects of foreign currency translation and are calculated by translating current-year results at prior-year average exchange rates . the average value of the mexican peso to the u.s. dollar increased 3 % , from 13.2 to 1 during fiscal 2012 to 12.8 to 1 during fiscal 2013 . the end-of-period value of the mexican peso to the u.s. dollar decreased 1 % , from 13.0 to 1 at december 31 , 2012 , to 13.1 to 1 at december 31 , 2013 . as a result of these currency exchange movements , revenue from mexican operations translated into more u.s. dollars relative to the prior year , while net assets of mexican operations as of year end translated into fewer u.s. dollars relative to the prior year end . while the strengthening of the mexican peso positively increased the translated dollar-value of revenue , the cost of sales and operating expenses increased as well . the scrap jewelry generated in mexico is exported and sold in u.s. dollars , which does not contribute to the company 's peso-denominated earnings stream . see `` non-gaap financial information-constant currency results '' below . replace_table_token_9_th domestic revenue accounted for approximately 45 % of the total revenue for fiscal 2013 , while international revenue ( from mexico ) accounted for 55 % of total revenue for the same period . 41 the following table details customer loans and inventories held by the company and active cso program credit extensions from the independent lender as of december 31 , 2013 , as compared to december 31 , 2012 ( in thousands ) .
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this md & a should be read in conjunction with our consolidated financial statements and the notes to the accompanying consolidated financial statements appearing elsewhere in this form 10-k and the risk factors included in part i , item 1a of this form 10-k , as well as other cautionary statements and risks described elsewhere in this form 10-k. the following discussion and analysis reflects the historical results of operations and financial position of evo , llc and its consolidated subsidiaries prior to the reorganization transactions and that of evo , inc. and its consolidated subsidiaries ( including evo , llc ) following the completion of the reorganization transactions . the historical results of operations and financial condition of evo , llc prior to the completion of the reorganization transactions , including the ipo , do not reflect certain items that affected our results of operations and financial condition after giving effect to the reorganization transactions and the use of proceeds from the ipo . story_separator_special_tag style= '' display : inline ; '' > 54 depreciation and amortization consists of depreciation and amortization expenses related to card processing , office equipment , computer software , leasehold improvements , furniture and fixtures , merchant contract portfolios , marketing alliance agreements , finite-lived trademarks , internally developed software , and non-competition agreements . interest income consists of interest earned by investing excess cash balances . interest expense consists of interest cost incurred from our borrowings and the amortization of financing costs . income from investment in unconsolidated investees consists of income earned from the investment in businesses in which we have a minority ownership stake and under which our share in the investees ' financial results are not consolidated for reporting purposes . other income consists primarily of other income items not considered part of the normal course of business operations . income tax ( expense ) benefit represents federal , state , local and foreign taxes based on income in multiple domestic and foreign jurisdictions . net income attributable to non-controlling interests arises from net income from the non-owned portion of businesses where we have a controlling interest but less than 100 % ownership . this represents both the non-controlling interests that are consolidating entities of evo , llc and evo , llc non-controlling interests , which is comprised of the income allocated to continuing llc owners as a result of their proportional ownership of llc interests . factors impacting our business and results of operations in general , our revenue is impacted by factors such as global consumer spending trends , foreign exchange rates , the pace of adoption of commerce-enablement and payment solutions , acquisitions and dispositions , types and quantities of products and services provided to enterprises , timing and length of contract renewals , new enterprise wins , retention rates , mix of payment solution types employed by consumers , changes in card network fees including interchange rates and size of enterprises served . in addition , we may pursue acquisitions from time to time . these acquisitions could result in redundant costs , such as increased interest expense resulting from any indebtedness incurred to finance any acquisitions , or could require us to incur losses as we restructure or reorganize our operations following these acquisitions . seasonality we have experienced in the past , and expect to continue to experience , seasonality in our revenue as a result of consumer spending patterns . in north america , our revenue has been strongest in our fourth quarter and weakest in our first quarter as many of our merchant categories experience a seasonal lift during the traditional vacation and holiday months . in europe , our revenue has been strongest in our third quarter and weakest in our first quarter . operating expenses do not typically fluctuate seasonally . foreign currency translation impact on our operations our consolidated revenues and expenses are subject to variations caused by the net effect of foreign currency translation on revenues recognized and expenses incurred by our non-u.s. operations . it is difficult to predict the future fluctuations of foreign currency exchange rates and how those fluctuations will impact our consolidated statements of operations and comprehensive loss in the future . as a result of the relative size of our international operations , these fluctuations may be material on individual balances . our revenues and expenses from our international operations are generally denominated in the local currency of the country in which they are derived or incurred . therefore , the impact of currency fluctuations on our operating results and margins is partially mitigated . key performance indicators “ transactions processed ” refers to the number of transactions we processed during any given period of time and is a meaningful indicator of our business and financial performance , as a significant portion of our revenue is driven by the 55 number of transactions we process . in addition , transactions processed provides a valuable measure of the level of economic activity across our merchant base . in our north america segment , transactions include acquired visa and mastercard credit and signature debit , american express , discover , unionpay , pin-debit , electronic benefit transactions and gift card transactions . in our europe segment , transactions include acquired visa and mastercard credit and signature debit , other card network merchant acquiring transactions , and atm transactions . for the year ended december 31 , 2018 , we processed more than 950 million transactions in north america and approximately 2.1 billion transactions in europe , an aggregate increase of 17.0 % december 31 , 2017 , driven by organic growth and the impact of acquisitions . transactions processed in north america accounted for 31 % of the total transactions we processed in 2018. for the year ended december 31 , 2017 , we processed more than 900 million transactions in north america and approximately 1.7 billion transactions in europe , an aggregate increase of 22.3 % compared to the year ended december 31 , 2016 , driven by organic growth and the impact of acquisitions . story_separator_special_tag gain on acquisition of unconsolidated investee gain on acquisition of unconsolidated investee was $ 8.4 million for the year ended december 31 , 2018 , related to the fair value mark-up on the acquisition of a previously minority owned subsidiary . income tax expense historically , as a limited liability company treated as a partnership for u.s. federal income tax purposes , evo , llc 's income was not subject to corporate tax in the u.s. , but only on income earned in foreign jurisdictions . in the u.s. , our members were taxed on their proportionate share of income of evo , llc . however , following the reorganization transactions , we incur corporate tax at the u.s. federal income tax rate on our share of taxable income of evo , llc . our income tax expense reflects such u.s. federal , state and local income tax as well as taxes payable in foreign jurisdictions by certain of our subsidiaries . our income tax expense was $ 10.4 million for the year ended december 31 , 2018 , compared to income tax expense of $ 16.6 million for the year ended december 31 , 2017. net loss net loss was $ 98.9 million for the year ended december 31 , 2018 , an increase of $ 66.5 million , compared to net loss of $ 32.3 million for the year ended december 31 , 2017. this increase was due to higher selling , general and administrative expenses , primarily due to the impact of share-based compensation , higher professional fees related to integration and acquisition activities in the current period , and the $ 14.6 million impairment of the sterling trademark in the current period . these drivers in net loss were partially offset by the $ 8.4 million gain on the acquisition of an unconsolidated investee . net loss attributable to non-controlling interests of evo investco , llc net loss attributable to non-controlling interests of evo investco , llc was $ 90.8 million for the year ended december 31 , 2018. there was no net loss attributable to non-controlling interests of evo investco , llc for the year ended december 31 , 2017 as it was prior to the ipo and reorganization activities . segment performance north america segment profit for the year ended december 31 , 2018 was $ 85.4 million , 3.2 % higher than the year ended december 31 , 2017. the increase is primarily due to organic growth in mexico and the u.s. tech-enabled division and the impact of cost reduction programs in the united states . north america segment profit margin was 26.6 % for the year ended december 31 , 2018 , compared to 27.7 % for the year ended december 31 , 2017. europe segment profit was $ 61.2 million for the year ended december 31 , 2018 , compared to $ 54.8 million for the year ended december 31 , 2017. the increase is primarily due to organic growth and the impact of acquisitions . europe segment profit margin was 25.1 % for the year ended december 31 , 2018 , compared to 26.7 % for the year ended december 31 , 2017. corporate expenses not allocated to a segment were $ 41.4 million for the year ended december 31 , 2018 , compared to $ 25.7 million for the year ended december 31 , 2017. the increase in expense is due to additional public company costs related to insurance , board of directors fees , certain related party transactions as described in note 9 “ related party transactions ” and an increase in consulting and advisor fees , including legal fees . 58 comparison of results for the years ended december 31 , 2017 and 2016 the following table sets forth the consolidated statements of operations in dollars and as a percentage of revenue for the period presented . replace_table_token_4_th revenue revenue was $ 504.8 million for the year ended december 31 , 2017 , an increase of $ 85.5 million , or 20.4 % , compared to revenue of $ 419.2 million for the year ended december 31 , 2016. this increase was driven primarily by the inclusion of revenue from the sterling acquisition and organic growth in our mexico market and european segment . north america segment revenue was $ 299.0 million for the year ended december 31 , 2017 , an increase of $ 58.0 million , or 24.0 % , compared to the year ended december 31 , 2016. the acquisition of the sterling business on january 4 , 2017 contributed $ 50.5 million , while organic growth in our north america sales channels contributed $ 7.4 million . north america transactions increased 17.8 % for the year ended december 31 , 2017 , compared to the year ended december 31 , 2016 , primarily driven by the sterling acquisition and organic growth in mexico . changes in foreign currency exchange rates decreased revenue by $ 1.2 million . europe segment revenue was $ 205.7 million for the year ended december 31 , 2017 , an increase of $ 27.6 million , or 15.5 % , compared to the year ended december 31 , 2016. europe transactions increased 24.7 % from double digit growth across all countries . the number of transactions processed increased faster than revenue due to certain one-time incentive payments received in the year ended december 31 , 2016. changes in foreign currency exchange rates increased revenue by $ 6.7 million for the year ended december 31 , 2017. operating expenses cost of services and products , exclusive of depreciation and amortization cost of services and products , exclusive of depreciation and amortization was $ 164.5 million for the year ended december 31 , 2017 , an increase of $ 23.8 million , or 16.9 % , compared to the year ended december 31 , 2016. this increase was due to the increase in transactions processed and the inclusion of costs from sterling .
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overview we are a leading payments technology and services provider offering an array of payment solutions to merchants ranging from small and mid-size enterprises to multinational companies and organizations across north america and europe . as a fully integrated merchant acquirer and payment processor in over 50 markets and 150 currencies worldwide , we provide competitive solutions that promote business growth , increase customer loyalty and enhance data security in the markets we serve . executive overview · revenue for the year ended december 31 , 2018 increased 11.9 % to $ 564.8 million from $ 504.8 million in 2017 , driven by an 18.7 % increase in europe segment revenue and a 7.2 % increase in north america segment revenue . · north america segment profit for the year ended december 31 , 2018 was $ 85.4 million , 3.2 % higher than the year ended december 31 , 2017 . · europe segment profit for the year ended december 31 , 2018 was $ 61.2 million , 11.6 % higher than the year ended december 31 , 2017. recent acquisitions see note 4 , “ acquisitions ” in the notes to the accompanying consolidated financial statements for further information about recent acquisitions . our segments we classify our business into two segments : north america and europe . the alignment of our segments is designed to establish lines of business that support the geographical markets in which we operate and allow us to further globalize our solutions while working seamlessly with our teams across these markets . both segments provide businesses with merchant acquiring solutions , including integrated solutions for retail transactions at physical business locations , as well as ecommerce and mobile transactions . 53 the business segment measurements provided to and evaluated by the segment leaders are computed in accordance with the principles listed below : · the accounting policies of the operating segments are the same as those described in the summary of the significant accounting policies .
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we are a global , technology-focused company that provides geophysical technology , services and solutions to the global oil and gas industry . we provide our services and products through four business segments – solutions , software , systems and ocean bottom services ( the segment name for oceangeo ) – as well as through our inova geophysical joint venture . for a full discussion of our business , see part i , item 1 . “ business . ” macroeconomic conditions demand for our services and products is cyclical and dependent upon activity levels in the oil and gas industry , particularly our customers ' willingness to invest capital in the exploration for oil and natural gas . our customers ' capital spending programs are generally based on their outlook for near-term and long-term commodity prices , economic growth , commodity demand and estimates of resource production . in 2013 , we started seeing decreased spending on exploration by e & p companies , which are reportedly focusing more of their current spending towards production optimization of existing assets . we believe this was due to several factors , but primarily because operational cash flows of e & p companies were no longer sufficient to cover capital expenditures and cash was increasingly being returned to shareholders in the form of dividends . e & p companies have been relying on asset sales and debt financings to fund capital requirements amid demands for greater returns to shareholders . e & p companies use their cash flow from operations to reinvest in productive assets through capital expenditures , build surplus cash for eventual downturns , or return cash to stakeholders . due to relatively stable oil prices and increasing exploration and production costs , free cash flow at e & p companies as a whole had generally decreased over the last several years . by 2013 , the combination of these factors led many e & p companies to a position where they have been unable to cover both their capital expenditure budgets and targeted cash returns to shareholders . as a result , e & p companies have turned their focus to spending reductions , with exploration spending receiving the largest reductions and seismic spending being one of the most discretionary parts of their exploration budgets . similar to ion , many seismic industry participants have been reporting lower year-over-year revenue , and decreased funding levels for contract and multi-client exploration activities . the following is a summary of recent oil and gas pricing trends : replace_table_token_3_th in the past few years , crude oil prices in north america had traded in a fairly limited band between $ 85 – $ 110 per barrel , maintained by competing forces of global geopolitical uncertainties offset by increasing north american production growth . in recent months , however , crude oil prices have dropped to prices as low as $ 45 and $ 46 for wti and brent , respectively , since december 2014 as the world economic outlook continues to weaken , north american production continues to expand , and more recently , saudi arabia has publicly stated its intention to support its global market share by maintaining , production levels at the expense of lower prices . the weakening economic outlook for non-u.s. oil demand , especially in europe , has put more downward pressure on prices . thus , the bottom-end of the price range for crude oil has decreased significantly beginning in the fourth quarter of 2014 compared to 2013. meanwhile the brent–wti spread has narrowed significantly . the price for brent crude will influence our customers ' spending in international markets , while the prices for wti and u.s. natural gas will influence our customers ' spending in the north american market . given the historical volatility of crude prices , there remains a risk that prices could deteriorate further going forward due to increased domestic crude oil production , slowing growth rates in emerging countries like china , stagnant economies in europe , and the potential for significant supply/demand imbalances . however , if the global supply of oil were to decrease due to government instability in a major oil-producing nation and energy demand starts to increase in emerging countries such as china and india , the world could see prices increase for brent and wti as in prior years . 34 the price range for natural gas in the u.s. was higher in 2014 compared to 2013. natural gas prices improved during 2014 largely due to above average storage withdrawals in response to extremely cold winter weather in many parts of the u.s. , lower net imports from canada and higher residential , commercial and industrial demand . the improvement in demand for natural gas has resulted in significant declines in natural gas inventories in the u.s. during the first half of 2014. natural gas inventories have recovered to approximately 1 % below the five-year average as of the end of 2014 , from 8 % below the five-year average as of the end of 2013 due to a lack of extremely cold weather in the early part of the winter months of 2014-2015 as was experienced in the previous year 's winter months . however , in spite of reduced inventories during the first half of 2014 and increases in natural gas prices , customer spending in the natural gas shale plays has been limited due to associated gas being produced from unconventional oil wells in north america . as a result of natural gas production growth outpacing demand in the u.s. , natural gas prices continue to be weak relative to prices experienced in 2006 through 2008 and are expected to remain below levels considered economical for new investments in numerous natural gas fields . if natural gas production growth continues to surpass demand in the u.s. , whether the supply comes from conventional or unconventional production or associated natural gas production from oil wells , prices for natural gas could be constrained for an extended period . story_separator_special_tag see footnote 2 “ impairments , restructurings and other charges ” of footnotes to consolidated financial statements . key financial metrics our results of operations have been materially affected by the impairments and restructuring charges within our solutions , systems and software segments and with respect to our inova geophysical joint venture , and by other charges , which affect the comparability of certain of the financial information contained in this form 10-k. in order to assist with the comparability to our historical results of operations , certain of the financial metrics tables and the discussion below exclude charges related to impairments , the restructuring and other write-downs . the gross profit ( loss ) , income ( loss ) from operations , costs and expenses below that are identified as “ as adjusted ” reflect the exclusion of the restructuring and other charges shown and described in the tables below . we believe that the non-gaap presentation of results of operations excluding these items provides a more meaningful comparison of reporting periods . the tables below provide ( i ) a summary of our net revenues for our company as a whole , and by segment , for 2014 , 2013 and 2012 , and ( ii ) an overview of other certain key financial metrics for our company as a whole and our four business segments on a comparative basis for 2014 , 2013 and 2012 , as reported and as adjusted in all three years for the restructuring and other charges recorded for those years . for certain tabular information on the operating results of our inova geophysical joint venture , see “ — other items — equity in earnings ( losses ) of investments . ” 36 replace_table_token_4_th 37 year ended december 31 , 2014 year ended december 31 , 2013 year ended december 31 , 2012 as reported restructuring and other charges as adjusted as reported restructuring and other charges as adjusted as reported restructuring and other charges as adjusted ( in thousands , except per share data ) gross profit : solutions $ ( 24,345 ) $ 100,825 ( a ) $ 76,480 $ 111,108 $ 5,461 ( a ) $ 116,569 $ 132,950 $ — $ 132,950 systems 29,829 7,580 ( b ) 37,409 19,999 25,688 ( c ) 45,687 50,790 1,280 ( d ) 52,070 software 28,835 137 ( e ) 28,972 28,206 — 28,206 32,061 — 32,061 ocean bottom services 27,904 — 27,904 — — — — — — total $ 62,223 $ 108,542 $ 170,765 $ 159,313 $ 31,149 $ 190,462 $ 215,801 $ 1,280 $ 217,081 gross margin : solutions ( 9 ) % 37 % 28 % 29 % 1 % 30 % 38 % — % 38 % systems 34 % 8 % 42 % 16 % 21 % 37 % 38 % 1 % 39 % software 72 % — % 72 % 72 % — % 72 % 74 % — % 74 % ocean bottom services 27 % — % 27 % — % — % — % — % — % — % total 12 % 22 % 34 % 29 % 6 % 35 % 41 % — % 41 % income ( loss ) from operations : solutions $ ( 80,653 ) $ 102,740 ( a ) $ 22,087 $ 61,146 $ 5,461 ( a ) $ 66,607 $ 88,589 $ — $ 88,589 systems ( 23,521 ) 32,492 ( b ) 8,971 ( 9,957 ) 28,050 ( c ) 18,093 10,132 12,848 ( d ) 22,980 software 20,212 223 ( e ) 20,435 23,602 — 23,602 28,129 — 28,129 ocean bottom services 19,070 — 19,070 — — — — — — corporate and other ( 53,037 ) 6,487 ( f ) ( 46,550 ) ( 58,395 ) 9,157 ( g ) ( 49,238 ) ( 52,323 ) — ( 52,323 ) total $ ( 117,929 ) $ 141,942 $ 24,013 $ 16,396 $ 42,668 $ 59,064 $ 74,527 $ 12,848 $ 87,375 operating margin : solutions ( 29 ) % 37 % 8 % 16 % 1 % 17 % 25 % — % 25 % systems ( 27 ) % 37 % 10 % ( 8 ) % 23 % 15 % 8 % 9 % 17 % software 51 % — % 51 % 60 % — % 60 % 65 % — % 65 % ocean bottom services 18 % — % 18 % — % — % — % — % — % — % corporate and other ( 10 ) % 1 % ( 9 ) % ( 11 ) % 2 % ( 9 ) % ( 10 ) % — % ( 10 ) % total ( 23 ) % 28 % 5 % 3 % 8 % 11 % 14 % 3 % 17 % net income ( loss ) applicable to common shares $ ( 128,252 ) $ 94,143 ( h ) $ ( 34,109 ) $ ( 251,874 ) $ 271,208 ( i ) $ 19,334 $ 61,963 $ ( 369 ) $ 61,594 diluted net income ( loss ) per common share $ ( 0.78 ) $ 0.57 $ ( 0.21 ) $ ( 1.59 ) $ 1.71 $ 0.12 $ 0.39 $ — $ 0.39 38 ( a ) primarily relates to the write-down of our multi-client data library in 2014 and 2013 with the solutions segment . also , 2014 was impacted by the impairment of intangible assets and severance-related charges . ( b ) primarily relates to the write-down of goodwill , impacting income ( loss ) from operations , in addition to inventory write-downs , impacting gross profit ( loss ) , and severance-related charges within the systems segment . ( c ) represents excess and obsolete inventory and severance-related charges within the systems segment in 2013 . ( d ) represents the write-down of excess and obsolete inventory , marine equipment and receivables within the systems segment in 2012 . ( e ) represents severance-related charges within the software segment .
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results of operations year ended december 31 , 2013 ( as adjusted ) compared to year ended december 31 , 2012 ( as adjusted ) our total net revenues of $ 549.2 million for 2013 increased $ 22.9 million , or 4 % , compared to total net revenues for 2012. our overall gross profit percentage for 2013 was 35 % , as adjusted , compared to 2012 's gross profit percentage of 41 % , as adjusted . total operating expenses , as adjusted , as a percentage of net revenues for 2013 and 2012 were 24 % and 25 % , respectively . during 2013 , income from operations , as adjusted , of $ 59.1 million compared to $ 87.4 million , as adjusted , for 2012. net loss for 2013 was $ 251.9 million , or $ ( 1.59 ) per share , compared to net income of $ 62.0 million , or $ 0.39 per diluted share for 2012. as noted above , 2013 included restructuring and other charges totaling $ 271.2 million , impacting our diluted earnings per share by $ 1.71. net revenues , gross profits and gross margins ( as adjusted ) solutions — net revenues for 2013 increased by $ 36.1 million , or 10 % , to $ 387.4 million , compared to $ 351.3 million for 2012. this increase was primarily driven by a large increase in our data library sales and nominal increases in new ventures and data processing revenues . sales in the fourth quarter of 2013 of $ 166.1 million , or 43 % of total annual solutions revenues for 2013 , increased primarily due to a significant increase in data library sales , mainly relating to offshore east and west africa , east and west india and the gulf of mexico . sales are typically higher in the fourth quarter of each year compared to the prior three quarters .
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tax benefits related to uncertain tax positions are recognized when it is more likely than not that a tax position will be sustained during an audit . interest and penalties related to unrecognized tax benefits are included within the provision for income tax . comprehensive income ( loss ) comprehensive income ( loss ) is defined as a change in equity of a business enterprise during a period resulting from transactions from non-owner sources . our other comprehensive income ( loss ) is comprised solely of unrealized gains ( losses ) on available-for-sale securities and is presented net of taxes . we have not recorded any reclassifications from other comprehensive income ( loss ) 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 related notes included elsewhere in this annual report on form 10-k. this discussion and other parts of this annual report contain forward-looking statements that involve risk and uncertainties , such as statements of our plans , objectives , expectations and intentions . as a result of many factors , including those factors set forth in the “ risk factors ” section of this annual report , our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . overview atara biotherapeutics is a pioneer in t-cell immunotherapy , leveraging its novel allogeneic ebv t-cell platform to develop transformative therapies for patients with serious diseases , including solid tumors , hematologic cancers and autoimmune disease . with our lead program in phase 3 clinical development , we are the most advanced allogeneic t-cell immunotherapy company and intend to rapidly deliver off-the-shelf treatments to patients with high unmet medical need . our platform leverages the unique biology of ebv t cells and has the capability to treat a wide range of ebv-driven diseases or other serious diseases through incorporation of engineered cars or tcrs . atara is applying this one platform to create a robust pipeline . our strategic priorities are : tab-cel ® : atara 's most advanced t-cell immunotherapy , tab-cel ® ( tabelecleucel ) , currently in phase 3 development for patients with ebv+ ptld who have failed rituximab or rituximab plus chemotherapy , as well as other ebv-driven diseases ; ata188 : t-cell immunotherapy targeting ebv antigens believed to be important for the potential treatment of multiple sclerosis ; car t programs : o ata2271 : autologous car t immunotherapy targeting solid tumors expressing the tumor antigen mesothelin , which is partnered with bayer ; o ata3271 : allogeneic car t therapy targeting mesothelin , which is partnered with bayer ; and o ata3219 : allogeneic car t targeting cd19 and being developed as a potential best-in-class product , based on a next generation 1xx co-stimulatory domain and the innate advantages of ebv t cells as the foundation for an allogeneic car t platform . our t-cell immunotherapy platform includes the capability to progress both allogeneic and autologous programs and is potentially applicable to a broad array of targets and diseases . our off-the-shelf , allogeneic t-cell platform allows for rapid delivery of a t-cell immunotherapy product manufactured in advance of patient need and stored in inventory , with each manufactured lot of cells providing therapy for numerous potential patients . this differs from autologous treatments , in which each patient 's own cells must be extracted , genetically modified outside the body and then delivered back to the patient , requiring a complex logistics network . for our allogeneic programs , we select the appropriate set of cells for use based on a patient 's unique immune profile . in december 2020 , we entered into the bayer license agreement , pursuant to which we granted to bayer an exclusive , field-limited license under the applicable patents and know-how owned or controlled by us and our affiliates covering or related to ata2271 and ata3271 . under the terms of the bayer license agreement , we will be responsible at our cost for all mutually agreed preclinical and clinical activities for ata2271 through the first in human phase 1 clinical study in collaboration with msk , following which bayer will be responsible for the further development of ata2271 at its cost . bayer will be responsible for the development of ata3271 , except for certain mutually agreed preclinical , translational , manufacturing and supply chain activities to be performed by us relating to ata3271 , in each case at bayer 's cost . bayer will also be solely responsible for commercializing the licensed products at its cost . we have also entered into research collaborations with leading academic institutions such as msk , qimr berghofer and moffitt pursuant to which we acquired rights to novel and proprietary technologies and programs . our manufacturing facility in thousand oaks , california has the flexibility to manufacture multiple t-cell and car t immunotherapies while integrating research and process science functions to enable increased collaboration for rapid product development . we are currently in the process of completing our facility 's commercial production qualification activities for tab-cel ® while building inventory according to our commercial product supply strategy . 71 in addition to our manufacturing facility , we also work with cognate pursuant to the manufacturing agreement that we entered into in december 2019 . p ursuant to the manufacturing agreement , cognate provides manufacturing services for certain of our product candidates . the initial term of the manufacturing agreement runs until december 31 , 2021 and is renewable with cognate 's approval for an additional one - year period . we have a limited operating history . since our inception in 2012 , we have devoted substantially all of our resources to identify , acquire and develop our product candidates , including conducting preclinical and clinical studies , acquiring or manufacturing materials for clinical studies , constructing our manufacturing facility and providing general and administrative support for these operations . story_separator_special_tag our effective tax rate was 0 % for the years ended december 31 , 2020 , 2019 , and 2018. critical accounting policies and significant judgments and estimates our management 's discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the u.s. the preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets , liabilities and expenses . on an on-going basis , we evaluate our critical accounting policies and estimates . we base our estimates on historical experience and on various other assumptions that we believe to be reasonable in 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 and conditions . our significant judgments and estimates are detailed below , and our significant accounting policies are more fully described in note 2 of the accompanying consolidated financial statements . 73 r evenue recognition revenue from research activities under our research , development , and license agreements is recognized when our customer obtains control of the promised goods or services , in an amount that reflects the consideration which we expect to receive in exchange for those goods or services . revenue generated from our research , development , and license agreements is not subject to repayment and typically includes upfront fees , development , regulatory and commercial milestone payments and royalties on the licensee 's future product sales . our research , development , and license agreements may include the transfer of intellectual property rights in the form of licenses , promises to provide research and development services and promises to participate on certain development committees with the collaboration party . we assess whether the promises in these agreements are considered distinct performance obligations that should be accounted for separately . judgment is required to determine whether licenses to our intellectual property are distinct from the research and development services or participation on development committees . the transaction price in each agreement is allocated to the identified performance obligations based on the standalone selling price ( ssp ) of each distinct performance obligation . due to the early stage of our licensed technology , the license of such technology is typically combined with the research and development services and committee participation as one combined performance obligation . revenue associated with nonrefundable upfront license fees where the license fees and research and development activities can not be accounted for as separate performance obligations is deferred and recognized as revenue over the expected period of performance using a cost-based input method . we utilize judgment to assess the pattern of delivery of the performance obligation . a cost-based input method of revenue recognition requires management to make estimates of costs to complete our performance obligations . in making such estimates , significant judgment is required to evaluate assumptions related to cost estimates . the cumulative effect of revisions to estimated costs to complete our performance obligations will be recorded in the period in which changes are identified and amounts can be reasonably estimated . a significant change in the assumptions and estimates could have a material impact on the timing and amount of revenue recognized in future periods . at the inception of each agreement that includes development , regulatory or commercial milestone payments , we evaluate whether the milestones are considered probable of being reached and estimate the amount to be included in the transaction price by 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 . the transaction price is allocated to each performance obligation in the agreement based on relative ssp . we typically determine ssps using an adjusted market assessment approach model . milestone payments that are not within our or the licensee 's control , such as regulatory approvals , are not considered probable of being achieved until those approvals are received . at the end of each subsequent reporting period , we re-evaluate the probability of achievement of each such milestone and any related constraint , and if necessary , adjust our estimates of the overall transaction price . any such adjustments are recorded on a cumulative catch-up basis , which would affect revenues and earnings in the period of adjustment . certain judgments affect the application of our revenue recognition policy . for example , we record short-term and long-term deferred revenue based on our best estimate of when such revenue will be recognized . short-term deferred revenue consists of amounts that are expected to be recognized as revenue in the next 12 months , and long-term deferred revenue consists of amounts that we do not expect will be recognized in the next 12 months . this estimate is based on the our current operating plan and , if our operating plan should change in the future , we may recognize a different amount of deferred revenue over the next 12-month period accrued research and development expenses as part of the process of preparing our financial statements , we are required to estimate and accrue expenses , the largest of which is related to research and development expenses , including those related to clinical studies and drug manufacturing . this process involves reviewing contracts and purchase orders , identifying and evaluating the services that have been performed on our behalf , and estimating the associated cost incurred for the services when we have not yet been invoiced or otherwise notified of the actual costs .
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results of operations comparison of the years ended december 31 , 2020 , 2019 and 2018 research and development expenses research and development expenses consisted of the following costs , by program , in the periods presented : replace_table_token_3_th tab-cel ® expenses were $ 61.2 million in 2020 as compared to $ 49.2 million in 2019 and $ 50.8 million in 2018. tab-cel ® expenses increased in 2020 due to clinical trials and process performance qualification activities at our manufacturing facility , as well as increased activity to support our tab-cel ® bla filing . t he slight decrease in 2019 as compared to 2018 was primarily due to higher clinical trial and manufacturing costs in 2018 related to the ramp up of the match and allele phase 3 clinical studies for patients with ebv+ ptld . ata188 , car t and other program expenses were $ 25.1 million in 2020 as compared to $ 34.9 million in 2019 and $ 30.2 million in 2018. the decrease in 2020 was primarily due to lower clinical study , manufacturing and other outside services costs for programs that are no longer in active development . the increase in 2019 was primarily related to research and manufacturing process development costs related to our car t programs ; increased clinical study , manufacturing and other outside service costs related to the phase 1 clinical study of ata188 for patients with pms ; and other programs . employee and overhead expenses were $ 158.3 million in 2020 as compared to $ 132.0 million in 2019 and $ 86.5 million in 2018. the increases were primarily due to higher compensation-related costs from increased headcount and higher facility-related costs in support of our continuing expansion of research and development activities . payroll and related costs increased by $ 21.2 million in 2020 as compared to 2019 and by $ 29.6
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other than its electric transmission and certain gt & s revenues , the utility 's decoupling of base revenues and sales volume eliminates volatility in the revenues earned by the utility due to fluctuations in customer demand . the utility 's revenue requirements are set based on forecast costs . differences between forecast costs and actual costs can occur for numerous reasons , including the volume of new customer connections , the detection and mitigation of emerging safety threats , and the impact of market forces on the cost of labor and materials . differences in costs can also arise from changes in laws and regulations at both the state and federal level . generally , differences between actual costs and forecast costs could affect the utility 's ability to earn its authorized return ( referred to as “ utility revenues and costs that impacted earnings ” in results of operations below ) . however , for certain operating costs , such as costs associated with pension and other employee benefits , the utility is authorized to track the difference between actual amounts and forecast amounts and recover or refund the difference through rates ( referred to as “ utility revenues and costs that did not impact earnings ” in results of operations below ) . the utility also collects additional revenue requirements to recover certain costs that the cpuc has authorized the utility to pass on to customers . therefore , although these costs can fluctuate , they generally do not impact net income ( referred to as “ utility revenues and costs that did not impact earnings ” in results of operations below ) . see “ ratemaking mechanisms ” in item 1 for further discussion . there may be some types of costs that the cpuc has determined will not be recoverable through rates or for which the utility does not seek recovery , such as certain pipeline-related costs and fines associated with the utility 's natural gas transmission system . the cpuc could also disallow recovery of costs that it finds were not prudently or reasonably incurred . the timing and amount of the unrecoverable or disallowed costs can materially impact the utility 's net income , as described more fully below . this is a combined report of pg & e corporation and the utility , and includes separate consolidated financial statements for each of these two entities . this combined md & a should be read in conjunction with the consolidated financial statements and the notes to the consolidated financial statements included in item 8 . 35 summary of changes in net income and earnings per share pg & e corporation 's financial results for 2014 reflect an increase in the utility 's revenues as authorized in the cpuc 's final decision issued in the utility 's 2014 grc on august 14 , 2014 . ( see “ results of operations ” below . ) the following table is a summary reconciliation of the key changes , after-tax , in pg & e corporation 's income available for common shareholders and eps for the year ended december 31 , 2014 compared to the prior year ( see “ results of operations ” below for additional information ) : replace_table_token_11_th ( 1 ) represents the decrease in net costs related to natural gas matters during 2014 as compared to 2013. these amounts are not recoverable through rates . see “ results of operations - operating and maintenance ” below . ( 2 ) in 2013 , the utility incurred approximately $ 200 million of expense and $ 1 billion of capital costs above authorized levels . the 2014 grc decision authorized revenues that support this higher level of spending in 2014 and throughout the grc period . the amounts in the table represent the after-tax higher authorized revenue recognized during 2014 , for the recovery of these expenses and costs . ( 3 ) represents the favorable impact of recent irs guidance and forecast changes based on flow-through ratemaking treatment for federal tax deductions resulting from temporary differences attributable to the accelerated recognition of repairs and certain other property-related costs , as reflected in the revenue requirements authorized in the 2014 grc decision . see “ income tax provision ” below . ( 4 ) represents the impact of the increase in rate base as authorized in various rate cases , including the 2014 grc , during 2014 as compared to 2013 . ( 5 ) includes customer energy efficiency incentive awards . ( 6 ) represents the impact of a higher number of weighted average shares of common stock outstanding during 2014 as compared to 2013. pg & e corporation issues shares to fund its equity contributions to the utility to maintain the utility 's capital structure and fund operations , including unrecovered expenses . 36 key factors affecting results of operations , financial condition , and cash flows pg & e corporation and the utility believe that their future results of operations , financial condition , and cash flows will be materially affected by the following factors : · the outcome of pending investigations and enforcement matters . the assigned cpuc aljs overseeing the three pending investigations regarding the utility 's gas transmission system and the san bruno accident have issued decisions to impose total fines and disallowances of $ 1.4 billion on the utility . the utility and other parties have appealed the decisions and several commissioners have requested reviews of the decisions . it is uncertain when the final outcome of these investigations will be determined . at december 31 , 2014 , the consolidated balance sheets included an accrual of $ 200 million for the minimum amount of fines deemed probable . there is also a pending federal criminal indictment against the utility alleging that the utility knowingly and willfully violated the pipeline safety act and illegally obstructed the ntsb 's investigation into the cause of the san bruno accident . based on the superseding indictment 's allegations , the maximum statutory fine would be $ 14 million and the maximum alternative fine would be approximately $ 1.13 billion . story_separator_special_tag these decreases were offset by higher benefit-related expenses and other operating expenses of $ 120 million in 2014 as compared to 2013 and $ 53 million in 2013 as compared to 2012. additionally , the utility incurred an $ 88 million charge in 2012 for an increase in estimated environmental remediation costs associated with the hinkley natural gas compressor station site , with no comparable charge taken in 2013. the following table provides a summary of the utility 's costs associated with natural gas matters that are not recoverable through rates : replace_table_token_14_th ( 1 ) in 2014 , the utility incurred $ 149 million of psep-related expenses , $ 155 million of other gas safety-related work , and $ 43 million of legal and other expenses . from december 31 , 2010 through december 31 , 2014 , the utility incurred respective expenses of $ 885 million , $ 502 million , and $ 370 million . see “ enforcement and litigation matters ” below . ( 2 ) amounts represent charges for psep capital costs expected to exceed the authorized amount . see “ pipeline safety enhancement plan ” in note 14 of the consolidated financial statements in item 8 . ( 3 ) includes fines related to ex parte communications , the carmel incident , and other fines . see “ pending cpuc investigations ” below . the utility has paid $ 40 million of fines through december 31 , 2014 . ( 4 ) amounts represent third-party liability claims and associated legal costs . the utility 's liability for third-party claims related to the san bruno accident was reduced in 2014 to reflect the settlement of all outstanding third-party claims . since the san bruno accident , the utility has made cumulative settlement payments of $ 532 million through december 31 , 2014 . ( 5 ) the utility has recognized insurance recoveries for third-party claims and associated legal costs . the utility has been engaged in settlement negotiations with its insurers regarding recovery of its remaining claims and costs . 40 depreciation , amortization , and decommissioning the utility 's depreciation , amortization , and decommissioning expenses increased $ 355 million or 17 % in 2014 compared to 2013 and $ 149 million or 8 % in 2013 compared to 2012. in 2014 , the increase was primarily due to higher depreciation rates as authorized by the cpuc in the 2014 grc decision and higher nuclear decommissioning expense reflecting the year-to-date increase as authorized by the cpuc in the nuclear decommissioning triennial proceeding . additionally , depreciation , amortization , and decommissioning expenses were impacted by an increase in capital additions during 2014 as compared to 2013 , and during 2013 as compared to 2012. interest income , interest expense , and other income , net there were no material changes to interest income , interest expense , and other income , net for the periods presented . income tax provision the utility 's revenue requirements for 2014 through 2016 , as authorized in the 2014 grc decision , reflect flow-through ratemaking for income tax expense benefits attributable to the accelerated recognition of repair costs and certain other property-related costs for federal tax purposes . pg & e corporation and the utility 's effective tax rates for 2014 are lower as compared to 2013 , and are expected to remain lower in 2015 and 2016 due to these temporary differences that are now being flowed through . pg & e corporation and the utility 's 2014 financial results reflect a reduction in income tax expense associated with these temporary differences . ( see note 8 of the notes to the consolidated financial statements in item 8 . ) the tax increase prevention act , signed into law on december 19 , 2014 , extended 50 % bonus federal tax depreciation on qualified property placed into service in 2014. the utility 's earnings were not impacted by the incremental tax depreciation as the flow-through ratemaking discussed above does not apply and the 2014 grc decision requires the utility to refund to customers the estimated cost of service benefits associated with this tax law change . the utility 's income tax provision increased $ 58 million or 18 % in 2014 as compared to 2013 and $ 28 million or 9 % in 2013 as compared to 2012. the increase in the tax provision was primarily due to higher pre-tax income , partially offset by certain reductions in tax expense for flow-through treatment as discussed above . the following table reconciles the income tax expense at the federal statutory rate to the income tax provision : replace_table_token_15_th ( 1 ) includes the effect of state flow-through ratemaking treatment . ( 2 ) represents effect of federal flow-through ratemaking treatment including those deductions related to repairs and certain other property-related costs discussed above . 41 utility revenues and costs that did not impact earnings cost of electricity the utility 's cost of electricity includes the costs of power purchased from third parties , transmission , fuel used in its own generation facilities , fuel supplied to other facilities under power purchase agreements , and realized gains and losses on price risk management activities . ( see note 9 of the notes to the consolidated financial statements in item 8 . ) the volume of power purchased by the utility is driven by customer demand , the availability of the utility 's own generation facilities ( including hydroelectric generations ) , and the cost effectiveness of each source of electricity . additionally , the cost of electricity is impacted by the higher cost of procuring renewable energy as the utility increases the amount of its renewable energy deliveries to comply with california law . replace_table_token_16_th cost of gas the utility 's cost of natural gas includes the costs of procurement , storage , transportation of natural gas , and realized gains and losses on price risk management activities . ( see note 9 of the notes to the consolidated financial statements in item 8 . )
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results of operations the following discussion presents pg & e corporation 's and the utility 's operating results for 2014 , 2013 , and 2012. see “ key factors affecting results of operations , financial condition , and cash flows ” above for further discussion about factors that could affect future results of operations . pg & e corporation the consolidated results of operations consist primarily of results related to the utility , which are discussed in the “ utility ” section below . the following table provides a summary of net income ( loss ) available for common shareholders : replace_table_token_12_th pg & e corporation 's net income or loss consists primarily of interest expense on long-term debt , other income or loss from investments , and income taxes . in 2014 , pg & e corporation 's operating results increased reflecting $ 45 million of realized gains and associated tax benefits recognized in connection with an equity investment in solarcity . pg & e corporation 's operating results in 2013 reflected an impairment loss of $ 28 million on its tax equity fund investments and higher charitable contributions as compared to 2012. utility the table below shows certain items from the utility 's consolidated statements of income for 2014 , 2013 and 2012. the table separately identifies the revenues and costs that impacted earnings from those that did not impact earnings . in general , expenses the utility is authorized to pass through directly to customers ( such as costs to purchase electricity and natural gas , as well as costs to fund public purpose programs ) and the corresponding amount of revenues collected to recover those pass-through costs , do not impact earnings . in addition , expenses that have been specifically authorized ( such as the payment of pension costs ) and the corresponding revenues the utility is authorized to collect to recover such costs , do not impact earnings .
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at that time the company impaired all costs incurred towards development of the land which amounted to $ 31,843 the financial statements show the value of the land and the related mortgage under assets held for sale and liabilities held for sale on the balance sheet as of june 30 , 2018 , respectively . in september 2018 , the company completed the sale of the pioneer property for a gross sales price of $ 349,000 . after payment of all closing costs , the company recorded a loss on sale of approximately $ 5,400 . f-15 grow capital , inc. and subsidiaries notes to audited consolidated financial statements note 5 – assets held for sale ( continued ) ( 2 ) wcs enterprises , inc. in the quarter ended march 31 , 2019 , the company began to actively market wcs for sale and has begun negotiations with certain parties for the sale of wcs , subject to diligence , negotiation of a purchase agreement and fulfillment of typical closing conditions . in connection with these efforts , management determined that it was appropriate to classify wcs as assets held for sale . on september 30 , 2019 , the company entered into a membership interest purchase agreement with the zallen trust pursuant to which the company sold all of the company 's membership interests in wcs for an aggregate purchase price of $ 782,450 . the zallen trust paid the purchase price by transferring to the company 434,694 shares of the company 's common stock , valued at $ 2.00 per share . the purchase agreement also provided that mr. zallen transfer to the company an additional 20,000 shares of common stock to settle $ 36,000 in back rent owed at the time of the sale . the company retired all of the shares received as a result of the transaction . in connection with the sale of wcs , the company and mr. zallen entered into a separation and release of claims agreement pursuant to which the company and mr. zallen provided a mutual release of claims against the other party and such party 's affiliates , including all claims related to mr. zallen 's service as an officer , employee , and director of the company . the release of claims by mr. zallen resulted in the forgiveness of salary accruals of approximately $ 367,000 for services provided up to june 30 , 2018. the company reversed related payroll taxes of approximately $ 61,000 and included the amount in the gain on sale . the shares issued in the exchange are subject to certain registration rights with no liquidated damages for failure to complete registration by a specific date . after payment of all closing costs , the company recorded a gain on sale of approximately $ 553,000 . ( see detail below ) ( 3 ) discontinued operation : ( a ) the results of the discounted operations are as follows : replace_table_token_10_th f-16 grow capital , inc. and subsidiaries notes to audited consolidated financial statements note 5 – assets held for sale ( continued ) ( 3 ) discontinued operation : ( cont 'd ) ( b ) assets and liabilities disposed of are as follows replace_table_token_11_th ( c ) groups of assets and liabilities held for sale as of june 30 , 2020 and june 30 , 2019 replace_table_token_12_th f-17 grow capital , inc. and subsidiaries notes to audited consolidated financial statements note 6– promissory note payable on september 4 , 2019 the company entered into a 90-day listing agreement for the sale of the resort story_separator_special_tag this discussion summarizes the significant factors affecting the results of operations and financial condition of the company during the fiscal years ended june 30 , 2020 and 2019 and should be read in conjunction with our consolidated financial statements and accompanying notes thereto included elsewhere herein . certain information contained in this “ management 's discussion and analysis of financial condition and results of operations ” are “ forward-looking statements. ” statements that are not historical in nature and which may be identified by the use of words like “ expects , ” “ assumes , ” “ projects , ” “ anticipates , ” “ estimates , ” “ we believe , ” “ could be ” and other words of similar meaning , are forward-looking statements . these statements are based on management 's expectations and assumptions and are subject to risks and uncertainties that may cause actual results to differ materially from those expressed . our actual results may differ materially from the results discussed in this section because of various factors , including those set forth elsewhere herein . see “ forward-looking statements ” included in this report . financial statements the audited consolidated financial statements form a part of this report include results for our fiscal years ended june 30 , 2020 and 2019. the consolidated financial statements include the accounts of grow capital , inc. , and its wholly-owned subsidiaries , resort at lake selmac , inc. and bombshell technologies , inc. as of june 30 , 2020. all significant intercompany accounting transactions have been eliminated as a result of consolidation . following is management 's discussion and analysis of those financial statements . this discussion and analysis should be read in conjunction with our financial statements and notes thereto included elsewhere in report on form 10-k for the fiscal years ended june 30 , 2020 and 2019. results of operations story_separator_special_tag roman ; margin:0 ; color : # 000000 ; background-color : # ffffff '' > liquidity and capital resources replace_table_token_3_th as of june 30 , 2020 , the company had total current assets of $ 774,537 and a working capital deficit of $ 269,576 , compared to total current assets of $ 2,950,256 ( including stock based compensation story_separator_special_tag the company is actively working to increase the customer base and gross profit in bombshell technologies in order to achieve net profitability by the close of fiscal 2021. the addition of another operating entity subsequent to june 30 , 2020 , is expected to contribute additional gross profits to offset operational overheads . the additional growth plans include the acquisition of several new customers , an increase to the users currently subscribed to our software , as well as increased sales of customization services to new and existing customers . the company intends to rely on sales of our unregistered common stock , loans and advances from related parties to meet operational shortfalls until such time as we achieve profitable operations . if the company fails to generate positive cash flow or obtain additional financing , when required and on acceptable terms , the company may have to modify , delay , or abandon some or all of its business and expansion plans , and potentially cease operations altogether . consequently , the aforementioned items raise substantial doubt about the company 's ability to continue as a going concern within one year after the date that the financial statements are issued . the accompanying consolidated financial statements do not include any adjustments that might be necessary should we be unable to continue as a going concern . covid-19 pandemic the recent covid-19 pandemic could have an adverse impact on our ongoing operations . to date the company 's primary operating segment , bombshell , has not experienced a decline in sales as a result of the impact of covid 19. the company 's operations in the fintech sector are carried out with a limited amount of person to person contact and we do not expect an impact on these operations as a result of covid 19 , however , the full effect of the covid-19 outbreak continues to evolve as of the date of this report , is highly uncertain and subject to change . operations of the company 's resort at lake selmac property were delayed until july 2020 when the government permitted the resort to reopen . management does not expect the delay in opening the resort for the 2020-2021 season to substantially impact profitable operations for this business in the long term . management is actively monitoring the 19 situation but given the daily evolution of the covid-19 outbreak , the company is not able to estimate the effects of the covid-19 outbreak on its operations or financial condition in the next 12 months . while significant uncertainty remains , the company does not believe the covid-19 outbreak will have a negative impact on its ability to raise additional financing , conclude the acquisition of targeted business operations or reach profitable operations . off-balance sheet arrangements we have no off-balance sheet arrangements . critical accounting policies and estimates the preparation of our financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period . on an on-going basis , management evaluates its estimates and judgments which are based on historical experience and on various other factors that are believed to be reasonable under the circumstances . the results of their evaluation form the basis for making judgments about the carrying values of assets and liabilities . actual results may differ from these estimates under different assumptions and circumstances . our significant accounting policies are more fully discussed in the notes to our financial statements ; however , we have identified below certain policies that have substantial impact on our financial reporting : accounts receivable and allowance for doubtful accounts the company determines the allowance for doubtful accounts by considering a number of factors , including the length of time the accounts receivable are beyond the contractual payment terms , previous loss history , and the customer 's current ability to pay its obligation . when the company becomes aware of a specific customer 's inability to meet its financial obligations to the company , the company records a charge to the allowance to reduce the customer 's related accounts . at june 30 , 2020 , the allowance for doubtful accounts totaled approximately $ 35,350. leases in february 2016 , the financial accounting standards board ( “ fasb ” ) issued asu no . 2016-02 – topic 842 leases . asu 2016-02 requires that most leases be recognized on the financial statements , specifically the recognition of right-to-use assets and related lease liabilities , and enhanced disclosures about leasing arrangements . asu 2016-02 is effective for fiscal years beginning after december 15 , 2018 , including interim periods within those fiscal years . the standard requires using the modified retrospective transition method and apply asu 2016-02 either at ( i ) latter of the earliest comparative period presented in the financial statements or commencement date of the lease , or ( ii ) the beginning of the period of adoption . the company has elected to apply the standard at the beginning period of adoption , july 1 , 2019 which resulted in no cumulative adjustment to retained earnings . on july 30 , 2018 , the fasb issued asu 2018-11 to provide entities with relief from the costs of implementing certain aspects of the new leasing standard , asu 2016-02 ( codified as asc 842 ) .
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results of operations from continuing operations the company shifted its focus to the fintech sector during the current fiscal year and acquired an operating , revenue generating subsidiary , bombshell technologies , inc. further , the company divested wcs effective september 30 , 2019. while the resort at lake selmac site location was classified as “ held for sale ” in the first two quarters of fiscal 2020 , management determined to continue to operate the property until further notice , and its operations have been returned to continuing operations in the these fiscal year end financials . during the fiscal year ended , 2020 , the resort at lake selmac generated reduced revenues as compared to fiscal 2019 , as we took several months to re-brand the site as a resort destination location and attend to minor repairs and site upgrades during january and february 2020. subsequently in march 2020 the resort remained closed as a result of local state orders preventing its re-opening due to covid 19. the resort was able to reopen as of july 2020. financial results for the fiscal year ended june 30 , 2020 are “ combined ” with respect to the operations of bombshell technologies , inc. under the requirements of asc 850-50-45 , which results impact the statements of profit and loss and statements of cash flows to include operations of bombshell technologies inc. as though it had been acquired on inception . fiscal year ended june 30 , 2020 compared to fiscal year ended june 30 , 2019 revenue and costs of revenue during the fiscal year ended june 30 , 2020 we generated gross revenues of $ 2,368,504 , of which $ 2,051,355 was derived from related party customers , compared to $ 1,065,213 in the comparative fiscal year ended june 30 , 2019 , of which $ 787,919 was derived from related party customers .
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the merger was accounted for as a reverse acquisition , with foamix allocating the purchase price consideration to the tangible and intangible assets acquired and liabilities assumed from menlo , and the excess purchase price recorded as goodwill . in accordance with reverse acquisition accounting , foamix 's consolidated financial statements are deemed those of the predecessor entity and , accordingly , the historical financial statements presented herein are those of foamix . company overview we are a specialty pharmaceutical company focused on developing proprietary , innovative and differentiated therapies in dermatology and beyond . our products , amzeeq for the treatment of inflammatory lesions of moderate-to-severe acne vulgaris in adults and patients 9 years of age and older , and zilxi for the treatment of inflammatory lesions of rosacea in adults , are the first topical minocycline products to be approved by the fda . amzeeq and zilxi were commercially launched in january and october of 2020 , respectively , and serve as a springboard for commercializing additional innovative products . in addition , our product pipeline includes fcd105 ( minocycline 3 % and adapalene 0.3 % ) , our proprietary novel topical combination foam formulation of minocycline and adapalene for the treatment of moderate-to-severe acne vulgaris . fcd105 is a phase 3-ready asset that we believe has the potential to be a best-in-class treatment for patients with acne . in addition , we recently announced a development program for fmx114 , which is a combination topical gel for the potential treatment of mild-to-moderate atopic dermatitis . we plan to conduct a phase 2a proof-of-concept study for fmx114 in the third quarter of 2021. amzeeq and zilxi utilize our proprietary molecule stabilizing technology ( mst ) platform that is also being used to develop fcd105 . our mst proprietary foam platform is designed to optimize the topical delivery of minocycline , an active pharmaceutical ingredient , or api , that was previously available only in oral form despite its prevalent use in dermatology . in addition to the mst platform , we have a number of proprietary delivery platforms in development that enable topical delivery of other apis , each having unique pharmacological features and characteristics designed to keep the api stable when delivered and directed to the target site . we believe our mst vehicle and other topical delivery platforms may offer significant advantages over alternative delivery options and are suitable for multiple application sites across a range of conditions . key developments below is a summary of selected key developments affecting our business that have occurred since december 31 , 2019 : on november 10 , 2019 , menlo , foamix and giants merger subsidiary ltd. , a wholly-owned subsidiary of menlo ( “ merger sub ” ) , entered into the merger agreement . pursuant to the terms of the merger agreement , merger sub merged with and into foamix , with foamix surviving as a wholly-owned subsidiary of menlo ( the “ merger ” ) on march 9 , 2020. foamix was deemed the “ accounting acquirer ” in the merger and the merger was accounted for as a reverse acquisition , with foamix allocating the purchase price consideration to the tangible and intangible assets acquired and liabilities assumed from menlo , and the excess purchase price recorded as goodwill . in accordance with reverse acquisition accounting , foamix 's consolidated financial statements are deemed those of the predecessor entity . on march 9 , 2020 , we entered into an amended and restated credit agreement and guaranty , whereby we have guaranteed the indebtedness obligation of our subsidiary borrower and granted a first priority security interest in substantially all of our assets for the benefit of the lenders . $ 35.0 million was outstanding under the amended and restated credit agreement as of december 31 , 2020 , with no availability for additional borrowings . on august 5 , 2020 , the parties amended the minimum net revenue covenant contained in the amended and restated credit agreement and guaranty following an assessment of the impact of the covid-19 pandemic on the company 's business . on march 24 , 2020 , we announced that andrew saik joined the company as our chief financial officer and treasurer . 74 on april 2 , 2020 , we announced that we entered into a settlement and license agreement to resolve the remaining pending patent litigation involving finacea foam . in april 2020 , leo remedied the supply chain issues related to finacea and resumed commercial sales . on april 6 , 2020 , we announced top line results from the phase iii pn trials for serlopitant . neither study met their respective primary endpoint of demonstrating statistically significant reduction in pruritus in patients treated with serlopitant compared to placebo based on a 4-point improvement responder analysis . we currently do not intend to further pursue the development of serlopitant internally . as such , the company recorded a full impairment charge related to the ipr & d and goodwill assets of $ 49.8 million and $ 4.5 million , respectively , in its consolidated statement of operations and comprehensive loss for the year ended december 31 , 2020. on april 23 , 2020 , we announced that we entered into the cutia license agreement with respect to our minocycline products and product candidate , once approved , on an exclusive basis in greater china . under the terms of the agreement , cutia will have an exclusive license to obtain regulatory approval of and commercialize amzeeq , zilxi and , if approved , fcd105 in the greater china territory . we will supply the finished licensed products to cutia for clinical and commercial use . we received an upfront cash payment of $ 10 million and will be eligible to receive an additional $ 1 million payment upon the receipt of marketing approval in china of the first licensed product . we will also receive royalties on net sales of any licensed products . the covid-19 pandemic has directly impacted our business operations . story_separator_special_tag on february 1 , 2021 , we announced that the fda approved a label update for amzeeq , including new information indicating the low propensity of propionibacterium acnes ( more commonly known as p. acnes ) to develop resistance to minocycline . on february 10 , 2021 , our board of directors approved a one-for-four reverse stock split of our outstanding shares of common stock . the reverse stock split was effected on february 12 , 2021 at 5:00 p.m. eastern time . at the effective time , every four issued and outstanding shares of our common stock were converted into one share of common stock . no fractional shares were issued in connection with the reverse stock split , and in lieu thereof , each stockholder holding fractional shares was entitled to receive a cash payment ( without interest or deduction ) from the company 's transfer agent in an amount equal to such stockholder 's respective pro rata shares of the total net proceeds from the company 's transfer agent sale of all fractional shares at the then-prevailing prices on the open market . in connection with the reverse stock split , the number of authorized shares of our common stock was also reduced on a one-for-four basis , from 300 million to 75 million . the par value of each share of common stock remained unchanged . a proportionate adjustment was also made to the maximum number of shares issuable under the company 's 2019 equity incentive plan , 2018 omnibus incentive plan and 2019 employee share purchase plan . on march 1 , 2021 , we announced development plans for fmx114 for the potential treatment of mild-to-moderate atopic dermatitis . fmx114 is a fixed combination of tofacitinib , which is a pan-janus kinase ( jak ) inhibitor , and fingolimod , a sphingosine 1-phosphate receptor modulator . fmx114 attempts to address both the source and cause of inflammation in atopic dermatitis and support skin barrier recovery . revenues our revenue during the periods presented has been primarily comprised of amzeeq and zilxi product sales and collaboration and license revenue . during 2019 , we were engaged in pre-launch sales and marketing planning activities and other pre-commercialization efforts in order to support the commercialization of amzeeq in the united states . amzeeq and zilxi were commercially launched in january and october of 2020 , respectively . we have generated product revenue of $ 10.2 million for the year ended december 31 , 2020. we will not commercially launch our other product candidates in the united states or generate any revenues from sales of any of our product candidates unless and until we obtain marketing approval . our ability to generate 76 revenues from sales will depend on the successful commercialization of amzeeq and zilxi and any other product candidates that receive marketing approval . historically , we have generated revenues under development and license agreements including royalty payments in relation to finacea , the prescription foam product that we developed in collaboration with bayer , which later assigned it to leo . in the three months ended march 31 , 2020 , we did not receive or become entitled to any royalty payments due to the ongoing suspension of the manufacturing of finacea by leo , following inadequate supply of quality-compliant batches of the api used in such product . in april 2020 , leo informed us that it had reestablished the supply of finacea foam and resumed commercial sale in the united states . in the year ended december 31 , 2020 we received royalties of $ 0.8 million . we may become entitled to additional contingent payments in the future , subject to achievement of the applicable clinical results by our other licensees . however , in light of the current phase of development and associated milestone schedules under these agreements , we do not expect to receive significant payments in the near term , if at all . we are also entitled to additional royalties from net sales or net profits generated by other products to be developed under these agreements , if they are successfully commercialized . additionally , as described in “ key developments , ” on april 23 , 2020 , we announced that we entered into a licensing agreement with cutia for our other topical minocycline products and product candidate , if approved , on an exclusive basis in greater china . under the terms of the agreement , cutia will have an exclusive license to obtain regulatory approval of and commercialize amzeeq , zilxi and , if approved in the u.s. , fcd105 in the greater china territory . we will supply the finished licensed products to cutia for clinical and commercial use . we received an upfront cash payment of $ 10 million and will be eligible to receive an additional $ 1 million payment upon the receipt of marketing approval in china of the first licensed product . we will also receive royalties on net sales of any licensed products pursuant to the agreement . in the year ended december 31 , 2020 , we recognized license revenue of $ 10.0 million . cost of goods sold cost of goods sold was $ 1.4 million for the year ended december 31 , 2020. there was no cost of goods sold in the year ended december 31 , 2019 because the revenues in that period consisted solely of royalties , which do not bear related cost of goods sold . our gross margin percentage of 86 % was favorably impacted during the year ended december 31 , 2020 by product sales with certain materials produced prior to fda approval and therefore expensed in prior periods . if inventory sold during the year ended december 31 , 2020 was valued at cost , our gross margin for the period then ended would have been 83 % .
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summary of operations replace_table_token_1_th revenues revenues totaled $ 21.0 million and $ 0.4 million for the years ended december 31 , 2020 and 2019 , respectively . for the year ended december 31 , 2020 , our revenue consisted of $ 10.2 million of product sales , primarily associated with amzeeq and zilxi , which were launched in january 2020 and october 2020 , respectively , $ 10.0 million of license revenue , and $ 0.8 million of royalty revenue . for the year ended december 31 , 2019 , revenues consisted solely of royalty revenues . the increase in license revenue for the year ended december 31 , 2020 as compared to license revenue for the year ended december 31 , 2019 is due to the upfront payment received under the cutia license agreement for the marketing and sale of our topical minocycline products in greater china . circumstances surrounding the covid-19 pandemic have negatively impacted our ability to execute our commercial strategy with respect to amzeeq and zilxi . for example , our product sales , particularly during the second and fourth quarters of 2020 , were negatively impacted by restrictions put in place in response to the pandemic . specifically , many healthcare providers suspended access to their office for pharmaceutical sales representatives . in addition , many patients have chosen not to visit or contact their healthcare providers which has limited new patient access and conversion . the length of time and extent to which the covid-19 pandemic will directly or indirectly impact the company 's business , results of operations and financial condition will depend on future developments that are highly uncertain , subject to change and will continue to evolve with geographical re-openings , virus waves and the distribution of vaccines and treatment options . an extended duration of the covid-19 pandemic could continue to negatively impact sales of amzeeq and zilxi .
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in the event that story_separator_special_tag the following is management 's discussion and analysis ( “ md & a ” ) of certain significant factors that have affected our financial position and operating results during the periods included in the accompanying financial statements , as well as information relating to the plans of our current management . this report includes forward-looking statements . generally , the words “ believes , ” “ anticipates , ” “ may , ” “ will , ” “ should , ” “ expect , ” “ intend , ” “ estimate , ” “ continue , ” and similar expressions or the negative thereof or comparable terminology are intended to identify forward-looking statements . such statements are subject to certain risks and uncertainties , including the matters set forth in this report or other reports or documents we file with the securities and exchange commission from time to time , which could cause actual results or outcomes to differ materially from those projected . undue reliance should not be placed on these forward-looking statements which speak only as of the date hereof . we undertake no obligation to update these forward-looking statements . the following discussion and analysis should be read in conjunction with our financial statements and the related notes thereto and other financial information contained elsewhere in this form 10-k the company 's md & a is comprised of significant accounting estimates made in the normal course of its operations , overview of the company 's business conditions , results of operations , liquidity and capital resources and contractual obligations . the company did not have any off balance sheet arrangements as of december 31 , 2016 or 2017 . the discussion and analysis of the company 's financial condition and results of operations is based upon its financial statements , which have been prepared in accordance with generally accepted accounting principles generally accepted in the united states ( or “ gaap ” ) . the preparation of those financial statements requires us to make estimates and judgments that affect the reported amount of assets and liabilities at the date of its financial statements . actual results may differ from these estimates under different assumptions or conditions . our ability to continue as a going concern our independent registered public accounting firm has issued its report dated april _ , 2018 in connection with the audit of our financial statements as of december 31 , 2017 that included an explanatory paragraph describing the existence of conditions that raise substantial doubt about our ability to continue as a going concern . our financial statements as of december 31 , 2017 have been prepared under the assumption that we will continue as a going concern . if we are not able to continue as a going concern , it is likely that holders of our common stock will lose all of their investment . our financial statements do not include any adjustments that might result from the outcome of this uncertainty . overview we are a biotechnology company focused on the discovery , development and , subject to regulatory approval , commercialization of autologous cell therapies for the treatment of chronic and acute heart damage . our lead product candidates are myocell and adipocell . myocell is an innovative clinical therapy designed to populate regions of scar tissue within a patient 's heart with autologous muscle cells , or cells from a patient 's body , for the purpose of improving cardiac function in chronic heart failure patients . adipocell is an innovative cell therapy kit with multiple possible treatment applications using autologous adipose cells . we are presently investigating the use of adipose cells in a variety of clinical applications . 34 index biotechnology product candidates we are focused on the discovery , development and , subject to regulatory approval , commercialization of autologous cell therapies for the treatment of chronic and acute heart damage . in our pipeline , we have multiple product candidates for the treatment of heart damage , including myocell , myocell sdf-1 and adipocell . myocell and myocell sdf-1 are clinical muscle-derived cell therapies designed to populate regions of scar tissue within a patient 's heart with new living cells for the purpose of improving cardiac function in chronic heart failure patients . myocell sdf-1 is intended to be an improvement to myocell . myocell sdf-1 is similar to myocell except that the myoblast cells to be injected for use in myocell sdf-1 will be modified prior to injection by an adenovirus vector or non-viral vector so that they will release extra quantities of the sdf-1 protein , which expresses angiogenic factors . adipocell is a kit to obtain patient-derived cells proposed for various in clinic procedures . we hope to demonstrate that these product candidates are safe and effective complements to existing therapies for various indications . our most recent completed clinical trials of myocell are the seismic trial , a 40-patient , randomized , multicenter , controlled , phase ii-a study conducted in europe and the myoheart trial , a 20-patient , multicenter , phase i dose-escalation trial conducted in the united states . we were approved by the fda , to proceed with a 330-patient , multicenter phase ii/iii trial of myocell in north america and europe , or the marvel trial . we completed the myocell implantation procedure on the first patient in the marvel trial on october 24 , 2007. thus far , 20 patients , including 6 control patients , have been treated . initial results for the 20 patients were released at the heart failure society of american meeting in september , 2009 , showing a significant ( 35 % ) improvement in the 6 minute walk for those patients who were treated , and no improvement for those who received a placebo . on the basis of these results , we have applied for and received approval from the fda to reduce the number of additional patients in the trial to 134 , for a total of 154 patients . story_separator_special_tag american stem cell centers of excellence would like to replicate this success and have partnered and , with the board of directors ' approval and continued oversight that this will not diminish their responsibilities to our company , have retained the professional services of both kristin comella and mike tomas as cso and ceo respectively to help with scientific and successful operational deployment of their clinics . the board of directors contends that the successful deployment of american stem cell centers of excellence will lead to the financial value and revenue growth of us stem cell , inc. through sales of our products and services at american stem cell center of excellence clinics . subsequent events on january 30 , 2018 , greg knutson , a director of the company ( “ knutson ” ) and the company agreed to open and operate a r egenerative medicine/cell therapy clinic providing cellular treatments for patients afflicted with neurological , autoimmune , orthopedic and degenerative diseases in florida . to that end , u.s. stem cell clinic of the villages llc ( the “ llc ” ) was formed january 30 , 2018. knutson provided the company with the sum of three hundred thousand dollars ( $ 300,000 ) ( the “ investment ” ) to be utilized for the formation and initial operation of the llc . currently , knutson holds a 51 % member interest in the llc and the company holds a 49 % member interest . the company will provide operating assistance as well as management services , the latter to be compensated at fee of five percent ( 5 % ) of the net revenues . from january to april 2018 , we issued an aggregate of 9,875,484shares of common stock for services rendered . in addition , from january through march 1 , 2018 , we sold an aggregate of 7,838,457 shares of its common stock for net proceeds of $ 183,000. on or about march 1 , 2018 , the u.s. securities and exchange commission ( “ commission ” ) , miami regional office ( “ commission staff ” ) , served a subpoena upon u.s. stem cell , inc. , which seeks production of certain documents and communications including , among other things , minutes and other documents relating to the company 's board and audit committee meetings , financial statements , and press releases . the commission staff is conducting a formal non-public , fact-finding inquiry of u.s. stem cell , inc. this investigation is neither an allegation of wrongdoing nor a finding that any violation of law has occurred . the company is cooperating with the commission staff and has provided , and will continue to provide , information and documents to the commission staff . at this juncture , the company is not able to predict the duration , scope , results , or consequences of the commission staff 's investigation . there can be no assurance that this inquiry will be resolved in a manner that is not adverse to the company . 36 index results of operations overview on january 30 , 2018 , greg knutson , a director of our company ( “ knutson ” ) and our company agreed to open and operate a r egenerative medicine/cell therapy clinic providing cellular treatments for patients afflicted with neurological , autoimmune , orthopedic and degenerative diseases in florida . to that end , u.s. stem cell clinic of the villages llc ( the “ llc ” ) was formed january 30 , 2018. currently , knutson holds a 51 % member interest in the llc and we hold a 49 % member interest . we will provide operating assistance as well as management services , the latter to be compensated at fee of five percent ( 5 % ) of the net revenues . the llc shall be controlled by the board of managers , specifically knudson and mike tomas and be governed by a standard operating agreement . revenues the company 's primary source of revenue is from the sale of test kits and equipment , training services , patient treatments and laboratory services , and cell banking . our revenue may vary substantially from quarter to quarter and from year to year . we believe that period-to-period comparisons of our results of operations are not meaningful and should not be relied upon as indicative of our future performance . we do not expect to generate substantial revenues until we obtain regulatory approval for and commercialize our product candidates , which we do not expect to occur before 2019. we recognized revenues of $ 5,520,537 in 2017 compared to revenues of $ 3,083,261 in 2016. our revenue in 2017 was generated from the sale of test kits and equipment , training services , patient treatments and laboratory services , and cell banking . our revenues for 2016 were generated from the sale , test kits and equipment , training services , patient treatments and laboratory services , and cell banking . our significant overall increase in 2017 as compared to 2016 was generated by a 170 % increase in our banking revenue . cost of sales cost of sales consists of the costs associated with the production of myocath and test kits , product costs , labor for production and training and lab and banking costs consistent with products and services provided . cost of sales was $ 1,885,371 in the year ended december 31 , 2017 compared to $ 972,009 in the year ended december 31 , 2016. the increase is primarily due higher revenue volume . the margins are lower in 2017 compared to 2016 due to equipment depreciation in 2017. research and development our research and development expenses consist of costs incurred in identifying , developing and testing our product candidates . these expenses consist primarily of costs related to our clinical trials , the acquisition of intellectual property licenses and preclinical studies . we expense research and development costs as incurred .
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results of operations we are a research and development stage company and our myocell product candidate has not received regulatory approval or generated any material revenues and is not expected to until 2018 , if ever . we have generated substantial net losses and negative cash flow from operations since inception and anticipate incurring significant net losses and negative cash flows from operations for the foreseeable future as we continue clinical trials , undertake new clinical trials , apply for regulatory approvals , make capital expenditures , add information systems and personnel , make payments pursuant to our license agreements upon our achievement of certain milestones , continue development of additional product candidates using our technology , establish sales and marketing capabilities and incur the additional cost of operating as a public company . comparison of years ended december 31 , 2017 and december 31 , 2016 revenues we recognized revenues of $ 5,520,537 in 2017 , revenues generated from the sale of , kits and equipment , services , and laboratory services . in 2016 , we recognized revenues of $ 3,083,261 , revenues generated from the sales of kits and laboratory services . our significant overall increase in 2017 as compared to 2016 was generated by a 170 % increase in our banking revenue . cost of sales cost of sales was $ 1,885,371 in 2017 and $ 972,009 in 2016. the increase is primarily due higher revenues in 2017 as compared to 2016. the margins decreased by approximately 3 % due to equipment deprecation added in 2017. research and development research and development expenses were $ 6,644 in 2017 , an increase of $ 5,725 from research and development expenses of $ 919 in 2016. the increase was primarily attributable to an increase in the amount of available funds . the timing and amount of our planned research and development expenditures is dependent on our ability to obtain additional financing .
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under the modified arrangement , the $ 59.5 million in fhlb advances have a weighted average rate of 2.22 % and an average remaining life of 43 months . under a similar scenario story_separator_special_tag the following discussion and analysis also identifies significant factors that have affected our financial position and operating results during the periods included in the accompanying financial statements . we encourage you to read this discussion and analysis in conjunction with the financial statements and the related notes and the other statistical information also included in this report . overview our business model continues to be client-focused , utilizing relationship teams to provide our clients with a specific banker contact and support team responsible for all of their banking needs . the purpose of this structure is to provide a consistent and superior level of professional service , and we believe it provides us with a distinct competitive advantage . we consider exceptional client service to be a critical part of our culture , which we refer to as clientfirst. at december 31 , 2014 , we had total assets of $ 1.0 billion , a 15.6 % increase from total assets of $ 890.8 million at december 31 , 2013. the largest components of our total assets are loans and securities which were $ 871.4 million and $ 61.5 million , respectively , at december 31 , 2014. comparatively , our loans and securities totaled $ 733.7 million and $ 73.6 million , respectively , at december 31 , 2013. our liabilities and shareholders ' equity at december 31 , 2014 totaled $ 946.9 million and $ 83.0 million , respectively , compared to liabilities of $ 825.2 million and shareholders ' equity of $ 65.7 million at december 31 , 2013. the principal component of our liabilities is deposits which were $ 788.9 million and $ 680.3 million at december 31 , 2014 and 2013 , respectively . like most community banks , we derive the majority of our income from interest received on our loans and investments . our primary source of funds for making these loans and investments is our deposits , on which we pay interest . consequently , one of the key measures of our success is our amount of net interest income , or the difference between the income on our interest-earning assets , such as loans and investments , and the expense on our interest-bearing liabilities , such as deposits and borrowings . another key measure is the difference between the yield we earn on these interest-earning assets and the rate we pay on our interest-bearing liabilities , which is called our net interest spread . in addition to earning interest on our loans and investments , we earn income through fees and other charges to our clients . our net income for the year ended december 31 , 2014 was $ 6.6 million , a 29.4 % increase from $ 5.1 million for the year ended december 31 , 2013. after our dividend payment to our preferred stockholders , net income to common shareholders was $ 5.7 million , or diluted earnings per share ( eps ) of $ 1.10 , for the year ended december 31 , 2014 as compared to a net income to common shareholders of $ 4.4 million , or diluted eps of $ 0.98 for the year ended december 31 , 2013. the increase in net income resulted primarily from increases in net interest income and noninterest income , partially offset by increases in noninterest expense and income tax expense . net income for the year ended december 31 , 2012 was $ 3.9 million , while net income to common shareholders was $ 2.8 million , or diluted eps of $ 0.64. economic conditions , competition , and the monetary and fiscal policies of the federal government significantly affect most financial institutions , including the bank . lending and deposit activities and fee income generation are influenced by levels of business spending and investment , consumer income , consumer spending and savings , capital market activities , and competition among financial institutions , as well as client preferences , interest rate conditions and prevailing market rates on competing products in our market areas . effect of economic trends markets in the united states and elsewhere experienced extreme volatility and disruption since the latter half of 2007. while the economy as a whole has steadily improved since 2009 , the weak economic conditions are expected to continue into 2015. financial institutions likely will continue to experience credit losses above historical levels and elevated levels of non-performing assets , charge-offs and foreclosures . in light of these conditions , financial institutions also face heightened levels of scrutiny from federal and state regulators . these factors negatively influenced , and likely will continue to negatively influence , earning asset yields at a time when the market for deposits is intensely competitive . as a result , financial institutions experienced , and are expected to continue to experience , pressure on credit costs , loan yields , deposit and other borrowing costs , liquidity , and capital . 35 critical accounting policies we have adopted various accounting policies that govern the application of accounting principles generally accepted in the united states of america and with general practices within the banking industry in the preparation of our financial statements . our significant accounting policies are described in note 1 to our consolidated financial statements as of december 31 , 2014. certain accounting policies involve significant judgments and assumptions by us that have a material impact on the carrying value of certain assets and liabilities . we consider these accounting policies to be critical accounting policies . the judgment and assumptions we use are based on historical experience and other factors , which we believe to be reasonable under the circumstances . story_separator_special_tag the classification of assets and liabilities within the hierarchy is based on whether the inputs to the valuation methodology used for measurement are observable or unobservable . observable inputs reflect market-derived or market-based information obtained from independent sources , while unobservable inputs reflect our estimates about market data . the three levels of inputs that are used to classify fair value measurements are as follows : ● level 1 valuation is based upon quoted prices for identical instruments traded in active markets . level 1 instruments generally include securities traded on active exchange markets , such as the new york stock exchange , as well as securities that are traded by dealers or brokers in active over-the-counter markets . instruments we classify as level 1 are instruments that have been priced directly from dealer trading desks and represent actual prices at which such securities have traded within active markets . ● level 2 valuation is based upon quoted prices for similar instruments in active markets , quoted prices for identical or similar instruments in markets that are not active , and model-based valuation techniques , such as matrix pricing , for which all significant assumptions are observable in the market . instruments we classify as level 2 include securities that are valued based on pricing models that use relevant observable information generated by transactions that have occurred in the market place that involve similar securities . ● level 3 valuation is generated from model-based techniques that use significant assumptions not observable in the market . these unobservable assumptions reflect the company 's estimates of assumptions market participants would use in pricing the asset or liability . valuation techniques include use of option pricing models , discounted cash flow models , and similar techniques . we attempt to maximize the use of observable inputs and minimize the use of unobservable inputs when developing fair value measurements . when available , we use quoted market prices to measure fair value . specifically , we use independent pricing services to obtain fair values based on quoted prices . quoted prices are subject to our internal price verification procedures . if market prices are not available , fair value measurement is based upon models that use primarily market-based or independently-sourced market parameters . most of our financial instruments use either of the foregoing methodologies , collectively level 1 and level 2 measurements , to determine fair value adjustments recorded to our financial statements . however , in certain cases , when market observable inputs for model-based valuation techniques may not be readily available , we are required to make judgments about assumptions market participants would use in estimating the fair value of the financial instrument . the degree of management judgment involved in determining the fair value of an instrument is dependent upon the availability of quoted market prices or observable market parameters . for instruments that trade actively and have quoted market prices or observable market parameters , there is minimal subjectivity involved in measuring fair value . when observable ma rket prices and parameters are not fully available , management 's judgment is necessary to estimate fair value . in addition , changes in market conditions may reduce the availability of quoted prices or observable data . for example , reduced liquidity in the capital markets or changes in secondary market activities could result in observable market inputs becoming unavailable . when significant adjustments are required to available observable inputs , it may be appropriate to utilize an estimate based primarily on unobservable inputs . when an active market for a security does not exist , the use of management estimates that incorporate current market participant expectations of future cash flows , and include appropriate risk premiums , is acceptable . 37 significant judgment may be required to determine whether certain assets measured at fair value are included in level 2 or level 3. if fair value measurement is based upon recent observable market activity of such assets or comparable assets ( other than forced or distressed transactions ) that occur in sufficient volume and do not require significant adjustment using unobservable inputs , those assets are classified as level 2. if not , they are classified as level 3. making this assessment requires significant judgment . other-than-temporary impairment analysis our debt securities are classified as securities available for sale and reported at fair value . unrealized gains and losses , after applicable taxes , are reported in shareholders ' equity . we conduct other -than-t emporary impairment ( otti ) analysis on a quarterly basis or more often if a potential loss-triggering event occurs . the initial indicator of otti for debt securities is a decline in market value below the amount recorded for an investment and the severity and duration of the decline . for a debt security for which there has been a decline in the fair value below amortized cost basis , we recognize otti if we ( 1 ) have the intent to sell the security , ( 2 ) it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis , or ( 3 ) we do not expect to recover the entire amortized cost basis of the security . other real estate owned real estate acquired through foreclosure is initially recorded at the lower of cost or estimated fair value . subsequent to the date of acquisition , it is carried at the lower of cost or fair value , adjusted for net selling costs . fair values of real estate owned are reviewed regularly and writedowns are recorded when it is determined that the carrying value of real estate exceeds the fair value less estimated costs to sell . costs relating to the development and improvement of such property are capitalized , whereas those costs relating to holding the property are expensed . income taxes the financial statements have been prepared on the accrual basis .
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results of operations allowance for loan losses for a description of the factors we consider in determining the amount of the provision we expense each period to maintain this allowance . following is a summary of the activity in the allowance for loan losses . replace_table_token_6_th for the year ended december 31 , 2014 , we incurred a noncash expense related to the provision for loan losses of $ 4.2 million , bringing the allowance for loan losses to $ 11.8 million , or 1.35 % of gross loans , as of december 31 , 2014. in comparison , we added $ 3.5 million and $ 4.6 million to the provision for loan losses during the years ended december 31 , 2013 and 2012 , respectively , resulting in an allowance of $ 10.2 million , or 1.39 % of gross loans , as of december 31 , 2013 , and $ 9.1 million , or 1.41 % of gross loans , at december 31 , 2012. the increased provision expense of $ 4.2 million during the 2014 period relates primarily to the $ 137.8 million of loan growth in 2014. during the twelve months ended december 31 , 2014 , our net charge-offs were $ 2.6 million , representing 0.33 % of average loans , and consisted of $ 2.9 million in loans charged-off , partially offset by $ 251,000 of recoveries on loans previously charged-off . in addition , our loan balances increased by $ 137.8 million while the amount of our nonperforming assets increased by $ 422,000 and our classified assets declined . factors such as these are also considered in determining the amount of loan loss provision necessary to maintain our allowance for loan losses at an adequate level . we reported net charge-offs of $ 2.4 million and $ 4.4 million for the years ended december 31 , 2013 and 2012 , respectively , including recoveries of $ 125,000 and $ 121,000 for the same periods in 2013 and 2012 , respectively .
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these statements relate to , among other things , our strategy ; the design and expected timing , scope , enrollment and results of our vital amyloidosis study for neod001 ; the expected enrollment and timing of reporting additional data from our ongoing phase 1/2 study for neod001 ; the possible clinical benefit of neod001 ; the timing of reporting data from our phase 1 single ascending dose and multiple ascending dose studies for prx002 ; the possible clinical benefit of prx002 ; the timing of initiating our phase 1 single ascending dose and multiple ascending dose studies for prx003 and the timing of proof-of-biology in phase 1 of prx003 ; research and development ( `` r & d '' ) and general and administrative ( `` g & a '' ) expenses in 2015 ; and the sufficiency of our cash and cash equivalents . forward-looking statements may include words such as “ may , ” “ will , ” “ should , ” “ expect , ” “ plan , ” “ intend , ” “ aim , ” “ anticipate , ” “ assume , ” “ believe , ” “ contemplate , ” “ continue , ” “ could , ” “ due , ” “ estimate , ” “ expect , ” “ goal , ” “ intend , ” “ may , ” “ objective ” “ plan , ” “ predict , ” “ potential , ” “ positioned , ” “ seek , ” “ should , ” “ target , ” “ will , ” “ would , ” and other similar expressions that are predictions of or indicate future events and future trends , or the negative of these terms or other comparable terminology . forward-looking statements are subject to risks and uncertainties , and actual events or results may differ materially . factors that could cause our actual results to differ materially include , but are not limited to , the risks and uncertainties listed below as well as those discussed under “ risk factors ” in this form 10-k. our ability to obtain additional financing in future offerings ; our operating losses ; our ability to successfully complete research and development of our drug candidates ; our ability to develop and commercialize products ; our collaboration with roche pursuant to the license agreement ; our ability to protect our patents and other intellectual property ; our ability to hire and retain key employees ; tax treatment of our separation from elan and subsequent distribution of our ordinary shares ; restrictions on our ability to take certain actions due to tax rules and covenants with elan ; our ability to maintain financial flexibility and sufficient cash , cash equivalents , and investments and other assets capable of being monetized to meet our liquidity requirements ; potential disruptions in the u.s. and global capital and credit markets ; government regulation of our industry ; the volatility of our ordinary share price ; business disruptions ; and the other risks and uncertainties described in the “ risk factors ” section of this form 10-k. we undertake no obligation to revise or update any forward-looking statements to reflect any event or circumstance that arises after the date of this report . this discussion should be read in conjunction with the consolidated financial statements and notes presented in item 8 of this form 10-k. overview we are a late-stage clinical biotechnology company focused on the discovery , development and commercialization of novel protein immunotherapy programs for the potential treatment of diseases that involve amyloid or cell adhesion . we are developing antibody-based product candidates that target a number of potential indications including al amyloidosis ( neod001 ) , parkinson 's disease and other related synucleinopathies ( prx002 ) and psoriasis and other inflammatory diseases ( prx003 ) . we are a public limited company formed under the laws of ireland . we separated from elan corporation limited ( formerly elan corporation , plc ( `` elan '' ) , which subsequently became a wholly owned subsidiary of perrigo company plc ( `` perrigo '' ) , on december 20 , 2012. after the separation from elan , and the related distribution of the company 's ordinary shares to elan 's 42 shareholders ( the `` separation and distribution '' ) , our ordinary shares began trading on the nasdaq global market under the symbol “ prta ” on december 21 , 2012 and currently trade on the nasdaq global select market . our business consists of a substantial portion of elan 's former drug discovery business platform , including neotope biosciences limited and its wholly owned subsidiaries onclave therapeutics limited and prothena biosciences inc ( which for the period prior to the separation and distribution we collectively refer to herein as the “ prothena business ” ) . prior to december 21 , 2012 , the prothena business operated as part of elan and not as a separate stand-alone entity . our financial statements for the periods prior to december 21 , 2012 have been derived from elan 's historical accounting records and reflect significant allocations of direct costs and expenses . all of the allocations and estimates in these financial statements are based on assumptions that we believe are reasonable . however , the financial statements do not necessarily represent our financial position or results of operations had we been operating as a separate independent entity . see “ critical accounting policies and estimates ” below as well as note 2 of the “ notes to the consolidated financial statements ” included in item 8 of this form 10-k. recent developments neod001 in december 2014 , we initiated the vital amyloidosis study , a phase 3 clinical trial for neod001 in patients with al amyloidosis . the trial is designed to support global regulatory approvals . we intend to enroll approximately 230 newly-diagnosed , treatment-naïve patients with cardiac dysfunction . story_separator_special_tag october 2013 offering in october 2013 , we completed an underwritten public offering of an aggregate of 6,796,500 of our ordinary shares at a public offering price of $ 22.00 per share , which consisted of 4,177,079 newly issued ordinary shares sold by us and 2,619,421 ordinary shares sold by janssen pharmaceutical , a wholly-owned subsidiary of johnson & johnson , as the selling shareholder . we received aggregate net proceeds of approximately $ 84.5 million , after deducting the underwriting discount and estimated offering costs . we did not receive any proceeds from the sale of 2,619,421 ordinary shares sold , which represented janssen pharmaceutical 's entire shareholding in prothena . during the year ended december 31 , 2013 we recorded underwriting discounts and offering costs of $ 7.4 million as an offset to the proceeds in additional paid in capital . february 2014 offering in february 2014 , elan science one limited ( `` esol '' ) , an indirect wholly owned subsidiary of perrigo , sold 3,182,253 ordinary shares of prothena . the ordinary shares were sold at a price to the public of $ 26.00 per ordinary share , before the underwriting discount . as a result , esol and perrigo no longer owned any ordinary shares of prothena as of such sale . we did not receive any of the proceeds from the offering . we paid the costs associated with the sale of these ordinary shares ( other than the underwriting discount , fees and disbursements of counsel for the selling shareholder ) pursuant to a subscription and registration rights agreement dated november 8 , 2012 by and among us , elan ( acquired by perrigo ) and esol . june 2014 offering in june 2014 , we completed an underwritten public offering of an aggregate of 4,750,000 of our ordinary shares at a public offering price of $ 22.50 per ordinary share . we received aggregate net proceeds of approximately $ 102.5 million , after deducting the underwriting discount and estimated offering costs . in july 2014 , the underwriters exercised their right to subscribe for and purchase an additional 712,500 ordinary shares , pursuant to which we received net proceeds of approximately $ 14.9 million , after deducting the underwriting discount . for the year ended december 31 , 2014 underwriting discount and offering expense of $ 5.5 million were classified as an offset to the proceeds and recorded in additional paid in capital on the balance sheet . 44 basis of presentation and preparation of the financial statements our business consists of a substantial portion of elan 's former drug discovery business platform , including neotope biosciences limited ( now named prothena biosciences limited ) and its wholly owned subsidiaries onclave therapeutics limited ( now named prothena therapeutics limited ) and prothena biosciences inc , and related tangible assets and liabilities . prior to december 21 , 2012 , the prothena business operated as part of elan and not as a separate stand-alone entity . our consolidated financial statements for the periods prior to december 21 , 2012 have been prepared on a “ carve-out ” basis from the consolidated financial statements of elan to represent our financial performance as if we had existed on a stand-alone basis during those periods . prior to the separation and distribution on december 20 , 2012 , centralized support costs were allocated to us for the purposes of preparing the consolidated financial statements based on our estimated usage of the resources . our estimated usage of the centralized support resources was determined by estimating our portion of the most appropriate driver for each category of centralized support costs such as headcount or labor hours , depending on the nature of the costs . we believe that such allocations were made on a reasonable basis , but may not necessarily be indicative of the costs that would have been incurred if we had operated on a standalone basis . for additional information regarding the basis of preparation , refer to note 2 of the “ notes to the consolidated financial statements ” included in item 8 of this report . critical accounting policies and estimates 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 the accounting principles generally accepted in the u.s. ( `` gaap '' ) . the preparation of these consolidated financial statements requires us to make estimates and assumptions for the reported amounts of assets , liabilities , revenues , expenses and related disclosures . we believe the following policies to be critical to the judgments and estimates used in the preparation of our financial statements . carve-out of the results of operations , financial condition and cash flows of the prothena business prior to december 21 , 2012 , the prothena business operated as part of elan and not as a separate stand-alone entity . our consolidated financial statements for the periods prior to december 21 , 2012 have been prepared on a “ carve-out ” basis from the consolidated financial statements of elan to represent the financial position and performance of prothena as if we had existed on a stand-alone basis during those periods , and as if financial accounting standards board ( `` fasb '' ) accounting standard codification ( `` asc '' ) topic 810 , “ consolidation ” ( `` asc 810 '' ) had been applied throughout . the consolidated financial statements have been prepared in conformity with gaap , by aggregating financial information from the components of prothena described in note 2 to the consolidated financial statements . the accompanying consolidated financial statements include allocations of direct costs and indirect costs attributable to our operations for the periods prior to december 21 , 2012. indirect costs relate to certain support functions that were provided on a centralized basis within elan .
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results of operations comparison of years ended december 31 , 2014 , 2013 and 2012 revenue replace_table_token_3_th nm = not meaningful total revenue was $ 50.9 million , $ 0.7 million and $ 2.7 million for the years ended december 31 , 2014 , 2013 and 2012 , respectively . collaboration revenue includes reimbursements under our license agreement with roche , which became effective january 22 , 2014 . collaboration revenue for the year ended december 31 , 2014 consisted of the following amounts from roche under the license agreement : a one-time , non-refundable , non-creditable upfront payment of $ 30.0 million ( which was recognized as collaboration license revenue ) , a clinical milestone of $ 15.0 million ( of which $ 13.3 million was recognized as collaboration revenue ) , reimbursement for development costs of $ 6.0 million ( of which $ 5.3 million was recognized as collaboration license revenue ) and reimbursement for research services of $ 1.7 million . the portion of the amounts recognized as collaboration revenue for the milestone and the development reimbursements were based on the relative selling price method in applying multiple element accounting , see note 7 to the consolidated financial statements “ roche license agreement ” for more information . related-party revenue for the years ended december 31 , 2014 , 2013 and 2012 was comprised of fees earned from the provision of research and development services to elan ( acquired by perrigo ) . total related-party revenue decreased by $ 142,000 , or 21 % , during the year ended december 31 , 2014 , compared to the corresponding periods of the prior year , and decreased by $ 2.0 million , or 75 % , during the year ended december 31 , 2013 compared to the prior year , due to a reduction in the scope of the r & d services provided to elan . since our research and development services agreement with elan terminated in december 2014 , we do not expect any related-party revenue in 2015 .
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in january 2014 , the company issued 53,332 units sold at $ 3.00 per unit for gross proceeds of $ 159,996 . the company paid share issuance costs in the amount of $ 6,000 . each unit in this offering consists of one share of the company 's series d preferred stock and one-half warrant , with each whole warrant exercisable at $ 3.00 per share . the company issued warrants to purchase 26,666 shares of common stock outstanding . the warrants will be exercisable by the holders at any time on or after the issuance date of the warrants through october 1 , 2015. in may 2014 , the company issued 118,655 units sold at $ 3.00 per unit for gross proceeds of $ 355,967 . each unit consisted of one share of the company 's series d preferred stock and one-half warrant , with each whole warrant exercisable at $ 3.00 per share . the company issued warrants to purchase 59,327 shares of common stock . the warrants will be exercisable by the holders at any time through october 1 , 2015. holders of series d preferred stock accrue dividends at the rate per annum of $ 0.24 per share , payable on a quarterly basis . as dividends are accrued and payable quarterly on the series d preferred stock , the company paid dividends of $ 177,846 and $ 24,407 during the years ended december 31 , 2014 and 2013 , respectively . as of december 31 , 2014 the company has dividends payable in accrued expenses of $ 45,590 . the holders of the series d preferred stock have conversion rights equivalent to such number of fully paid and non-assessable shares of common stock as is determined by dividing the series d original issue price of $ 3.00 by the then applicable conversion price . each series d share will story_separator_special_tag the following discussion should be read in conjunction with our consolidated financial statements and related notes thereto as filed with this report . this item 7 may contain forward-looking statements that involve substantial risks and uncertainties . when considering these forward-looking statements investors should keep in mind the cautionary statements in this report . please see the sections entitled cautionary notice regarding forward-looking statements and item 1a . risk factors elsewhere in the report . heatwurx , inc. was incorporated under the laws of the state of delaware on march 29 , 2011 as heatwurxaq , inc. and subsequently changed its name to heatwurx , inc. on april 15 , 2011. we are an asphalt preservation and repair , equipment company . our innovative , and eco-friendly hot-in-place recycling process corrects surface distresses within the top 3 inches of existing pavement by heating the surface material to a temperature between 325° and 375° fahrenheit with our electrically powered infrared heating equipment , mechanically loosening the heated material with our processor/tiller attachment that is optimized for producing a seamless repair , and mixing in additional recycled asphalt pavement and a binder ( asphalt-cement ) , and then compacting repaired area with a vibrating roller or compactor . we consider our equipment to be eco-friendly as the heatwurx process reuses and rejuvenates distressed asphalt , uses recycled asphalt pavement for filler material , eliminates travel to and from asphalt batch plants , and extends the life of the roadway . we believe our equipment , technology and processes provide savings over other processes that can be more labor and equipment intensive . our hot-in-place recycling process and equipment was selected by the technology implementation group of the american association of state highway transportation officials ( aashto tig ) as an additionally selected technology for the year 2012. we develop , manufacture and intend to sell our unique and innovative and eco-friendly equipment to federal , state and local agencies as well as contractors for the repair and rehabilitation of damaged and deteriorated asphalt surfaces . in 2015 , the company has started its transition from a technology development focused company to a sales and marketing focused company . the company is uniquely positioned to take advantage of the infrastructure road issues plaguing most states in the country , with a permanent road repair solution , that comes with an industry first 5 year warranty . the company 's sales and marketing strategy will focus on finding licensed partners , both municipal and private , with a focus on selling the consumables in volume . our efforts will be to use political and industry influencers to help spread the word , create targeted marketing programs and use social media to expand our reach . the company is excited to announce it offers a guaranteed repair insured by a division of an a rated insurance company . the company is positioned to sell ; and we believe our efforts will save municipalities , utilities , and private industry millions of dollars by extending the life of roadways . results of operations for the year ended december 31 , 2014 compared to year ended december 31 , 2013 for the year ended december 31 , 2014 , our net loss was $ 4,526,000 , compared to a net loss of $ 3,069,000 , for the year ended december 31 , 2013. further description of these losses is provided below . 21 revenue revenue decreased to approximately $ 200,000 for the year ended december 31 , 2014 from approximately $ 312,000 for the year ended december 31 , 2013. revenue is generated from the sale of our equipment and consumable products as well as service work performed . our consumables consist of our proprietary blend of polymer pellets used to strengthen the repair when mixed in to the recycled asphalt product ; and rxehab rejuvenation strips which is an oil-based product which creates the binding agent for the asphalt repair . story_separator_special_tag on an ongoing basis , management evaluates its estimates , including those related to impairment of long-lived assets , accrued liabilities and certain expenses . we base our estimates about the carrying values of assets and liabilities that are not readily apparent from other sources on historical experience and on other assumptions believed to be reasonable under the circumstances . actual results may differ materially from these estimates under different assumptions or conditions . we believe the following critical accounting policies involve significant judgments and estimates used in the preparation of our financial statements . see note 2 of the accompanying notes to the financial statements included in item 8 of this form 10-k for additional information on these policies and estimates , as well as a discussion of additional accounting policies and estimates . 25 revenue recognition equipment sales revenue is recognized when equipment is shipped to our customer and collection is reasonably assured . we sell our equipment ( hwx-30 heater and hwx-ap-40 asphalt processor ) , as well as certain consumables , such as rxehab rejuvenation strips and polymer pellets , to third parties . equipment sales revenue is recognized when all of the following criteria are satisfied : ( a ) persuasive evidence of a sales arrangement exists ; ( b ) price is fixed and determinable ; ( c ) collectability is reasonably assured ; and ( d ) delivery has occurred . persuasive evidence of an arrangement and a fixed or determinable price exist once we receive an order or contract from a customer . we assess collectability at the time of the sale and if collectability is not reasonably assured , the sale is deferred and not recognized until collectability is probable or payment is received . typically , title and risk of ownership transfer when the equipment is shipped . research and development expenses research and development costs are expensed as incurred and consist of direct and overhead-related expenses . expenditures to acquire technologies , including licenses , which are utilized in research and development and that have no alternative future use are expensed when incurred . technology we develop for use in our products is expensed as incurred until technological feasibility has been established after which it is capitalized and depreciated . stock-based compensation we record equity instruments at their fair value on the measurement date by utilizing the black-scholes option-pricing model . stock compensation for all share-based payments , is recognized as an expense over the requisite service period . the significant assumptions utilized in determining the fair value of our stock options included the volatility rate , estimated term of the options , risk-free interest rate and forfeiture rate . in order to estimate the volatility rate at each issuance date , given that we have not established a historical volatility rate as it has minimal trading volume since we began trading in october 2013 , management reviewed volatility rates for a number of companies with similar manufacturing operations to arrive at an estimated volatility rate for each option grant . the term of the options was assumed to be five years , which is the contractual term of the options . the risk-free interest rate was determined utilizing the treasury rate with a maturity equal to the estimated term of the option grant . finally , management assumed a zero forfeiture rate as the options granted were either fully-vested upon the date of grant or had relatively short vesting periods . as such , management does not currently believe that any of the options granted will be forfeited . we will monitor actual forfeiture rates , if any , and make any appropriate adjustments necessary to our forfeiture rate in the future . non-employee share-based compensation charges generally are immediately vested and have no future performance requirements by the non-employee and the total share-based compensation charge is recorded in the period of the measurement date . impairment of long-lived assets we review long-lived assets for impairment on an annual basis , during the fourth quarter or on an interim basis if an event occurs that might reduce the fair value of such assets below their carrying values . an impairment loss would be recognized based on the difference between the carrying value of the asset and its estimated fair value , which would be determined based on either discounted future cash flows or other appropriate fair value methods . 26 recent accounting pronouncements the financial accounting standards board recently issued accounting standards update ( asu ) 2014-15 , presentation of financial statements - going concern ( subtopic 205-40 ) : disclosure of uncertainties about an entity 's ability to continue as a going concern . the amendments require management to assess an entity 's ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in u.s. auditing standards . specifically , the amendments ( 1 ) provide a definition of the term substantial doubt , ( 2 ) require an evaluation every reporting period including interim periods , ( 3 ) provide principles for considering the mitigating effect of management 's plans , ( 4 ) require certain disclosures when substantial doubt is alleviated as a result of consideration of management 's plans , ( 5 ) require an express statement and other disclosures when substantial doubt is not alleviated , and ( 6 ) require an assessment for a period of one year after the date that the financial statements are issued ( or available to be issued ) . the amendments in this update are effective for the annual period ending after december 15 , 2016 , and for annual periods and interim periods thereafter . the financial accounting standards board recently issued asu 2014-10 , development stage entities ( topic 915 ) : elimination of certain financial reporting requirements , including an amendment to variable interest entities guidance in topic 810 , consolidation , which eliminates the financial
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overview to date we have relied exclusively on private placements with a small group of investors and loans from a small group of related parties to finance our business and operations . we have had little revenue since our inception . for the year ended december 31 , 2014 , we incurred a net loss of approximately $ 4,526,000 and utilized $ 2,695,448 in cash flows from operating activities . we had cash on hand of approximately $ 21,000 as of december 31 , 2014. successful completion of our development program , implementation of our marketing strategy and transition to profitable operations is dependent upon obtaining additional financing until we are able to achieve a level of revenues adequate to support our cost structure . many of our objectives to establish profitable business operations rely upon the occurrence of events outside our control ; there is no assurance that we will be successful in accomplishing these objectives . we have incurred operating losses , accumulated deficit and negative cash flows from operations since inception . as of december 31 , 2014 , we had an accumulated deficit of approximately $ 12,905,000. management anticipates that we will require substantial additional funds to continue operations . as of december 31 , 2014 , we had approximately $ 21,000 cash on hand and were spending approximately $ 290,000 per month , of which only a minor amount was satisfied by gross proceeds from operations . hence , the amount of cash on hand is not adequate to meet our operating expenses over the next twelve months . financing activities in october 2013 , the company initiated a follow-on series d preferred stock offering to sell the remaining 772,352 units at $ 3.00 per unit .
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57 energy services agreement northwind aladdin ( `` northwind `` ) , a third party , owns and operates a central utility plant on land 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 , 2008 as compared to the year ended december 31 , 2007 , and the year ended december 31 , 2007 as compared to the year ended december 31 , 2006. 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 , 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 . 23 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 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 . derivative instruments and hedging activities pursuant to the refinancing of the securities purchase agreement and the terms of the restructuring agreement , the restructuring parties agreed to amend the warrants issued by mezzco to purchase 17.5 % of the fully diluted equity in mezzco . the warrants 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 `` accounting for derivative instruments and hedging activities `` 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 debt . '' the terms of the loan agreement required the company to enter into an interest rate cap agreement , which expires on december 9 , 2009 , to manage interest rate risk . the company did not apply cash flow hedge accounting to this instrument . although this derivative was not afforded cash flow hedge accounting , the company retained the instrument as protection against the interest rate risk associated with its long-term borrowings . the company accounts for its derivative activity in accordance with sfas no . 133 and accordingly , recognizes all derivatives on the balance sheet at fair value with any in change in fair value being recorded in interest income or expense in the accompanying consolidated statements of operations . in september 2006 , the financial accounting standards board ( fasb ) issued statement of financial accounting standards no . 157 , `` fair value measurements '' ( sfas 157 ) . sfas 157 does not establish requirements for any new fair value measurements , but it does apply to existing accounting pronouncements in which fair value measurements are already required . sfas 157 defines fair value , establishes a framework for measuring fair value in accordance with accounting principles generally accepted in the united states , and expands disclosures about fair value measurements . the company has adopted the provisions of sfas 157 as of january 1 , 2008 , for financial instruments . story_separator_special_tag 128 , `` earnings per share , `` because we believe that such disclosures would not be meaningful to the financial statement presentation . the company has entered into various employment agreements , as amended , with several executives . the employment agreements have initial terms of two to five years . the employment agreements provide that the executives will receive a base salary with either mandatory increases or annual adjustments and annual bonus payments . in addition , depending on the terms of the employment agreements , these executives are entitled to options to purchase between 0.2 % and 3 % of the equity of mezzco . the options were granted with an exercise price equal to or greater than the fair value at the date of grant . 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 an 11.39 % equity interest in equityco and has the right to appoint two members to the equityco board of managers . 26 recently issued accounting standards sfas no . 141 in december 2007 , the fasb issued sfas no . 141 ( revised 2007 ) , `` business combinations . '' sfas no . 141 ( revised ) establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired , the liabilities assumed , and noncontrolling interest in the acquiree and the goodwill acquired . the revision is intended to simplify existing guidance and converge rulemaking under u.s. generally accepted accounting principles with international accounting rules . this statement applies prospectively to business combinations where the acquisition date is on or after the beginning of the first annual reporting period beginning on or after december 15 , 2008. the adoption of sfas no . 141 ( revised ) is not expected to have a material impact on the company 's financial position , results of operations or cash flows . sfas no . 160 in december 2007 , the fasb issued sfas no . 160 , `` noncontrolling interest in consolidated financial statements , an amendment of arb no . 51 . '' this statement establishes accounting and reporting standards for ownership interest in subsidiaries held by parties other than the parent and for the deconsolidation of a subsidiary . it also clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements . sfas no . 160 changes the way the consolidated statement of operations is presented by requiring consolidated net income to be reported at amounts that include the amount attributable to both the parent and the noncontrolling interests . the statement also establishes reporting requirements that provide sufficient disclosures that clearly identify and distinguish between the interest of the parent and those of the noncontrolling owners . this statement is effective for fiscal years beginning on or after december 15 , 2008. the adoption of sfas no . 160 is not expected to have a material impact on the company 's financial position , results of operations or cash flows . sfas no . 161 in march 2008 , the fasb issued sfas no . 161 , `` disclosures about derivative instruments and hedging activities , an amendment of sfas no . 133 . '' sfas no . 161 is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity 's financial position , financial performance , and cash flows . this statement is effective for fiscal years beginning after november 15 , 2008. sfas no . 161 is not expected to have a material impact on the company 's financial position , results of operations or cash flows . sfas no . 162 in may 2008 , fasb issued statement no . 162 , `` the hierarchy of generally accepted accounting principles '' ( `` sfas 162 '' ) . sfas 162 identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with gaap ( the gaap hierarchy ) . sfas 162 is effective 60 days following the sec 's approval of the public company accounting oversight board amendments to au section 411 , the meaning of present fairly in conformity with generally accepted accounting principles . the adoption of sfas 162 is not expected to have a material impact on the company 's financial position , results of operations or cash flows . 27 story_separator_special_tag declines contributing to the revenue increase year over year despite challenging market conditions in the fourth quarter of 2008. hotel expenses decreased 1.9 % to $ 40.7 million for the year ended december 31 , 2008 as compared to $ 41.5 million for the year ended december 31 , 2007. the hotel profit margin increased 2.4 percentage points over the same twelve-month period . the expense savings and profit margin increases were the direct result of savings initiatives put in place in response to the economic downturn and market declines .
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results of operations current economic conditions and comparability of results the outlook for the leisure and gaming industries remains highly uncertain due to a number of factors affecting consumers , including a slowdown in global economies , reduced consumer spending , and restricted credit markets . reduced casino volumes , a reduced demand for hotel rooms and a highly competitive market driving hotel rates down have all contributed to declines in the overall las vegas market . this slow down was particularly significant in the fourth quarter of 2008 and has continued into the first quarter of 2009. although operating results for the ph resort for the year ended december 31 , 2008 , improved in all divisions when compared to the operating results for the year ended december 31 , 2007 this was mainly due to the completion of a substantial renovation project in the last quarter of 2007 that negatively impacted 2007 performance . 2008 was the ph resort 's first full year of operation as a rebranded property . we believe that fourth quarter 2008 operating results were negatively impacted by the current market conditions and that we will continue to experience lower than historical hotel occupancy , room rates and casino volumes in 2009. as a result , we have increasingly focused on efficiency initiatives to save expenses and improve performance . we are continually reviewing the costs and marketing opportunities to ensure maximum operating performance in the face of the current economic conditions . the following table highlights the results of operations as compared to the prior years . replace_table_token_3_th net revenues for the year ended december 31 , 2008 , increased over those of the year ended december 31 , 2007. this increase is mainly the result of the property being under renovation until late 2007. revenues and operating income have increased in all divisions as a result of the completion of the renovation project .
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revenues from customers comprising 10 % or more of the company 's total revenue for the years ended december 31 are summarized as follows ( in thousands ) : replace_table_token_19_th * the customer revenue was less than 10 % of the total revenue for the year 11. international revenues the company 's fabricated structures are used worldwide by u.s. customers operating abroad and by foreign customers . revenues related to fabricated structures for delivery outside of the united states accounted for 10 % , story_separator_special_tag introduction and outlook our results of operations are affected primarily by ( i ) the level of exploration and development activity maintained by oil and gas exploration and production companies in the gulf of mexico , and to a lesser extent , foreign locations throughout the world , ( ii ) our ability to manage contracts to successful completion , and ( iii ) our ability to win contracts through competitive bidding or alliance/partnering arrangements . the level of exploration and development activity is related to several factors , including trends in oil and gas prices , expectations of future oil and gas prices , technology and changes in the regulatory environment , including new permitting processes and increased regulation imposed on domestic oil and gas exploration by the bureau of ocean energy , regulation and enforcement . the slowdown in our industry as a result of the downturn in oil prices presents challenges in the near term , particularly as it relates to shallow water activity . in 2014 , the pace of growth in overall capital spending in the global oil and gas industry decreased . from 2010 to 2013 , the industry experienced an approximate 12 % compound annual growth rate in upstream capital spending ; in 2014 , overall spending was only up 3 % from the prior year . in recent years , capex growth , especially in north america , was fueled primarily by independent exploration and production companies ; however , even before the recent reduction in oil prices , many independent producers reduced their offshore positions for the relative safety and predictability of onshore shale projects . in the latter part of 2014 , the industry began to experience decreased spending by larger , integrated companies , particularly in the offshore sector . the recent downturn in oil prices introduces additional uncertainty to short- and long-term demand in offshore oil and gas project activity . we are quickly responding to expected near-term decreases in capital spending by our customers by reducing our own discretionary and capital spending . we continuously adjust the level of our workforce , based on anticipated future backlog . as we work through existing backlog , depending on the duration of the downturn , we may need to make additional reductions in labor in the second half of 2015 , commensurate with the level of activity in our fabrication yards . from a marketing perspective , we are increasing our focus on obtaining marine fabrication and repair work , certain petrochemical plant work , alternative energy fabrication projects , such as wind farm projects similar to our existing project off the coast of rhode island , and other activities that are less susceptible to fluctuations in oil prices . we intend to use this period of reduced activity that we anticipate as a result of the slowdown in customer spending as an opportunity to further strengthen our execution improvement strategies , including modernizing certain information technology systems . we believe that our strong balance sheet , levels of cash , and access to capital provides us with the strength to persevere throughout this cycle . in the long term , demand for our products and services will , to a large extent , continue to depend on the timing of changes in prices for oil and gas and the capital spend decisions of oil and gas exploration and production companies , which is difficult to predict . backlog our backlog is based on management 's estimate of the direct labor hours required to complete , and the remaining revenue to be recognized with respect to , those projects a customer has authorized us to begin work or purchase materials or services pursuant to written contracts , letters of intent or other forms of authorization . as engineering and design plans are finalized or changes to existing plans are made , management 's estimate of the direct labor hours required to complete a project and the price of a project at completion is likely to change . all projects currently included in our backlog generally are subject to suspension , termination , or a reduction in scope at the option of the customer , although the customer is generally required to pay us for work performed and materials purchased through the date of termination , suspension , or reduction in scope . in addition , customers have the ability to delay the execution of projects . 25 as of december 31 , 2014 , we had a revenue backlog of $ 184.7 million and a labor backlog of approximately 1.7 million man-hours remaining to work , including commitments received through february 25 , 2015 compared to revenue backlog of $ 358.7 million and a labor backlog of 3.3 million man-hours reported as of december 31 , 2013. we exclude suspended projects from contract backlog because resumption of work and timing of revenue recognition for these projects are difficult to predict . as of december 31 , 2014 , we had one suspended project related to the fabrication of a shallow water jacket . the project was 44 % complete at december 31 , 2014 and the remaining backlog was $ 2.6 million . we were paid in full for all work completed for this project . of our backlog at december 31 , 2014 , 64.2 % was for three customers as compared to 69.1 % for three customers at december 31 , 2013 . story_separator_special_tag contract costs include all direct material , labor and subcontract costs and those indirect costs related to contract performance , such as indirect labor , supplies and tools . also included in contract costs are a portion of those indirect contract costs related to plant capacity , such as depreciation , insurance and repairs and maintenance . these indirect costs are allocated to jobs based on actual direct labor hours worked . profit incentives are included in revenue when their realization is probable . claims for extra work or changes in scope of work are included in revenue when the amount can be reliably estimated and collection is probable . changes in job performance , job conditions , and estimated profitability , including those arising from contract penalty provisions , and final contract settlements may result in revisions to costs and income and are recognized in the period in which the revisions are determined . at december 31 , 2014 , we had no revenue related to unapproved change-orders on projects . at december 31 , 2013 , we recorded revenue totaling $ 0.1 million related to certain change-orders on two projects which were approved as to scope but not price . at december 31 , 2013 , we recorded revenue totaling $ 3.7 million related to re-measure units and quantities on a unit rate contract . at december 31 , 2012 , we recorded 27 revenue totaling $ 5.2 million related to certain change-orders on four projects which were approved as to scope but not price . at december 31 , 2012 , we also recorded revenue totaling $ 7.7 million related to re-measure units and quantities on a unit rate contract . all unapproved items as of december 31 , 2013 and 2012 , respectively , were subsequently approved in the normal course of business . provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined . we recognized contract losses of $ 6.6 million , $ 30.8 million , and $ 12.5 million for the years ended december 31 , 2014 , 2013 , and 2012 , respectively . contract losses for the year ended december 31 , 2014 were primarily related to two tank barge projects for a marine transportation company , platform supply vessels for an offshore marine company and a production platform jacket for a deepwater customer . contract losses in 2013 were primarily due to our inability to recover certain costs and the de-scoping of one of our major deepwater projects , as further discussed in the backlog section above . contract losses in 2012 were primarily related to increased man-hours driven by delays in delivery of specification and design changes by a deepwater customer causing out-of-sequence work schedules . allowance for doubtful accounts we routinely review individual contracts receivable balances and make provisions for probable doubtful accounts as we deem appropriate . among the factors considered during the review are the financial condition of our customers and their access to financing , underlying disputes on the account , age and amount of the account and overall economic conditions . accounts are written off only when all reasonable collection efforts are exhausted . our principal customers include major and large independent oil and gas companies and their contractors and marine vessel operators and their contractors . this concentration of customers may impact our overall exposure to credit risk , either positively or negatively , in that customers may be similarly affected by changes in economic or other conditions . receivables are generally not collateralized ; however , in certain instances we obtain collateral to reduce our credit exposure . in the normal course of business , we extend credit to our customers on a short-term basis . during the fourth quarter of 2014 , the company included an allowance for bad debt in the amount of $ 3.6 million in connection with negotiations of an outstanding contract receivable balance with a deepwater offshore customer related to a deepwater hull project that was completed during the first quarter of 2014. at december 31 , 2013 , the company included an allowance for bad debt in the amount of $ 0.9 million in connection with a vessel upgrade and outfitting project . the company collected $ 0.6 million of this balance in connection with a final settlement during the fourth quarter 2014. assets held for sale assets held for sale consist of a partially constructed topside , related valves , piling and equipment that we acquired from a customer following its default under a contract for a deepwater project in 2012. assets held for sale are required to be measured at the lower of their carrying amount or fair value less cost to sell . management determined fair value of these assets with the assistance of third party valuation specialists , assuming the sale of the underlying assets individually or in the aggregate to a willing market participant , including normal ownership risks assumed by the purchaser , and the sale of certain components at scrap value . we estimated fair value relying primarily on the cost approach and applied the market approach where comparable sales transaction information was readily available . the cost approach is based on current replacement or reproduction costs of the subject assets less depreciation attributable to physical , functional , and economic factors . the market approach involves gathering data on sales and offerings of similar assets in order to value the subject assets . this approach also includes an assumption for the measurement of the loss in value from physical , functional , and economic factors . the fair value of assets held for sale represent level 3 fair value measurements ( as defined by gaap ) , 28 based primarily on the limited availability of market pricing information for either identical or similar items .
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results of operations comparison of the years ended december 31 , 2014 and 2013 for the twelve-month period ended december 31 , 2014 , our revenue was $ 506.6 million compared to $ 608.3 million for the twelve-month period ended december 31 , 2013 , a decrease of 16.7 % . the following factors contributed to the decrease in revenues for the year ended december 31 , 2014 compared to the year ended december 31 , 2013 : pass-through costs , as a percentage of revenue , for the twelve-month period ended december 31 , 2014 were 48.2 % compared to 58.5 % for the twelve-month period ended december 31 , 2013 ; and overall decreased levels of activity as a result of the completion of topsides for two large deepwater customers in 2013 , and a spar hull for a large deepwater customer in the first quarter of 2014. the decrease in pass-through costs for the twelve months ended december 31 , 2014 primarily relates to higher levels of sub-contracted service costs on our major deepwater projects in 2013. pass-through costs , as described in note 12 in the notes to consolidated financial statements , are included in revenue , but have no impact on the gross profit recognized for that particular period . the decrease in revenue was offset by lower estimated contract losses of $ 6.6 million for december 31 , 2014 compared to $ 30.8 million for december 31 , 2013. these losses are further discussed in backlog above . for the twelve-month periods ended december 31 , 2014 and 2013 , gross profit was $ 44.6 million ( 8.8 % of revenue ) and $ 23.7 million ( 3.9 % of revenue ) , respectively .
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the adoption did not have a material impact on the company 's financial position , results of operations , comprehensive income , cash flows , or disclosures , other than as set forth above and in story_separator_special_tag the terms “ greif , ” the “ company , ” “ we , ” “ us ” and “ our ” as used in this discussion refer to greif , inc. and its subsidiaries . covid-19 the impact of covid-19 on our future results of operations and financial condition is highly uncertain at this time and outside of our control . the scope , duration and magnitude of the effects of covid-19 are evolving rapidly and in ways that are difficult or impossible to anticipate . results of operations the 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 gaap . the preparation of these consolidated financial statements , in accordance with these principles , require us to make estimates and assumptions that affect the reported amount of assets and liabilities , revenues and expenses , and related disclosure of contingent assets and liabilities at the date of our consolidated financial statements . historical revenues and earnings may or may not be representative of future operating results due to various economic and other factors . the non-gaap financial measures of ebitda and adjusted ebitda are used throughout the following discussion of our results of operations , both for our consolidated and segment results . for our consolidated results , ebitda is defined as net income , plus interest expense , net , plus debt extinguishment charges , plus income tax expense , plus depreciation , depletion and amortization , and adjusted ebitda is defined as ebitda plus restructuring charges , plus acquisition and integration related costs , plus non-cash asset impairment charges , plus non-cash pension settlement ( income ) charges , plus incremental covid-19 costs , net , less ( gain ) loss on disposal of properties , plants , equipment and businesses , net . since we do not calculate net income by business segment , ebitda and adjusted ebitda by business segment are reconciled to operating profit by business segment . in that case , ebitda is defined as operating profit by business segment less other ( income ) expense , net , less non-cash pension settlement ( income ) charges , less equity earnings of unconsolidated affiliates , net of tax , plus depreciation , depletion and amortization expense for that business segment , and adjusted ebitda is defined as ebitda plus restructuring charges , plus acquisition and integration related costs , plus non-cash asset impairment charges , plus non-cash pension settlement ( income ) charges , plus incremental covid-19 costs , net , less ( gain ) loss on disposal of properties , plants , equipment and businesses , net , for that business segment . we use ebitda and adjusted ebitda as financial measures to evaluate our historical and ongoing operations and believe that these non-gaap financial measures are useful to enable investors to perform meaningful comparisons of our historical and current performance . in addition , we present our u.s. and non-u.s. income before income taxes after eliminating the impact of non-cash asset impairment charges , non-cash pension settlement ( income ) charges , restructuring charges , acquisition and integration related costs , plus incremental covid-19 costs , net , and ( gains ) losses on sales of businesses , net , which are non-gaap financial measures . we believe that excluding the impact of these adjustments enable investors to perform a meaningful comparison of our current and historical performance that investors find valuable . the foregoing non-gaap financial measures are intended to supplement and should be read together with our financial results . these non-gaap financial measures should not be considered an alternative or substitute for , and should not be considered superior to , our reported financial results . accordingly , users of this financial information should not place undue reliance on the non-gaap financial measures . the following table sets forth the net sales , operating profit ( loss ) , ebitda and adjusted ebitda for each of our business segments for 2020 , 2019 and 2018 : 24 replace_table_token_4_th 25 the following table sets forth ebitda and adjusted ebitda , reconciled to net income and operating profit , for our consolidated results for 2020 , 2019 and 2018 : replace_table_token_5_th 26 the following table sets forth ebitda and adjusted ebitda for each of our business segments , reconciled to the operating profit for each segment , for 2020 , 2019 and 2018 : replace_table_token_6_th 27 year 2020 compared to year 2019 net sales net sales were $ 4,515.0 million for 2020 compared with $ 4,595.0 million for 2019. the $ 80.0 million decrease was primarily due to decreased volumes and sale prices across the segments , the impact to net sales resulting from the consumer packaging group ( `` cpg '' ) divestiture , and the negative impacts of foreign currency translation , partially offset by a full year contribution from the acquired caraustar operations . gross profit gross profit was $ 914.7 million for 2020 compared with $ 959.9 million for 2019. the respective reasons for the improvement or decline in gross profit , as the case may be , for each segment are described below in the `` segment review . '' story_separator_special_tag because of our global operations in numerous countries we are required to address different and complex tax systems and issues which are constantly changing . 32 preparation of our financial statements requires the use of estimates and assumptions that affect the reported amounts of our assets and liabilities ; and revenues and expenses as of the balance sheet date . the numerous tax jurisdictions in which we operate , along with the variety and complexity of the various tax laws , creates a level of uncertainty , and requires judgment when addressing the impact of complex tax issues . our effective tax rate and the amount of tax expense are dependent upon various factors , including the following : the tax laws of the jurisdictions in which income is earned ; the ability to realize deferred tax assets ; negotiation and dispute resolution with taxing authorities in the u.s. and international jurisdictions ; and changes in tax laws . the provision for income taxes is computed using the asset and liability method . under this method , deferred tax assets and liabilities are recognized currently based on the anticipated future tax consequences of changes in the temporary differences between the book and tax bases of assets and liabilities . this method includes an estimate of the future realization of tax benefits associated with tax losses . deferred tax assets and liabilities are measured using the currently enacted tax rates that apply to taxable income in effect for the years in which those assets are expected to be realized or settled . income tax expense for 2020 was $ 63.3 million on $ 186.1 million of pretax income and for 2019 was $ 70.7 million on $ 262.0 million of pretax income . for 2020 , the mix of income and losses among various jurisdictions resulted in a net tax decrease of $ 17.0 million on $ 75.9 million less of pretax income , which was offset by additional tax expense of $ 7.5 million related to non-deductible goodwill allocated to the cpg divestiture . various other items resulted in a net tax increase of $ 2.1 million . included in the net tax decrease of $ 17.0 million noted in the previous paragraph was a $ 28.4 million net decrease in valuation allowances . this decrease was primarily due to the ability to utilize foreign tax credits for which a valuation allowance had previously been provided . the release of the valuation allowance related to foreign tax credits resulted in the reduction of the valuation allowance and a tax benefit of $ 21.5 million . other decreases in the valuation allowances related to foreign jurisdictions resulted in an additional decrease of $ 6.9 million . the valuation allowance activity resulted in an overall decrease in the valuation allowance account from 2019 to 2020 of $ 34.7 million . offsetting these amounts was tax expense of $ 31.0 million as a result of a one-time elimination related to an intra-company sale . this one-time activity was the primary driver that resulted in an overall net increase in permanent items for 2019 to 2020 of $ 28.3 million we analyze potential income tax liabilities related to uncertain tax positions in the united states and international jurisdictions . the analysis of potential income tax liabilities results in estimates of income tax liabilities recognized for uncertain tax positions following the guidance of asc 740 , “ income taxes. ” the estimation of potential tax liabilities related to uncertain tax positions involves significant judgment in evaluating the impact of uncertainties in the application of asc 740 and complex tax laws . we periodically analyze both potential income tax liabilities and existing liabilities for uncertain tax positions resulting in both new reserves and adjustments to existing reserves in light of changing facts and circumstances . this includes the release of existing liabilities for uncertain tax positions based on the expiration of statutes of limitation . during 2020 , lapses in the statute of limitations , which were partially offset by the recognition of new uncertain tax position liabilities recorded during the current year , resulted in an overall net decrease in our uncertain tax position liability . the ultimate resolution of potential income tax liabilities may result in a payment that is materially different from our current estimates . if our estimates recognized under asc 740 prove to be different than what is ultimately resolved , such resolution could have a material impact on our financial condition and results of operations . while predicting the final outcome or the timing of the resolution of any particular tax matter is subject to various risks and uncertainties , we believe that our tax accounts related to uncertain tax positions are appropriately stated . see note 9 of the notes to consolidated financial statements included in item 8 of this form 10-k for further information . net income attributable to noncontrolling interests net income attributable to noncontrolling interests represents the portion of earnings from the operations of our non-wholly owned , consolidated subsidiaries that belongs to the noncontrolling interests in those subsidiaries . net income attributable to noncontrolling interests was $ 15.5 million and $ 23.2 million for 2020 and 2019 , respectively . the decrease in net income attributable to noncontrolling interests was due primarily to decreased earnings of the joint venture ( `` flexible packaging jv '' ) formed in 2010 , with dabbagh group holdings company limited and one of its subsidiaries , originally national scientific company limited and now gulf refined packaging for industrial packaging company ltd. year 2019 compared to year 2018 results of year 2019 compared to year 2018 are included in our annual report on form 10-k for the year ended october 31 , 2019 , file no . 001-00566 ( see item 7 therein ) . other comprehensive income changes 33 other comprehensive loss , net of tax for 2020 and 2019 was $ 6.7 million and $ 55.9 million , respectively .
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segment review rigid industrial packaging & services key factors influencing profitability in the rigid industrial packaging & services segment are : selling prices , product mix , customer demand and sales volumes ; raw material costs , primarily steel , resin , containerboard and used industrial packaging for reconditioning ; energy and transportation costs ; benefits from executing the greif business system ; restructuring charges ; acquisition of businesses and facilities ; divestiture of businesses and facilities ; and impact of foreign currency translation . net sales were $ 2,298.9 million for 2020 compared with $ 2,490.6 million for 2019. the $ 191.7 million decrease in net sales was due primarily to decreased volumes and decreased average sale prices driven by contractual price adjustment mechanisms related to raw material price decreases , as well as negative impacts of foreign currency translation . gross profit was $ 465.3 million for 2020 compared with $ 460.1 million for 2019. the $ 5.2 million increase in gross profit was primarily due to lower priced raw materials , the timing of contractual pass through arrangements , product mix shifts , and strategic pricing actions . gross profit margin increased to 20.2 percent in 2020 from 18.5 percent in 2019. operating profit was $ 209.9 million for 2020 compared with $ 179.6 million for 2019. the $ 30.3 million increase was primarily attributable to a decrease in the segment 's sg & a expenses due to strategic cost management efforts . adjusted ebitda was $ 297.5 million for 2020 compared with $ 269.9 million for 2019. the $ 27.6 million increase was primarily due to the same factors that impacted operating profit . depreciation and amortization expense was $ 78.9 million and $ 76.3 million for 2020 and 2019 , respectively .
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under this method , the accounts of an acquired entity are included with the acquirer 's accounts as of the date of acquisition with any excess of purchase price over the fair story_separator_special_tag general this discussion is intended to assist readers in understanding the financial condition and results of operations berkshire hills bancorp , inc. ( “ berkshire ” or the “ company '' ) , the changes in key items in the company 's consolidated financial statements ( “ financial statements ” ) from year to year and the primary reasons for those changes . the objectives of this section are : to provide a narrative explanation of the company 's financial statements that enables investors to see the company through the eyes of management ; to enhance the financial disclosure and provide the context within which financial information should be analyzed ; and to provide information about the quality of , and potential future variability of , the company 's earnings and cash flow . this discussion includes the following sections : summary of recent events and strategic initiatives comparison of financial condition at december 31 , 2020 and 2019 comparison of operating results for the years ended december 31 , 2020 and 2019 comparison of operating results for the years ended december 31 , 2019 and 2018 liquidity and cash flows capital resources off-balance sheet arrangements discussion of accounting policies and pronouncements the following discussion and analysis should be read in conjunction with the company 's financial statements and the notes thereto appearing in item 8 of this document . in the following discussion , income statement comparisons are against the previous year and balance sheet comparisons are against the previous fiscal year-end , unless otherwise noted . operating results discussed herein are not necessarily indicative of the results for the year 2021 or any future period . in management 's discussion and analysis of financial condition and results of operations , certain reclassifications have been made to make prior periods comparable . tax-equivalent adjustments are the result of increasing income from tax-advantaged loans and securities by an amount equal to the taxes that would be paid if the income were fully taxable based on a 26 % marginal rate ( including state income taxes net of federal benefit ) . in the discussion , unless otherwise specified , references to earnings per share and `` eps '' refer to diluted earnings per common share , including the dilutive impact of the convertible preferred shares . berkshire is a delaware corporation headquartered in boston and the holding company for berkshire bank ( “ the bank ” ) and berkshire insurance group , inc. established in 1846 , the bank operates as a commercial bank under a massachusetts trust company charter . be first culture & corporate responsibility berkshire bank is a purpose and values-driven community bank . we believe that everyone , from every neighborhood , should be able to bank with dignity . we 're committed to providing an ecosystem of socially responsible financial solutions to meet our customers ' needs , engaging with communities to ensure access and upward economic mobility , addressing racial equity and fostering a workplace culture where everyone belongs . our be first values of belonging , focusing , inclusion , respect , service , and teamwork guide us as we evolve and navigate our environment to create long-term sustainable value for our stakeholders . the spirit and work ethic that began 175 years ago when berkshire bank first opened its doors to meet the working class and entrepreneurs ' financial needs is still at the core of our company today . as the covid-19 pandemic ravaged communities and shuttered businesses , we answered the call to assist our neighbors . we ensured our employees , customers , and communities ' health , safety , and economic resiliency was the priority . we created the you first employee assistance fund to help employees impacted by unexpected financial hardships . we assisted small businesses and consumers with loan forbearances and government assistance programs and we launched a 47 fund to assist black and brown owned businesses most impacted by the pandemic . we also faced the stark reality that systematic racism continues to exist throughout the country . while many companies that had been on the sidelines stepped-up , berkshire leaned in and responded with continued focus , commitment , and intentionality . we continue to build on our be first commitment , our roadmap for purpose-driven , socially responsible community banking . our strong foundation of governance systems , including our corporate responsibility & culture committee of our board of directors , diversity & inclusion employee committee , responsible & sustainable business policy , and social & environmental responsibility risk management practices collectively integrate social , environmental , cultural , and reputational considerations through all aspects of the company . berkshire bank continues to offer services to the underbanked through the reevx labs platform at reevxlabs.com . we engage directly with our stakeholders and populate several communications channels with strategic content including our corporate responsibility website www.berkshirebank.com/csr , annual report , and proxy statement to highlight our commitment to disclosure , transparency and socially responsible performance . our annual corporate responsibility report , which is aligned with sustainability accounting standards board ( “ sasb ” ) commercial bank disclosure topics , details the company 's environmental , social , governance , and cultural programs as well as our progress on the be first commitment . we are also incredibly proud to be recognized for our leadership and performance , including local , regional , national , and international awards . among these honors the north american inspiring workplaces award , communitas award for leadership in corporate social responsibility , listing in the bloomberg gender-equality index and achieving a perfect score in the human rights campaign corporate equality index . story_separator_special_tag these enhanced capabilities are significantly more valuable in today 's environment as a result of the customer needs and accelerated digital transformation resulting from the pandemic . 49 also in october 2020 , the company announced a strategic goal to pursue expense management initiatives , due in part to the long-term revenue impacts of the near zero interest rate environment . expense management also recognizes long-term changes in customer behaviors and the bank 's operating model based on the accelerated transition to the digital economy resulting from the pandemic . in december 2020 , as part of these initiatives , the company announced a branch optimization plan . the company announced that it had entered into an agreement for the sale of its 8 mid-atlantic branches , including the transfer of more than $ 600 million in deposits and $ 300 million in loans . additionally , the company announced a plan to consolidate 16 branches in its new england/new york footprint . both of these initiatives are targeted for completion in the first half of 2021. the company expects to recognize a net gain on the sale of the mid-atlantic branches , as well as charges in conjunction with the branch consolidations . in addition to reshaping the branch office network , the company is pursuing possibilities for identifying and releasing surplus corporate real estate , and making other operational adjustments to its business model . the company also plans to formalize cost save opportunities arising from work from home as well as changes in procurement processes in the current environment . the company 's goal is to streamline its business model in its core markets and leverage organic growth around that foundation . two critical enablers are the technology that the company has invested in and its personalized banking services program , mybanker . berkshire has been successfully deploying these mobile personal bankers for a number of years to bring service to customers where and when they need it and they remain integral to the distinctive customer experience that the bank is developing as a 21st century community bank . on august 10 , 2020 , the company announced that , pursuant to a separation agreement , richard m. marotta had stepped down from his position as president and chief executive officer of the company and ceo of the bank , as well as from his role as a director to pursue new opportunities . working within its leadership succession planning process , the board appointed sean a. gray , to serve as acting president and ceo for the company . the board initiated a ceo search process to consider a national search for candidates inside and outside of berkshire . the board established a working committee to oversee the search process and retained the firm of spencer stuart as its executive search consulting firm . on january 25 , 2021 the board announced the appointment of nitin j. mhatre as president and chief executive officer of the company and the bank effective january 29 , 2021. with the appointment of mr. mhatre , mr. gray resumed his ongoing duties as president and chief operating officer of berkshire bank and senior executive vice president of berkshire hills bancorp , inc. mr. mhatre is a senior banking executive with 25 years of community and global banking experience . most recently , as executive vice president , community banking at webster bank , mr. mhatre was a member of webster bank 's executive team and led its consumer and business banking businesses . in this role , he was responsible for profitable growth of the community banking segment at the $ 31 billion bank and led a diverse team of more than 1,500 employees . previously , he spent more than 13 years at citi group in various leadership roles across consumer-related businesses globally . mr. mhatre served on the board of the consumer bankers association headquartered in washington d.c. since 2014 and was chairman of the board from 2019 to 2020. he also serves on the board of junior achievement of southwest new england headquartered in hartford , ct. the board and management team are fully aligned on the company 's long-term strategic direction . that strategy focuses on improving core operating performance with a relationship banking model that serves berkshire 's communities and clients in its footprint . berkshire 's brand name and franchise in its markets , its differentiated customer service and culture , and its purpose-based values are all targeted to support meaningful improvement in shareholder returns . the company has five current key initiatives : optimizing berkshire 's branch footprint through the announced branch sales and consolidations rationalizing the balance sheet to maintain strong liquidity and capital metrics and support improved profitability and shareholder return further implementing digitization and automation to improve customer engagement and operational efficiencies focusing on core products and services to enhance customer relationships and the customer experience while exiting non-strategic products & business lines continuing proactive management of asset quality through the pandemic cycle 50 berkshire continues to pursue its ongoing transformation into an innovative 21 st century community bank , which has gained heightened relevance to stakeholders and the company 's long-term opportunity as a result of this year 's events . guided by its be first principles , the company continues to foster a more inclusive , innovative and supportive culture , which is positioning berkshire to deliver a differentiated and compelling community banking experience to everyone in its communities , including those who have been traditionally underbanked . following its principles , the company 's covid-19 response included : 51 comparison of financial condition at december 31 , 2020 and december 31 , 2019 summary : the major balance sheet changes were the result of the covid-19 pandemic and its impacts on the economy and federal fiscal and monetary policy . total loans decreased and demand deposits increased due to the slowdown in economic activity , resulting in less credit demand and the accumulation of customer liquidity – both of which benefited from federal stimulus .
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summary : revenue and expense in 2019 included the si financial operations acquired on may 17 , 2019. as a result , many categories of revenue and expense increased in 2019 over the same period of 2018. additionally , operations in 2019 included the benefit of restructuring actions in both years , and the benefit of the acquired commerce bank operations which were being fully integrated in the first half of 2018. earnings per share reflected the shares issued as merger consideration for the si financial acquisition . references to revenue and expense in this discussion are generally related to continuing operations unless otherwise noted . year-over-year profitability declined primarily due to the $ 16 million charge related to the write-off of one commercial loan due to alleged fraud . profitability was also adversely impacted by a lower net interest margin due to the decline in purchased loan accretion , which had been anticipated , as well as the impact of lower interest rates on the company 's asset sensitive balance sheet . total purchase accounting accretion decreased to $ 14 million in 2019 from $ 23 million in 2018. the company undertook various initiatives following its strategic review to help mitigate these margin impacts . results were also lower due to higher merger charges related to the completion and integration of the si financial acquisition . the company 's return on equity was 5.7 % in 2019 , compared to 6.8 % in the prior year . its non-gaap measure of adjusted return on tangible common equity was 11.3 % compared to 13.5 % for these respective periods . revenue : net revenue from continuing operations increased in 2019 by $ 19 million , or 4 % , to $ 449 million in 2019 compared to the prior year , including acquired si financial operations . this increase was divided between net interest income and non-interest income .
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on january 1 , 2018 we adopted asu 2016-01 and reclassified a $ 1.9 million unrealized gain from cumulative story_separator_special_tag objective the objective of this section of this annual report on form 10-k is to provide a discussion and analysis , from management 's perspective , of the material information necessary to assess our financial condition , results of operations , liquidity and cash flows for the year ended december 31 , 2020. in addition , we have also included a discussion of any material events or uncertainties that we believe are reasonably likely to cause our 2020 financial results to not be indicative of future results . we also discuss potential business opportunities that we may pursue and the uncertainties associated with such pursuit . we have included an executive summary to identify what we believe are the more important items that affected our 2020 financial results , including both our business activities as well as events outside of our control . in addition to the executive summary , we encourage you to read the entire discussion in this section of our material financial and statistical data together with our consolidated financial statements and the accompanying notes that are included in part iv , item 15 of this annual report on form 10-k. the full discussion analyzes in detail our financial condition , results of operations , liquidity and cash flows , including comparisons of our 2020 and 2019 financial results . 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 “ management 's discussion and analysis of financial condition and results of operations ” in part ii , item 7 of our annual report on form 10-k for the fiscal year ended december 31 , 2019 . 21 overview we are an internally managed and self-advised reit primarily engaged in the ownership and operation of office properties in the united states . we were formed in 1986 under maryland law . the company operates as what is commonly referred to as an umbrella partnership real estate investment trust , or upreit , conducting substantially all of its activities through the operating trust . as of december 31 , 2020 , the company beneficially owned 99.80 % of the outstanding op units . at december 31 , 2020 , our portfolio consisted of four properties ( eight buildings ) , with a combined 1.5 million square feet . as of december 31 , 2020 , we had $ 3.0 billion of cash and cash equivalents . we use leasing and occupancy metrics to evaluate the performance of our properties . we believe these metrics provide useful information to investors because they reflect the leasing activity and vacant space at the properties and may facilitate comparisons of our leasing and occupancy metrics with other reits and real estate companies . as of december 31 , 2020 , our overall portfolio was 85.7 % leased . during the year ended december 31 , 2020 , we entered into leases , excluding leasing activity for assets during the quarter in which the asset was sold or classified as held for sale , for 142,000 square feet , including lease renewals for 76,000 square feet and new leases for 66,000 square feet . leases entered into during the year ended december 31 , 2020 , including both lease renewals and new leases , had weighted average cash rental rates that were approximately 1.4 % lower than prior rental rates for the same space and weighted average gaap rental rates that were approximately 11.9 % higher than prior rental rates for the same space . the change in gaap rents is different than the change in cash rents due to differences in the amount of rent abatements , the magnitude and timing of contractual rent increases over the lease term , and the length of term for the newly executed leases compared to the prior leases . percent change in gaap and cash rents is a comparison of current rent , including estimated tenant expense reimbursements , if any , to the rent , including actual/projected tenant expense reimbursements , if any , last received for the same space on a gaap and cash basis , respectively . cash rent during the reporting period is calculated before deducting any initial period free rent . during the year ended december 31 , 2020 , we sold three properties ( four buildings ) with a combined 1.0 million square feet for an aggregate gross sales price of $ 756.5 million . during the year ended december 31 , 2019 , we sold three properties ( six buildings ) with a combined 2.7 million square feet for an aggregate gross sale price of $ 812.1 million . for more information regarding these transactions , see note 3 of the notes to consolidated financial statements included in part iv , item 15 of this annual report on form 10-k. on september 16 , 2020 our board of trustees declared a special , one-time cash distribution of $ 3.50 per common share/unit to shareholders/unitholders of record on october 1 , 2020. on october 20 , 2020 , we paid this distribution to such shareholders/unitholders in the aggregate amount of $ 426.7 million . we have engaged cbre , inc. , ( cbre ) to provide property management services . we pay cbre a property-by-property management fee and may engage cbre from time-to-time to perform project management services , such as coordinating and overseeing the completion of tenant improvements and other capital projects at the properties . we reimburse cbre for certain expenses incurred in the performance of its duties , including certain personnel and equipment costs . story_separator_special_tag annualized rental revenue can not be reconciled to a comparable gaap measure without unreasonable efforts , primarily due to the fact that it is calculated from the billings of tenants in the most recent month at the most recent rental rates during the quarter reported , whereas historical gaap measures include billings from a potentially different group of tenants over multiple months at potentially different rental rates . 24 the principal source of funds for our operations is rents from tenants at our properties . rents are generally received from our tenants monthly in advance . as of december 31 , 2020 , tenants representing 2.5 % or more of our total annualized rental revenue were as follows ( square feet in thousands ) : replace_table_token_5_th ( 1 ) total leased square feet as of december 31 , 2020 includes space subject to leases that have commenced , space being fitted out for occupancy pursuant to existing leases , and space which is leased but is not occupied or is being offered for sublease by tenants . ( 2 ) annualized rental revenue is annualized contractual rents from our tenants pursuant to leases which have commenced as of december 31 , 2020 , plus estimated recurring expense reimbursements ; excludes lease value amortization , straight-line rent adjustments , abated ( free ) rent periods and parking revenue . we calculate annualized rental revenue by aggregating the recurring billings outlined above for the most recent month during the quarter reported , adding abated rent , and multiplying the sum by 12 to provide an estimation of near-term potentially-recurring revenues . annualized rental revenue is a forward-looking non-gaap measure . annualized rental revenue can not be reconciled to a comparable gaap measure without unreasonable efforts , primarily due to the fact that it is calculated from the billings of tenants in the most recent month at the most recent rental rates during the quarter reported , whereas historical gaap measures include billings from a potentially different group of tenants over multiple months at potentially different rental rates . ( 3 ) our lease with salesforce.com , inc. has partially commenced . approximately 44,000 square feet commenced as of december 31 , 2020 , and the remaining 21,000 square feet are expected to commence in the second half of 2021 . ( 4 ) approximately 10,000 square feet of international dairy foods association 's space expire in 2034. the remaining 13,000 square feet expire ( including the expiration dates for backfilling tenants ) in the following years : 5,900 square feet in 2021 , 3,100 square feet in 2022 , and 4,100 square feet in 2027. financing activities as of july 5 , 2020 , we repaid at par $ 25.1 million of mortgage debt at 206 east 9th street and recognized a gain on early extinguishment of debt of $ 0.1 million for the year ended december 31 , 2020 from the write off of an unamortized premium , net of prepayment fees and the write off of unamortized deferred financing fees . for more information regarding our financing sources and activities , please see the section captioned “ liquidity and capital resources—our investment and financing liquidity and resources ” below . 25 story_separator_special_tag notes due 2020. gain on sale of properties , net . gain on sale of properties , net increased $ 24.6 million , or 5.8 % , in the 2020 period , compared to the 2019 period . gain on sale of properties , net in the 2020 period primarily related to the following ( dollars in thousands ) : replace_table_token_7_th ( 1 ) there was consideration of $ 2.0 million being held in escrow related to the sale of this property in 2019. in june 2020 , these proceeds were released to the company , and we recorded an additional $ 2.0 million gain on the sale for year ended december 31 , 2020. gain on sale of properties , net in the 2019 period primarily related to the following ( dollars in thousands ) : asset gain on sale 1735 market street $ 192,985 600 108th avenue ne 149,009 research park 78,158 $ 420,152 income tax expense . income tax expense decreased $ 1.0 million , or 80.7 % , in the 2020 period , compared to the 2019 period , primarily due to a decrease in state and local taxes as a result of the sale of properties . net income attributable to noncontrolling interest . from 2017 through 2020 , we granted ltip units to certain of our trustees and employees . as these ltip units vest , they automatically convert to operating partnership units , or op units . the net income attributable to noncontrolling interest increased $ 0.6 million , or 329.6 % in the 2020 period , compared to the 2019 period , primarily due to the measurement of ltip units in the 2020 period . 27 liquidity and capital resources our operating liquidity and resources as of december 31 , 2020 , we had $ 3.0 billion of cash and cash equivalents . we expect to use our cash balances , cash flow from our operations and proceeds of any future property sales to fund our operations , make distributions , repurchase our common shares , make acquisitions and or investments in properties or businesses , fund tenant improvements and leasing costs and for other general business purposes . we believe our cash balances and the cash flow from our operations will be sufficient to fund our ordinary course activities . our future cash flows from operating activities will depend on our ability to collect rent from our current tenants under their leases . our ability to collect rent and generate parking revenue in the near term may continue to be adversely impacted by the market disruption caused by the covid-19 outbreak . we can not predict the ultimate impact of the pandemic on our results of operations .
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results of operations year ended december 31 , 2020 compared to year ended december 31 , 2019 replace_table_token_6_th ( 1 ) comparable properties consist of four properties we owned continuously from january 1 , 2019 to december 31 , 2020 . ( 2 ) other properties consist of properties sold . ( 3 ) we define net operating income , or noi , as shown above , as income from our real estate including lease termination fees received from tenants less our property operating expenses . noi excludes amortization of capitalized tenant improvement costs and leasing commissions and corporate level expenses . for a discussion of why we consider noi to be an appropriate supplemental measure to net income as well as a reconciliation of noi to net income , the most directly comparable financial measure under gaap reported on our consolidated financial statements , please see `` liquidity and capital resources - property net operating income ( noi ) . '' rental revenue . rental revenue decreased $ 54.7 million , or 46.8 % , in the 2020 period , compared to the 2019 period , primarily due to the properties sold in 2020 and 2019. rental revenue at the comparable properties decreased $ 0.7 million , or 1.2 % , in the 2020 period , compared to the 2019 period , primarily due to a $ 0.9 million decrease in lease termination fees and a $ 0.4 million increase in uncollectible receivables , partially offset by a $ 0.3 million increase in escalations and a $ 0.5 million increase in real estate tax recoveries . rental revenue includes ( decreases ) increases for straight-line rent adjustments totaling $ ( 0.3 ) million in the 2020 period and $ 0.4 million in the 2019 period , and net increases for amortization of acquired real estate leases and assumed real estate lease obligations totaling $ 0 in the 2020 period and $ 0.1 million in the 2019 period . rental income also includes the recognition of lease termination fees totaling $ 1.3
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story_separator_special_tag the historical consolidated financial statements included in this annual report reflect all of the assets , liabilities and results of operations of calumet specialty products partners , l.p. and its consolidated subsidiaries ( “ calumet , ” the “ company , ” “ we , ” “ our , ” or “ us ” ) . the following discussion analyzes the financial condition and results of operations of the company for the years ended december 31 , 2018 , 2017 and 2016 . in addition , as discussed in note 4 and note 5 to the consolidated financial statements , we closed the superior transaction and the anchor transaction on november 8 , 2017 and november 21 , 2017 , respectively . the historical results of operations of the superior refinery are contained in our financial position and results through november 7 , 2017. as a result of the anchor transaction , we classified its results of operations and the assets and liabilities of anchor for all periods presented to reflect anchor as a discontinued operation . prior to being reported as discontinued operations , anchor was included as its own reportable segment as oilfield services . unitholders should read the following discussion and analysis of the financial condition and results of operations of the company in conjunction with the historical consolidated financial statements and notes of the company included elsewhere in this annual report . overview we are a leading independent producer of high-quality , specialty hydrocarbon products in north america . we are headquartered in indianapolis , indiana , and own specialty and fuel products facilities primarily located in northwest louisiana , northern montana , western pennsylvania , texas , new jersey and eastern missouri . we own and lease additional facilities , primarily related to production and distribution of specialty and fuel products , throughout the united states . our business is organized into two segments : specialty products and fuel products . in our specialty products segment , we process crude oil and other feedstocks into a wide variety of customized lubricating oils , white mineral oils , solvents , petrolatums and waxes . our specialty products are sold to domestic and international customers who purchase them primarily as raw material components for basic industrial , consumer and automotive goods . we also blend and market specialty products through our royal purple , bel-ray , trufuel and quantum brands . in our fuel products segment , we process crude oil into a variety of fuel and fuel-related products , including gasoline , diesel , jet fuel , asphalt and heavy fuel oils , and from time to time resell purchased crude oil to third-party customers . 2018 update outlook and trends commodity markets and corresponding refined product margins were volatile during 2017 and 2018 , with the average price per barrel of new york mercantile exchange west texas intermediate ( “ nymex wti ” ) crude oil increasing approximately 17 % during 2017 and increasing approximately 28 % during 2018 . we expect this volatility to continue into 2019 . below are factors that have impacted our results of operations during 2018 : we continue to focus on improving operations . our average feedstock runs were 94,137 barrels per day ( “ bpd ” ) in 2018 , compared to 128,624 bpd in 2017 . the decrease is primarily attributable to the divestiture of the superior refinery in november 2017 and decreased production due to maintenance activities in 2018 . we anticipate to see improvement in our utilization rates in 2019 as we continue to seek to minimize unplanned downtime at our facilities which negatively affected our current year earnings . refined fuel product margins widened in 2018 as compared to 2017 predominately driven by the increase in the western canadian select ( “ wcs ” ) discount versus nymex wti increasing to approximately $ 27 per barrel below nymex wti in comparison to $ 13 per barrel below nymex wti in 2017 . given the wcs discount to nymex wti remained favorable throughout much of 2018 , we increased our use of wcs crude oil and other heavy crude oils to capture the higher margins associated with refining heavier crude oils . in the fourth quarter of 2018 , the canadian heavy sour crude oil discounts began to shrink to more normal levels in comparison to the large discounts seen throughout much of 2018 caused by the oversupply of sour crude oil and pipeline constraints restricting access to markets . the price of domestically produced mid-continent crude is expected to continue to trade at a discount relative to internationally produced crude reflecting increased domestic production combined with transportation constraints in the united states ' which is especially true for certain crude oils such as midland wti . processing heavy sour crude oil and midland wti oil in our refineries has resulted in delivering a lower overall cost of crude oil in 2018 . environmental regulations continue to affect our margins in the form of renewable identification numbers ( “ rins ” ) . to the extent we are unable to blend biofuels , we must purchase rins in the open market to satisfy our annual requirement . the approximate 65 % decrease in the price of rins in 2018 favorably affected our results of operations . it is not possible to predict what future volumes or costs may be , but given the volatile price of rins , we continue to anticipate that rins have the potential to remain a significant expense for our fuel products segment , assuming current market prices for rins continue , inclusive of the favorable impact of any exemptions received from the epa . although our specialty products results declined in comparison to the prior year primarily due to maintenance activities at our princeton and shreveport refineries and pricing weakness across the paraffinic base oil market , specialty product margins have remained relatively stable and are expected to remain stable in the near term . story_separator_special_tag as of december 31 , 2018 , we had a $ 330.8 million borrowing base , $ 35.1 million in outstanding standby letters of credit and no outstanding borrowings . we believe we will continue to have sufficient liquidity from cash on hand , cash flow from operations , borrowing capacity and other means by which to meet our financial commitments , debt service obligations , contingencies and anticipated capital expenditures . on a continuous basis , we will focus on various initiatives , including working capital initiatives , to further enhance our liquidity over time , given current market conditions . in march 2018 , we formed biosyn holdings , llc ( “ biosyn ” ) with the heritage group , a related party , for the purpose of investing in biosynthetic technologies , llc , a startup company which developed an intellectual property portfolio for the manufacture of renewable-based and biodegradable esters . we incurred approximately $ 4.0 million in related expenditures . in april 2018 , we redeemed all of the $ 400.0 million in aggregate principal amount of the 11.50 % senior secured notes due january 15 , 2021 ( “ 2021 secured notes ” ) . the holders received a redemption price of 100.0 % of the principal amount of the 2021 secured notes , plus accrued and unpaid interest thereon up to , but not including , april 9 , 2018 ( the “ redemption date ” ) , plus a make whole premium ( as defined in the indenture , dated april 20 , 2016 , governing the 2021 secured notes ) . in conjunction with the redemption , we incurred debt extinguishment costs of $ 58.2 million , including $ 11.6 million of non-cash charges . in may 2018 , pacific new investment limited ( “ pacnil ” ) ( an entity formed by us and the heritage group , a related party ) sold its investment in shandong hi-speed hainan development co. , ltd. ( “ hi-speed ” ) to the other owners . we received proceeds of $ 9.9 million for the sale . during 2018 , we received $ 44.8 million in proceeds related to the sale of the superior refinery , $ 41.0 million of which was recorded as a receivable as of december 31 , 2017. we also received $ 6.8 million in proceeds related to the sale of anchor during 2018. renewable fuel standard update we , along with the broader refining industry , remain subject to compliance costs under the rfs . under the regulation of the environmental protection agency ( “ epa ” ) , the rfs provides annual requirements for the total volume of renewable transportation fuels which are mandated to be blended into finished petroleum fuels . if a refiner does not meet its required annual renewable volume obligation ( “ rvo ” ) , the refiner can purchase blending credits in the open market , referred to as rins . for the year ended december 31 , 2018 , our rins gain was $ 31.4 million , as compared to a rins gain for the year ended december 31 , 2017 of approximately $ 41.2 million . our gross rins obligation , which includes rins that are required to be secured through either blending or through the purchase of rins in the open market , was approximately 79 million rins in 2018 . for the full-year 2019 , we anticipate our gross rins obligation will be approximately 85 million rins . during 2017 and 2018 , the epa granted our fuel product refineries a “ small refinery exemption ” under the rfs for the full-year 2016 and the full-year 2017 , respectively , as provided for under the federal clean air act , as amended ( “ caa ” ) . in granting those exemptions , the epa determined that for the full-year 2016 and full-year 2017 , compliance with the rfs would represent a “ disproportionate economic hardship ” for these refineries . we continue to anticipate that expenses related to rfs compliance have the potential to remain a significant expense for our fuel products segment , assuming current market prices for rins . estimated rins obligations remain subject to fluctuations in fuels production volumes during the full-year 2019 . key performance measures our sales and net income are principally affected by the price of crude oil , demand for specialty products and fuel products , prevailing crack spreads for fuel products , the price of natural gas used as fuel in our operations and our results from derivative instrument activities . 60 our primary raw materials are crude oil and other specialty feedstocks , and our primary outputs are specialty petroleum products and fuel products . the prices of crude oil , specialty products and fuel products are subject to fluctuations in response to changes in supply , demand , market uncertainties and a variety of additional factors beyond our control . we monitor these risks and enter into derivative instruments designed to help mitigate the impact of commodity price fluctuations on our business . the primary purpose of our commodity risk management activities is to economically hedge our cash flow exposure to commodity price risk so that we can meet our debt service and capital expenditure requirements despite fluctuations in crude oil and fuel products prices . we enter into derivative contracts for future periods in quantities that do not exceed our projected purchases of crude oil and natural gas and sales of fuel products . please read part ii , item 7a “ quantitative and qualitative disclosures about market risk — commodity price risk ” and note 11 — “ derivatives ” under part ii , item 8 “ financial statements and supplementary data — notes to consolidated financial statements. ” our management uses several financial and operational measurements to analyze our performance . these measurements include the following : sales volumes ; production yields ; segment gross profit ; segment adjusted ebitda ; and selling , general and administrative expenses . sales volumes .
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financial results we reported a net loss from continuing operations of $ 51.0 million in 2018 , versus a net loss from continuing operations of $ 31.3 million in 2017 . we reported adjusted ebitda from continuing operations ( as defined in item 6 “ selected financial data — non-gaap financial measures ” ) of $ 263.9 million in 2018 , versus $ 314.3 million in 2017 . our net loss from continuing operations and adjusted ebitda for the full-year 2018 includes the impact of an unfavorable lower of cost or market ( “ lcm ” ) inventory adjustment of $ 30.6 million and $ 6.3 million of losses related to liquidation of last-in , first-out ( “ lifo ” ) inventory layers while our net loss from continuing operations and adjusted ebitda for the full year 2017 included the impact of a favorable lcm inventory adjustment of $ 30.6 million and $ 3.7 million of losses related to liquidation of lifo inventory layers . please read item 6 “ selected financial data — non-gaap financial measures ” for a reconciliation of ebitda and adjusted ebitda to net loss , our most directly comparable financial performance measure calculated and presented in accordance with gaap . commodity markets remained volatile in 2018 , contributing to fluctuations in refined product margins . the average price of nymex wti crude oil averaged approximately $ 65 per barrel in 2018 compared to approximately $ 51 per barrel in 2017 . with respect to the average price differential per barrel between wcs and nymex wti , wcs averaged approximately $ 27 per barrel below nymex wti in 2018 compared to approximately $ 13 per barrel below nymex wti in 2017 . given our access to cost-advantaged , heavy canadian crude oil in our great falls refinery , we have embarked on a multi-year plan to increase our ability to process this crude oil grade .
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stock option awards the following table summarizes stock option activity under our share-based plans for the year ended december 31 , 2013 : replace_table_token_45_th 59 the following table presents information about stock options outstanding and exercisable at december 31 , 2013 : replace_table_token_46_th the following table summarizes the cash proceeds and tax benefits realized from the exercise of stock options : replace_table_token_47_th we estimated the fair value of employee stock option awards at the grant date based on the assumptions summarized in the following table : replace_table_token_48_th we calculated expected volatility over the expected term of the awards based on the historical volatility of our common stock . we use weekly price observations for our historical volatility calculation because we believe that they provide the most appropriate measurement of volatility given the trading patterns of our common stock . we estimated the expected term based on the vesting period of the awards and our historical exercise activity for awards with similar characteristics . the weighted average expected term is impacted by a higher expected term estimate for stock option awards granted to our named executive officers . the risk-free interest rate is based on the u.s. treasury zero-coupon issues with a remaining term approximating the expected term of the option . we determined the expected dividend yield based on the anticipated dividends over the expected term . for purposes of recognizing share-based compensation expense , we ratably expense the estimated fair value of employee stock options over the options story_separator_special_tag for a discussion of our base business calculations , see the results of operations section below . in our discussion of results of operations below , adjusted operating income , adjusted net income and adjusted diluted earnings per share for the 2012 and 2011 periods exclude the goodwill impairment line item on the consolidated statements of income . we have provided these adjusted amounts because we believe it helps investors assess our year-over-year operating performance . 2013 financial overview story_separator_special_tag significant impact on our industry , driving an approximate 80 % reduction in new pool construction in the united states compared to peak levels in 2005 and also contributing to more than a 30 % decline in replacement and refurbishment activities . while we estimate that new pool construction has increased from a low of roughly 45,000 new units in 2009 to approximately 60,000 new units in 2013 , construction levels are still down more than 70 % compared to peak levels in 2005 and down approximately 60 % from what we consider normal levels . the rebound in our base business sales growth beginning in 2010 reflects continued improvement in consumer discretionary expenditures , higher replacement activities and market share gains given our estimated industry growth of 3 % to 5 % for 2010 to 2012. improvements in general external market factors in the united states including consumer confidence , employment , housing , consumer financing and economic expansion helped support this growth . in 2013 , we estimate industry growth dipped temporarily to approximately 1 % to 2 % given the impact of adverse weather on seasonal markets . going forward , we believe there is potential for a significant sales recovery due to the build-up of deferred replacement and remodeling activity and our expectation for gradually normalized new pool and irrigation construction levels . we also expect that market conditions in the united states will continue to improve , enabling further recovery of replacement , remodeling and new construction activity to normalized levels over the next 4 to 7 years . we expect that the industry will realize an annual growth rate of approximately 4 % to 7 % over this time period before reverting back to 3 % to 4 % annual growth over the longer term . as current economic trends indicate that consumer spending has begun to slowly recover and that construction activities will likely continue to gradually improve , we believe that we are well positioned to take advantage of both the eventual market recovery and the inherent long-term growth opportunities in our industry . for 2014 , we expect the macroeconomic environment and the opportunities to realize additional market share gains will be quite similar to 2013. we also anticipate industry growth levels will benefit from an expected return to normal seasonal weather compared to 2013. we project 6 % to 8 % base business sales growth , including our expectation for average inflationary product cost increases of 1 % to 2 % . we expect that we will grow market share by providing exceptional customer service throughout our networks , expanding product lines and further penetrating underserved markets . we also expect to modestly expand our pool and irrigation networks by opening seven to nine new locations . we believe our sales growth will be more geographically balanced than 2013 and will continue to be weighted toward sales of discretionary products , resulting in negative to neutral gross margin trends for the full year . overall , we anticipate expenses will grow at approximately half the rate of our net sales growth in 2014 , reflecting inflationary increases and incremental costs to support our sales growth expectations . we expect base business results will generate operating profit growth of 15 % or greater in 2014. based on these expectations , we project that 2014 earnings per share will be approximately $ 2.35 to $ 2.45 per diluted share . story_separator_special_tag the table below presents a description of these inventory classes : class 0 new products with less than 12 months usage ( or 36 months for tile products ) classes 1-4 highest sales value items , which represent approximately 80 % of net sales at the sales center classes 5-12 lower sales value items , which we keep in stock to provide a high level of customer service class 13 products with no sales for the past 12 months at the local sales center level , excluding special order products not yet delivered to the customer null class non-stock special order items there is little risk of obsolescence for products in classes 1-4 because products in these classes generally turn quickly . we establish our reserve for inventory obsolescence based on inventory classes 5-13 , which we believe represent some exposure to inventory obsolescence , with particular emphasis on skus with the least sales over the previous 12 months . the reserve is intended to reflect the value of inventory that we may not be able to sell at a profit . we provide a reserve of 5 % for inventory in classes 5-13 and non-stock inventory as determined at the sales center level . we also provide an additional 5 % reserve for excess inventory in classes 5-12 and an additional 45 % reserve for excess inventory in class 13. we determine excess inventory , which is defined as the amount of inventory on hand in excess of the previous 12 months ' usage , on a company-wide basis . we also evaluate whether the calculated reserve provides sufficient coverage of the total class 13 inventory . in evaluating the adequacy of our reserve for inventory obsolescence , we consider a combination of factors including : the level of inventory in relationship to historical sales by product , including inventory usage by class based on product sales at both the sales center and company levels ; changes in customer preferences or regulatory requirements ; seasonal fluctuations in inventory levels ; geographic location ; and new product offerings . we periodically adjust our reserve for inventory obsolescence as changes occur in the above-identified factors . at the end of each fiscal year , we prepare a hindsight analysis by comparing the prior year-end obsolescence reserve balance to ( i ) current year inventory write-offs and ( ii ) the value of products with no sales for the past 12 months that remain in inventory . based on our hindsight analysis , we concluded that our prior year reserve was within a range of acceptable estimates and that our reserve methodology is appropriate . if the balance of our inventory reserve increased or decreased by 20 % at december 31 , 2013 , pretax income would change by approximately $ 1.4 million and earnings per share would change by approximately $ 0.02 per diluted share ( based on the number of weighted average diluted shares outstanding for the year ended december 31 , 2013 ) . vendor incentives many of our vendor arrangements provide for us to receive incentives of specified amounts of consideration when we achieve any of a number of measures . these measures are generally related to the volume level of purchases from our vendors and may include negotiated pricing arrangements . we account for vendor incentives as a reduction of the prices of the vendor 's products and therefore a reduction of inventory until we sell the product , at which time such incentives are recognized as a reduction of cost of sales in our income statement . throughout the year , we estimate the amount of the incentive earned based on our estimate of total purchases for the fiscal year relative to the purchase levels that mark our progress toward earning the incentives . we accrue vendor incentives on a monthly basis using these estimates provided that we determine they are probable and reasonably estimable . our estimates for annual purchases , future inventory levels and sales of qualifying products are driven by our sales projections , which can be significantly impacted by a number of external factors including weather and changes in economic conditions . changes in our purchasing mix also impact our incentive estimates , as incentive rates can vary depending on our volume of purchases from specific vendors . 21 we continually revise these estimates throughout the year to reflect actual purchase levels and identifiable trends . as a result , our estimated quarterly vendor incentive accruals may include cumulative catch-up adjustments to reflect any changes in our estimates between reporting periods . these adjustments tend to have a greater impact on gross margin in the fourth quarter since it is our seasonally slowest quarter and because the majority of our vendor incentive arrangements are based on calendar year periods . our estimates for these arrangements are updated at year end to reflect actual annual purchase levels . in the first quarter of the subsequent year , we prepare a hindsight analysis by comparing actual vendor incentives received to the prior year vendor incentive balances . based on our hindsight analysis , we concluded that our vendor incentive estimates were within a range of acceptable estimates and that our estimation methodology is appropriate . if market conditions were to change , vendors may change the terms of some or all of these programs . although such changes would not affect the amounts we have recorded related to products already purchased , they may lower or raise our gross margins for products purchased and sold in future periods . income taxes we record deferred tax assets or liabilities based on differences between the financial reporting and tax basis of assets and liabilities using currently enacted rates and laws that will be in effect when we expect the differences to reverse . due to changing tax laws and state income tax rates , significant judgment is required to estimate the effective tax rate expected to apply to tax differences that are expected to reverse in the future .
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financial results in 2013 , we surpassed $ 2.0 billion in sales , a fitting accomplishment for our milestone 20th year . we achieved record results , including diluted earnings per share ( eps ) of $ 2.05 , despite persistent and challenging external factors . in our business , how we distribute products is as important as what products we distribute . we believe that our success reflects the totality of having the right products , available at the right time , coupled with exceptional service , complemented by innovative programs and tools resulting in the value-add we provide to the marketplace . net sales for the year ended december 31 , 2013 in creased 6 % compared to 2012 . base business sales increased 6 % , including a 6 % increase from swimming pool product sales and an 11 % increase from irrigation and landscape product sales . base business sales growth reflects market growth , market share gains and the ongoing recovery of discretionary product sales , partially offset by weather driven declines in non-discretionary product sales , primarily in our seasonal markets . for 2013 , net sales growth of 11 % in our largest , year-round markets tracked well above the 2 % growth in our seasonal markets , although this difference lessened as weather comparisons normalized later in the year . gross profit for the year ended december 31 , 2013 in creased 4 % over 2012 . gross profit as a percentage of net sales ( gross margin ) de creased 60 basis points to 28.4 % for 2013 . product , customer and geographic mix changes adversely impacted gross margin in 2013. product mix changes reflected a shift in consumer spending to certain lower margin , discretionary products such as variable speed pumps , high efficiency heaters , led lighting products , irrigation systems and landscape equipment , relative to higher margin , non-discretionary products generally associated with basic pool maintenance and repair activity .
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see item 1a - risk factors . actual results might differ materially from results suggested by any forward-looking statements in this report . the company does not have an obligation to publicly update any forward-looking statements , whether as a result of the receipt of new information , the occurrence of future events or otherwise . the following is a discussion and analysis of the consolidated financial condition and results of continuing operations , unless stated otherwise , for the company for the years ended december 31 , 2011 , 2010 and 2009 , and of certain factors that may affect the company 's prospective financial condition and results of operations . the following should be read in conjunction with the consolidated financial statements and related notes appearing elsewhere herein . overview the company 's net sales increased to $ 603.4 million in 2011 from $ 526.5 million in 2009 , reflecting improved economic conditions primarily in north america . net sales increased in 2011 from 2009 in all regions of the united states , with an above-average rate of increase in the mid-western region of the country , and net sales to lumber dealers increased significantly over the same period . net sales also increased in 2011 from 2009 in europe , canada , asia and australia . net sales increases in europe are partly due to the acquisitions of : · certain assets of liebig international ltd. , an irish company , heinrich liebig stahldübelwerke gmbh , liebig gmbh & co. kg and liebig international verwaltungsgesellschaft gmbh , all german companies , liebig bolts limited , an english company , and liebig international inc. , a virginia corporation ( collectively liebig ) , in april 2008 , · ahorn-geräte & werkzeuge vertriebs gmbh , a german company , and its subsidiaries ahorn upevnovaci technika s.r.o. , a czech company , and ahorn pacific fasteners ( kunshan ) co. , ltd. , a chinese company ( collectively ahorn ) , in july 2008 , · agence internationale commerciale et industrielle , s.a.s. , a french company ( aginco ) , in april 2009 , and · certain assets of cgmi , formerly called socom s.a. , a french company ( socom ) , in november 2010. gross profit margin increased from 35.1 % in 2009 to 44.9 % in 2011 , primarily due to decreased costs of materials and increased absorption of fixed overhead . in 2011 , home center sales have recovered to their 2009 levels . a large part of the home center sales was sales to the home depot , which exceeded 10 % of the company 's consolidated net sales in the years ended december 31 , 2011 , 2010 , and 2009 ( see item 1a risk factors and note 14 to the company 's consolidated financial statements ) . consolidation of retailers and distributors has occurred over time . while the consolidation of these large retailers and distributors provides the company with opportunities for growth , the increasing size and importance of individual customers exposes simpson strong-tie to potential over-dependence . the loss of any of the larger home centers and distributors as customers would have a material adverse effect on sst , unless and until either such customers are replaced or sst makes the necessary adjustments ( if possible ) to compensate for the loss of business . 26 story_separator_special_tag style= '' font-size:10.0pt ; font-style : italic ; '' > general and administrative expense general and administrative expense increased 20.1 % from $ 79.8 million in 2010 to $ 95.8 million in 2011 due to increases in professional and legal fees of $ 7.8 million primarily related to acquisitions , cash profit sharing of $ 3.2 million resulting from higher operating profits , personnel costs of $ 2.2 million , equity-based compensation of $ 1.3 million , depreciation expense of $ 0.9 million and impairment of available for sale assets of $ 0.7 million . these changes were mostly attributable to the north american segment . impairment of goodwill the impairment charge taken in 2011 resulting from the company 's annual impairment test in the fourth quarter of 2011 was associated with assets in england that were acquired in 1999 and with the u.k. reporting unit . the reporting unit 's carrying value exceeded the fair value , primarily due to reduced future expected net cash flows from weakening profit margins . the goodwill associated with the u.k. reporting unit was fully impaired . the method to determine the fair value of the u.k. reporting unit was a discounted cash flow model . the company 's 2010 annual goodwill impairment analysis resulted in an impairment charge associated with the european anchor products reporting unit . see critical accounting policies and estimates goodwill impairment testing . gain on sale of assets in 2010 , the company 's north american segment recorded gains on sale of assets of $ 4.8 million , primarily due to the sale of its real estate in brea , california . equity based compensation the company estimates that the pre-tax stock expense for 2012 will be approximately $ 8.0 million for stock options granted in 2008 through 2011 and restricted stock units awarded in january 2012. provision for income taxes the effective tax rate was 35.4 % in 2011 , as compared to 42.6 % in 2010 was primarily due to improved operations in 2011 in countries where valuation allowances are recorded against tax losses . in addition , the effective tax rate in 2010 was higher because of a goodwill impairment for which a tax benefit was not recognized . the change in the provision for income taxes was attributable to both the north american and asia/pacific segments . 29 comparison of the years ended december 31 , 2010 and 2009 the following table illustrates the changes in the company 's continuing operations from 2009 to 2010 and the increases or decreases for each category by segment . story_separator_special_tag discontinued operations the company recorded a loss from discontinued operations , net of tax , of $ 16.2 million for 2010 , primarily as a result of a pre-tax impairment charge of $ 21.4 million recorded as a result of entering into an agreement to sell substantially all of the assets of simpson dura-vent . critical accounting policies and estimates the critical policies described below affect the company 's more significant judgments and estimates used in the preparation of the consolidated financial statements . if the company 's business conditions change or if it uses different assumptions or estimates in the application of these and other accounting policies , the company 's future results of operations could be adversely affected . inventory valuation inventories are stated at the lower of cost or net realizable value ( market ) . cost includes all costs incurred in bringing each product to its present location and condition , as follows : · raw materials and purchased finished goods principally valued at cost determined on a weighted average basis . · in-process products and finished goods cost of direct materials and labor plus attributable overhead based on a normal level of activity . the company writes the gross value of the inventory down to its net realizable value . the company estimates net realizable value based on estimated selling price less further costs to completion and disposal . the company impairs slow-moving products by comparing inventories on hand to projected demand . if on-hand supply of a product exceeds projected demand or if the company believes the product is no longer marketable , the product is considered obsolete inventory . the company revalues obsolete inventory to its net realizable value . the company has consistently applied this methodology . the company believes that this approach is prudent and makes suitable provisions for slow-moving and obsolete inventory . when provisions are established , a new cost basis of the inventory is created . unexpected change in market demand , building codes or buyer preferences could reduce the rate of inventory turnover and require the company to recognize more obsolete inventory . revenue recognition the company recognizes revenue when the earnings process is complete , net of applicable provision for discounts , returns and incentives , whether actual or estimated , based on the company 's experience . this generally occurs when products are shipped to the customer in accordance with the sales agreement or purchase order , ownership and risk of loss pass to the customer , collectability is reasonably assured and pricing is fixed or determinable . the company 's general shipping terms are f.o.b . shipping point , where title is transferred and revenue is recognized when the products are shipped to customers . when the company sells f.o.b . destination point , title is transferred and the company recognizes revenue on delivery or customer acceptance , depending on terms of the sales agreement . service sales , representing after-market repair and maintenance , engineering activities , software license sales and service and lease income , though significantly less than 1 % of net sales and not material to the consolidated financial statements , are recognized as the services are completed or the software products and services are delivered . if actual costs of sales returns , incentives and discounts were to significantly exceed the recorded estimated allowance , the company 's sales would be adversely affected . business combinations the company recognizes separately from goodwill the assets acquired and the liabilities assumed at their acquisition date fair values . goodwill as of the acquisition date is measured as the excess of consideration transferred and the 32 net of the acquisition date fair values of the assets acquired and the liabilities assumed . while the company uses its best estimates and assumptions as a part of the purchase price allocation process to value assets acquired and liabilities assumed at the acquisition date , the company 's estimates are inherently uncertain and subject to refinement . as a result , during the measurement period , which may be up to one year from the acquisition date , the company records adjustments to the assets acquired and liabilities assumed , with the corresponding offset to goodwill . on the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed , whichever comes first , the company records any subsequent adjustments to its consolidated statements of operations . accounting for business combinations requires the company 's management to make significant estimates and assumptions , especially at the acquisition date with respect to intangible assets . although the company believes that the assumptions and estimates it has made in the past have been reasonable and appropriate , they are based in part on historical experience and information obtained from the management of the acquired companies and are inherently uncertain . examples of critical estimates in valuing certain of the intangible assets that the company has acquired include : · future expected cash flows from customer relationships and acquired unpatented technologies and patents ; · the acquired company 's brand and competitive position and assumptions about the period of time the acquired brand will continue to be used in the combined company 's product portfolio ; and · discount rates . unanticipated events and circumstances may affect the accuracy or validity of such assumptions , estimates or actual results . for a given acquisition , the company may identify pre-acquisition contingencies as of the acquisition date and may extend its review and evaluation of these pre-acquisition contingencies throughout the measurement period ( up to one year from the acquisition date ) to obtain sufficient information to assess whether the company includes these contingencies as a part of the purchase price allocation and , if so , to determine their estimated amounts .
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results of operations the following table sets forth , for the years indicated , the percentage of net sales of certain items in the company 's consolidated statements of operations . replace_table_token_4_th comparison of the years ended december 31 , 2011 and 2010 the following table illustrates the change in the company 's continuing operations from 2010 to 2011 , and the increases or decreases for each category by segment . ( in thousands ) replace_table_token_5_th 27 net sales the following table represents net sales by segment for the years ended december 31 , 2010 and 2011 : ( in thousands ) replace_table_token_6_th in 2011 , net sales increased 8.6 % to $ 603.4 million as compared to net sales of $ 555.5 million in 2010. sales in the north american segment increased 6.8 % from $ 444.6 million in 2010 to $ 474.7 million in 2011 , which accounted for 62.8 % of the total company 's overall increase . the north american segment accounted for 78.7 % of the company 's total sales in 2011 , a decrease from 80.0 % in 2010. the increase in net sales in north america resulted from increases in both sales volume and increased prices as average prices increased 5.2 % . in 2011 , sales increased throughout most of north america . the growth in the united states was strongest in the south/southeastern region . sales to contractor and dealer distributors and lumber dealers increased . sales in the european segment increased 16.7 % from $ 101.3 million in 2010 to $ 118.2 million in 2011 , which was 35.3 % of the company 's overall increase . the european segment accounted for 19.6 % of the company 's total sales in 2011 , a slight increase from 18.2 % in 2010. the increase in net sales in europe resulted from an increase in sales volume as average prices were flat .
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please see “ forward-looking statements ” in item 1- business and item 1a- risk factors in this form 10-k for a discussion of the uncertainties , risks and assumptions associated with these statements . this discussion should be read in conjunction with our historical financial statements and related notes thereto and the other disclosures contained elsewhere in this form 10-k. 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 approximately 20 countries , located primarily in north america , europe , and australia . for many product lines , our manufacturing processes are vertically integrated , enhancing our range of 43 back to top 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 . in february 2017 , we closed on the ipo of 28.75 million shares of our common stock at a public offering price of $ 23.00 , resulting in net proceeds to us of $ 472.4 million after deducting underwriters ' discounts and commissions and other offering expenses . we used a portion of the net proceeds from the ipo to repay $ 375.0 million of indebtedness outstanding under our term loan facility and used the remaining net proceeds for working capital and other general corporate purposes , including sales and marketing activities , general and administrative matters , capital expenditures , and to invest in or acquire complementary businesses , products , services , technologies , or other assets . in may and november 2017 , we completed secondary public offerings of 16.1 million and 14.4 million shares , respectively , of our common stock , substantially all of which were owned by onex . as of december 31 , 2019 , onex owned approximately 32.6 % of our outstanding shares of common stock . 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 ( which includes limited activity in chile ) , europe , and australasia . financial information related to our business segments can be found in note 18 - segment information of our financial statements included elsewhere in this 10-k. 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 now part of our north america segment . we paid approximately $ 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 . story_separator_special_tag our senior management team has a proven track record of implementing operational excellence programs at some of the world 's leading industrial manufacturing businesses , and we believe the same successes can be realized at jeld-wen . key areas of focus of our operational excellence and footprint rationalization programs include : reducing labor , overtime , and waste costs by reducing facility count while optimizing manufacturing capacity and improving planning and manufacturing processes ; reducing or minimizing increases in material costs through strategic global sourcing and value-added re-engineering of components , in part by leveraging our significant spend and the global nature of our purchases ; reducing warranty costs by improving quality ; and a jem-enabled facility rationalization and modernization initiative that will reduce overhead costs and complexity , while increasing our overall capacity and improving our service levels . we continue to implement our strategic initiatives under jem to develop the culture and processes of operational excellence and continuous improvement . these cost reduction initiatives , which include plant closures and consolidations , headcount reductions , and various initiatives aimed at lowering production and overhead costs , may not produce the intended results within the intended timeframe . raw material costs commodities such as vinyl extrusions , glass , aluminum , wood , steel , plastics , fiberglass , and other composites are major components in the production of our products . changes in the underlying prices of these commodities have a direct impact on the cost of products sold . while we attempt to pass on a substantial portion of such cost increases to our customers , we may not be successful in doing so . in addition , our results of operations for individual quarters may be negatively impacted by a delay between the time of raw material cost increases and a corresponding price increase . conversely , our results of operations for individual quarters may be positively impacted by a delay between the time of a raw material price decrease and a corresponding competitive pricing decrease . 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 . 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 , 2019 compared to the year ended december 31 , 2018 , 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 , 2019 compared to the year ended december 31 , 2018 reflected , on average , the u.s. dollar strengthened against the euro , australian dollar , and canadian dollar by 6 % , 8 % , and 3 % , respectively . see item 1a- risk factors - risks relating to our business and industry , item 1a- risk factors - exchange 46 back to top 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 . public company costs as a public company , we incur additional legal , accounting , board compensation , and other expenses that we did not previously incur , including costs associated with sec reporting and corporate governance requirements , and other requirements associated with operating as a public company . these requirements include compliance with the sarbanes-oxley act as well as other rules implemented by the sec and the national securities exchanges . our financial statements following our ipo reflect the impact of these expenses .
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consolidated results net revenues —net revenues increased $ 583.1 million , or 15.5 % , to $ 4,346.8 million in the year ended december 31 , 2018 from $ 3,763.7 million in the year ended december 31 , 2017 . the increase was due to a 15 % contribution from recent acquisitions and a 1 % increase in core revenue growth . core growth included a 2 % increase in price , partially offset by a 1 % decrease in volume . gross margin —gross margin increased $ 71.0 million , or 8.4 % , to $ 918.5 million in the year ended december 31 , 2018 from $ 847.5 million in the year ended december 31 , 2017 . gross margin as a percentage of net revenues was 21.1 % in the year ended december 31 , 2018 and 22.5 % in the year ended december 31 , 2017 . the increase in gross margin was due to favorable pricing and contribution from our recent acquisitions , partially offset by material and freight inflation . the decrease in gross margin as a percentage of sales was due primarily to the dilutive impact of our acquisitions , material and freight inflation , and operational inefficiencies due to lower volumes and favorable mix , partially offset by price . sg & a expense —sg & a expense increased $ 161.2 million , or 28.1 % , to $ 734.2 million in the year ended december 31 , 2018 from $ 573.0 million in the year ended december 31 , 2017 . sg & a expense as a percentage of net revenues was 16.9 % for the year ended december 31 , 2018 and 15.2 % for the year ended december 31 , 2017 . the increase in sg & a expense was primarily due to a litigation contingency accrual of $ 76.5 million , sg & a associated with our acquisitions , and increased professional fees .
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realized and unrealized gains and losses associated with our equity investments consisted of the following ( in thousands ) : replace_table_token_23_th note 4. fair value measurements assets and liabilities measured at fair value on a recurring basis the following table presents information about our assets and liabilities that are measured at fair value on a recurring basis and their assigned levels within the valuation hierarchy as of january 31 , 2019 ( in thousands ) : replace_table_token_24_th the following table presents information about our assets and liabilities that are measured at fair value on a recurring basis and their assigned levels within the valuation hierarchy as of january 31 , 2018 ( in thousands ) : replace_table_token_25_th 59 fair value measurements of other financial instruments the following table presents the carrying story_separator_special_tag you should read the following discussion of our financial condition and results of operations in conjunction with the consolidated financial statements and notes thereto 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 in “ risk factors . ” overview workday provides financial management , human capital management , planning , and analytics applications designed for the world 's largest companies , educational institutions , and government agencies . we offer innovative and adaptable technology focused on the consumer internet experience and cloud delivery model . our applications are designed for global enterprises to manage complex and dynamic operating environments . we provide our customers with highly adaptable , accessible , and reliable applications to manage critical business functions that enable them to optimize their financial and human capital resources . we were founded in 2005 to deliver cloud applications to global enterprises . our applications are designed around the way people work today—in an environment that is global , collaborative , fast-paced , and mobile . our cycle of frequent updates has facilitated rapid innovation and the introduction of new applications throughout our history . we began offering our hcm application in 2006 and our financial management application in 2007. since then we have continued to invest in innovation and have consistently introduced new services to our customers . we offer workday applications to our customers on an enterprise-wide subscription basis , typically with contract terms of three years or longer and with subscription fees largely based on the size of the customer 's workforce . we generally recognize revenues from subscription fees ratably over the term of the contract . we currently derive a substantial majority of our subscription services revenues from subscriptions to our hcm application . we market our applications primarily through our direct sales force . our diverse customer base includes medium-sized and large , global companies , as well as smaller organizations that primarily use our planning product . we have achieved significant growth in a relatively short period of time with a substantial amount of our growth coming from new customers . our current financial focus is on growing our revenues and expanding our customer base . while we are incurring losses today , we strive to invest in a disciplined manner across all of our functional areas to sustain continued near-term revenue growth and support our long-term initiatives . our operating expenses have increased significantly in absolute dollars in recent periods , primarily due to the significant growth of our employee population . we had approximately 10,500 and approximately 8,200 employees as of january 31 , 2019 and 2018 , respectively . we intend to continue investing for long-term growth . we have invested , and expect to continue to invest , heavily in our product development efforts to deliver additional compelling applications and to address customers ' evolving needs . in addition , we plan to continue to expand our ability to sell our applications globally , particularly in europe and asia , by investing in product development and customer support to address the business needs of local markets , increasing our sales and marketing organizations , acquiring , building and or leasing additional office space , and expanding our ecosystem of service partners to support local deployments . we expect to make further significant investments in our data center capacity as we plan for future growth . we are also investing in personnel to service our growing customer base . we also regularly evaluate acquisitions or investment opportunities in complementary businesses , joint ventures , and intellectual property rights in an effort to expand our product and service offerings . we expect to continue to make such acquisitions and investments in the future , and we plan to reinvest a significant portion of our incremental revenue in future periods to grow our business and continue our leadership role in the industry . while we remain focused on improving operating margins , these acquisitions and investments will increase our costs on an absolute basis in the near-term . many of these investments will occur in advance of experiencing any direct benefit from them and could make it difficult to determine if we are allocating our resources efficiently . we expect our product development , sales and marketing , and general and administrative expenses as a percentage of total revenues to decrease over time as we grow our revenues , and we anticipate that we will gain economies of scale by increasing our customer base without direct incremental development costs and by utilizing more of the capacity of our data centers . since inception , we have also invested heavily in our professional services organization to help ensure that customers successfully deploy and adopt our applications . additionally , we continue to expand our professional service partner ecosystem to further support our customers . story_separator_special_tag the increase was primarily due to increases of $ 23 million in depreciation expense related to our data centers , $ 22 million in employee-related costs driven by higher headcount , and $ 10 million in facility and it-related expenses . non-gaap operating expenses in costs of subscription services were $ 312 million for fiscal 2019 , compared to $ 240 million for fiscal 2018 , an increase of $ 72 million , or 30 % . the increase was primarily due to increases of $ 22 million in employee-related costs driven by higher headcount , $ 22 million in third-party costs for hardware maintenance and data center capacity , and $ 19 million in depreciation expense related to our data centers . non-gaap operating expenses in costs of subscription services were $ 240 million for fiscal 2018 , compared to $ 192 million for fiscal 2017 , an increase of $ 48 million , or 25 % . the increase was primarily due to increases of $ 17 million in depreciation expense related to our data centers , $ 16 million in employee-related costs driven by higher headcount , and $ 10 million in facility and it-related expenses . we expect that gaap and non-gaap operating expenses in costs of subscription services will continue to increase in absolute dollars as we improve and expand our data center capacity and operations . costs of professional services gaap operating expenses in costs of professional services were $ 455 million for fiscal 2019 , compared to $ 356 million for fiscal 2018 , an increase of $ 99 million , or 28 % . the increase was primarily due to increases of $ 86 million to staff our deployment and integration engagements . gaap operating expenses in costs of professional services were $ 356 million for fiscal 2018 , compared to $ 270 million for fiscal 2017 , an increase of $ 86 million , or 32 % . the increase was primarily due to increases of $ 70 million to staff our deployment and integration engagements . non-gaap operating expenses in costs of professional services were $ 396 million for fiscal 2019 , compared to $ 316 million for fiscal 2018 , an increase of $ 80 million , or 25 % . the increase was primarily due to increases of $ 66 million to staff our deployment and integration engagements . non-gaap operating expenses in costs of professional services were $ 316 million for fiscal 2018 , compared to $ 242 million for fiscal 2017 , an increase of $ 74 million , or 31 % . the increase was primarily due to increases of $ 59 million to staff our deployment and integration engagements . going forward , we expect gaap and non-gaap costs of professional services as a percentage of total revenues to continue to decline as we continue to rely on our service partners to deploy our applications and as the number of our customers continues to grow . for fiscal 2020 , we anticipate gaap and non-gaap professional services margins to be lower than fiscal 2019 as we invest in programs to ensure ongoing customer success . product development gaap operating expenses in product development were $ 1.2 billion for fiscal 2019 , compared to $ 911 million for fiscal 2018 , an increase of $ 301 million , or 33 % . the increase was primarily due to increases of $ 267 million in employee-related costs due to higher headcount and $ 26 million in facility and it-related expenses . gaap operating expenses in product development were $ 911 million for fiscal 2018 , compared to $ 681 million for fiscal 2017 , an increase of $ 230 million , or 34 % . the increase was primarily due to increases of $ 180 million in employee-related costs due to higher headcount , $ 34 million in facility and it-related expenses , and $ 15 million in third-party costs for hardware maintenance and data center capacity . non-gaap operating expenses in product development were $ 870 million for fiscal 2019 , compared to $ 658 million for fiscal 2018 , an increase of $ 212 million , or 32 % . the increase was primarily due to increases of $ 170 million in employee-related costs due to higher headcount and $ 26 million in facility and it-related expenses . non-gaap operating expenses in product development were $ 658 million for fiscal 2018 , compared to $ 495 million for fiscal 2017 , an increase of $ 163 million , or 33 % . the increase was primarily due to increases of $ 113 million in employee-related costs due to higher headcount , $ 34 million in facility and it-related expenses , and $ 15 million in third-party costs for hardware maintenance and data center capacity . we expect that gaap and non-gaap product development expenses will continue to increase in absolute dollars as we improve and extend our applications and develop new technologies . 33 sales and marketing gaap operating expenses in sales and marketing were $ 891 million for fiscal 2019 , compared to $ 683 million for fiscal 2018 , an increase of $ 208 million , or 30 % . the increase was primarily due to increases of $ 147 million in employee-related costs due to higher headcount and higher commissionable sales volume , $ 20 million in advertising , marketing , and event costs , $ 13 million in travel , and $ 11 million in facility and it-related expenses . gaap operating expenses in sales and marketing were $ 683 million for fiscal 2018 , compared to $ 565 million for fiscal 2017 , an increase of $ 118 million , or 21 % . the increase was primarily due to increases of $ 87 million in employee-related costs due to higher headcount and higher commissionable sales volume , $ 14 million in advertising , marketing , and event costs , and $ 11 million in facility and it-related expenses .
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results of operations revenues our total revenues for fiscal 2019 , 2018 , and 2017 were as follows ( in thousands , except percentages ) : replace_table_token_6_th * see note 1 of the notes to consolidated financial statements for further information . total revenues were $ 2.8 billion for fiscal 2019 , compared to $ 2.1 billion for fiscal 2018 , an increase of $ 0.7 billion , or 32 % . subscription services revenues were $ 2.4 billion for fiscal 2019 , compared to $ 1.8 billion for fiscal 2018 , an increase of $ 0.6 billion , or 33 % . the increase in subscription revenues was due primarily to an increased number of customer contracts as compared to the prior year . professional services revenues were $ 436 million for fiscal 2019 , compared to $ 355 million for fiscal 2018 , an increase of $ 81 million , or 23 % . the increase in professional services revenues was due primarily to workday performing deployment and integration services for a greater number of customers than in the prior year period . total revenues were $ 2.1 billion for fiscal 2018 , compared to $ 1.6 billion for fiscal 2017 , an increase of $ 0.5 billion , or 36 % . subscription services revenues were $ 1.8 billion for fiscal 2018 , compared to $ 1.3 billion for fiscal 2017 , an increase of $ 0.5 billion , or 39 % . the increase in subscription revenues was due primarily to an increased number of customer contracts as compared to the prior year . professional services revenues were $ 0.4 billion for fiscal 2018 , compared to $ 0.3 billion for fiscal 2017 , an increase of $ 0.1 billion , or 25 % .
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the components included in discontinued operations on the consolidated statements of income are as follows ( in thousands ) : replace_table_token_59_th in the fourth quarter of fiscal year 2012 , we recorded an story_separator_special_tag forward-looking statements certain statements below about anticipated results and our products and markets , are forward-looking statements that are based on our current plans and assumptions . important information about the bases for these plans and assumptions and factors that may cause our actual results to differ materially from these statements is contained below and in item 1a . “ risk factors ” of this annual report on form 10-k. use of constant currency revenue from our international operations has historically represented more than half of our total revenue . as a result , our revenue results have been impacted , and we expect will continue to be impacted , by fluctuations in foreign currency exchange rates . for example , if the local currencies of our foreign subsidiaries weaken , our consolidated results stated in u.s. dollars are negatively impacted . as exchange rates are an important factor in understanding period to period comparisons , we believe the presentation of revenue growth rates on a constant currency basis enhances the understanding of our revenue results and evaluation of our performance in comparison to prior periods . the constant currency information presented is calculated by translating current period results using prior period weighted average foreign currency exchange rates . these results should be considered in addition to , not as a substitute for , results reported in accordance with accounting principles generally accepted in the united states of america ( gaap ) . revised prior period amounts our financial results for prior periods have been revised , in accordance with gaap , to reflect certain changes to the business and other matters . prior period amounts have been revised for the impact of discontinued operations due to the sale or expected sale of our non-core product lines , purchase accounting measurement period adjustments related to our acquisition of corticon technologies , inc. ( corticon ) , changes to our reportable segments as a result of organizational structure changes from the implementation of a new strategic plan and an immaterial correction of prior period amounts . refer to item 8 of this annual report for an additional description of these items . 15 overview we are a global software company that simplifies and enables the development , deployment and management of business applications on-premise or on any cloud , on any platform and on any device with minimal it complexity and low total cost of ownership . in april 2012 , we announced a new strategic plan ( the `` plan '' ) in which we intend to become a leading provider of next-generation , context-aware application development and deployment platform in the cloud for the application platform-as-a-service ( apaas ) market by investing in our openedge , datadirect and decision analytics product lines ( `` core '' product lines ) and integrating them into a single , cohesive offering . the plan is being executed in two phases . in the first phase , we are investing in our core product lines and making them more cloud-ready . we are also divesting the ten non-core product lines which are not considered core to our business : actional , artix , dataxtend , fusesource , objectstore , orbacus , orbix , savvion , shadow and sonic . in the second phase of the plan , by unifying the product capabilities of our core product lines , we will refine and enhance our next generation , feature-rich application development and deployment solution targeting the new market category of apaas . in fiscal year 2012 and the first quarter of fiscal year 2013 , we entered into definitive purchase and sale agreements to divest all of our non-core product lines . the fusesource product line was sold to red hat , inc. in september 2012 , the shadow product line was sold to rocket software , inc. in october 2012 , and the investment arm of trilogy enterprises purchased actional , dataxtend , objectstore , savvion and sonic in december 2012. we expect to close on the sale of artix , orbacus and orbix to a subsidiary of micro focus international plc in the first quarter of fiscal year 2013. the aggregate purchase price for all divestitures is approximately $ 130.0 million . during 2012 , we also executed on cost reductions as part of the plan . in fiscal year 2012 , we recorded restructuring expenses of $ 19.0 million in furtherance of the cost reduction plans , of which $ 10.9 million is included in discontinued operations . the charge included $ 16.4 million in severance and other employee benefits associated with the reduction of 11 % of our workforce . as part of the plan , our board of directors authorized us to repurchase $ 350.0 million of our common stock through november 2013. in october 2012 , under the authorization , we announced the adoption of a 10b5-1 plan to repurchase up to $ 250.0 million of our common stock through june 30 , 2013 , or earlier , and have repurchased 4.5 million shares of our common stock for $ 88.4 million through november 30 , 2012. as of january 22 , 2013 , we have repurchased 7.6 million shares of our common stock for $ 155.3 million . as part of the plan , we changed the structure of our internal organization and the way we manage our business . our internal reporting includes two segments : ( 1 ) the core segment , which includes our core product lines , and ( 2 ) the non-core segment , which includes the non-core product lines . we assign dedicated costs and expenses directly to each segment and utilize an allocation methodology to assign all other costs and expenses , primarily general and administrative , to each segment . story_separator_special_tag the dollar decrease in our gross profit was due to lower revenues , partially offset by lower costs of revenue from our cost saving measures and lower amortization expense of acquired intangibles , as described above . sales and marketing fiscal year ended ( in thousands ) november 30 , 2012 november 30 , 2011 percentage change sales and marketing $ 117,855 $ 102,618 15 % as a percentage of total revenue 35 % 28 % sales and marketing expenses increased $ 15.2 million in fiscal year 2012 as compared to fiscal year 2011 , and increased as a percentage of total revenue from 28 % to 35 % . the increase in sales and marketing expense was due to a $ 9.8 million increase in compensation-related expenses due to the focus on our core product lines and $ 1.7 million of incremental compensation- 20 related expenses due to the separation of two of our sales and marketing executives . the increase was partially offset by cost control measures initiated during the strategic planning process . product development fiscal year ended ( in thousands ) november 30 , 2012 november 30 , 2011 percentage change product development $ 53,017 $ 44,876 18 % as a percentage of total revenue 16 % 12 % product development expenses increased $ 8.1 million in fiscal year 2012 as compared to fiscal year 2011 , and increased as a percentage of revenue from 12 % to 16 % . the increase in product development expenses is primarily due to higher headcount from the corticon acquisition , which was completed in the fourth quarter of fiscal year 2011. the increases in product development expenses were partially offset by cost savings from our restructuring actions undertaken as part of the plan . general and administrative fiscal year ended ( in thousands ) november 30 , 2012 november 30 , 2011 percentage change general and administrative $ 62,053 $ 61,816 — % as a percentage of total revenue 19 % 17 % general and administrative expenses include the costs of our finance , human resources , legal , information systems and administrative departments . general and administrative expenses increased $ 0.2 million in fiscal year 2012 as compared to fiscal year 2011 , and increased as a percentage of revenue from 17 % to 19 % . the increase in fiscal year 2012 was primarily due to stock-based compensation costs associated with the hiring of a new chief executive officer in december 2011 , incremental compensation-related expenses due to the separation of our chief financial officer in april 2012 , a $ 0.9 million litigation settlement , proxy contest-related costs and costs associated with the plan . the increases were partially offset by cost savings from our restructuring actions and other cost control measures and increased compensation-related costs in fiscal year 2011 related to the severance agreement entered into with richard d. reidy , a former chief executive officer . amortization of acquired intangibles fiscal year ended ( in thousands ) november 30 , 2012 november 30 , 2011 percentage change amortization of acquired intangibles $ 962 $ 966 — % as a percentage of total revenue — % 1 % amortization of acquired intangibles included in operating expenses primarily represents the amortization of value assigned to intangible assets obtained in business combinations other than assets identified as purchased technology . amortization of these acquired intangibles remained flat in fiscal year 2012 as compared to fiscal year 2011. the amortization of certain intangible assets acquired in prior years was completed in fiscal year 2012 , but is offset by amortization of intangible asset acquired with the corticon acquisition , which was completed in the fourth quarter of fiscal year 2011. restructuring expenses fiscal year ended ( in thousands ) november 30 , 2012 november 30 , 2011 percentage change restructuring expenses $ 8,100 $ 3,383 * as a percentage of total revenue 2 % 1 % 21 we incurred restructuring expenses of $ 8.1 million in fiscal year 2012 as compared to $ 3.4 million in fiscal year 2011. restructuring expenses in fiscal year 2012 relate to the restructuring actions announced as part of the plan . see note 14 to the consolidated financial statements in item 8 of this annual report for additional details , including types of expenses incurred and the timing of future expenses and cash payments . see also the liquidity and capital resources section of this item 7 of this annual report . restructuring expenses in fiscal year 2011 included ongoing costs related to the decisions from our restructuring activities occurring in the third quarter of fiscal year 2010. acquisition-related expenses fiscal year ended ( in thousands ) november 30 , 2012 november 30 , 2011 percentage change acquisition-related expenses $ 215 $ 536 * as a percentage of total revenue — % — % acquisition-related expenses in fiscal years 2012 and 2011 are transaction-related costs , primarily professional services fees , employee severance and facility closing costs associated with the acquisition of corticon . income from operations fiscal year ended ( in thousands ) november 30 , 2012 november 30 , 2011 percentage change income from operations $ 49,440 $ 101,241 ( 51 ) % as a percentage of total revenue 15 % 28 % income from operations decreased $ 51.8 million in fiscal year 2012 as compared to fiscal year 2011 , and decreased as a percentage of total revenue from 28 % to 15 % . as discussed above , the decrease was primarily the result of lower revenues and higher operating expenses in fiscal year 2012 as compared to fiscal year 2011. income from operations by segment replace_table_token_12_th on a segment basis , income from operations of our core segment decreased $ 50.6 million in fiscal year 2012 as compared to fiscal year 2011 . the decrease is primarily the result of lower revenues in fiscal year 2012 and the impact of the fiscal year 2010 restructuring efforts to fiscal year 2011 operating expenses .
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results of operations the following table sets forth certain income and expense items as a percentage of total revenue , and the percentage change in dollar amounts of such items compared with the corresponding period in the previous fiscal year . replace_table_token_5_th * not meaningful 17 fiscal year 2012 compared to fiscal year 2011 revenue fiscal year ended percentage change ( in thousands ) november 30 , 2012 november 30 , 2011 as reported constant currency revenue $ 335,205 $ 360,704 ( 7 ) % ( 4 ) % total revenue decreased $ 25.5 million in fiscal year 2012 as compared to fiscal year 2011 . revenue would have decreased by 4 % if exchange rates had been constant in fiscal year 2012 as compared to exchange rates in effect in fiscal year 2011 . the decrease in revenue in fiscal year 2012 was primarily a result of the disruption caused by the announcement of our plan and its impact on our employees , customers and partners . in particular , we encountered a delay in purchasing decisions , which resulted in deal slippage at a greater rate than normal . we believe this was caused both by uncertainty surrounding our plan and generally deteriorating macroeconomic conditions , primarily in europe . changes in prices from fiscal year 2012 to fiscal year 2011 did not have a significant impact on our revenue . changes in foreign currency exchange rates negatively impacted our reported revenues . license revenue replace_table_token_6_th software license revenue decreased $ 12.7 million in fiscal year 2012 as compared to fiscal year 2011 . software license revenue would have decreased by 8 % if exchange rates had been constant in fiscal year 2012 as compared to exchange rates in effect in fiscal year 2011 .
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risk factors ” of this 2019 form 10-k. overview fluent , inc. is an industry leader in data-driven digital marketing services . we primarily perform customer acquisition services by operating highly scalable digital marketing campaigns , through which we connect our advertiser clients with consumers they are seeking to reach . we deliver data and performance-based marketing executions to our clients , which in 2019 included over 500 consumer brands , direct marketers and agencies across a wide range of industries , including financial products & services , media & entertainment , health & wellness , staffing & recruitment , and retail & consumer . we attract consumers at scale to our owned digital media properties primarily through promotional offerings and employment opportunities . on average , our websites receive over 900,000 first-party user registrations daily , which include users ' names , contact information and opt-in permission to present them with offers on behalf of our clients . approximately 90 % of these users engage with our media on their mobile devices or tablets . our always-on , real-time capabilities enable users to access our media whenever and wherever they choose . once users have registered with our sites , we integrate proprietary direct marketing technologies and analytics to engage them with surveys , polls and other experiences , through which we learn about their lifestyles , preferences and purchasing histories . based on these insights , we serve targeted , relevant offers to them on behalf of our clients . as new users register and engage with our sites and existing registrants re-engage , we believe the enrichment of our database expands our addressable client base and improves the effectiveness of our performance-based campaigns . since our inception , we have amassed a large , proprietary database of first-party , self-declared user information and preferences . we have permission to contact the majority of users in our database through multiple channels , such as email , home address , telephone , push notifications and sms text messaging . we leverage our data primarily to serve advertisements that we believe will be relevant to users based on the information they provide . we have also begun to leverage our existing database into new revenue streams , including utilization-based models , such as programmatic advertising . for the years ended december 31 , 2019 and 2018 , we recorded revenue of $ 281.7 million and $ 250.3 million , net loss from continuing operations of $ 1.7 million and net income from continuing operations of $ 3.2 million , and adjusted ebitda of $ 34.7 million and $ 44.1 million , respectively . adjusted ebitda is a non-gaap financial measure equal to net ( loss ) income from continuing operations , the most directly comparable financial measure based on us gaap , adding back income taxes , interest expense , depreciation and amortization , share-based compensation expense , and other adjustments . see our audited consolidated financial statements and accompanying notes thereto appearing elsewhere in this 2019 form 10-k , and for further discussion and analysis of our results of operations , including a reconciliation of adjusted ebitda from net ( loss ) income from continuing operations , see `` non-us gaap financial measures ” and “ results of operations ” below . spin-off of red violet on march 26 , 2018 , we completed the spin-off ( the `` spin-off '' ) of our risk management business by way of a pro rata distribution of all the shares of common stock of our wholly-owned subsidiary , red violet , inc. ( `` red violet '' ) , to our stockholders of record as of march 19 , 2018 ( the `` record date '' ) and certain warrant holders . 23 following the spin-off , our common stock continues trading on the nasdaq stock market ( `` nasdaq '' ) , and red violet became an independent public company , owning and operating all of the subsidiaries which previously operated our risk management business . in accordance with accounting standards codification ( `` asc '' ) 205-20 , `` discontinued operations , '' the results of red violet are reflected in our consolidated financial statements as discontinued operations and , therefore , are presented as assets and liabilities of discontinued operations on the consolidated balance sheet , loss from discontinued operations in the consolidated statements of operations and cash activity from discontinued operations in the consolidated statements of cash flows . trends affecting our business development , acquisition and retention of high quality targeted media a key challenge for our business is identifying and accessing media sources that are of high quality and able to attract targeted users for our advertiser clients , at scale and in a cost-effective manner . in order to grow our business , we seek to find , develop and retain quality targeted media sources that meet these needs . consolidation of media sources , changes in search engine and email and text message blocking algorithms and increased competition for available media have , during some periods , including during the second and third quarter of 2019 , limited and may in the future limit our ability to generate revenue at acceptable margins . to offset this impact , we have sourced and continue to source new media suppliers , including strategic partnerships with other marketing and media companies , as well as developing our own media properties . we have also focused on growing our revenue from social media , mobile and email traffic sources . seasonality and cyclicality our results are subject to fluctuation as a result of seasonality and cyclicality in our and our clients ' businesses . for example , our fourth fiscal quarter ending december 31 is typically characterized by higher advertiser budgets , which can be somewhat offset by seasonal challenges of lower availability and or higher pricing for some forms of media during the holiday period . story_separator_special_tag we believe adjusted net income affords investors a different view of the overall financial performance of the company than adjusted ebitda and the us gaap measure of net ( loss ) income from continuing operations . media margin , adjusted ebitda , adjusted net income and adjusted net income per share are not intended to be performance measures that should be regarded as an alternative to , or more meaningful than , net ( loss ) income from continuing operations as indicators of operating performance . none of these metrics are presented as measures of liquidity . the way we measure media margin , adjusted ebitda and adjusted net income may not be comparable to similarly titled measures presented by other companies and may not be identical to corresponding measures used in our various agreements . 26 story_separator_special_tag of 2019 , the company implemented two separate reductions in workforce that resulted in the termination of approximately forty-six employees in the aggregate . these reductions in workforce were implemented following management 's determination to reduce headcount and decrease the company 's costs to more effectively align resources to the core business operations . in connection with these reductions in workforce , the company incurred $ 1.4 million in exit-related restructuring costs , consisting primarily of one-time termination benefits and associated costs , to be settled in cash by june 30 , 2020. apart from these exit-related restructuring costs , these reductions in workforce are expected to result in corresponding reductions in future salary and benefit expenses primarily in product development and general and administrative expense . depreciation and amortization . depreciation and amortization expenses remained relatively flat year over year , at $ 13.9 million for the year ended december 31 , 2019 and $ 13.2 million for the year ended december 31 , 2018 . write-off of intangible assets . during the third and fourth quarter of 2019 and fourth quarter of 2018 , we recognized $ 0.4 million and $ 1.5 million , respectively , due to abandonment of certain internally developed software that had not yet been placed into service . spin-off transaction costs . during the first quarter of 2018 , in connection with the spin-off of red violet , we recognized $ 7.7 million in spin-off transaction costs , which included non-cash share-based compensation expense of $ 5.4 million as a result of the transaction grants ( as defined in note 13 , share-based compensation , in the notes to consolidated financial statements ) , and employee cash compensation of $ 2.3 million . there were no such costs in the year ended december 31 , 2019. interest expense , net . for the year ended december 31 , 2019 , interest expense , net , decreased $ 1.2 million , or 15 % , to $ 6.9 million , from $ 8.1 million for the year ended december 31 , 2018 . the decrease was primarily attributable to a lower average debt balance outstanding under our refinanced term loan , as described below under `` liquidity and capital resources '' . ( loss ) income before income taxes from continuing operations . for the year ended december 31 , 2019 , loss before income taxes from continuing operations was $ 1.7 million , compared to net income before income taxes from continuing operations of $ 3.2 million for the year ended december 31 , 2018 . this change was primarily due to increases in cost of revenue of $ 32.9 million , general and administrative expense of $ 12.1 million and product development expense of $ 2.8 million , partially offset by an increase in revenue of $ 31.4 million , the absence in 2019 of one-time spin-off transaction costs of $ 7.7 million ( including non-cash share-based compensation expenses of $ 5.4 million ) incurred during the first quarter of 2018 , and a decrease in sales and marketing expense of $ 2.1 million , as discussed above . 28 income tax expense . for the year ended december 31 , 2019 , the provision for income taxes was $ 0.1 million , with an effective tax rate of 4.4 % . as of december 31 , 2019 and 2018 , the company recorded full valuation allowances against its net deferred tax assets . the company intends to maintain full valuation allowances against the net deferred tax assets until there is sufficient evidence to support the release of all or some portion of such allowances . release of some or all of the valuation allowance would result in the recognition of certain deferred tax assets and an increase in deferred tax benefit for any period in which such a release may be recorded , however , the exact timing and amount of any valuation allowance release are subject to change , depending on the profitability that we are able to achieve and the net deferred tax assets available . net loss from discontinued operations . on march 26 , 2018 , we completed the spin-off of red violet and the results of red violet through this date are reflected as discontinued operations . for the year ended december 31 , 2018 , we incurred net losses from discontinued operations of $ 21.1 million . this amount consists primarily of the one-time loss on disposal of discontinued operations of $ 19.0 million , which was primarily comprised of non-cash items of $ 16.0 million , including share-based compensation expense and write-off of unamortized debt costs in connection with the spin-off , and cash items of $ 3.0 million , including spin-off related professional fees and employee compensation . for the year ended december 31 , 2019 , there were no comparable discontinued operations . net loss . for the years ended december 31 , 2019 and 2018 , net losses were $ 1.7 million and $ 17.9 million , respectively .
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results of operations summary year ended december 31 , 2019 compared to year ended december 31 , 2018 : revenue increased 13 % to $ 281.7 million , from $ 250.3 million . net loss from continuing operations was $ 1.7 million , or $ 0.02 per share , compared to net income from continuing operations of $ 3.2 million , or $ 0.04 per share . net loss from discontinued operations was $ 0.0 million , compared to $ 21.1 million . media margin increased 2 % to $ 93.6 million , from $ 92.2 million , representing 33.2 % of revenue . adjusted ebitda decreased 21 % to $ 34.7 million , based on a net loss from continuing operations of $ 1.7 million , from $ 44.1 million , based on net income from continuing operations of $ 3.2 million . adjusted net income decreased $ 8.9 million to $ 13.8 million , or $ 0.17 per share , from $ 22.7 million , or $ 0.30 per share . the following tables show our results of operations for the periods presented and express the relationship of certain line items as a percentage of revenue for those respective periods : replace_table_token_7_th year ended december 31 , 2019 compared to year ended december 31 , 2018 revenue . for the year ended december 31 , 2019 , revenue increased $ 31.4 million , or 13 % , to $ 281.7 million , from $ 250.3 million for the year ended december 31 , 2018 . the increase was primarily attributable to higher demand for our performance-based marketing services , particularly amongst our clients in the media & entertainment and financial products & services industries . cost of revenue ( exclusive of depreciation and amortization ) . for the year ended december 31 , 2019 , cost of revenue increased $ 32.9 million , or 20 % , to $ 194.4 million , from $ 161.6 million for the year ended december 31 , 2018 .
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see forward-looking statements on page 1 of this 10-k and risk factors under item 1a in part i of this 10-k. company overview we are a leading supermarket retailer in our upstate new york and northern pennsylvania markets . introduced in 1962 , our tops brand is widely recognized as a strong retail supermarket brand name in our markets supported by strong customer loyalty and attractive supermarket locations . we are headquartered in williamsville , new york and have approximately 12,700 associates . the terms we , our , us and the company refer to tops holding corporation and each of its consolidated subsidiaries , including its wholly-owned subsidiary tops markets , llc . on january 29 , 2010 , we completed the acquisition of substantially all assets and certain specified liabilities of penn traffic and its subsidiaries , including its 79 retail supermarkets . as of march 31 , 2011 , we have retained 55 supermarkets from the acquisition . these supermarkets now operate under the banners of tops , p & c and quality markets in upstate new york and northern pennsylvania . in august 2010 , the ftc issued a proposed order that would require tops to sell seven of these retained supermarkets . the proposed order was subject to public comment until september 7 , 2010. we are awaiting the approval of a final order by the ftc . the remaining 24 supermarkets have been closed , sold or liquidated . we currently operate 128 corporate retail supermarkets with an additional 5 franchise supermarkets . basis of presentation we operate on a 52/53 week fiscal year ending on the saturday closest to december 31. our fiscal years include 13 four-week reporting periods , with an additional week in the thirteenth reporting period for 53-week fiscal years . our first quarter of each fiscal year includes four reporting periods , while the remaining quarters include three reporting periods . the period from january 3 , 2010 to january 1 , 2011 ( fiscal 2010 ) included 52 weeks . the period from december 28 , 2008 to january 2 , 2010 ( fiscal 2009 ) included 53 weeks . the period from december 30 , 2007 to december 27 , 2008 ( fiscal 2008 ) included 52 weeks . recent and future events affecting our results of operations and the comparability of reported results of operations acquisition of penn traffic on january 29 , 2010 , we completed the acquisition of penn traffic , including penn traffic 's 79 retail supermarkets . as of march 31 , 2011 , we have retained 55 of these supermarkets . in august 2010 , the ftc issued a proposed order that would require tops to sell seven of these retained supermarkets . the proposed order was subject to public comment until september 7 , 2010. we are awaiting the approval of a final order by the ftc . net sales and operating income for the seven supermarkets to be sold were $ 54.2 million and $ 0.8 million , respectively , for fiscal 2010. the remaining 24 supermarkets had been closed , sold or liquidated . net sales and operating loss for these 24 supermarkets that were not retained were $ 33.9 million and $ 2.8 million , respectively , during fiscal 2010. also included in our results during fiscal 2010 were integration costs of $ 23.3 million and one-time legal and professional fees related to the acquisition of $ 5.3 million . additionally , we incurred $ 2.1 million of legal expenses associated with the ftc 's review of the acquired supermarkets during fiscal 2010. additional depreciation and amortization of $ 7.4 million was incurred during fiscal 2010 , as compared to fiscal 2009 , associated with acquired property , equipment and intangible assets . - 16 - as the values of certain assets and liabilities were preliminary in nature , such values were adjusted and finalized during fiscal 2010 as additional information was obtained . the excess of net assets acquired over the purchase price of $ 15.7 million has been recognized as a bargain purchase in the consolidated statement of operations for fiscal 2010. this bargain purchase was attributable to the distressed status of penn traffic due to historical operating results , which led to a november 2009 bankruptcy filing . debt refinancing on october 9 , 2009 , we issued $ 275.0 million of senior secured notes , bearing annual interest of 10.125 % . we received proceeds from the senior secured notes issuance , net of a $ 4.5 million original issue discount , of $ 270.5 million . the senior secured notes mature on october 15 , 2015 and require semi-annual interest payments beginning april 15 , 2010. the proceeds from the senior secured notes issued were utilized to repay the outstanding debt related to our previous first lien credit agreement and warehouse mortgage , pay a dividend to our owners , settle our outstanding interest rate swap arrangement , and pay fees and expenses related to the financing transactions . on february 12 , 2010 , we issued an additional $ 75.0 million of senior secured notes under the same terms of the october 2009 issuance . we received proceeds of $ 76.1 million from this issuance , including a $ 1.1 million original issue premium . the proceeds were used , in part , to repay in full short-term borrowings that were entered into in order to finance the acquisition . also effective october 9 , 2009 , we entered into a revolving abl facility that expires october 9 , 2013. the abl facility allowed a maximum borrowing capacity of $ 70.0 million , including a sub-limit for the issuance of letters of credit , subject to a borrowing base calculation . the abl facility was amended on january 29 , 2010 to increase the maximum borrowing capacity to $ 100.0 million . story_separator_special_tag as a percentage of net sales , rent expense remained relatively consistent for fiscal 2010 compared with fiscal 2009. depreciation and amortization the increase in depreciation and amortization from fiscal 2010 compared with fiscal 2009 was largely attributable to $ 7.4 million associated with assets acquired from penn traffic , as well as incremental depreciation related to fiscal 2010 and fiscal 2009 capital expenditures . advertising the increase in advertising expenses for fiscal 2010 compared with fiscal 2009 was primarily attributable to $ 5.2 million in costs associated with the communication of the acquisition to our customers and the promotion of the re-bannered supermarkets . additionally , we incurred increased circular costs of $ 6.4 million due to enhancements made to our circulars , our increased store base and expanded geographic area , as well as duplicative costs of producing circulars under the p & c , quality markets and bi-lo banners subsequent to the acquisition . in early fiscal 2010 , we incurred costs of $ 1.7 million associated with our monopoly ® promotion . the increase is partially offset by a decrease in media production . bargain purchase the excess of $ 15.7 million of the estimated fair value of penn traffic net assets acquired over the purchase price has been recognized as a gain in the consolidated statement of operations for fiscal 2010. this bargain purchase was attributable to the distressed status of penn traffic due to historical operating results , which led to a november 2009 bankruptcy filing . loss on debt extinguishment on january 29 , 2010 , we entered into a $ 25.0 million bridge loan and an $ 11.0 million term loan and capitalized related financing costs . as both the bridge loan and term loan were repaid in full on february 12 , 2010 with the proceeds from the issuance of the additional $ 75.0 million of senior secured notes , unamortized costs of $ 0.7 and $ 0.3 million , respectively , were recorded as a loss on debt extinguishment in our consolidated statement of operations for fiscal 2010. in connection with prepayments of $ 20.0 million related to our previous first lien credit agreement during fiscal 2009 , $ 0.8 million of additional debt was forgiven . this amount , net of the write-off of $ 0.3 million of unamortized deferred financing costs , was recorded as a gain on debt extinguishment in our consolidated statement of operations for fiscal 2009. effective october 9 , 2009 , we issued $ 275.0 million of senior secured notes and simultaneously entered into the $ 70.0 million revolving abl facility . the proceeds from the senior secured notes and the abl facility were used , in part , to retire the outstanding balances related to our previous first lien credit agreement and warehouse mortgage . in connection with these retirements , we wrote off unamortized deferred financing costs of $ 7.0 million and incurred additional costs of $ 0.3 million , which were recorded as a loss on debt extinguishment in our consolidated statement of operations for fiscal 2009 . - 19 - interest expense , net the $ 13.2 million increase in interest expense during fiscal 2010 compared with fiscal 2009 reflects an $ 18.7 million increase in interest on our outstanding indebtedness as a result of our october 2009 and february 2010 financing activities , as well as an increase of $ 1.3 million attributable to deferred financing fees and bond discount amortization ( net of premium amortization ) . these factors were partially offset by a $ 6.6 million decrease in interest expense related to our interest rate swap that was settled in october 2009. income tax benefit ( expense ) the change from the income tax expense of $ 5.4 million in fiscal 2009 to the income tax benefit of $ 9.0 million in fiscal 2010 is primarily attributable to the higher pre-tax loss in fiscal 2010 , combined with the non-taxability of the bargain purchase related to the acquisition . additionally , we established a $ 13.9 million valuation allowance during fiscal 2009 related to our deferred tax assets , compared to an additional valuation allowance of $ 11.9 million during fiscal 2010. the resulting effective tax rate for fiscal 2010 was 25.0 % compared to an effective tax rate for fiscal 2009 of ( 26.5 ) % . deferred income tax assets or liabilities reflect temporary differences between amounts of assets and liabilities , including net operating loss ( nol ) carryforwards , for financial and tax reporting . such amounts are adjusted as appropriate to reflect changes in the tax rates expected to be in effect when the temporary differences reverse . a valuation allowance is established for any deferred income tax asset for which realization is uncertain . based on an assessment of the available positive and negative evidence , including our historical results for the preceding three years , we determined that there are uncertainties relating to our ability to utilize the net deferred tax assets . in recognition of these uncertainties , we have provided a valuation allowance of $ 13.9 million on the net deferred income tax assets as of january 2 , 2010 , representing a charge to income tax expense during fiscal 2009. during fiscal 2010 , we established an additional valuation allowance of $ 11.9 million , with an offsetting charge to income tax expense . if we were to determine that we could realize our deferred tax assets in the future in excess of their net recorded amount , we would make an adjustment to the valuation allowance . net loss the increase in net loss from $ 25.7 million in fiscal 2009 to $ 27.0 million in fiscal 2010 is attributable to the factors discussed above . fiscal 2009 compared with fiscal 2008 story_separator_special_tag for fiscal 2009. during fiscal 2008 , we recorded a $ 2.2 million loss on debt extinguishment related to the write-off of unamortized deferred financing costs associated with our previous second lien credit agreement , which was repaid in full .
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executive summary our results of operations during fiscal 2009 when compared with fiscal 2008 were influenced by lower selling and general expenses attributable to decreases in utility costs and legal expenses , as well as the additional week in fiscal 2009. net sales were primarily impacted by increased average customer order size and customer count , partially offset by lower retail gasoline prices and deflation within certain categories of inside sales . net sales the following table includes a comparison of the components of our net sales for fiscal 2009 and fiscal 2008 . ( dollars in thousands ) replace_table_token_6_th - 20 - the increase in inside sales was primarily due to $ 29.8 million of net sales attributable to the additional week in fiscal 2009. adjusted to reflect a 52-week period in fiscal 2009 , inside sales increased approximately $ 7.6 million , or 0.5 % , due to a 0.4 % increase in average customer order size and a 0.1 % increase in our average customer count . the increase in average order size was despite deflationary prices in certain categories . gasoline sales decreased 26.6 % from fiscal 2008 to fiscal 2009 due to a 29.9 % decrease in the retail price per gallon . this decrease was partially offset by a 4.8 % increase in the number of gallons sold . this was primarily due to the addition of three new fuel stations in fiscal 2009 , which represented 2.1 % of total gallons sold , a full-year of operation for two fuel stations added in fiscal 2008 , for which the incremental gallons represented 1.6 % of total gallons sold , and the additional week of gasoline sales in fiscal 2009 , which accounted for 1.9 % of total gallons sold . gross profit the following table includes a comparison of cost of goods sold , distribution costs and gross profit for fiscal 2009 and fiscal 2008 .
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we elected to apply the practical expedient , which allows us to reclassify amounts disclosed previously in our pension and other postretirement benefits footnote as the basis for applying retrospective presentation for comparative periods . on a prospective basis , only service costs will be included in amounts capitalized in inventory or property , plant , and equipment . the effect of the retrospective presentation change related to the net periodic cost of our defined benefit pension and other postretirement employee benefits plans on our statements of consolidated operations was as follows : replace_table_token_31_th in august 2018 , the fasb issued asu no . 2018-14 , defined benefit plans ( topic 715-20 ) - changes to the disclosure requirements for defined benefit plans . certain of the existing required disclosures were modified for clarification or removed and additional disclosures were added . we elected to early adopt asu no . 2018-14 for the year ended december 31 , 2018. the effect of the adoption is an overall reduction in our annual disclosures related story_separator_special_tag management 's discussion and analysis of financial condition and results of operations ( `` md & a '' ) is designed to provide a reader of our financial statements with a narrative from the perspective of management on our financial condition , results of operations , liquidity and other factors that may affect our future results . the following discussion should be read in conjunction with the consolidated financial statements and related notes that appear elsewhere in this document . industry overview the key driver of our business is demand for steelmaking raw materials from u.s. steelmakers . during 2018 , the u.s. produced approximately 87 million metric tons of crude steel , which is up 6 % when compared to 2017 , or about 5 % of total global crude steel production . u.s. total steel capacity utilization was approximately 78 % during 2018 , which is an approximate 6 % increase from 2017. throughout 2018 , global crude steel production increased about 5 % compared to 2017 , driven by an approximate 7 % increase in chinese crude steel production . the platts 62 % price decreased 3 % to an average price of $ 69 per metric ton for the year ended december 31 , 2018 compared to 2017. volatility in the iron ore price impacts our realized revenue rates , but the price of iron ore and our revenue realizations are not fully correlated . pricing mechanisms in our contracts reference the platts 62 % price , but our prices are somewhat protected from potential volatility given that it is just one of many inputs used in contract pricing formulas . while iron ore pricing over the past year has remained relatively stable , we recognize that a change in behavior of the major iron ore producers and or chinese steelmakers could either lift or put pressure on iron ore prices in the near term . during 2018 , the main trend that emerged was the more selective iron ore buying behavior among chinese mills , which caused significant divergence in pricing for different grades of ores , but kept the platts 62 % price at its most stable levels since daily pricing was introduced a decade ago . this intensified focus on iron ore quality is driven primarily by both a greater emphasis on environmentally friendly steelmaking and enhanced productivity ( as less efficient mills have been shut down ) . the atlantic basin pellet premium , another important pricing factor in our contracts , averaged $ 59 per metric ton for the year ended december 31 , 2018 , a 30 % increase compared to 2017. we believe the supply-demand dynamics of this market will continue to be favorable for us . heightened demand for iron ore pellets is a result of rapidly increasing global demand for the most productive and environmentally friendly feedstock . iron ore pellets remain scarce in the international market and new capacity is unlikely to come online in the near term due to the time and expense required to do so . we believe this scarcity will support and likely increase these multi-year high premiums for pellet products in the foreseeable future . the price for domestic hot-rolled coil steel , which is an important attribute in the calculation of supplemental revenue in a customer 's supply agreement , averaged $ 827 per net ton for the year ended december 31 , 2018 , 33 % higher than last year . the price of steel was impacted positively in 2018 by healthy u.s. manufacturing activity and inflation on major steel input costs , and the u.s. government 's implementation of a 25 % tariff on steel imports from many of its major trade counterparts . because the united states is the largest importer of steel in the world , we believe these tariffs not only alleviate some national security concerns , but will also keep the prices for domestic hot-rolled coil steel elevated above historical averages for as long as they remain in place . as such , we remain positive on our outlook for the domestic steel market . our consolidated revenues were $ 2.3 billion and $ 1.9 billion for the years ended december 31 , 2018 and 2017 , respectively , with net income from continuing operations per diluted share of $ 3.42 and $ 1.25 , respectively . net income from continuing operations for 2018 was positively impacted by an income tax benefit of $ 475.2 million , primarily due to release of the valuation allowance in the u.s. this compares to an income tax benefit in 2017 of $ 252.4 million , primarily due to the enactment of public law 115–97 . sales margin increased by $ 342.0 million during 2018 when compared to 2017 , primarily driven by the increase in revenue from higher overall average realized product revenue rates and higher sales volumes . during 2018 , we had a loss on extinguishment of debt of $ 6.8 million compared to a loss of $ 165.4 story_separator_special_tag since 2015 , we have reduced 44 our annual interest expense by 46 % , or approximately $ 100 million , by using various liability management strategies consistent with our capital allocation priorities and our stated objective of improving the strength of our balance sheet and simplifying the capital structure . given the cyclical nature of our business , we will continue to be opportunistic in managing our balance sheet and capital structure , which should put us in an optimal position to manage through any commodity environment , and we continue to seek the best opportunities to accomplish this . competitive strengths resilient mining and pelletizing segment operations our mining and pelletizing segment is the primary contributor to our consolidated results , generating $ 2,332.4 million of consolidated revenue , $ 809.6 million of sales margin and $ 875.3 million of consolidated adjusted ebitda for the year ended december 31 , 2018. our mining and pelletizing segment produces differentiated iron ore pellets that are customized for use in customers ' blast furnaces as part of the steelmaking process . the grades of pellets currently delivered to each customer are based on that customer 's preferences , which depend in part on the characteristics of the customer 's blast furnace operations . we believe our long history of supplying customized pellets to the u.s. steel producers has resulted in a co-dependent relationship between us and our customers . this technical and operational co-dependency has enabled us to claim a substantial portion of the total mining and pelletizing segment market . based on our equity ownership in our u.s. mines , our share of the annual rated production capacity is 21.2 million long tons , representing 42 % of total u.s. annual pellet capacity . long-lived assets with an average mine life of approximately 30 years provide the opportunity to maintain our significant market position well into the future . we believe our mining and pelletizing segment is uniquely positioned in the global iron ore market due to its insulated position within the great lakes region and balanced exposure to market volatility due to contract pricing structures . most of our mining and pelletizing segment production is sold through long-term contracts that are structured with various formula-based pricing mechanisms that reference spot iron ore pricing , domestic steel prices , and atlantic basin pellet premiums , among other items , and mitigate the impact of any one factor 's price volatility on our business . we maintain a freight advantage compared to our competition as a result of our proximity to u.s. steelmaking operations . the great lakes market is largely isolated and expensive to enter from the seaborne market . our costs are lower as a result of inherent transportation advantages associated with our mine locations near the great lakes , which allows for transportation via railroads and loading ports . recent developments changes to our board of directors on january 28 , 2019 , we appointed m. ann harlan and janet l. miller to our board of directors . ms. harlan will join the audit committee and ms. miller will join the governance and nominating committee of our board . with the addition of ms. harlan and ms. miller , our board of directors is now comprised of eleven members , of which ten are independent directors . also , in order to re-balance responsibilities among its board members , we announced other changes to the committee assignments . susan green has been appointed to the strategy committee ; michael siegal has stepped down from the audit committee ; gabriel stoliar has stepped down from the governance and nominating committee ; and robert fisher , jr. has stepped down from the strategy committee . executive leadership promotion on december 11 , 2018 , our board of directors elected clifford t. smith , as our executive vice president , chief operating officer , effective january 1 , 2019. mr. smith most recently was the executive vice president , business development , a position he held since april 2015. he previously served as executive vice president , seaborne iron ore ( october 2014 - april 2015 ) and executive vice president , global operations ( july 2013 - january 2014 ) . share repurchase program on november 26 , 2018 , we announced that our board of directors authorized a program to repurchase outstanding common shares in the open market or in privately negotiated transactions , up to a maximum of $ 200 million . we are not obligated to make any purchases and the program may be suspended or discontinued at any time . during 2018 , we repurchased 5.4 million common shares at a cost of approximately $ 47.5 million in aggregate , including commissions and fees , or an average price of approximately $ 8.78 per share . as of december 31 , 2018 , there was approximately $ 152.7 million remaining under the authorization . the share repurchase program is effective until december 31 , 2019 . 45 business segments in alignment with our strategic goals , our company 's continuing operations are organized and managed in two business units according to our differentiated products . the former ' u.s . iron ore ' segment is now 'mining and pelletizing . ' our mining and pelletizing segment is a major supplier of iron ore pellets to the north american steel industry from our mines and pellet plants located in michigan and minnesota . in addition , the toledo hbi business will be categorized under the segment 'metallics . ' in our metallics segment , we are currently constructing an hbi production plant in toledo , ohio . we expect to complete construction and begin production in 2020. until the hbi plant is operational , expenses reported in the metallics segment will be limited to administrative costs .
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2019 outlook summary per long ton information mining and pelletizing cost of goods sold and operating expense rate $ 73 - $ 78 less : freight expense rate 1 $ 7 depreciation , depletion & amortization rate $ 4 cash cost of goods sold and operating expense rate $ 62 - $ 67 sales volume ( million long tons ) 20.0 production volume ( million long tons ) 20.0 1 freight has an offsetting amount in revenue and has no impact on sales margin . mining and pelletizing outlook ( long tons ) based on the assumption that iron ore prices of $ 76 per metric ton , steel prices of $ 694 per short ton , and pellet premiums of $ 67.50 per metric ton will average for the remainder of 2019 their respective january averages , we would realize mining and pelletizing revenue rates in the range of $ 102 to $ 107 per long ton . performing the same analysis using spot prices as of february 7 , 2019 , namely an iron ore price of $ 90.50 per metric ton , a steel price of $ 683 per short ton , and a pellet premium of $ 67.50 per metric ton , we would expect to realize mining and pelletizing revenue rates in the range of $ 111 to $ 116 per long ton for the full-year 2019. for 2019 , we expect full-year sales and production volumes of our productive capacity of approximately 20 million long tons . our full-year 2019 mining and pelletizing cash cost of goods sold and operating expense expectation is $ 62 to $ 67 per long ton . sg & a expenses and other expectations full-year 2019 sg & a expenses are expected to be approximately $ 120 million . we note that of the $ 120 million expectation , approximately $ 20 million is considered non-cash .
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we currently have three clinical-stage programs : ( i ) axo-lenti-pd program for the treatment of parkinson 's disease , which is comprised of the first generation prosavin® in which 15 patients were previously dosed in a phase 1/2 study , and the second generation axo-lenti-pd in which we have dosed two patients in cohort 1 of the dose-escalation study and four patients in cohort 2 ; ( ii ) the axo-aav-gm1 program for the treatment of gm1 gangliosidosis in which five patients have been dosed , and we expect to continue to dose patients in the study in calendar year 2020 ; and ( iii ) the axo-aav-gm2 program for the treatment of gm2 gangliosidosis ( including tay-sachs and sandhoff diseases ) in which two expanded access patients have been dosed and we expect to enroll additional patients in calendar year 2020. we are dedicated to realizing the potential of gene therapies to offer transformative patient outcomes in areas of high unmet medical need . we have assembled a portfolio of gene therapies in partnership with leading scientific institutions and have built a team with extensive experience in the gene therapy space . we will continue to build integrated internal development capabilities from product development through commercialization and focus on accelerating the pace of product development in the clinic . as part of our ongoing business strategy , we continue to explore potential opportunities to acquire or license new product candidates as well as opportunities for partnership or collaboration on our existing products in development . our vision is to build the world 's leading gene therapy company for the treatment of neurological diseases by progressing our current programs and identifying , developing and commercializing other novel gene therapy treatments for neurological diseases . see section `` our key agreements '' within `` item 1—business '' of this annual report on form 10-k for information regarding our license agreement with oxford biomedica ( uk ) ltd. ( the `` oxford agreement '' and `` oxford '' , respectively ) and our license agreement with the university of massachusetts medical school ( the `` umms agreement '' and `` umms '' , respectively ) . covid-19 business update we are continuing to closely monitor the impact of the global covid-19 pandemic on our business and are taking proactive efforts designed to protect the health and safety of our patients , study investigators and employees , and to maintain business continuity . based on guidance issued by federal , state and local authorities , we transitioned to a remote work model for our employees , effective march 16 , 2020. we believe that the measures we are implementing are appropriate . we will continue to closely monitor and seek to comply with guidance from governmental authorities and adjust our activities as appropriate . in the conduct of our business activities , we are also taking actions designed to protect the safety and well-being of patients , healthcare workers and employees . for patients already enrolled in our clinical trials , we are working closely with clinical trial investigators and site staff to continue treatment in compliance with trial protocols and to uphold trial integrity , while working to observe government and institutional guidelines designed to safeguard the health and safety of patients , clinical trial investigators and site staff . we are continuing to evaluate clinical trial site initiations and patient enrollment on a case-by-case and patient-by-patient basis in coordination with clinical trial investigators and site staff . some clinical trial sites , both within the united states and the united kingdom , continue to screen patients in our clinical trials , and new patients are being enrolled when appropriate . these internal and external efforts have allowed us to continue progress across our clinical development programs , and the impact of the covid-19 pandemic to date has not resulted in a significant impact to our clinical development timelines previously provided . however , our clinical trial progression , dosing , patient enrollment and related activities may be delayed due to prioritization of hospital resources toward the covid-19 pandemic or concerns among patients about participating in clinical trials during a pandemic , or restrictions imposed by institutions or local , state or national governments , among other factors . while the covid-19 pandemic has not yet resulted in a significant delay to our clinical development timelines , the global pandemic of covid-19 continues to evolve rapidly , and could materially impact our clinical development and any future commercialization timelines . 84 our business could also be harmed by health epidemics wherever we have business operations , including operations of third-party manufacturers , contract research organizations ( `` cros '' ) and other third parties upon whom we rely . axovant sciences , inc. is based in new york city , we have business operations in basel , switzerland , and certain of our contract manufacturers are located in the united kingdom . we are also dependent on an international supply chain for products to be used in our clinical trials and , if approved by the regulatory authorities , for commercialization . while the covid-19 pandemic has not yet adversely impacted our business operations , international supply chain , productivity or clinical development timelines , the effects of an executive order issued by the governor of new york directing that all non-essential business close their physical operations , as well as restrictions on travel imposed by the u.s. government or other authorities and our work-from-home policies , may negatively impact productivity , disrupt our business or international supply chain and delay our clinical programs and timelines in the future , the magnitude of which will depend , in part , on the length and severity of the restrictions and other limitations on our ability to conduct our business in the ordinary course . the spread of covid-19 may also materially affect us economically in the future . story_separator_special_tag the duration , costs and timing of clinical trials of our products in development and any other product candidates will depend on a variety of factors that include , but are not limited to , the following : the number of trials required for approval ; the per patient trial costs ; the number of patients who participate in the trials ; the number of sites included in the trials ; the countries in which the trials are conducted ; the length of time required to enroll eligible patients ; the dose that patients receive ; the drop-out or discontinuation rates of patients ; the potential additional safety monitoring or other studies requested by regulatory agencies ; the duration of patient follow-up ; any delays in key trial activities and patient enrollment or diversion of healthcare resources as a result of the covid-19 pandemic ; production shortages or other supply interruptions in clinical trial materials resulting from the covid-19 pandemic ; the timing and receipt of regulatory approvals ; and the efficacy and safety profile of the product candidates . 86 in addition , the probability of success of our gene therapy products in development and any other product candidate will depend on numerous factors , including competition , manufacturing capability and commercial viability . we may never succeed in achieving regulatory approval of our gene therapy product candidates for any indication in any country . as a result of the uncertainties discussed above , we are unable to determine in advance the duration and completion costs of any clinical trial we conduct , or when and to what extent we will generate revenue from the commercialization and sale of our products in development or other product candidates , if at all . general and administrative expense general and administrative expenses consist primarily of share-based compensation , legal and accounting fees , consulting services , and employee-related expenses , such as salaries , benefits and travel expenses , for general and administrative personnel . general and administrative expenses also include fees for services received by asg under the services agreements with rsi and rsg . we anticipate that our general and administrative expenses will continue to decrease in the near term , primarily as the result of further reductions expected in overhead-related expenses . story_separator_special_tag operations , for the foreseeable future as we continue to develop our gene therapy product candidates and prepare for potential future regulatory approvals and commercialization of our products . we have not generated any revenue to date and do not expect to generate product revenue unless and until we successfully complete development and obtain regulatory approval for at least one of our gene therapy product candidates . our current cash and cash equivalents balance will also not be sufficient to complete all necessary development activities and commercially launch our products . we expect to spend substantial amounts to complete the development of , seek regulatory approvals for and commercialize our gene therapy product candidates . in addition , as part of our business development strategy , we generally structure our license agreements and collaboration agreements so that a significant portion of the total license cost is contingent upon the successful achievement of specified development , regulatory or commercial milestones . as a result , we will require cash to make payments upon achievement of these milestones under these agreements . based on our anticipated timeline for the achievement of development , regulatory and commercial milestones , we do not expect significant milestone payments under our license and collaboration agreements to come due during the fiscal year ending march 31 , 2021 . 88 because the length of time and activities associated with successful development of our gene therapy product candidates are highly uncertain , we are unable to estimate the actual funds we will require for development and any approved marketing and commercialization activities . we anticipate that our current cash and cash equivalents balance will be sufficient to fund our clinical milestones for our gene therapy programs during the current fiscal year . our future funding requirements , both near and long-term , will depend on many factors , including , but not limited to : the progress , timing , costs and results of our clinical trials of our gene therapy product candidates ; the effects of the covid-19 pandemic on our business and operations , the medical community and the global economy ; the outcome , timing and cost of meeting regulatory requirements established by the fda , the ema , or the pmda , and other comparable foreign regulatory authorities ; the achievement of certain development , regulatory and commercialization milestones that give rise to milestone and royalty payments to licensors ; the cost of filing , prosecuting , defending and enforcing our patent claims and other intellectual property rights ; the cost of obtaining necessary intellectual property and defending potential intellectual property disputes , including patent infringement actions brought by third parties against us or our gene therapy product candidates or any future gene therapy product candidates ; the effect of competing technological and market developments ; the cost and timing of completion of commercial-scale manufacturing activities ; the cost of establishing sales , marketing and distribution capabilities for our gene therapy product candidates in regions where we choose to commercialize our products on our own ; and the initiation , progress , timing and results of our commercialization of our gene therapy product candidates , if approved for commercial sale . as of march 31 , 2020 , our cash and cash equivalents totaled $ 80.8 million and our accumulated deficit was $ 758.6 million . for the years ended march 31 , 2020 and 2019 , we incurred net losses of $ 72.6 million and $ 129.1 million , respectively . as of march 31 , 2020 , we had aggregate gross interest-bearing indebtedness of $ 15.7 million due within one year , which was fully prepaid in april 2020. we also had $ 16.6 million of other non-interest-bearing current liabilities due within one year .
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results of operations for the years ended march 31 , 2020 and march 31 , 2019 the following table summarizes our results of operations for the years ended march 31 , 2020 and march 31 , 2019 ( in thousands ) : years ended march 31 , 2020 2019 operating expenses : research and development expenses ( includes $ 2,772 and $ 4,758 of share-based compensation expense for the years ended march 31 , 2020 and 2019 , respectively ) $ 47,110 $ 87,552 general and administrative expenses ( includes $ 5,123 and $ 11,671 of share-based compensation expense for the years ended march 31 , 2020 and 2019 , respectively ) 22,061 39,466 total operating expenses 69,171 127,018 interest expense 4,377 7,530 other income ( 1,358 ) ( 5,616 ) income tax expense 438 133 net loss $ ( 72,628 ) $ ( 129,065 ) research and development expenses for the years ended march 31 , 2020 and 2019 , our research and development expenses consisted of the following ( in thousands ) : replace_table_token_1_th 87 research and development expenses were $ 47.1 million for the year ended march 31 , 2020 compared to $ 87.6 million for the year ended march 31 , 2019 . excluding upfront license fee payments made and development and regulatory milestones achieved and due to oxford , benitec and umms of $ 14.0 million in the current year and $ 46.0 million in the prior year , research and development expenses decreased by approximately $ 8.5 million . excluding these upfront license fees and development and regulatory milestones achieved , program-specific costs increased by $ 12.6 million in the current year for the gene therapy programs currently under development , which were offset by decreases of ( i ) $ 9.5 million related to the wind-down of the small molecule programs , ( ii ) $ 4.9 million in share-based compensation and personnel-related costs primarily associated with a decrease in headcount , and ( iii ) $ 2.4
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as part of our efforts to position the company for future success , we completed several key initiatives in 2017 , including executing the sustaining amendment # 30 and the 787 amendment # 25 with boeing ( referred to herein collectively as the “ definitive documentation ” ) , which secured pricing terms on our recurring boeing programs into 2022. in addition , we focused on investments in technology and automation to reduce our internal costs , prepared for increasing production rates , and generated cash with disciplined cash deployment . as we continue to position the company for future success , our focus in 2018 will revolve around our operational execution with a focus on safety and quality while working to meet our customers ' requirements for production rate changes . additionally , we will focus on positioning ourselves for organic and inorganic growth within the commercial , defense , and fabrication markets . considering the strong demand for commercial aircraft and the expected continued need for defense aircraft for the foreseeable future , both markets offer possibilities for growth . to help support our work on production rate increases and market growth , we will continue to focus on attracting , developing , and retaining a world-class team at our sites and remaining a trusted partner to our customers and suppliers . programs a350 xwb we continue to support the a350 xwb program through two contracts we have with airbus , a fuselage contract and a wing contract , both of which are segmented into a non-recurring design engineering phase and a recurring production phase . in addition , we support the development of the work scope for the design and tooling related to the -1000 derivative of the a350 xwb fuselage and wing contracts . the company has recorded several forward losses on the a350 xwb fuselage recurring program . in earlier stages of production , forward losses were driven by production inefficiencies , engineering changes to the aircraft design , and higher test and transportation costs . in 2016 , the company experienced various disruption and production inefficiencies that exceeded previous estimates , which resulted in forward loss charges . during 2017 , the company recorded an additional forward loss on the a350xwb program of $ 19.4 million primarily related to unfavorable exchange rate impacts on labor and non-labor costs and supplier claims . the company could record additional forward loss charges if there are further changes to revenue and cost estimates and or if risks are not mitigated . b787 program as we continue on our second contract block on the b787 program , our performance for this program depends on our continued ability to achieve cost reductions in our manufacturing and support labor and supply chain . we have had several changes in estimates on the b787 program . most recently , in 2017 , boeing and spirit executed the 787 amendment , which established pricing terms for the b787-8 , -9 , and -10 derivative models between line unit 501 and line unit 1405 and required the parties to negotiate pricing for b787 line units 1406 and beyond beginning 24 months prior to the scheduled delivery date for line unit 1405. as a result of the expected completion of the 787 amendment , which caused the company to extend the current contract block ending at line unit 1003 to line unit 1405 , the company recorded a second quarter 2017 reach-forward loss $ 352.8 million on the b787 program . in the fourth quarter of 2017 , favorable cost initiatives and benefits from absorption of fixed costs due to announced rate increases , resulted in a favorable change in estimate on the b787 program of $ 41.1 million . going forward , the b787 program has expected price step downs , which will require spirit to substantially reduce its operational costs . if spirit is unable to reduce its costs on the b787 program while successfully executing future rate increases , spirit may record additional forward losses on the program . critical accounting policies the preparation of the company 's financial statements in accordance with accounting principles generally accepted in the u.s. ( “ gaap ” ) requires management to use estimates and assumptions . the results of these estimates form the basis for making 34 judgments which may affect the reported amounts of assets and liabilities , including the impacts of contingent assets and liabilities , and the reported amounts of revenue and expenses during the reporting period . on an ongoing basis , we evaluate our estimates , including those related to inventory , income taxes , financing obligations , warranties , pensions and other post-retirement benefits , and contingencies and litigation . we base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . management believes that the quality and reasonableness of our most critical accounting policies enable the fair presentation of our financial position and results of operations . however , the sensitivity of financial statements to these methods , assumptions , and estimates could create materially different results under different conditions or using different assumptions . we believe application of these policies requires difficult , subjective , and complex judgments to estimate the effect of inherent uncertainties . this section should be read in conjunction with note 2 to the consolidated financial statements , summary of significant accounting policies . revenues and profit recognition under long-term contracts the company recognizes revenue under the contract method of accounting and records sales and profits on each contract in accordance with the percentage-of-completion method of accounting , as further described in note 2 to the consolidated financial statements , summary of significant accounting policies . story_separator_special_tag we have analyzed and calculated a provisional estimate for the cumulative post-1986 e & p for these foreign operating subsidiaries , the impact of certain expense allocations , the potential impact of any recapture of an overall foreign loss balance and an assessment of potential foreign tax credits . further , the transition tax is based in part on the amount of those earnings held in cash and other specified assets . this amount may change when we finalize the calculation of post-1986 foreign e & p previously deferred from u.s. federal taxation and finalize the amounts held in cash or other specified assets . we continue to maintain that earnings of all foreign operating subsidiaries are indefinitely invested outside the u.s. on the basis of estimates that future domestic cash generation will be sufficient to meet future domestic cash needs and our specific plans for reinvestment of those subsidiary earnings to fund working capital requirements , service existing obligations , and invest in efforts to secure future business . as a result , no additional income taxes have been provided for any remaining undistributed foreign earnings not subject to the transition tax , or any additional outside basis difference inherent in these entities . we have completed analysis regarding potential withholding tax related to potential future dividends and anticipate that any associated withholding taxes would be immaterial based upon current law . determining the amount of unrecognized deferred tax liability related to any remaining undistributed foreign earnings not subject to the transition tax and additional outside basis difference in these entities ( i.e. , basis difference in excess of that subject to the one-time transition tax ) is not practicable at this time . the tcja introduces a tax on global intangible low-taxed income ( “ gilti ” ) for years ending after december 31 , 2017. our analysis and accounting for the effects of the gilti provision is incomplete and an accounting policy on whether we will account for gilti as a period expense or record deferred taxes for anticipated gilti has not been made . income taxes are accounted for in accordance with fasb authoritative guidance on accounting for income taxes . deferred income tax assets and liabilities are recognized for the future income tax consequences attributable to differences between the financial statement carrying amounts for existing assets and liabilities and their respective tax bases . tax rate changes impacting these assets and liabilities are recognized in the period during which the rate change occurs . a valuation allowance , if needed , reduces deferred tax assets to the amount expected to be realized . when determining the amount of net deferred tax assets that are more likely than not to be realized , we assess all available positive and negative evidence . the weight given to the positive and negative evidence is commensurate with the extent the evidence may be objectively verified . we record an income tax expense or benefit based on the net income earned or net loss incurred in each tax jurisdiction and the tax rate applicable to that income or loss . in the ordinary course of business , there are transactions for which the ultimate tax outcome is uncertain . these uncertainties are accounted for in accordance with fasb authoritative guidance on accounting for the uncertainty in income taxes . the final tax outcome for these matters may be different than management 's original estimates made in determining the income tax provision . a change to these estimates could impact the effective tax rate and net income or loss in subsequent periods . we use the flow-through accounting method for tax credits . under this method , tax credits reduce income tax expense . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; font-style : italic ; '' > net revenues . net revenues for the twelve months ended december 31 , 2017 were $ 6,983.0 million , an increase of $ 190.1 million , or 3 % , compared with net revenues of $ 6,792.9 million for the prior year . the increase was primarily due to higher production deliveries on the b737 , b787 , a320 , and a350 xwb programs , increased defense related activity , and higher revenues recognized on certain non-recurring boeing programs , partially offset by lower production deliveries on the b747 and b777 , decreased gcs & s activity , lower revenue recognized on the b787 program in accordance with pricing terms under the b787 agreement , and the absence of a one-time customer claim settlement recorded in the first half of 2016. approximately 95 % of spirit 's net revenues in 2017 came from our two largest customers , boeing and airbus . deliveries to boeing increased to 772 shipsets during 2017 , compared to 756 shipsets delivered in the prior year , driven by production increases on the b737 , b767 , and b787 programs , partially offset by decreases on the b747 and b777 programs . deliveries to airbus increased to 791 shipsets during 2017 , compared to 739 shipsets delivered in the prior year , primarily driven by higher production of the a320 and a350 xwb programs , partially offset by decreased production on the a380 program . 38 production deliveries of business/regional jet wing and wing components remained flat at 88 shipsets during both 2017 and 2016. in total , shipset deliveries increased 4 % to 1,651 shipsets in 2017 compared to 1,583 shipsets in 2016. gross profit . gross profit was $ 820.5 million for the twelve months ended december 31 , 2017 , as compared to $ 989.3 million for the same period in the prior year . the decrease in gross profit was primarily driven by net forward loss charges recognized for the b787 program in the second quarter of 2017 , partially offset by the absence of forward loss charges recognized on the a350 xwb fuselage program during 2016. sg & a and research and development .
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results of operations the following table sets forth , for the periods indicated , certain of our operating data : 36 replace_table_token_4_th _ ( 1 ) see “ twelve months ended december 31 , 2017 as compared to twelve months ended december 31 , 2016 ” for detailed discussion of operating data . ( 2 ) see “ twelve months ended december 31 , 2016 as compared to twelve months ended december 31 , 2015 ” for detailed discussion of operating data . comparative shipset deliveries by model are as follows : replace_table_token_5_th for purposes of measuring production or shipset deliveries for boeing aircraft in a given period , the term “ shipset ” refers to sets of structural fuselage components produced or delivered for one aircraft in such period . for purposes of measuring production or shipset deliveries for airbus and business/regional jet aircraft in a given period , the term “ shipset ” refers to all structural aircraft components produced or delivered for one aircraft in such period . for the purposes of measuring wing shipset deliveries , the term “ shipset ” refers to all wing components produced or delivered for one aircraft in such period . other components which are part of the same aircraft shipsets could be produced or shipped in earlier or later accounting periods than the components used 37 to measure production or shipset deliveries , which may result in slight variations in production or delivery quantities of the various shipset components in any given period . net revenues by prime customer are as follows : replace_table_token_6_th changes in estimates during the twelve months ended december 31 , 2017 , we recognized total changes in estimates of ( $ 296.1 ) million which includes net forward loss charges of ( $ 327.3 ) million and favorable cumulative catch-up adjustments related to periods prior to 2017 of $ 31.2 million .
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refer to footnote 19 for further details . ( s ) recently issued accounting pronouncements in may 2014 , the financial accounting standards board ( fasb ) issued accounting standards update ( asu ) 2014-09 , “ revenue from contracts with customers , ” a new accounting standard that provides for a comprehensive model to use in the accounting for revenue arising from contracts with customers that will story_separator_special_tag forward-looking statements the following section of this annual report on form 10-k entitled “ management 's discussion and analysis of financial condition and results of operations ” contains statements that are not statements of historical fact and are forward-looking statements within the meaning of federal securities laws . these statements involve known and unknown risks , uncertainties and other factors that may cause our actual results , performance or achievements to be materially different from any future results , performance or achievements expressed or implied by the forward-looking statements . these statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties . factors that may cause our actual results to differ materially from those in the forward-looking statements include those factors described in “ item 1a . risk factors ” beginning on page 9 of this annual report on form 10-k. you should carefully review all of these factors , as well as the comprehensive discussion of forward-looking statements on page 1 of this annual report on form 10-k. overview harvard bioscience , inc. , a delaware corporation , is a global developer , manufacturer and marketer of a broad range of scientific instruments , systems and lab consumables used to advance life science for basic research , drug discovery , clinical and environmental testing . our products are sold to thousands of researchers in over 100 countries through our global sales organization , websites , catalogs , and through distributors including thermo fisher scientific inc. , vwr and other specialized distributors . we have sales and manufacturing operations in the united states , the united kingdom , germany , sweden , spain , france , canada , and china . in 2014 , we initiated a multiple year plan to invest in and implement a new global enterprise resource planning platform . additionally , during 2014 , as part of a multi-year restructuring program that began at the end of 2013 , we initiated plans to relocate and consolidate the distribution , finance and marketing operations of our denville scientific , inc. subsidiary ( denville scientific ) to charlotte , north carolina and our holliston , ma headquarters , and relocate the manufacturing operations of our biochrom ltd. subsidiary ( biochrom ) to our holliston , ma headquarters . during the fourth quarter of 2014 , we acquired two businesses with advanced electrophysiology technologies , multi channel systems mcs gmbh ( mcs ) , and triangle biosystems , inc. ( tbsi ) . mcs is a developer , manufacturer and marketer of in vitro and in vivo electrophysiology instrumentation for extracellular recording and stimulation . this acquisition is complementary to the in vitro electrophysiology line currently offered by our wholly-owned warner instruments subsidiary . tbsi is a developer , manufacturer and marketer of wireless neural interface equipment to aid in vivo neuroscience research , especially in the fields of electrophysiology , psychology , neurology and pharmacology . this acquisition is complementary to the behavioral neuroscience lines currently offered by our wholly-owned panlab and coulbourn instruments subsidiaries . additionally in january 2015 , we acquired heka electronik through the acquisition of heka electronics incorporated , our heka canada subsidiary ( heka canada ) , heka electronik dr. schulze gmbh , our heka germany subsidiary ( heka germany ) and heka instruments incorporated , our united states heka subsidiary ( heka u.s. , and together with heka canada and heka germany , hekaheka is a developer , manufacturer and marketer of sophisticated electrophysiology instrumentation and software for biomedical and industrial research applications . this acquisition is complimentary to the electrophysiology line currently offered by our warner instruments and mcs subsidiaries . 24 during the first quarter of 2015 , we initiated plans to relocate the operations of our subsidiary , coulbourn instruments , llc ( coulbourn ) , to our holliston , ma headquarters . during the second quarter of 2015 , we initiated plans to relocate the operations of heka canada to heka germany . also during the second quarter of 2015 , and simultaneously with the heka canada move , we initiated plans to relocate the operations of heka u.s. to our holliston , ma headquarters . these relocation plans were completed as of december 31 , 2015. additionally , we committed to a restructuring plan on october 27 , 2015 , which included eliminating certain redundancies as a result of our site consolidations , as well as a realignment of our commercial sales team . we believe the overall restructuring program positions harvard bioscience to stabilize , focus on , and grow the life science business going forward . during the third quarter of 2015 , ge healthcare informed us of its decision to discontinue the sale of its spectrophotometer products by the end of 2015. this line of products includes the ge brands nanovue and simplinano , which we manufacture and distributed through ge . as of january 1 , 2016 , we have been selling the nanovue and simplinano spectrophotometers through our own direct sales force and through distribution partners , as well as servicing previously sold products in the field , yielding a new potential source of revenue and higher gross margins . as a result of ge 's decision , there were lower sales of ge branded spectrophotometers of approximately $ 2.1 million during the year ended december 31 , 2015. we resumed earning revenue from the sale of these spectrophotometers on january 1 , 2016 and continue to see potential benefits from an expanded customer base for many of our other products . story_separator_special_tag research and development expense consists primarily of salaries and related expenses for personnel and spending to develop and enhance our products . other research and development expense includes fees for consultants and outside service providers , and material costs for prototype and test units . we expense research and development costs as incurred . from time to time , we receive grants from governmental entities in relation to research projects . such grants received are accounted for as a reduction in research and development expense over the period of the project . we believe that investment in product development is a competitive necessity and plan to continue to make these investments in order to realize the potential of new technologies that we develop , license or acquire for existing markets . restructuring charges . restructuring charges consist of severance , other personnel-related charges and exit costs related to plans to create organizational efficiencies and reduce operating expenses . 26 stock-based compensation expenses . stock-based compensation expense for the years ended december 31 , 2016 , 2015 and 2014 was $ 3.5 million , $ 2.8 million and $ 2.2 million , respectively . the stock-based compensation expense related to stock options , restricted stock units , restricted stock units with a market condition and the employee stock purchase plan and was recorded as a component of cost of revenues , sales and marketing expenses , general and administrative expenses , research and development expenses and discontinued operations . currently , we intend to retain all of our earnings to finance the expansion and development of our business and do not anticipate paying any cash dividends to holders of our common stock in the near future . as a result , capital appreciation , if any , of our common stock will be a stockholder 's sole source of gain for the near future . story_separator_special_tag made redundant as a result of our site consolidations and a realignment of our commercial sales team . amortization of intangible assets amortization of intangible asset expenses was $ 2.7 million for the year ended december 31 , 2016 compared with $ 2.8 million for the year ended december 31 , 2015. impairment charges during the third quarter of 2016 , we initiated plans to sell the operations of ahn . as a result of initiating the plan to sell the operations of ahn , we evaluated the long-lived assets for impairment , pursuant to asc 360-10. based on the resulting impairment analysis , we recognized an impairment charge of $ 0.7 million for the year ended december 31 , 2016. loss on sale of ahn the loss on sale of ahn was $ 1.2 million for the year ended december 31 , 2016. during the fourth quarter of 2016 , we concluded the sale of ahn . upon the closing of the transaction , we recorded a loss on sale of $ 1.2 million for the year ended december 31 , 2016. other expense , net other expense , net , was $ 0.1 million and $ 1.9 million for the years ended december 31 , 2016 and 2015 , respectively . included in other expense , net for the year ended december 31 , 2016 was interest expense of $ 0.6 million . for the year ended december 31 , 2015 other expense , net included $ 0.9 million of interest expense and $ 1.2 million of acquisition related costs , including due diligence and deal investigative activities . the decrease in other expense , net was primarily due to the decrease in acquisition related costs and currency exchange rate fluctuations . currency exchange rate fluctuations included as a component of net ( loss ) income resulted in approximately $ 0.7 million in currency gains during the year ended december 31 , 2016 , compared to $ 0.2 million in currency gains during the year ended december 31 , 2015 . 28 income taxes income tax expense was approximately $ 1.2 million and $ 15.4 million for the years ended december 31 , 2016 and 2015 , respectively . the decrease in income tax expense year over year was primarily attributable to the recognition of a valuation allowance on u.s. deferred tax assets in 2015. during the year ended december 31 , 2015 , we determined that it was more likely than not that our u.s. deferred tax assets would not be realized and therefore recorded a net increase to the valuation allowance of $ 16.4 million to offset u.s. deferred tax assets net of deferred tax liabilities except for certain indefinite-lived intangible assets . this decision was based on all available evidence . year ended december 31 , 2015 compared to year ended december 31 , 2014 each reporting period , we face currency exposure that arises from translating the results of our worldwide operations to the united states dollar at exchange rates that fluctuate from the beginning of such period . we evaluate our results of operations on both a reported and a foreign currency-neutral basis , which excludes the impact of fluctuations in foreign currency exchange rates . we believe that disclosing this non-gaap financial information provides investors with an enhanced understanding of the underlying operations of the business . this non-gaap financial information approximates information used by our management to internally evaluate our operating results . the non-gaap financial information provided below should be considered in addition to , not as a substitute for , the financial information provided and presented in accordance with accounting principles generally accepted in the united states , or gaap . revenues revenues for the year ended december 31 , 2015 were $ 108.7 million , and flat compared to revenues for the year ended december 31 , 2014. revenues contributed by our mcs , tbsi and heka acquisitions were offset by the negative impact of currency translation and ge healthcare discontinuing the sale of its spectrophotometer products , which amounted to approximately $ 4.0 million and $ 2.1 million , respectively , in lower revenues during 2015. excluding the impact of currency translation , revenues increased approximately 3.7
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selected results of operations year ended december 31 , 2016 compared to year ended december 31 , 2015 each reporting period , we face currency exposure that arises from translating the results of our worldwide operations to the united states dollar at exchange rates that fluctuate from the beginning of such period . we evaluate our results of operations on both a reported and a foreign currency-neutral basis , which excludes the impact of fluctuations in foreign currency exchange rates . we believe that disclosing this non-gaap financial information provides investors with an enhanced understanding of the underlying operations of the business . this non-gaap financial information approximates information used by our management to internally evaluate our operating results . the non-gaap financial information provided below should be considered in addition to , not as a substitute for , the financial information provided and presented in accordance with accounting principles generally accepted in the united states , or gaap . revenues revenues decreased 3.8 % , or $ 4.2 million , to $ 104.5 million for the year ended december 31 , 2016 , compared to revenues of $ 108.7 million for the year ended december 31 , 2015. excluding the effects of currency translation , primarily from the weakening of the british pound against the u.s. dollar , our revenues decreased 1.8 % or $ 2.0 million , from the previous year . the remainder of the decline in revenues was primarily the result of softness in the european funding environment and slower than expected nih budget funding , as well as less revenues from ahn in 2016 compared to 2015 , following its sale in october 2016 , due to two fewer months of revenue which amounted to approximately $ 0.5 million .
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” the company seeks to fulfill this mission by offering innovative products and compelling brand propositions ; complementing its footwear brands with strong apparel and accessories offerings ; expanding its global consumer-direct footprint ; and delivering supply chain excellence . the company 's portfolio consists of 15 brands that are marketed in approximately 200 countries and territories at january 3 , 2015 , including through owned operations in the u.s. , canada , the united kingdom and certain countries in continental europe . in other regions ( asia pacific , latin america , portions of europe , the middle east and africa ) , the company relies on a network of third-party distributors , licensees and joint ventures . at january 3 , 2015 , the company operated 417 retail stores in the u.s. and canada and 64 consumer-direct websites . 2014 financial overview revenue for fiscal 2014 was $ 2,761.1 million , an increase of 2.6 % compared to fiscal 2013. foreign exchange had a minimal impact on full year revenue growth . high single-digit growth from the heritage group and mid single-digit growth from the performance group was partially offset by expected low single-digit revenue decline from the lifestyle group . gross margin for fiscal 2014 was 39.3 % , a decrease of 30 basis points from fiscal 2013. the gross margin decline was driven primarily by a negative mix shift in international markets , the impact of retail store close-out activities and incremental expense related to the last-in , first-out ( `` lifo '' ) method . operating expenses as a percentage of revenue decreased to 31.0 % for fiscal 2014 compared to 32.4 % for fiscal 2013. in addition to the higher revenues in fiscal 2014 , the reduction in operating expenses as a percent of revenues was driven by lower pension expense , lower acquisition-related costs and lower incentive compensation expenses , which were partially offset by higher restructuring costs , higher selling expenses and higher brand building expenses . 22 the effective tax rate in fiscal 2014 was 26.2 % compared to 20.9 % in fiscal 2013. the higher effective tax rate in fiscal 2014 reflects a greater proportion of income generated in higher tax jurisdictions , primarily the u.s. , compared to 2013. in addition , the 2013 tax rate reflects higher acquisition-related integration costs that are deductible primarily in high statutory tax rate jurisdictions . inventory decreased 3.3 % versus the prior year . accounts receivable decreased 21.5 % due primarily to a three-year agreement with a financial institution executed during the fourth quarter of fiscal 2014 , to sell selected trade accounts receivable on a recurring , nonrecourse basis , which generated incremental operating cash flows of approximately $ 65.5 million during fiscal 2014. cash provided by operating activities was $ 314.6 million during fiscal 2014 , which allowed the company to make payments on its long-term debt of $ 249.8 million . the company declared cash dividends of $ 0.24 per share , on a post-stock split basis , in both fiscal 2014 and fiscal 2013. story_separator_special_tag style= '' line-height:120 % ; padding-bottom:12px ; text-align : justify ; font-size:10pt ; '' > the company maintains management and operational activities in overseas subsidiaries , and its foreign earnings are taxed at rates that are generally lower than the u.s. federal statutory income tax rate . a significant amount of the company 's earnings is generated by its canadian , european and asian subsidiaries and , to a lesser extent , in jurisdictions that are not subject to income tax . the company has not provided for u.s. taxes for earnings generated in foreign jurisdictions because it intends to reinvest these earnings indefinitely outside the u.s. however , if certain foreign earnings previously treated as permanently reinvested are repatriated , the additional u.s. tax liability could have a material adverse effect on the company 's results of operations and financial position . 24 reportable operating segments the company has three reportable operating segments . the company 's operating segments are determined on the basis of how the company internally reports and evaluates financial information used to make operating decisions . the company 's reportable operating segments are : lifestyle group , consisting of sperry top-sider ® footwear and apparel , stride rite ® footwear and apparel , hush puppies ® footwear and apparel , keds ® footwear and apparel and soft style ® footwear ; performance group , consisting of merrell ® footwear and apparel , saucony ® footwear and apparel , chaco ® footwear , patagonia ® footwear and cushe ® footwear ; and heritage group , consisting of wolverine ® footwear and apparel , cat ® footwear , bates ® uniform footwear , sebago ® footwear and apparel , harley-davidson ® footwear and hytest ® safety footwear . the company also reports “ other ” and “ corporate ” categories . the other category consists of the company 's multi-brand consumer-direct business , leather marketing operations and sourcing operations that include third-party commission revenues . the corporate category consists of unallocated corporate expenses , including acquisition-related transaction and integration costs and restructuring costs . the reportable operating segment results for fiscal years 2014 , 2013 and 2012 are as follows : replace_table_token_5_th replace_table_token_6_th further information regarding the reportable operating segments can be found in note 15 to the consolidated financial statements . lifestyle group the lifestyle group 's revenue decreased $ 27.3 million , or 2.5 % , in fiscal 2014 compared to fiscal 2013. the negative growth rate was driven by a mid single-digit revenue decline for sperry top-sider ® , a high single-digit decline for hush puppies ® and a low single-digit decline for stride rite ® . the sperry top-sider ® decline was driven by decreases in the domestic boat shoe category and a distribution channel realignment in the family channel , partially offset by sales from new retail stores . story_separator_special_tag liquidity cash and cash equivalents of $ 223.8 million as of january 3 , 2015 were $ 9.6 million higher compared to december 28 , 2013. in addition , the company had $ 196.4 million available under a revolving credit agreement ( the “ revolving credit facility ” ) as of january 3 , 2015. at january 3 , 2015 , the company had $ 208.1 million of cash and cash equivalents located in foreign jurisdictions , in which the company intends to permanently reinvest these funds . the company had outstanding standby letters of credit under the revolving credit facility of approximately $ 3.6 million at january 3 , 2015. operating activities the principal source of the company 's operating cash flow is net earnings , including cash receipts from the sale of the company 's products , net of costs of goods sold . higher earnings performance during fiscal 2014 along with the sale of certain accounts receivable drove the increase in cash from operations compared to fiscal 2013. during fiscal 2014 , a decrease in net working capital represented a source of cash of $ 86.9 million . working capital balances were favorably impacted by a decrease in accounts receivable of $ 76.5 million due primarily to the cash inflow of $ 65.5 million related to the sales of certain accounts receivable described above , partially offset by an increase in other operating assets of $ 17.8 million . an increase in accounts payable and other operating liabilities represented a source of cash of $ 16.2 million and $ 9.1 million , respectively , in fiscal 2014. during fiscal 2013 , an increase in net working capital represented a use of cash of $ 2.5 million . working capital balances were negatively impacted by an increase in accounts receivable of $ 41.3 million , which was partially offset by a decrease in inventory and other operating assets of $ 35.1 million and $ 12.8 million , respectively . a decrease in accounts payable represented a use of cash of $ 26.5 million , which was partially offset by an increase of $ 17.4 million from other operating liabilities . investing activities the company made capital expenditures of $ 30.0 million in fiscal 2014 compared to $ 41.7 million in fiscal 2013. the decrease in capital expenditures during fiscal 2014 was primarily due to fewer new retail stores being opened . the majority of the company 's capital expenditures in both years were for retail store investments , information system enhancements and building improvements . the company made capital expenditures of $ 41.7 million in fiscal 2013 compared to $ 14.9 million in fiscal 2012. the increase in capital expenditures was due to the acquisition of plg in the fourth quarter of fiscal 2012 and the resulting larger scale and scope of the company . included in investing activities in fiscal 2013 were net cash proceeds of $ 2.8 million from the sale of a distribution facility acquired as part of the plg acquisition . the company leases machinery , equipment and certain warehouse , office and retail store space under operating lease agreements that expire at various dates through 2023. financing activities on october 9 , 2012 , the company entered into a credit agreement with a bank syndicate in connection with the plg acquisition . the credit agreement provided the company with two term loans ( a “ term loan a facility ” and a “ term loan b facility ” ) and the revolving credit facility . on october 10 , 2013 , the company amended the credit agreement ( the `` amendment '' ) and paid off the outstanding balance of the term loan b facility while increasing the principal balance of the term loan a facility to $ 775.0 million . the amendment provided for a lower effective interest rate on term loan debt and a one-year extension on both 27 the term loan a facility and revolving credit facility . in addition , the amendment provided for increased debt capacity limited to an aggregate debt amount ( including outstanding term loan principal and revolver commitment amounts in addition to permitted incremental debt ) not to exceed $ 1,350.0 million . the company incurred $ 1.3 million of debt extinguishment costs during the fourth quarter of fiscal 2014 due to accelerating the amortization of capitalized deferred financing fees in relation to debt repayments . the company incurred $ 13.1 million of debt extinguishment costs during the fourth quarter of fiscal 2013 in connection with the refinancing of the company 's debt . these costs represent a write-off of previously capitalized deferred financing fees . on october 9 , 2012 , the company issued $ 375.0 million of senior notes , which bear interest at a 6.125 % fixed rate and are due in 2020. during the third quarter of fiscal 2013 , the company exchanged the senior notes ( the `` public bonds '' ) . related interest payments are due semi-annually . the public bonds are guaranteed by substantially all of the company 's domestic subsidiaries . the company used the borrowings under the term loan facilities , together with the net proceeds from the senior notes and cash on hand , to finance the plg acquisition , repay any amounts outstanding under prior indebtedness , terminate its prior revolving credit facility and provide for the working capital needs of the company , including the payment of transaction expenses in connection with the acquisition . as of january 3 , 2015 , the company was in compliance with all covenants and performance ratios . the company 's debt at january 3 , 2015 was $ 900.8 million compared to $ 1,150.0 million at december 28 , 2013. the net decrease in debt was primarily a result of principal payments on the term loan a facility , including $ 200.0 million of voluntary debt payments during fiscal 2014. the decrease in debt during fiscal 2013 was primarily a result of principal payments , including $ 85.0 million of voluntary debt payments .
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results of operations the following is a discussion of the company 's results of operations and liquidity and capital resources . this section should be read in conjunction with the company 's consolidated financial statements and related notes included elsewhere in this annual report . replace_table_token_4_th revenue revenue was $ 2,761.1 million for fiscal 2014 , representing an increase of 2.6 % versus the prior year 's revenue of $ 2,691.1 million . high single-digit growth from the heritage group and mid single-digit growth from the performance group was partially offset by expected low single-digit revenue decline from the lifestyle group . changes in foreign exchange rates decreased reported revenue by $ 6.2 million in fiscal 2014. international revenue represented 27.9 % , 26.2 % and 34.2 % of total reported revenues in fiscal years 2014 , 2013 and 2012 , respectively . the decrease in international revenue in fiscal 2013 as a percent of total revenue was driven by the inclusion of the plg business , which skews more to the u.s. than did the company 's business prior to the plg acquisition . revenue for fiscal 2013 increased $ 1,050.3 million from fiscal 2012 , to $ 2,691.1 million . the full year inclusion of the plg business , acquired in the fourth quarter of fiscal 2012 , drove the majority of the increase . changes in foreign exchange rates decreased reported revenue by $ 1.7 million in fiscal 2013 . 23 gross margin for fiscal 2014 , the company 's gross margin was 39.3 % compared to 39.6 % in fiscal 2013. the decrease was driven by higher product costs ( 30 basis points ) , a negative mix shift in international markets ( 30 basis points ) , incremental lifo expense ( 10 basis points ) , impact of inventory liquidation related to retail store closures ( 10 basis points ) and negative foreign currency impact ( 10 basis points ) , which were partially offset by select selling price increases ( 60 basis points ) .
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as of december 31 , 2020 and 2019 , the company has established a 100 % valuation reserve against its deferred tax assets . the company accounts for income taxes under the provisions of asc 740 - income taxes . as of december 31 , 2020 and 2019 , there were no unrecognized tax benefits included in the balance sheets that would , if recognized , affect the effective tax rate . the company 's practice is to recognize interest and penalties related to income tax matters in income tax expense . the company had no accrual for interest or penalties in its balance sheets at december 31 , 2020 or 2019 , and has not recognized interest and penalties in the statements of operations for the years ended december 31 , 2020 , 2019 and 2018. as of december 31 , 2020 , the company is subject to taxation in the united states and certain individual states – primarily illinois and tennessee . the company 's tax losses from 2017 through 2020 are subject to examination by the federal and state tax authorities due to the carryforward of unutilized net operating losses ( “ nols ” ) . the tax cuts and jobs act of 2017 ( the “ tax act ” ) significantly revised u.s. corporate income tax law by , among other things , reducing the corporate income tax rate to 21 % and implementing a modified territorial tax system . in response to the tax act , the sec issued staff accounting bulletin ( “ sab ” ) 118 which allows issuers to recognize provisional estimates of the impact of the tax act in their financial statements and adjust in the period in which the estimates become finalized , or in circumstances where estimates can not be made , to disclose and recognize within a one-year measurement period . current accounting standards include guidance on the accounting for uncertainty in income taxes recognized in the financial statements . such standards also prescribe a recognition threshold and measurement model for the financial statement recognition of a tax position taken , or expected to be taken , and provides guidance on derecognition , classification , interest and penalties , accounting in interim periods , disclosure and transition . the company believes that the ultimate deductibility of all tax positions is highly certain , although there is uncertainty about the timing of such deductibility . as a result , no liability for uncertain tax positions was recorded as of december 31 , 2020 or 2019. fair value measurements we measure certain of our assets and liabilities at fair value . fair value represents the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date . fair value accounting requires characterization of the inputs used to measure fair value into a three-level fair value hierarchy as follows : 66 eton pharmaceuticals , inc. notes to financial statements ( in thousands , except share and per share amounts ) note 3 — summary of significant accounting policies ( continued ) level 1 — inputs based on quoted prices in active markets for identical assets or liabilities . an active market is a market in which transactions occur with sufficient frequency and volume to provide pricing information on an ongoing basis . level 2 — observable inputs that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from sources independent from the entity . level 3 — unobservable inputs that reflect the entity 's own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available . fair value measurements are classified based on the lowest level of input that is significant to the measurement . the company 's assessment of the significance of a particular input to the fair value measurement requires judgment , which may affect the valuation of the assets and liabilities and their placement within the fair value hierarchy levels . the determination of the fair values stated below takes into account the market for the company 's financials , assets and liabilities , the associated credit risk and other factors as required . the company considers active markets as those in which transactions for the assets or liabilities occur in sufficient frequency and volume to provide pricing information on an ongoing basis . the company 's financial instruments included cash and cash equivalents , accounts receivable , accounts payable , accrued liabilities , ppp and eidl loans and long-term debt obligation . the carrying amounts of these financial instruments , except for the ppp and eidl loans and long-term debt obligation , approximate their fair values due to the short-term maturities of these instruments . based on borrowing rates currently available to the company , the carrying value of the ppp and eidl loans and long-term debt obligation approximate their fair values . the fair values of the company 's warrant liability at inception story_separator_special_tag you should read the following discussion and analysis together with our financial statements and the related notes thereto included in “ item 8. financial statements and supplementary data ” in this annual report on form 10-k. the following discussion contains forward-looking statements that involve risks and uncertainties . for a complete discussion of forward-looking statements , see the section above entitled “ forward looking statements. ” our actual results could differ materially from those expressed or implied in any forward-looking statements as a result of various factors , including those set forth under the caption “ item 1a . risk factors. story_separator_special_tag we assess whether these options provide a material right to the customer and , if so , they are considered performance obligations . the exercise of a material right is accounted for as a contract modification for accounting purposes . we recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when ( or as ) each performance obligation is satisfied at a point in time or over time , and if over time this is based on the use of an output or input method . any amounts received prior to revenue recognition will be recorded as deferred revenue . amounts expected to be recognized as revenue within the twelve months following the balance sheet date will be classified as current portion of deferred revenue in our balance sheets . amounts not expected to be recognized as revenue within the twelve months following the balance sheet date are classified as long-term deferred revenue , net of current portion . milestone payments – if a commercial contract arrangement includes development and regulatory milestone payments , we will evaluate whether the milestone conditions have been achieved and if it is probable that a significant revenue reversal would not occur before recognizing the associated revenue . milestone payments that are not within our control or the licensee 's control , such as regulatory approvals , are generally not considered probable of being achieved until those approvals are received . royalties – for arrangements that include sales-based royalties , including milestone payments based on a level of sales , which are the result of a customer-vendor relationship and for which the license is deemed to be the predominant item to which the royalties relate , we will 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 licensing arrangements . significant financing component – in determining the transaction price , we will adjust consideration for the effects of the time value of money if the expected period between payment by the licensees and the transfer of the promised goods or services to the licensees will be more than one year . we sell biorphen in the u.s. to wholesale pharmaceutical distributors , who then sell the product to hospitals and other end-user customers . sales to wholesalers are made pursuant to purchase orders subject to the terms of a master agreement , and delivery of individual shipments of biorphen represent performance obligations under each purchase order . we use a third-party logistics ( “ 3pl ” ) vendor to process and fulfill orders and have concluded it is the principal in the sales to wholesalers because it controls access to the 3pl vendor services rendered and directs the 3pl vendor activities . we have no significant obligations to wholesalers to generate pull-through sales . in addition , we sell our alkindi sprinkle product to one pharmacy distributor customer which provides order fulfillment and inventory storage/distribution services . selling prices initially billed to wholesalers are subject to discounts for prompt payment and subsequent chargebacks when the wholesalers sell biorphen at negotiated discounted prices to members of certain group purchasing organizations ( “ gpos ” ) and government programs . in addition , we pay fees to wholesalers for their distribution services , inventory reporting and chargeback processing . we pay gpos fees for administrative services and for access to gpo members and concluded the benefits received in exchange for these fees are not distinct from our sales of biorphen , and accordingly we apply these amounts to reduce revenues . wholesalers also have rights to return unsold product nearing or past the expiration date . because of the shelf life of biorphen and our lengthy return period , there may be a significant period of time between when the product is shipped and when we issue credits on returned product . for our alkindi sprinkle product , we bill at the initial product list prices which are subject to offsets for patient co-pay assistance and potential state medicaid reimbursements which are recorded as a reduction of net revenues at the date of sale/shipment . we estimate the transaction price when we receive each purchase order , taking into account the expected reductions of the selling price initially billed to the wholesaler arising from all of the above factors . we have developed estimates for future returns and chargebacks of biorphen and the impact of the other discounts and fees we pay . our sales of alkindi sprinkle to our distributor are not subject to returns . when estimating these adjustments to the transaction price , we reduce it sufficiently to be able to assert that it is probable that there will be no significant reversal of revenue when the ultimate adjustment amounts are known . we recognize revenue from biorphen product sales and related cost of sales upon product delivery to the wholesaler location . at that time , the wholesalers take control of the product as they take title , bear the risk of loss of ownership , and have an enforceable obligation to pay us . they also have the ability to direct sales of product to their customers on terms and at prices they negotiate . although wholesalers have product return rights , we do not believe they have a significant incentive to return the product to us .
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results of operations to date we have realized limited revenues from a licensing arrangement on our em-100 product that was sold to bausch health and the launch of our biorphen® and alkindi sprinkle® products in december 2019 and december 2020 , respectively . we anticipate successfully growing our sales for these products and commercializing additional product candidates in 2021 and beyond . year ended december 31 , 2020 compared to year ended december 31 , 2019 net revenues for 2020 reflected limited benefit from alkindi sprinkle which launched in december . in addition , revenue was negatively impacted by a price discount for biorphen related to the shelf stock at our wholesale customers . our gross profit was also adversely impacted by a reserve charge to cost of sales for certain slow-moving biorphen inventory that we do not believe we will be able to sell before its expiry date . revenue and gross profit in 2019 reflected the initial launch for biorphen and a $ 0.5 million milestone payment for our sale of em-100 to bausch health . for the years ended december 31 , 2020 and 2019 , we incurred $ 14.1 million and $ 11.6 million of research and development ( “ r & d ” ) expenses , respectively , and $ 12.8 million and $ 7.6 million of general and administrative ( “ g & a ” ) expenses , respectively . the comparative period detail of our r & d expense is listed in the table below . the $ 5.2 million increase in g & a expenses was primarily due to personnel additions and increased sales/marketing spending to support our recent product launches . in addition , we incurred significant legal expenses associated with our patent challenge against exela pharma sciences for the cysteine product that we have in development . we incurred a net loss of $ 28.0 million and $ 18.3 million for the years ended december 31 , 2020 and 2019 , respectively .
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as of december 31 , 2019 , the outstanding balance on the company 's unsecured term facilities was $ 883.1 million . unsecured revolving 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 the related notes appearing in “ item 8. financial statements and supplementary data ” of this annual report on form 10-k. overview air lease corporation is a leading aircraft leasing company that was founded by aircraft leasing industry pioneer , steven f. udvar-házy . we are principally engaged in purchasing new commercial jet aircraft directly from aircraft manufacturers , such as boeing and airbus , and leasing those aircraft to airlines throughout the world with the intention to generate attractive returns on equity . in addition to our leasing activities , we sell aircraft from our operating lease portfolio to third-parties , including other leasing companies , financial services companies , airlines and other investors . we also provide fleet management services to investors and owners of aircraft portfolios for a management fee . our operating performance is driven by the growth of our fleet , the terms of our leases , the interest rates on our debt , and the aggregate amount of our indebtedness , supplemented by gains from aircraft sales and our management fees . impact of covid-19 pandemic on january 30 , 2020 , the spread of the covid-19 outbreak was declared a public health emergency of international concern by the world health organization ( the `` who '' ) . on march 11 , 2020 , the who characterized the covid-19 outbreak as a pandemic . in response to the covid-19 pandemic , governments around the world have implemented numerous measures to try to contain the virus , including travel restrictions . these measures , coupled with a significant decrease in spending on travel as a result of covid-19 , have materially impacted airline traffic and operations throughout the world , including our airline customers . it is unclear how long and to what extent these measures will remain in place and they may remain in place in some form for an extended period of time . aircraft manufacturers and suppliers also have been impacted , including causing the temporary closure of boeing and airbus ' final assembly facilities and also closures of various facilities across their supply chain in early 2020. boeing and airbus resumed production at these facilities during the second quarter of 2020 , but with reduced output . as the virus spread globally , its impact on the global economy increased significantly , resulting in a rapid decline in global air travel . while domestic and regional airline traffic improved from the lows witnessed earlier in 2020 , air travel demand remains significantly challenged , especially in the international and business travel segments of the market . beginning in the fourth quarter of 2020 , several covid-19 vaccines were approved for use in a number of countries . while widespread vaccination could reduce the impact of covid-19 on the commercial airline industry , it is difficult to predict the pace of vaccinations and how long it will take the industry to recover . since the pandemic began in the first quarter of 2020 , we have received requests from our customers for accommodations such as deferrals of lease payments or other lease concessions . as of february 22 , 2020 , most of our lessees have requested some form of accommodation . on a case-by-case basis , we have agreed to accommodations with approximately 61 % of our lessees . generally , these accommodations have been in the form of partial lease deferrals for payments due during 2020 , typically with a short repayment period . the majority of these deferrals are to be repaid within 12 months from the date the deferrals were granted , and in many cases , include lease extensions . as of february 22 , 2021 , our total deferrals , net of repayments , was $ 144.3 million . to date , we have agreed to defer $ 240.4 million in lease payments , of which $ 96.1 million or 40 % of the total deferrals have been repaid . these lease deferrals have negatively impacted our cash flow provided by operating activities but our net deferrals only represented approximately 1.9 % of our total available liquidity as of december 31 , 2020. while the majority of the accommodations are in the form of lease deferrals , we have also entered into some lease restructurings , which typically included lease extensions . these restructurings decreased our total revenue by approximately $ 49.2 million for the year ended december 31 , 2020. we remain in active discussions with our airline customers and may continue to provide accommodations on a case-by-case basis . 37 our collection rate for both the three and twelve months ended december 31 , 2020 was approximately 88 % . we expect that our collection rate will remain under pressure because of the impact of covid-19 . collection rate is defined as the sum of cash collected from lease rentals and maintenance reserves , and includes cash recovered from outstanding receivables from previous periods , as a percentage of the total contracted receivables due for the period . the collection rate is calculated after giving effect to lease deferral arrangements made as of february 22 , 2021. in addition , we did not recognize rental revenue of $ 21.2 million and $ 49.4 million for the three and twelve months ended december 31 , 2020 , respectively , because collection was not reasonably assured for certain lessees . aircraft on lease with these lessees represented approximately 7.8 % of our fleet by net book value as of december 31 , 2020. the severity and the length of the impact of the covid-19 pandemic on air travel and the adverse impact of the pandemic on our airline customers continues to be uncertain and could intensify . story_separator_special_tag as of december 31 , 2020 , we had commitments to purchase 361 aircraft from boeing and airbus for delivery through 2027 , with an estimated aggregate commitment of $ 23.9 billion . we ended 2020 with $ 26.8 billion in committed minimum future rental payments . we have placed approximately 92 % of our committed orderbook on long-term leases for aircraft delivering through the end of 2022 and 73 % through the end of 2023. we have $ 13.6 billion in contracted minimum rental payments on the aircraft in our existing fleet and $ 13.2 billion in minimum future rental payments related to aircraft which will deliver between 2021 through 2025. we finance the purchase of aircraft and our business with available cash balances , internally generated funds , including through aircraft sales , and debt financings . our debt financing strategy is focused on raising unsecured debt in the global bank and debt capital markets , with a limited utilization of government guaranteed export credit or other forms of secured financing . in 2020 , we issued approximately $ 4.5 billion in aggregate principal amount of senior unsecured notes with maturities ranging from 2025 to 2030 and a weighted average interest rate of 2.93 % . we ended 2020 with total debt outstanding , net of discounts and issuance costs , of $ 16.5 billion , of which 93.0 % was at a fixed rate and 98.2 % of which was unsecured . as of december 31 , 2020 , our composite cost of funds was 3.13 % . our total revenues for the year ended december 31 , 2020 decreased by 0.1 % to $ 2.0 billion as compared to 2019. despite the continued growth of our fleet , our revenues decreased due to a reduction in our aircraft sales , trading and other activity . additionally , we were not able to recognize $ 49.4 million of rental revenue because collection was not reasonably assured for certain of our leases . finally , we entered into lease restructurings , which typically included lease extensions , resulting in a decrease of approximately $ 49.2 million in revenue for the year ended december 31 , 2020. during the year ended december 31 , 2020 , our net income available to common stockholders was $ 500.9 million compared to $ 575.2 million for the year ended december 31 , 2019. our diluted earnings per share for the full year 2020 was $ 4.39 compared to $ 5.09 for the full year 2019. the decrease in net income available to common stockholders in 2020 as compared to 2019 was primarily due to the decrease in revenues as discussed above and an increase in depreciation and interest expense from the growth of our fleet and due to our increased liquidity position , partially offset by a decrease in selling , general and administrative expenses . our adjusted net income before income taxes excludes the effects of certain non-cash items , one-time or non-recurring items that are not expected to continue in the future and certain other items . our adjusted net income before income taxes for the year ended december 31 , 2020 was $ 692.0 million or $ 6.07 per diluted share , compared to $ 781.2 million , or $ 6.91 per diluted share for the year ended december 31 , 2019. as discussed above , the decrease in our adjusted net income before income taxes in 2020 as compared to 2019 was primarily due to the decrease in revenues and an increase in depreciation and interest expense , partially offset by a decrease in selling , general and administrative expenses . adjusted net income before income taxes and adjusted diluted earnings per share before income taxes are measures of financial and operational performance that are not defined by u.s. generally accepted accounting 39 principles ( “ gaap ” ) . see note 3 in “ item 6. selected financial data ” of this annual report on form 10-k for a discussion of adjusted net income before income taxes and adjusted diluted earnings per share before income taxes as non-gaap measures and a reconciliation of these measures to net income available to common stockholders . our fleet we have continued to build one of the world 's youngest operating lease portfolios , including some of the most fuel-efficient commercial jet aircraft . our fleet , based on net book value , increased by 9.0 % , to $ 20.4 billion as of december 31 , 2020 , compared to $ 18.7 billion as of december 31 , 2019. during the year ended december 31 , 2020 , we took delivery of 26 aircraft from our new order pipeline , purchased 15 incremental aircraft in the secondary market and sold eight aircraft , ending the year with a total of 332 aircraft in our operating lease portfolio . the weighted average fleet age and weighted average remaining lease term of our operating lease portfolio as of december 31 , 2020 were 4.1 years and 6.9 years , respectively . we also managed 81 aircraft as of december 31 , 2020. portfolio metrics of our fleet as of december 31 , 2020 and 2019 are as follows : replace_table_token_13_th ( 1 ) weighted-average fleet age and remaining lease term calculated based on net book value of our operating lease portfolio . ( 2 ) as of december 31 , 2020 , we did not have any aircraft classified as flight equipment held for sale . as of december 31 , 2019 , we had eight aircraft classified as flight equipment held for sale which are included in other assets on the consolidated balance sheets . all of these aircraft are excluded from the owned fleet count and included in our managed fleet count . ( 3 ) as of december 31 , 2020 , we had options to acquire up to 25 airbus a220 aircraft .
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results of operations replace_table_token_19_th ( 1 ) adjusted net income before income taxes ( defined as net income available to common stockholders excluding the effects of certain non-cash items , one-time or non-recurring items , such as settlement expense , net of recoveries , that are not expected to continue in the future and certain other items ) , adjusted pre-tax profit margin ( defined as adjusted net income before income taxes divided by total revenues , excluding insurance recoveries ) , adjusted diluted earnings per share before income taxes ( defined as adjusted net income before income taxes plus assumed conversions divided by the weighted average diluted common shares outstanding ) and adjusted pre-tax return on common equity ( defined as adjusted net income before income taxes divided by average common shareholders ' equity ) are measures of operating performance that are not defined by gaap and should not be considered as an alternative to net income available to common stockholders , pre-tax profit margin , earnings per share , diluted earnings per share and pre-tax return on common equity , or any other performance measures derived in accordance with gaap . adjusted net income before income taxes , adjusted pre-tax profit margin , adjusted diluted earnings per share before income taxes and adjusted pre-tax return on common equity are presented as supplemental disclosure because management believes they provide useful information on our earnings from ongoing operations . management and our board of directors use adjusted net income before income taxes , adjusted pre-tax profit margin , adjusted diluted earnings per share before income taxes and adjusted pre-tax return on common equity to assess our consolidated financial 52 and operating performance .
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f-5 index to financial statements columbia property trust , inc. consolidated statements of equity ( in thousands , except per-share amounts ) replace_table_token_22_th f-6 index to financial statements columbia property trust , inc. consolidated statements of equity ( story_separator_special_tag the following discussion and analysis should be read in conjunction with the selected financial data in item 6 above and our accompanying consolidated financial statements and notes thereto . see also cautionary note regarding forward-looking statements preceding part i. overview from 2004 through 2010 , we raised approximately $ 5.8 billion in gross equity proceeds and , along with borrowings , invested those proceeds , net of fees , into commercial real estate consisting of high-quality , income-producing office and industrial properties leased to creditworthy entities located in major metropolitan areas throughout the united states . following our initial growth period , we have concentrated on actively managing our assets and pursuing a variety of strategic opportunities focused on enhancing the composition of our portfolio and the total return potential for the reit . in early 2012 , we consummated a series of favorable debt transactions , which have allowed us to improve our secured-to-unsecured debt mix and to lower our total cost of borrowings without disrupting the laddering of our debt maturities or materially altering our aggregate borrowing levels . more recently , we have improved our market concentration through disposition and acquisition activities . in december 2012 , we closed on the disposition of nine properties located in less desirable markets for $ 260.5 million , excluding closing costs ( the `` nine property sale '' ) . as a result of changing our disposition strategy and shortening our anticipated holding period for these assets , we recorded an impairment loss of $ 18.5 million on one of the properties in the nine property sale , the 180 e 100 south property located in salt lake city , utah , in the third quarter of 2012. after recording the $ 18.5 million impairment loss in the third quarter , the nine property sale yielded a net gain of $ 3.2 million upon closing in the fourth quarter of 2012. also in december 2012 , we purchased the 333 market street building , located in san francisco , california , for $ 395.3 million in cash and assumed debt . in connection with preparing for various liquidity options , we established and have carried out a plan to transition our externally advised management platform to a self-managed structure , which culminated on february 28 , 2013 , upon terminating the advisory and property management agreements and acquiring wreas ii and wres , including the employees necessary to perform the requisite corporate and property management functions . looking ahead , we will continue to prepare for liquidity options in 2013 by , among other things , further refining our portfolio in an effort to enhance the reit 's value potential and , consequently , its attractiveness to future investors . our goal is to optimize the allocation between our traditional , stabilized core investments , and growth-oriented , core-plus and value-added investments , which have an expectation for meaningful upside potential in net operating income and value over the intermediate term . we will also continue to focus on our market concentration by building on our economic presence in key markets . general economic conditions and real estate market commentary management reviews a number of economic forecasts and market commentaries in order to evaluate general economic conditions and to formulate a view of the current environment 's effect on the real estate markets in which we operate . as measured by the u.s. real gross domestic product ( `` real gdp '' ) , the u.s. economy decreased at an annual rate of 0.1 % in the fourth quarter of 2012 as compared with an increase of 3.1 % in the third quarter of 2012. for the full year of 2012 , real gdp increased by 2.2 % compared with an increase of 1.8 % in 2011. the increase in real gdp in 2012 primarily reflected positive contributions from personal consumption expenditures , nonresidential fixed investment , exports , residential fixed investment , and private inventory investment that were partly offset by negative contributions from federal government spending and from state and local government spending . while management believes the u.s. economy is likely to continue its recovery , we believe the recovery will maintain a moderate pace , with fiscal policy presenting the biggest wildcard in the outlook . given the ongoing uncertainty surrounding the debt ceiling , the u.s. economy is expected to start 2013 on a slow pace . real gdp is projected to hover below 2 % in the first half of the year , and business growth is expected to remain below potential . but assuming lawmakers can strike a deal on the debt ceiling , or at least provide a framework by mid-year , the u.s. economy is expected to accelerate in the second half , with real gdp averaging closer to a 3 % growth rate . real estate market fundamentals underlying the u.s. office markets saw modest improvements in the major indicators in 2012. the u.s. office market ended the fourth quarter 2012 with a vacancy rate of 12.5 % , an improvement from a 13.0 % vacancy rate at the end of 2011. during the fourth quarter of 2012 , demand for office space strengthened despite the uncertainty surrounding the fiscal cliff . net absorption was 20 million square feet in the fourth quarter , which is its highest level since the third quarter of 2007. however , annual absorption is 20 % below the long-term trend . sixty-six of the 80 metro areas tracked ( 82 % ) reported positive absorption . of the total net absorption in 2012 , two-thirds was in class-a space , which is above its 35 % share of the office stock , indicating a flight to quality by tenants . story_separator_special_tag short-term liquidity and capital resources during 2012 , we generated net cash flows from operating activities of $ 252.8 million , which consists primarily of receipts from tenants for rent and reimbursements , reduced by payments for operating costs , administrative expenses , and interest expense . during the same period , we paid total distributions to stockholders of $ 256.0 million , which includes $ 118.4 million reinvested page 25 index to financial statements in our common stock pursuant to our drp . we expect to use the majority of our future net cash flows from operating activities to fund capital expenditures and distributions to stockholders . in 2012 , we sold 11 properties for net proceeds of $ 304.3 million and used these proceeds to acquire the 333 market street building in san francisco , california , which entailed a cash payment of $ 188.8 million and an assumed mortgage note of $ 206.5 million , and to fund net debt repayments of $ 28.2 million . in 2012 , we also raised net equity proceeds of $ 118.4 million from the sale of our common stock under the drp and used those proceeds to fund share redemptions of $ 99.4 million . along with cash on hand , residual proceeds from the sale of properties and from the sale of common stock under our drp were used to fund capital expenditures incurred in connection with leasing and maintaining the properties in our portfolio . we believe that we have adequate liquidity and capital resources to meet our current obligations as they come due . as of february 15 , 2013 , we had access to the borrowing capacity under the jpmorgan chase credit facility of $ 460.0 million . long-term liquidity and capital resources over the long term , we expect that our primary sources of capital will include operating cash flows , proceeds from our drp , proceeds from secured or unsecured borrowings from third-party lenders , and , if and when deemed appropriate , proceeds from strategic property sales . we expect that our primary uses of capital will continue to include stockholder distributions ; redemptions of shares of our common stock under our share redemption program ; capital expenditures , such as building improvements , tenant improvements , and leasing costs ; repaying or refinancing debt ; and selective property acquisitions , either directly or through investments in joint ventures . over the next five years , we anticipate funding capital expenditures necessary for our properties , including building improvements , tenant improvements , and leasing commissions , of approximately $ 424.1 million . consistent with our financing objectives and operational strategy , we expect to continue to maintain low debt levels ( historically less than 40 % of the cost of our assets ) over the long term . this conservative leverage goal could reduce the amount of current income we can generate for our stockholders , but it also reduces their risk of loss . we believe that preserving investor capital while generating stable current income is in the best interest of our stockholders . as of december 31 , 2012 , our debt-to-real-estate-asset ratio ( calculated on a cost basis ) was approximately 28.6 % . for the first three quarters of 2012 , quarterly stockholder distributions were declared and paid at $ 0.125 per share , consistent with the rate paid throughout 2011. in the fourth quarter of 2012 , our board of directors elected to reduce the quarterly stockholder distribution rate to $ 0.095 per share . economic downturns in certain of our geographic markets and in certain industries in which our tenants operate have impacted our recent leasing activities and caused our current and future operating cash flows to experience some deterioration . in 2012 , we renewed leases for 9.2 % of our portfolio , based on square footage , which resulted in tenant concessions of $ 49.7 million . furthermore , in preparing for various liquidity options , our board has decided to adjust our distribution payment policy to reserve additional operating cash flow to fund capital expenditures for our existing portfolio and to provide additional financial flexibility as we begin to shape our portfolio through the strateg ic sale and redeployment of capital proceeds in furtherance of our investment objectives , which include concentrating our market focus . our board of directors elected to maintain the distribution rate of $ 0.095 for the first quarter of 2013. stockholder distr ibutions for the first quarter of 2013 will be paid in march to common stockholders of record as of march 15 , 2013. we are continuing to monitor our cash flows and market conditions and to assess their impact on our future earnings and future distribution decisions . page 26 index to financial statements debt covenants our portfolio debt instruments , the $ 450 million term loan , the jpmorgan chase credit facility , and the unsecured senior notes , contain certain covenants and restrictions that require us to meet certain financial ratios , including the following key financial covenants and respective covenant levels as of december 31 , 2012 : replace_table_token_10_th we were in compliance with all of our debt covenants as of december 31 , 2012 . currently , we expect to continue to meet the requirements of our debt covenants over the short- and long-term . contractual commitments and contingencies as of december 31 , 2012 , our contractual obligations will become payable in the following periods ( in thousands ) : replace_table_token_11_th ( 1 ) interest obligations on variable-rate debt are measured at the rate at which they are effectively fixed with interest rate swap agreements ( where applicable ) , a portion of which is reflected as loss on interest rate swaps in our consolidated statements of operations of the accompanying consolidated financial statements . interest obligations on all other debt are measured at the contractual rate . see item 7a , quantitative and qualitative disclosure about market risk , for more information regarding our interest rate swaps .
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results of operations overview as of december 31 , 2012 , we owned controlling interests in 61 office properties , which were approximately 92.9 % leased , and one hotel . our real estate operating results have increased in 2012 , as compared with 2011 , primarily due to a reduction in amortization expense incurred as leases in place at our properties at the time of acquisition reached maturity . in the near-term , we expect future real estate operating income to fluctuate , primarily based on acquisitions , dispositions , and leasing activities for our current portfolio . page 27 index to financial statements comparison of the year ended december 31 , 2012 versus the year ended december 31 , 2011 continuing operations rental income remained stable at $ 442.3 million for 2012 , as compared with $ 441.9 million for 2011 . absent changes to our portfolio or the leases currently in place at our properties , rental income is expected to remain at similar levels in future periods . tenant reimbursements remained stable at $ 104.9 million for 2012 , as compared with $ 102.9 million for 2011 , as additional reimbursements from the market square buildings were offset by fewer reimbursements for the remainder of the portfolio , primarily due to concessions offered with new and modified leases executed in 2011 and 2012. property operating costs were $ 173.5 million for 2012 , which represents an increase as compared with $ 167.4 million for 2011 , primarily due to the acquisition of the market square buildings in march 2011 and the commencement of new leases in 2011 and 2012. absent changes to our portfolio or the leases currently in place at our properties , future tenant reimbursement fluctuations are generally expected to correspond with future property operating cost reimbursements .
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federal securities laws . forward-looking statements include information concerning our liquidity and our possible or assumed future results of operations , including descriptions of our business strategies . these statements often include words such as believe , expect , project , potential , anticipate , intend , plan , estimate , seek , will , may , would , should , could , forecasts or similar words . these statements are based on certain assumptions that we have made in light of our experience in the industry as well as our perceptions of historical trends , current conditions , expected future developments and other factors we believe are appropriate in these circumstances . we believe these judgments are reasonable , but you should understand that these statements are not guarantees of performance or results , and our actual results could differ materially from those expressed in the forward-looking statements due to a variety of important factors , both positive and negative , that may be revised or supplemented in subsequent reports . these statements involve risks , estimates , assumptions and uncertainties that could cause actual results to differ materially from those expressed in these statements , including but not limited the risk that additional information may arise during the course of the company 's ongoing financial statement preparation and closing processes that would require the company to make additional adjustments or revisions to its estimates or financial statements and other financial data , to identify additional material weaknesses , or to take any other necessary action relating to the company 's accounting practices ; the time required to complete the company 's financial statements and other financial data and accounting review ; the time required to prepare its periodic reports for filings with the securities and exchange commission ; the impact of the tax cuts and jobs act on the company 's financial statements ; and any regulatory review of , or litigation relating to , the company 's accounting practices , financial statements and other financial data , periodic reports or other corporate actions ; changes in the demand for the company 's orthotic and prosthetic ( o & p ) products and services ; uncertainties relating to the results of operations or recently acquired o & p patient care clinics ; the company 's ability to enter into and derive benefits from managed-care contracts ; the company 's ability to successfully attract and retain qualified o & p clinicians ; federal laws governing the health care industry ; uncertainties inherent in investigations and legal proceedings ; governmental policies affecting o & p operations ; and other risks and uncertainties generally affecting the health care industry . readers are cautioned that all forward-looking statements involve known and unknown risks and uncertainties including , without limitation , those described in item 1a . risk factors contained in this annual report on form 10-k , some of which are beyond our control . although we believe that the assumptions underlying the forward-looking statements contained herein are reasonable , any of the assumptions could be inaccurate . therefore , there can be no assurance that the forward-looking statements included in this report will prove to be accurate . actual results could differ materially and adversely from those contemplated by any forward-looking statement . in light of the significant risks and uncertainties inherent in the forward-looking statements included herein , the inclusion of such information should not be regarded as a representation by us or any other person that our objectives and plans will be achieved . we undertake no obligation to publicly release any revisions to any forward-looking statements in this discussion to reflect events and circumstances occurring after the date hereof or to reflect unanticipated events . forward-looking statements and our liquidity , financial condition and results of operations may be affected by the risks set forth in item 1a . risk factors or by other unknown risks and uncertainties . effect of delay in financial filings the delay in our completion of this filing relates primarily to the effects of our delay in the completion of our annual reports on form 10-k for the years ending december 31 , 2014 and 2016. we filed our annual report on form 10-k for the year ended december 31 , 2016 on january 19 , 2018. the 2016 form 10-k contained our consolidated financial statements and related footnotes for the years ended december 31 , 2015 and december 31 , 2016 , as well as consolidated financial statements 36 for each of the quarterly and year-to-date periods occurring within those two years . previously , on may 12 , 2017 , we filed our annual report on form 10-k for the year ended december 31 , 2014. the 2014 10-k contained our consolidated financial statements and related footnotes for the year ended december 31 , 2014 , as well as consolidated financial statements for the third and fourth quarters of 2014. the 2014 form 10-k also included a restatement of our previously issued consolidated financial statements and related footnotes for ( i ) the fiscal years ended december 31 , 2013 and 2012 ; ( ii ) the first two quarters of fiscal year 2014 and ( iii ) each of the quarterly periods in fiscal year 2013. the 2014 form 10-k also contained restated financial results for the fiscal years ended december 31 , 2011 and 2010 ( each unaudited ) . our efforts to remediate our material weaknesses , restate our historical financial statements , prepare this annual report on form 10-k and other factors have come at a cost in excess of the amount we estimate we would otherwise have incurred in a typical fiscal year . story_separator_special_tag we discuss the causes and manner of our determination of these impairment charges in note h - goodwill and other intangible assets to our consolidated financial statements in this annual report on form 10-k. see note r - segment and related information to our consolidated financial statements in this annual report on form 10-k for disclosure of financial information by operating segment for 2017 , 2016 and 2015. reimbursement trends in our patient care segment , we are reimbursed primarily through employer-based plans offered by commercial insurance carriers , medicare , medicaid and the va. the following is a summary of our payor mix , expressed as an approximate percentage of net revenues for the periods indicated : 38 replace_table_token_6_th patient care constitutes 81.9 % , 80.6 % and 82.0 % of our net revenue for 2017 , 2016 and 2015 , respectively . our remaining net revenue is produced in our products & services segment which derives its net revenue from commercial transactions with independent o & p providers , healthcare facilities and other customers . in contrast to net revenues from our patient care segment , payment for these products and services are not directly subject to third party reimbursement from health care payors . the amount of our reimbursement varies based on the nature of the o & p device we fabricate for our patients . given the particular physical weight and size characteristics , location of injury or amputation , capability for physical activity and mobility , cosmetic and other needs of each individual patient , each fabricated prostheses and orthoses is customized for each particular patient . the nature of this customization and the manner by which our claims submissions are reviewed by payors makes our reimbursement process administratively difficult . to receive reimbursement for our work , we must ensure that our clinical , administrative and billing personnel receive and verify certain medical and health plan information , record detailed documentation regarding the services we provide and accurately and timely perform a number of claims submission and related administrative tasks . traditionally , we have performed these tasks in a manual fashion and on a decentralized basis . in recent years , due to increases in payor pre-authorization processes , documentation requirements , pre-payment reviews and pre- and post-payment audits , our ability to successfully undertake these tasks using our traditional approach has become increasingly challenging . we believe these changes in industry trends have been brought about in part by increased nationwide efforts to reduce health care costs . a measure of our effectiveness in securing reimbursement for our services can be found in the degree to which payors ultimately disallow payment of our claims . payors can deny claims due to their determination that a physician who referred a patient to us did not sufficiently document that a device was medically necessary or clearly establish the ambulatory ( or activity ) level of a patient . claims can also be denied based on our failure to ensure that a patient was currently eligible under a payor 's health plan , that the plan provides full o & p benefits , that we received prior authorization , that we filed or appealed the payor 's determination timely , on the basis of our coding , failure by certain classes of patients to pay their portion of a claim and for various other reasons . if any portion of , or administrative factor within , our claim is found by the payor to be lacking , then the entirety of the claim amount may be denied reimbursement . due to the increasing demands of these processes , the level and capability of our staffing , as well as our material weaknesses and other considerations , our consolidated disallowed revenue and bad debt expense , and their relationship to consolidated adjusted gross revenue increased over historical levels to a peak level in 2014. in 2015 , 2016 and 2017 , through the initiatives discussed below , we achieved decreases in our disallowed revenue . disallowed revenue and bad debt expense over the past five years has been as follows : 39 replace_table_token_7_th adjusted gross revenue in the above chart reflects our gross billings after reduction for estimated contractual discounts . the percentage of our gross billings that have been disallowed increased to a high of 7.5 % in 2014 from 2.9 % in 2010. due to industry trends and our specific administrative factors , our collection experience degraded and disallowed revenue increased during that period of time . these adverse industry trends included an increased level of payor audits and more stringent requests by payors that referring physician documentation be provided in connection with claims . during that period of time , we utilized a decentralized billing and collections approach , where invoicing and collections were undertaken at individual patient care locations . our typical locations have an average of two office administrators who are required to handle patient administration , purchasing , and clinician support tasks . due to increasing payor documentation demands and budgetary limitations on staffing , administrative staff were increasingly unable to successfully address the growing levels of payor denials . in 2014 , our accounts receivable trends were further complicated due to issues encountered with our implementation of a new patient management and electronic health record system . due to system customizations that were subsequently determined to not be adequately tested , staffing deficiencies in cash application functions and other related procedural issues , billing and collections were further adversely affected due to this system implementation during that year as can be seen by the increase in the disallowed revenue rate and bad debt expense in that year . throughout this period , our processes were also impeded due to the subsequently identified underlying material control weakness in the administration of our contracts . as contracts were negotiated or amended with payors , our procedures did not provide adequate assurance of timely documented reconciliation of updated terms and conditions with those loaded into our remote billing systems .
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general and administrative expenses . general and administrative expenses for the three months ended march 31 , 2017 was $ 25.6 million , a decrease of $ 2.0 million , or 7.2 % from $ 27.6 million for the three months ended march 31 , 2016. the decrease of $ 2.0 million included decreases in compliance training of $ 0.5 million , insurance expense of $ 0.5 million , professional fees of $ 0.3 million , loss on disposal of assets of $ 0.3 million and other decreases of $ 0.6 million , partially offset by an increase in salaries , bonus expense , payroll taxes and benefits of $ 0.2 million . professional accounting and legal fees . professional accounting and legal fees for the three months ended march 31 , 2017 were $ 12.7 million , an increase of $ 1.0 million from $ 11.7 million for the three months ended march 31 , 2016. advisory and other fees increased $ 2.7 million and audit related fees increased $ 2.4 million , partially offset by $ 4.1 million decrease in legal fees . legal fees decreased from costs associated with the prior investigation and restatement . depreciation and amortization . depreciation and amortization for the three months ended march 31 , 2017 was $ 10.1 million , a decrease of $ 1.6 million , or 13.6 % , from $ 11.7 million for the three months ended march 31 , 2016. the decrease included lower amortization of $ 1.7 million as a result of fully amortized assets , partially offset by $ 0.1 million higher depreciation for leasehold improvements . interest expense , net . interest expense increased to $ 14.0 million from $ 8.8 million for the three months ended march 31 , 2017 compared with the three months ended march 31 , 2016. the $ 5.2 million increase was from increased borrowings and the higher interest rates on our credit facility related to the refinancing in 2016.
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the corporation intends to continue to pursue its strategy of transforming itself into an essentially e & p business focused on the corporation 's most promising properties and operations . on january 29 , 2013 , elliott management corporation ( elliott ) sent a letter to hess shareholders informing them that affiliates of elliott beneficially own 4 percent of the outstanding common stock of the corporation and are nominating five individuals for election as directors at the corporation 's 2013 annual meeting . among other things , elliott stated its view that hess should ( 1 ) spin off the corporation 's bakken assets along with the eagle ford and utica acreage ; ( 2 ) divest the corporation 's downstream assets and place midstream assets into a master limited partnership ( mlp ) or real estate investment trust ( reit ) structure ; and ( 3 ) divest assets from the corporation 's remaining international portfolio . the corporation is in the process of reviewing elliott 's proposals with the board and its advisors and intends to respond in the near future . net income in 2012 was $ 2,025 million compared with $ 1,703 million in 2011 and $ 2,125 million in 2010. diluted earnings per share were $ 5.95 in 2012 compared with $ 5.01 in 2011 and $ 6.47 in 2010. a table of items affecting comparability of earnings between periods is shown on page 22. exploration and production the corporation 's total proved reserves were 1,553 million barrels of oil equivalent ( boe ) at december 31 , 2012 compared with 1,573 million boe at december 31 , 2011 and 1,537 million boe at december 31 , 2010. e & p earnings were $ 2,212 million in 2012 , $ 2,675 million in 2011 and $ 2,736 million in 2010. excluding items affecting comparability of earnings between periods , e & p net income was $ 2,256 million , $ 2,431 million and $ 2,004 million for 2012 , 2011 and 2010 , respectively . average realized crude oil selling prices were $ 86.94 per barrel in 2012 , $ 89.99 in 2011 and $ 66.20 in 2010 , including the impact of hedging . average realized natural gas selling prices were $ 6.16 per mcf in 2012 , $ 5.96 in 2011 and $ 5.63 in 2010. production averaged 406,000 barrels of oil equivalent per day ( boepd ) in 2012 , 370,000 boepd in 2011 and 418,000 boepd in 2010. the corporation currently expects total worldwide production to average between 375,000 boepd and 390,000 boepd in 2013. this forecast assumes russian operations remain in the portfolio for the full year . the following is an update of significant e & p activities during 2012 : in north dakota , net production from the bakken oil shale play averaged 56,000 boepd during 2012 , an increase of 87 % from 30,000 boepd in 2011. in the fourth quarter of 2012 , the corporation substantially completed held by production drilling in the bakken and is transitioning to pad drilling , which involves sequentially drilling a number of wells on a pad followed by sequential completion of the wells . this pad drilling process is expected to lead to a temporary flattening of the bakken production profile until mid-2013 . bakken production is expected to average between 64,000 boepd and 70,000 boepd for the full year of 2013 , with most of the increase from 2012 expected to occur in the second half of the year . at the valhall field , a multi-year redevelopment project was advanced in 2012 and completed in early 2013. the project included the installation of a new production , utilities and accommodation platform and expansion of gross production capacity to 120,000 barrels of liquids per day and 143,000 mcf of natural gas per day . in july 2012 , the field was shut-in to complete the installation and commissioning of the new facilities and production resumed in january 2013. the corporation completed the sale of its interests in the schiehallion field ( hess 16 % ) , the bittern field ( hess 28 % ) and related assets in the united kingdom north sea , and the snohvit field ( hess 3 % ) , offshore norway , for total cash proceeds of $ 843 million . these transactions resulted in pre-tax gains totaling $ 584 million ( $ 557 million after income taxes ) . these assets were producing at an aggregate net rate of approximately 15,000 boepd at the time of sale and had a total of 83 million boe of proved reserves . 20 in october , the corporation also announced that it had reached an agreement to sell its interests in the beryl fields in the united kingdom north sea . these assets were producing at an aggregate net rate of approximately 15,000 boepd at the time of sale and had a total of 21 million boe of proved reserves . the sale was completed in january 2013 for cash proceeds of approximately $ 440 million . in september , the corporation reached an agreement to sell its interests in the azeri-chirag-guneshli ( acg ) fields ( hess 3 % ) in azerbaijan and its interest in the associated baku-tbilisi-ceyhan ( btc ) pipeline ( hess 2 % ) for approximately $ 1 billion , subject to normal closing adjustments . the transaction , which is expected to close in the first quarter of 2013 , is subject to government and regulatory approvals . in june , the corporation signed agreements with its partner to develop nine discovered natural gas fields in the north malay basin , located offshore peninsular malaysia . the corporation will have a 50 % interest and is the operator . story_separator_special_tag in addition , the higher per barrel rates in 2012 and 2011 were largely due to greater production contribution from unconventional assets . excluding items affecting comparability of earnings between periods , cash operating costs per barrel of oil equivalent were $ 20.63 in 2012 , $ 19.71 in 2011 and $ 14.45 in 2010. depreciation , depletion and amortization costs per barrel of oil equivalent were $ 19.20 in 2012 , $ 17.06 in 2011 and $ 14.56 in 2010. for 2013 , cash operating costs are estimated to be in the range of $ 21.00 to $ 22.00 per barrel and depreciation , depletion and amortization costs are estimated to be in the range of $ 19.00 to $ 20.00 per barrel , resulting in total unit costs of $ 40.00 to $ 42.00 per barrel of oil equivalent . exploration expenses : exploration expenses decreased in 2012 compared to 2011 , primarily due to lower dry hole expenses and lease amortization . dry hole expenses in 2012 included amounts associated with two exploration wells , ness deep in the gulf of mexico and ajek-1 , offshore indonesia . exploration expenses increased in 2011 from 2010 , mainly due to higher dry hole expenses , which included amounts relating to two exploration wells on the semai v block , offshore indonesia , and a well in the north red sea block 1 , offshore egypt . income taxes : excluding the impact of items affecting comparability of earnings between periods , the effective income tax rates for e & p operations were 45 % in 2012 , 38 % in 2011 and 44 % in 2010. the increase in the effective income tax rate in 2012 compared with 2011 was predominantly due to the resumption of libyan operations . the effective income tax rate for e & p operations in 2013 is estimated to be in the range of 46 % to 50 % . items affecting comparability of earnings between periods : reported e & p earnings include the following items affecting comparability of income ( expense ) before and after income taxes : replace_table_token_19_th 25 2012 : the corporation completed the sale of its interests in the schiehallion field ( hess 16 % ) , the bittern field ( hess 28 % ) and related assets , which are all located in the united kingdom north sea , and the snohvit field ( snohvit ) ( hess 3 % ) , offshore norway , for total cash proceeds of $ 843 million . these transactions resulted in pre-tax gains totaling $ 584 million ( $ 557 million after income taxes ) . these assets were producing at an aggregate net rate of approximately 15,000 boepd at the time of sale and had a total of 83 million boe of proved reserves . see also note 2 , dispositions in the notes to the consolidated financial statements . during 2012 , e & p recorded three asset impairment charges totaling $ 582 million ( $ 344 million after income taxes ) . as a result of a competitive bidding process , the corporation obtained additional information relating to the fair value of its interests in the cotulla area of the eagle ford shale in texas in february 2013. based on this information and management 's anticipated plan for the assets as of december 31 , 2012 , the corporation recorded an impairment charge of $ 315 million ( $ 192 million after income taxes ) . the corporation also recorded charges of $ 208 million ( $ 116 million after income taxes ) related to increases in estimated abandonment liabilities primarily for non-producing properties which resulted in the book value of the properties exceeding their fair value . in addition , the corporation recorded a charge of $ 59 million ( $ 36 million after income taxes ) in the second quarter related to the disposal of certain eagle ford properties as part of an asset exchange with its joint venture partner . during the third quarter of 2012 , the corporation decided to cease further development and appraisal activities in peru . as a result , the corporation recorded exploration expenses totaling $ 86 million ( $ 56 million after income taxes ) to write off its exploration assets in the country . in july 2012 , the government of the united kingdom changed the supplementary income tax rate applicable to deductions for dismantlement expenditures to 20 % from 32 % . as a result , the corporation recorded a one-time charge in the third quarter of 2012 of $ 115 million for deferred taxes related to asset retirement obligations in the united kingdom . in the fourth quarter of 2012 , the corporation recorded an income tax charge of $ 86 million for a disputed application of an international tax treaty . 2011 : the corporation completed the sale of its interests in certain natural gas producing assets in the united kingdom north sea , the snorre field ( hess 1 % ) , offshore norway , and the cook field ( hess 28 % ) in the united kingdom north sea for total cash proceeds of $ 490 million . these disposals resulted in pre-tax gains totaling $ 446 million ( $ 413 million after income taxes ) . these assets had an aggregate net productive capacity of approximately 17,500 boepd at the time of sale . in the third quarter of 2011 , the corporation recorded asset impairment charges of $ 358 million ( $ 140 million after income taxes ) related to increases in the corporation 's estimated abandonment liabilities primarily for non-producing properties in the united kingdom north sea which resulted in the book value of the properties exceeding their fair value .
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consolidated results of operations the after-tax income ( loss ) by major operating activity is summarized below : replace_table_token_14_th the following table summarizes , on an after-tax basis , items of income ( expense ) that are included in net income and affect comparability between periods . the items in the table below are explained on pages 25 through 27. replace_table_token_15_th in the following discussion and elsewhere in this report , the financial effects of certain transactions are disclosed on an after-tax basis . management reviews segment earnings on an after-tax basis and uses after-tax amounts in its review of variances in segment earnings . management believes that after-tax amounts are a preferable method of explaining variances in earnings , since they show the entire effect of a transaction rather than only the pre-tax amount . after-tax amounts are determined by applying the income tax rate in each tax jurisdiction to pre-tax amounts . comparison of results exploration and production following is a summarized income statement of the corporation 's e & p operations : replace_table_token_16_th * amounts differ from e & p operating revenues in note 18 , segment information in the notes to the consolidated financial statements primarily due to the exclusion of sales of hydrocarbons purchased from third parties . 22 after considering the e & p items affecting comparability of earnings between periods in the table on page 25 , the remaining changes in e & p earnings are primarily attributable to changes in selling prices , production and sales volumes , operating costs , depreciation , depletion and amortization , exploration expenses and income taxes , as discussed below .
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you can identify forward-looking statements by the fact that these statements do not relate strictly to historical or current matters . rather , forward-looking statements relate to anticipated or expected events , activities , trends , or results as of the date they are made . because forward-looking statements relate to matters that have not yet occurred , these statements are inherently subject to risks and uncertainties that could cause our actual results to differ materially from any future results expressed or implied by the forward-looking statements . many factors could cause our actual activities or results to differ materially from the activities and results anticipated in forward-looking statements . these factors include those contained in “ item 1a — risk factors ” of this annual report on form 10-k. we do not undertake any obligation to update forward-looking statements . we intend that all forward-looking statements be subject to the safe harbor provisions of pslra . these forward-looking statements are only predictions and reflect our views as of the date they are made with respect to future events and financial performance . overview we are a diversified healthcare company that seeks to establish industry-leading positions in large and rapidly growing medical markets . our diagnostics business includes bio-reference laboratories , the nation 's third-largest clinical laboratory with a core genetic testing business and a 420-person salesforce to drive growth and leverage new products , including the 4kscore prostate cancer test and the claros 1 in-office immunoassay platform . our pharmaceutical operations feature rayaldee , a treatment for secondary hyperparathyroidism ( “ shpt ” ) in patients with stage 3 or 4 chronic kidney disease ( “ ckd ” ) and vitamin d insufficiency ( march 29 , 2016 pdufa date ) and varubi for chemotherapy-induced nausea and vomiting ( launched by partner tesaro in november 2015 ) . our pharmaceutical business includes opko biologics , which features hgh-ctp , a once-weekly human growth hormone injection ( in phase 3 and partnered with pfizer ) , and a once-daily factor viia drug for hemophilia ( phase 2a ) . we operate established pharmaceutical platforms in spain , ireland , chile and mexico , which are generating revenue and from which we expect to generate positive cash flow and facilitate future market entry for our products currently in development . eirgen , our specialty pharmaceutical manufacturing and development site in ireland , is focused on the development and commercial supply of high potency , high barrier to entry pharmaceutical products . in addition , we operate a specialty active pharmaceutical ingredients ( “ apis ” ) manufacturer in israel , which we expect will facilitate the development of our pipeline of molecules and compounds for our proprietary products . recent developments in august 2015 , we completed the acquisition of bio-reference , the third largest full service clinical laboratory in the united states , known for its innovative technological solutions and pioneering leadership in the areas of genomics and genetic sequencing . holders of bio-reference common stock received 76,566,147 shares of opko common stock for the outstanding shares of bio-reference common stock . the transaction was valued at approximately $ 950.1 million , based on a closing price per share of our common stock of $ 12.38 as reported by the new york stock exchange on the closing date , or $ 34.05 per share of bio-reference common stock . included in the transaction value is $ 2.3 million related to the value of replacement stock option awards attributable to pre-merger service . in may 2015 , we entered into a series of purchase agreements to acquire all of the issued and outstanding shares of eirgen , a specialty pharmaceutical company incorporated in ireland focused on the development and commercial supply of high potency , high barrier to entry pharmaceutical products , for $ 133.8 million in the aggregate . we acquired the outstanding shares of eirgen for approximately $ 100.2 million in cash and delivered 2,420,487 shares of our common stock valued at approximately $ 33.6 million based on the closing price per share of our common stock as reported by the new york stock exchange on the closing date of the acquisition , $ 13.88 per share . tesaro 's nda for approval of oral varubi , an investigational neurokinin-1 receptor antagonist in development for the prevention of chemotherapy-induced nausea and vomiting , was approved by the u.s. fda in september 2015 , and in november 2015 , tesaro announced the commercial launch of varubi in the united states . under the terms of the tesaro license , tesaro is obligated to pay us tiered royalties on annual net sales of licensed products achieved in the 55 united states and europe at percentage rates that range from the low double digits to the low twenties , and outside of the united states and europe at low double-digit percentage rates . we have been granted a category i cpt code by the ama for our 4kscore test , which will be published in august 2016 and effective january 1 , 2017. this upgrades the 4kscore test from a category iii administrative code to a category i cpt code , a designation reserved for established diagnostic tests . cpt codes are used by insurance companies and government payers to describe health care services and procedures , and having a category i cpt code is critical to facilitate reimbursement in government programs such as medicare and medicaid , as well as private insurance programs . we believe having the category i cpt code will help facilitate obtaining broader coverage from payers for the 4kscore test and allow greater access to the test for a broader group of patients across the u.s. story_separator_special_tag useful life . grant repayment . story_separator_special_tag costs of revenue for the year ended december 31 , 2014 , were $ 48.0 million , compared to $ 48.9 million for the year ended december 31 , 2013. costs of revenue for the year ended december 31 , 2014 decreased principally due to decreased revenue at opko lab , which has a lower margin than pharmaceutical product sales . in addition , inventory obsolescence charges decreased $ 0.9 million for the year ended december 31 , 2014 compared to 2013. this was partially offset by increased cost of revenue due to increased pharmaceutical product sales . selling , general and administrative expenses . selling , general and administrative expenses for the year ended december 31 , 2014 were $ 57.9 million , compared to $ 55.3 million for the year ended december 31 , 2013. the increase in selling , general and administrative expenses for the year ended december 31 , 2014 was a result of increased personnel expenses including equity based compensation as well as sales and marketing activities related to the launch of our 4kscore test in the u.s. in march 2014 and europe in september 2014. these increases were partially offset by decreased professional fees as the 2013 period included expenses related to the acquisitions of opko renal and opko biologics . selling , general and administrative expenses during the years ended december 31 , 2014 and 2013 , include equity-based compensation expense of $ 9.7 million and $ 7.3 million , respectively . research and development expenses . research and development expenses for the year ended december 31 , 2014 were $ 83.6 million , compared to $ 53.9 million for the year ended december 31 , 2013. research and development costs include external and internal expenses , partially offset by third-party grants and funding arising from collaboration agreements . external expenses include clinical and non-clinical activities performed by contract research organizations , lab services , purchases of drug and diagnostic product materials and manufacturing development costs . we track external research and development expenses by individual program for phase 3 clinical trials for drug approval and pma 's ( pre-market approval ) for diagnostics tests , if any . internal expenses include employee-related expenses including salaries , benefits and stock-based compensation expense . other internal research and development expenses are incurred to support overall research and development activities and include expenses related to general overhead and facilities . the following table summarizes the components of our research and development expenses : replace_table_token_6_th the increase in research and development expenses during the year ended december 31 , 2014 , as compared to the year ended december 31 , 2013 , principally resulted from $ 38.6 million of costs related to opko biologics which we acquired in august 2013 and an increase related to research and development expenses incurred by opko renal related to the external costs of two pivotal phase 3 clinical trials for rayaldee which were completed in 2014 , and a third open-label phase 3 trial completed in 2015. opko biologics principally incurred development and clinical manufacturing costs ( “ cmc ” ) related to hgh-ctp , a long acting human growth hormone which was outlicensed to pfizer in 2015. research and development expenses for the years ended december 31 , 2014 and 2013 include equity-based compensation expense of $ 5.0 million and $ 3.6 million , respectively . research and development expenses for the year ended december 31 , 2013 , includes an offset to research and development expenses of $ 2.7 million related to the correction of an error related to equity awards granted to non-employees with performance based vesting . contingent consideration . contingent consideration expenses for the years ended december 31 , 2014 and 2013 , were $ 24.4 million and $ 6.9 million , respectively . the increase in contingent consideration expense was primarily attributable to an 59 increase in the fair value of our contingent obligations to the former stockholders of opko renal due to changes in assumptions regarding probabilities of successful achievement of future milestones driven by the two successful phase 3 trials of rayaldee in 2014. the contingent consideration liabilities at december 31 , 2014 relate to potential amounts payable to former stockholders of curna , opko diagnostics , opko health europe and opko renal pursuant to our acquisition agreements in january 2011 , october 2011 , august 2012 and march 2013 , respectively . amortization of intangible assets . amortization of intangible assets was $ 10.9 million and $ 11.1 million , respectively , for the years ended december 31 , 2014 and 2013. amortization expense reflects the amortization of acquired intangible assets with defined useful lives . the acquisitions of opko renal and opko biologics resulted in principally acquiring ipr & d assets which will not be amortized until the underlying development programs are completed . upon obtaining regulatory approval by the fda , the ipr & d asset will then be accounted for as a finite-lived intangible asset and amortized on a straight-line basis over its estimated useful life . in-process research and development . in may 2014 , we acquired inspiro , a privately held company that is developing the inspiromatic , a “ smart ” easy-to-use dry powder inhaler with several advantages over existing devices . we recorded the transaction as an asset acquisition and recorded the assets and liabilities at fair value . as the asset had no alternative future use , we recorded $ 10.1 million of acquired in-process research and development expense . in addition , pursuant to our agreement with merck , we were required to make a $ 2.0 million payment upon the achievement of a milestone for rolapitant which was achieved in the fourth quarter of 2014. the agreement was accounted for as an asset acquisition and the entire $ 2.0 million milestone payment was allocated to in-process research and development expense .
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results of operations for the years ended december 31 , 2015 and december 31 , 2014 revenues . revenues for the year ended december 31 , 2015 increased $ 400.6 million compared to the prior year . our acquisition of bio-reference in august 2015 accounted for $ 321.9 million of the year-over-year revenue growth . revenues for the years ended december 31 , 2015 and 2014 were as follows : replace_table_token_3_th the increase in revenue from services is attributable to the acquisition of bio-reference in august 2015. the increase in revenue from products principally reflects $ 12.1 million of revenue from eirgen , which we acquired in may 2015 , which was partially offset by the unfavorable impact of foreign exchange rates of approximately $ 8.7 million , and decreased revenue from scivac therapeutics inc. ( “ sti ” ) , a vie we deconsolidated in july 2015. the increase in revenue from transfer of intellectual property principally reflects $ 65.5 million of revenue from the transfer of intellectual property related to the pfizer transaction and $ 15.0 million of revenue from a milestone payment from our licensee tesaro in the fourth quarter of 2015 compared to $ 5.0 million of revenue from a milestone payment from our licensee tesaro in 2014. we are recognizing the non-refundable $ 295.0 million upfront payments received in the pfizer transaction on a straight-line basis over the expected performance period . the performance period is expected to continue through 2019 , when we anticipate completing the various research and development services that are specified in the pfizer transaction . costs of revenue . costs of revenue for the year ended december 31 , 2015 increased $ 187.2 million compared to the prior year . our acquisition of bio-reference in august 2015 accounted for $ 183.3 million of the year-over-year cost of revenue growth .
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comprehensive income/loss attributable to these noncontrolling interests is reported as reductions/additions from/to comprehensive income/loss . 70 ashford hospitality trust , inc. and subsidiaries notes to consolidated financial statements ( continued ) guarantees – upon acquisition of the 51 -hotel cnl portfolio on april 11 , 2007 , we assumed certain guarantees , which represent funds provided by third-party hotel managers to guarantee story_separator_special_tag executive overview general following the recession that commenced in 2008 , the lodging industry has experienced improvement in fundamentals , which continued through 2013. room rates , measured by the adr , which typically lag occupancy growth in the early stage of a recovery , have shown upward growth . we believe improvements in the economy will continue to positively impact the lodging industry and hotel operating results for several years to come , and we will continue to seek ways to benefit from the cyclical nature of the hotel industry . we believe that in the prior cycle , hotel values and cash flows , for the most part , peaked in 2007 , and we believe the hotel industry may exceed these cash flows and values during the next cyclical peak . as of december 31 , 2013 , we owned 85 hotel properties directly , and two hotel properties through majority-owned investments in consolidated entities , which represents 17,030 total rooms , or 17,003 net rooms excluding those attributable to our joint venture partners . currently , all of our hotel properties are located in the united states . in march 2011 , we acquired 96 hotel condominium units at worldquest resort in orlando , florida for $ 12.0 million . also in march 2011 , with an investment of $ 150.0 million , we converted our interest in a joint venture that held a mezzanine loan into a 71.74 % common equity interest and a $ 25.0 million preferred equity interest in a new joint venture ( the “ pim highland jv ” ) that holds 28 high quality full-service and select-service hotel properties with 8,084 total rooms , or 5,800 net rooms excluding those attributable to our joint venture partner . on june 17 , 2013 , we announced that our board of directors had approved a plan to spin-off an 80 % ownership interest in an 8-hotel portfolio , totaling 3,146 rooms ( 2,912 net rooms excluding those attributable to our partners ) , to holders of our common stock in the form of a taxable special distribution . the distribution was comprised of common stock in ashford prime , a newly formed company into which we contributed the portfolio interests . the distribution was made on november 19 , 2013 , on a pro rata basis to holders of our common stock as of november 8 , 2013 , with each of our shareholders receiving one share of ashford prime common stock for every five shares of our common stock held by such shareholder as of the close of business on november 8 , 2013. at december 31 , 2013 , we also wholly owned one mezzanine loan with a net carrying value of $ 3.4 million . based on our primary business objectives and forecasted operating conditions , our current key priorities and financial strategies include , among other things : acquisition of hotel properties ; disposition of non-core hotel properties ; investing in securities ; pursuing capital market activities to enhance long-term shareholder value ; preserving capital , enhancing liquidity , and continuing current cost saving measures ; implementing selective capital improvements designed to increase profitability ; implementing effective asset management strategies to minimize operating costs and increase revenues ; 37 financing or refinancing hotels on competitive terms ; utilizing hedges and derivatives to mitigate risks ; and making other investments or divestitures that our board of directors deems appropriate . our investment strategies continue to focus on the full-service and select-service hotels in the upscale and upper-upscale segments within the lodging industry that have revpar less than twice the national average . we believe that as supply , demand , and capital market cycles change , we will be able to shift our investment strategies to take advantage of new lodging-related investment opportunities as they may develop . our board of directors may change our investment strategies at any time without shareholder approval or notice . significant transactions in 2013 and recent developments refinanced our $ 141.7 million mortgage loan - on february 26 , 2013 , we refinanced our $ 141.7 million loan due august 2013 , which had an outstanding balance of $ 141.0 million , with a $ 199.9 million loan due february 2018. the new loan provides for an interest rate of libor + 3.50 % , with no libor floor . the new loan continues to be secured by the capital hilton in washington , dc and the hilton la jolla torrey pines in la jolla , california . we had a 75 % ownership interest in the properties , with hilton holding the remaining 25 % . the excess loan proceeds above closing costs and reserves were distributed to the partners on a pro rata basis . our share of the excess loan proceeds was approximately $ 40.5 million , which was added to our unrestricted cash balance . these properties were included in the spin-off of ashford prime discussed below . acquisition of the pier house resort - on may 14 , 2013 , we acquired a 100 % interest in the pier house resort in key west , florida , for a contractual purchase price of $ 90.0 million in cash . in connection with the acquisition , we incurred transaction costs of $ 901,000 , which are included in transaction costs on the consolidated statement of operations . the purchase price has been allocated to the assets acquired and liabilities assumed using the estimated fair value at the date of acquisition based on a third party appraisal . story_separator_special_tag our share of the excess loan proceeds were added to our unrestricted cash balance . proposed spin-off of asset management business - on february 27 , 2014 , we announced that our board of directors has unanimously approved a plan to spin-off its asset management business into a separate publicly traded company in the form of a taxable distribution . the distribution is expected to be completed in the third quarter of 2014 , and we anticipate that the distribution will be comprised of common stock in ashford inc. , a newly formed or successor company of our current subsidiary ashford hospitality advisors llc . we also expect that ashford inc. will file an application to list its shares on the nyse or nyse mkt exchanges . in connection with the proposed spin-off , we expect that ashford inc. will enter into a 20-year advisory agreement to externally advise the company . ashford inc. will continue to externally advise ashford prime . this distribution is anticipated to be declared during the third quarter of 2014 ; however , it remains subject to the filing of the required registration statement with the sec , the review of the registration statement by the sec , the approval of the listing of shares by the applicable exchange , and other legal requirements . the company can not be certain this distribution will proceed or proceed in the manner as currently anticipated . sale of pier house resort - on march 1 , 2014 , we closed on the sale of the pier house resort to ashford prime . the sales price was $ 92.7 million . ashford prime assumed the $ 69 million mortgage and paid the balance of the purchase price in cash . liquidity and capital resources our cash position from operations is affected primarily by macro industry movements in occupancy and rate as well as our ability to control costs . further , interest rates can greatly affect the cost of our debt service as well as the value of any financial hedges we may put in place . we monitor industry fundamentals and interest rates very closely . capital expenditures above our reserves will affect cash flow as well . 39 certain of our loan agreements contain cash trap provisions that may get triggered if the performance of our hotels decline . when these provisions are triggered , substantially all of the profit generated by our hotels is deposited directly into lockbox accounts and then swept into cash management accounts for the benefit of our various lenders . cash is distributed to us only after certain items are paid , including deposits into ground leasing and maintenance reserves and the payment of debt service , insurance , taxes , operating expenses , and extraordinary capital expenditures and ground leasing expenses . this could affect our liquidity and our ability to make distributions to our shareholders . also , we have entered into certain customary guaranty agreements pursuant to which we guaranty payment of any recourse liabilities of our subsidiaries or joint ventures that may result from non-recourse carve-outs , which include , but are not limited to fraud , misrepresentation , willful misconduct resulting in waste , misappropriations of rents following an event of default , voluntary bankruptcy filings , unpermitted transfers of collateral , and certain environmental liabilities . certain of these guarantees represent a guaranty of material amounts , and if we are required to make payments under those guarantees , our liquidity could be adversely affected . in connection with the ashford prime spin-off , we are still jointly and severally liable under certain carve-out guarantees and environmental indemnities associated with three loans . ashford prime has indemnified us in the case that any of these guarantees are ever called . in september 2010 , we entered into an atm program with an investment banking firm to offer for sale from time to time up to $ 50.0 million of our common stock at market prices . no shares have been sold under this atm program since its inception . the atm program will remain in effect until such time that either party elects to terminate or the $ 50.0 million cap is reached . in september 2011 , we entered into an at-the-market ( “ atm ” ) program with an investment banking firm , pursuant to which we may issue up to 700,000 shares of 8.55 % series a cumulative preferred stock and up to 700,000 shares of 8.45 % series d cumulative preferred stock at market prices up to $ 30.0 million in total proceeds . the atm program will remain in effect until such time that either party elects to terminate or the share or dollar thresholds are reached . on march 2 , 2012 , we commenced issuances of preferred stock and , during the first two quarters of the year ended december 31 , 2012 , we issued 169,306 shares of 8.55 % series a cumulative preferred stock for gross proceeds of $ 4.2 million and 501,909 shares of 8.45 % series d cumulative preferred stock for gross proceeds of $ 12.3 million . the aggregate proceeds , net of commissions and other expenses , were $ 16.0 million for the year ended december 31 , 2012. there were no issuances for the year ended december 31 , 2013. on february 21 , 2012 , we expanded our borrowing capacity under our $ 105.0 million senior credit facility to an aggregate $ 145.0 million and on september 24 , 2012 , we further expanded our borrowing capacity to an aggregate $ 165.0 million . we have an option , subject to lender approval , to further expand the facility to an aggregate size of $ 225.0 million . as part of these expansions two additional banks have been added to the participating banks in the senior credit facility . we may use up to $ 10.0 million for standby letters of credit .
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results of operations marriott international , inc. ( “ marriott ” ) manages 26 of our properties as of december 31 , 2013. there were eight additional hotel properties managed by marriott until may 31 , 2013 and six properties managed by marriott were included in the ashford prime spin-off . for these 40 marriott-managed hotels , the 2011 and 2012 fiscal years reflect twelve weeks of operations in each of the first three quarters of the year and sixteen weeks for the fourth quarter of the year . beginning in 2013 , the fiscal quarters end on march 31 st , june 30 th , september 30 th and december 31 st . therefore , in any given quarterly period , period-over-period results will have different ending dates . . for marriott-managed hotels , the fourth quarters of 2013 , 2012 and 2011 ended december 31 , 2013 , december 28 , 2012 and december 30 , 2011 , respectively . prior results have not been adjusted . revpar is a commonly used measure within the hotel industry to evaluate hotel operations . revpar is defined as the product of the adr charged and the average daily occupancy achieved . revpar does not include revenues from food and beverage or parking , telephone , or other guest services generated by the property . although revpar does not include these ancillary revenues , it is generally considered the leading indicator of core revenues for many hotels . we also use revpar to compare the results of our hotels between periods and to analyze results of our comparable hotels ( comparable hotels represent hotels we have owned for the entire year ) . revpar improvements attributable to increases in occupancy are generally accompanied by increases in most categories of variable operating costs . revpar improvements attributable to increases in adr are generally accompanied by increases in limited categories of operating costs , such as management fees and franchise fees .
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43 provided below is a roll forward of the story_separator_special_tag critical accounting policies and estimates management 's discussion and analysis of financial condition and results of operations discusses the company 's consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period . on an on-going basis , management evaluates its estimates and judgments based on historical experience and on various other factors that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying 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 . management believes the following critical accounting policies , among others , affect its more significant judgments and estimates used in the preparation of the company 's consolidated financial statements . allowance for doubtful accounts the company maintained allowances for doubtful accounts of approximately $ 1,115,000 as of january 3 , 2015 , for estimated losses resulting from the inability of its customers to make required payments and for disputed claims and quality issues . the allowance is based upon a review of outstanding receivables , historical collection information and existing economic conditions . the company performs periodic credit evaluations of its customers ' financial condition and generally does not require collateral . receivables are generally due within 30 to 60 days . delinquent receivables are written off based on individual credit evaluations and specific circumstances of the customer . inventory reserves the company establishes a reserve for estimated obsolete or unmarketable inventory in an amount equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and current market conditions . based on historical results , the company also maintains an inventory reserve to provide for the amount of estimated inventory quantity loss since the last physical inventory . as of january 3 , 2015 , the company has approximately $ 4,866,000 accrued for the various inventory reserves . if actual market conditions are less favorable than those estimated by management , additional inventory reserves may be required . environmental reserves as noted in note 5 to the consolidated financial statements included in item 8 of this form 10-k , the company has accrued $ 576,000 as of january 3 , 2015 , in environmental remediation costs which , in management 's best estimate , are sufficient to satisfy anticipated costs of known remediation requirements as explained in note 5. expenditures related to costs currently accrued are not discounted to their present values and are expected to be made over the next three to four years . however , as a result of the evolving nature of the environmental regulations , the difficulty in estimating the extent and necessary remediation of environmental contamination , and the availability and application of technology , the estimated costs for future environmental compliance and remediation are subject to uncertainties and it is not possible to predict the amount or timing of future costs of environmental matters which may subsequently be determined . changes in information known to management or in applicable regulations may require the company to record additional remediation reserves . impairment of long-lived assets the company continually reviews the recoverability of the carrying value of long-lived assets . long-lived assets are reviewed for impairment when events or changes in circumstances , also referred to as `` triggering events '' , indicate that the carrying value of a long-lived asset or group of assets ( the `` assets '' ) may no longer be recoverable . triggering events include : a significant decline in the market price of the assets ; a significant adverse change in the operating use or physical condition of the assets ; a significant adverse change in legal factors or in the business climate impacting the assets ' value , including regulatory issues such as environmental actions ; the generation by the assets of historical cash flow losses combined with projected future cash flow losses ; or the expectation that the assets will be sold or disposed of significantly before the end of the useful life of the assets . the company concluded that there were no indications of impairment requiring further testing during the year ended january 3 , 2015 . if the company concluded that , based on its review of current facts and circumstances , there were indications of impairment , testing of the applicable assets would be performed . the recoverability of the assets to be held and used is tested by comparing the carrying amount of the assets at the date of the test to the sum of the estimated future undiscounted cash flows expected to be generated by those assets over the remaining useful life of the assets . in estimating the future undiscounted cash flows , the company uses projections of cash flows directly associated with , and which are expected to arise as a direct result of , the use and 18 eventual disposition of the assets . this approach requires significant judgments including the company 's projected net cash flows , which are derived using the most recent available estimate for the reporting unit containing the assets tested . several key assumptions would include periods of operation , projections of product pricing , production levels , product costs , market supply and demand , and inflation . if it is determined that the carrying amount of the assets are not recoverable , an impairment loss would be calculated equal to the excess of the carrying amount of the assets over their fair value . story_separator_special_tag accrued expenses generated $ 3,996,000 cash from continuing operations resulting from increases in the management incentive bonus , uncertain tax positions and current portion of the pension liability related to the closing of bristol fab . these increases were partially offset by lower customer advances at the end of 2014 when compared to the end of 2013. cash flows provided by continuing operating activities during 2013 totaled $ 37,000 while cash flows used in continuing operating activities during 2012 totaled $ 776,000 , an increase in cash flows of $ 813,000. cash flows in 2013 were generated from net income from continuing operations totaling $ 2,898,000 after depreciation and amortization expense of $ 4,672,000 and the one-time bargain purchase gain on the purchase of cri tolling of $ 1,077,000 , net of deferred income taxes . since the company completed its acquisition of cri on august 26 , 2013 , cash flows resulting from changes in operating assets and liabilities can not be determined simply by subtracting 2013 balance sheet amounts from 2012 values . all acquired cri balances represent beginning balances for cash flow purposes . cash flows were adversely affected by a $ 2,490,000 increase in net inventories in 2013. substantially all of the increase occurred in the metals segment as special alloy inventory increased in support of the current special alloy backlog . operating cash flows were unfavorably affected by lower accrued expenses at the end of 2013 compared to the end of 2012 of $ 2,316,000 , as profit based incentives decreased $ 1,876,000 reflecting lower 2013 profits , the majority of the income and sales/use tax liability associated with the palmer acquisition was used in 2013 and accrued interest decreased as the line of credit was paid off during the fourth quarter of 2013. in 2014 , the company 's current assets from continuing operations , which excludes assets and liabilities held for sale , increased $ 14,252,000 and current liabilities increased $ 17,429,000 , from the year ended 2013 amounts , which caused working capital from continuing operations for 2014 to decrease by $ 3,177,000 to $ 64,580,000 from the 2013 total of $ 67,757,000. the current ratio for continuing operations for the year ended january 3 , 2015 , decreased to 2.6:1 from the 2013 year-end ratio of 3.9:1. on november 21 , 2014 , the company entered into a stock purchase agreement with davidson to purchase all of the issued and outstanding stock of specialty . established in 1964 with distribution centers in mineral ridge , ohio and houston , texas , specialty is a master distributor of seamless carbon pipe and tube , with a focus on heavy wall , large diameter products . the company views the specialty acquisition as an excellent complement to the product offerings of the metals segment with similar end markets and consistent profit margins . specialty 's results of operations since the acquisition date are reflected in the company 's consolidated statements of operations , and the specialty acquisition added approximately 30 employees at january 3 , 2015. the purchase price for the all-cash acquisition was approximately $ 31,500,000 , subject to working capital adjustments post-closing . davidson has the potential to receive earn-out payments up to a total of $ 5,000,000 if specialty achieves targeted sales revenue over a two-year period following closing . the financial results for specialty are reported as a part of the company 's metals segment . the company also used cash during 2014 for investing activities to fund capital expenditures of $ 8,066,000. included in this amount is approximately $ 3,953,000 for the planned cri expansion . financing activities during 2014 generated $ 5,310,000 as a result of the additional borrowings associated with the specialty acquisition partially offset by a fourth quarter 2014 dividend payment of $ 2,633,000. in connection with the palmer acquisition discussed in note 16 to the consolidated financial statements included in item 8 of this form 10-k , on august 21 , 2012 , the company modified its credit agreement with its regional bank to increase the limit of the credit facility by $ 5,000,000 to a maximum of $ 25,000,000 , and extended the maturity date to august 21 , 2015. on october 22 , 2012 , the company modified this agreement to increase the limit by an additional $ 5,000,000 to a maximum of $ 30,000,000. this increase was in effect for one year and the maximum line of credit reverted back to $ 25,000,000 on october 22 , 2013. none of the other provisions of the credit agreement were changed as a result of this modification . this credit agreement modification also provided for a ten-year term loan in the amount of $ 22,500,000 that requires equal monthly payments of $ 187,500 plus interest . in conjunction with this term loan , to mitigate the variability of the interest rate risk , the company entered into an interest rate swap contract ( the `` palmer swap '' ) on august 21 , 2012 with its current bank . the palmer swap is for an initial notional amount of $ 22,500,000 with a fixed interest rate of 3.74 percent , and runs for ten years , expiring on august 21 , 2022 , which equates to the date of the term loan . the notional amount of the palmer swap decreases as monthly principal payments are made . in connection with the cri acquisition discussed in note 16 to the consolidated financial statements included in item 8 of this form 10-k , on august 9 , 2013 , the company modified the credit agreement to fund this transaction . the credit agreement modification provided for a new ten-year term loan in the amount of $ 4,033,000 , with monthly principal payments customized to account for the 20 year amortization of the real estate assets combined with a 5-year amortization of the equipment assets purchased .
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results of operations comparison of 2014 to 2013 - consolidated for the fiscal year ending january 3 , 2015 , the company generated net earnings from continuing operations of $ 12,619,000 , or $ 1.45 per share , on sales from continuing operations of $ 199,505,000 , compared to net earnings from continuing operations of $ 2,898,000 , or $ 0.42 per share , on sales from continuing operations of $ 196,751,000 in the prior year . the company generated net earnings from continuing operations of $ 1,409,000 , or $ 0.16 per share , on sales of $ 48,569,000 in the fourth quarter of 2014 , compared to net loss from continuing operations of $ 1,097,000 , or $ 0.13 loss per share , on sales from continuing operations of $ 46,402,000 in the fourth quarter of 2013. consolidated gross profit from continuing operations increased 66 percent to $ 32,929,000 in 2014 , compared to $ 19,798,000 in 2013 , and , as a percent of sales , increased to 17 percent of sales in 2014 compared to ten percent of sales in 2013. for the fourth quarter of 2014 , consolidated gross profit from continuing operations was $ 8,247,000 , an increase of 198 percent from the fourth quarter of 2013 of $ 2,770,000. consolidated gross profit from continuing operations was 17 percent of sales for the fourth quarter of 2014 and six percent of sales for same period of 2013. the increases in dollars and in percentage of sales were attributable to the metals segment as discussed in the metals segment comparison of 2014 to 2013 below .
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if we elect to co-develop any compounds and or indications , we would be responsible for funding 30 % of the associated future global development costs from the initiation of a phase iib trial through regulatory approval . we would receive an incremental royalty rate increase across all tiers resulting in effective royalty rates ranging up to the high twenties on potential future global net sales for compounds and or story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with `` selected consolidated financial data '' and the consolidated financial statements and related notes included elsewhere in this report . our current pipeline includes the following compounds : replace_table_token_6_th ( 1 ) we licensed rights outside the united states to novartis and retained u.s. rights . 50 ( 2 ) we licensed worldwide rights to novartis and retained co-development and co-promotion options . ( 3 ) we licensed worldwide rights to lilly , have elected to co-develop with lilly , and retained a co-promotion option . ( 4 ) we licensed worldwide rights to lilly and retained a co-promotion option . ( 5 ) we licensed worldwide rights to lilly and retained co-development and co-promotion options . ( 6 ) several clinical trials in patients with myelofibrosis are ongoing , including long-term extension studies , alternative dosing studies , joint global trials with novartis and trials in patients with low platelet counts . the therapeutic and commercial value of new medicines is difficult to predict , and conducting clinical trials for our drug candidates in development is a lengthy , time-consuming and expensive process . therefore , if we are unable to successfully commercialize jakafi or develop and commercialize some of our other drug candidates over the next several years , our business , financial condition and results of operations would be adversely impacted . to date , we have not , and we may never , achieve sustained revenues sufficient to offset expenses . we may incur net losses in future periods , and we may never achieve or maintain profitability . we also expect that our operating results may fluctuate from period to period and that those fluctuations may be substantial . license agreements novartis in november 2009 , we entered into a collaboration and license agreement with novartis . under the terms of the agreement , novartis received exclusive development and commercialization rights outside of the united states to ruxolitinib and certain back-up compounds for hematologic and oncology indications , including all hematological malignancies , solid tumors and myeloproliferative diseases . we retained exclusive development and commercialization rights to jakafi ( ruxolitinib ) in the united states and in certain other indications . novartis also received worldwide exclusive development and commercialization rights to our c-met inhibitor compound incb28060 and certain back-up compounds in all indications . we retained options to co-develop and to co-promote incb28060 in the united states . under this agreement , we received an upfront payment and immediate milestone payment totaling $ 210.0 million and were initially eligible to receive additional payments of up to approximately $ 1.1 billion if defined development and commercialization milestones are achieved . in 2013 , 2012 and 2011 , we received $ 25 million , $ 40 million and $ 25 million , respectively , in milestone payments under this agreement . we also could receive tiered , double-digit royalties ranging from the upper-teens to the mid-twenties on future ruxolitinib net sales outside of the united states . in addition , should novartis receive reimbursement and pricing approval for ruxolitinib in a specified number of countries , we will be obligated to pay to novartis tiered royalties in the low single digits on future ruxolitinib net sales within the united states . each company is responsible for costs relating to the development and commercialization of ruxolitinib in its respective territories , with costs of collaborative studies shared equally . novartis is responsible for all costs relating to the development and commercialization of the c-met inhibitor compound after the initial phase i clinical trial , which has been completed . jakafi is sold outside of the united states by novartis under the name jakavi . for the years ended december 31 , 2013 and 2012 , we recorded $ 28.3 million and $ 3.7 million , respectively , of product royalty revenues related to novartis net sales of jakavi . the novartis agreement will continue on a program-by-program basis until novartis has no royalty payment obligations with respect to such program or , if earlier , the termination of the agreement or any program in accordance with the terms of the agreement . royalties are payable by novartis on a product-by-product and country-by-country basis until the latest to occur of ( 1 ) the expiration of the last valid claim of the licensed patent rights covering the licensed product in the relevant country , ( 2 ) the 51 expiration of regulatory exclusivity for the licensed product in such country and ( 3 ) a specified period from first commercial sale in such country of the licensed product by novartis or its affiliates or sublicensees . the agreement may be terminated in its entirety or on a program-by-program basis by novartis for convenience . the agreement may also be terminated by either party under certain other circumstances , including material breach . lilly in december 2009 , we entered into a license , development and commercialization agreement with lilly . under the terms of the agreement , lilly received exclusive worldwide development and commercialization rights to baricitinib and certain back-up compounds for inflammatory and autoimmune diseases . we received an initial payment of $ 90.0 million , and were initially eligible to receive additional payments of up to $ 665.0 million based on the achievement of defined development , regulatory and commercialization milestones . in 2012 , we recognized a $ 50.0 million milestone under this agreement , and in 2010 , we received $ 49.0 million in milestone payments under this agreement . story_separator_special_tag based on our actual experience with product returns through the three months ended september 30 , 2012 , we had the ability to estimate product returns and the price of jakafi is now deemed fixed or determinable . as a result , during the three months ended september 30 , 2012 , we began to recognize revenue for product sales of jakafi at the time the product was received by our specialty pharmacy customers . we recognize revenues for product received by our specialty pharmacy customers net of allowances for customer credits , including estimated rebates , chargebacks , discounts , returns , distribution service fees , patient assistance programs , and medicare part d coverage gap reimbursements . product shipping and handling costs are included in cost of product revenues . 53 customer credits : our specialty pharmacy customers are offered various forms of consideration , including allowances , service fees and prompt payment discounts . we expect our specialty pharmacy customers will earn prompt payment discounts and , therefore , we deduct the full amount of these discounts from total product sales when revenues are recognized . service fees are also deducted from total product sales as they are earned . rebates : allowances for rebates include mandated discounts under the medicaid drug rebate program . rebate amounts are based upon contractual agreements or legal requirements with public sector ( e.g . medicaid ) benefit providers . rebates are amounts owed after the final dispensing of the product to a benefit plan participant and are based upon contractual agreements or legal requirements with public sector benefit providers . the accrual for rebates is based on statutory discount rates and expected utilization as well as historical data we have accumulated since product launch . our estimates for expected utilization of rebates are based on data received from our specialty pharmacy customers . rebates are generally invoiced and paid in arrears so that the accrual balance consists of an estimate of the amount expected to be incurred for the current quarter 's activity , plus an accrual balance for known prior quarters ' unpaid rebates . if actual future rebates vary from estimates , we may need to adjust prior period accruals , which would affect revenue in the period of adjustment . chargebacks : chargebacks are discounts that occur when contracted customers purchase directly from a specialty pharmacy , or an intermediary distributor . contracted customers , which currently consist primarily of public health service institutions , non-profit clinics , and federal government entities purchasing via the federal supply schedule , generally purchase the product at a discounted price . the specialty pharmacy or distributor , in turn , charges back to us the difference between the price initially paid by the specialty pharmacy or distributor and the discounted price paid to the specialty pharmacy or distributor by the customer . the accrual for chargebacks is based on the estimated contractual discounts on the inventory levels on hand in our distribution channel . if actual future chargebacks vary from estimates , we may need to adjust prior period accruals , which would affect revenue in the period of adjustment . medicare part d coverage gap : medicare part d prescription drug benefit mandates manufacturers to fund 50 % of the medicare part d insurance coverage gap for prescription drugs sold to eligible patients . our estimates for the expected medicare part d coverage gap are based on historical invoices received and in part from data received from our specialty pharmacy customers . funding of the coverage gap is generally invoiced and paid in arrears so that the accrual balance consists of an estimate of the amount expected to be incurred for the current quarter 's activity , plus an accrual balance for known prior quarters . if actual future funding varies from estimates , we may need to adjust prior period accruals , which would affect revenue in the period of adjustment . co-payment assistance : patients who have commercial insurance and meet certain eligibility requirements may receive co-payment assistance . we accrue a liability for co-payment assistance based on actual program participation and estimates of program redemption using data provided by third-party administrators . product royalty revenues royalty revenues on commercial sales for jakavi by novartis are estimated based on information provided by novartis . we exercise judgment in determining whether the information provided is sufficiently reliable for us to base our royalty revenue recognition thereon . if actual royalties vary from estimates , we may need to adjust prior period which would affect royalty revenue in the period of adjustment . 54 contract and license revenues under agreements involving multiple deliverables , services and or rights to use assets that we entered into prior to january 1 , 2011 , the multiple elements are divided into separate units of accounting when certain criteria are met , including whether the delivered items have stand-alone value to the customer and whether there is objective and reliable evidence of the fair value of the undelivered items . when separate units of accounting exist , consideration is allocated among the separate elements based on their respective fair values . the determination of fair value of each element is based on objective evidence from historical sales of the individual elements by us to other customers . if such evidence of fair value for each undelivered element of the arrangement does not exist , all revenue from the arrangement is deferred until such time that evidence of fair value for each undelivered element does exist or until all elements of the arrangement are delivered . when elements are specifically tied to a separate earnings process , revenue is recognized when the specific performance obligation tied to the element is completed . when revenues for an element are not specifically tied to a separate earnings process , they are recognized ratably over the term of the agreement . we assess whether a substantive milestone exists at the inception of our agreements .
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results of operations years ended december 31 , 2013 and 2012 we recorded net losses for the years ended december 31 , 2013 and 2012 of $ 83.1 million and $ 44.3 million , respectively . on a basic and diluted per share basis , net loss was $ 0.56 and $ 0.34 for the years ended december 31 , 2013 and 2012 , respectively . revenues replace_table_token_7_th 58 our product revenues , net from jakafi for the years ended december 31 , 2013 and 2012 , were $ 235.4 million and $ 136.0 million , respectively . product revenues from the sale of jakafi are recorded net of estimated product returns , pricing discounts including rebates offered pursuant to mandatory federal and state government programs and chargebacks , prompt pay discounts and distribution fees and co-pay assistance . our revenue recognition policies require estimates of the aforementioned sales allowances each period . prior to the three months ended september 30 , 2012 , we used the sell-through method for revenue recognition as we had limited historical data on product returns . under the sell-through method , we deferred revenue until the patients received jakafi . in the three months ended september 30 , 2012 , we determined that we had sufficient experience with product returns and transitioned to the sell-in method for recognizing revenue , under which we recognize revenue for product sales of jakafi at the time the product is received by our specialty pharmacy customers . the following table provides a summary of activity with respect to our sales allowances and accruals for the year ended december 31 , 2013 : replace_table_token_8_th product royalty revenues on commercial sales for jakavi by novartis are based on net sales of licensed products in licensed territories as provided by novartis .
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in connection therewith , dwg acquisitions entered into a franchise agreement with us . the terms of the franchise agreement were identical to those of the franchise agreements that story_separator_special_tag is based upon our audited consolidated financial statements , which have been prepared in accordance with united states generally accepted accounting principles ( “ gaap ” ) . the preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenue and expenses , and related disclosure of contingent assets and liabilities . when making these estimates and assumptions , we consider our historical experience , our knowledge of economic and market factors and various other factors , that we believe to be reasonable under the circumstances . actual results may differ under different estimates and assumptions . the accounting estimates and assumptions discussed in this section are those that we consider to be the most critical to an understanding of our financial statements because they inherently involve significant judgments and uncertainties . for a more complete discussion of our accounting policies and procedures , see our audited consolidated financial statements beginning on page f-1 of this report . revenue recognition our revenue consists primarily of proceeds from the sale of food and beverage products at our company-owned restaurants , and royalty payments , franchise fees and area development fees that we receive from our franchisees . we generate revenue from our franchisees by entering into franchise agreements with parties to build and operate restaurants using the dick 's wings brand within a defined geographical area . the agreements have a 10-year term and can be renewed for one additional 10-year term . we provide the use of our dick 's wings trademarks and dick 's wings system , which includes uniform operating procedures , standards for consistency and quality of products , technical knowledge , and procedures for accounting , inventory control and management , in return for the royalty payments , franchise fees and area development fees . franchisees are required to operate their restaurants in compliance with their franchise agreements , which includes adherence to operating and quality control procedures established by us . we are not required to provide loans , leases , or guarantees to franchisees or the franchisees ' employees and vendors . if a franchisee becomes financially distressed , we are not required to provide financial assistance . if financial distress leads to insolvency of the franchisee or the filing of a petition by or against the franchisee under bankruptcy laws , we have the right , but not the obligation , to acquire the franchise at fair value as determined by an independent appraiser selected by us . franchisees generally remit royalty payments weekly for the prior week 's sales . franchise and area development fees are paid upon the signing of the related agreements . 42 we recognize revenue when persuasive evidence of an arrangement exists , delivery or performance has occurred , the sales price is fixed and determinable , and collectability is reasonably assured in accordance with financial accounting standards board ( “ fasb ” ) accounting standards codification ( “ asc ” ) topic 605 , revenue recognition . we record revenue from the sale of food and beverages as products are sold . royalties are accrued as earned and are calculated each period based on restaurant sales . franchise fees from individual franchise sales is recognized upon the opening of the franchised restaurant when all material obligations and initial services to be provided by us have been performed . area development fees are dependent upon the number of restaurants in the territory , as are our obligations under the area development agreement . consequently , as obligations are met , area development fees are recognized proportionally with expenses incurred with the opening of each new restaurant and any royalty-free periods . we record gift cards under a dick 's wings system-wide program . gift cards sold are recorded as a gift card liability . when redeemed , the gift card liability account is offset by recording the transaction as revenue . breakage income represents the value associated with the portion of gift cards sold that will most likely never be redeemed . based on our historical gift card redemption patterns and the fact that our gift cards have no expiration dates or dormancy fees , we can reasonably estimate the amount of gift card balances for which redemption is remote and record breakage income based on this estimate . we update our estimate of the breakage rate periodically and , if necessary , adjusts the gift card liability balance accordingly . investment in paradise on wings on january 20 , 2014 , we purchased a 50 % ownership interest in paradise on wings , which is the franchisor of the wing nutz brand of restaurants . a description of our investment in paradise on wings is set forth herein under note 4. investment in paradise on wings in our financial statements . we accounted for our investment in paradise on wings under the equity method of accounting in accordance with asc topic 323 , investments – equity method and joint ventures ( “ asc 323 ” ) . asc 323 provides that investments be accounted for under the equity method of accounting when the investor has the ability to exert significant influence , but not control , over the operating and financial policies of the investee . the determination of the level of influence that an investor has over each equity method investment involves consideration of such factors as the investor 's ownership interest , representation on the board of directors , participation in policy-making decisions and material intercompany transactions . investments accounted for under the equity method are recorded at the fair value amount of the investor 's initial investment on the balance sheet and adjusted each period for the investor 's share of the investee 's income or loss . story_separator_special_tag asu 2014-15 requires management to assess an entity 's ability to continue as a going concern by incorporating and expanding on certain principles that are currently in u.s. auditing standards . specifically , asu 2014-15 : ( i ) provides a definition of the term “ substantial doubt ” , ( ii ) requires an evaluation every reporting period including interim periods , ( iii ) provides principles for considering the mitigating effects of management 's plans , ( iv ) requires certain disclosures when substantial doubt is alleviated as a result of consideration of management 's plans , ( v ) requires an express statement and other disclosures when substantial doubt is not alleviated , and ( vi ) requires an assessment for a period of one year after the date that the financial statements are issued or available to be issued . asu 2014-15 is effective for fiscal years ending after december 15 , 2016 and for annual periods and interim periods thereafter . early adoption is permitted . the adoption of asu 2014-15 did not have a material impact on our financial statements . in february 2015 , the fasb issued asu 2015-02 , consolidation : amendments to the consolidation analysis ( “ asu 2015-02 ” ) . asu 2015-02 modifies the analysis that must be performed to determine whether a reporting entity should consolidate certain types of legal entities . asu 2015-02 is effective for interim and annual periods beginning after december 15 , 2015. early adoption is permitted . the adoption of asu 2015-02 did not have a material impact on our financial statements . 45 in july 2015 , the fasb issued asu 2015-11 , simplifying the measurement of inventory ( “ asu 2015-11 ” ) , which changes the subsequent measurement of inventory from lower of cost or market to lower of cost or net realizable value . asu 2015-11 is effective for fiscal years beginning after december 15 , 2016 and interim periods within fiscal years beginning after december 15 , 2017. early adoption is permitted , including adoption in an interim period . we are currently evaluating the impact that the adoption of asu 2015-11 will have on our financial statements . in february 2016 , the fasb issued asu 2016-02 , leases ( “ asu 2016-02 ” ) . asu 2016-02 requires that lease arrangements longer than 12 months result in the lessee recognizing a lease asset and liability . leases will be classified as either finance or operating , with classification affecting the pattern of expense recognition in the income statement . asu 2016-02 is effective for interim and annual periods beginning after december 15 , 2018. early adoption is permitted . we are currently evaluating the impact that the adoption of asu 2016-02 will have on our financial statements . in august 2016 , the fasb issued asu 2016-15 , statement of cash flows : classification of certain cash receipts and payments ( “ asu 2016-15 ” ) . asu 2016-15 provides guidance on eight specific cash flow issues with the objective of reducing diversity in practice . asu 2016-15 is effective for interim and annual periods beginning after december 15 , 2017. early adoption is permitted in any interim or annual period . we believe that the adoption of asu 2016-02 will not have a material impact on our financial statements . we have reviewed all other significant newly-issued accounting pronouncements and concluded that they either are not applicable to our operations or that no material effect is expected on our financial statements as a result of future adoption . comparison of the years ended december 31 , 2016 and 2015 revenue revenue consists primarily of proceeds from the sale of food and beverage products by our company-owned restaurants , and royalty payments , franchise fees and area development fees that we receive from our franchisees . revenue increased $ 308,517 to $ 1,275,448 for the year ended december 31 , 2016 from $ 966,931 for the year ended december 31 , 2015. the increase of $ 308,517 was due primarily to an increase of $ 130,861 for sales by our company-owned restaurants and $ 195,160 for royalties received from our franchisees . the increase in sales by our company-owned restaurants was attributable to the restaurants that we acquired through our acquisition of seediv . our royalties were positively impacted by increased sales by our franchisees at our existing restaurants , sales by franchisees at new restaurants that opened during the past 12 months , and operational improvements that we implemented at each of our franchisees ' restaurants . we expect our revenue to increase during the next 12 months as we generate sales through our company-owned restaurants , as we continue to improve the operations of our existing dick 's wings restaurants and open new dick 's wings restaurants , and as we acquire additional interests in other restaurant brands . operating expenses operating expenses consist of food , beverage and packaging costs , professional fees , employee compensation expense , general and administrative expenses , and loss on impairment of investment . 46 food , beverage and packaging costs . food , beverage and packaging costs consist of the costs and expenses that we incurred for chicken wings , beef , poultry , soda , liquor , paper goods , and other food , beverage and packaging items that were purchased by our company-owned restaurants . food , beverage and packaging costs were $ 28,082 for the year ended december 31 , 2016. we did not incur any food , beverage and packaging costs for the year ended december 31 , 2015. we acquired seediv on december 19 , 2016. accordingly , our food , beverage and packaging costs were incurred during a period of only 12 days during the year ended december 31 , 2016. we expect our food , beverage and packaging costs to increase during the next 12 months as we incur these costs for the entire fiscal periods covered by our future reports . professional fees .
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general and administrative expenses . general and administrative expenses consist of compensation expense incurred in connection with our acquisition of seediv , marketing and advertising expenses , bank service charges , computer and internet expenses , dues and subscriptions , licenses and filing fees , insurance expenses , investor relations expenses , shareholder meeting expenses , office supplies , rent expense , repairs and maintenance expenses , telephone expenses , travel expenses , utilities expenses and other miscellaneous general and administrative expenses . general and administrative expenses increased $ 833,328 to $ 1,008,507 from $ 175,179 for the year ended december 31 , 2015. the increase of $ 833,328 was due primarily to increases of $ 251,309 for a one-time charge that we recorded for compensation expense that we incurred in connection with our acquisition of seediv and $ 502,856 for other one-time charges that we recorded for other transaction costs that we incurred in connection with our acquisition of seediv . we expect general and administrative expenses to decrease over the next 12 months because the compensation expense and other transaction costs that we recognized in connection with our acquisition of seediv were one-time charges . however , we expect to incur increasing expenses for marketing and advertising , investor relations , travel , rent , office supplies , insurance and other miscellaneous items associated with the general growth of our business and operations . loss on impairment of investment .
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the accompanying consolidated financial statements include the results of pika from the date of acquisition through december 31 , 2019. the preliminary allocation of the purchase price is story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read together with “ item 1 – business , ” “ item 6 - selected financial data ” and the consolidated financial statements and the related notes thereto in item 8 of this annual report on form 10-k. this discussion contains forward-looking statements , based on current expectations and related to future events and our future financial performance , that involve risks and uncertainties . our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors , including those set forth under “ item 1a - risk factors. ” overview we are a leading global designer and manufacturer of a wide range of energy technology solutions . the company provides power generation equipment , energy storage systems , and other power products serving the residential , light commercial and industrial markets . power generation is a key focus , which differentiates us from our main competitors that also have broad operations outside of the power equipment market . as the only significant market participant focused predominantly on these products , we have one of the leading market positions in the power equipment market in north america and an expanding presence internationally . we believe we have one of the widest ranges of products in the marketplace , including residential , commercial and industrial standby generators , as well as portable and mobile generators used in a variety of applications . a key strategic focus for the company in recent years has been leveraging our leading position in the growing market for cleaner burning , more cost effective natural gas fueled generators to expand into applications beyond standby power . we have also been focused on “ connecting ” the equipment we manufacture to the users of that equipment , helping to drive additional value to our customers and our distribution partners over the product lifecycle . other power products that we design and manufacture include light towers which provide temporary lighting for various end markets ; commercial and industrial mobile heaters and pumps used in the oil & gas , construction and other industrial markets ; and a broad product line of outdoor power equipment for residential and commercial use . during 2019 , we began providing energy storage systems as a clean energy solution for residential use that capture and store electricity from solar panels or other power sources and help reduce home energy costs while also protecting homes from brief power outages . 24 business d rivers and operational factors in operating our business and monitoring its performance , we pay attention to a number of business drivers and trends as well as operational factors . the statements in this section are based on our current expectations . business drivers and t rends our performance is affected by the demand for reliable power generation products , energy storage systems , and other power products by our customer base . this demand is influenced by several important drivers and trends affecting our industry , including the following : increasing penetration opportunity . many potential customers are still not aware of the costs and benefits of automatic backup power solutions . we estimate that penetration rates for home standby generators are only approximately 4.75 % of the addressable market of homes in the united states . the decision to purchase backup power for many light-commercial buildings such as convenience stores , restaurants and gas stations is more return-on-investment driven and as a result these applications have relatively lower penetration rates as compared to buildings used in code-driven or mission critical applications such as hospitals , wastewater treatment facilities , 911 call centers , data centers and certain industrial locations . the emergence of lower cost , cleaner burning natural gas fueled generators has helped to increase the penetration of standby generators over the past decade in the light-commercial market . in addition , the installed base of backup power for telecommunications infrastructure is still increasing due to a variety of factors including the impending rollout of next-generation 5g wireless networks enabling new technologies and the growing importance for critical communications and other uninterrupted voice and data services . we believe by expanding our distribution network , continuing to develop our product lines , and targeting our marketing efforts , we can continue to build awareness and increase penetration for our standby generators for residential , commercial and industrial purposes . effect of large scale and baseline power disruptions . power disruptions are an important driver of customer awareness for back-up power and have historically influenced demand for generators , both in the united states and internationally . increased frequency and duration of major power outage events , that have a broader impact beyond a localized level , increases product awareness and may drive consumers to accelerate their purchase of a standby or portable generator during the immediate and subsequent period , which we believe may last for six to twelve months following a major power outage event for standby generators . for example , the major outage events that occurred during the second half of 2017 drove strong demand for portable and home standby generators , and the increased awareness of these products contributed to strong revenue growth in both 2017 and 2018. major power disruptions are unpredictable by nature and , as a result , our sales levels and profitability may fluctuate from period to period . in addition , there are smaller , more localized power outages that occur frequently across the united states that drive the baseline level of demand for back-up power solutions . the level of baseline power outage activity occurring across the united states can also fluctuate , and may cause our financial results to fluctuate from year to year . energy storage and monitoring markets developing quickly . story_separator_special_tag our results are also influenced by changes in fuel prices in the form of freight rates , which in some cases are accepted by our customers and in other cases are paid by us . seasonality . although there is demand for our products throughout the year , in each of the past five years , approximately 20 % to 24 % of our net sales occurred in the first quarter , 22 % to 25 % in the second quarter , 26 % to 28 % in the third quarter and 27 % to 29 % in the fourth quarter , with different seasonality depending on the occurrence , timing and severity of major power outage activity in each year . major outage activity is unpredictable by nature and , as a result , our sales levels and profitability may fluctuate from period to period . the seasonality experienced during a major power outage , and for the subsequent quarters following the event , will vary relative to other periods where no major outage events occurred . we maintain a flexible production and supply chain infrastructure in order to respond to outage-driven peak demand . factors influencing interest expense and cash interest expense . interest expense can be impacted by a variety of factors , including market fluctuations in libor , interest rate election periods , interest rate swap agreements , repayments or borrowings of indebtedness , and amendments to our credit agreements . in connection with our term loan amendment in december 2019 , language was added to the agreement to include a benchmark replacement rate , selected by the administrative agent and the borrower , as a replacement to libor that would take affect at the time libor ceases . we plan to work with our lenders in the future to amend other libor based debt agreements to add a replacement rate should the use of libor cease . interest expense increased slightly during 2019 compared to 2018 , primarily due to increased borrowings by our foreign subsidiaries . refer to note 12 , “ credit agreements , ” to the consolidated financial statements in item 8 of this annual report on form 10-k for further information . factors influencing provision for income taxes and cash income taxes paid . on december 22 , 2017 , the u.s. government enacted the tax act , which significantly changed how the u.s. taxes corporations . during 2018 , the u.s. treasury department ( treasury ) issued several new regulations and other guidance which we have incorporated into our final tax calculations . at december 31 , 2019 , we consider the tax expense recorded for the impact of tax reform to be complete . it is possible additional regulations or guidance could be issued by treasury or by a state which may create an additional tax expense or benefit . we will update our future tax provisions based on new regulations or guidance accordingly . 26 as a result of the tax act , we recognized a one-time , non-cash benefit of $ 28.4 million in the fourth quarter of 2017 primarily from the impact of the revaluation of our net deferred tax liabilities . this non-cash benefit resulted primarily from the federal rate reduction from 35 % to 21 % . as of december 31 , 2019 , we had approximately $ 225 million of tax-deductible goodwill and intangible asset amortization remaining from our acquisition by ccmp capital advisors , llc in 2006 that we expect to generate aggregate cash tax savings of approximately $ 57 million through 2021 , assuming continued profitability of our u.s. business and a combined federal and state tax rate of 25.3 % . the recognition of the tax benefit associated with these assets for tax purposes is expected to be $ 122 million in 2020 and $ 102 million in 2021 , which generates annual cash tax savings of $ 31 million in 2020 and $ 26 million in 2021. based on current business plans , we believe that our cash tax obligations through 2021 will be significantly reduced by these tax attributes , after which our cash tax obligation will increase . other domestic acquisitions have resulted in additional tax deductible goodwill and intangible assets that will generate tax savings , but are not material to our consolidated financial statements . components of net sales and e xpenses net s ales our net sales primarily consist of product sales to our customers . this includes sales of our power generation equipment , energy storage systems , and other power products to the residential , light commercial and industrial markets , as well as service parts to our dealer network . net sales also include shipping and handling charges billed to customers , with the related freight costs included in cost of goods sold . additionally , we offer other services , including extended warranties , remote monitoring , installation and maintenance services . however , these services accounted for less than three percent of our net sales for the year ended december 31 , 2019. refer to note 2 , “ significant accounting policies - revenue recognition , ” to the consolidated financial statements in item 8 of this annual report on form 10-k for further information on our revenue streams and related revenue recognition accounting policies . we are not dependent on any one channel or customer for our net sales , with no single customer representing more than 5 % of our sales , and our top ten customers representing less than 19 % of our net sales for the year ended december 31 , 2019. costs of goods s old the principal elements of costs of goods sold are component parts , raw materials , factory overhead and labor . component parts and raw materials comprised approximately 75 % of costs of goods sold for the year ended december 31 , 2019. the principal component parts are engines , alternators , and batteries .
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results of o perations year ended decemb er 31 , 201 9 compared to year ended december 3 1 , 201 8 the following table sets forth our consolidated statement of operations data for the periods indicated : replace_table_token_7_th 28 the following sets forth our reportable segment information for the periods indicated : replace_table_token_8_th replace_table_token_9_th the following table sets forth our product class information for the periods indicated : replace_table_token_10_th net sales . the increase in domestic segment sales for the year ended december 31 , 2019 was primarily due to strong shipments of home standby generators due to increased trends of power outage activity across the u.s. and canada , inclusive of public utility power shut-offs in california . in addition , c & i stationary generator shipments were also strong , particularly for natural gas and telecom applications . the pika and neurio acquisitions provided a modest contribution of sales in 2019 given their start-up nature . the overall domestic segment sales growth was partially offset by lower shipments of portable generators and c & i mobile products . the slight increase in international segment sales for the year ended december 31 , 2019 was primarily due to contributions from the selmec and captiva acquisitions . international segment sales in 2019 were impacted by the unfavorable results of foreign currency and geopolitical headwinds that caused economic softness in certain key regions of the world in which we operate . total contribution from non-annualized recent acquisitions for the year ended december 31 , 2019 was $ 36.1 million . gross profit . gross profit margin for the year ended december 31 , 2019 was 36.2 % compared to 35.8 % for the year ended december 31 , 2018. the increase reflected a favorable sales mix towards higher margin home standby generators and price increases implemented since the prior period .
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as of march 31 , 2011 , current and long-term accounts receivable related to ota contracts were $ 0.2 million and $ 1.1 million , respectively . the related party relationship did not exist as of march 31 , 2012 or for fiscal 2013 . during fiscal 2011 , the company recorded revenue of $ 241,000 for products and services sold to various entities affiliated or associated with an entity for which a director of the 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. see also “ forward-looking statements ” and item 1a . “ risk factors ” . recent management change and strategic refocus in september 2012 , our board of directors elected john h. scribante as our new chief executive officer . prior to his appointment , mr. scribante was the president of our orion engineered systems division and had also served in executive sales management positions . as a result of this management change , we refocused our strategic initiatives to include : ( i ) enhancing and refocusing our sales organization with an emphasis on expanding our direct sales efforts ; ( ii ) streamlining our product development initiatives with a focus on activities that will deliver the greatest return on our investment and disciplined product control releases versus a process of continuous development ; and ( iii ) cost reduction initiatives to deliver profitability . our strategic refocus delivered immediate financial results during our fiscal 2013 second half resulting in revenue growth versus our fiscal 2012 second half and a return to profitability . during fiscal 2013 , we recorded operating expenses related to reorganization costs of $ 2.1 million , which included $ 1.9 million to general and administrative expenses and $ 0.2 million to sales and marketing expenses . additionally , we recorded a $ 4.1 million non-cash income tax expense to establish a valuation allowance against our deferred tax assets . as part of our cost reduction initiatives , we identified additional cost containment initiatives which we believe will result in annualized cost reductions of approximately $ 5.2 million . during the fiscal 2013 second half , we implemented all of these cost reduction initiatives , including a reduction in headcount of approximately 18 % , the termination of consulting agreements , material and component cost savings in our hif lighting products , and discretionary spending reductions . we have also identified an additional $ 2.0 million of annualized cost containment initiatives which we are working towards implementing in the future . these new initiatives will require some time to implement due to contractual obligations , engineering review , production planning and other analysis related to ensuring minimal business interruption and risk . there is no guarantee that we will be able to implement these cost containment opportunities and recognize any of these additional cost savings . as noted above , we are actively expanding our direct sales force . during fiscal 2013 , we have increased our in-market sales force and expect to continue to increase our sales headcount during our fiscal 2014 year . we expect that these additional costs will increase our overall sales and marketing expense in fiscal 2014 by approximately $ 2.3 million and that the net benefit of these additions and our implemented cost containment initiatives will result in reduced annual expenses of approximately $ 2.9 million . in may 2013 , we executed a purchase agreement to acquire the equity interest of harris manufacturing , inc. and harris led , llc. , or collectively harris . harris engineers , designs , sources and manufactures energy efficient lighting systems , including fluorescent and led lighting solutions , and day-lighting products . we expect the acquisition of harris to expand our product lines , increase our sales force and provide growth opportunities into markets where we have not had a strong presence , specifically , new construction , retail , commercial office and government . we expect to close the transaction during our fiscal 2014 second quarter , subject to various conditions , including receipt of material third party consents and approvals and other customary closing conditions . the initial purchase price for the transaction is $ 10 million , subject to closing date adjustments for net working capital , funded debt and certain other items . subject to such adjustments , the purchase price will be paid in a combination of $ 5 million of cash , $ 3 million in a three-year unsecured subordinated note and $ 2 million of our common stock . additionally , we may pay up to an additional $ 1 million in shares of our common stock upon harris ' post-closing achievement of certain revenue milestones in calendar year 2013 and or 2014. harris had unaudited revenue of approximately $ 14.5 million and unaudited net income of approximately $ 0.9 million during the year ended december 31 , 2012. we expect the transaction to be immediately accretive to 28 our future earnings . our disclosures and comments that follow , do not include the impact or the anticipated impact of the acquisition of harris , other than as set forth under liquidity and capital resources . overview we design , manufacture , market and implement energy management systems consisting primarily of high-performance , energy efficient lighting systems , controls and related services and market and implement renewable energy systems consisting primarily of solar generating photovoltaic , or pv , systems and wind turbines . we operate in two business segments , which we refer to as our energy management division and our engineered systems division . we typically generate a majority of our revenue from sales of high intensity fluorescent , or hif , lighting systems and related services to commercial and industrial customers . we typically sell our hif lighting systems in replacement of our customers ' existing high intensity discharge , or hid , fixtures . we call this replacement process a “ retrofit. story_separator_special_tag due to the reduction in new solar contracts , during the back half of fiscal 2013 we redeployed some of our engineered systems personnel to focus on the sales and project management support of our hif lighting systems . we are currently focused on solar opportunities in markets where electricity costs are high and there are incentive markets that provide funding to support these projects . despite our fiscal 2013 first half performance , we remain optimistic about our near-term and long-term financial performance . our near-term optimism is based upon our return to profitability during our fiscal 2013 second half , our backlog of orders entering fiscal 2014 , our investments into our retail sales force and our intentions to continue to expand our retail sales force during fiscal 2014 , our cost containment initiatives and opportunities , the increasing volume of unit sales of our new products , specifically our exterior hif fixtures and the opportunities to increase sales through our new led products which will allow us to expand into new markets . our long-term optimism is based upon the considerable size of the existing market opportunity for lighting retrofits , the continued development of our new products and product enhancements , the opportunity for additional revenue from sales of renewable technologies through our orion engineered systems division and the opportunity to increase gross margins through the leverage of our under-utilized manufacturing capacity . revenue and expense components revenue . we sell our energy management products and services directly to commercial and industrial customers , and indirectly to end users through wholesale sales to electrical contractors and value-added resellers . we currently generate the substantial majority of our revenue from sales of hif lighting systems and related services to commercial and industrial customers . while our services include comprehensive site assessment , site field verification , utility incentive and government subsidy management , engineering design , project management , installation and recycling in connection with our retrofit installations , we separately recognize service revenue only for our installation and recycling services . our installation and recycling service revenues are recognized when services are complete and customer acceptance has been received . in fiscal 2011 and fiscal 2012 , we increased our efforts to expand our value-added reseller channels , including through developing a partner standard operating procedural kit , providing our partners with product marketing materials and providing training to channel partners on our sales methodologies . these wholesale channels accounted for approximately 54 % , 64 % and 59 % of our total revenue volume in fiscal 2011 , fiscal 2012 and fiscal 2013 , respectively , not taking into consideration our renewable technologies revenue generated through our engineered systems division . in fiscal 2012 , we focused our expansion efforts on our direct retail sales channel through the creation of a telemarketing call center for the purpose of customer lead generation , the establishment of a sales office and personnel in houston , texas and headcount additions to our retail sales force and our engineered systems division . during the fiscal 2013 second half , we reengineered our telemarketing call center for the purpose of improving the quality of leads and increasing sales closing ratios . we also continued the expansion of a direct in-market sales force and intend to continue increasing the number of direct sales personnel during fiscal 2014. additionally , we offer our ota sales-type financing program under which we finance the customer 's purchase of our energy management systems . the ota program was established to assist customers who are interested in purchasing our energy management systems but who have capital expenditure budget limitations . our ota contracts are capital leases under gaap and we record revenue at the present value of the future payments at the time customer acceptance of the installed and operating system is complete . our ota contracts under this sales-type financing are either structured with a fixed term , typically 60 months , and a bargain purchase option at the end of term , or are one year in duration and , at the completion of the initial one-year term , provide for ( i ) one to four automatic one-year renewals at agreed upon pricing ; ( ii ) an early buyout for cash ; or ( iii ) the return of the equipment at the customer 's expense . the revenue that we are entitled to receive from the sale of our lighting fixtures under our ota financing program is fixed and is based on the cost of the lighting fixtures and applicable profit margin . our revenue from agreements entered into under this program is not dependent upon our customers ' actual energy savings . we recognize revenue from ota contracts at the net present value of the future cash flows at the completion date of the installation of the energy management systems and the customers acknowledgment that the system is operating as specified . upon completion of the installation , we may choose to sell the future cash flows and residual rights to the equipment on a non-recourse basis to an unrelated third party finance company in exchange for cash and future payments . in fiscal 2011 , we recognized $ 10.7 million of revenue from 127 completed ota contracts . in fiscal 2012 , we recognized $ 10.2 million of revenue from 139 completed ota contracts . in fiscal 2013 , we recognized $ 6.7 million of revenue from 128 completed ota contracts . our ppa financing program provides for our customer 's purchase of electricity from our renewable energy generating assets without an upfront capital outlay . our ppa is a longer-term contract , typically in excess of 10 years , in which we receive monthly 30 payments over the life of the contract . this program creates an ongoing recurring revenue stream , but reduces near-term revenue as the payments are recognized as revenue on a monthly basis over the life of the contract versus upfront upon product shipment or project completion .
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consolidated results fiscal 2013 compared to fiscal 2012 revenue . product revenue decreased from $ 90.8 million for fiscal 2012 to $ 72.6 million for fiscal 2013 , a decrease of $ 18.2 million , or 20.0 % . the decrease in product revenue was due to a decrease of $ 12.9 million from our sales of solar photovoltaic , or pv , systems . during fiscal 2012 , we constructed several large solar pv systems and completed fewer projects of similar size during fiscal 2013. additionally , material prices have fallen related to solar panels and materials during the last 18 months . product revenue from energy efficiency projects decreased by $ 5.3 million , predominantly occurring during our fiscal 2013 first half on reduced direct market sales . service revenue increased from $ 9.8 million for fiscal 2012 to $ 13.5 million for fiscal 2013 , an increase of $ 3.7 million , or 37.9 % . the increase in service revenue was due to an increase of $ 3.1 million from the related installation services resulting from solar pv systems installed during fiscal 2013. as mentioned above , as solar panel prices have declined , service revenue has become a higher percentage of the total revenue contracted from a solar pv project . our service revenue from sales of our hif energy efficiency systems increased $ 0.6 million as a result of the decrease in wholesale revenue from efficiency project sales . we believe that our hif energy efficiency business continues to be challenged by a difficult capital spending environment . cost of revenue and gross margin . cost of product revenue decreased from $ 62.8 million for fiscal 2012 to $ 49.6 million for fiscal 2013 , a decrease of $ 13.2 million , or 21.1 % .
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